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https://www.courtlistener.com/api/rest/v3/opinions/2498867/ | 274 P.3d 625 (2012)
294 Kan. 220
KANSAS ONE-CALL SYSTEM, INC., Appellant,
v.
STATE of Kansas, Appellee.
No. 104,498.
Supreme Court of Kansas.
April 12, 2012.
*629 Mark G. Ayesh, of Ayesh Law Offices, of Wichita, argued the cause, and Ray E. Simmons, of the same firm, was with him on the briefs for appellant.
Christopher M. Grunewald, assistant attorney general, argued the cause and was on the brief for appellee.
Vaden F. Bales, of Riggs, Abney, Neal, Turpen, Orbison & Lewis, P.C., of Tulsa, Oklahoma, was on the brief for amicus curiae One Call Concepts, Inc.
The opinion of the court was delivered by GREEN, J.:
Kansas One-Call System, Inc. (One-Call) appeals from the summary judgment of the trial court in favor of the State of Kansas in One-Call's suit challenging the constitutionality of the 2008 amendments in House Bill 2637 to the Kansas Underground Utility Damage Prevention Act (KUUDPA), K.S.A. 66-1801 et seq. On appeal, One-Call raises four claims contending that the 2008 amendments to KUUDPA violate: (1) the one-subject rule contained in the Kansas Constitution; (2) the separation of powers doctrine; (3) the Fourteenth Amendment to the United States Constitution right to equal protection; and (4) the Fifth and Fourteenth Amendments to the United States Constitution, which prohibit the taking of private property for public use without just compensation. Because the challenged amendments are valid, we affirm.
FACTS
One-Call began as a voluntary association of utility companies in 1983. Now, it is a nonprofit corporation that comprises the majority of utility companies in the State of Kansas. Since its creation, One-Call has provided information to its members about future planned excavation activities, and it gives its member utility companies an opportunity to mark the location of their underground facilities before excavation work starts. One-Call makes money by charging a referral fee for alerting its members of a planned dig. In some years, One-Call nets revenue; in others, it incurs a loss. In 1993, the Kansas Legislature adopted One-Call's business model and enacted the KUUDPA. K.S.A. 66-1801 et seq.; L. 1993, ch. 217; H.B. 2041 (1993).
The KUUDPA created a mandatory program designed to protect the State's underground *630 utility infrastructure from excavation damage and to protect the public from harm. K.S.A. 66-1801 et seq. The KUUDPA requires diggers to inform a centralized "notification center" of their intent to dig before they start excavating. See K.S.A. 66-1803 ("An excavator shall not engage in excavation near the location of any underground facility without first having ascertained, in the manner prescribed in this act, a location of all underground facilities in the proposed area of the excavation."). The notification center then passes along the dig information to the applicable utility operators. See K.S.A. 66-1805. Upon receiving notification of the proposed dig, utility operators are required to mark the locations of underground utilities to avoid accidental utility strikes. K.S.A. 66-1806(a). The parties agree that "the notification center is the linchpin to the program, ensuring that excavator's project information reaches utility operators, who then identify the location of any potentially affected underground utilities."
In 1993, One-Call began managing and operating the notification center for the State. Utility membership became mandatory. The relationship between One-Call and the notification center is in dispute. One-Call maintains that it is the notification center while the attorney general argues on behalf of the State that it is simply the entity that runs the notification center.
In 2008, the Kansas Legislature amended the KUUDPA. These amendments are the cause for One-Call's lawsuit because both One-Call and its utility members will be affected financially by the amendments. The 2008 amendments include the following changes to the KUUDPA:
mandated that potable water and sanitary sewage operators become members of the notification system. K.S.A. 2011 Supp. 66-1802(e); K.S.A. 2011 Supp. 66-1805(a).
trifurcated the utility members into different tiers creatively identified Tier 1, Tier 2, and Tier 3. K.S.A. 2011 Supp. 66-1802(p), (q), (r).
regulated the membership fees that can be collected from Tier 2 and Tier 3 members. K.S.A. 2011 Supp. 66-1802(r); K.S.A. 2011 Supp. 66-1805(j);
imposed several public accountability requirements on the State's notification center, including deeming the notification center to be a public agency making its business records subject to the Kansas Open Records Act and the Kansas Open Meetings Act. K.S.A. 2011 Supp. 66-1805(l), (n).
Tier 1 members are the non-water utilities. K.S.A. 2011 Supp. 66-1802(p). There are no restrictions on how the notification center may charge a Tier 1 member for each referral. Tier 2 facilities are the water utilities. K.S.A. 2011 Supp. 66-1802(p). The notification center may only charge Tier 2 utilities 50% of what Tier 1 facilities are chargedK.S.A. 2011 Supp. 66-1805(i)but some larger water utilities may become Tier 3 facilities. To be a Tier 3 member, a larger (more than 20,000 customers) water utility must create its own in-house notification center and employ at least two people to flag the location of its underground utilities. K.S.A. 2011 Supp. 66-1802(r). The notification center may not charge a Tier 3 facility a referral fee; instead the Tier 3 member pays a flat fee of $500 dollars per year. K.S.A. 2011 Supp. 66-1802(r). Although not entirely clear, it would seem that the notification center is not required to inform a Tier 3 member of a proposed dig. Instead, the notification center must provide the excavator with the Tier 3 member's contact information. K.A.R. 82-14-4(c).
One-Call sued to enjoin enforcement of the amendments of House Bill 2637 on the grounds that the amendments violate the original purpose provision from Article 2, § 16 of the Kansas Constitution and the "one-subject" rule. In addition, One-Call contends that the amendments violate the separation of powers doctrine by usurping the power of the Kansas Corporation Commission (KCC); the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution by imposing new requirements on the notification center; and the Takings Clause of the Fifth Amendment to the United States Constitution by setting limits on the fees that may be charged to *631 water and wastewater utility operators. The trial court granted summary judgment in favor of the State. One-Call appealed, and we transferred this case on our own motion under K.S.A. 20-3018(c).
ANALYSIS
Standard of Review
Here we are asked to review the trial court's grant of summary judgment and review the constitutionality of the 2008 amendments to KUUDPA. Our standards of review are familiar.
When the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. The trial court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, the same rules apply; summary judgment must be denied if reasonable minds could differ as to conclusions drawn from the evidence. Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011).
"Determining a statute's constitutionality is a question of law subject to unlimited review. But under the separation of powers doctrine, this court presumes statutes are constitutional and resolves all doubts in favor of a statute's validity. Courts must interpret a statute in a way that makes it constitutional if there is any reasonable construction that would maintain the legislature's apparent intent." Brennan v. Kansas Insurance Guaranty Ass'n, 293 Kan. 446, 450, 264 P.3d 102 (2011) (citing State v. Laturner, 289 Kan. 727, 735, 218 P.3d 23 [2009]).
An agency's or board's statutory interpretation is not afforded any significant deference on judicial review. Ft. Hays St. Univ. v. University Ch., Am. Ass'n of Univ. Profs., 290 Kan. 446, 457, 228 P.3d 403 (2010).
Do the Amendments to KUUDPA Violate the Kansas Constitution's One-subject Rule?
One-Call contends that the trial court erred in failing to enjoin the enforcement of the 2008 amendments to KUUDPA on the grounds that the amendments violated Article 2, § 16 of the Kansas Constitution, also known as the one-subject rule. The one-subject rule was adopted by convention and ratified by voters in 1859. It was later enacted in 1861 and has been amended only once since then, in 1974. L. 1861, p. 53; L. 1974, ch. 458, sec. 1. It states:
"No bill shall contain more than one subject, except appropriation bills and bills for revision or codification of statutes. The subject of each bill shall be expressed in its title. No law shall be revived or amended, unless the new act contain the entire act revived or the section or sections amended, and the section or sections so amended shall be repealed. The provisions of this section shall be liberally construed to effectuate the acts of the legislature."
The 1974 amendment made important changes in the one-subject rule. First, the amendment added an exception for appropriation bills. Second, it added the liberal interpretation clause. This clause states: "The provisions of the section shall be liberally construed to effectuate the acts of the legislature." Under this statutory rule of construction, courts construe the statute to effect the beneficial purpose of the statute.
The purpose of the one-subject rule is to prevent legislative abuses such as "logrolling." "Logrolling" refers to a situation in which several legislators combine their unrelated proposals and present them as separate provisions of one bill. The bill then is able to pass by virtue of the combined votes of the separate factions. The perceived evil of this practice is that a measure can pass which, standing alone, would have been defeated. Garten Enterprises, Inc. v. City of Kansas City, 219 Kan. 620, 622, 549 P.2d 864 (1976).
*632 The title of the House Bill 2637 is as follows:
"AN ACT concerning utilities; relating to telecommunications; relating to pricing flexibility and the lifeline service program; concerning the citizens' utility ratepayer board contracting for professional services; relating to the underground utility damage prevention act; concerning local exchange carriers and carriers of last resort; amending K.S.A. 66-1802, 66-1804, 66-1805, 66-1806, 66-2006 and 66-2009 and K.S.A. 2007 Supp. 66-2005 and repealing the existing sections." L. 2008, ch. 122; H.B. 2637.
In 2008, the Kansas Legislature amended the KUUDPA to require the notification center to comply with the Kansas Open Records Act (KORA) and the Kansas Open Meetings Act (KOMA). The amendment states:
"The notification center established pursuant to this section shall be and is hereby deemed to be a public agency and shall be subject to the provisions of the open records act, K.S.A. 45-215 et seq., and amendments thereto, and the open meetings act, K.S.A. 75-4317 et seq., and amendments thereto. . . ." K.S.A. 2011 Supp. 66-1805(l).
One-Call asserts that House Bill 2637 contains two subjects: (1) the requirement that One-Call comply with KORA and KOMA, and (2) the utilities themselves. It claims that the two subjects are too dissimilar to have any relationship or connection between them. The State argues that each component of House Bill 2637 is related to public utilities and contends that One-Call's challenge is without merit.
We have determined that a statute does not violate the single-subject rule unless "invalidity is manifest." KPERS v. Reimer & Koger Assocs., Inc., 262 Kan. 635, 676, 941 P.2d 1321 (1997). Legislation is valid under Article 2, § 16 of the Kansas Constitution, so long as the provisions of the bill are "all germane to the subject expressed in the title," and will be invalidated only where "an act embraces two or more dissimilar and discordant subjects that cannot reasonably be considered as having any legitimate connection with or relationship to each other. [Citation omitted.]" KPERS, 262 Kan. at 676, 941 P.2d 1321. A bill's subject can be as comprehensive as the legislature chooses, as long as it constitutes a single subject and not several different ones. State v. Reves, 233 Kan. 972, 978, 666 P.2d 1190 (1983).
The question then is whether the provisions of House Bill 2637 are germane to, or connected to, House Bill 2637's subject title of utilities and reference to the KUUDPA. The trial court determined that the subjects within the legislation were germane to the broad subject of public utilities. In response to One-Call's argument that House Bill 2637's title should mention something about the notification center becoming a public agency subject to new requirements (KOMA and KORA), the trial court determined that neither KOMA nor KORA include a list of public agencies subject to their provisions. And the trial court further determined that the KOMA and KORA requirements need not be mentioned in the title. As for One-Call's contention that the title should include reference to the Corporation Code under K.S.A. Chapter 17, Articles 63, 65, and 75, the trial court determined that One-Call's contention was devoid of authority that the legislature intended to make the statutory provisions of the Corporation Code, KOMA, or KORA controlling. Moreover, the trial court determined that the Corporation Code does not prohibit more specific statutory regulation for certain corporate entities.
As stated earlier, a title of a bill can be broad and comprehensive and can even include minor subjects. Yet, those minor subjects must be capable of being combined to form "one grand and comprehensive subject." KPERS, 262 Kan. at 677, 941 P.2d 1321. The broad topic of utilities is listed in the title of House Bill 2637 and serves as the larger umbrella category under which the KUUDPA falls. And House Bill 2637's multiple and diverse subjects are related and germane to one another under the all-encompassing category of utilities.
For example, KOMA and KORA relate to and have a connection with the broad term "utilities" because the notification center is under the purview of the KUUDPA, which is *633 contained in House Bill 2637. In addition, the KUUDPA clearly relates to and has a logical connection with utilities through its work to protect the State's underground utility infrastructure from excavation damage and to protect the public from harm.
Moreover, to violate the single subject rule, a bill must have two dissimilar subjects that have no legitimate connection with each other. Reves, 233 Kan. at 978, 666 P.2d 1190. Here, there is a legitimate connection because KORA and KOMA are related to KUUDPA, which is related to utilities in general, and we have held that Article 2, § 16 should be "liberally construed." Moreover, we have declared that a statute is legitimate under that provision unless "invalidity is manifest." KPERS, 262 Kan. at 676, 941 P.2d 1321. While the Kansas Legislature cannot disobey constitutional limitations in the enactment of laws, there is a strong presumption in favor of the validity of any bill passed by the legislature. State, ex rel., v. Shanahan, 178 Kan. 400, 403-04, 286 P.2d 742 (1955).
We reject One-Call's contention that House Bill 2637 contained two subjects. As a result, we determine that the 2008 amendments to KUUDPA did not violate the one-subject rule.
Separation of Powers Doctrine
Next, One-Call contends that the 2008 legislative amendments to KUUDPA violate the separation of powers doctrine because that legislation was adopted after the Kansas Legislature had delegated legislative authority to the KCC under the 2006 amendment to the KUUDPA. In other words, One-Call maintains in its brief that the KUUDPA cannot be amended by the legislature without a revocation or amendment of "the powers previously delegated to the KCC by the legislature as set forth in K.S.A. 66-1813 and 66-1815." But before we consider if there was a separation of powers violation, we first must determine what type of power was delegated to the KCC under the 2006 amendment.
One-Call's argument about what type of power was delegated to the KCC is startlingly inconsistent. In its reply brief to the trial court, One-Call stated that the original version of KUUDPA in 1993 granted an administrative and a police function. One-Call then stated that when KUUDPA was amended to create K.S.A. 2011 Supp. 66-1815, the delegation of power became "as broad a delegation of power possible" without defining what type of power that was.
In its brief, One-Call first makes reference to the legislative branch by stating that the legislature delegated legislative power to the KCC. One-Call then makes reference to the executive branch by citing State ex rel. Tomasic v. Unified Gov. of Wyandotte Co./Kansas City, 264 Kan. 293, Syl. ¶ 10, 955 P.2d 1136 (1998), where we stated that once the legislature delegates a function to the executive branch, it may only revoke that authority by enacting another law. One-Call does not otherwise reference executive power in its brief other than this quote from caselaw in arguing that the legislature needed to first revoke or amend the previously delegated power to the KCC before enacting the 2008 amendments. Later, in its brief, One-Call states that the provisions come under "administrative, rule making or regulatory exercises," indicating administrative power was delegated to the KCC.
On the other hand, the State maintains that the power delegated to the KCC was administrative only. And the State further contends that the KCC's power still depends entirely on the legislature.
The trial court rejected One-Call's argument. Although the trial court determined the delegated power to be legislative, the trial court held that the legislature did not intend to divest itself of legislative authority over the KCC.
Administrative power is the power to administer or enforce laws, while legislative power is the power to make laws rather than the power to enforce them. State ex rel. Tomasic, 264 Kan. at 303, 955 P.2d 1136. A legislature's delegation of legislative power to make a law is improper, unless the Kansas Constitution permits delegation of legislative power to a different branch of government. If the constitution does not permit that type of delegation, the separation of powers doctrine *634 is violated because legislative power is vested in the legislature only. But the legislature can delegate the power to fill in the details of an enacted statute. And standards to govern the exercise of such authority may be implied from the statutory purpose. State ex rel. Tomasic, 264 Kan. at 303-04, Syl. ¶ 6, 955 P.2d 1136.
To distinguish whether the legislature has delegated legislative power or administrative power, the specific standards set out in the delegation must be considered. If the standards are specific, meaning they contain sufficient policies and standards to guide the nonlegislative body, the legislature has delegated administrative power. The legislature can delegate to administrative bodies discretion to "`"fill in the details,"'" provided there are definite standards to guide the exercise of authority. 264 Kan. at 304, 955 P.2d 1136.
The power delegated to the KCC was administrative because the power to adopt rules and regulations is administrative in nature. See State, ex rel., v. Columbia Pictures Corporation, 197 Kan. 448, Syl. ¶ 4, 417 P.2d 255 (1966). The language in K.S.A. 2011 Supp. 66-1815 is identical to that definition of administrative law: it gives the state corporation commission "full power and authority to adopt all necessary rules and regulations for carrying out the provisions." (Emphasis added.)
We have previously identified the KCC as an administrative body, requiring the legislature to provide a clear standard of governing the exercise of delegated authority. See Citizens' Utility Ratepayer Bd. v. Kansas Corporation Comm'n, 264 Kan. 363, 395, 956 P.2d 685 (1998); Kansas Gas & Electric Co. v. Kansas Corporation Comm'n, 239 Kan. 483, 491, 495, 720 P.2d 1063 (1986). The power delegated meets this requirement.
The delegation here was specific because K.S.A. 2011 Supp. 66-1815 limited the KCC's power to adopting necessary rules for carrying out provisions K.S.A. 2011 Supp. 66-1801 through K.S.A. 66-1814. The KCC was not given free rein to create new rules unrelated to those specified provisions. One-Call has cited no authority in support of its position that the legislature ever delegated legislative power to the KCC. And our research has revealed no case in which our appellate courts have ever held that the legislature has delegated legislative power to the KCC.
We further note that K.S.A. 2011-Supp. 66-1815 is not much more expansive than the earlier unchallenged provision, K.S.A. 66-1813, which states that KUUDPA "shall be administered and enforced by the state corporation commission." The only added power the KCC received from the legislature in 2006 was the power to adopt rules and regulations to carry out KUUDPA, which it was already required to do when KUUDPA was created in 1993.
The separation of powers doctrine was not violated by a delegation of administrative power to the KCC. Because there was no usurpation of powers, the trial court properly granted summary judgment to the State on this claim.
What is the Relationship Between One-Call and the Legislatively Created "Notification Center"?
Before we can address One-Call's last two issues, we must determine the relationship between the notification center and One-Call. One-Call's brief routinely refers to the 2008 amendments as legislative interference with a private business. According to One-Call's brief, One-Call is the notification center. Yet, the State refers to the amendments as legislation that regulates a creature of statutethe notification centerand not a private businessOne-Call. The trial court went to some lengths to draw a distinction between the notification center and One-Call.
The original bill in 1993 defined notification center as "a center operated by an organization which has a minimum of five underground operators participating. . . ." H.B. 2041 (1993) (Before House Committee Revision). Now, a notification center is defined as a "statewide communication system operated by an organization." K.S.A. 2011 Supp. 66-1802(i). Similar to K.S.A. 2011 Supp. 66-1805(a), the definition was changed to reflect the intent that there be only one notification center. See L. 1993, ch. 217, sec. 2(g).
*635 K.S.A. 2011 Supp. 66-1805(a) currently states: "This act recognizes the establishment of a single notification center for the state of Kansas." The legislature apparently believed that K.S.A. 2011 Supp. 66-1805(a) created a notification center. For example, K.S.A. 2011 Supp. 66-1805(l) reads: "The notification center established pursuant to this section. . . ." (Emphasis added.) If the notification center is established by statuteK.S.A. 2011 Supp. 66-1805(a)it is not One-Call. And K.S.A. 2011 Supp. 66-1805(o) creates the process under which operation of the notification center is determined. For example, every 5 years the notification center must determine who will operate it. Even the definition of the notification center supports the argument that it is an entity separate from One-Call. See K.S.A. 2011 Supp. 66-1802(i) (a "communication system operated by an organization"). Finally, while not indicative of legislative intent, the KCC regulations define the notification center as the "underground utility notification center operated by Kansas one call, inc." K.A.R. 82-14-1(k) (2011 Supp.).
Under the general rules of statutory interpretation, "[v]arious provisions of an act in pari materia must be construed together in an effort to reconcile the provisions so as to make them consistent, harmonious and sensible." (Emphasis added.) Southwestern Bell Tel. Co. v. Beachner Constr. Co., 289 Kan. 1262, Syl. ¶ 4, 221 P.3d 588 (2009). "Additionally, legislative intent is to be determined from a general consideration of the entire act. An appellate court's duty, as far as practicable, is to harmonize different statutory provisions to make them sensible." Dillon Real Estate Co. v. City of Topeka, 284 Kan. 662, Syl. ¶ 9, 163 P.3d 298 (2007).
Despite the lack of crystal clear language, the statutory scheme does not support the heart of One-Call's argument that One-Call is the notification center. Instead, it is readily apparent that the notification center is a governmental contractor that is currently operated by One-Call. Otherwise, under K.S.A. 2011 Supp. 66-1805(o), it would require One-Call to solicit proposals to run One-Call. Dillon Real Estate Co., 284 Kan. 662, Syl. ¶ 8, 163 P.3d 298 ("The legislature is presumed to not enact useless or meaningless legislation, and an appellate court's interpretation of a statute should avoid absurd or unreasonable results."). A more logical reading of the entire KUUDPA would require the notification center to solicit proposals from companies like One-Call to determine its operator. The trial court correctly concluded that One-Call is an entity distinct from the notification center.
Equal Protection Claim
One-Call next argues that the trial court erred in rejecting its equal protection claim because some of the 2008 amendments to KUUDPA caused it to be treated differently from other private and nonprofit corporations without any rational basis.
The Fourteenth Amendment to the United States Constitution guarantees equal protection under the law "to any person," and the Kansas Constitution Bill of Rights § 1 uses similar language. Here we are asked to determine whether some of the 2008 amendments to KUUDPA impermissibility violate One-Call's right to equal protection under the law.
In Board of Miami County Comm'rs v. Kanza Rail-Trails Conservancy, Inc., 292 Kan. 285, 255 P.3d 1186 (2011), we reiterated the steps in analyzing an equal protection claim:
"The first step of an equal protection analysis is to determine the nature of the legislative classifications and whether the classifications result in arguably indistinguishable classes of individuals being treated differently. . . .
"After determining the nature of the legislative classifications, a court examines the rights which are affected by the classifications. The nature of the rights dictates the level of scrutiny to be applied. . . .
"The final step of the analysis requires determining whether the relationship between the classifications and the object desired to be obtained withstands the applicable level of scrutiny." 292 Kan. at 315-16, 255 P.3d 1186.
*636 Do the 2008 Amendments to the KUUDPA Treat Indistinguishable Classes of Organizations Differently?
One-Call claims that it is being treated differently than every other private not-for-profit corporation in Kansas. Most of One-Call's argument focuses on the application of KOMA and KORA to it. In support of its argument, One-Call relies on our caselaw in Memorial Hospital Ass'n, Inc. v. Knutson, 239 Kan. 663, 722 P.2d 1093 (1986), In re Arbitration between Johns Constr. Co. & U.S.D. No. 210, 233 Kan. 527, 664 P.2d 821 (1983), and the Court of Appeals opinion in Southwestern Bell Tel. Co. v. Kansas Corporation Commission, 6 Kan. App. 2d 444, 629 P.2d 1174, rev. denied 230 Kan.819 (1981), for support. One-Call also relies on several attorney general opinions.
The State responds with two arguments. First, it contends that One-Call fails the first step of equal protection analysis because it is not similarly situated to any other company. The State is correct. Second, it argues that KOMA and KORA apply to the notification center under our prior caselaw.
In 2008, the Kansas Legislature amended K.S.A. 66-1805(l) and deemed the notification center to be a public agency subject to KOMA and KORA. The statute states:
"(l) The notification center established pursuant to this section shall be and is hereby deemed to be a public agency and shall be subject to the provisions of the open records act, K.S.A. 45-215 et seq., and amendments thereto, and the open meetings act, K.S.A. 75-4317 et seq., and amendments thereto, except that the notification center or board of directors, or successor managing organization shall not disseminate, make available or otherwise distribute data or information provided by an operator of a tier 1, 2 or 3 facility unless such dissemination, making available or distributing is necessary for the state corporation commission or the notification center to carry out legal duties or specific statutory duties prescribed under this chapter." K.S.A. 2011 Supp. 66-1805(l).
One-Call contends that the Kansas Legislature performed a "frontal lobotomy" on the traditional rules governing the application of KOMA and KORA. See State ex rel. Murray v. Palmgren, 231 Kan. 524, 535, 646 P.2d 1091 (1982) (discussing the five-part test for determining if an organization is a public agency subject to KOMA). But the legislature is not required to follow our prior five-part test in determining whether to designate the notification center a public agency.
One-Call asks us to ignore K.S.A. 2011 Supp. 66-1805(l) and use its caselaw to determine if the notification center is a public agency under KOMA and KORA statutes. One-Call's argument might have merit if it were not for K.S.A. 2011 Supp. 66-1805(l), which specifically designates the notification center as a public agency subject to KOMA and KORA. The caselaw and attorney general opinions cited by One-Call are simply irrelevant. Likewise, the State's response that the notification center is a public agency under previous caselaw is immaterial.
Political or taxing subdivisions of the state are subject to KORA and KOMA. See K.S.A. 75-4318(a) (KOMA); K.S.A. 45-217(f) (KORA). K.S.A. 2011 Supp. 66-1805(l) states that the notification center is a public agency subject to KORA and KOMA. Every case cited by the parties involved a question of whether an organization is subject to KORA and KOMA absent a statutory provision that states the entity is subject to KORA and KOMA. Here, the question is not whether the notification center is a public agency under K.S.A. 75-4318(a) or K.S.A. 45-217(f). To the contrary, the legislature has already answered that question in the affirmative by enacting K.S.A. 2011 Supp. 66-1805(l).
One-Call does not cite a single Kansas authority in making its argument. As the State points out, by law One-Call cannot be similarly situated to any other Kansas company because it operates the "single notification center for the state of Kansas." K.S.A. 2011 Supp. 66-1805(a). Consequently, One-Call fails the first step of equal protection analysis. See Rail-Trails, 292 Kan. at 315, 255 P.3d 1186 ("indistinguishable classes of individuals being treated differently").
*637 Nevertheless, according to One-Call, the notification center's public accountability statutes are unconstitutional. "The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." Tigner v. Texas, 310 U.S. 141, 147, 60 S. Ct. 879, 84 L. Ed. 1124 (1940). The Equal Protection Clause allows states to write into law differences that exist in those areas which public power is exerted. Tigner, 310 U.S. at 147, 60 S. Ct. 879 ("And so we conclude that to write into law differences between agriculture and other economic pursuits was within the power of the Texas legislature.").
For example, in explaining that the Kansas Legislature has the constitutional authority to impose a burden on a party that may not be contractually waived or assumed by another party, we stated:
"The Kansas Legislature has the constitutional authority to impose a burden on a party that may not be contractually waived or assumed by another party. [State v. Mwaura,] 4 Kan.App.2d [738,] 470-41 [740-41, 610 P.2d 662, rev. denied 228 Kan. 807 (1980)]. For example, the legislature may constitutionally impose on the seller of a used car a nondelegable duty to see that the car meets minimum safety standards. 4 Kan.App.2d at 741 [610 P.2d 662]. The legislature similarly has the constitutional authority to protect the lives and property around underground utilities." Double M Constr. v. Kansas Corporation Comm'n, 288 Kan. 268, 277, 202 P.3d 7 (2009).
The notification center furnishes an important public service. Double M Constr., 288 Kan. at 272, 202 P.3d 7 (The KUUDPA "creates a statutory duty to the public to ensure the safety and integrity of underground utilities."). And "[t]he legislature similarly has the constitutional authority to protect the lives and property around underground utilities." 288 Kan. at 277, 202 P.3d 7. As a result, the Kansas Legislature has the authority to write into law differences that exist in those areas in which public power is exerted. Thus, One-Call's equal protection claim fails.
Fifth Amendment Violation
Finally, One-Call, in its taking claim, contends that the trial court improperly rejected its assertion that the fee provisions of the amendments "fix rates which are so low as to be confiscatory."
Under the 2008 amendments, One-Call may charge Tier 2 facilities (water utilities) only 50% of what it charges Tier 1 facilities (other utilities). K.S.A. 2011 Supp. 66-1805(j). Additionally, a Tier 3 facility (large water utilities with their own separate "one-call system") owes the notification center only $500 annually. K.S.A. 2011 Supp. 66-1802(r). One-Call contends that the fee structure is a taking without just compensation.
First, One-Call contends that the legislature lacked any authority "to implement the rates to be charged by [One-Call]" because it delegated that authority to the KCC. That line of reasoning is totally unrelated to a taking analysis, and it apparently makes reference to One-Call's second issue. Second, One-Call relies on a 1921 federal district court opinion from Louisiana and argues that the setting of the rates for Tier 2 and Tier 3 facilities is "clearly a taking of property." See O'Keefe v. City of New Orleans, 273 F. 560 (D.C.La.1921). On the other hand, the State argues that One-Call has not suffered a taking because it may charge Tier 1 members whatever it desires.
The Takings Clause of the Fifth Amendment to the United States Constitution, applicable to the states through the Fourteenth Amendment, provides that private property shall not be "`taken for public use, without just compensation.'" Lingle v. Chevron U.S.A., Inc. 544 U.S. 528, 536, 125 S. Ct. 2074, 161 L. Ed. 2d 876 (2005). As we recently stated in Zimmerman, "[t]he Fifth Amendment's guarantee `is designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.'" Zimmerman v. Board of Wabaunsee County Commr's, 293 Kan. 332, 345, 264 P.3d 989 (2011) (citing Armstrong v. United States, 364 U.S. 40, 49, 80 S. Ct. 1563, 4 L. Ed. 2d 1554 [1960]).
*638 In this case, One-Call is required to comply with extensive government regulation, and there is little debate that the government may regulate private property. See Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124-26, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978) (discussing types of property regulation that the Court held did not constitute a taking). But as we recognized in Zimmerman, the difficulty rests in determining when the government has gone so far in its regulations to effectuate a taking:
"`[G]overnment regulation of private property may, in some instances, be so onerous that its effect is tantamount to a direct appropriation or ouster-and that such "regulatory takings" may be compensable under the Fifth Amendment. In Justice Holmes' storied but cryptic formulation, "while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking." 260 U.S. at 415, 43 S. Ct. 158. The rub, of course, has beenand remainshow to discern how far is "too far." In answering that question, we must remain cognizant that "government regulationby definitioninvolves the adjustment of rights for the public good" [citation omitted] and that "Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law." [Citations omitted.]'" Zimmerman, 293 Kan. at 345, 264 P.3d 989.
Determining when the government has gone too far is, as the Kansas Supreme Court states, "the rub." There are two types of regulations that the United States Supreme Court considers per se takings. "`First, where government requires an owner to suffer a permanent physical invasion of her propertyhowever minorit must provide just compensation.'" Frick v. City of Salina, 290 Kan. 869, 885, 235 P.3d 1211 (2010) (citing Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 538, 125 S. Ct. 2074, 161 L. Ed. 2d 876 [2005]). The second rule applies to "regulations that completely deprive an owner of `all economically beneficial us[e]' of his or her property." Frick, 290 Kan. at 885, 235 P.3d 1211 (citing Lingle, 544 U.S. at 538, 125 S. Ct. 2074).
Did the Kansas Legislature Take One-Call's Private Property by Establishing the Tier System for Referral Fees?
Kansas statutes require that all utilities in Kansas become a member of the notification center. K.S.A. 2011 Supp. 66-1805(a). And the notification center is required to notify its member utilities of any proposed excavation, assuming the member utility has underground facilities near the excavation site. K.S.A. 2011 Supp. 66-1805(b), (c); K.A.R. 82-14-4. While an excavator is not explicitly required to call the notification center to ascertain the location of underground utilities, no excavation near underground facilities may proceed in Kansas unless the excavator has ascertained the "location of all underground facilities in the proposed area of the excavation." K.S.A. 66-1803; K.A.R. 82-14-2. But see K.S.A. 2011 Supp. 66-1804 (making an exception for emergency excavations). The parties agree that the notification center is the linchpin to the notification program as it handles most of the notification center requests in the State.
As previously discussed, One-Call, a private company, operates the notification center and is required to notify utilities of proposed excavations. So long as One-Call operates the notification center, the government appears to be requiring a private company (One-Call) to engage in the production of services. Traditionally, in utility rate regulation takings cases, there is a statute that requires the utilities to provide efficient and sufficient service to the public. See K.S.A. 66-101b. But in stark contrast to the traditional cases, there is no statute that requires One-Call to run the notification center. There is no taking because no private property is being used for a public purpose. This case, therefore, is analogous to Yee v. Escondido, 503 U.S. 519, 112 S. Ct. 1522, 118 L. Ed. 2d 153 (1992).
In Yee, the City of Escondido in 1988 enacted rent control ordinances that set mobile home rents back to their 1986 levels and prohibited rent increases without the approval of the city board. The petitioners, mobile home park owners, sued arguing that the *639 rent control law deprived them of "all use and occupancy of [their] real property" to the extent it constituted a taking. 503 U.S. at 525, 112 S. Ct. 1522. The Supreme Court disagreed. The rent control ordinances regulated the relationship between the landlord and the tenant, but they did not require the petitioners to rent their mobile homes. The petitioners voluntarily rented their land to mobile home owners and were not required to continue to do so. As a result, the rent control ordinances did not authorize an unwanted physical occupation of the petitioners' land and was not a per se taking. Yee, 503 U.S. at 531, 112 S. Ct. 1522; see also Bowles v. Willingham, 321 U.S. 503, 517, 64 S. Ct. 641, 88 L. Ed. 892 (1944) (rent control ordinance not a taking because it did not require that the property owners to rent their property); Garelick v. Sullivan, 987 F.2d 913, 916 (2d Cir.1993) ("By contrast, where a service provider voluntarily participates in a price-regulated program or activity, there is no legal compulsion to provide service and thus there can be no taking."). Likewise, One-Call has voluntarily agreed to participate in a price-regulated program or activity, and there is no legal requirement that it must operate the notification center. Thus, there is no taking.
One-Call's takings claim is also foreclosed by the fact that the fee structure attacked by One-Call does not prohibit the operator of the state's notification center from recovering the costs of providing notification services. The legislation places no cap on fees imposed on Tier 1 utility members while limiting fees on water and wastewater utility operators. As applied to One-Call, this limitation imposes no increased costs on One-Call because it is undisputed that One-Call must raise member fees to cover those increased expenses. Under these circumstances, One-Call has not suffered a taking. The ability to pass along all expenses to members of the notification center ensures that One-Call will always be able to recoup its costs. Even assuming that the new fee structure deprives One-Call of any money in the short-term while it adjusts its fees, One-Call retains the ability to cover its expenses, which means that just compensation is available to it.
Where an entity can pass along costs to others, such as customers or members, just compensation is available for any taking that may have occurred, negating any Fifth Amendment claim. See Kansas City Power & Light Co. v. Kansas Corporation Comm'n, 238 Kan. 842, 715 P.2d 19 (1986). In Kansas City Power & Light Co., the KCC had entered an order implementing a portion of a federal statute concerning the encouragement of entities to cogenerate electricity, and the order required electric utility companies to allow cogenerators of electricity to connect to the utilities' systems, to purchase electricity from cogenerators, and to pay cogenerators the avoided energy cost saved by the utility by not producing the energy received. 238 Kan. at 843, 846, 715 P.2d 19. Kansas City Power & Light Company (KCP & L) challenged the KCC order on several grounds, including that the requirement to pay cogenerators the avoided energy cost was an unconstitutional taking. The court noted that the function of requiring compensation for a taking is "to put the owner in as good a position pecuniarily as he would have occupied if his property has not been taken." 238 Kan. at 848, 715 P.2d 19 (quoting Olson v. United States, 292 U.S. 246, 54 S. Ct. 704, 78 L. Ed. 1236 [1927]). Accordingly, the court rejected the takings claim because KCP & L "is allowed to charge its ratepayers its avoided cost paid to the cogenerators, plus a profit." 238 Kan. at 848, 715 P.2d 19. Because the utility company was made whole through recouping any additional costs, it received just compensation.
One-Call's situation is analogous to KCP & L. Whenever One-Call's expenses exceed revenues, it can increase fees to cover those increased costs. Under the amendments, any increased costs may be passed along to Tier 1 utilities and, in part, to Tier 2 utilities, whose rates are capped at 50% of Tier 1 utilities. Thus, One-Call retains the ability to pass through costs and has not been deprived of any money. For that reason, no taking has occurred as a result of the amendments. Consequently, One-Call's takings argument fails.
Affirmed.
*640 MORITZ, J., not participating.
GREEN, J., assigned. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1659122/ | 671 So. 2d 967 (1996)
STATE of Louisiana
v.
Raymond COCKERHAM.
No. 95-KA-0172.
Court of Appeal of Louisiana, Fourth Circuit.
March 14, 1996.
*969 Graham Daponte, New Orleans, for defendant/appellant, Raymond Cockerham.
Harry F. Connick, District Attorney and Susan M. Erlanger, Assistant District Attorney of Orleans Parish, New Orleans, for appellee, the State of Louisiana.
Before CIACCIO, WALTZER and MURRAY, JJ.
MURRAY, Judge.
On November 25, 1985 Raymond Cockerham was convicted of two counts of armed robbery which occurred on May 7, 1985 and May 30, 1985. He was sentenced on April 1, 1986 to serve thirty years at hard labor without benefit of parole, probation, or suspension of sentence on each count, to run consecutively. The convictions and sentences were affirmed in an errors patent appeal. State v. Cockerham, 497 So. 2d 796 (La.App. 4th Cir.1986). On April 14, 1994, in 94-K-0337, this Court ordered the trial court to grant the relator an out of time appeal pursuant to Lofton v. Whitley, 905 F.2d 885 (5th Cir.1990).
FACTS
At approximately noon on May 7, 1985, a man, later identified as Raymond Cockerham, entered Castro's Grocery Store. He picked up a can of tomato paste, asked how much it was, then put it back on a shelf. He then approached the cashier Caroline Gordon, told her to be quiet, and to give him the money. He was armed with a black old fashioned hand gun. After receiving the money, he ran out of the store, past Paul Thomas and the owner of the grocery.
On May 30, 1985, Ms. Gordon was again working as a cashier at Castro's Grocery. On that date, at approximately, one o'clock p.m., Mr. Cockerham again entered the store. Ms. Gordon recognized him and told Paul Thomas "I'll be, the same little bastard gonna do it again." Mr. Cockerham then held a gun on Ms. Gordon and Mr. Thomas and demanded money out of the cash drawer. After obtaining the money, Mr. Cockerham pulled out the drawer itself and searched the cash register. He then fled. Ms. Gordon called to her boss that the same person had just robbed them again. On this second occasion, according to Ms. Gordon, Mr. Cockerham was armed with a small silver gun with a pearl handle.
Both Caroline Gordon and Paul Thomas participated in photo line-ups involving Raymond Cockerham's picture. They each identified him as the perpetrator of the May 30, 1985 robbery. Ms. Gordon also identified him as the perpetrator of the May 7, 1985 robbery.
In addition to the testimony of Ms. Gordon and Mr. Thomas, Officer Albert Hynes testified to responding to the call of the May 7, 1985 robbery. Officer David Fisher testified that he responded to the call of the May 30, 1985 robbery. Officer Fisher further testified that on October 3, 1985, while on routine patrol, he recognized Raymond Cockerham from a flyer handed out at roll call. He pursued Mr. Cockerham and arrested him. During the pursuit, Raymond Cockerham threw down a chrome revolver; but it was not recovered.
The defense presented no witnesses at trial.
ERRORS PATENT
A review of the record for errors patent reveals none.
ASSIGNMENT OF ERROR NUMBER 1
In his first assignment, Mr. Cockerham contends that the trial court erred when it denied the motion to continue made on the *970 morning of trial. Counsel first made his motion on the grounds that he had been unable to locate one of the defense's essential alibi witnesses, Gwen Carter.
La.Code Crim.Proc.Ann. art. 709 (West 1981) provides:
A motion for a continuance based upon the absence of a witness must state:
(1) Facts to which the absent witness is expected to testify, showing the materiality of the testimony and the necessity for the presence of the witness at the trial;
(2) Facts and circumstances showing a probability that the witness will be available at the time to which the trial is deferred; and
(3) Facts showing due diligence used in an effort to procure attendance of the witness.
La.Code Crim.Proc.Ann. art. 710 (West 1981) provides:
When a motion for a continuance is based on the absence of a material witness, and the adverse party admits that if the witness were present he would testify as stated in the motion, the court may proceed to the trial of the case. If the court is of the opinion that despite the admission, the case cannot be tried with justice to the applicant, it may require the adverse party to admit also the truth of the testimony as a condition of refusing to grant the continuance.
A trial court's decision to deny or grant a continuance is within its broad discretion and will not be disturbed absent a clear showing of abuse of that discretion. State v. Holmes, 590 So. 2d 834 (La.App. 4th Cir.1991); State v. Myers, 584 So. 2d 242 (La.App. 5th Cir.1991), writ denied, 588 So. 2d 105 (La.1991), cert. denied, Myers v. Louisiana, 504 U.S. 912, 112 S. Ct. 1945, 118 L. Ed. 2d 550 (1992). The decision whether to grant or deny a motion to continue depends on the circumstances of each particular case. A showing of specific prejudice is generally required to demonstrate that the trial court erred in denying the continuance. State v. Holmes.
Raymond Cockerham failed to make the requisite showing under La.C.Cr.P. art. 709. The expected testimony of Ms. Carter was not proffered. Also, while counsel did state that he had personally investigated and been unable to locate her whereabouts, no showing was made that she would be located and available at a future date. Therefore, the trial court did not err in denying the motion on these grounds.
After the motion had been denied, defense counsel then requested that the record should reflect that the State informed him on the previous day that it intended to proceed to trial on a different case involving one Donald McGee. Counsel stated that he was unprepared for trial because he was not expecting to try the defendant's case. These statements are the basis for Mr. Cockerham's argument that denial of the motion to continue constituted reversible error. Mr. Cockerham argues that counsel was so unprepared that he rendered ineffective assistance to him.
Where the continuance motion is based on inadequate time for counsel to prepare a defense, this specific prejudice requirement has been disregarded only when the preparation time was "so minimal as to call into question the basic fairness of the proceeding." State v. Jones, 395 So. 2d 751, 753 (La.1981) citing State v. Winston, 327 So. 2d 380 (La.1976).
In State v. Simpson, 403 So. 2d 1214 (La. 1981), the Louisiana Supreme Court found that the trial court abused its discretion in denying the defendant's motion for continuance filed orally immediately before trial. Defense counsel in that case was a member of the Office of the Public Defender and was unaware that he was representing the defendant until the morning of trial. Defense counsel had no time to prepare for trial, and the Office of the Public Defender did not receive notice that the defendant's case was set for trial. The defendant was told that a trial date had been set but he did not communicate with his attorney. The court found that, although generally the defendant must show specific prejudice arising from the trial court's denial of a motion for a continuance, in that case, "defendant's right to a fair trial was substantially affected by being forced to *971 go to trial with counsel who had no time to prepare a defense through no fault of his own." State v. Simpson, 403 So.2d at 1216. The court reversed the defendant's conviction without a discussion of whether the defendant showed specific prejudice.
In State v. Winston, 327 So. 2d 380 (La. 1976), the Louisiana Supreme Court found that the trial court abused its discretion in denying a motion for a continuance where defense counsel had only three days to prepare for trial. In that case, the court distinguished cases where counsel had a longer period of time to prepare for trial, and reasoned that the difficulty in preparing for trial where the crime occurred many months before trial must be considered when determining adequate time for trial preparation.
In State v. Holmes, 590 So. 2d 834 (La.App. 4th Cir.1991), the defendant was forced to trial only several minutes after the preliminary hearing concluded. The defense counsel argued that he was unprepared for trial, given the short period of time between the preliminary hearing and trial. However, the trial date in that case was set sixty days in advance and this Court found that counsel's lack of adequate preparation for trial was due to his own neglect, not because the trial court denied the motion for a continuance.
In State v. McNeil, 613 So. 2d 752 (La.App. 4th Cir.1993) this Court stated:
Considering the Louisiana Supreme Court's decision in State v. Simpson, 551 So. 2d 1303 (La.1989), the prosecutor is ordered to notify the indigent defense counsel within a reasonable time before trial (but not less than 48 hours) of the order in which the cases will be called for trial when more than one case is set for trial on a particular day. (citation omitted)
Here, on the day before trial, the indigent defender was apprised of the order of trial, specifically that of the two cases set for that day, the defendant's was the second on the list. Similarly, in State v. McNeil, 613 So. 2d 752 (La.App. 4th Cir.1993), writ granted in part, vacated in part, 623 So. 2d 1320 (La. 1993) the defense counsel was informed on the day before trial that the State intended to proceed with two other cases, but in the event they were not ready, trial would proceed against McNeil. On appeal, this Court held that the defense counsel received adequate notice to prepare for trial.
Moreover, a review of the trial transcript in this case does not show that the defense counsel was unprepared for trial. He informed the trial court that one of the defense witnesses was on standby; the other was the one who could not be located at all. Furthermore, at the conclusion of the motion to suppress identification hearing on March 3, 1986, the trial court informed defense counsel of the March 25, 1986 trial date and told him to subpoena his witnesses. There had already been extensive pretrial hearings, including two days of testimony on the motion to suppress identification and a preliminary hearing. Defense counsel had a copy of the preliminary hearing and first day of the motion hearing transcript. He used it extensively to cross-examine Caroline Gordon in an attempt to impeach her testimony regarding the identification of Raymond Cockerham.
Mr. Cockerham cites other examples of his trial counsel's conduct as evidence of his unpreparedness and thus the trial court's error in denying the motion to continue the trial; however he does not actually assign ineffective assistance of counsel as error. In this regard, he suggests that there were discrepancies between the descriptions reflected in the police reports and the testimony given at trial. He argues that if counsel had been prepared, he would have exploited these differences. He also argues that counsel's unpreparedness caused him to question Officer Fisher about his arrest, leading to the admission of damaging evidence regarding the weapon thrown down at that time.
This Court, based on the record before it, can only speculate on why trial counsel pursued the line of questioning that it did with Officer Fisher. Mr. Cockerham concedes that it may have been an attempt to impeach Officer Fisher. If so, that is a matter of trial strategy which cannot form the basis of an ineffective assistance of counsel claim. State v. Bienemy, 483 So. 2d 1105 (La.App. 4th Cir.1986). The more potentially troubling complaint is the counsel's alleged *972 failure to cross-examine Caroline Gordon and Paul Thomas about alleged discrepancies in their descriptions. Defense counsel was aware of the descriptions as reflected in the police reports because Officer Hynes and Officer Fisher both reviewed these descriptions during their testimony at the motion to suppress identification hearing on February 28, 1986 and actually read the police reports at that time in open court. However, a review of the police reports[1] do not show such clear inconsistencies that the failure to bring them to the jury's attention could be said to raise a reasonable probability sufficient to undermine confidence in the outcome of the trial. Strickland v. Washington, 466 U.S. 668, 693, 104 S. Ct. 2052, 2068, 80 L. Ed. 2d 674 (1984).
The other allegation refers to defense counsel's failure to call any alibi witnesses. At least one such witness was on standby, according to the trial transcript. Because the expected testimony of that witness is unknown, the prejudicial impact of the failure to call him or her cannot be determined. Furthermore, the record before this Court in no way reveals why counsel did not call the witness. This allegation is better raised in an application for post conviction relief. State v. Prudholm, 446 So. 2d 729 (La.1984); State v. Johnson, 557 So. 2d 1030 (La.App. 4th Cir.1990); State v. Reed 483 So. 2d 1278 (La.App. 4th Cir.1986).
The first assignment of error has no merit.
ASSIGNMENT OF ERROR NUMBER 2
In his second assignment of error Mr. Cockerham contends that the trial court erred when it denied the motion to suppress the out of court identification. He argues that the line-up procedure was suggestive because in the six photographs presented to the victim, only the defendant was dressed in an Orleans Parish Prison uniform.
When reviewing an out-of-court identification procedure for its constitutionality and its consequent admissibility, the court must first make a determination of whether the police used an impermissibly suggestive procedure in obtaining the out-of-court identification. Manson v. Brathwaite, 432 U.S. 98, 97 S. Ct. 2243, 53 L. Ed. 2d 140 (1977); State v. Prudholm, 446 So. 2d 729 (La.1984); State v. Valentine, 570 So. 2d 533 (La.App. 4th Cir.1990). If the court finds in the affirmative, the court must then decide, under all the circumstances, if the suggestive procedure gave rise to a substantial likelihood of irreparable misidentification. Manson, 432 U.S. 98, 97 S. Ct. 2243; State v. Prudholm, 446 So. 2d 729; State v. McPherson, 630 So. 2d 935 (La.App. 4th Cir.1993); State v. Valentine, 570 So. 2d 533.
In Manson, the Supreme Court set forth a five-factor test to determine whether an identification is reliable: (1) the opportunity of the witness to view the assailant at the time of the crime; (2) the witness' degree of attention; (3) the accuracy of the witness' prior description of the assailant; (4) the level of certainty demonstrated by the witness; and (5) the length of time between the crime and the confrontation.
A photographic lineup may be overly suggestive if the photographs display a defendant so singularly that a witness' attention is unduly focused upon that defendant. However, even if the identification were made from a suggestive lineup, a conviction will not be reversed if the identification is otherwise reliable. State v. Prudholm, 446 So. 2d 729; State v. McPherson, 630 So. 2d 935; State v. Flank, 537 So. 2d 236 (La.App. 4th Cir.1988).
According to Mr. Cockerham's brief, the actual photographs used in the line-up have been destroyed by the clerk's office of district court. He relies on testimony by Detective Rodrigue at the February 28, 1986 motion to suppress hearing. Detective Rodrigue was asked if he noticed anything unusual about the defendant's picture, to which he replied "not really." Defense counsel then asked the detective if anyone else in the photo line-up was wearing an O.P.P. uniform. Detective Rodrigue testified:
*973 Not really. But all you see is the white on the uniform. You can't tell it's O.P.P. unless you're familiar with it. That's the only photograph that was available of him. Had they had other photographs available it wouldn't have been in that uniform.
Based on this testimony, it does not appear that the photographic line-up procedure was unduly suggestive. The detective clearly testified that Raymond Cockerham's clothing was not readily identifiable as an Orleans Parish Prison uniform. The trial court, which had the opportunity to view the photo line-up, apparently also felt it was not unduly suggestive because the defendant's motion was denied. However, even if it was suggestive, under the factors outlined in Manson v. Brathwaite, 432 U.S. 98, 97 S. Ct. 2243, the identification appears reliable. The first robbery occurred in a store during the noon hour. Ms. Gordon stated that the robber initially picked up a can of tomato paste, asked the price, then put it down. Through this exchange, she had an ample opportunity to view the robber. Furthermore the photographic line-up occurred approximately one week after the first robbery, and Ms. Gordon was positive in her identification. This assignment of error lacks merit.
ASSIGNMENT OF ERROR NUMBER 3
In his final assignment of error, the Mr. Cockerham suggests that it was error to show the jury the photograph of him in an Orleans Parish Prison uniform. He argues that it violated his right not to appear in prison clothing and constituted an impermissible reference to other crimes.
As to these allegations, there were no objections to the jury viewing the photograph on the grounds that it forced him to appear in prison clothing or that it constituted evidence of other crimes. As noted by this court in State v. Taylor, 91-2496, (La.App. 4th Cir. 3/29/94), 635 So. 2d 416, 420: "The contemporaneous objection rule exists, not only so that a trial judge may correct the error at the time it is made, but it also serves notice in the record that the complained of conduct was so noticeable as to create prejudice in the minds of the jurors." Because no objection was made to the introduction of the photographs on this basis, allowing the trial court the opportunity to correct any potential error, this court cannot now consider this argument.
Furthermore, it does not appear that Mr. Cockerham was prejudiced; according to Detective Rodrigue's testimony, the clothing in the photograph was not readily identifiable as prison clothing.
This assignment of error has no merit.
The conviction and sentence should be affirmed.
AFFIRMED.
NOTES
[1] The reports were never actually a part of the appeal record except that they were attached to a pro se application for post conviction relief filed by Raymond Cockerham and attached to his brief. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1736346/ | 782 S.W.2d 518 (1989)
Curtis HARWELL, Appellant,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
No. 01-88-01130-CV.
Court of Appeals of Texas, Houston (1st Dist.).
November 16, 1989.
Rehearing Denied January 18, 1990.
Merry Miller, Gann, Miller & Edwards, Houston, for appellant.
E.J. Wohlt, Houston, for appellee.
Before WARREN, COHEN and O'CONNOR, JJ.
ON MOTION FOR REHEARING
O'CONNOR, Justice.
We grant the motion for rehearing, withdraw our earlier opinion issued July 27, 1989, and substitute the following opinion.
*519 There are two questions in this case. First, is a plaintiff's underinsured motorist coverage offset by a payment from an underinsured motorist? Second, when a plaintiff owns two vehicles which are insured under separate policies, does an exclusionary provision in one policy prevent stacking of the PIP coverage of the two policies?
There are three insurance policies involved in this case: (1) Curtis Harwell's policy on his motorcycle; (2) Harwell's policy on his automobile; and (3) the policy of the underinsured motorist. State Farm insured both of Harwell's vehicles by separate policies.
I. THE ACCIDENT AND THE SUIT
Harwell was injured when, riding his motorcycle, he collided with an automobile. Harwell settled with the underinsured motorist's insurer for $25,000, the full amount of that policy. State Farm, his insurer, paid him $2,500 in personal injury protection (PIP) under his motorcycle policy.
After settling with the other motorist, Harwell sued his insurer, State Farm, to recover under his motorcycle and automobile policies. The case was tried to the bench on stipulated facts. Harwell suffered $40,000 in bodily injuries and $5,000 in medical expenses.
The trial court found that Harwell's motorcycle policy covered the accident; but, because Harwell was paid under the other motorist's policy, Harwell was not entitled to any additional recovery. In reaching this decision, the trial court refused to stack the motorcycle policy with the other motorist's policy. The court offset the $20,000 underinsured motorist coverage in the motorcycle policy by the $25,000 payment made by the other motorist. Because State Farm paid the full $2,500 due under the PIP clause of the motorcycle policy, nothing was due under that provision. The trial court found that Harwell's automobile policy did not cover the accident because of the exclusion provision.
The trial court ordered that Harwell take nothing in his lawsuit and assessed costs of court against him.
II. THE INSURANCE POLICIES
Both of Harwell's policies had $20,000 underinsured motorist coverage per individual, with a maximum of $40,000 per accident. Each policy provided $2,500 in PIP.
A. The Underinsured Coverage in Harwell's Motorcycle Policy.
The first issue is whether Harwell can recover under the underinsured provision of his motorcycle policy. We hold he can. In Stracener v. United Services Auto Association, and United Services Auto Association v. Hestilow, 777 S.W.2d 378 (1989), the supreme court held that when a party's injuries exceed the amount of coverage by an underinsured tortfeasor, the party may look to his own insurance policy for coverage.
Here, Harwell's damages were stipulated to be $40,000. The underinsured's policy paid Harwell $25,000, leaving $15,000 in damages. Harwell was entitled to recover the remaining $15,000 under the underinsured provision of his motorcycle policy, which provided $20,000 in coverage.
B. The PIP coverage in Harwell's Automobile Policy.
The second issue is whether Harwell can recover under the PIP provision of his automobile policy. We hold he cannot.
Harwell's automobile policy contained exclusionary clauses under the PIP clause, which stated:
We do not provide Personal Injury Protection Coverage for any person for bodily injury sustained:
4. While occupying ... any motor vehicle (other than your covered auto) which is owned by you.
[`Your covered auto' is defined as `any vehicle shown in the declarations.']
It is Harwell's theory that his two policies, each with $2,500 in PIP coverage, should be stacked to provide a total of $5,000 of PIP coverage. Harwell contends State Farm was liable to him for an additional $2,500 under the PIP clause of his automobile policy.
*520 Harwell argues that the issue for this Court is whether the trial court should have stacked the coverage in the two policies on the vehicles owned by Harwell. State Farm argues that the exclusionary clause precludes Harwell from recovering under both policies.
We agree with State Farm. For Harwell to recover under both policies, we would have to find that the exclusionary clause in the automobile policy is invalid. Such a finding would be contrary to current case law.
In Holyfield v. Members Mutual Insurance Co., 566 S.W.2d 28 (Tex.Civ.App. Dallas), writ ref'd n.r.e. per curiam, 572 S.W.2d 672 (Tex.1978), Holyfield sued Members Mutual to recover PIP benefits for his son, who was injured when his motorcycle collided with an automobile. The motorcycle was not listed in Holyfield's auto insurance policy as an insured vehicle. The issue presented in Holyfield was whether an insured could recover PIP benefits for injuries sustained while operating an owned vehicle not listed as an insured vehicle. The policy expressly excluded coverage for injuries sustained while "occupying" a vehicle owned by the named insured that was not an "insured vehicle" under the policy. The Dallas Court of Appeals found the exclusion valid, and the Texas Supreme Court agreed. Id. at 30.
Both the Dallas and the Corpus Christi Courts of Appeals have applied Holyfield to exclude uninsured motorists' benefits in cases similar to the present one. In Equitable General Insurance Co. v. Williams, 620 S.W.2d 608 (Tex.Civ.App. Dallas 1981, writ ref'd n.r.e.), Williams purchased a policy containing uninsured motorist coverage from Equitable to cover a Chevrolet automobile. The policy excluded coverage for any accident that occurred in another vehicle owned by the insured but not covered by the policy. While riding his motorcycle, which was not a vehicle covered by the policy, Williams collided with an uninsured motorist. The Dallas Court of Appeals, applying Holyfield, held, as a matter of law, the exclusion provision precluded coverage for the motorcycle. Id. at 611.
In Beaupre v. Standard Fire Insurance Co., 736 S.W.2d 237, 239 (Tex.App.Corpus Christi 1987, writ denied), Beaupre was injured in a collision with an underinsured motorist, while riding in her mother's Ford Bronco. Beaupre sued Standard Fire, the insurer of another Beaupre-family vehicle for underinsured benefits. The Bronco was insured, but not by Standard Fire. The Corpus Christi Court of Appeals held the exclusionary provision in the Standard Fire policy, similar to the one here, precluded a recovery for underinsured motorist benefits for injuries received in the Bronco.
Harwell argues that Stracener instructs us to stack the PIP benefits of Harwell's two policies. That is not correct. Stracener held that a party's recovery under the underinsured provision of his policy cannot be offset by the recovery from the underinsured. 777 S.W.2d at 382-84. That is not an issue here as to Harwell's claim for PIP. In Stracener, the fact that the car in which decedent was riding was covered by four policies was undisputed. Here, the parties dispute the motorcycle was covered by the automobile policy. In Stracener, no exclusion clause precluded recovery. Here, the issue is the validity of the exclusionary provision in Harwell's automobile policy.
We hold the exclusion provision in the automobile policy was valid and precludes recovery of $2,500 PIP from the automobile policy.
III. CONCLUSION
Following Stracener, we sustain Harwell's point as to the underinsured coverage. Following Holyfield, we overrule Harwell's point as to the PIP coverage. We modify the judgment to award Harwell $15,000 under the underinsured clause of his motorcycle policy, and as modified, we affirm. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1786617/ | 82 So. 2d 890 (1955)
Michael COCKERHAM, a minor, by Quentin Cockerham, as his next friend, and Quentin Cockerham, Appellants,
v.
R.E. VAUGHAN, Inc., a Florida corporation, Appellee.
Supreme Court of Florida. En Banc.
September 23, 1955.
Rehearing Denied November 7, 1955.
*891 Von Zamft & Kravitz, Miami, and Truett & Watkins, Tallahassee, for appellants.
Blackwell, Walker & Gray, Miami, for appellee.
DREW, Chief Justice.
In this tort action the appellant, a 2 1/2 year old child, sought damages for injuries sustained when he fell into a hold 6' x 5' x 6' existing on land of another. He alleged among other things that the appellee dug the hole to install a septic tank pursuant to a contract for that with the owner of the land and negligently left the same wholly unprotected for several weeks with notice or knowledge that small children were attracted thereto.
Depositions were taken of an officer of the appellee corporation and of an owner of the land. Pursuant to motion of appellee, the trail court entered a summary final judgment in its favor.
This case is controlled by Carter v. Livesay Window Co., Fla. 1954, 73 So. 2d 411, 413, subsequent to the date of the final judgment from which the appeal is prosecuted. Thus it will be observed that the trial court did not have the benefit of that decision before it at the time of the ruling in this case.
Carter v. Livesay Window Co., Inc., supra, arose out of an injury sustained by a minor when a precast concrete window frame fell on him while he was playing in and around a home under construction. The sub-contractor had placed the concrete window frame in position in the early morning of December 1, 1951, knowing that no one connected with the construction would be around the premises over the weekend. It was during this period that the minor, plaintiff in the case, pulled over one of the insecurely placed frames and received the injury. There we said, "Whether the deceased child was a trespasser upon the premises in question is not material. * * * The test to be applied in a case of this type is whether a reasonably prudent person should have anticipated the presence of children or other persons at the place where the appellee created a condition that a jury could find was an `inherently dangerous condition' or a `dangerous instrumentality' like unto an explosive substance, an inflammable material, a live wire or a spring gun." Moreover, we observed in that case, "The job was in a residential neighborhood where, as urged by the appellant, there were families with children. In addition to being so close akin to the attractive nuisance doctrine, it is common knowledge that children are as prone to play around houses under construction as monkeys are prone to climb trees."
It is contended that appellee breached no duty to appellant because it was a contractor not in control of the premises. It is true that appellee was a contractor making an installation on land of another, but that fact is not controlling here. The appellee contractor had not finished the job of installing the septic tank. The liability of the appellee for the artificial condition created by him upon the land of another while the work remained in his charge was exactly co-extensive with that of the possessor of the land. The rule is precisely *892 stated in Vol. II, Restatement, Torts (1934) Sec. 384, as follows:
"One who on behalf of the possessor of land erects a structure or creates any other condition thereon is subject to the same liability, and enjoys the same immunity from liability, as though he were the possessor of the land, for bodily harm caused to others within and without the land, while the work is in his charge, by the dangerous character of the structure or other condition."
Clearly, so long as the work by the appellee was unfinished and remained in his charge, the appellee was subject to the same liability to others for harm resulting from that particular work entrusted to him as though he were the possessor of the land. The rule of liability applicable to a possessor of land under the circumstances of the instant case is aptly summarized in Section 339, Restatement, supra, which section is referred to in comment h., under Section 384. That rule prescribed by Section 339 is as follows:
"A possessor of land is subject to liability for bodily harm to young children trespassing thereon caused by a structure or other artificial condition which he maintains upon the land, if
"(a) the place where the condition is maintained is one upon which the possessor knows or should know that such children are likely to trespass, and
"(b) the condition is one of which the possessor knows or should know and which he realizes or should realize as involving an unreasonable risk of death or serious bodily harm to such children, and
"(c) the children because of their youth do not discover the condition or realize the risk involved in intermeddling in it or in coming within the area made dangerous by it, and
"(d) the utility to the possessor of maintaining the condition is slight as compared to the risk to young children involved therein."
The circumstances of the instant case considered in the light of Carter v. Livesay Window Co., Inc., supra, and the rules of the Restatement of Torts quoted, supra, show clearly that it cannot be said as a matter of law there is no liability on the part of appellee for the injury to the infant appellant. Therefore, genuine issues of material facts were present in this case and it was error for the trial court to enter a summary judgment for appellee.
Reversed.
HOBSON, ROBERTS and THORNAL, JJ., concur.
TERRELL, THOMAS and SEBRING, JJ., dissent.
TERRELL, Justice (dissenting).
I think this case is ruled by Newby v. West Palm Beach Water Co., Fla., 47 So. 2d 527, Fields v. Quillian, Fla., 74 So. 2d 230 and United Zinc & Chemical Co. v. Britt, 258 U.S. 268, 42 S. Ct. 299, 66 L. Ed. 615, and being so the judgment should be affirmed.
I therefore dissent.
THOMAS and SEBRING, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1871986/ | 594 So. 2d 1345 (1991)
Alvin SANDERS, Plaintiff-Appellee,
v.
The HOME INDEMNITY INSURANCE COMPANY, Defendant-Appellant.
No. 90-616.
Court of Appeal of Louisiana, Third Circuit.
December 18, 1991.
On Rehearing March 13, 1992.
Writ Denied May 15, 1992.
*1347 Morrow, Morrow, Ryan & Bassett, James P. Ryan, James S. Gates, Opelousas, for plaintiff-appellee.
Allen & Gooch, Raymond C. Jackson III, Lafayette, for defendant-appellant.
Before DOMENGEAUX, C.J., and GUIDRY and KING, JJ.
KING, Judge.
The issues presented in this appeal are whether there is subject matter jurisdiction over the action; whether there is coverage under a Voluntary Compensation and Employers Liability Coverage Endorsement of an insurance policy; whether plaintiff is temporarily and totally disabled; whether there should be an offset for Social Security benefits received by plaintiff; and, whether plaintiff is entitled to recover statutory penalties and attorney's fees.
Alvin Raymond Sanders (hereinafter plaintiff) filed a petition for accident and health benefits against Home Indemnity Insurance Company (hereinafter defendant) seeking benefits under an insurance policy issued by defendant to plaintiffs' former employer for injuries sustained in an employment related accident. Eric James Dugas, who worked for the same employer as plaintiff and who was also injured in a different employment related accident, filed a similar suit. These two suits were consolidated in the trial court and remain consolidated on appeal. Since both cases involve the same issues and applicable law, our opinion herein will be applicable but we will issue a separate judgment in the case of Dugas v. The Home Indemnity Insurance Company, 594 So. 2d 1353 (La.App. 3 Cir.1991). Defendant filed an answer in both suits denying that plaintiffs were covered under its insurance policy or that any benefits were payable under the policy. Defendant then filed motions for summary judgment in each case. Plaintiffs then each filed cross motions for summary judgment on the issue of coverage. At the hearing on the motions for summary judgment, the trial judge denied defendant's motions and granted plaintiffs' motions on the issue of coverage. After a trial to determine the benefits payable, the trial judge found that Eric James Dugas was temporarily and totally disabled from the *1348 date of injury to November 19, 1986, and that Alvin Raymond Sanders was temporarily totally disabled from date of injury and thereafter as long as he remained disabled. The trial court ordered defendant to pay benefits, medical expenses, statutory penalties, and attorney's fees to both plaintiffs. A formal written judgment was signed in each suit. Defendant suspensively appeals the judgment in both suits. After the appeals were lodged in both consolidated suits, defendant filed in this Court an exception of lack of subject matter jurisdiction. We overrule the exception and affirm.
FACTS
Alvin Sanders was employed by C.R.C. Mallard (hereinafter Mallard) as a driller on an inland barge in the Sabine River at the time of his accident. Sanders worked eight days on and four days off. On June 18, 1986, Sanders was raising a hand slip in an attempt to help other workers remove a bridge plug from a hole on the derrick when an accident occurred and he sustained a lower back injury. The night of the accident, Sanders was treated at Lake Charles Memorial Hospital where x-rays were taken and a shot for pain was administered. Sanders continued to have lower back pain and was sent by Mallard to Dr. James McDaniel on September 5, 1986. On September 23, 1986, Dr. McDaniel performed surgery on Sanders and removed a disc at L4-L5 in his back. Subsequently, another surgery was performed, on January 17, 1989, at which time Dr. McDaniel fused Sanders' last three vertebrae together. Dr. McDaniel stated that in the future Sanders would be able to return to a moderate type of work when the fusion had stabilized. After the accident, Sanders received $300.00 in weekly benefits from Mallard until approximately one month after his first surgery. At that time, Mallard went bankrupt. Sanders has since then only received Social Security benefits of $841.00 per month for himself, $145.00 per month for his wife, and $145.00 per month for each of his two children.
Eric James Dugas was also employed by Mallard as a roughneck on an inland barge in the Sabine River. His work schedule was seven days on and seven days off. On June 20, 1986, Dugas twisted and injured his knee while backing pipe. Dugas was taken to a hospital in Port Arthur, Texas where x-rays were taken, the knee treated with ice packs, and medication was administered. Later, Dugas underwent two surgeries for a torn cartilage in the knee. After the second surgery, Dugas underwent physical therapy. Dugas was released by the doctor on November 19, 1986. Dugas received weekly benefits of $205.00 from Mallard for approximately six months, until Mallard went bankrupt. The medical expenses for Dugas' first surgery were paid but the medical expenses for his second surgery remain unpaid.
On November 16, 1987, both plaintiffs filed Petitions For Accident And Health Benefits against defendant. Defendant had issued an insurance policy under which Mallard was an insured and which provided voluntary compensation benefits to Mallard employees, if no other benefits were available, for work-related accidents. Defendant answered denying all liability to plaintiffs. Defendant then filed a Motion for Summary Judgment in each suit claiming there was no coverage. Plaintiffs then each filed a cross Motion for Summary Judgment on the issue of coverage under the insurance policy issued by defendant. A hearing was held on the motions. The trial judge granted plaintiffs' motions on the issue of coverage and denied defendant's motions. The trial judge found that plaintiffs were seamen and, since their employer was bankrupt and they had decided to forego seeking their Admiralty benefits, that they were entitled to and could seek coverage and benefits under the insurance policy issued by defendant. The insurance policy issued by defendant had an endorsement covering Mallard employees who were not covered by worker's compensation or similar benefits. In his written reasons for judgment, rendered on March 21, 1989, the trial judge stated that "... the admiralty benefits in reality, are tort benefits and not worker's compensation benefits: ..." and found that coverage *1349 was not excluded under the policy because of plaintiffs' right to claim Admiralty benefits. A written judgment was signed in each suit on April 7, 1989.
On August 10, 1989, a trial was held to determine the benefits payable to plaintiffs under the terms of the policy. Both sides stipulated that Dugas was temporarily totally disabled from June 20, 1986 to November 19, 1986. In his reasons for judgment the trial judge found from the testimony of Dr. McDaniel that Sanders was temporarily totally disabled from June 18, 1986 through the time of trial and thereafter as long as he remained disabled. The trial judge also found that coverage was clear and should have been apparent to defendant and assessed penalties and attorney's fees against defendant. A written judgment was signed on January 10, 1990 ordering defendant to pay Sanders temporary and total disability benefits from June 18, 1986 during Sanders' disability, in the amount of $254.00 per week, medical expenses in the amount of $27,567.40, a 12% statutory penalty on all amounts due and owing, and attorney's fees in the amount of $7,500.00. A written judgment was also signed on January 10, 1990 ordering defendant to pay Dugas temporary total disability benefits from June 20, 1986 through November 19, 1986 at the rate of $254.00 per week, medical expenses in the amount of $7,302.54, statutory penalties in the amount of 12% on all amounts due and owing, and attorney's fees of $5,000.00. It is from each of these judgments that defendant timely suspensively appeals.
Defendant urges seven assignments of error on appeal, which are:
(1) The District Court had no jurisdiction over these claims;
(2) The trial court erred in finding that the plaintiffs were entitled to coverage under the voluntary compensation and employers liability coverage endorsement;
(3) The trial court erred in finding Alvin Sanders temporarily and totally disabled and entitled to benefits from the date of the accident through the date of trial and continuing into the future during Sanders' period of disability;
(4) The trial court erred in finding that Alvin Sanders is entitled to medical expenses totaling $27,567.40, statutory penalties, and attorney's fees in the amount of $7,500.00;
(5) The trial court erred in finding Eric James Dugas entitled to recover statutory penalties, and attorney's fees in the amount of $5,000.00;
(6) The trial court erred in not finding that defendant was entitled to an offset for the Social Security benefits received by Alvin Sanders; and
(7) The trial court erred in awarding excessive attorney's fees.
SUBJECT MATTER JURISDICTION
For the first time and in the appellate court, defendant raises the issue that the State District Court lacked subject matter jurisdiction in these cases. Under La.C.C.P. Art. 925, the defense of lack of subject matter jurisdiction is not waived once a general appearance has been made. Therefore, this exception has been timely raised. Piper v. Olinde Hardware & Supply Company, Inc., 288 So. 2d 626 (La. 1974).
Defendant claims that, since it has been established that plaintiffs are seamen, their remedies are exclusively Federal and the State District Court has no subject matter jurisdiction.
28 U.S.C.A. § 1333(1) provides:
"The [Federal] district courts shall have original jurisdiction, exclusive of the courts of the States, of:
(1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled."
By virtue of the "saving to suitors" clause an admiralty matter may also be brought in state court, thereby giving state courts concurrent jurisdiction with federal courts over admiralty cases. Metropolitan Dade County v. One (1) Bronze Cannon, 537 F. Supp. 923 (S.D.Fla.1982); Casey v. Palmer Johnson Incorporated, 506 F. Supp. 1361 (E.D.Wis.1981).
*1350 Defendant cites Bearden v. Leon C. Breaux Towing Company, Inc., 365 So. 2d 1192 (La.App. 3 Cir.1978), writ den., 366 So. 2d 915 (La.1979) as support for its contention that plaintiffs' remedy is exclusively federal. Bearden is only authority that a seaman has no cause of action under the Louisiana Worker's Compensation Act. We do not find that Bearden, supra holds that a seaman can not bring an action to which he is otherwise entitled.
In this case, plaintiffs, although seamen, are suing for benefits under an insurance policy. They are not suing for benefits, as seamen, under the Louisiana Worker's Compensation Act. For these reasons, we find that the State District Court had subject matter jurisdiction over these claims to determine whether plaintiffs are entitled to coverage and benefits under the insurance policy issued by defendant.
The defendant's exception to subject matter jurisdiction is overruled.
COVERAGE
Defendant argues on appeal that plaintiffs are not covered under the Voluntary Compensation and Employers Liability Endorsement of its insurance policy. Defendant relies on the following exclusion found in the endorsement:
"C. Exclusions
This insurance does not cover:
1. Any obligation imposed by a worker's compensation or occupational disease law, or any similar law."
Defendant argues on appeal that the trial court erred in granting plaintiffs' motion for partial summary judgment in which plaintiffs were found to be entitled to coverage and benefits under the defendant's policy of insurance insuring plaintiffs' former employer, Mallard.
La.C.C.P. Art. 966 provides that either party in an action may seek a summary judgment in his favor for all or part of the relief for which he has prayed. La.C.C.P. Art. 968 provides that a summary judgment is a final judgment and shall be rendered and signed in the same manner and with the same effect as if a trial had been had upon evidence regularly adduced. La. C.C.P. Art. 1841 defines a final judgment as one that determines the merits in whole or in part.
Plaintiffs and defendant in each suit both moved for summary judgments to determine whether there was coverage of plaintiffs under defendant's policy. The trial court granted plaintiffs' motions, finding coverage, and denied defendant's motions, to find there was no coverage, in written reasons for judgment rendered on March 21, 1989. A formal written judgment was signed in each suit on April 7, 1989. Defendant now seeks to contest the issue of coverage by an appeal taken on February 7, 1990. A trial court determination, on a motion for partial summary judgment, finding a party entitled to coverage under the terms of an insurance policy constitutes a final, appealable judgment, and the lack of a timely appeal by an insurer from that judgment precludes the insurer from later appealing that coverage issue after the trial court's entry of judgment on other issues in the case. Fulton v. Blue Cross of Louisiana, 563 So. 2d 492 (La.App. 4 Cir.1990), writ den., 567 So. 2d 1129 (La.1990). Finding that no timely appeal was taken in each of these cases from the granting of the plaintiffs' motions for partial summary judgment, finding each of plaintiffs to be covered under the terms of defendant's insurance policy, defendant cannot now contest the issue of coverage.[1]
TEMPORARY TOTAL DISABILITY
Finding that there is coverage under the insurance policy issued by defendant, we now turn to the issue of whether the trial court erred in finding Alvin Raymond Sanders was temporarily totally disabled.
The medical evidence in the record makes it clear that Sanders will never be able to *1351 return to the heavy work he did before the accident.
Sanders' treating physician, Dr. McDaniel, testified that three months following Sanders' first surgery for removal of a disc, he felt Sanders "could return to doing again a light duty type of work status." Subsequently, Sanders underwent a second surgery to fuse his last three vertebrae together. Dr. McDaniel testified that Sanders, at the time of trial, had not yet fully recovered from the second surgery. Glenn Hebert, a rehabilitation specialist, testified that due to the fact Sanders has a high school education and certain skills he has learned in the oil industry that he will be able to do other jobs without performing heavy labor. Hebert stated that Sanders could find employment as a light janitorial worker, supply clerk, warehouse clerk, mail clerk, messenger, billing clerk, stock clerk, inventory clerk and a security guard. However, Glenn Hebert's testimony recognized that Sanders would not be able to seek employment until the fusion from the second surgery was completely healed and he was released by Dr. McDaniel to light duty work.
Considering the evidence in the record at the time of trial, we cannot say that the trial judge was manifestly in error or clearly wrong in finding that Sanders was temporarily totally disabled at time of trial and thereafter during his period of continued medical inability to work.
PENALTIES AND ATTORNEY'S FEES
La.R.S. 22:658 provides for the assessment of penalties and attorney's fees against an insurer for failure to pay policy benefits within sixty days after receipt of loss and demand for payment when the insurer's action in denying coverage under their policy of insurance is arbitrary, capricious and without probable cause.
The well settled law in Louisiana is that the insurance company runs the risk of misinterpreting its own policy. In Carney v. American Fire and Indemnity Company, 371 So. 2d 815 (La.1979), the Louisiana Supreme Court said:
"An insurers' liability to pay penalties and attorney's fees is based on whether their action in denying coverage is arbitrary, capricious and without probable cause. LSA R.S. 22:658. An insurer must take the risk of misinterpreting its policy provisions. If it errs in interpreting its own insurance contract, such error will not be considered as a reasonable ground for delaying the payment of benefits, and it will not relieve the insurer of the payment of penalties and attorney's fees. Albert v. Cuna Mutual Insurance Society, 255 So. 2d 170 (La.App. 3rd Cir. 1971), and cases cited therein.
In other words, insurers should not have their policy provisions interpreted at the expense of the insured, especially when they are charged with knowledge of their policy's intent." Carney v. American Fire and Indemnity Company, 371 So. 2d 815, at page 819 (La.1979).
A trial judge's determination of whether the insurer was arbitrary, capricious, or without probable cause in denying benefits is a factual finding which will not be disturbed on appeal absent manifest error. Delco v. Heritage Manor Nursing Home, 441 So. 2d 309 (La.App. 3 Cir.1983), writ den., 443 So. 2d 1123 (La.1984).
Defendant claims that the trial court erred in finding it liable for penalties and attorney's fees because a coverage dispute existed. In his written reasons for judgment, the trial judge found that coverage was clear and should have been apparent to the defendant.
Fred Green, a claims adjuster for defendant, testified that he denied coverage because he believed plaintiffs were seamen covered by the Jones Act and subject to the policy exclusion that eliminated employees covered by worker's compensation or occupational disease law or any similar law. However, he admitted he had never read the Jones Act or compared it to the Louisiana Worker's Compensation Act before making this determination. From the evidence adduced at trial, we do not find that the trial judge was manifestly erroneous or clearly wrong in finding defendant liable for penalties and attorney's fees.
*1352 The amount awarded as attorney's fees is left largely to the discretion of the trial court. The factors which are generally considered in determining the amount of such an award include the degree of professional skill and ability exercised, the amount of the claim, and the amount recovered for the plaintiff, and the time devoted to the case. Each case is considered in light of its own facts and circumstances. In all instances, however, the amount awarded must be reasonable. Artigue v. Louisiana Farm Bureau Mutual Insurance Company, 339 So. 2d 880 (La.App. 3 Cir.1976), writ den., 341 So. 2d 1132 (La. 1977).
We have reviewed the record and find the attorney's fees awarded by the trial judge to be reasonable.
For the above reasons, the judgment of the trial court is affirmed.
All costs of this appeal are assessed to defendant-appellant.
EXCEPTION DENIED AND AFFIRMED.
Before DOMENGEAUX, C.J., and GUIDRY and MARCANTEL,[*] JJ.
ON REHEARING
BERNARD N. MARCANTEL, Judge Pro Tem.
Defendant-appellant, The Home Indemnity Company, filed a motion for rehearing in this case. In our original opinion, we held that defendant did not appeal the trial court's judgment. In this regard, we erred. Defendant asked for a rehearing and filed a motion to supplement the record with its motion and Order of Appeal which had been filed timely by which was inadvertently left out of the record. We allowed defendant to supplement the record and granted a rehearing on January 29, 1992, on the issue of coverage under defendant's insurance policy only.
COVERAGE
Defendant claims that plaintiffs, Alvin Raymond Sanders and Eric James Dugas, are not covered under the Voluntary Compensation and Employer's Liability Endorsement of its insurance policy. Defendant relies on the following exclusion found in the endorsement:
"C. Exclusions
This insurance does not cover:
1. Any obligation imposed by a worker's compensation or occupational disease law, or any similar law."
Defendant claims that the Jones Act or General Maritime Law allowing a maintenance and cure claim and an unseaworthiness claim would qualify as "a worker's compensation or occupational disease law, or any similar law." A Jones Act claim is based on the negligence of the employer. 46 U.S.C.A.App. § 688. Worker's compensation laws apply regardless of the fault of the employer.
Maintenance and cure, while somewhat like worker's compensation, has little resemblance to worker's compensation laws. The right to maintenance and cure need not arise out of an injury while in the course and scope of employment. A seaman merely needs to show that he was in the service of his ship. Also, a seaman who receives maintenance and cure is still entitled to sue his employer for negligence under the Jones Act. An employee covered by worker's compensation may not sue his employer for negligence. Martin J. Norris, The Law of Seamen, § 26:40, at 103-105; Frank J. Maraist, Admiralty in a Nutshell, at 185 (1987). Maintenance and cure benefits are limited to medical expenses and a sum for living expenses, while worker's compensation benefits compensate an employee for his loss of wages and are also based on the disability that an employee has suffered.
In construing the language of an exclusionary clause in an insurance policy, we must look to the general rule that *1353 exclusionary clauses are to be narrowly construed against the insurer and in favor of coverage. La.C.C. art. 2056; Capital Bank & Trust Company v. Equitable Life Assurance Society of the United States, 542 So. 2d 494 (La.1989), rehearing den., 542 So. 2d 494 (La.1989). The ambiguity or contradiction which exists in the language of a contract must be construed against the party who prepared the contract. Kenner Industries, Inc. v. Sewell Plastics, Inc., 451 So. 2d 557 (La.1984).
We find that the exclusionary language in this policy of insurance is ambiguous. And, for the above reasons, we also hold that the Jones Act and maintenance and cure claims are not similar to worker's compensation. Therefore, there was coverage for plaintiffs under defendant's policy of insurance.
In all other respects the decision previously rendered in this matter is affirmed.
GUIDRY, J., concurs and assigns written reasons.
GUIDRY, Judge, concurring.
I fully agree with the clear and concise opinion of the majority. I concur herein for the sole purpose of distinguishing the opinion of this court in Segura v. Travelers Insurance Company, 535 So. 2d 40 (La. App. 3rd Cir.1988), in which decision I participated as a member of the panel.
In Segura, the injured employee obtained a judgment against Travelers Insurance Company, the insurer of Offshore Logistics, granting him disability benefits by Travelers was allowed an offset of $15.00 per day for maintenance and cure benefits under a clause in the Travelers policy which allowed the offset if the injured employee "received disability income from other sources ...". The exclusionary clause in the Home Indemnity policy is not so general as that contained in the Travelers policy but excludes insurance for injury only for an obligation imposed by a worker's compensation or occupational disease law or any similar law. I fully agree with the majority that our worker's compensation law is not similar to the general maritime law under which plaintiffs received maintenance and cure. Such payments, however, are without doubt "disability income from other sources" for which Travelers was allowed an offset in the Segura case. For these reasons, I respectfully concur.
NOTES
[1] As in Fulton, supra, we need not consider whether the grant of a partial summary judgment on the issue of coverage was appropriate, See Serpas v. Ridley, 556 So. 2d 134 (La.App. 5 Cir.1990), since defendant did not timely appeal the trial court's grant of summary judgment.
[*] Judge Bernard N. Marcantel participated in this decision by appointment of the Louisiana Supreme Court as Judge Pro Tempore. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1508914/ | 261 S.W.2d 554 (1953)
WESTERN RESERVE LIFE INS. CO.
v.
MEADOWS.
No. A-4140.
Supreme Court of Texas.
October 7, 1953.
Rehearing Denied November 11, 1953.
*555 J. W. Wheeler, Austin, Webster Atwell, Dallas, for petitioner.
Alexander & Martin, Fort Worth, for respondent.
SMEDLEY, Justice.
The controlling question is: Did the accidental death of the insured on August 23, 1951, occur "in time of war".
Petitioner Western Reserve Life Insurance Company on October 6, 1932, issued to Benjamin Earle Meadows five policies, each insuring his life for $1,000 and naming as beneficiary his wife, respondent Jennie Louise Davidson Meadows. Attached to each policy as a part of it was a supplemental contract providing for payment to the beneficiary of the additional sum of $1,000 in the event of death of the insured by accidental means. The supplemental contract contains the following: "This Accidental Death Benefit shall be void if the Insured shall be in military, naval, or allied service in time of war at the date of the accident."
The insured at the time of the accident was a Lieutenant Colonel in the Army Engineers Corps of the United States, was in the military service, and was traveling as a passenger in a United States Army plane under official orders and bound for Fairbanks, Alaska, where he was to open bids for the construction of a United States Army Air Field near Fairbanks. He was instantly killed when the plane crashed and burned in Alaska.
Petitioner, the insurer, admitted liability for and paid the face amount of the policies for life insurance, but denied liability for the additional accidental death benefits provided for in the supplemental contracts. In this suit, tried without a jury, judgment was rendered by the District Court in favor of respondent against petitioner for $5,000, the total amount of the accidental death benefits, together with penalties and attorney's fees. The Court of Civil Appeals affirmed that judgment. 256 S.W.2d 674.
In a thorough opinion, and after reviewing many authorities, the Court of Civil Appeals expressed the conclusion that the insured's death on August 23, 1951, "did not occur `in time of war,' under the Constitution and laws of the United States and under *556 the terms of the exclusion clause of the insurance policies." 256 S.W.2d 683. The opinion, as appears from its reasoning and quotations, is based on the belief that the conflict being waged in Korea at the time of the insured's death was not "war" in the "constitutional" or "legal" sense of that term, because Congress had not, as it never has, formally declared war against North Korea. With the conclusion reached by the Court of Civil Appeals we cannot agree.
It is true that the Constitution, by Section 8 of Article I, gives to Congress "Power * * * To declare War", and that Congress has not in so many words by formal Act declared war against North Korea or against Communist China. There are, however, in many of the decisions, some of which are cited in the opinion of the Court of Civil Appeals and relied upon by respondent, statements to the effect that an Act of Congress which recognizes the existence of war or which is passed in aid or furtherance of existing war is in effect and meaning a declaration of war. For example, in Bishop v. Jones and Petty, 28 Tex. 294, 319, it is said: "But still there can be no war by its government, of which the court can take judicial knowledge, until there has been some act or declaration creating or recognizing its existence by the department of the government clothed with the war-making power." (Emphasis added.)
The opinion of Justice Grier in the Prize cases (The Army Warwick), 2 Blackf. 635, 17 L. Ed. 459, 477, involving the question whether a war de facto between the states existed in 1861 prior to the formal declaration of war by Congress, contains the following: "If it were necessary to the technical existence of a war that it should have legislative sanction, we find it in almost every Act passed at the extraordinary session of the Legislature of 1861, which was wholly employed in enacting laws to enable the government to prosecute the war with vigor and efficiency."
The opinion in Pang v. Sun Assurance Co. of Canada, 37 Haw. 208, 218, after referring to several decisions by United States courts, says: "Those cases are authority for the admitted proposition that no `formal' declaration is necessary to the creation of a `state of war', and that by making payment to the officers and men engaged on a war basis and other informal acts the Congress recognizes the existence of a `condition' of war." See also Hamilton v. McClaughry, C.C., 136 F. 445, 451; Bas v. Tingy, 4 Dall. 37, 1 L. Ed. 731, 733-734; State of Virginia v. West Virginia, 11 Wall. 39, 20 L. Ed. 67, 72-73; Wharton v. Wise, 153 U.S. 155, 38 L. Ed. 669, 676.
When the United Nations, after the invasion of South Korea in 1950, called upon member nations to render assistance to repel the invasion, the United States promptly furnished its vigorous support, and combatant activities to which the armed forces of the United States were committed commenced in Korea on or about June 25, 1950, and continued without interruption to and including the date of the death of the insured, Benjamin Earle Meadows. Army, Navy, Marine Corps and Air Force personnel of the United States in great numbers participated in combat with the enemy forces of North Korea, and later with those also of Communist China. Congressional support of the action in Korea, which we know was in fact war on a large scale, was necessary, and was freely and generously given in many Acts of Congress by which provision was made for support of the armed forces employed, for increased military man power and equipment, and for economic stabilization. Many of those Acts of Congress, including vast appropriations for the support of the armed forces in Korea, are referred to in the dissenting opinion of Chief Justice Vinson in the steel mill seizure case, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 72 S. Ct. 863, 96 L. Ed. 1153, 1215, 1216-1218, 26 A. L.R.2d 1378. Reference is there made to the one hundred thirty billion dollars appropriated by Congress for our armed defense and for military assistance to our Allies since the June, 1950, attack in Korea, to the Mutual Security Act of 1951, 22 U. S.C.A. § 1651 et seq., to the grant by Congress of authority to draft men into the *557 armed forces, to the increase in appropriations to the Department of Defense, which had averaged less than thirteen billion dollars per year for the three years before the attack in Korea, to forty-eight billion dollars for the year 1951. There were other Acts of Congress recognizing the existence of war in Korea and enabling the government to prosecute it with vigor and efficiency, such as the Servicemen's Indemnity Act, 38 U.S.C.A. § 851 et seq., a new GI Bill of Rights, 38 U.S.C.A. § 694 et seq., the 1950 Amendment to the Revenue Act, 26 U.S.C.A. and again more appropriations. Those Acts were in acknowledgment of the fact of war in which the Nation was engaged. And to use the language of Justice Grier in his opinion in the Prize cases above quoted, if it is necessary to the technical existence of war that it have legislative sanction, the Acts of Congress above referred to gave that sanction.
Decision of this case could well be placed on the ground that if their word "war" used in the policies of insurance was intended to mean "technical war", or "legal war", that is, war declared by Congress, the Acts of Congress prior to the death of the insured should be considered in effect to amount to a declaration of war. We prefer, however, to meet squarely the very question presented, which is whether the word "war" used in the phrase "in time of war" in the policies means war in fact or means war declared by Congress.
It is the settled law in this state that contracts of insurance in their construction are governed by the same rules as other contracts, and that terms used in them are to be given their plain, ordinary and generally accepted meaning unless the instrument itself shows them to have been used in a technical or different sense. Hall v. Mutual Benefit Health & Accident Ass'n, Tex.Civ.App., 220 S.W.2d 934, 936, application for writ of error refused; Aetna Life Insurance Co. v. Reed, Tex.Sup., 251 S.W.2d 150, 152-153; National Security Life & Casualty Co. v. Davis, Tex.Sup., 257 S.W.2d 943, 944.
Undoubtedly there may be war or a state of war without a declaration of war by the department of government clothed with the war-making power. Justice Jackson, in his concurring opinion in the steel mills seizure case said: "Of course, a state of war may in fact exist without a formal declaration." Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 72 S. Ct. 863, 873, 96 L. Ed. 1153, 1202-1203, 26 A.L.R. 2d 1378; Edwin Borchard, discussing under the title "When Did the War Begin", the decision of the United States Circuit Court of Appeals in New York Life Insurance Company v. Bennion, 10 Cir., 158 F.2d 260, and other decisions, said: "It is common knowledge that war may exist without a declaration thereof." And on the authorities reviewed he expressed this conclusion: "It thus appears that war may be deduced from the circumstances as a fact and may exist independently of a declaration by Congress." 47 Columbia Law Review, pp. 742, 745, 748.
Many definitions of war and many decisions reflect the common understanding of war as war in fact. The opinion in the Prize cases (The Amy Warwick), 2 Blackf. 635, 17 L. Ed. 459, 476, quotes with approval a definition of war as "That state in which a nation prosecutes its right by force." In Stankus v. New York Life Insurance Co., 312 Mass. 366, 44 N.E.2d 687, 688, 689, the court said, citing authorities: "A conflict between the armed forces of two nations under authority of their respective governments would be commonly regarded as war." In the same opinion the court said that: "The existence of a war is not dependent upon a formal declaration of war." An early opinion by the Supreme Court of Maine contains the following:
"But every forcible contest between two governments, de facto, or de jure, is war. War is an existing fact, and not a legislative decree. Congress alone may have power to `declare' it beforehand, and thus cause or commence it. But it may be initiated by other nations, or by traitors; and then it exists, whether there is any declaration *558 of it or not. It may be prosecuted without any declaration; or Congress may, as in the Mexican war, declare its previous existence. In either case it is the fact that makes `enemies', and not any legislative Act." Dole v. Merchants' Mutual Marine Ins. Co., 51 Me. 465, 470.
American Jurisprudence thus defines war: "War is an armed struggle or contest by force carried on for any purpose between two or more nations or states exercising at least de facto authority over persons within a given territory and commanding an army prepared to observe the ordinary laws of war." 56 Am.Jur., p. 133, Sec. 2. Black's Law Dictionary definition is: "An armed conquest between nations"; Webster's, "The state or fact of exerting violence or force against another, now only against a state or other politically organized body."
Among cases holding that actual armed hostilities without a declaration mean "war" are the following: Bas v. Tingy, 4 Dall. 37, 1 L. Ed. 731 (hostilities on the high seas between public armed ships of the United States and armed vessels of France in 1799); The Prize cases (The Amy Warwick), 2 Blackf. 635, 17 L. Ed. 459 (capture by public vessels of the United States of ships attempting to run blockade of ports of Southern States established by proclamation of the President of the United States in April, 1861); Arce v. State, 83 Tex. Crim. 292, 202 S.W. 951; L.R.A.1918 E, 358 (invasion of Mexico by United States troops under General Pershing and attack by Mexican troops on a troop of United States cavalry in Texas below Laredo); Hamilton v. McClaughry, C.C., 136 F. 445 (occupation of Chinese territory by United States military forces and conflicts between it and armed Chinese troops in the "Boxer Uprising" in 1900); New York Life Insurance Co. v. Bennion, 10 Cir., 158 F.2d 260, certiorari denied, 331 U.S. 811, 67 S. Ct. 1202, 91 L. Ed. 1831 (attack by Japanese planes on Pearl Harbor and resistance by United States armed forces on December 7, 1941).
Decisions involving the question whether and when war has ended are controlled by the same principle, that is, that war exists during the period of actual hostilities and ends with the cessation of those hostilities, even though there has been no treaty of peace or no declaration, proclamation or other official act announcing the termination of the existence of a state of war. In those cases the word "war" is considered as used in the practical and realistic sense in which it is commonly used and understood rather than in a technical or formal sense. See National Life & Accident Ins. Co. v. Leverett, Tex.Civ.App., 215 S.W.2d 939; Lincoln v. Harvey, Tex. Civ.App., 191 S.W.2d 764; New York Life Insurance Co. v. Durham, 10 Cir., 166 F.2d 874; Kaiser v. Hopkins, 6 Cal. 2d 537, 58 P.2d 1278; Darnall v. Day, 240 Iowa 665, 37 N.W.2d 277, 280. In the case last cited the court said: "War, in the practical and realistic sense in which it is commonly used, refers to the period of hostilities and not to a technical state of war which may exist after the fighting has ended."
In view of the definitions of "war" above quoted, the decisions mentioned, and the facts about the Korean was set out in the stipulation of the parties and the facts of general knowledge, we are convinced that the accidental death of the insured on August 23, 1951, occurred "in time of war". We mention a few of the facts. It is stipulated that "combatant activities to which United States Personnel were committed commenced in Korea on or about June 25, 1950, and that said combatant activities have continued without interruption to and including the date of the death of Benjamin Earle Meadows, and that the United State Personnel battle casualties in the Korean area, based on notification to next of kin cumulated for the period through midnight, September 7, 1951" were a total of 82,362. The tabulation in the stipulation shows that of the total casualties up to that time there were 13,822 deaths, 11,495 of them being in the Army and the other more than 2,000 being in the Marine Corps, the Air Force and the Navy.
*559 We know, as is generally known, that the armed forces of the United States, including all divisions of the service, were engaged in warfare with the North Koreans for more than a year prior to the insured's death in August, 1951, and that after November, 1950, they were engaged in combat also with the Communist Chinese; that many thousands of soldiers of the United States Army fought up and down the Korean peninsula during that period; that the line of battle shifted to the extreme southeast corner of Korea in September, 1950, and then into North Korea, approaching the north boundary on the Yalu River in November, 1950, and then to the south almost back to the 38th parallel in June, 1951; and that during that period powerful units of the United States Navy patrolled and bombarded the coast of North Korea and many hundreds of planes of the United States Air Force gave support to the Army and attached enemy planes and supply lines.
A concurring opinion in Beley v. Pennsylvania Mutual Life Insurance Co., 373 Pa. 231, 95 A.2d 202, 213, by Justice Musmanno, although he joined in the judgment rendered by the majority of four, contains the following significant statements:
"In discussing the principles of law involved in this case, we must assert at once that to deny that the Korean military action is not war in its popularly accepted meaning is to deny the evidence of one's senses. Courts normally take judicial notice of whatever is unquestionably accepted by informed society as fact. A judge does not ask in court for proof that ice forms at the North Pole or that the World Series refers to a contest between baseball teams. Courts know that in Korea, armies are pitted against each other utilizing every device known to modern warfare in the effort and determination to exterminate each other. We know this to be true because every medium of communication extant informs us that it is true. There is not one voice, one printed word, or one picture in the newspapers, radio broadcasts and television images which present themselves before our eyes or appeal to our ears that bespeaks anything to the contrary. In addition, judges have physically seen soldiers who have returned from Korea and have witnesses the evidence of their contact with forces which have inflicted wounds peculiarly the result of gunfire and cannon fire, the trademark of war."
We are unwilling in deciding this case to shut our eyes to what everyone knows, that there has been and was when the insured was killed, actually and in reality a war in Korea in which the United States has been seriously engaged. The Court should not "affect a technical ignorance of the existence" of that war. The same view is expressed in the opinion of the United States Circuit Court of Appeals in New York Life Insurance Company v. Bennion:
"When one sovereign nation attacks another with premeditated and deliberate intent to wage war against it, and that nation resists the attacks with all the force at its command, we have war in the grim sense of reality. It is war in the only sense that men know and understand it. Mankind goes no further in his definitive searchhe does not stand on ceremony or wait for technical niceties. To say that courts must shut their eyes to realities and wait for formalities, is to cut off the power to reason with concrete facts. We cannot believe that the courts are deprived of the power to deal with this vital question in a practical and realistic sense." 158 F.2d 260, 264.
The decision of the Court of Civil Appeals in this cause is supported by several cases cited and discussed in its opinion. Some of those cases may be distinguished from the instant case. Some hold that no war existed under the facts because there was attack but no resistance at the very time; in others the word "war" used in the contract was considered to have been used in a "technical" or "legal" sense.
Beley v. Pennsylvania Mutual Life Insurance Company, 373 Pa. 231, 95 A.2d 202, *560 falls in the class last mentioned. The basis of the opinion holding that the insured, who was killed in battle in Korea on March 7, 1951, was not engaged in military service "in the time of war" is that because a policy of life insurance is highly technical the word "war" in the policy is intended to be used in its technical or legal sense and means a declared war. It is apparent from the opinion, and especially from the quotation which has been set out above from the concurring opinion by Justice Musmanno, that the decision doubtless would have been different if the Court had given the words used in the policy, as they are given in this state, their ordinary and generally understood meaning. The decision in the Beley case was by a majority of four to two, and in our opinion the dissenting opinions are more convincing and are more strongly supported by authority than are the opinions written for the majority.
A very recent opinion by a Superior Court of New Jersey, Stanberry v. Aetna Life Insurance Company, 26 N.J.Super. 498, 98 A.2d 134, 137, holding exactly contrary to the decision of the Pennsylvania court in the Beley case, criticising that decision and declining to follow it, points out that the Pennsylvania court gave a "legalistic, technical construction" of the word "war", whereas the New Jersey courts have given the word a "realistic interpretation when used in private contracts or documents."
In a recent well supported opinion, another trial court, the United States District Court of the Southern District of California, held that there could be no recovery of double indemnity in an action on a life insurance policy which provided for the payment of double indemnity in the event of death of the insured by accidental means, except in the event of the death of the insured while "in the military, naval or air forces of any country at war." The insured, in the military service of the United States, was killed by enemy small arms fire in Korea on August 31, 1951. Weissman v. Metropolitan Life Insurance Co., 112 F. Supp. 420, 421.
The opinion of the Court of Civil Appeals herein in its approval of the Beley case raises the question presented in that case as supporting its decision, how can it be known when a war begins unless there is a formal declaration of war? One of the opinions of the Court in the Beley case contains the following: "Would the appellant insurance company argue that the military action became war when the casualties reached a certain figure, say, 5,000 or 10,000? Would it argue that the action certainly was war when the casualties mounted to 50,000?" 95 A.2d 216. We are not concerned here with the exact time when the Korean war began. It is enough for us to know that war on a large scale had been waged for a long time in Korea and was still being waged when the insured met accidental death.
In summary: It is, as has been said, the settled law in this state that, unless a contrary intention is shown by the contract, the terms used in policies of insurance are to be given their plain, ordinary and generally accepted meaning. It is clear that nothing in the contract of insurance involved herein suggests that the word "war" is used in its "technical" or "legal" sense. It is clear that the plain, ordinary and generally accepted meaning of the word "war" is war in fact. It is clear that there was war in fact in Korea when the insured was killed and that he was killed "in time of war." It follows that there can be no recovery under the accidental death provisions of the policies.
The judgments of the District Court and Court of Civil Appeals are reversed and judgment is here rendered that respondent take nothing by her suit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1552855/ | 48 B.R. 440 (1985)
In re AIR FLORIDA SYSTEM, INC., Debtor.
In re AIR FLORIDA, INC., Debtor.
AIR FLORIDA PILOTS ASSOCIATION, Plaintiff,
v.
AIR FLORIDA, INC., Defendant,
and
Midway Airlines, Inc., and the Unsecured Creditors' Committee of Air Florida, Inc., Intervening Defendants.
Bankruptcy No. 84-01223-BKC-SMW, Adv. No. 84-0649-BKC-SMW-A.
United States Bankruptcy Court, S.D. Florida.
April 5, 1985.
*441 John K. Olson, Tampa, Fla., for Air Florida.
Stanley C. Wisniewski, Connerton, Bernstein & Katz, Washington, D.C., for Air Florida Pilots Ass'n.
Robert A. Schatzman, Schatzman & Schatzman, P.A., Coral Gables, Fla., for Creditors' Committee.
Malcolm M. Gaynor, Schwartz, Cooper, Kolb & Gaynor, Chicago, Ill., for Midway.
ORDER DENYING INJUNCTIVE RELIEF
SIDNEY M. WEAVER, Bankruptcy Judge.
This cause came on to be heard on April 1, 1985, at a final evidentiary hearing on the request of Air Florida Pilots' Association ("AFPA") for entry of an injunction against Air Florida, Inc. ("Air Florida"). The court conducted at least three hearings in this case, took substantial evidence, heard the statements and arguments of counsel, is fully advised in the premises, and hereby makes the following findings of fact and conclusions of law.
Air Florida is a certificated air carrier which, until the filing of its petition, was engaged in scheduled and charter air transportation of passengers, property and mail. Air Florida and its parent corporation, Air Florida System, Inc. ("AFSI") filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code on July 3, 1984. The cases have been procedurally consolidated.
As of July 3, 1984, Air Florida was the eighteenth largest certificated air carrier in the United States, serving Florida and cities in the Northeast and Midwest United States, Central America, the Caribbean region and Europe. Air Florida has not conducted flight operations since July 3, 1984, except as noted below. Rather, on that date, Air Florida shut down its operations, grounded its planes, and terminated its employees.
*442 Certain of Air Florida's employees are members of AFPA. Other labor unions represent the majority of Air Florida's other employees.
On or about February 1, 1982, Air Florida and AFPA entered into a collective bargaining agreement which set forth the economic and non-economic conditions under which AFPA members would be employed by Air Florida. The collective bargaining agreement was interpreted and amended by the parties by means of various letters of agreement. The collective bargaining agreement and the various letters of agreement are collectively referred to herein as the "Basic Agreement" or the "Contract."
Upon the filing of its Chapter 11 petition, Air Florida notified AFPA by letter dated July 9, 1984, that the Contract had been suspended by operation of law. Shortly thereafter, the parties negotiated a short term Interim Agreement, executed by both AFPA and Air Florida on July 12, 1984. The Interim Agreement, had it become effective, would have modified the Contract in several respects, and provided that those elements of the Contract not expressly modified by the Interim Agreement would remain unchanged for the duration of the Interim Agreement.
The Interim Agreement would have become effective on July 12, 1984, had it been approved by this court. It would have expired on October 1, 1984, had it ever been in effect. The Interim Agreement recited that Air Florida and AFPA had agreed to negotiate toward the confirmation and assumption of the Contract, and to seek court approval of such assumption and of the Interim Agreement itself.
Neither Air Florida nor AFPA took any action in the bankruptcy court to approve the Interim Agreement or the Contract during the term of the Interim Agreement.
Subsequent to the negotiation of the Interim Agreement, Midway Airlines, Inc. ("Midway") entered into negotiations with Air Florida for the purchase of substantially all of Air Florida's assets. From the outset of these negotiations, Midway contemplated a temporary revival of Air Florida's operations as Air Florida, d/b/a Midway Express, pending actual consummation of the purchase.
The Midway negotiations culminated in this court's approval on September 26, 1984 of a series of agreements between Midway, AFSI and Air Florida: a Master Agreement, a Loan and Security Agreement, and a Service Agreement. This court found, inter alia, that the Midway transaction represented the best and only hope that Air Florida's creditors would realize any payment on their claims, there being no other serious prospective purchasers and no other operating plan. The court further found that sound business reasons existed to compel the speedy approval of the Midway transaction. AFPA appeared and was heard by the court in this matter, and did not challenge the court's approval of the transaction. This court's order was affirmed and adopted by the district court on November 27, 1984. This court takes judicial notice of its own findings of fact, conclusions of law and order, and of the district court's order.
The Master Agreement provided that a condition to closing would be that Air Florida employees would continue to work under terms and conditions compatible with Midway's own employment practices. Midway had legitimate business reasons for insisting on this condition, inasmuch as it would have been unfair and prejudicial to Midway's own employees if Air Florida used Midway money to pay Air Florida employees more than Midway's own employees.
On October 5, 1984 (five days after the date the Interim Agreement would have expired had it been in effect, and after the bankruptcy court approved the Midway transaction), Air Florida served written notice on AFPA that it rejected its collective bargaining agreements. Air Florida resumed operations as Midway Express under the Service Agreement on October 15, 1984, implementing the terms of its contract proposal to AFPA of September 25. AFPA responded by filing the instant complaint *443 for injunctive relief and declaratory judgment, and now seeks injunctive relief against Air Florida from unilaterally altering any of the Contract's provisions without following the procedures of the Railway Labor Act. Both Midway Airlines, Inc. and the Unsecured Creditors' Committee of Air Florida, Inc., were allowed to intervene as parties defendant.
This court, recognizing that labor harmony is both difficult to impose by judicial order and necessary (or at the very least extraordinarily helpful) in the reorganization process, attempted to resolve the disputes between Air Florida and its pilots by encouraging settlement. On at least three separate occasions, the court continued hearings on various motions in this adversary proceeding and directed the parties back to the bargaining table. To their credit, the parties did bargain, including multiple sessions conducted with the assistance of the National Mediation Board. Based upon all of the facts before it, the court is satisfied that the parties bargained in good faith. Unfortunately, the mediation technique and the bargaining process have proven futile and the court now must direct its attention to the issues before it.
As a preliminary matter, the court notes that it has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334.
In order to be entitled to injunctive relief AFPA must prove the following elements: (1) probability of success on the merits of its complaint; (2) immediate irreparable injury for which there is no adequate remedy at law; (3) AFPA and its members would suffer greater hardship in the absence of an injunction than other parties in interest would suffer if an injunction were granted, and (4) AFPA and its members would suffer greater hardship in the absence of an injunction than the public would suffer if an injunction were granted. AFPA has not met its burden of proof.
The Contract was first executed on February 1, 1982 and was due to expire, absent Air Florida's Chapter 11 petition, on May 1, 1985. As such, the Contract is an "executory contract" within the meaning of Section 365 of the Bankruptcy Code.
The filing of Air Florida's Chapter 11 petition had the effect of suspending the enforceability of the Contract, which could not become enforceable again unless and until formal assumption by Air Florida, in accordance with Section 365 of the Bankruptcy Code. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S. Ct. 1188, 79 L. Ed. 2d 482 (1984). Bildisco represents the controlling authority concerning this adversary proceeding inasmuch as Air Florida's Chapter 11 proceeding is not governed by the 1984 amendment to the Bankruptcy Code concerning executory collective bargaining agreements. See Section 541(c), Bankruptcy Amendments and Federal Judgeship Act of 1984 (P.L. 98-353).
Nothing in the Bankruptcy Code precludes Air Florida from modifying or rejecting the Contract. Section 1167 of the Bankruptcy Code does not apply to this proceeding. Section 1167, which provides that collective bargaining agreements subject to the Railway Labor Act must be modified in accordance with Section 6 of such Act, applies only to railroad reorganization proceedings. See 11 U.S.C. Section 103(g). The Bankruptcy Code expressly defines "railroad" as a "common carrier by railroad...." Air Florida is manifestly not a railroad, and is therefore not subject to Section 1167. See In re Braniff Airways, Inc., 25 B.R. 216 (Bkrtcy.N.D.Tex.1982); In Re Airlift International, Inc., 16 B.R. 639 (Bkrtcy.S.D.Fla.1981) (amended order denying motion to dismiss).
The court is not persuaded that the Interim Agreement operated to assume the Contract within the meaning of Section 365 of the Bankruptcy Code. First, the Interim Agreement's effectiveness was subject to court approval, which was neither sought nor obtained. Second, the Interim Agreement was never performed during its stated duration. Thus, at the moment, the only agreement which could be the subject of an injunction is the Contract.
*444 Nothing in the Interim Agreement or in the parties' conduct operated to expressly or tacitly assume the Contract. AFPA argues that the Contract was assumed by virtue of the fact that it was referred to in the Interim Agreement as remaining in effect (except as modified by the Interim Agreement) until the Interim Agreement's stated expiration date. The Interim Agreement also provided, however, that the Contract would be renegotiated and revised by the parties. The court concludes that there was no assumption of the Contract, and that even if the Interim Agreement had become effective and had operated to somehow assume the Contract, that agreement would have expired by its own terms on October 1, 1984.
AFPA also argues that court approval is not required in order to assume an executory collective bargaining agreement, asserting that such an act is within Air Florida's "ordinary course of business." The court disagrees, particularly in the context of an air carrier that did not operate during the period in which AFPA claims the Contract to have been assumed.
Air Florida need not have exhausted any of the procedures described in Section 6 of the Railway Labor Act prior to modifying or rejecting the Contract. The only procedures that Air Florida must follow are set forth in Bildisco, supra. It follows that, since Air Florida has not assumed the Contract, and has served its notice of rejection thereof, the Contract remains unenforceable. AFPA's argument that Section 6 of the Railway Labor Act applies to any modification of the Contract is without merit. A collective bargaining agreement between a union and an air carrier that, absent bankruptcy, is generally subject to the Railway Labor Act is not operatively distinguishable from a collective bargaining agreement that is subject to the National Labor Relations Act. See Shopmen's Local Union No. 455 v. Kevin Steel Products, Inc., 519 F.2d 698 (2d Cir.1975), and Brotherhood of Railway, Airline and Steamship Clerks v. REA Express, Inc., 523 F.2d 164 (2d Cir.), cert. denied 423 U.S. 1017, 96 S. Ct. 451, 46 L. Ed. 2d 388 (1975), overruled on other grounds NLRB v. Bildisco & Bildisco, supra.
Under the applicable Bildisco standards, Air Florida may reject the Contract if it has bargained in good faith with AFPA. "Good faith" is a flexible concept. Under the terms of the September 1984 agreements between Air Florida and Midway, Midway is not obligated to close its acquisition of Air Florida's assets if Air Florida's then-existing labor arrangements are not satisfactory to Midway. It is not surprising, then, that Midway had substantial input into Air Florida's bargaining posture during its ultimately failed negotiations with AFPA for a new contract. It is likewise not surprising that Midway made clear, to Air Florida, AFPA and the court, that terms and conditions of employment of AFPA members more favorable than those accorded to newly-hired Midway pilots would not be satisfactory to Midway within the meaning of the September 1984 agreements. Recognizing these constraints, the court is nonetheless satisfied that Air Florida has bargained in good faith with AFPA. AFPA's members must recognize, and this court must emphasize, the utterly insolvent position of Air Florida when its bankruptcy petition was filed. The position of AFPA's members, and of all of Air Florida's employees, was remarkably tenuous; but for the Midway transaction, it is unlikely that any of Air Florida's employees would now be employed by Air Florida. In this context, AFPA's members cannot reasonably expect to be compensated greater than, or to enjoy seniority status senior to, newly-hired Midway pilots.
The court notes that Midway and Air Florida made clear at the final hearing on April 1, 1985, that the final offer made to AFPA would remain open on the same terms and conditions for 45 days.
If the court were to grant the requested relief to AFPA, and also to deny Air Florida's companion motion to reject the executory contract with AFPA, the consequences to Air Florida, its employees and its creditors would be severe. The court is *445 satisfied that the result of such action would be the failure of Midway to close its acquisition of Air Florida's assets, loss of employment by all Air Florida employees and probably failure of the Air Florida reorganization efforts. There is a suggestion in the record that some AFPA members believe that they have been called upon to sacrifice as to rates of pay disproportionately as compared to other Air Florida employees, and that the loss of everyone's job would be "fair." Such a result may be fair, in the sense of evenhanded, but it is not just. As a court of equity, this court will not sanction such a result. The requested injunctive relief will be denied.
Because of this disposition of the case, the court will not consider the issue of the amount of bond which AFPA would be required to post if an injunction were to be granted.
A separate final judgment will be entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1552856/ | 48 B.R. 1016 (1985)
UNITED STATES of America, Plaintiff,
State of Alabama, ex rel. Charles A. Graddick, Attorney General, and the Alabama Department of Environmental Management, Intervening Plaintiffs,
v.
ILCO, INC., a/k/a Interstate Lead Company, Inc.; Leeds Excavating & Paving Co., Inc.; Diego Maffei; William Fleming and Annie Bell Fleming; Defendants.
In re ILCO, INC., Debtor.
No. CV85-H-823-S, Bankruptcy No. BK-82-04836-S.
United States District Court, N.D. Alabama, S.D.
May 10, 1985.
*1017 *1018 Frank W. Donaldson, U.S. Atty., George C. Batcheler, Asst. U.S. Atty., Birmingham, Ala., F. Henry Habicht II, Asst. Atty. Gen., Scott C. Fulton, Environmental Enforcement Section, Land and Natural Resources Div., U.S. Dept. of Justice, Douglas Greenhaus, U.S.E.P.A., Washington, D.C., Keith Casto, Region IV, U.S.E.P.A., Atlanta, Ga., for plaintiff.
Donald B. Sweeney, Jr., Rives & Peterson, Birmingham, Ala., for Leeds Excavating & Paving Co.
James E. Hill, Jr., Leeds, Ala., for William & Annie Bell Fleming.
Jack E. Held/Charles R. Driggars, Sirote Permutt Friend Friedman Held Apolinsk, Birmingham, Ala., for ILCO, Inc., and Maffei.
Charles A. Graddick, Atty. Gen., David A. Ludder, Asst. Atty. Gen., Ala. Dept. of Environmental Management Office of Gen. Counsel, Montgomery, Ala., for Non-parties, State of Ala. and the Ala. Dept. of Environmental Management, Proposed plaintiff intevenors.
ORDER
HANCOCK, District Judge.
On March 18, 1985, plaintiff United States of America (U.S.) filed a complaint against: (1) ILCO, Inc., a/k/a Interstate Lead Company, Inc. (ILCO)the owner and operator of a secondary lead smelting and lead battery recycling facility in Leeds, Alabama, and also is the debtor in an ongoing Chapter 11 bankruptcy proceeding styled In Re ILCO, Inc., BK-82-04836-S, which proceeding was commenced in the bankruptcy court for this court on August 20, 1982; (2) Diego Maffei (Maffei)the president and chief operating officer of ILCO; (3) William and Annie Bell Fleming (Flemings)the owners of the property referred to as the Fleming's Patio site, which serves as one of ILCO's off-site disposal grounds; and (4) Leeds Excavating and Paving Company, Inc., (Leeds)the transporter of ILCO's "hazardous" wastes to two off-site disposal grounds, the Fleming's Patio site and a site referred to as the Church of God site.
The first three claims of the complaint seek prohibitory injunctive relief against ILCO and Maffei relating to regulatory violations of the Clean Water Act (CWA) and the Resource Conservation and Recovery Act (RCRA). In summary, the First Claim alleges that defendants ILCO and Maffei have violated the CWA by discharging lead-contaminated wastewater (a) since March, 1984, without a valid National Pollutant Discharge Elimination System (NPDES) permit, (b) at locations not approved of in an earlier issued but now expired permit, (c) with contamination levels above the expired permit's approved levels, and (d) in violation of the expired federal permit's reporting requirements. Under 33 U.S.C. § 1319(a)(3), the U.S. seeks to enjoin Maffei and ILCO from continuing to discharge pollutants into the water unless and until these defendants obtain a valid NPDES permit. The Second Claim and Third Claim allege that defendants ILCO and Maffei have violated provisions of the RCRA by: (a) failing to identify certain waste activities and units in ILCO's November 19, 1980 application seeking qualification as an "interim status" hazardous waste facility, and by maintaining and operating those unidentified units without a permit; (b) violating both state and federal interim status regulations regarding activities which were conducted pursuant to a permit;[1] and (c) releasing *1019 hazardous wastes into the environment at the ILCO site. The U.S. apparently discovered most of these RCRA violations as a result of several site inspections conducted at various times in 1983, 1984 and 1985. The U.S. explains that it did not inspect the ILCO facility at earlier dates because ILCO notified state authorities that it had shut down operations at the ILCO plant in February of 1981, and never notified the state that it had resumed operations. Pursuant to 42 U.S.C. § 6928(a) (Second Claim) and § 6928(h) (Third Claim), the U.S. seeks to enjoin Maffei and ILCO from continuing to commit the three RCRA violations listed above.
The Fourth Claim and Fifth Claim of the complaint seek mandatory injunctive relief pursuant to provisions of the RCRA and Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). These claims focus on the EPA's determination that the Fleming's Patio site and the ILCO site may present an imminent and substantial endangerment to public health and the environment. Under 42 U.S.C. § 6973 (Fourth Claim) and § 9606 (Fifth Claim), the U.S. seeks an order requiring (a) Maffei and ILCO to remedy the dangerous conditions at both sites pursuant to RCRA (Fourth Claim) and CERCLA (Fifth Claim), (b) defendants Flemings and Leeds to remedy the dangerous conditions at the Fleming's Patio site pursuant to RCRA (Fourth Claim), and (c) the Flemings to remedy the dangerous conditions at the Fleming's Patio site pursuant to CERCLA (Fifth Claim).
Proceeding under 42 U.S.C. § 9607(a), the Sixth Claim seeks money damages from Maffei pursuant to CERCLA, for costs incurred by the U.S. in cleaning up the Church of God site.
Along with the complaint, the U.S. filed a motion for a preliminary injunction and a "Motion for Referral to a United States District Judge." On that same day, March 18, 1985, the State of Alabama and the Alabama Department of Environmental Management filed both a motion to intervene as plaintiffs and a proposed intervenor's complaint, in which the proposed intervenors accuse Maffei and ILCO of maintaining a continuing public nuisance and of violating the Federal Water Pollution Control Act (FWPCA), the Alabama Water Pollution Control Act (AWPCA), the RCRA, and the State's Hazardous Wastes Management Act of 1978 (HWMA). The proposed intervenor's complaint seeks injunctive relief and seeks assessment of civil penalties.
Prior to ruling on the State's motion and setting this case for a preliminary injunction hearing, this court issued an order dated March 22, 1985, notifying the parties and proposed intervenors that it would treat the U.S.'s "Motion for Referral to a United States District Judge" as a motion under 28 U.S.C. § 157(d) for withdrawal of a reference to bankruptcy court and directing the parties to submit briefs addressing the following issues:
(1) What aspect, if any, of the March 18, 1985 complaint is presently referred to the bankruptcy court as a result of the General Order of Reference entered in this court July 16, 1984, (2) what aspect, if any, of the March 18, 1985 complaint which arguably is referred to the bankruptcy court should this court withdraw under § 157(d), and (3) the effect, if any, of the § 362 stay on the respective parties and issues embodied in the complaint?
On April 30, 1985, the State was granted leave to file a brief addressing the bankruptcy issues identified in the March 22, 1985 order. All briefs have been received and the matters raised by the pending motions and by the March 22, 1985 order are ripe for resolution.
I. Impact of the general order of reference
Under the 1984 Bankruptcy Amendments the federal district court has original but *1020 not exclusive jurisdiction of "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334. Pursuant to 28 U.S.C. § 157(a), a federal district court judge has discretion to refer to the bankruptcy judge "any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11." On July 16, 1984, The United States District Court for the Northern District of Alabama issued a general order of reference automatically referring to the bankruptcy judges for the district "all cases under title 11 and all proceedings arising under title 11 or arising in or related to a case under title 11." (emphasis added).
The Bankruptcy Code does not define "related to" nor does it provide any guidance as to what types of actions are considered "related to" a case under title 11. The U.S. and ILCO now agree that this case is a related proceeding subject to the general reference solely because ILCO, a named defendant in the instant litigation, is a debtor in an ongoing Chapter 11 reorganization. The State, however, contends that a case is not subject to the automatic reference unless the outcome of that case directly affects the bankruptcy proceeding. Under the State's rationale, the relief sought by it and the U.S. will not directly affect ILCO's bankruptcy caseonly an attempt to enforce a judgment would affect the bankruptcy case.
The Chapter 11 reorganization of debtor ILCO could, and most likely will be greatly affected by a grant or denial of the injunctive relief sought by the U.S. in this case. As a result, this case certainly relates to that title 11 case. Broad construction of the phrase "related to" is consistent with Congressional intent because of the withdrawal provision. Any inequities in a broad construction can be corrected by the permissive withdrawal provisions of 28 U.S.C. § 157(d). Consequently, this court concludes that this entire case, at the time of its filing, was subject to automatic reference and was in fact referred by the July 16, 1984 order to the bankruptcy judges, thereby becoming an adversary proceeding in the title 11 case.
II. Withdrawal from the bankruptcy judge
28 U.S.C. § 157(d) provides:
The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.
The U.S. asserts that this court is required to withdraw this entire case from the bankruptcy judge pursuant to the second sentence of § 157(d). ILCO contends that this action should be characterized as a "core proceeding" and therefore, is not subject to the provisions in § 157(d). ILCO's argument is without merit. The withdrawal provisions of § 157(d) make no distinction between core and non-core proceedings, and encompass proceedings that are core matters as well as those that are not core matters. 1 Collier on Bankruptcy ¶ 3.01 at 3-41 (15th Ed.1985), In Re White Motor Corp., 42 B.R. 693, 701 (D.C.1984). Indeed, the permissive withdrawal provision expressly authorizes withdrawal of the entire bankruptcy "case." Nothing could be more "core" than that.
Section 157(d) mandates a withdrawal of the reference of a proceeding to a bankruptcy judge if its resolution requires "consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce." Comments made during the Congressional debates concerning § 157(d) indicate that the extremely broad phrase, "laws regulating organizations or activities affecting interstate commerce," is to be construed narrowly. One commentator posits that in mandating withdrawal in proceedings involving the field of interstate *1021 commerce activity, Congress must have considered that district judges generally are more familiar with laws regulating activities affecting interstate commerce, such as labor laws or securities laws, because the district courts deal with them on a daily basis. 1 Collier on Bankruptcy ¶ 3.01 at 3-41. If Collier's view of Congressional intent is correct, then the instant litigation involving our national environmental laws qualifies as a candidate for the mandatory withdrawal provision of § 157(d).
White Motor Corp., supra, is instructive on the interpretation and application of the mandatory withdrawal provision. In White Motor Corp., PBGC, who was in charge of administering White Motor's termination insurance plan pursuant to ERISA, filed fifteen proofs of claim with the bankruptcy court. White Motor allegedly owed money to the plan to satisfy the minimum funding requirements under ERISA. Upon filing these claims, PBGC classified some of the claims as administrative expenses and others as high priority claims. Only a few were purported to be unsecured claims. The trustee of White Motor's estate objected to PBGC's classification of these claims. The dispute was set for an evidentiary hearing in the bankruptcy court. Before the date of the hearing, however, the 1984 Bankruptcy Amendments were enacted. Pursuant to § 157(d) of the new amendments, PBGC requested the district court to withdraw the dispute over the classification of the claims from the bankruptcy judge.
In this case of first impression, District Court Judge Aldrich thoroughly analyzed the legislative history of the mandatory withdrawal provision and correctly concluded that the provision did not apply simply whenever non-bankruptcy statutes were considered. Consideration of the federal "interstate" laws had to require more than a de minimus consideration to invoke the mandatory withdrawal provision. Judge Aldrich noted Congress's caution that § 157(d) not become "an escape hatch through which most bankruptcy matters will be removed to the district court." White Motor Corp., 42 B.R. at 704. With this admonition in mind, Judge Aldrich concluded that the mandatory provision applied only if the district court could make an affirmative determination that resolution of the dispute required substantial and material consideration of those non-bankruptcy statutes.
After examining each of PBGC's alleged ERISA and related tax questions, Judge Aldrich found that the only statutes that had to be examined and applied to determine the classification of PBGC's claims were sections 503 and 507 of the Bankruptcy Code. The court concluded:
[f]or this Court to grant the motion to withdraw reference based on speculation about ERISA and IRC issues which may or may not arise and may or may not be germane to resolution of core Code proceedings would be inconsistent with the purposes underlying the very existence of the Bankruptcy Court and would encourage forum shopping in a manner Congress disdained when it sought to avoid "creating a multiplicity of forums for the adjudication of part of a bankruptcy case."
Id. at 705 (emphasis added).
This court agrees with Judge Aldrich's philosophy. It would thwart Congress's intent to automatically withdraw the reference in this case solely on the ground that it involves in one way or another federal environmental laws. Clearly, the CWA, RCRA and CERCLA are rooted in the commerce clause and are the type of laws Congress had in mind when it enacted the mandatory withdrawal provision. But that provision will mandate withdrawal of this case only if this court can make an affirmative determination that resolution of the U.S.'s complaint will require substantial and material consideration of the CWA, RCRA, CERCLA and the federal regulations issued thereunder. This court is convinced that these federal statutes are not merely incidental to that resolution of the complaint, but rather are essential to the resolution. Without a substantial and material consideration of these statutes, *1022 the federal government has no case against defendants. A determination of whether injunctive relief is available under CWA, RCRA and CERCLA admittedly requires in this case a construction of applicable state environmental laws. If only state regulations applied, ILCO would have a strong argument that the mandatory provision did not apply. This case, however, also requires a detailed examination of explicit federal regulations and federal permit requirements. This case is distinguishable from White Motor Corp., which required primarily an interpretation of bankruptcy laws. Congress intended for cases such as the instant case to be resolved by a district court judge.
Even if the mandatory provision did not apply, this court would exercise its discretion under the permissive withdrawal provision of § 157(d) and withdraw the reference. The instant litigation most likely is not a core proceeding as described by 28 U.S.C. § 157(b)(2). Thus, if a bankruptcy judge were to conduct this litigation, he could not enter a final judgment unless the parties consented. A district judge would also have to take the time necessary to become familiar with the case before adopting the proposed findings and conclusions of the bankruptcy judge. Moreover, if a party objects to proposals of the bankruptcy judge, the district judge will be required to review the matter de novo. See 28 U.S.C. § 157(c)(1). Because the U.S. alleges that the disposal sites, as they exist today, present an imminent and substantial endangerment to the public health and environment, this case should not be unnecessarily delayed by requiring the U.S. to convince a bankruptcy judge, and then, maybe in a de novo proceeding, a district judge that the public's health is endangered. Clearly, this is the classic case where the discretionary withdrawal provision in § 157(d) should be invoked.
III. Application of the automatic stay
Sections 362(a)(1) and (2) of title 11 of the United States Code provide that the filing of a petition in bankruptcy operates as a stay of:
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title. . . . (emphasis added)
The U.S. contends that the claims in the complaint against ILCO all arose after ILCO filed its petition for reorganization on August 20, 1982 and that the automatic stay therefore does not apply. ILCO contends the § 362 stay does apply because this case involves distinctly pre-petition conduct on which an action could have been commenced prior to the filing in the bankruptcy court. As a basis for this argument, ILCO points to several alleged violations which existed prior to 1982. The U.S. responds that because ILCO failed to notify authorities that it had resumed operations after its alleged shutdown in February of 1981, the U.S. was unable to discover ILCO's violations until after the filing in bankruptcy. The inspections of the sites, which revealed ILCO's unlawful hazardous waste practices, and the subsequent sampling, which demonstrated the magnitude of the hazards attributable to these practices, occurred post-petition. The court need not resolve whether this case falls within the ambit of the above quoted portion of § 362, and will assume such to be the case. But, for the reason outlined below, this case is excepted from the automatic stay under § 362(b)(4) and (5).
Congress's purpose in enacting the automatic stay provision was to grant immediate relief to the debtor from creditors and also to prevent dissipation of the debtor's assets before an orderly distribution to creditors could be arranged. Thus, much weight is to be placed on the value of *1023 preserving the debtor's estate. Nonetheless, Congress did recognize that in some circumstances bankruptcy policies were to yield to higher priorities. Section 362(b) lists the exceptions to the § 362(a) automatic stay and includes:
(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power;
(5) under subsection (a)(2) of this section, of the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power. . . .
The purpose of these exceptions is explained in the legislative history of the Code:
Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory powers. Thus, where a government unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such law, the action or proceeding is not stayed under the automatic stay.
S.Rep. No. 95-989 at 52, 1978 U.S.Code Cong. & Ad.News at 5787, 5838; H.Rep. No. 95-595 at 343, 1978 U.S.Code Cong. & Ad.News at 6299 (emphasis added).
Paragraph (5) makes clear that the exception extends to permit an injunction and enforcement of an injunction, and to permit the entry of a money judgment, but does not extend to permit enforcement of a money judgment. Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a government unit of a money judgment would give it preferential treatment to the detriment of all other creditors.
S.Rep. No. 95-989 at 52, 1978 U.S.Code Cong. & Ad.News at 5787, 5838; H.Rep. No. 95-595 at 343, 1978 U.S.Code Cong. & Ad.News at 6299 (emphasis added). Both the U.S. and ILCO agree that the language of § 362(b)(4) excuses this case from the § 362(a) stay. ILCO contends, however, that § 362(b)(5) contains an exception to the (b)(4) exceptionthat since the plaintiff's complaint seeks mandatory injunctive relief, any resulting injunction ordering ILCO to abate the release of hazardous substances and to abate the imminent and substantial endangerment to health and the environment is in fact an attempt to obtain and enforce a money judgment, and therefore, is subject to a stay.
Admittedly, if plaintiff's motion for preliminary injunction is granted and if the permanent injunction is ultimately issued, ILCO, as well as other defendants, will be forced to spend money to clean up the hazardous waste sites. Obviously, this will deplete ILCO's assets to the detriment of other creditors. Congress indicated in § 362(b), however, that preserving the debtor's estate was not always the dominant goal. The legislative history cited above indicates that the enforcement of an injunction ordering compliance with environmental laws is more important than the debtor's right to have a breathing spell from its creditors or than the creditors' rights to an orderly administration of the estate. Furthermore, if courts were to find, as ILCO contends, that an order which requires the expenditure of money is a "money judgment," then "the exception to section 362 for government police [and regulatory] action, which should be construed broadly, would instead be narrowed into virtual nonexistence. . . . [A]lmost everything costs something. An injunction which does not compel some expenditure or loss of monies may often be an effective nullity." Penn Terra Ltd. v. Dept. of Environmental Resources, 733 F.2d 267, 277-78 (3d Cir.1984).
In a case involving similar facts and the effect of the § 362(b)(4) and (5) exceptions, the Third Circuit proposed that *1024 the proper approach for a court to determine whether an injunction is an equitable remedy, or in application, a money judgment, is to focus on the "nature of the injuries which the challenged remedy is intended to redressincluding whether plaintiff seeks compensation for past damages or prevention of future harm. . . ." Penn Terra, 733 F.2d at 278. This court agrees with the Third Circuit's approach, as have several other courts. See In re Laurinburg Oil Company, Inc., 49 B.R. 652 (Bankr.M.D.N.C.1984); Matter of Williston Oil Corp., No. 83-04116, (D.N.J. Sept. 26, 1984). See also Ohio v. Kovacs ___ U.S. ___, 105 S. Ct. 705, 83 L. Ed. 2d 649 (1985), in which the Supreme Court, in distinguishing Penn Terra, apparently approved the Third Circuit's conclusion that an injunction against a bankrupt requiring compliance with the environmental laws in order to prevent future harm is not a suit to enforce a money judgment, and therefore is not subject to the § 362 stay. Id. at 711 n. 11. The U.S. in this case seeks a remedy that will protect this state's citizens from potential future harmthe relief sought against ILCO is not being pursued to compensate for past wrongful acts which have already resulted in injuries. This court concludes that the complaint filed by the U.S., which seeks a court order compelling ILCO as well as other named defendants to remedy environmental hazards, constitutes an equitable action to prevent future harm, rather than an action to enforce a money judgment. The automatic stay provisions of 11 U.S.C. § 362 are therefore inapplicable.
IV. Intervenor's complaint
The State of Alabama and the Alabama Department of Environmental Management's motion for leave to intervene in this action for the purpose of joining the U.S. in the prosecution of its claim against defendants ILCO and Maffei is GRANTED. The automatic stay does not apply to the State's claim seeking injunctive relief for the same reasons the stay does not apply to the U.S.'s claims. The State, however, also seeks to assess civil penalties against ILCO. The State's argument that the automatic stay does apply to the enforcement of a judgment for civil penalties, but does not apply to the entry of a judgment fixing liability for civil penalties is correct. Since the State is pursuing the latter action, the automatic stay does not apply.
V. ILCO and Maffei's motion to add party plaintiff
On April 19, 1985, defendants ILCO and Maffei filed a motion pursuant to FRCP Rules 19 and 20 to add as party plaintiff the Jefferson County Department of Health on the grounds that this department is subject to service of process and that in the absence of joinder, inconsistent burdens and obligations may be imposed upon ILCO and Maffei. On April 29, 1985, the State filed its objection on the grounds that the Department of Health is interested solely in air pollution problems associated with ILCO, and thus, the Department has no interest relating to the subject matter of the pending action. The State's response is correct and therefore, the motion of ILCO and Maffei to add Jefferson County Department of Health as a party plaintiff is DENIED.
VI. Hearing for preliminary injunction
The U.S.'s motion for preliminary injunction is set for a hearing on Tuesday, June 11, 1985 at 9:00 A.M.
NOTES
[1] From November, 1980 through February 24, 1981, ILCO operated as an interim status hazardous waste facility subject to federal regulations. From February 25, 1981 through July, 1984, the federal government authorized the State of Alabama to operate a state hazardous waste program in lieu of the federal program; thus the interim status regulations that ILCO and Maffei allegedly violated during this time period were federally enforceable state regulations. Any violations by defendants occurring after August 1, 1984, are considered violations of federal as opposed to state regulations. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1578702/ | 516 F. Supp. 1155 (1981)
In the Matter of The Complaint of RIO GRANDE TRANSPORT, INC., as owner of S. S. YELLOWSTONE, for exoneration from or limitation of liability.
In the Matter of The Complaint of COMPAGNIE NATIONALE ALGERIENNE DE NAVIGATION, as owner of the Motorvessel IBN BATOUTA, for exoneration from or limitation of liability.
Nos. 78 Civ. 2702, 78 Civ. 5972.
United States District Court, S. D. New York.
June 19, 1981.
*1156 *1157 Joseph C. Smith, Robert B. Pohl, Terry L. Stoltz, Burlingham Underwood & Lord, New York City, for Rio Grande Transport, Inc., plaintiff in 78 Civ. 2702, claimant in 78 Civ. 5972.
Richard H. Brown, Jr., Paul F. McGuire, Kirlin, Campbell & Keating, New York City, for Compagnie Nationale Algerienne de Navigation, conditional claimant in 78 Civ. 2702, plaintiff in 78 Civ. 5972.
Arthur Abarbanel, Schulman & Abarbanel, New York City, for claimants Berry, Cotton, Dickinson, Elgahmi, LaDuke, and Smith.
Paul S. Edelman, Kreindler & Kreindler, New York City, for claimants Lane, Stewart, and Karaba.
H. M. Walker, Jr., Geoffrey W. Gill, Robert E. Anderson, Walker & Corsa, New York City, for claimants Embassy of Tunisia and Office National des Cereales.
OPINION AND ORDER
PIERCE, District Judge.
On June 12, 1978, the S.S. Yellowstone, a ship owned by Rio Grande Transport, Inc. ("Rio Grande"), a New York corporation, carrying a cargo of grain destined for Tunisia, collided in the Mediterranean Sea with the M/V Ibn Batouta, a cargo ship owned by Compagnie Nationale Algerienne de Navigation ("CNAN"). The collision allegedly resulted in the sinking of the Yellowstone, the death of five of her crew-members, injury to several other crewmembers, the total loss of her cargo, property loss of her crewmembers, and damage to the Ibn Batouta.
On June 13, 1978, Rio Grande filed a complaint pursuant to Rule F of the Supplemental Federal Rules of Procedure for Certain Admiralty and Maritime Claims ("Rule F"), for exoneration from or limitation of liability in connection with the June 12, 1978 collision. (78 Civ. 2702). Rio Grande posted a stipulation of value and, pursuant to orders of the Court and statutory notice, various claims for personal injury, wrongful death, and cargo loss were filed against Rio Grande.[1] On September 15, 1978, CNAN filed a "claim for declaratory judgment" by which it seeks a judgment declaring it immune from jurisdiction of the state and federal courts of the United States, under provisions of the Foreign Sovereign Immunities Act of 1976 ("FSIA"), 28 U.S.C. §§ 1330, 1602 et seq., with respect to all claims it anticipated would be filed against it. CNAN also filed a "conditional claim and answer", only to be considered in the event that its sovereign immunity claim is denied. Thereafter, Rio Grande filed a counterclaim against CNAN and all but one *1158 of the claimants filed cross-claims against CNAN.[2]
On December 12, 1978, CNAN filed a complaint pursuant to Rule F for exoneration from or limitation of liability. (78 Civ. 5972). Like its conditional claim filed in 78 Civ. 2702, the Rule F complaint is to be considered only if CNAN's sovereign immunity claim is denied. CNAN posted a stipulation of value and, pursuant to the statutory orders and notice, claims for personal injury, wrongful death, and cargo loss were filed against CNAN. The claimants are substantially identical to those that filed claims against Rio Grande and cross-claims against CNAN in 78 Civ. 2702.[3]
On October 20, 1978, CNAN moved for summary judgment with respect to its claim that it is sovereign immune under the FSIA. By Order dated June 20, 1979, the Court denied CNAN's motion, finding that genuine issues of material fact were present. Thereafter, the Court referred to Magistrate Gershon the supervision of discovery relevant to CNAN's immunity claim. By Order dated September 16, 1978, Rio Grande's action (78 Civ. 2702) and CNAN's action (78 Civ. 5972) were consolidated.
Now before the Court is CNAN's renewed motion for summary judgment with respect to its claim of sovereign immunity. The motion raises apparently novel issues concerning the operation of the FSIA a relatively new statute in the peculiar procedural setting of two limitation of liability actions. For the reasons stated below, CNAN's motion for summary judgment is denied.
Discussion
The general grant of foreign sovereign immunity in the FSIA, 28 U.S.C. § 1604, provides:
"Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter."
Simply stated, the Court must first determine whether CNAN is a foreign state and, if so, then determine whether any of the exceptions of the FSIA are applicable.
I. CNAN as a Foreign State
In support of its motion, CNAN has submitted an attestation of the Algerian Minister of Transportation and an affidavit of the Algerian Charges D'Affaires of Algeria to the United States (certified by the Deputy Chief of Protocol of the United States Department of State). These documents indicate, inter alia, that CNAN is a national corporation of the Republic of Algeria; that the capital of CNAN is provided exclusively by the Republic of Algeria which owns all its shares; and that CNAN was the sole owner of the M/V Ibn Batouta during 1978 and through the present. These documents, uncontraverted by Rio Grande or any claimant, clearly indicate that CNAN is an "agency or instrumentality of a foreign state" as defined by 28 U.S.C. § 1603(b). Accordingly, CNAN is entitled to sovereign immunity unless an exception in the FSIA is applicable.
II. Applicability of FSIA Exceptions
A. Waiver: § 1605(a)(1)
28 U.S.C. § 1605(a)(1) states:
"A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of *1159 this waiver which the foreign state may purport to effect except in accordance with the terms of the waiver."
The parties asserting claims against CNAN contend that CNAN's filing a conditional claim and answer in 78 Civ. 2702 and its filing a conditional limitation proceeding (78 Civ. 5972) constitute a waiver of immunity.
The Court rules that CNAN's actions, viewed in the peculiar procedural context presented herein, did not constitute a waiver of sovereign immunity. CNAN's conditional claim and its limitation complaint reiterate their conditional nature; both are to be considered only in the event that CNAN's request for a judgment declaring it immune is denied.
CNAN apparently foresaw a scenario in which it would not file a claim, conditional or otherwise, against Rio Grande within the time period ordered by the Court pursuant to Rule F's mandate. Thereafter, an action could have been initiated against CNAN by Rio Grande (perhaps in the nature of an impleader) or by anyone who had filed a claim against Rio Grande. In such an action, CNAN would have been able to assert a defense of sovereign immunity. However, if its defense was rejected, CNAN would have been subject to the jurisdiction of the United States courts, but its claim against Rio Grande would by then have been time barred under Rule F. As a practical matter, its claim against Rio Grande for hull damage (and perhaps indemnification) would have been lost forever, because the United States is apparently the only forum in which CNAN could obtain jurisdiction over Rio Grande. (Rio Grande's only asset at the time of the collision was the Yellowstone).
Apparently in an effort to avoid the disadvantages of such a sequence, CNAN filed its declaratory judgment claim and a conditional claim to be pursued only if its sovereign immunity defense was rejected. Similarly, in order to preserve its ability to avail itself of the protections of the Shipowner's Limitation of Liability Act, 46 U.S.C. §§ 181 et seq., in the event that its sovereign immunity defense was rejected, CNAN filed a "conditional" or "protective" limitation complaint. Pursuant to Rule F, such a complaint must be filed within six months after CNAN's receipt of the first written notice of claim against it. Accordingly, CNAN was compelled to file a limitation proceeding prior to adjudication of its sovereign immunity defense.
CNAN did everything possible to preserve substantive rights it reasonably expected it would lose if its sovereign immunity defense was denied; its actions cannot be considered an express or implied waiver of its sovereign immunity defense. This conclusion is consistent with The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 19-20, 92 S. Ct. 1907, 1918, 32 L. Ed. 2d 513 (1972), in which the Supreme Court ruled that a defendant which sought to dismiss a suit brought against it in federal court, on the grounds that the London Court of Justice had exclusive jurisdiction of the dispute pursuant to a contract between the parties did not waive its defense by filing a protective limitation proceeding. Like the defendant in The Bremen, CNAN filed a protective limitation proceeding and conditional claim defensive measures necessary to protect itself.
B. Counterclaim: § 1607
In an argument related to their waiver argument, Rio Grande contends that CNAN's sovereign immunity defense is barred by 28 U.S.C. § 1607(b), which states:
"In any action brought by a foreign state, or in which a foreign state intervenes, in a court of the United States or of a State, the foreign state shall not be accorded immunity with respect to any counterclaim arising out of the transaction or occurrence that is the subject matter of the claim of the foreign state."
Rio Grande contends that its counterclaim against CNAN in 78 Civ. 2702 is covered by this provision. However, as previously discussed, CNAN has not unconditionally intervened in Rio Grande's limitation proceeding. Rather, it has filed a conditional claim to be considered only in the event its sovereign *1160 immunity defense is rejected. CNAN's posture is readily distinguishable from the Republic of France's position in In re Oil Spill by "Amoco Cadiz" Off Coast of France, 491 F. Supp. 161 (N.D.Ill.1979) in which the Court rejected, on the basis of § 1607, France's sovereign immunity defense. In that case, France had filed an unconditional affirmative action, whereas here CNAN has only filed a conditional claim and limitation proceeding. Thus, CNAN's sovereign immunity defense is not entirely abrogated by § 1607(b).[4]
C. Existing International Agreements: § 1604
The general grant by Congress of sovereign immunity to foreign states provided for in 28 U.S.C. § 1604 is "subject to existing international agreements to which the United States [was] a party at the time of the enactment of [the FSIA]." At the time the FSIA was enacted, the United States was a party to a multilateral agreement known as the Convention on the High Seas Done at Geneva on 29 April 1958 ("Convention on the High Seas"), 450 United Nations Treaty Series 510, reprinted in Appendix A to Rio Grande's Brief filed February 6, 1981. Article 9 of that agreement provides:
"Ships owned or operated by a State and used only on government non-commercial service shall, on the high seas, have complete immunity from the jurisdiction of any state other than the flag state."
While this provision relates solely to noncommercial use of state-owned or operated ships, the governments of Albania, Bulgaria, the Byelorussian SSR, Czechoslovakia, Hungary, Poland, Romania, the Ukranian SSR, and the Union of Soviet Socialist Republics all signed the agreement with the reservation that the immunity in Article 9 should extend to commercial service of state-owned vessels. However, the United States signed the Convention with an express objection to the reservations of the above-listed signatories.
Rio Grande and the Tunisian claimants contend that such objection by the United States reflected this country's position that state-owned or operated vessels on commercial service should not have immunity from the jurisdiction of other states, and, therefore, CNAN's sovereign immunity claim asserted in this country is barred by the Convention on the High Seas. Putting aside the troublesome fact that the Republic of Algeria was not a party to the Convention, objections by the United States to the position of other signatories can hardly be considered part of an international agreement. Accordingly, this Court holds that the "international agreement" caveat of § 1604 does not defeat CNAN's sovereign immunity claim.
D. Immovable Property in the United States: § 1605(a)(4)
28 U.S.C. § 1605(a)(4) provides:
"A foreign state shall not be immune from the jurisdiction of the courts of the United States or of the States in any case in which ... rights in immovable property situated in the United States are in issue."
Some of the claimants contend that the limitation fund is immovable property. Indeed, the fund, which consists of freight money earned by the Yellowstone on her final voyage, must be maintained in the United States pending the outcome of this case. Nonetheless, the fund does not appear to be the type of immovable property sought to be protected by § 1605(a)(4). The legislative history of § 1605(a)(4) unequivocally indicates that immovable property refers only to real estate. S.Rep.No.94-1310, 94th Cong., 2d Sess. 20 (1976); H.R.Rep.No. 94-1487, 94th Cong., 2d Sess. 20, reprinted in [1976] U.S.Code Cong. & Ad.News 6604, 6618-19. Thus, CNAN's sovereign immunity claim is not lost by virtue of § 1605(a)(4).
E. Commercial Activity: § 1605(a)(2)
28 U.S.C. § 1605(a)(2), the FSIA "commercial activity" exception, contains three *1161 separate clauses which can defeat a claim of immunity. The claimants contend that the first clause or, alternatively, the third clause is applicable to the case at bar.
1. First Clause
The first clause provides:
"A foreign state shall not be immune from the jurisdiction of courts of the United States or of the State in any case in which the action is based upon a commercial activity carried on in the United States by the foreign state."
The claimants assert that this action is based upon CNAN's commercial shipping activities, which are carried on in the United States.
Broadly speaking, CNAN's commercial shipping activities certainly extend to the United States. The parties have stipulated, inter alia, that CNAN's vessels regularly call at United States ports for loading and discharging of commercial cargos for ocean carriage, CNAN earns substantial income for those activities, and CNAN spends substantial moneys in the United States in connection with its shipping activities.[5] Further, CNAN does not dispute the fact that its shipping activities are commercial in nature.
The issue arising under the first clause is the scope to be given to the words "commercial activity". If commercial activity is defined as CNAN's worldwide shipping activities, then the present action can be said to be based upon a commercial activity having substantial contact with the United States. See 28 U.S.C. § 1603(e). On the other hand, if commercial activity is defined as CNAN's operation of the Ibn Batouta on June 12, 1978 (the ship was on a voyage from Algeria to West Germany) or as CNAN's normal operation of the Ibn Batouta (which apparently maintained regular service between Northern European ports and Algeria), then this action is based upon commercial activity apparently having no contact with the United States. In the former case subject matter jurisdiction would be present, while in the latter case it would be lacking.
Under 28 U.S.C. § 1603(d), a "commercial activity" means "either a regular course of *1162 commercial conduct or a particular commercial transaction or act." If one inserts portions of §§ 1603(d) and (e) into the first clause of § 1605(a)(2), the exception then reads:
"A foreign state shall not be immune from the jurisdiction of the courts of the United States or of the States in any case in which the action is based upon a regular course of commercial conduct carried on by such state and having substantial contact with the United States."
Thus, the issue is narrowed to whether the "regular course of commercial conduct" is limited to CNAN's operation of the Ibn Batouta between Europe and Algeria or includes CNAN's worldwide operation of more than 70 vessels.
While there is a growing body of case law concerning the distinction between commercial activity and governmental activity, see Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 at 309 (2d Cir. 1981) ("Texas Trading"), there are no reported cases of which the Court is aware dealing with the scope to be afforded "regular course of commercial conduct."[6] By defining "commercial conduct" broadly, the Congress apparently did not intend to require that the specific commercial transaction or act upon which an action is based have occurred in the United States or have had substantial contact with the United States; only the broad course of conduct must be so connected. But see Sugarman v. Aeromexico, Inc., 626 F.2d 270 (3d Cir. 1980). Thus, the first clause of § 1605(a)(2) appears to be a broad grant of subject matter jurisdiction over the commercial activities of foreign states similar to state-exercised long-arm jurisdiction. Consistent with "Congress' concern with providing `access to the courts' to those aggrieved by the commercial acts of a foreign sovereign," Texas Trading, at 313, this Court rules that a broad interpretation should be accorded "regular course of commercial conduct."[7] The Court thus finds that the present action is based upon CNAN's worldwide shipping activities which have substantial contact with the United States. Accordingly, the Court has subject matter jurisdiction over the claims against CNAN.
2. Third Clause
Recognizing that the issue of whether the Court has subject matter jurisdiction pursuant to the first clause of § 1605(a)(2) presents a novel question, an analysis of the third clause exception of § 1605(a)(2) seems warranted. That clause provides:
"A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case in which the action is based upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States."
Thus, this third clause would require interpretation in the event that a reviewing Court were to find, with reference to the first clause, that CNAN's commercial activity did not include its worldwide shipping activity, but merely its operation of the Ibn Batouta, that is, commercial activity of the foreign state elsewhere.
Assuming then that the third clause, rather than the first clause is applicable, the pivotal issue is whether CNAN's "act" (i. e., the collision of the Ibn Batouta with the Rio Grande) caused a "direct effect in the United States." The "direct effect" requirement was the subject of extensive discussion by the Second Circuit in Texas Trading, which concluded "that neither `direct' *1163 nor `in the United States' is a term susceptible of easy definition", id., at 313. The Court apparently rejected the formulation of § 18 of the Restatement 2d of Foreign Relations Law of the United States, including its requirement that the direct effects be "substantial" or "foreseeable". Id., at 311 n.32. Interestingly, however, in footnote 35 the Circuit approved the holdings of Harris v. VAO Intourist, Moscow, 481 F. Supp. 1056 (E.D.N.Y.1979) (plaintiff's decedent killed in Moscow hotel fire) and Upton v. Empire of Iran, 459 F. Supp. 264 (D.D.C.1978), aff'd mem., 607 F.2d 494 (D.C. Cir.1979) (plaintiff injured by collapsed roof in Tehran), tort cases in which direct effects were limited to the direct injury to each plaintiff and, thus, not extended into the United States. Finally, the Texas Trading panel observed that "whether an American corporation injured overseas incurs a direct effect in the United States remains an open question." Id. at n.35. That open question is now before this Court.
The sinking of the Yellowstone off the coast of Gibraltar as an alleged result of a collision with the Ibn Batouta undoubtedly caused a direct effect on Rio Grande. In determining whether that direct effect was located "in the United States", the Circuit has instructed district courts to be mindful of "Congress' concern with providing `access to the courts' to those aggrieved by the commercial acts of a foreign sovereign." Id., at 313. CNAN's uncontroverted evidence indicates that on the date of the collision, the Yellowstone was the sole source of income of Rio Grande, a New York corporation, and, accordingly, Rio Grande was unable to earn freight or other monies for a considerable period of time after the collision. Affidavit of Stanley S. Unger, Vice President of Rio Grande, ¶ 5, sworn to February 4, 1981. In light of Congress' intention in enacting the FSIA, as discussed in Texas Trading, this Court rules that the collision of CNAN's Ibn Batouta with the Yellowstone had a direct effect in the United States.[8]
The remaining question is whether the finding of this single direct effect is sufficient to convey subject matter jurisdiction over all the claims asserted against CNAN or whether a direct effect must be shown with respect to each claimant on an individual basis. The FSIA abrogates sovereign immunity "in any case in which the action is based upon ... an act [by a foreign state] that causes a direct effect in the United States." (Emphasis added). If the "action" herein is interpreted to be Rio Grande's limitation proceeding, which encompasses all cross-claims asserted against CNAN, or, alternatively, CNAN's limitation proceeding, which encompasses all claims asserted against CNAN, then the Court would have jurisdiction over all the claims asserted against CNAN. On the other hand, if the "action" is interpreted to be each individual claim or cross-claim asserted against CNAN, then the Court would have subject matter jurisdiction over Rio Grande's claim and the cargo claim of the Tunisian claimants, but not over the wrongful death and personal injury claims.[9]
*1164 The policies of the FSIA and the Shipowner's Limitation of Liability Act, 46 U.S.C. § 181 et seq., appear to favor the interpretation that would convey subject matter jurisdiction over all the claims asserted against CNAN. 28 U.S.C. § 1607(b) apparently favors the adjudication in the American courts of all claims against a foreign state arising from the same transaction or occurrence, once an American court rules that it has jurisdiction over some part of the foreign state's action or intervention in an action. Since the Court has determined that it has subject matter jurisdiction over both Rio Grande's claim and Tunisia's claim against CNAN, CNAN's limitation action (78 Civ. 5972) and its claim against Rio Grande in 78 Civ. 2707 are no longer protective or conditional. The underlying policy of § 1607(b) with respect to counterclaims suggests that the Court has subject matter jurisdiction over all claims by Americans arising from the June 12, 1978 collision. Furthermore, the exercise of subject matter jurisdiction over the claims for wrongful death and personal injury is supported by the "concursus" policy of limitation proceedings which favors the adjudication in one proceeding of all claims relating to a disaster on the high seas. See British Transport Commission v. United States, 354 U.S. 129, 77 S. Ct. 1103, 1 L. Ed. 2d 1234 (1975).
Accordingly, in the event that this Court's interpretation of the scope of "commercial activity" under the first clause of § 1605(a)(2) is found to be incorrect, the Court rules that it has subject matter jurisdiction over all the claims against CNAN pursuant to the third clause of § 1605(a)(2).
3. Personal Jurisdiction Over CNAN
Since subject matter jurisdiction exists and service has been made in compliance with 28 U.S.C. § 1608, the Court has statutory personal jurisdiction over CNAN. 28 U.S.C. § 1330(b). With respect to the constitutional constraints on personal jurisdiction, application of the four factors set forth in Texas Trading, at 314, indicates that the exercise of personal jurisdiction over CNAN does not offend traditional notions of fair play and substantial justice. Id. at 314, citing International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945). The facts set forth in the stipulation and order filed on December 22, 1980, see note 5, supra, indicate that CNAN has repeatedly and purposefully availed itself of the privileges of conducting commercial activities in the United States. In light of those facts and the fact that United States flagships operate throughout the world, litigation in the United States was reasonably foreseeable to CNAN. While CNAN will undoubtedly experience some inconvenience of litigating in the United States, its claim of inconvenience must be measured against its conduct of regular commercial activity in the United States. Finally, the United States has a strong interest in hearing these suits, since an American corporation is one of the complainants and American claimants are involved. In conclusion, the Court's exercise of personal jurisdiction over CNAN satisfies the constitutional requirements as discussed in Texas Trading.
Conclusion
CNAN's motion for summary judgment with respect to its claim that it is immune from the jurisdiction of this Court under the FSIA is denied. The Court holds that it has jurisdiction over CNAN's person and over all the claims asserted against CNAN in these consolidated actions.
SO ORDERED.
NOTES
[1] These claims include three wrongful death claims on behalf of Yellowstone crewmembers (Emily Karaba for William Karaba, Kathleen F. DiNino for Carter Lane, and Anne Marie Shaugnessy for Peter Kenneth Shaugnessy); fourteen personal injury claims by Yellowstone crewmembers (Thomas W. Berry, Samuel Dickinson, Abdulwali Elgahmi, Francis Smith, Jerry LaDuke, Hammond N. Jahafi, Wilbur M. Gee, Paul Aubain, Robert L. Cotton, Joseph Belmonte, Jr., John S. Clark, Henry Kozlowski, Gerald LaMontaine, Mitchell Donald Stewart); one property loss claim by a Yellowstone crewmember (Marcellus Mejaries); a cargo claim by the Embassy of Tunisia and Tunisia's Office National des Cereales; and a "conditional claim" by CNAN for damage to its vessel.
[2] All of the claimants listed in footnote 1, supra, filed a cross-claim against CNAN except Mejaries.
[3] All of the claimants listed in footnote 1, supra, filed a claim against CNAN except Belmonte and Mejaries. All of the claims were timely filed, except for those of Clark, Kozlowski, and LaMontaine which were filed after the Court-ordered deadline. In addition to the aforementioned claimants, a wrongful death claim on behalf of George T. Wright (apparently a deceased Yellowstone crewmember) was filed against CNAN.
[4] As discussed infra at 1164, the provision does afford a toehold by which the Court has jurisdiction over some of the claims asserted against CNAN.
[5] Due to the importance of the stipulated facts, with regard to both subject matter jurisdiction and personal jurisdiction, the full text of the December 22, 1980 Stipulation and Order is set forth in full:
"It is hereby stipulated and agreed, solely for the purpose of determining Compagnie Nationale Algerienne De Navigation's ("CNAN's") claim to immunity under 28 U.S.C. §§ 1331, 1602 et seq. in this matter and in 78 Civ. 5972 (LWP) that CNAN is doing business in the United States by virtue of the following:
"1. CNAN's vessels, either owned or chartered in by it, systematically and regularly call at United States ports for loading and discharging of commercial cargoes for ocean carriage, the majority of which is loaded at United States ports;
"2. CNAN earns a substantial income from this ocean carriage of commercial goods to or from United States ports, the major portion of which is earned with respect to cargoes shipped from United States ports;
"3. CNAN spends substantial moneys in the United States by virtue of its vessels calling at United States ports including repair and maintenance costs for such vessels;
"4. CNAN charters out some of its vessels to the United States companies;
"5. On a systematic and regular basis (including daily in the Journal of Commerce), CNAN advertises its vessels which call at United States ports to solicit commercial cargoes for ocean carriage;
"6. CNAN has appeared as defendant in litigation in the United States arising out of the ocean carriage of commercial goods to and from United States ports without asserting the defense of sovereign immunity.
"7. From September 1977 through December 31, 1978, CNAN was a member of the U. S. South Atlantic/Spanish, Portuguese, Moroccan and Mediterrean Rate Agreement No. 10261 Freight Tariff No. 1 FMC-1, participating in the bi-weekly meetings held in New York to discuss the rates, and sharing the expenses of the rate conference;
"8. CNAN has for at least 6 years and does now maintain a general agent in the United States for purposes of soliciting business and servicing its vessels which regularly and systematically call at ports in the United States; and
"9. CNAN has handled, through its P&I Club's United States representatives (Messrs. Frehill, Hogan & Mahar), cargo claims against itself and its vessels arising out of the ocean carriage of commercial goods to and from United States ports."
[6] Although the first clause of § 1605(a)(2) was at issue in Gemini Shipping, Inc. v. Foreign Trade Organization for Chemicals and Foodstuffs, 647 F.2d 317 (2d Cir. 1981), the discussion focused on the "carried on in the United States" requirement, and provides little guidance on the issue presented herein.
[7] Of course, this broad grant of subject matter jurisdiction is subject to the constitutional constraints of the exercise of personal jurisdiction. See infra, at 1164.
In addition, a broad interpretation of the first clause, contrary to CNAN's contentions, does not render the second and third clauses redundant.
[8] The Tunisian cargo claimants contend that at the time of the collision, the Yellowstone, as an American flag vessel, was "territory subject to the jurisdiction of the United States" and, therefore, the collision with her had a direct effect in the United States. While this argument finds support in some nineteenth century Supreme Court cases, more recent cases indicate that the proposition that a merchant ship is a part of the territory of the country whose flag she flies is "a figure of speech, a metaphor." Cunard S.S. Co. v. Mellon, 262 U.S. 100, 123, 43 S. Ct. 504, 507, 67 L. Ed. 894 (1923) (collecting cases); see also Restatement 2d, Foreign Relations Law of the United States, § 18, Reporter's Note 1, at p. 53.
[9] The loss of Tunisia's grain cargo had a direct effect in the United States because the grain was purchased through the United States government's P.L. 480 program; the loss of the grain impeded American foreign policy means and objectives. See Affidavit of Robert E. Anderson, Esq., sworn to November 20, 1978. Further, the claim by the Embassy of Tunisia and Tunisia's Office National des Cereales is not barred by the Circuit's recent decision in Verlinden B. V. v. Central Bank of Nigeria, 647 F.2d 320 (2d Cir. 1981). The Tunisian claim against CNAN "arises under the law that creates the cause of action" and "discloses a need to interpret a federal law" (i. e., 46 U.S.C. § 181 et seq.). Verlinden, supra, at 325-26. With respect to the personal injury and wrongful death claims, although the injuries to and deaths of Yellowstone crewmembers undoubtedly had effects in the United States, the Court would be compelled by footnote 35 of Texas Trading to rule that those effects were not direct. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1597354/ | 638 So. 2d 794 (1994)
The UNIVERSITY OF ALABAMA HEALTH SERVICES FOUNDATION, P.C.
v.
Faith Reagan BUSH, a minor, By and Through her father and next friend, William R. BUSH.
1921452.
Supreme Court of Alabama.
February 11, 1994.
Rehearing Denied April 8, 1994.
*795 Robert D. Norman and Thomas A. Kendrick of Norman, Fitzpatrick, Wood, Parker & Kendrick, Birmingham, for appellant.
Stephen D. Heninger of Heninger, Burge & Vargo, Birmingham, and Carl Wade Robinson and Carl R. Robinson, Bessemer, for appellee.
HORNSBY, Chief Justice.
This is a medical malpractice case. Because the complaint was filed before June 11, 1987, the Alabama Medical Liability Act of 1987, Ala.Code 1975, § 6-5-540 et seq., is not applicable to this action. Section 6-5-552. Thus, the "similarly situated health care providers" standard mandated by § 6-5-548 does not apply. Further, the law of this case includes the "scintilla" rule of evidence, because the Act's "substantial evidence" standard provided for in § 6-5-549 is also inapplicable.
On February 2, 1987, Faith Reagan Bush ("Reagan"), through her father, William Bush, brought claims alleging medical malpractice against The Children's Hospital of Alabama ("Children's Hospital"), The University of Alabama Health Services Foundation, P.C. ("the Foundation"), Dr. Rutherford Polhill, Dr. David Reynolds, and Dr. Mark Didea, relating to the diagnosis and treatment of the Hemophilus influenza meningitis she contracted in April 1982. The claims against Drs. Polhill and Reynolds were dismissed, and the jury found in favor of Children's Hospital and Dr. Didea. However, the jury returned a verdict against the Foundation in the amount of $1,500,000. The Foundation appeals from a judgment based on that verdict.
I. Facts
Reagan was born on January 31, 1979, with severe birth defects relating to the formation of her brain and spinal canal. These abnormalities included spina bifida with myelomeningocele, a defect in the lumbar portion of the spinal canal causing her spinal cord to protrude through the skin of her lower back and causing her to be paralyzed from the waist down; Arnold-Chiari malformation, a condition wherein the medulla portion of her brain protruded down into her upper spinal *796 canal; and hydrocephalus, a condition in which excessive cerebrospinal fluid collects in the brain because of poor circulation and absorption of that fluid and which causes abnormal pressure to be placed on her brain tissue.
Shortly after Reagan's birth, a special tube called a "shunt" was placed into her brain to help control her hydrocephalus by draining excessive cerebrospinal fluid into her peritoneal cavity. As she has grown older, Reagan has undergone multiple neurosurgical procedures for revision of her shunt, which has malfunctioned several times and caused severe fluid compression of her brain. In November 1981, approximately six months before her episode of meningitis, Reagan scored a 99 on an IQ test, indicating that at that time she possessed an average intelligence.
A. Dr. Didea's Treatment
At approximately 2:00 a.m. on April 24, 1982, Reagan's parents took her to the emergency room at the Children's Hospital, located in Birmingham. She was suffering from fever, diarrhea, and vomiting. Reagan was seen by one of her pediatricians, Dr. Polhill, who admitted her to the hospital and put her on intravenous fluids. Later that day she was also seen by Dr. Didea, a second-year resident at the University of Alabama School of Medicine, and Dr. Reynolds, her other pediatrician. Reagan's condition improved, and on the morning of April 25, after Dr. Didea had observed her and discussed her condition with Dr. Reynolds, her doctors decided that she could be dismissed.
However, before Reagan's discharge, her mother noticed that she was favoring her neck, and her mother asked if Reagan could be examined for meningitis. Dr. Didea observed Reagan's condition, checked her neck, and concluded that she showed no sign of meningitis. However, Dr. Didea failed to record the extent and thoroughness of this examination in Reagan's medical records. Reagan was discharged from Children's Hospital at 10:50 a.m., April 25, with orders to return to see her pediatrician, if she needed to.
Reagan's parents took her home, but that afternoon her temperature increased and they returned to the emergency room of Children's Hospital. The emergency room doctors determined that Reagan might have a shunt malfunction, and she was sent to the emergency room at the University of Alabama at Birmingham ("UAB") Hospital for neurological evaluation. Reagan came into the UAB Hospital emergency room at 4:50 p.m. on April 25 and was seen by Dr. Zeiger, the neurosurgeon on call, and Dr. Kendrick, a third-year neurosurgical resident.
Because Dr. Zeiger's treatment of Reagan is the focus of this appeal, we have examined it in great detail. The order in which the facts are set forth below accurately represents the chronology of events in Dr. Zeiger's treatment of Reagan, although these facts do not necessarily appear in the record in the same order.
B. Dr. Zeiger's Treatment
1. Upon Reagan's arrival at the UAB Hospital emergency room at 4:50 p.m. on April 25, Dr. Zeiger noted that Reagan had been released from Children's Hospital earlier that day, after suffering from fever, vomiting, and diarrhea. She presented to the UAB emergency room with a rigid neck and a low fever.
2. Dr. Zeiger's initial admitting diagnosis for Reagan was meningitis, and he ordered that she be treated with the antibiotic Mefoxin; however, the hospital staff did not administer it at that time. Dr. Zeiger was also concerned that Reagan's shunt might be malfunctioning; a shunt malfunction is a common problem for children with shunts.
3. A tap of Reagan's shunt yielded cerebrospinal fluid, indicating that fluid was moving through the shunt and that the shunt was functioning properly.
4. Once a shunt malfunction was ruled out, Dr. Zeiger's next concern was the possibility of a shunt infection without a concurrent malfunction of the shunt.
5. Dr. Zeiger examined the fluid drawn from Reagan's shunt and found that the levels of protein and white blood cells were normal; the normal levels indicated that there was no infection of the cerebrospinal fluid in her brain.
*797 6. Dr. Zeiger and Dr. Kendrick reviewed the other possible causes of Reagan's illness, which was still symptomatic of meningitis.
7. Dr. Zeiger eventually theorized that the Arnold-Chiari malformation of Reagan's brain, extending into the spinal canal, may have developed to such an extent as to create a separate compartment of spinal fluid that did not circulate completely with the other areas of her spinal canal and her brain, as would normally occur. He believed that it was possible that so much of Reagan's brain may have protruded into her upper spinal canal as to create a compartment that spinal fluid could enter through what would effectively be a one-way valve, but could not thereafter circulate through the rest of Reagan's spinal column and her brain.
8. Dr. Zeiger decided that it was necessary to do a spinal tap to obtain a sample of Reagan's cerebrospinal fluid from a point other than her shunt tube. However, a normal spinal tap was not possible, because the myelomeningocele deformation in Reagan's lower spinal column caused her to not have the fluid sack at the base of her spinal column where such taps are normally performed.
9. Before the spinal tap was done, a CAT scan of Reagan's brain was performed. The CAT scan was normal for a child with Reagan's abnormalities and revealed no any sign of infection affecting brain tissue.
10. Dr. Kendrick performed the spinal tap at 10:30 p.m. on April 25. Examination of the spinal fluid sampled by Dr. Kendrick's spinal tap showed that Reagan did have an infection in an area of cerebrospinal fluid that was not in circulation with the cerebrospinal fluid being drawn from her brain by the shunt.
11. Based on his knowledge that 96% of all shunt-related meningitis infections are caused by Staphylococcus bacteria, Dr. Zeiger ordered that Reagan be admitted and treated with the antibiotic Mefoxin. Dr. Zeiger continued with his diagnosis that the meningitis infection was related to Reagan's shunt, even though the spinal fluid drawn from the shunt itself was not infected. Dr. Zeiger chose not to put Reagan on the antibiotic ampicillin.
12. The antibiotic Mefoxin was not actually administered to Reagan until 3:00 a.m. on April 26, more than 4 hours after her spinal tap and 10 hours after she had been come into the emergency room with an initial diagnosis of meningitis. Mefoxin was again administered to Reagan at 6:00 a.m.
13. Laboratory testing of Reagan's infected spinal fluid later revealed that it was infected by Hemophilus influenza, the most common cause of meningitis in young children, and not Staphylococcus bacteria as Dr. Zeiger had assumed. Because of the laboratory results, the medication for Reagan's meningitis was changed from Mefoxin to a combination of ampicillin and chloramphenicol, antibiotics that are more specific for Hemophilus influenza meningitis and that are the standard treatment for that particular illness.
14. Reagan was transferred to Children's Hospital after 9:00 a.m. on the morning of April 26, and she finally underwent treatment with ampicillin and chloramphenicol, more than 16 hours after she was first seen by Dr. Zeiger at the UAB Hospital emergency room with symptoms of meningitis.
15. Reagan's condition deteriorated greatly and she was near death before she recovered and was able to be discharged. She remained in Children's Hospital until May 15, 1982.
C. Reagan's Condition Following Hemophilus Influenza Meningitis
During Reagan's hospitalization for meningitis, she nearly died; she suffered temporary blindness and hearing loss, although her sight and hearing returned shortly after her discharge. She also began to suffer seizures, and she continues to take medication to prevent seizures. She developed a condition called nystagmus, or "dancing eyes," which causes her difficulty in focusing her vision.
Notably, in July 1984, two years after Reagan's illness with meningitis, she scored 98 on an IQ testnearly identical to her score of 99 on the test given six months before her meningitis. However, several years later, in *798 January 1987, she scored 72. Finally, in May 1990, Reagan scored only 59, indicating that her intelligence had decreased to a very low level.
II. Procedural History
As noted previously, in February 1987, Reagan brought medical malpractice claims against Children's Hospital, the Foundation, Dr. Polhill, Dr. Reynolds, and Dr. Didea; the claims related to the diagnosis and treatment of her meningitis. Reagan's parents also brought individual claims against the same defendants. It is worth noting that neither Dr. Zeiger nor Dr. Kendrick was named as a defendant in the action.
The individual claims brought by Reagan's parents were dismissed by the trial court as untimely. Drs. Polhill and Reynolds were dismissed by stipulation. Thereafter, in February 1993, the trial began against Children's Hospital, the Foundation, and Dr. Didea. Reagan claimed at trial that Dr. Didea was negligent in failing to properly examine her and evaluate her condition before her initial discharge from Children's Hospital on April 25, 1982. She also claimed that Dr. Didea was an agent of the Foundation, so that the Foundation was vicariously liable for Dr. Didea's negligence, under the doctrine of respondeat superior. Reagan further alleged that the Foundation was also vicariously liable for the negligence of Drs. Zeiger and Kendrick, who treated her after her transfer to UAB Hospital on the evening of April 25, 1982.
The Foundation is a nonprofit professional corporation established by the faculty of the University of Alabama School of Medicine and, in part, acts as a billing service for those physicians. Only physicians on the faculty of the medical school and third-year medical residents receive income from the Foundation. It is clear from the record that Dr. Zeiger was an employee of the Foundation at the time he treated Reagan Bush.
The jury returned a verdict in favor of the Children's Hospital and Dr. Didea, but found the Foundation liable and awarded $1,500,000 in damages. The Foundation renewed its motion for a directed verdict through a motion for a judgment notwithstanding the verdict or, in the alternative, a new trial. The trial court denied the motion for JNOV or a new trial. The Foundation has appealed from a judgment entered on the verdict.
III. Issues
The Foundation contends that the trial court erred in denying its motion for JNOV or a new trial because (1) it claims that Reagan failed to prove by expert testimony that an agent of the Foundation breached the appropriate standard of medical care, (2) it claims that Reagan failed to prove by expert testimony that the alleged medical malpractice proximately caused her injury; and (3) it claims that the trial judge gave an erroneous charge to the jury regarding the legal standard for determining causation in a medical malpractice case.
IV. Standard of Review
"A motion for JNOV is properly granted only when: 1) there is either (a) a complete absence of proof on a material issue of fact or (b) no factual controversy upon which reasonable people could differ; and 2) the movant is entitled to a judgment as a matter of law." Baptist Memorial Hosp. v. Bowen, 591 So. 2d 74, 76 (Ala.1991); Deaton, Inc. v. Burroughs, 456 So. 2d 771 (Ala.1984). In sum, a JNOV should be granted only if "there can be only one reasonable conclusion from the evidence as to the proper judgment." Luker v. City of Brantley, 520 So. 2d 517, 521 (Ala.1987).
Because the Foundation's motion for JNOV tests the sufficiency of the evidence supporting Reagan's claim, we must perform our review of the trial court's denial of the motion with the proper burden of proof in mind. In a medical malpractice case, the plaintiff must prove by expert testimony that the physician breached the standard of care and by the breach proximately caused the plaintiff's injury. Levesque v. Regional Medical Center Bd., 612 So. 2d 445, 448 (Ala. 1993); Dobbs v. Smith, 514 So. 2d 871 (Ala. 1987).
However, the law does not place the physician at the mercy of professional colleagues. Where several methods of treatment would be appropriate, a physician choosing one of those appropriate methods is not shown to have breached the standard of *799 care by testimony of the plaintiff's expert that the expert would have chosen a different one. Hines v. Armbrester, 477 So. 2d 302, 307 (Ala.1985); Sims v. Callahan, 269 Ala. 216, 225, 112 So. 2d 776, 783 (1959).
The Foundation also moved, in the alternative, for a new trial, based on the contention that the court had given an erroneous charge to the jury. This Court has said, "A strong presumption of correctness attaches to a trial court's ruling on a motion for new trial, and the ruling will not be disturbed by this Court unless some legal right is abused and the record plainly and palpably shows the trial judge to be in error." McDowell v. Key, 557 So. 2d 1243, 1246 (Ala.1990). However, "where the record reveals that an erroneous charge is given to the jury, a new trial is required." McDowell, 557 So.2d at 1246.
V. Sufficiency of Evidence on Alleged Breach of Standard of Care
We first note that the Foundation's liability in this case is based on the doctrine of respondeat superior, or vicarious liability. However, the Foundation's liability cannot be founded on the alleged negligence of Dr. Didea, who Reagan claimed was an agent of the Foundation. The jury found that Dr. Didea was not negligent in his treatment of Reagan. Under the doctrine of respondeat superior, the master cannot be liable unless one of the master's servants has been found to be negligent. Otwell v. Bryant, 497 So. 2d 111 (Ala.1986).
However, we have ruled: "Where the liability of the master may be rested on ... the negligence of employees other than the employee who was made a defendant, a verdict against the master, but exonerating the employee who was made a defendant, is not inconsistent." Atlantic Coast Line R.R. v. Kines, 276 Ala. 253, 258, 160 So. 2d 869, 873 (1963). Thus, in this case, the Foundation's liability must rest, if at all, on the negligence of an employee who was not named as a defendant.
To support her claim of medical malpractice against the Foundation, Reagan offered the expert testimony of Dr. Lloyd Olson, a pediatrician specializing in pediatric infectious diseases, and offered information from several medical treatises. In addition to his testimony relating to Dr. Didea, Dr. Olson offered testimony regarding the actions of Dr. Zeiger, an employee of the Foundation who was not named as a defendant. Dr. Olson was generally not critical of Dr. Zeiger's action's taken until the time of Reagan's spinal tap. His testimony focused on Dr. Zeiger's decision to treat Reagan's meningitis, which, when the decision was made, was still unidentified as to the exact type of infection, with the antibiotic Mefoxin rather than with a combination of ampicillin and chloramphenicol, which was the recognized standard treatment for childhood meningitis.
On direct examination, Dr. Olson testified:
"[DR. OLSON]: Yes. I mean, they they appreciated the fact that her neck was stiff; that this indicated an infection or possibility of an infection of the central nervous system. A shunt infection, again, would certainly be at the top of the list. They took this fluid off for analysis. That proved to be normal.
"So then they proceeded with the next step, which would be on the list, meningitis; and they did the lumbar puncture and found that she, indeed, had meningitis.
"[ATTORNEY FOR REAGAN]: All right, doctor. And what treatment was instituted?
"[DR. OLSON]: Well, an antibiotic was ordered, which is called Mefoxin and although that was not administered until, I think, three o'clock the next morning.
"[ATTORNEY FOR REAGAN]: All right, sir. Was that appropriate treatment in your opinion?
"[DR. OLSON]: No, it was not. In a child this age, there are three main different kinds of bacteria which might cause this kind of infection, and there's a standard antibiotic regimen, at least there was at that time, that would be used empirically to cover all those three possibilities and actually most of the others that would occur also, which are two antibiotics called ampicillin and chloramphenicol. That's a regimen that's been in place since probably the late 1960's for this clinical situation.
*800 "Mefoxin is an antibiotic which is not indicated for any central nervous system infection and would not have the spectrum nor tissue level required to treat these kinds of infections.
"....
"[ATTORNEY FOR REAGAN]: In your opinion, what antibiotic should have been given?
"[DR. OLSON]: Well, the standard regimen which in 1982, I think, virtually all pediatric infectious disease [physicians] or all pediatricians would adhere to would have been the combination of ampicillin and chloramphenicol because it directly was effective against those most common bacteria that cause meningitis in children.
"....
"[ATTORNEY FOR REAGAN]: Doctor, based on the facts that you've stated that the doctors at the University Hospital failed to administerI better ask you this.
"Was the failure to administer chloramphenicol and ampicillin from 10:30 at night until nine the next morning, was that a deviation from the standard of care ordinarily exercised in the national medical community in 1982, in your opinion?
"[DR. OLSON]: In my opinion the standard of care was to administer effective antibiotics as soon as possible after the diagnosis was made."
(Emphasis added.)
Reagan's counsel also offered medical treatises as evidence of the proper standard of care for the treatment of meningitis. In sum, those treatises tended to show that it is critical to begin treating meningitis with an effective antibiotic as soon as possible and that the family of drugs to which Mefoxin belongs was not effective in the treatment of meningitis.
The counterpoint to Dr. Olson's expert testimony and the information from medical treatises admitted into evidence is the testimony of Dr. Zeiger, Reagan's attending neurosurgeon at UAB Hospital, who, upon finding that Reagan had an infection in her spinal fluid, ordered that she be treated with Mefoxin rather than a combination of ampicillin and chloramphenicol. In defense of his choice of the antibiotic Mefoxin, Dr. Zeiger testified as follows:
"[ATTORNEY FOR FOUNDATION]: Now, what antibiotic did you start with Reagan there after the spinal tap?
"[DR. ZEIGER]: We had a long discussion about what would be the very best treatment for Reagan. Again, we've got a rare situation. We've got a situation that we've never seen or heard of. We had evidence of infection that was compartmentalized in one area and not present in the brain. And based on experience and what we had been taught in the presence of a shunt ninety-six to ninety-nine percent of infections are due to Staphylococcus. Virtually, all infections in the presence of a shunt are due to Staphylococcus.
"[ATTORNEY FOR FOUNDATION]: Now, tell us what staphylococcus is.
"[DR. ZEIGER]: That's a bug that is present on everybody's skin. And in the presence of a shunt, which is a foreign body, without a shunt it's usually not a pathogen, meaning it usually can't cause an infection. But when you have a shunt, which is a foreign body, inside the body invading the body, it lowers the body's resistance to infection, and that's why these children are more prone to infection.
"In the presence of a shunt, the Staphylococcus which is on the skin can either get through the skin or could have gotten on the shunt when it's put through the skin and can cause infection. And so that's why ninety-six to ninety-nine percent of them are due to Staphylococcus.
"[ATTORNEY FOR FOUNDATION]:
Now, you knew you had already tapped the shunt, and you knew that you didn't have infection there in the fluid in the shunt.
"[DR. ZEIGER]: Yes, sir.
"[ATTORNEY FOR FOUNDATION]:
Did you still suspect that it might be a staph infection even though you didn't find infection there in the shunt?
"[DR. ZEIGER]: Yes, sir.
"[ATTORNEY FOR FOUNDATION]:
And why would that be?
*801 "[DR. ZEIGER]: Well, it could be that the infection had just not gotten that far yet or could have been in another part of the shuntyou see the fluid we got was out of the ventricle, but remember I showed you on the surface of the brain there was some more fluid, and we thought that there could have been Staphylococcus there. So even in that situation the most likely bug was Staphylococcus because there [were] other places that the shunt could have been touching that could be infected. And sometimes the infection is on the outside of the shunt and not the inside. These staphylococcal infections are fairly slow growing things, and it takes them some time to crawl along and get to different areas of the shunt.
"[ATTORNEY FOR FOUNDATION]: Why did you choose Mefoxin as an antibiotic to use in treating this?
"[DR. ZEIGER]: Mefoxin is what's called a third generation cephalosporin, meaning it was one ofat that time it was fairly new. It's a very safe drug, very little allergic reaction to it. It also has a broad spectrum of coverage. In other words, it covers a lot of different bacteria. It's very good for Staphylococcus.... It covers Hemophilus influenza and many other gram negative bugs. And the most commoneven though the chance of her having another kind of meningitis like Hemophilus influenza were only one or two percent, it would still cover that.
"... It would cover a lot more bugs than ampicillin. Ampicillin does not cover Staphylococcus, which is what this was ninety-six percent of the time. And so it seemed like an excellent choice of drug at the time."
(Emphasis added.)
Dr. Zeiger further explained his decision to treat Reagan with Mefoxin rather than ampicillin and chloramphenicol:
"[ATTORNEY FOR FOUNDATION]: Now, Dr. Zeiger, would you agree with Dr. Olson if he testified that Reagan should have been placed on ampicillin and chloramphenicol immediately upon obtaining the shunt tap rather thanI mean, the spinal taprather than Mefoxin?
"[DR. ZEIGER]: No, sir. That would have been a stupid thing to do.
"....
"[ATTORNEY FOR FOUNDATION]:
Okay, are there any risks involvedwell, would it have been good medical practice to administer ampicillin and chloramphenicol to treat a child that comes in with an infection that has a shunt?
"[DR. ZEIGER]: No, sir.
"[ATTORNEY FOR FOUNDATION]: And why would that be?
"[DR. ZEIGER]: Because ninety-six percent of the timewhat we're talking about is the initial treatment. See, the problem is you don't know what's causing the infection when they come in.... And so you have to go with the odds until you get the final results from the test[s] that show what's causing the infection. So it makes sense to use an antibacterial, an antimicrobial, an antibiotic that covers both staph and Hemophilus influenza, not just one that covers Hemophilus influenza. Ampicillin is no good for staph. Staph would grow like crazy and then you've got trouble."
(Emphasis added.)
After hearing all of this conflicting testimony, the jury found that the Foundation was liable for negligent treatment of Reagan's meningitis. As noted previously, the only physician on which the Foundation's vicarious liability could be based would be Dr. Zeiger or Dr. Kendrick. Thus, the first issue we must face is whether Dr. Olson's expert testimony and the information from medical treatises also offered by Reagan, taken as a whole, represented a "scintilla" of evidence that either Dr. Zeiger or Dr. Kendrick was negligent in diagnosing and treating Reagan's Hemophilus influenza meningitis, which would make that issue a proper question for the jury. A "scintilla of evidence" has been defined by this Court as a mere spark, gleam, glimmer, i.e., the smallest trace, of evidence in support of a plaintiff's claim. Ricwil, Inc. v. S.L. Pappas & Co., 599 So. 2d 1126 (Ala.1992); Howard v. Crowder, 496 So. 2d 31 (Ala.1986).
*802 After thoroughly reviewing the record, we conclude that the evidence presented by Reagan met this test. In sum, the medical treatises and Dr. Olson's testimony presented at least a "scintilla" of evidence that Dr. Zeiger's treatment of Reagan fell below the applicable standard of care for treating a case of pediatric meningitis, once Dr. Zeiger's treatment continued to be based on the assumption that the meningitis was caused by a shunt-related Staphylococcus infection even though the shunt tap had revealed that the shunt fluid was not infected. Dr. Olson testified that once Dr. Zeiger realized that Reagan was suffering from meningitis even though her shunt fluid was not infected, the medical standard of care required that one treatment regimen be followedadministration of the antibiotics ampicillin and chloramphenicol. Dr. Olson testified that Dr. Zeiger's treatment of Reagan breached this standard of care. Accordingly, the trial court properly denied the Foundation's motion for a JNOV on this issue.
VI. Sufficiency of Evidence on Causation
The second issue on appeal is whether Reagan offered sufficient evidence, through expert testimony, that Dr. Zeiger's negligence in delaying proper treatment of her Hemophilus influenza meningitis proximately caused the injuries that she claims to have suffered. To prove causation in a medical malpractice case, the plaintiff must prove, through expert medical testimony, that the alleged negligence probably caused, rather than only possibly caused, the plaintiff's injury. Willard v. Perry, 611 So. 2d 358 (Ala. 1992); Peden v. Ashmore, 554 So. 2d 1010 (Ala.1989). See also Tidwell v. Upjohn Co., 626 So. 2d 1297 (Ala.1993). Again, our review of this issue is constrained by the "scintilla" rule applicable to this case.
Reagan claimed that as a result of the delay in treating her Hemophilus influenza meningitis with ampicillin and chloramphenicol antibiotics, she suffered a significant loss in intelligence, as measured by IQ tests; that she developed nystagmus, or "dancing eyes," which she says has adversely affected her ability to focus her vision; and that she continues to suffer from and to be treated for seizures. The jury awarded $1,500,000 in damages for Reagan's injuries.[1]
As noted previously, Reagan scored 99 on an IQ test given to her in 1981, some six months before her episode of meningitis. At trial, Reagan offered into evidence the results of that test and two other IQ tests given to Reagan several years later. In January 1987, she scored 72 on an IQ test and in May 1990, she scored only 59. Reagan offered these three tests, along with expert testimony by Dr. Olson, as evidence that the delay in properly treating her meningitis proximately caused her to suffer a significant loss of intelligence.
Dr. Olson was not specifically questioned as to the basis for his belief that Reagan's intelligence had declined as a result of her meningitis and was not expressly made aware during his testimony that Reagan had taken an IQ test in July 1984, two years after her episode of meningitis, or that she had scored 98statistically identical to her IQ score of 99 from six months before her episode of meningitis. Even so, the jury was entitled to believe Dr. Olson's expert opinion on the medical causation of Reagan's lowered intelligence. That testimony represents the "scintilla" of evidence necessary to make the issue of proximate cause a jury question.
We next focus on Reagan's other injuriesnystagmus and seizures. Reagan also offered the expert testimony of Dr. Olson as evidence that her nystagmus and seizures were proximately caused by Dr. Zeiger's delay in effectively treating her meningitis. Regarding the medical causation of Reagan's injuries, Dr. Olson testified:
"[COUNSEL FOR REAGAN]: In essence the question is: What adverse consequences did Reagan suffer as a failure for [her] meningitis to have been timely diagnosed and treated?
"....
"[DR. OLSON]: She was left over the ensuing period of time unable to see, unable to speak, developed seizures, the nystagmus or jerky eye movements, which appeared during hospitalization, and her *803 intelligence quotient or tests, as best they could be carried out in a child of this age, previously were said to be normal.
"She was said to bein fact, one of Dr. Reynolds' notes said she was a delightfully interactive little girl. Subsequently, [she] was tested as below normal.
"....
"[COUNSEL FOR REAGAN]: All right. Do you have an opinion to a reasonable degree of medical certainty as to whether or not the failures you mentioned to meet the proper standard of care caused or contributed to any adverse effects to Reagan Bush?
"[DR. OLSON]: Yes, I do.
"[COUNSEL FOR REAGAN]: Would you tell us what that opinion is?
"[DR. OLSON]: I think that failure contributed to progression of the disease with neurological damage occurring as a result of that progression.
"[COUNSEL FOR REAGAN]: All right, sir. Doctor, in assuming she had seizures and poor learning ability, nystagmus as long-term conditions, do you have an opinion as to whether or not those conditions were secondary to the delay in treatment of meningitis?
"[DR. OLSON]: Yes, I do.
"....
"[COUNSEL FOR REAGAN]: Tell us that opinion, doctor. I thought you did.
"[DR. OLSON]: Yes, I had an opinion. And I think that delay contributed to the neurological damage that occurred.
"[COUNSEL FOR REAGAN]: Okay, do you think they were causative or the meningitis was causative of these factors?
"[DR. OLSON]: Yes."
(Emphasis added.)
Dr. Olson's testimony is supported by that of Dr. Reynolds, one of Reagan's pediatricians, who stated that she had had no sign of nystagmus or seizures before her episode of meningitis. Based on the whole of this expert testimony, we find that Reagan met her burden on the issue of proximate causation by presenting at least a "scintilla" of evidence, by expert testimony, that her nystagmus and seizures were probably caused by the delay in treating her meningitis with ampicillin and chloramphenicol. Thus, the issue of causation as to Reagan's nystagmus and seizures also became a question of fact for the jury to decide.
Given that Reagan offered at least a "scintilla" of evidence, by expert testimony, that the delay in treating her meningitis with effective antibiotics was the proximate cause of her lowered intelligence, and of her nystagmus and seizures, the trial court properly denied the Foundation's motion for a JNOV on that issue.
VII. The Jury Charge on Causation
As a part of the trial court's charge to the jury on medical causation, at the request of Reagan's counsel the trial judge quoted a passage from this Court's opinion in Parker v. Collins, 605 So. 2d 824 (Ala.1992). Defense counsel objected to that charge as confusing, and now the Foundation contends that the instruction was misleading and incomplete and improperly lowered the standard of proof on that issue. The language from Parker at issue is: "It is not necessary to establish that prompt care would have prevented the injury or death of the patient; rather, the plaintiff must produce evidence to show that her condition was adversely affected by the alleged negligence." 605 So.2d at 827.
The Foundation argues that this instruction, coming at the end of the trial judge's jury charge on medical causation, improperly relaxed the standard on medical causation from the requirement that the plaintiff show that the negligence "probably caused" the injury. The Foundation further contends that if this Court rules that the language from Parker is a proper charge under the facts of this case, then we will be changing the law of medical causation in Alabama.
We disagree. The general facts of Parker and the facts of this case are quite similar. In Parker, the plaintiffs sued a physician and a hospital, alleging that after Mrs. Parker sought medical treatment regarding a lump in her breast, Dr. Collins negligently performed her mammogram and then negligently interpreted it to be negative for cancer. 605 So.2d at 825. Several months later, another *804 physician diagnosed her breast cancer, which by then had spread into her lymph nodes, requiring a radical mastectomy of her entire breast and lessening her chances for long-term survival. Id. at 826. Thus, in Parker, the issue was whether the physician's negligence, which caused a delay in diagnosis and proper treatment of the plaintiff's breast cancer, caused her condition to be adversely affected. Similarly, in this case, the issue was whether Dr. Zeiger's delay in providing proper treatment of Reagan's meningitis caused her condition to be adversely affected. Thus, we conclude that the jury charge was proper, given the facts of this case.
Further, as the Foundation has noted, any alleged error in a trial court's jury instructions must be reviewed in the context of the entire charge and not taken in isolation. Sewell v. Internal Medicine & Endocrine Associates, P.C., 600 So. 2d 242 (Ala. 1992). Reviewing the charge as a whole, we conclude that the trial judge properly instructed the jury that the standard of proof for determining medical causation was that the plaintiff must prove that the negligence "probably caused" the plaintiff's injury, not simply that it "possibly caused" the injury. Thus, we find no reversible error in the court's jury charge on the standard of proof for determining medical causation. Accordingly, we hold that the trial court's properly denied the Foundation's motion for a new trial.
The judgment is affirmed.
AFFIRMED.
HOUSTON, KENNEDY, INGRAM and COOK, JJ., concur.
NOTES
[1] The Foundation's appeal does not contest the award as excessive. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1599169/ | 729 So. 2d 1060 (1999)
William JACKSON and his wife, Delphine Jackson, individually and on behalf of their minor daughter, Malinda Jackson
v.
AMERICA'S FAVORITE CHICKEN COMPANY d/b/a Church's Fried Chicken and ABC Insurance Company.
No. 98-CA-0605.
Court of Appeal of Louisiana, Fourth Circuit.
February 3, 1999.
*1061 Deborah Fallis, Tristan Manthey, Heller, Draper, Hayden & Horn, L.L.C., New Orleans, Louisisana, Attorneys for Appellants, AFC Enterprises, Inc. and Marvin Demourelle.
Stephen L. Huber, Borrello, Huber & Duruclet, Metairie, Louisiana, Attorney for Appellee, Sanderson Farms, Inc.
Court composed of Judge JOAN BERNARD ARMSTRONG, Judge CHARLES R. JONES and Judge MIRIAM G. WALTZER.
WALTZER, Judge.
America's Favorite Chicken, Inc., (AFC) and Marvin Demourelle, manager of AFC (Demourelle), appeal the dismissal of their claims for indemnity against Sanderson Farms.
STATEMENT OF THE CASE
William Jackson was employed by Sanderson Farms. While making a delivery for his employer, he slipped and fell at a business owned and operated by AFC and managed by Demourelle. Jackson sued AFC, its insurer and Demourelle. Sanderson Farms intervened to recover the costs of workers' compensation benefits it had paid Jackson. AFC and Demourelle filed a cross-claim against Sanderson Farms for indemnity.[1]*1062 Sanderson Farms moved for summary judgment dismissing all claims for indemnity against it.[2]
On 7 November 1997, the trial court granted Sanderson Farms' summary judgment, dismissing all claims by AFC and Demourelle against Sanderson Farms. On 5 January 1998, AFC and Demourelle requested a devolutive appeal from the trial court's judgment.
RIGHT TO APPEAL
AFC and Demourelle request this Court to consider their appeal of the 7 November 1997 judgment dismissing the claims for indemnity by AFC and Demourelle against Sanderson Farms.
At oral argument, the Court questioned the parties about the finality of the judgment appealed, because it is clearly a partial summary judgment. The dispositive issue is whether we have jurisdiction to review this judgment as an immediate appeal. Counsel took the position that the trial court's mere signing of the motion for appeal satisfied the requirements of LSA-C.C.P. art.1915 as amended by Acts 1997, No. 483, § 2, eff. July 1, 1997. Counsel expressed their willingness to agree, while arguing the appeal, that the judgment under consideration be considered final and immediately appealable Counsel further suggested that we convert this appeal to a supervisory writ and review the trial court's ruling on the merits. Finally, counsel requested that we remand the entire matter to the trial court so that the requisite certification or agreement by the parties could be obtained in order to make this partial judgment an immediately appealable judgment.
Our Court has ruled on a variety of issues involving partial summary judgments since the effective date of the amendments of LSA-C.C.P. art.1915; the opinions have not been consistent. Because it is important that litigants and litigators be able to know the precise parameters of the process, we review the rulings of our circuit, and the judges en banc adopt a procedure for partial judgment dispositions that lack the requisite designation by the trial court as immediately appealable judgments or the agreement of the parties to that effect.
THE NEW PARTIAL JUDGMENT LAW
The current law reads as follows in pertinent part:
Art.1915. Partial judgment; partial exception; summary judgment
A. A final judgment may be rendered and signed by the court, even though it may not grant the successful party or parties all of the relief prayed for, or may not adjudicate all of the issues in the case, when the court:
(1) Dismisses the suit as to less than all of the parties, defendants, third party plaintiffs, third party defendants, or intervenors.
* * *
B. (1) When a court renders a partial judgment or partial summary judgment or sustains an exception in part, as to one or more but less than all of the claims, demands, issues, theories, or parties, whether in an original demand, reconventional demand, cross-claim, third party claim, or intervention, the judgment shall not constitute a final judgment unless specifically agreed to by the parties or unless designated as a final judgment by the court after an express determination that there is no just reason for delay.
(2) In the absence of such a determination and designation, any order or decision which adjudicates fewer than all claims or the rights and liabilities of fewer than all the parties, shall not terminate the action as to any of the claims or parties and shall not constitute a final judgment for the purpose of an immediate appeal. Any such order or decision issued may be revised at any time prior to rendition of *1063 judgment adjudicating all of the claims and the rights and liabilities of all the parties.
Prior to the 1997 amendments to LSA-C.C.P. art.1915, a judgment granting a motion for summary judgment in favor of one party would have been considered a final judgment subject to an immediate appeal. Douglass v. Alton Ochsner Medical Foundation, 96-2825 (La.6/13/97); 695 So. 2d 953, 955. While LSA-C.C.P. art. 1915(A) provides now, as it did prior to the 1997 amendments, that a final judgment may be rendered granting a motion for summary judgment, pursuant to subparagraph (B), a partial judgment or partial summary judgment as to one or more but less than all of the parties to an action is not necessarily considered to be a final judgment for the purpose of an "immediate appeal." Absent agreement of the parties, or a trial court's determination that there is no just reason for delaying an immediate appeal, accompanied by designation as a final judgment by the trial court, such partial judgment or partial summary judgment is not immediately appealable. However, though a party may not take an immediate appeal, after final judgment is rendered adjudicating all the claims, demands, issues, and theories as to all parties, such partial judgment or partial summary judgment would be appealable. In other words, a party does not lose its right to appeal, even though it may not have a right to take an immediate appeal. See Editor's Note to LSA-C.C.P. art.1915 regarding the 1997 amendment.
REVIEW OF DECISIONS OF OUR CIRCUIT
In Karim v. Finch Shipping Co., Ltd., 97-2518 (La.App. 4 Cir. 8 /26/98), 718 So. 2d 572, we converted an appeal from a partial summary judgment to a writ, and affirmed the trial court's granting an exception of lack of personal jurisdiction in favor of the defendant. The record showed neither agreement of the parties nor action by the trial court designating or refusing to designate the judgment to be final. We did not remand the case to the trial court in order that it make or deny the requisite designation. Rather, because LSA-C.C.P. art.1915, as amended, was effective 1 July 1997 and the defendant's exception was heard on 13 June 1997, and the trial court signed the judgment eight days after the effective date of Act 483, this Court considered the merits under its supervisory jurisdiction in the interest of judicial economy.
In Doe v. Southern Baptist Hospital, 98-0063 (La.App. 4 Cir. 5/6/98), 717 So. 2d 654, the trial court granted partial summary judgment in favor of defendant, the State of Louisiana, holding that the plaintiffs had the burden of proving that a state statute was unconstitutional. Plaintiffs applied for supervisory writs to this Court, which first considered the issue whether the judgment was appealable under LSA-C.C.P. art. 1915(B). This Court noted that the judgment had no designation that the judgment was to be a final judgment, and found that it had determined only the threshold issue of who should bear the burden of proof at the hearing on the statute's constitutionality. Therefore, this Court found the judgment was not final and appealable. Nonetheless, this Court went on to address the merits of the partial summary judgment.
In Walker, Bordelon, Hamlin, Theriot & Hardy v. Dowe, 98-0937, 98-0938 (La.App. 4 Cir. 12/9/98), 727 So. 2d 529, the trial court granted an exception of no cause of action, dismissing the defendant's reconventional demand. The partial judgment lacked the determination and designation of finality as required by LSA-C.C.P. art. 1915(B)(1). Since the exception was argued only 10 days after the new law was in effect, the matter was remanded to the trial court in order that a determination be made by the trial judge whether the judgment should be designated as a final appealable judgment. In doing so, we relied on our Supreme Court's decision in Kaufmann v. Fleet Tire Service, 97-1428 (La.9/5/97); 699 So. 2d 75 and our decision in Young v. Dupre Transport, 97-0591 (La.App. 4 Cir.10/1/97); 700 So. 2d 1156. In Kaufmann, retroactive effect was given to Act 483 and a remand was ordered, notwithstanding the fact the judgments both of the trial court and our Court were rendered prior to the effective date of Act 483.
In Scott et al. v. The American Tobacco Co., Inc., 97-1973, (La.App. 4 Cir. 11/4/98), *1064 ___ So.2d ___, 1998 WL 802198, plaintiffs appealed a partial summary judgment grant pre-dating the enactment of Act 483 by some three months. All cigarette distributing companies were dismissed from a class action. Subsequent to the rendition of the judgment in April of 1997, the legislature enacted Act 483, effective 1 July 1997. The law as it existed at the time the judgment was rendered provided that a partial judgment dismissing parties would be treated as a final immediately appealable judgment. Since the change in the law was procedural, and, therefore, retroactive, we remanded the case because the trial judge could not have known at the time of signing the judgment that the new law would be enacted and later be given retroactive effect. We held:
We would read the silence of a partial judgment rendered after the effective date of Act 483 as a decision by the trial judge and the parties not to designate the judgment as final. Act 483 requires that a designation of finality be explicit, but implicit in Act 483 is the expectation that the decision not to designate will be tacit rather than explicit, i.e., it may be inferred from the failure to designate. Obviously, no similar inference can be drawn prior to the effective date of Act 483 because neither the parties nor the trial judge could possibly have adverted to the question of finality of a partial judgment in contemplation of Act 483 when Act 483 was not yet even in existence.
Scott, supra at footnote 3.
In Johns v. Jamarillo, 98-2507, 98-2577 (La.App. 4 Cir. 11/25/98), 724 So. 2d 255, the trial court had certified that [the] rulings represented "a final judgment for purposes of immediate appeal pursuant to La.Code of Civil Procedure Art.1915(B)(1)", but gave no reasons for the certification. Additionally, the trial court denied simultaneously the defendant's motion to continue the trial. Because of the obvious inconsistency between the determination that the appeal of the contested issues should go forward immediately and before the case was fully adjudicated, but that there was no need to delay the trial on the merits pending resolution of the appeal, our Court issued an order sua sponte for the parties to show cause why these appeals should not be dismissed as improperly certified. Our Court held inter alia that "a proper certification requires specific written reasons for the trial court's determination that an immediate appeal is warranted". The Court went on to say that if the certification were to be found an abuse of the trial court's discretion, the appeal would be dismissed.[3] Further, the court held that because decisive legal questions were at issue, the current appeal would be permitted to go forward, rather than contribute to the "intolerable problems of multiple appeals and piecemeal litigation", Everything on Wheels Subaru, Inc. v. Subaru South, Inc., 616 So. 2d 1234, 1241 (La.1993). Our Court maintained the appeal as properly certified by the trial court.
In In Matter of Succession of Toncrey, 98-2342 (La.App. 4 Cir. 12/9/98), 725 So. 2d 59, a panel of this Court refused to follow the decision of our colleagues in Banks v. State Farm Insurance Co., 30,868, (La.App. 2 Cir. 3/5/98); 708 So. 2d 523. Banks dealt with a partial summary judgment that involved only liability. The parties had agreed that the partial summary judgment was a final judgment in accordance with the LSA-C.C.P. art. 1915(B)(1). Nonetheless, the Banks court ruled that it was not immediately appealable, because
...our legislature did not intend for parties, by agreement, to be able to create a *1065 final judgment for the purpose of an immediate appeal, despite language in Article 1915(B)(1) that allows parties to specifically agree for a judgment to constitute a "final judgment". Our conclusion is supported by the language of Article 1915(B) that contrasts the term "final judgment" in 1915(B)(1) with the term "final judgment for purposes of an immediate appeal" in 1915(B)(2). Under the provisions of Article 1915(B)(2), the latter term applies only after "a determination and designation" (certification), and not after specific agreement of the parties.
Banks, at 524-525.
We declined to hold that the 1997 amendments plainly were patterned after the provisions of Rule 54 of the Federal Rules of Civil Procedure and that Louisiana had adopted the rule, despite the glaring difference in language: Federal Rule 54 has no procedure for the designation of the judgment as final by the consent of the parties, but Article 1915 does. Our Court further opined that LSA-C.C.P. art. 1915(B)(1) appears to have great potential for mischief in the managing of appellate dockets, but that the legislature acted within its authority when it expanded the class of final appealable judgments in Article 1915(B), Succession of Toncrey, supra, at pp. 4-5. In Toncrey we considered the partial summary judgment as an immediately appealable judgment because both parties had agreed, considered the writ application as an appeal and remanded the case to the trial court for determination of the return day and preparation of the record.
In two cases decided last December, we dismissed appeals from partial summary judgments because the judgments on appeal were not designated as final by either the parties or the trial court. Priority E.M.S., Inc. v. Crescent City E.M.S., Inc., 98-2537 (La.App. 4 Cir. 12/23/98), 727 So. 2d 1186; Montgomery v. Gosserand, 98-1966 (La.App. 4 Cir. 12/23/98), 725 So. 2d 92. In Montgomery, prior to the dismissal of the appeal, a panel of this Court ordered the parties to show cause why the appeal should not be dismissed for lack of certification or designation as a final judgment. Apparently, in response to this show cause order, the trial court issued an order stating that:
"[I]t is hereby ordered that there is no just reason for delay for an immediate appeal of this court's summary judgment rendered without prejudice..."
Notwithstanding the trial court's attempt to certify the partial summary judgment after the appeal had been lodged and docketed, the appeal was dismissed. Our Court opined that the legislature intended to require that some reason be expressed for the determination that there is no just reason for delay, because Article 1915(B)(1) provides that the designation must be pursuant to "an express determination", and clearly contemplates that more than a mere conclusory statement will be given as a justification for finality. Since the certification in Montgomery expressed no reason and merely used the language of the statute itself as a conclusion, this rubber stamp designation was considered insufficient. Finally, the Court held that the appeal when first filed, had no certification, and, therefore, when the appeal was lodged there was no appealable judgment, thus warranting dismissal on the basis of untimeliness as well.
It is clear from the foregoing that various principles have emerged since Article 1915 was amended in 1997. Because there is a need for clarification and consistency, this opinion has been presented to the judges en banc so that the rules that follow will be applied to decisions in the future involving partial judgments lacking the requisite certification or agreement of the parties.
CONVERSION TO SUPERVISORY WRITS
We expressly disapprove and overrule the procedure of converting the appeal from a non-final judgment to a supervisory writ and then considering the merits, as was done in Karim v. Finch Shipping Co., Ltd., and Walker, Bordelon, Hamlin, Theriot and Hardy, etc. v. Dowe, supra. We agree with our colleagues of the First Circuit that
To entertain by a supervisory writ application and grant a stay of a judgment which is not a final judgment subject to an immediate appeal under Article 1915 would be a blatant circumvention of the spirit of *1066 that statute, causing the delay and judicial inefficiency which the statute obviously is designed to eliminate. To substitute one method of review (writ application) for a prohibited method of review (appeal) flies in the face of the legislative pronouncement set forth in Article 1915. Therefore, we will not entertain the merits of this writ application. Review of the judgment must await rendition of a complete final judgment in the case, which will be the proper subject of an appeal, unless the judgment is certified as a final judgment subject to an immediate appeal under Article 1915.
In re: Chemical Release at Bogalusa, 98 1122 at p. 1 (La.App. 1 Cir. 8/27/98), 718 So. 2d 1015.
While we adopt this reasoning, we decline to certify a partial summary judgment as a final judgment subject to an immediate appeal on the appellate level, as our colleagues did in the case cited above.
Nothing in this opinion shall be construed as affecting the law relating to this Court's supervisory jurisdiction, and our supervisory powers are not affected by this decision. Aggrieved parties will continue to have the right to seek appropriate supervisory review by writ application, and we will continue to deal with such requests in the manner that the Court deems appropriate.
PARTIAL JUDGMENTS SIGNED BY THE TRIAL COURT BEFORE OR IMMEDIATELY AFTER THE ENACTMENT OF ACT 483
Appeals from a grant of partial judgment which were signed before or shortly after the enactment and effective date of Act 483 will be remanded to the trial court for denial or designation of the partial judgment as final, or for agreement between the parties. This must be so, because the trial courts are not prescient and could not have known at the time the judgment was signed that a certification or agreement between the parties was necessary to make a partial judgment immediately appealable. Appeals from grants of a partial judgment which were signed long after the enactment of Act 483 will not be remanded but will be dismissed, to be considered, if so desired, when the entire case is appealed. A trial court's mere signing of an order for appeal from a partial judgment will not make that judgment immediately appealable.
CERTIFICATION OR AGREEMENT BY THE PARTIES
The agreement of the parties must be clear from the record. An express certification or agreement to consider the partial judgment as final must be of record when the appeal is first filed. Failing these requirements, appeals from partial judgments will be dismissed, except as in the exceptional cases, where temporal proximity prior to or shortly after enactment of the amendments to Article 1915 makes a remand necessary.[4]
THE INSTANT CASE.
In the case under consideration the trial court was silent as to whether there was just reason for delay of the appeal, and it did not designate the judgment as a final judgment for the purposes of immediate appeal. The mere signing of the order of appeal does not satisfy the requirements of LSA-C.C.P. art. 1915(B) for an immediate appeal. Banks, supra. The record below does not contain a clear and concise statement of why there is no just reason for delay. Nor is there evidence of record that the parties agreed in the trial court that the judgment was a final judgment. Where, as here, the trial court is silent and the record does not reflect agreement of the parties, the partial summary judgment is not immediately appealable. We decline to certify the partial summary judgment as immediately appealable on the appellate level.
We also decline to convert this case into a supervisory writ. Finally, we decline to remand *1067 this case to the trial court in order to consider whether the partial judgment merits immediate appeal, because the judgment was signed in November of 1997, some four months after the enactment of the amendment.
CONCLUSION
Because we find that the record does not show compliance with LSA-C.C.P. art. 1915(B), we dismiss the appeal by AFC and Demourelle. Although AFC and Demourelle have lost their right to an immediate appeal, they have not lost their right to appeal after final judgment is rendered adjudicating all of the claims, demands, issues and theories as to all parties.
APPEAL DISMISSED.
NOTES
[1] The record contains no evidence of a crossclaim by AFC against Sanderson Farms. However, Sanderson Farms answered such a cross-claim, and the parties do not contest the existence of such a demand.
[2] AFC and Demourelle also moved for summary judgment, to enforce the indemnity provision of the Supply Agreement between AFC and Sanderson Farms and to dismiss Sanderson Farms' intervention. The trial court denied this motion, and LSA-C.C.P. art. 968 prohibits an appeal from such a denial.
[3] In Berman v. De Chazal, 98-81 (La.App. 5 Cir. 5/27/98), 717 So. 2d 658, a partial summary judgment was rendered in favor of one defendant. The trial court determined that there was no just reason for delay and designated the judgment as final and immediately appealable pursuant to LSA-C.C.P. art. 1915(B)(1). The trial court gave no reasons for designating the judgment as final and immediately appealable. The Fifth Circuit cited federal jurisprudence under Rule 54(b) of the Federal Rules of Civil Procedure, holding that such decision by the trial court is itself reviewable under the abuse of discretion standard where reasons are given, and reviewable de novo when no reasons are given .The court performed a de novo review and considered criteria cited by the court in Banks v. State Farm Insurance Co., 30,868, (La.App. 2 Cir. 3/5/98); 708 So. 2d 523, finding that the trial court had improperly certified the partial summary judgment as appealable. The court dismissed the appeal.
[4] The following judges of this Court, en banc, constituting a unanimous majority have voted to explicitly overrule all portions of our opinions in Karim v. Finch Shipping Co., Ltd., Doe v. Southern Baptist Hospital and Walker, Bordelon, Hamlin, Theriot & Hardy v. Dowe that are inconsistent with the instant decision: Chief Judge Klees, Judge Byrnes, Judge Armstrong, Judge Plotkin, Judge Jones, Judge Waltzer, Judge Landrieu, Judge Murray, Judge McKay, Judge Bagneris, Judge Ciaccio (pro tempore), Judge Gulotta (pro tempore) and Judge Gray (pro tempore). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1754194/ | 486 F. Supp. 1103 (1980)
John E. MARKAKIS, Plaintiff,
v.
S/S VOLENDAM (ex S/S Monarch Sun) and S/S Veendam (ex Monarch Star), Defendants.
No. 79 Civ. 0945.
United States District Court, S. D. New York.
February 19, 1980.
*1104 Herbert Lebovici, New York City, for plaintiff.
Burlingham, Underwood & Lord, New York City, for defendants; William M. Kimball, Richard L. Dutton, New York City, of counsel.
OPINION
FINDINGS OF FACT AND CONCLUSIONS OF LAW
EDWARD WEINFELD, District Judge.
Plaintiff, master of the vessel S.S. Monarch Sun (the "Sun") commenced this suit on behalf of himself and the crew members of the Sun, to recover a salvage award for services allegedly rendered to the S.S. Monarch Star (the "Star") between January 10, 1977 and January 11, 1977.[1] At the time of the alleged salvage service, the Sun and the Star were both Panamanian flag passenger cruise vessels, each weighing about 15,000 gross tons. Both were engaged in passenger cruise voyages from Miami, Florida, to various points in the Caribbean Sea, and return. Both vessels were owned by Monarch Cruise Lines, N.V., and operated by the same agent, Technical Marine Planning ("TMP") of Miami, Florida.
The basic material facts are not seriously disputed. On January 10, 1977, the Star, which was carrying 368 passengers and a crew of an almost equal number, sustained an engine failure while sailing off the northern coast of Cuba. Her deck log indicates that at 14:35 hours on that day, she was "rendered powerless due to engine difficulties and blackout." The main engine was "completely stopped," although the emergency generator, which supplied power for lights and for the radio, was still in operation. Almost eight hours later, at 23:30, while the ship was still "lying stopped in [the] [O]ld [B]ahama [C]hannel," north of Cuba, its captain reported that the emergency generator had also failed. Thus, the ship was left without power or lights, and with only batteries to operate its radio. According to the ship's radio log, the emergency generator remained inoperative until January 11 at 9:21 hours.[2] Throughout this time, the Star was having difficulty communicating with the head office in Miami.
During the aforementioned period, the Sun was enroute from Florida to Puerto Rico. At 21:15 hours on January 10, or almost seven hours after the Star's initial *1105 engine failure, TMP, the agent for the owners of both vessels, radio-telephoned the master of the Sun, the plaintiff Markakis, that the Star was disabled and instructed him to change course, head toward, and render assistance to the Star. The Sun thereupon altered course and headed toward the northern coast of Cuba, where the Star lay disabled off the Cuban coast at various distances estimated from between twelve to fifteen miles. The ships rendezvoused on January 11 at 11:00 hours. The two captains agreed on procedures for transferring the passengers, some of the crew, baggage, and provisions of the crippled ship to the Sun. The transfer operation, carried out on tenders sent from the Sun and manned by the Sun's crew, began at noon on January 11, and was completed five hours later. One crewman was slightly injured in the operation when he fell off one of the tenders. After it was completed, Captain Avdelas and other members of his crew remained on board the star. Thereafter, at Captain Avdelas' request, TMP ordered Markakis to tow the Star farther away from the coast of Cuba and into the Old Bahama Channel, a deep and well-traveled shipping route. Avdelas himself acknowledged that the purpose of the tow was to bring the ship "to a safer place" until a tugboat sent from Miami by the Star's owners arrived and finished the job.
Towing of the Star commenced at 18:05 and lasted about four hours. The Sun, with passengers from both vessels aboard, towed the Star a distance of approximately 13 miles in a generally northeasterly direction and away from the coast of Cuba. At 22:00 the tow lines were released at the request of Captain Avdelas. The Sun resumed its journey, embarking at destinations on its own route as well as those that would have been on the Star's itinerary. The Star was left in the Old Bahama Channel to await its appointed rendezvous with the tug Curb, which arrived on January 12 at about 13:00 and which eventually towed the Star 324 miles back to Miami.
From the time that its engines first failed until the time of its rendezvous with the Curb, the Star remained close to the coast of Cuba and in constant motion. When its engines first stopped, the Star was located 12 miles off the coast. The Captain reported that he could see lights from the land and two Cuban gunboats were visible on the horizon. Immediately thereafter, the ship began to drift with the currents; first it was carried slightly south toward Cuba,[3] and thereafter, on a steady line to the northwest along the Channel, running roughly parallel to the coast, although gradually moving away from it. During part of this time, the ship was in total blackness. The seas were calm. Although the prevailing winds at this time of the year were from the northeast and, if active, would have tended to push a drifting vessel toward the coast of Cuba, during this portion of the drift there was no wind. The vessel was directed solely by the force of the currents, which ran parallel to the coast of Cuba. By the time of its rendezvous with the Sun, the Star had drifted 34.4 miles northwest from the point of its breakdown; when the Sun began to tow the Star it was then 23.3 miles off the coast of Cuba. It was towed 13.8 miles directly east, which brought it six more miles away from the coast. After the Sun had released its tow ropes, the wind picked up from the east, carrying the Star across the water currents and directly toward the Cuban coast. By the time of the arrival of the Curb, on January 12 at 13:00 hours, the Star had drifted 23 miles back toward Cuba and was only 17 miles from its coast. Although Captain Avdelas vehemently contended that the ship was in no danger, in that the water current flowing parallel to the coast was stronger than the wind blowing toward it, he did admit that a "very stormy" east wind could have carried the ship all the way to the coast. At the point toward which the Star was drifting, the shore is rocky and lined with reefs; there is no shallow water in which to anchor. The captain also admitted that when he asked the Sun to tow him *1106 away from the coast he was "apprehensive about an easterly wind." Indeed, by the time the tug Curb had arrived, the Star reported the weather as "Fresh breeze, rough sea." Captain Avdelas' fears were allayed, however, by the knowledge that the Sun would tow him to the middle of the Old Bahama Channel, that at least one other ship, the Stella Solaris, was available and ready to assist; that the Coast Guard cutter Dauntless was patrolling the vicinity; and that the tug Curb had been dispatched to complete the rescue.
In order to prevail upon a claim for a salvage award, the plaintiff must prove three essential elements: "1. A marine peril. 2. Service voluntarily rendered when not required as an existing duty or from a special contract. 3. Success in whole or in part, or that the service rendered contributed to such success."[4] There is no dispute that the third element has been satisfied. The combined efforts of the Sun and the tugboat Curb eventually did bring success; the passengers, their baggage, and the ship's provisions were all successfully transferred to the Sun to complete the balance of the voyage. The Star safely reached Miami, where it was repaired.
However, the defendant disputes both of the other elements. It claims that the Star's predicament was not sufficiently perilous to warrant a salvage award, and that the actions of the plaintiff and the crew of the Sun in coming to the Star's assistance were involuntary, because they were taken at the direction and under the orders of the ship's owners. We find neither of these arguments persuasive and hold that plaintiff has sustained the claim for a salvage award.
A. Marine Peril
In determining whether there exists a marine peril sufficient to justify a salvage award, the Court must decide "not whether the peril is imminent, but rather whether it is `reasonably to be apprehended.'"[5] In order to prevail, the plaintiff need only establish that "`at the time the assistance [was] rendered, the ship [had] encountered any damage or misfortune which might expose her to destruction if the service were not rendered.'"[6]
A variety of services, many of which seem more mundane than daring, qualify for salvage awards. As one commentator has stated:
The prototypical act [of salvage] is rescuing a ship in peril at sea and towing her to a place of safety. . . . In deciding [whether to make an award] . . . courts look to the situation that existed at the time the ship was taken in tow: If she was not under command, unable to navigate or to reach port unaided, the service will be considered salvage even though the ship was not in imminent danger of destruction and even though the towage itself was calm and uneventful. . . . The act of salvage need not be so dramatic and need not even consist in rendering physical assistance: standing by or escorting a distressed ship in a position to give aid if it becomes necessary, giving information on the channel to follow . . . to avoid running aground, carrying a message as a result of which necessary aid and equipment are forthcoming have all qualified. So long as the ship is in peril, any voluntary *1107 act which contributes to her ultimate safety may rank as an act of salvage.[7]
The most frequent instances of salvage awards involve situations in which the salvor renders assistance to a vessel lodged in a sandbar or run aground on a reef. In such situations, the courts often justify the award by citing the possibility that storms could arise and further injure the stranded vessel, which is incapable of dislodging itself under its own power.[8] Nevertheless, salvage awards have been granted even where the vessel could safely have remained grounded for an indefinite period of time.[9] Indeed, whenever a vessel is stranded, "she and her cargo are practically always in a substantial peril. Such a vessel is helpless because she cannot pursue her intended voyage or deal effectively with any emergency which may arise."[10]
Just as a stranded ship is imperiled, so too, one adrift without power may be equally endangered. Salvage awards have long been accorded to those who tow disabled and imperiled vessels from the open sea into port. In Steamer Avalon Co. v. Hubbard S. S. Co. (The General Hubbard),[11] for example, the Ninth Circuit approved an award for the rescue of a ship whose crankshaft had broken while sailing fourteen miles out at sea. That the vessel was disabled and incapable of guiding its own course were sufficient reasons to justify a substantial award, which the Court made, even though it concluded that the service of the salving crew was not perilous, and that there was little if any danger of the salved vessel drifting to shore.[12] Other courts have reached the same result in similar situations.[13]
The facts of the instant case clearly support the conclusion that on January 10 and 11, 1977, the Star was exposed to peril "`reasonably to be apprehended.'"[14] Not only was the ship unable to "pursue her intended voyage or deal effectively with any emergency"[15] that might have arisen, she was left to drift, at times in total darkness and without adequate power to communicate by radio. Although the weather was calm from the time of the engine failure until the completion of the Star's towing operation, the accident occurred in an area known for sudden, intense storms.[16] In fact, after the Sun had cast off its tow lines, the east wind, which made Captain Avdelas "apprehensive," increased, and the sea became "choppy." Between the time of the Sun's departure and the Curb's arrival, the Star drifted 23 miles back toward the *1108 coast of Cuba. Had that drift occurred before the Sun had towed her, the Star might well have been dashed against the reefs lining the northern coast of Cuba.
In addition, it is noted that at the time of the breakdown, the Star was about 12 miles off the shore of Cuba, or at the edge of the territorial waters claimed by that country; and that it was in sight of at least two Cuban warships. Had it drifted closer to the shore, it faced a real possibility of interception or even reprisal.[17] None of these dangers was as remote as the claimant has suggested. Indeed, Captain Avdelas' assertion that the Star was never in peril is belied by his own radio requests for aid,[18] by his request to be towed "to a safer place" to await the arrival of the Curb, and by the unsolicited offers of assistance from other vessels in the area, including a Coast Guard cutter. Though the danger to the Star was less than compelling and the rescue operation short of heroic, the ship was sufficiently imperiled to justify a salvage award.
B. Voluntary Act
The claimant also contends that the Sun's crew acted under compulsion, rather than voluntarily, in that they were ordered by the owners to change course, rendezvous with the Star, and render assistance. Initially, the claimant argues that the vessels' joint ownership by Monarch Lines precludes a salvage award. In essence, the claimant seeks to analogize this situation to those cases in which courts have refused to permit awards to crews that perform salvage services to their own vessels.[19] The principles of those cases, however, are not apt here. At least since 1912, when Congress codified the trend of the common law, the fact of common ownership of the salvor and salved vessels has played no part in the grant of salvage awards.[20]
The claimant also contends that the Sun's crew were, in effect, under a duty to obey the orders of their owner, and that they had no choice in the matter. Although there are instances in which a would-be salvor's pre-existing duty to act defeats his claim, those cases are rare.[21] Where an *1109 individual performs a salvage service outside the normal scope of his employment, the rule is that "nothing short of a contract [between the owners of the salved vessel and the salvors] to pay a given sum for the services to be rendered, or a binding agreement to pay at all events, whether successful or unsuccessful, in the enterprise, will operate as a bar to a meritorious claim for salvage."[22] Indeed, even if the master, the owner or the charterer of the salvor vessel is found expressly to have waived his rights, the crew is not bound by the waiver.[23]
Thus, in Kimes v. United States,[24] the Court allowed an award to one United States government vessel that saved the cargo of another during the Second World War. Even though the employees of the salvor ship were under a "moral obligation to render the[ir] services for the effective prosecution of an all-out war effort," the Court held that because they were under no "legal duty to perform this salvage work,"[25] they were entitled to an award. Moreover, it noted that salvaging vessels was not an ordinary task performed within the scope of the crew's employment; it involved an extra increment, however slight, of physical danger. Granting the award was in the interest of public policy. Likewise, in Sobonis v. Steam Tanker National Defender,[26] the Court allowed an award to a crew hired at fixed salaries by the same company that owned the salvaged vessel; the Court reasoned that public policy supports salvage awards unless the contract of hire expressly waives salvage rights.
In the instant case there is not even a suggestion that the articles of employment of the Sun's crew contemplate salvage service. When the Sun responded to the Star's call for help, the crew were called upon to perform tasks beyond the ordinary scope of their employment, in an unusual situation, and with an added degree, however slight, of peril. Their decision to follow an order that their employer could not otherwise lawfully have required them to obey is a voluntary act for the purposes of a salvage award.[27] If their claim could be defeated merely because their employer had ordered them to perform *1110 salvage service, Congress' purpose of fostering salvage service by eliminating common ownership as an impediment to an award would likewise be defeated: the owner of a vessel in distress could always order other, commonly-owned vessels to the rescue, without the requirement of a salvage contract and without being required to pay any salvage award. Plainly such a result is contrary to the Congressional purpose. We hold that Captain Markakis and the crew of the Sun performed voluntary salvage service on January 10 and 11, 1977, when they rescued baggage and provisions of the Star and towed the vessel to safety.[28]
The fact that the Sun was not called upon to tow the Star back to Miami and that this service was performed by the Curb does not invalidate plaintiff's right to relief. The quality and degree of contributory service need only be slight to justify a salvage award; the extent of the service may affect the amount of the award, but not its validity.[29]
The Court holds the owners of the Star liable to the captain and crew of the Sun for salvage services performed. The matter will be referred, pursuant to the parties' stipulation, to a special master for a computation of the award.
The foregoing shall constitute the Court's Findings of Fact and Conclusions of Law.
NOTES
[1] The Sun is now known as the S.S. Volendam. The other defendant, the S.S. Veendam, was formerly known as the Monarch Star. At trial plaintiff abandoned any claim against his own vessel, the Volendam.
[2] Captain Avdelas, the master of the Star, testified that the emergency generator resumed functioning at 3:00 a. m. on January 11. However, the contemporaneously recorded entries of the ship's radio-telephone logbook indicate that it was still not working at 06:01, and that it was "restored to service" at 09:21. We credit these entries as more accurate than the Captain's memory.
[3] See Plaintiff's Exh. 2.
[4] The Sabine, 101 U.S. 384, 25 L. Ed. 982 (1879). See The Blackwell, 77 U.S. (10 Wall.) 1, 12, 19 L. Ed. 870 (1869); M'Connochie v. Kerr, 9 F. 50, 53 (S.D.N.Y.1881); In re Petition of Sun Oil Co., 342 F. Supp. 976, 981-82 (S.D.N.Y.1972) (citing cases), aff'd, 474 F.2d 1048 (2d Cir. 1973).
[5] Fort Myers Shell & Dredging Co. v. Barge NBC 512, 404 F.2d 137, 139 (5th Cir. 1968) (citation omitted). See also The Leonie O. Louise, 4 F.2d 699, 700 (5th Cir. 1925); The Neshaminy, 228 F. 285, 288 (3d Cir. 1915) ("Assistance to a vessel in a situation of actual apprehension, though not of actual danger, is salvage service."); M'Connochie v. Kerr, 9 F. 50, 53 (S.D.N.Y.1881).
[6] Conolly v. S.S. Karine II, 302 F. Supp. 675, 679 (E.D.N.Y.1969) (quoting Norris, The Law of Salvage § 188) (emphasis supplied). See The Mercer, 297 F. 981, 984 (2d Cir. 1924); The Saragossa, 21 Fed.Cas. 425, at 426 (No. 12,334) (S.D.N.Y.1867).
[7] Gilmore & Black, The Law of Admiralty, § 8-2, at 536-37 (2d ed. 1975).
[8] See e. g., Sobonis v. Steam Tanker National Defender, 298 F. Supp. 631, 636 (S.D.N.Y.1969); The Leonie O. Louise, 4 F.2d 699, 700 (5th Cir. 1925); The St. Paul, 86 F. 340, 343 (2d Cir. 1898); The Sahara, 246 F. 141, 142 (D.Md. 1917).
[9] The St. Paul, 86 F. 340, 343 (2d Cir. 1898). Cf. The Naiwa, 3 F.2d 381, 382-83 (4th Cir. 1924) (large award granted to salvors of stranded vessel even though the "most favorable weather conditions" had prevailed during the month in which salved vessel lay stranded).
[10] Navigazione Generale Italiana v. Spencer Kellogg & Sons, Inc., 92 F.2d 41, 44 (2d Cir.), cert. denied, 302 U.S. 751, 58 S. Ct. 271, 82 L. Ed. 580 (1937) (A. Hand, J.). See Sobonis v. Steam Tanker National Defender, 298 F. Supp. 631, 636 (S.D.N.Y.1969). Cf. The St. Paul, 86 F. 340, 343 (2d Cir. 1898).
[11] 255 F. 854 (9th Cir. 1919).
[12] The Court said that at the time of the rescue "there was little wind or sea, and there was reasonable expectation of a continuation of favorable conditions, and the steamship lay in an ocean path not infrequently traveled by vessels." 255 F. at 856 (9th Cir. 1919). In short, the General Hubbard's predicament was almost precisely equivalent to that of the Star.
[13] See, e. g., The Roanoke, 214 F. 63 (9th Cir. 1914); The Mercer, 297 F. 981, 984 (2d Cir. 1924); The Henry Maurer, 215 F. 238 (D.Mass. 1914); Squires v. The Ionian Leader, 100 F. Supp. 829 (D.N.J.1951). The Angie & Florence, 77 F. Supp. 404 (D.Mass.1948).
[14] See note 5 supra.
[15] Navigazione Generale Italiana v. Spencer Kellogg & Sons, Inc., 92 F.2d 41, 44 (2d Cir.), cert. denied, 302 U.S. 751, 58 S. Ct. 271, 82 L. Ed. 580 (1937) (A. Hand, J.).
[16] See Fort Myers Shell & Dredging Co. v. Barge NBC 512, 404 F.2d 137, 139 (5th Cir. 1968).
[17] On December 28, 1977 the United States Coast Guard issued an "Advisory Notice" to inform the United States Maritime Community that the Cuban government was enforcing its claim to a 12-mile territorial sea by stopping, and at times detaining, vessels approaching within 30 miles of the north coast of Cuba. See Local Notice to Mariners No. 52-77 (Dec. 28, 1977) [Pltf's Exh. 9].
It is admitted that the Star was a Panamanian flagship and not an American vessel, and its engine failure occurred eleven months before the publication of this advisory bulletin. Nevertheless, we take notice of the fact that the policies of the Cuban government, its claim to an expansive territorial sea, and the proximity of two Cuban warships may have posed more than a theoretical prospect of the detention of the vessel with its many Americans on board.
[18] A master's requests for assistance are strong evidence that a marine peril is genuine and that the salvor's efforts, if voluntary and successful, are worthy of reward. See The Pendragon Castle, 5 F.2d 56 (2d Cir. 1924); The St. Paul, 86 F. 340, 342 (2d Cir. 1898). Cf. The Roanoke, 214 F. 63, 65 (9th Cir. 1914).
[19] See, e. g., Hobart v. Drogan [The Hope], 35 U.S. (10 Pet.) 108, 122, 9 L. Ed. 363 (1836) (Story, J.); Bertel v. Panama Transport Co., 202 F.2d 247, 248-49 (2d Cir.), cert. denied, 346 U.S. 834, 74 S. Ct. 35, 98 L. Ed. 356 (1953); Sobonis v. Steam Tanker National Defender, 298 F. Supp. 631, 635 (S.D.N.Y.1969); Gilmore & Black, The Law of Admiralty § 8-4, at 541-42 (2d ed. 1975). But see Milton v. The Blue Goose, 188 F.2d 285 (4th Cir. 1951) (award allowed where crewman contributed substantial, extraordinary, and hazardous service beyond anything required in his articles of employment).
[20] 46 U.S.C. § 727 [effective August 1, 1912] provides:
The right to remuneration for assistance or salvage services shall not be affected by common ownership of the vessels rendering and receiving such assistance or salvage services.
See Kimes v. United States, 207 F.2d 60, 62-63 (2d Cir. 1953) (citing cases); Spivak v. United States, 203 F.2d 881, 882-83 (3d Cir. 1953). Even before the Act's effective date, the common ownership of the salvor and salved vessels did not preclude a salvage award. See, e. g., Norris, The Law of Seamen § 238 (3d ed.) (citing cases).
[21] Firemen who aid in extinguishing blazes upon ships are precluded from obtaining salvage awards, see Firemen's Charitable Ass'n v. Ross, 60 F. 456, 458-59 (5th Cir. 1893), as are pilots acting within the scope of their employment duties, see The Cachemire, 38 F. 518, 522 (D.S.C.1889) (citing cases).
The "pre-existing duty" exception has been considerably narrowed in modern cases; for example, Coast Guard personnel performing rescue tasks in the line of duty are deemed voluntary actors whose services may generate salvage awards, see, e. g., In re American Oil Co., 417 F.2d 164, 168 (5th Cir. 1969); Frank v. United States, 250 F.2d 178, 180 (3d Cir. 1957), cert. denied, 356 U.S. 962, 78 S. Ct. 1000, 2 L. Ed. 2d 1069 (1958). The same is true for members of the armed forces. See, e. g., W. E. Rippon & Son v. United States, 348 F.2d 627, 628 (2d Cir. 1965); Tampa Tugs and Towing, Inc. v. M/V Sandanger, 242 F. Supp. 576, 581 (S.D.Cal.1965).
[22] The Camanche, 75 U.S. (8 Wall.) 448, 477, 19 L. Ed. 397 (1869). See Smith v. Union Oil Co. of Calif., 274 F. Supp. 248, 251 (W.D.Wash. 1966); Sobonis v. Steam Tanker National Defender, 298 F. Supp. 631, 637 (S.D.N.Y.1969).
[23] Sobonis v. Steam Tanker National Defender, 298 F. Supp. 631, 637-38 (S.D.N.Y.1969) (citing cases); Squires v. The Ionian Leader, 100 F. Supp. 829, 835 (D.N.J.1951) (citing cases).
[24] 207 F.2d 60 (2d Cir. 1953).
[25] Id. at 63. The decision of the Third Circuit in Spivak v. United States, 203 F.2d 881 (3d Cir. 1953), cited by the defendant, is not to the contrary. The plaintiff in Spivak was a single civilian seaman, employed at a fixed salary as a kind of general factotum by the War Department in Korea shortly before war broke out in that country. The Court denied his claim for a salvage award only after it reached the factual conclusion that the services he had performed in rescuing the cargo of a distressed ship were within the scope and ordinary course of his employment. Spivak's precedential value has been limited to its own factual circumstances. See Kimes v. United States, 207 F.2d 60, 63 (2d Cir. 1953).
[26] 298 F. Supp. 631 (S.D.N.Y.1969).
[27] See id. at 637 (quoting The Sarpen, [1916] pp. 306, 315, per Pickford, L. J.):
The test of voluntariness is only applicable as between the salvor and salved, and if the services be voluntary in relation to the salved, i. e., not rendered by reason of any obligation towards him, it is quite immaterial that the salvor has been ordered by someone who has control of his movements to render them.
[28] There are no grounds upon which to grant a life salvage award in the instant case. Although such an award is sometimes appropriate, see Peninsular & Oriental Steam Navigation Co. v. Overseas Oil Carriers, 553 F.2d 830, 836 n.6 (2d Cir.), cert. denied, 434 U.S. 859, 98 S. Ct. 183, 54 L. Ed. 2d 131 (1977), 46 U.S.C. § 729 (1975); it can be granted only to those who have foregone the opportunity to engage in the more profitable work of property salvage. Saint Paul Marine Trans. Corp. v. Cerro Sales Corp., 313 F. Supp. 377, 379 (D.Hawaii 1970), aff'd, 505 F.2d 1115 (9th Cir. 1974); In re Yamashita-Shinnihon Kisen, 305 F. Supp. 796, 800 (D.Or.1969). Here those who participated in the property salvage (i. e., all of the crew of the Sun) are identical with those who aided in the life salvage. No opportunity was foregone. Under these circumstances, a life salvage award "would be nothing more than a participation by each [salvor] in his own property award." In re Yamashita-Shinnihon Kisen, supra, 305 F.Supp. at 800.
[29] See, e. g., W. E. Rippon & Son v. United States, 348 F.2d 627, 629 (2d Cir. 1965) (minimal contributory service is compensable); Nadle v. M/V Tequila, 377 F. Supp. 414, 417 (S.D. N.Y.1974); Conolly v. S. S. Karina II, 302 F. Supp. 675, 680 (E.D.N.Y.1969). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1754647/ | 999 S.W.2d 881 (1999)
ST. PAUL INSURANCE COMPANY, Appellant,
v.
TEXAS DEPARTMENT OF TRANSPORTATION, Appellee.
No. 03-98-00625-CV.
Court of Appeals of Texas, Austin.
August 26, 1999.
*882 Michelle E. Robberson, Cooper & Scully, P.C., Dallas, for Appellant.
John Cornyn, Attorney General, David B. Strain, Assistant Attorney General, Austin, for Appellee.
Before Justices JONES, B.A. SMITH and YEAKEL.
BEA ANN SMITH, Justice.
This is an appeal from a summary judgment granted in favor of the Texas Department of Transportation ("TxDOT") on its declaratory judgment action against the St. Paul Insurance Company. TxDOT sued seeking a declaration that St. Paul had a duty to defend it as an additional insured in connection with a lawsuit arising out of a highway construction project. In one issue on appeal, St. Paul claims the trial court erred in granting summary judgment in TxDOT's favor. We will affirm the trial court's judgment.
FACTUAL AND PROCEDURAL BACKGROUND
TxDOT contracted with J.D. Abrams, Inc. to construct a five-mile section of Beltway Eight outside Houston. The contract required Abrams, a general contractor, to provide commercial general liability ("CGL") insurance for TxDOT until the completion of the project. St. Paul issued a package policy to Abrams containing CGL protection for a one-year period beginning November 1, 1993. In the policy, St. Paul agreed to pay amounts that Abrams was legally required to pay as damages for covered bodily injury and property damage that occurred while the agreement was in effect. The policy outlined St. Paul's duty to defend:
Right and Duty to Defend. We'll have the right and duty to defend any claim or suit for covered injury or damage ... made or brought against any protected person. We'll do so even if any of the allegations of any such claim or suit are groundless, false, or fraudulent. But we have no duty to perform other acts or services.
The policy also contained an additional-insured endorsement, which extended coverage to any person or organization that Abrams was required by contract to show as an "additional protected person." However, *883 coverage was only provided for covered injury or damage that resulted from Abrams' work for TxDOT or TxDOT's general supervision of that work.[1]
In August 1995, a class-action lawsuit was filed in Brazoria County against TxDOT, Abrams, and others by a group of property owners and residents of northern Brazoria County. The lawsuit alleges that the construction of Beltway Eight caused flooding that damaged the Brazoria plaintiffs' residences in October 1994; the Ninth Amended Petition is the only petition relevant in this appeal.[2] TxDOT demanded that St. Paul defend it as an additional insured. In a February 1997 letter to TxDOT, St. Paul stated: "St. Paul also expressly reserves its rights to allocate defense costs between any covered and non-covered claims and to recover from TxDOT the defense costs allocable to the defense of non-covered allegations. In particular, the defense costs allocable to the defense of TxDOT against the allegations that it negligently designed this project would not be covered under the St. Paul policy." In September, St. Paul wrote: "In summary, St. Paul does not deny coverage to TxDOT. St. Paul does recognize there is some potential coverage for TxDOT but the more challenging issue is how do we handle TxDOT's defense." However, St. Paul refused to defend TxDOT, claiming that TxDOT would be adequately protected from vicarious liability by the defenses asserted by Abrams.
TxDOT then sued, seeking a declaration that St. Paul owed a duty to defend it in the Brazoria plaintiffs' lawsuit. In its motion for summary judgment, TxDOT argued that Texas law requires an insurer to defend the entire suit if any of the insured's claims are covered. TxDOT pointed out that the Brazoria plaintiffs' petition includes the following allegations: that the plaintiffs' damages were caused by the diversion of runoff stormwaters resulting in part from the construction of Beltway Eight; that TxDOT, Abrams and other defendants "designed, scheduled, constructed and supervised" the construction of Beltway Eight and its drainage channels; and that the government defendants TxDOT and Harris County Flood Control District "collectively, through their respective employees or representatives," committed acts that resulted in an invasion of the plaintiffs' property and constituted a nuisance. St. Paul responded that the policy required it to defend only covered claims, not the entire suit. The trial court severed the issue of St. Paul's duty to defend from TxDOT's claims for attorney's fees and costs; it then granted TxDOT's motion for summary judgment in the declaratory judgment action, declaring that TxDOT was entitled to "a reasonable non-conflicted legal defense."
In its sole issue on appeal, St. Paul asserts that the trial court improperly granted summary judgment for TxDOT in its suit for declaratory judgment. St. Paul argues that the trial court erred because the Brazoria plaintiffs' petition "failed to allege facts or claims for damages that would trigger a duty to defend for an *884 additional insured under the specific policy provisions at issue."
DISCUSSION
We review this summary judgment under well-established standards: (1) the movant for summary judgment has the burden of showing that there is no genuine issue of fact and that it is entitled to judgment as a matter of law; (2) in deciding whether there is a 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. See Sysco Food Servs., Inc. v. Trapnell, 890 S.W.2d 796, 800 (Tex.1994); Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). Whether an insurance carrier owes a duty to defend under an insurance policy is a question of law that the appellate court reviews de novo. See State Farm Gen. Ins. Co. v. White, 955 S.W.2d 474, 475 (Tex.App.Austin 1997, no pet.); State Farm Lloyds v. Kessler, 932 S.W.2d 732, 735 (Tex.App.Fort Worth 1996, writ denied).
The duty to defend is broader than the duty to indemnify. See Texas Property & Cas. Ins. Guar. Ass'n v. Southwest Aggregates, Inc., 982 S.W.2d 600, 606 (Tex. App.Austin 1998, no pet.); Colony Ins. Co. v. H.R.K., Inc., 728 S.W.2d 848, 850 (Tex.App.Dallas 1987, no writ). Once coverage has been found for any portion of a suit, an insurer must defend the entire suit. See Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 393, 395 (5th Cir. 1995); St. Paul Surplus Lines Ins. Co. v. Dal-Worth Tank Co., 917 S.W.2d 29, 56 (Tex.App.Amarillo 1995), rev'd in part on other grounds, 974 S.W.2d 51 (Tex. 1998); Maryland Cas. Co. v. Moritz, 138 S.W.2d 1095, 1097 (Tex.Civ.App.Austin 1940, writ ref'd). This is because the insurance contract obligates the insurer to defend its insured, not to provide a partial defense. See Southwest Aggregates, 982 S.W.2d at 606.
The "Eight Corners" Rule
An insurer's duty to defend is determined by the allegations in the pleadings and the language of the insurance policy. See National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997); Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 821 (Tex.1997); American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 847-48 (Tex.1994). This is known as the "eight corners" rule.[3]See National Union, 939 S.W.2d at 141. In applying the eight corners rule, we give the allegations in the petition a liberal interpretation. As the supreme court has explained:
Where the complaint does not state facts sufficient to clearly bring the case within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy. Stated differently, in case of doubt as to whether or not the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in the insured's favor.
Id. (quoting Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex.1965)). In reviewing the underlying pleadings, the court must focus on the factual allegations that show the origin of the damages rather than on the legal theories alleged. See id; Adamo v. State Farm Lloyds Co., 853 S.W.2d 673, 676 (Tex.App.Houston [14th Dist.] 1993, writ *885 denied) ("It is not the cause of action alleged that determines coverage but the facts giving rise to the alleged actionable conduct."). The factual allegations against the insured should be considered in light of the policy provisions without reference to their truth or falsity and without reference to what the parties know or believe to be the true facts. See Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973). However, the court may not read facts into the pleadings, may not look outside the pleadings, and may not "imagine factual scenarios which might trigger coverage." National Union, 939 S.W.2d at 142.
The Allegations in the Brazoria Plaintiffs' Petition
The petition names twenty individuals and corporations as defendants and divides them into three groups: Government Entities, Engineers/Contractors, and Developers. TxDOT is included as a Government Entity and Abrams as an Engineer/Contractor. In a section entitled "Factual Background" the petition states:
On or about October 17 and 18, 1994, Plaintiffs and those they seek to represent, suffered extensive damages to their persons, residences, and property located in northern Brazoria County and encompassed in the Class Area. Said damages were due in whole or in part to diversion of run-off stormwaters in the Clear Creek and Mary's Creek watersheds and the subsequent presence of floodwaters overflowing from Clear Creek and Mary's Creek. Although most of the Plaintiffs and those they seek to represent had never experienced flooding, Plaintiffs' residences and properties were inundated with stormwaters. As a result of the flood, the northern Brazoria County area experienced millions of dollars in damages.
....
The flooding in the Class Area was caused by two primary factors: the uncontrolled development that occurred in the Class Area and the construction of Beltway 8.
The petition further charges that at the time of the flood in October 1994, proper stormwater and flood mitigation measures were not in place; "no regional detention was in place, although the original plans called for three regional detention sites"; and the "channel rectification plan" was not in place. The plaintiffs allege that
The construction of Beltway 8 had the effect of changing the direction of flows in the floodplain from that occurring under natural conditions, diverting far greater flows to the south of the Beltway into Clear Creek.... The widening of the floodplain caused by the construction of Beltway 8 has caused additional or more severe flooding that would not have occurred prior to the construction.
As discussed above, the petition alleges that TxDOT and Abrams "designed, scheduled, constructed and supervised" the construction of Beltway Eight and its drainage channels. We are required to read this pleading liberally in favor of the insured. See National Union, 939 S.W.2d at 141. Thus, the petition can be read to allege that (1) Abrams constructed Beltway Eight with inadequate flood-control measures, (2) TxDOT supervised the construction, and (3) both defendants' acts and omissions caused injury to the plaintiffs. Because Abrams' work was done pursuant to its contract with TxDOT, we believe these allegations fall squarely within the terms of the policy providing additional-insured coverage for damage resulting from Abrams' work for TxDOT or TxDOT's general supervision of that work.
St. Paul denies that TxDOT is an additional insured, and claims that the Brazoria plaintiffs "made absolutely no allegation or claim that TxDOT must answer through vicarious liability for Abrams' defective *886 work." We reject these arguments. First, TxDOT is an additional insured under the plain terms of the policy set forth above because the construction contract required Abrams to show TxDOT as an "additional protected person." Second, to the extent St. Paul believes that vicarious liability must be alleged against TxDOT to trigger St. Paul's duty to defend, St. Paul misunderstands its own policy or the nature of vicarious liability. For instance, an allegation that TxDOT negligently supervised Abrams' construction work for TxDOTan allegation of direct negligence on TxDOT's partwould trigger St. Paul's duty to defend under the policy's additional insured endorsement. Contrary to St. Paul's assertion, the petition need not allege that TxDOT is vicariously liable for Abrams' negligence.
St. Paul also argues that "none of the facts asserted that the plaintiffs' claims for damages resulted from Abrams' work for TxDOT or from TxDOT's supervision of Abrams' work." We agree that by reading only selected parts of the petition, the pleading could be construed in the manner St. Paul urges. However, St. Paul's argument focuses on the causes of action, ignoring the facts alleged in the "Factual Background" section. This reading is contrary to the requirement that we focus on factual allegations rather than legal theories. See National Union, 939 S.W.2d at 141. Moreover, the additional-insured endorsement provides coverage for damage that "results from" Abrams' work for TxDOT or TxDOT's supervision of that work; to be covered, the claim need only arise out of Abrams' work or TxDOT's supervision. Finally, we must give the petition a liberal interpretation that favors TxDOT. See id. Viewed in this light, the petition makes at least some claims against TxDOT that are covered under the policy.
St. Paul attempts to avoid its duty to defend by claiming several defenses to the causes of action pleaded in the petition. First, St. Paul argues that the policy's "professional services" exclusion negates its duty to defend. This exclusion precludes coverage for claims arising out of Abrams' provision or receipt of professional services. The policy does not define "professional services," but states that it includes: (1) "The preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications"; and (2) "[s]upervisory, inspection, or engineering services."
We are unable to locate, and neither party brings to our attention, any Texas cases that construe the phrase "professional services" in the factual context presented here.[4] However, we believe the exclusion does not apply in the present situation. The "additional protected persons" endorsement provides coverage for the insured's work for the additional insured or the additional insured's general supervision of that work. As TxDOT points out, the endorsement is preceded by the statement: "This change broadens coverage." We fail to understand how St. Paul can broaden its policy coverage to specifically include supervision and then claim that such activity is excluded as a "professional service." St. Paul collected a premium for coverage of additional insureds but would interpret its professional services exclusion to exclude all such coverage. St. Paul's interpretation would render the policy meaningless to all additional insuredsin this case, all persons *887 required to be named by Abrams as "additional protected persons."[5] Furthermore, St. Paul assumes that the factual allegations in the petition include claims for professional services; however, the broad allegations are subject to different interpretations, some of which might not involve professional services even if others do. We reject St. Paul's argument that the policy's "professional services" exclusion negates its duty to defend TxDOT.
St. Paul next argues that because the policy's intentional injury exclusion negates any coverage for gross negligence or intentional torts, it has no duty to defend TxDOT. In support, St. Paul cites Trinity Universal Insurance Co. v. Cowan, 945 S.W.2d 819 (Tex.1997). In Cowan, a photo lab employee made and distributed to his friends unauthorized copies of revealing photographs of the plaintiff that had been submitted for developing. See id. at 820-21. The supreme court held that the employee's insurer had no duty to defend because the employee's conduct was not accidental, and the fact that he did not expect or intend the plaintiff to learn of his actions was irrelevant. See id. at 827-28.
Cowan is distinguishable because the insured's act of copying and distributing photographs of the plaintiff was unquestionably intentional. In contrast, the factual allegations in the present casethe failure to prevent highway construction from causing stormwater floodingcan naturally be read to encompass ordinary negligence, not just gross negligence or intentional torts. And appropriately, the Brazoria plaintiffs' petition specifically includes allegations of negligence. Although the plaintiffs also allege gross negligence and intentional torts, this is not controlling because we must focus on the facts alleged, not the legal theories pleaded. Moreover, that coverage may not be available for some of the causes of action pleaded does not relieve St. Paul of its duty to defend TxDOT. See Lafarge, 61 F.3d at 393, 395; Dal-Worth Tank Co., 917 S.W.2d at 56; Moritz, 138 S.W.2d at 1097.
Reading the petition liberally in TxDOT's favor, it contains factual allegations that Abrams performed highway construction for TxDOT and that TxDOT supervised Abrams' work. We reject St. Paul's interpretation of the petition because it focuses on the causes of action pleaded, not the facts alleged. We also reject St. Paul's argument that policy defenses negate its duty to defend. We therefore hold that the trial court correctly declared that St. Paul has a duty to defend TxDOT in the Brazoria plaintiffs' suit. St. Paul's sole issue is overruled.
CONCLUSION
The summary judgment is affirmed.
NOTES
[1] The actual language of the additional-insured endorsement is as follows:
1. The following is added to the Who is Protected Under This Agreement section. This change broadens coverage.
Additional protected persons. Any person or organization you are required in a written contract to show as an additional protected person is an additional protected person. But only for covered injury or damage that results from:
* premises you own, rent or lease;
* the maintenance, operation or use of equipment they lease to you;
* your work for them; or
* their general supervision of that work.
(Emphasis added.)
[2] The court evaluates an insurer's duty to defend by reviewing only the latest amended pleading. See Tex.R. Civ. P. 65 (substituted pleading takes place of original); Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983).
[3] The "eight corners" rule is also sometimes called the "complaint allegation" rule. See Cowan, 945 S.W.2d at 821; Garcia, 876 S.W.2d at 847-48.
[4] As the court of appeals observed in Atlantic Lloyd's Insurance Co. v. Susman Godfrey, L.L.P., 982 S.W.2d 472, 476 n. 3 (Tex.App. Dallas 1998, pet. denied): "Previous cases discussing the term `professional services' most frequently involve medical negligence claims." See, e.g., Duncanville Diagnostic Ctr., Inc. v. Atlantic Lloyd's Ins. Co., 875 S.W.2d 788, 791 (Tex.App.Eastland 1994, writ denied) (medical technician's administration of sedative to patient fell within professional services exclusion).
[5] While St. Paul argues that TxDOT "did not plead that any portion of the insurance contract was ambiguous," a court may conclude that a contract is ambiguous even in the absence of such a pleading by either party. See Sage Street Assocs. v. Northdale Const. Co., 863 S.W.2d 438, 445 (Tex.1993). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2284391/ | 53 Cal. App. 4th 75 (1997)
TRUCK INSURANCE EXCHANGE et al., Plaintiffs and Respondents,
v.
PETER C. BENNETT, Defendant and Appellant.
Docket No. B090428.
Court of Appeals of California, Second District, Division Three.
February 27, 1997.
*78 COUNSEL
Troop, Meisinger, Steuber & Pasich, Curtis D. Porterfield, Clyde M. Hettrick and Stephen V. Masterson for Defendant and Appellant.
Benjamin, Lugosi & Benjamin, Robert N. Benjamin, Florence Tavi, Knapp, Petersen & Clarke, Gail S. Cooper-Folb, Hawkins, Schnabel, Lindahl & Beck, Kelley K. Beck, Haight, Brown & Bonesteel, Roy G. Weatherup and Jules S. Zeman for Plaintiffs and Respondents.
[Opinion certified for partial publication.[]]
OPINION
KITCHING, J.
INTRODUCTION
In the published portion of this opinion, we hold that a personal injury liability clause does not provide coverage for a cause of action for disparagement of title or slander of title brought against the insured. In the unpublished portion of this opinion, we find that under the circumstances of this case, the insurers did not waive their right to assert lack of coverage and to withdraw from defending the insured, and they were not estopped from doing so. We affirm a grant of summary judgment in favor of insurers in their suit seeking a declaration that they had no duty to defend and indemnify the insured against claims made against him in an underlying action.
PROCEDURAL HISTORY
The relevant procedural events in this complex case are as follows: On March 24, 1986, Kenneth J. Roberts (Roberts) and Mandeville Broadcasting Company (Mandeville) filed a complaint (the Roberts action) against Peter C. Bennett (Bennett). The Roberts action[1] alleged that Bennett had wrongfully claimed an ownership interest in radio station KROQ-FM as compensation for his services as Roberts's attorney during the period in which Roberts acquired the Burbank Broadcasting Company (Burbank), the entity which formerly owned radio station KROQ-FM. Among many other causes of action, the Roberts action contained a "disparagement of title" cause of *79 action. Truck Insurance Exchange (Truck) and other insurers had issued insurance policies to Bennett. Bennett demanded that Truck and the other insurers provide him with a defense to the Roberts action, indemnify Bennett, and pay legal fees.
Bennett also cross-complained, alleging 47 causes of action against Roberts, Mandeville, and other defendants.
In the action which gives rise to this appeal, Truck and other plaintiff insurers filed a complaint for declaratory relief (Code. Civ. Proc., § 1060) alleging two declaratory relief causes of action against Bennett. The declaratory relief causes of action alleged that although Truck and the other plaintiff insurers had provided a defense to the Roberts action pursuant to a complete reservation of rights, they denied any obligations under the insurance policies to defend or indemnify Bennett. A third cause of action sought declaratory relief against Charter Oak Fire Insurance Co. (Charter Oak), Associated Indemnity Insurance Company (Associated), and several other insurer defendants. It alleged that these insurers issued insurance policies to Bennett which provided coverage for defense and/or indemnity to him arising out of the breach alleged in the Roberts action. The third cause of action alleged that although the Roberts action had been tendered to these defendant insurers for defense and indemnity, only Truck and two other plaintiff insurers provided a defense in the Roberts action.
Several parties filed cross-complaints. On February 6, 1989, pursuant to Bennett's motion, the trial court ordered proceedings stayed in the declaratory relief action filed by Truck and the other insurers.
Before the Roberts action was tried, Roberts dismissed his complaint against Bennett with prejudice. Trial proceeded on Bennett's cross-complaint against Roberts. At the close of Bennett's case, the trial court granted Roberts's motion for nonsuit and dismissed all causes of action except those for quantum meruit and fraud. A February 5, 1991, judgment awarded Bennett $950,000 damages on his cross-complaint for recovery of legal fees against Roberts. The Court of Appeal[2] reversed the judgment on the cross-complaint against Roberts and remanded the matter with directions for the trial court to conduct a new trial on damages.
After the stay in Truck's declaratory relief action was lifted, the trial court granted summary judgment motions in favor of Truck, Associated, and Charter Oak. Bennett filed a timely notice of appeal. Respondents are Truck, Associated, and Charter Oak.
*80 STANDARD OF REVIEW
(1) The summary judgment motions were filed and ruled on by the trial court in 1992. Amendments to the summary judgment statute, Code of Civil Procedure section 437c, did not become effective until January 1, 1993. We therefore apply the standard of review according to the statute as it stood in 1992. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal. 4th 287, 301, fn. 4 [24 Cal. Rptr. 2d 467, 861 P.2d 1153].)
As a summary judgment motion raises only questions of law regarding the construction and effect of supporting and opposing papers, this court independently applies the same three-step analysis required of the trial court. We identify issues framed by the pleadings; we determine whether the moving party's showing established facts that negate the opponent's claim and justify a judgment in the moving party's favor, and if it does, we finally determine whether the opposition demonstrates the existence of a triable, material factual issue. (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal. App. 3d 1061, 1064-1065 [225 Cal. Rptr. 203].)
In an appeal from a summary judgment, this court independently reviews the trial court's determination of questions of law. The trial court's stated reasons supporting its ruling do not bind this court, which reviews the ruling, not its rationale. (Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal. App. 3d 1071, 1083 [258 Cal. Rptr. 721].)
ISSUES
The published portion of this opinion addresses Bennett's claim that because personal injury liability clauses in policies issued by Charter Oak, Truck, and Associated contained the words "disparaging" or "slander," those personal injury liability clauses provided coverage for claims made against him in the Roberts action for disparagement or slander of title.
The unpublished portion of this opinion addresses whether a triable issue of fact existed concerning waiver and estoppel which would prevent Charter Oak from withdrawing from Bennett's defense.
DISCUSSION
1. The Personal Injury Liability Clauses in the Charter Oak, Truck, and Associated Policies, and Roberts's Disparagement of Title Claims Against Bennett
(2a) The main issue in this appeal concerns whether the personal injury liability clauses provided coverage for Roberts's disparagement of title claim *81 against Bennett. We summarize the law concerning an insurer's duty to defend, the relevant allegations in the Roberts complaint, and the personal injury liability clauses.
a. The Duty to Defend
(3) An insurer has a duty to defend an insured if it learns from the complaint, or otherwise ascertains, facts that give rise to the potential of liability under the policy. (Gray v. Zurich Insurance Co. (1966) 65 Cal. 2d 263, 276-277 [54 Cal. Rptr. 104, 419 P.2d 168].) The duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend an insured in an action in which no damages are awarded. The determination whether the insurer owes a duty to defend is made by comparing the allegations of the complaint with the terms of the policy. Facts known to the insurer and extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the policy may cover the claim. The existence of an insurer's duty to defend turns upon the existence of facts known by the insurer when the third party begins the lawsuit against the insured. (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at pp. 295-296.)
To prevail in an action seeking declaratory relief on the issue of the duty to defend, the insured must prove the existence of a potential for coverage, while the insurer must establish the absence of any such potential. "[T]he insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot." (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 300, italics in original.)
The duty to defend, although broad, is not unlimited; it is measured by the nature and kinds of risk covered by the policy. Interpretation of an insurance policy is a question of law. Interpretation of the policy must give effect to the parties' mutual intention, insofar as it can be inferred, where possible, solely from the policy's written provisions. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal. 4th 1, 18-19 [44 Cal. Rptr. 2d 370, 900 P.2d 619].)
b. Allegations in the Complaint in the Roberts Action
The particular allegations of the complaint in the Roberts action, as supplemented by facts from the Court of Appeal opinion in Bennett v. Roberts, supra, B057316, are set forth as they relate to Bennett's claims on appeal.
Roberts was the sole shareholder of Mandeville, which owned and operated radio station KROQ-FM until September 19, 1986.
*82 By November 1973, Burbank had acquired AM and FM licenses to radio station KROQ-FM in Los Angeles. Roberts invested in Burbank during the early 1970's, a period during which Burbank's financial condition worsened, partners in Burbank engaged in litigation, and the two radio stations ceased to broadcast for two years. By April 1975, Roberts had gained control of Burbank and its rights to the radio licenses, but the Federal Communications Commission (FCC) disapproved of this arrangement. Bennett attempted to obtain FCC approval for eight years before finally obtaining the FM license to KROQ in 1984. During this time the value of the radio station increased.
Roberts retained Bennett as his attorney from 1971 until 1976. Between November 1972 and April 1973, Roberts lent $500,000 to Burbank, which in turn granted Roberts an option to obtain a 25 percent interest in Burbank. In late May 1973, pursuant to a second agreement, Roberts agreed to lend a further $350,000 to Burbank, which granted him an additional 25 percent ownership interest in Burbank. Bennett acted as Roberts's attorney in these transactions. Bennett's fiduciary duty to Roberts prohibited Bennett from acquiring any security or other pecuniary interest adverse to Roberts in connection with Bennett's legal services to Roberts.
In June 1973, while Roberts was outside California, Burbank requested that Roberts immediately advance $50,000 to Burbank pursuant to Roberts's second loan commitment. Roberts agreed to Bennett's suggestion that Bennett, as Roberts's attorney, approach City National Bank, a bank Roberts had previously used, and arrange a $50,000 loan to Roberts. Bennett would then forward the loan proceeds to Burbank on behalf of Roberts.
On June 13, 1973, without Roberts's knowledge or consent, Bennett obtained a $50,000 loan from City National Bank in Bennett's own name. Bennett advanced that amount to Burbank and purported to enter into a June 13, 1973, letter agreement with Burbank under which Bennett claimed he was entitled individually, and not as an agent for his client Roberts, to 3 percent of the total issued and outstanding stock and/or ownership interest in Burbank and its affiliated or related companies or enterprises.
Bennett also claimed he entered into an oral contingent fee agreement with Roberts. Under this alleged oral agreement, Bennett contended he was entitled to additional stock ownership interest of 25 percent of the total ownership interest acquired or owned by Roberts and any related persons, firms or companies in Burbank and any of its affiliated or related companies or enterprises. Bennett also contended he was entitled to 25 percent of all earnings or profits paid to Roberts or any related entity.
Roberts denied that he ever entered into a written or oral contingency fee arrangement with Bennett. The disparagement of title cause of action alleged *83 that after Burbank transferred its assets to Mandeville and the FCC issued the broadcast license for KROQ-FM to Mandeville in September 1984, Bennett wrongfully published a December 31, 1985, letter claiming a 28 percent ownership interest in KROQ-FM and affiliated or related companies. Bennett repeated these ownership claims a month later in a second letter dated January 31, 1986.
Finally, the complaint alleged that Bennett's publications were materially false; clouded Roberts's title to, and threatened the salability of Mandeville's exclusive property; threatened the FCC license held by Mandeville; and interfered with Mandeville's ability to do business. The publications made it necessary for Roberts to retain attorneys, undertake expensive investigation and collection, and bring the action. The action sought to adjudicate two issues: first, that the June 13, 1973, letter agreement conferred no rights in favor of Bennett either against Bennett's then-client Roberts or later against Roberts's wholly owned corporation Mandeville, the owner of KROQ-FM; and second, that the claims made in Bennett's December 31, 1985, letter, casting doubt on Roberts's sole former title to Burbank, on Mandeville's former sole title, on Burbank's former assets exclusive of the FCC broadcasting license, and on Mandeville's former rights as exclusive holder of the FCC license to operate KROQ-FM, were false.
c. The Charter Oak Policy
(2b) The "Personal Injury and Advertising Injury Liability Coverage" of the Charter Oak policy states: "The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of personal injury or advertising injury to which this insurance applies, sustained by any person or organization and arising out of the conduct of the Named Insured's business, within the policy territory, 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[.]"
The policy further defined "personal injury" to mean "injury arising out of one or more of the following offenses committed during the policy period: [¶] (1) false arrest, detention, imprisonment, or malicious prosecution; [¶] (2) wrongful entry or eviction or other invasion of the right of private occupancy; [¶] (3) a publication or utterance [¶] (a) of a libel or slander or other defamatory or disparaging material, or [¶] (b) in violation of an individual's right of privacy; [¶] except publication or utterances in the course of or related to advertising, broadcasting, publishing or telecasting activities conducted by or on behalf of the Named [Insured.]" (Italics added.)
*84 2. The Personal Injury Liability Clauses Provide No Coverage for Disparagement or Slander of Title Claims in the Roberts Complaint
Based on the italicized wording, Bennett argues that the Charter Oak personal injury liability clause covered economic damages and injuries arising from Roberts's disparagement of title claim. Bennett contends that the word "disparaging" means something other than injury to a person's reputation, and instead means injury to real property, such as disparagement of title. We do not agree.
a. Disparagement of Title as Distinguished From Defamation
The word "disparaging" in the Charter Oak personal injury liability clause applies to defamation of a person's reputation, not to an action for disparagement or slander of title to property.
(4) The gravamen of an action for "disparagement of title," also known as "slander of title," differs from that of an action for personal defamation. (Hill v. Allan (1968) 259 Cal. App. 2d 470, 490 [66 Cal. Rptr. 676].) Disparagement of title occurs when a person, without a privilege to do so, publishes a false statement that disparages title to property and causes pecuniary loss. (Stalberg v. Western Title Ins. Co. (1994) 27 Cal. App. 4th 925, 929 [32 Cal. Rptr. 2d 750].) "The elements of the tort are (1) publication, (2) absence of justification, (3) falsity and (4) direct pecuniary loss." (Seeley v. Seymour (1987) 190 Cal. App. 3d 844, 858 [237 Cal. Rptr. 282].) What makes conduct actionable is not whether a defendant succeeds in casting a legal cloud on plaintiff's title, but whether the defendant could reasonably foresee that the false publication might determine the conduct of a third person buyer or lessee. (Ibid.; Wilton v. Mountain Wood Homeowners Assn. (1993) 18 Cal. App. 4th 565, 568 [22 Cal. Rptr. 2d 471].) (2c) The thrust of the tort of disparagement or slander of title is protection from injury to the salability of property.[3] (Howard v. Schaniel (1980) 113 Cal. App. 3d 256, 264 [169 Cal. Rptr. 678].) This differs, in character and in kind, from the right protected by coverage for "personal injury" defined in the Charter Oak *85 policy as "publication or utterance ... of a libel or slander or other defamatory or disparaging material."
Defamation, by contrast, injures a person's reputation. Rather than interfering with a property right, economic relations, or the sale of goods, defamation invades the interest in personal or professional reputation and good name. A defamation claim vindicates personal interests, and is a personal injury. (O'Hara v. Storer Communications, Inc. (1991) 231 Cal. App. 3d 1101, 1118 [282 Cal. Rptr. 712]; Polygram Records, Inc. v. Superior Court (1985) 170 Cal. App. 3d 543, 548-550 [216 Cal. Rptr. 252]; Auvil v. CBS 60 Minutes (E.D.Wash. 1992) 800 F. Supp. 928, 932; Civ. Code § 44 et seq.) The distinction between the property or economic interest at stake in a slander or disparagement of title cause of action, and the personal interest in reputation at stake in a defamation cause of action, recurs in several other legal contexts.[4]
We are aware of no authority that includes disparagement or slander of title in the group of acts or offenses for which personal liability clauses provide coverage.
*86 b. The Context of the Policy
Like many such clauses, the Charter Oak personal injury liability clauses group personal injury into four subdivisions of similar injuries or tortious conduct. Given this context, it is not reasonable to interpret the term "disparagement" other than in relation to the class of torts in which it is placed, i.e., defamation torts dealing with injuries to character and reputation. (See American Motorists Ins. Co. v. Allied-Sysco Food Services, Inc. (1993) 19 Cal. App. 4th 1342, 1351 [24 Cal. Rptr. 2d 106]; and Waranch v. Gulf Insurance Co. (1990) 218 Cal. App. 3d 356, 361 [266 Cal. Rptr. 827].)
The syntax and wording of the Charter Oak personal injury liability clause support this conclusion. In this clause, "disparaging" acts as a synonym for defamatory; it does not refer to a cause of action for "disparagement" of title. The Charter Oak personal injury liability clause uses the wording, "a libel or slander or other defamatory or disparaging material." The adjectival "disparaging" which differs from the noun "disparagement" used in a "disparagement of title" cause of action explains and modifies the noun "material," and is paired with its companion adjective, "defamatory."
This language cannot reasonably be read to include any more than those causes of action customarily grouped together into the legal category of defamation. The reference to "disparaging" in the Charter Oak personal injury liability clause falls within the class of several torts that protect a person's interest in reputation, dignity, and character. (American Motorists, Ins. Co., v. Allied-Sysco Food Services, Inc., supra, 19 Cal. App.4th at p. 1352.) Given the "defamation" context in which the word "disparaging" appears, we conclude that the personal injury liability clause is not ambiguous and that it would not be reasonable for an insured to expect that a personal injury liability clause would cover those causes of action. (5) (See Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1265 [10 Cal. Rptr. 2d 538, 833 P.2d 545]: "[A] court that is faced with an argument for coverage based on assertedly ambiguous policy language must first attempt to determine whether coverage is consistent with the insured's objectively reasonable expectations. In so doing, the court must interpret the language in context, with regard to its intended function in the policy. [Citations.] This is because `language in a contract must be construed in the context of that instrument as a whole, and in the circumstances of that case, and cannot be found to be ambiguous in the abstract.' [Citations; italics omitted.]".)
We therefore find no basis for imposing a duty to defend on Charter Oak.
*87 c. The Truck and Associated Personal Injury Liability Clauses Do Not Provide Coverage for Disparagement/Slander of Title to Property
(2d) Bennett also claims that the "disparagement of title" cause of action in Roberts's complaint created the potential for coverage under the personal injury liability clauses of the Truck and Associated policies. Bennett argues that these policy definitions, by including the word "slander," provide coverage for a cause of action for "slander of title."
Those policies use slightly different wording,[5] but the analysis is the same. Although based on "slander" and "slander of title," this claim merely reiterates the argument for construing a personal injury liability clause containing the word "disparaging" to provide coverage for a "disparagement of title" action. For the reasons already discussed, we reject this argument.
d. The Cases Bennett Relies on Do Not Apply
No California case has held that a personal injury liability clause covers disparagement or slander of title. The sole authorities Bennett offers for the idea that a personal injury liability clause provides coverage for disparagement or slander of title are Lindsey v. Admiral Ins. Co. (N.D.Cal. 1992) 804 F. Supp. 47 and Aetna Cas. & Sur. Co. v. Centennial Ins. Co. (9th Cir.1988) 838 F.2d 346. We conclude that these cases do not support Bennett's claim on appeal.
In Lindsey, two employees sued their insured employer under the Fair Employment and Housing Act for sexual harassment by Lindsey, a coemployee. Defendant insurers rejected the insured employer's tender of defense to the complaint. The insured employer later sued the insurers, alleging that the employees' complaint imposed on the insurers a duty to defend and indemnify pursuant to personal injury liability coverage, defined as "the *88 publication or utterance of a libel or slander or of other defamatory or disparaging material, or a publication or utterance in violation of an individual's right of privacy[.]" (Lindsey v. Admiral Ins. Co., supra, 804 F. Supp. at p. 50.) Finding that no case held that a sexual harassment claim is a covered personal injury risk, Lindsey granted defendant insurers' motion for judgment on the pleadings and dismissed with prejudice causes of action for breach of contract and bad faith. (Id. at pp. 51-53.)
Lindsey also addressed the insureds' argument that the employees' sexual harassment complaint sought damages for "disparagement." Lindsey rejected this characterization of the sexual harassment cause of action. Lindsey stated: "The tort of disparagement has a very specific meaning under California law. The term `disparagement' refers to the twin torts of trade libel and slander of title. Leonardini v. Shell Oil Co., 216 Cal. App. 3d 547, 572-574, ...; 5 Witkin, Summary of California Law, § 567 at 661 (9th ed. 1988). Both trade libel and slander of title concern damage to property, not reputation, and are not implicated by the [employees'] Complaint." (Lindsey v. Admiral Ins. Co., supra, 804 F. Supp. at p. 52.)
Lindsey thus correctly finds that a sexual harassment complaint does not constitute an action for either trade libel or slander of title. In rejecting the sexual harassment plaintiffs' theory, however, Lindsey concludes that the complaint before it could not possibly constitute a claim covered by a personal injury clause, because the complaint did not allege the necessary legal elements either for defamation or for trade libel or slander of title. (804 F. Supp. at p. 52.) Thus the Lindsey opinion implies that if the plaintiffs had properly pleaded allegations that satisfied all elements of the slander of title or trade libel causes of action, the personal injury liability clauses would have provided coverage.
That erroneous implication permits Bennett to urge Lindsey as authority for including a slander or disparagement of title cause of action among those for which a personal injury liability clause provides coverage. Bennett's reading mischaracterizes Lindsey, however, and the authorities Lindsey relies upon do not support it.
Leonardini v. Shell Oil Co. (1989) 216 Cal. App. 3d 547 [264 Cal. Rptr. 883], a malicious prosecution case, does not involve the insurer's "duty to defend." Leonardini has no occasion to consider the definition of "disparagement" in a personal injury liability clause.[6]
Witkin, cited by both Lindsey and Leonardini, shows why personal injury liability does not include "disparagement of title" or "slander of title." *89 Witkin asserts "one basic difference" between actions for defamation and actions for disparagement: "The action for defamation is designed to protect the reputation of the plaintiff, and the judgment vindicates that reputation, whereas the action for disparagement is based on pecuniary damage and lies only where such damage has been suffered." (5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 567, pp. 661-662, italics in original.)
Aetna Cas. & Sur. Co. v. Centennial Ins. Co., supra, 838 F.2d 346 correctly states this distinction, yet without analysis claims to follow Nichols v. Great American Ins. Companies (1985) 169 Cal. App. 3d 766, 772-774 [215 Cal. Rptr. 416]. Aetna claims that Nichols "implicitly recognized" that a personal injury liability clause encompassed trade libel or disparagement. Nichols did not so hold. Nichols found that the complaint did not state a cause of action for trade libel because it lacked the necessary element of defamatory publication, and even if its allegations could be construed to contain defamatory publication, they fell within an exception from coverage for advertising. (Id. at pp. 773-775.)
Aetna found that a cause of action for "false designation of origin and unfair competition" (15 U.S.C. § 1125) and a "common law trade mark infringement" cause of action were not covered under the personal injury liability clause as "`publication or utterance of a libel or slander or of other defamatory or disparaging material.'" (Aetna Cas. & Sur. Co. v. Centennial Ins. Co., supra, 838 F.2d at p. 351.)
Regarding the argument that a "generalized" unfair competition cause of action alleged a form of trade libel, Aetna stated correctly that "[t]rade libel is not ... a true libel and is not actionable as defamation. [Citation.] It is more akin to unfair competition. [Citation.] Trade libel and product disparagement are injurious falsehoods that interfere with business. Unlike classic defamation, they are not directed at the plaintiff's personal reputation but rather at the goods a plaintiff sells or the character of his other business." (Aetna Cas. & Sur. Co. v. Centennial Ins. Co., supra, 838 F.2d at p. 351.)
Although Aetna assumes that a personal injury liability clause provides coverage for trade libel a false assumption, we believe Aetna found the complaint did not allege that the insured disparaged someone else's products, but rather "palmed off" or appropriated those products for its own use. *90 Thus the complaint did not raise a possibility of liability because it did not allege the elements of trade libel. (Aetna Cas. & Sur. Co. v. Centennial Ins. Co., supra, 838 F.2d at p. 351.)
Analysis of the final cause of action in Aetna, "injury to business reputation," proceeds similarly. Although the opinion suggests that injury to business reputation "would seem to be covered[,]" the complaint in Aetna alleged only that the insured copied plaintiff's goods, which constitutes unfair competition or trademark infringement, not disparagement. Thus this cause of action raised no possibility of coverage under the personal injury liability clause. (Aetna Cas. & Sur. Co. v. Centennial Ins. Co., supra, 838 F.2d at pp. 351-352.)
Lindsey and Aetna find that allegations in the complaints failed to satisfy all legal elements of the causes of action. Thus the legal insufficiency of the complaints made it unnecessary for Lindsey or Aetna to explore whether a personal injury liability clause would provide coverage of a satisfactorily pleaded complaint, and neither case embarked on that exploration. By focusing on the legal sufficiency of allegations in the complaints before them, instead of analyzing what personal injury liability coverage includes, Aetna and Lindsey illustrate the limits of that approach. Disparagement or slander of title is one of several torts that apply to business relations and which may be grouped under the label "`injurious falsehood.'" (Guess, Inc. v. Superior Court, supra, 176 Cal. App. 3d 473, 479.) Howsoever the cause of action is styled, disparagement or slander of title invades an interest in vendibility of property. It reduces the value of the property, makes property more difficult to sell or lease, or otherwise produces economic loss. (See Appel v. Burman (1984) 159 Cal. App. 3d 1209, 1215 [206 Cal. Rptr. 259], and Guess, Inc. v. Superior Court, supra, 176 Cal. App.3d at p. 478-479.) A personal injury liability clause, providing coverage for torts involving harm to personal reputation, does not provide coverage for disparagement or slander of title.
We therefore find no basis for imposing a duty to defend on Charter Oak, Truck, or Associated.
3. Waiver and Estoppel by Charter Oak[*]
.... .... .... .... .... .... .... .
*91 DISPOSITION
The judgment is affirmed. Costs awarded to respondents.
Klein, P.J., and Aldrich, J., concurred.
Appellant's petition for review by the Supreme Court was denied June 18, 1997. Mosk, J., was of the opinion that the petition should be granted.
NOTES
[] Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of part 3 of the "Discussion."
[1] Roberts v. Bennett (Super. Ct. L.A. County, 1986, No. C59274).
[2] Trial was held on Bennett's cross-complaint, and Roberts appealed from that judgment; Bennett v. Roberts (Dec. 30, 1994) B057316 (nonpub. opn.).
[3] Unless some interest in property is involved, the cause of action does not lie. "An action for slander of title is maintainable only by one who possess an estate or interest in the property." (Annot., Slander of Title: Sufficiency of Plaintiff's Interest in Real Property to Maintain Action (1991) 86 A.L.R. 4th 738, 742, § 2.) This annotation sets forth in "what circumstances the plaintiff in an action for slander (or disparagement) of title to real property has a sufficient interest in the property to be entitled (or have standing) to bring the action." (Id. at p. 741, § 1.) On this issue, see also comment c to section 624 of the Restatement Second of Torts, page 344, defining the "legally protected interest in land, chattels or intangible things" that may be subject to "disparagement" for purposes of disparagement or slander of title.
[4] See comment a to section 624, "Disparagement of Property Slander of Title," in the Restatement Second of Torts, supra, page 343: "The association with personal defamation through the word `slander' has unfortunately tended to lead the courts to regard the plaintiff's property interest as somehow personified, and so defamed, and thus to look to the law of defamation. `Slander of title,' however, differs from personal defamation in at least three important respects. One is that proof of special harm is required in all cases.... Another is that there must be proof of a greater amount of fault than negligence on the part of the defendant regarding the falsity of the statement.... The third is that because of the economic interest involved the disparagement of property may in a proper case be enjoined, whereas defamation normally cannot."
Furthermore, a slander or disparagement of title action is assignable, as it arises from the violation of a property right; a defamation cause of action, as arising from the purely personal right of the reputation of the one injured, is not assignable. (Goodley v. Wank & Wank, Inc. (1976) 62 Cal. App. 3d 389, 393 [133 Cal. Rptr. 83].) A slander or disparagement of title cause of action also survives the death of the plaintiff (or of the defendant). (Smith v. Stuthman (1947) 79 Cal. App. 2d 708, 709-710 [181 P.2d 123].) By contrast, a defamation cause of action does not survive plaintiff's death. (Flynn v. Higham (1983) 149 Cal. App. 3d 677, 680 [197 Cal. Rptr. 145].)
In California, the one-year statutory limitations period (Code Civ. Proc., § 340, subd. (3)) applies to defamation causes of actions as infringements of personal rights, while the two-year period (Code Civ. Proc., § 339, subd. 1) applies to injurious falsehood causes of action (including disparagement or slander of title) as infringements of property rights. (Guess, Inc. v. Superior Court (1986) 176 Cal. App. 3d 473, 477-479 [222 Cal. Rptr. 79].)
A defamation cause of action, involving a personal injury, can form a basis for prejudgment interest. (Civ. Code, § 3291; O'Hara v. Storer Communications, Inc., supra, 231 Cal. App.3d at pp. 1117-1118.) By contrast, a slander or disparagement of title cause of action, vindicating a property interest, would not qualify for Civil Code section 3291 prejudgment interest. (Holmes v. General Dynamics Corp. (1993) 17 Cal. App. 4th 1418, 1436 [22 Cal. Rptr. 2d 172]; Continental Ins. Co. v. Superior Court (1995) 37 Cal. App. 4th 69, 86 [43 Cal. Rptr. 2d 374].)
[5] The Truck policy's "coverages" clause states that the insurer agreed "[t]o indemnify the insured for all sums which the insured shall be legally obligated to pay as damages and expenses, all as more fully defined by the term `ultimate net loss' on account of: [¶] 1. Personal Injuries, including death at any time resulting therefrom[;] [¶] 2. Property Damage; caused by or arising out of each occurrence happening anywhere in the world." The policy defined "personal injury" in part as "libel, slander, defamation of character or invasion of rights of privacy[.]" Different wording appears in the 1986-1987 Truck policy, which defines "personal injury" to include "libel, slander, defamation, humiliation, or a publication or utterance in violation of a person's right of privacy[.]"
The Associated policy states: "`[P]ersonal injury' shall mean: [¶] 1. bodily injury, mental injury, mental anguish, shocks, sickness, disease, death and disability; [¶] 2. false arrest, false imprisonment, wrongful eviction, wrongful detention, malicious prosecution, discrimination, humiliation; [¶] 3. libel, slander, defamation of character, wrongful entry or invasion of rights of privacy."
[6] In Leonardini, an attorney brought a malicious prosecution action against a manufacturer of pipe resin after the manufacturer, in federal court, sought to enjoin the attorney's alleged trade libel that the manufacturer's product contained a carcinogen. The issue in Leonardini involved the requirement that a malicious prosecution plaintiff must show that defendant brought the underlying action without probable cause. Leonardini concluded that the manufacturer had no probable cause to seek injunctive or declaratory relief, and affirmed the jury's award in favor of plaintiff attorney. (Leonardini v. Shell Oil Co., supra, 216 Cal. App.3d at pp. 572-580.)
[*] See footnote, ante, page 75. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1604127/ | 645 So.2d 698 (1994)
Ernest PHELPS, Plaintiff-Appellant,
v.
Richard WHITE, et al., Defendants-Appellees.
No. 94-267.
Court of Appeal of Louisiana, Third Circuit.
October 5, 1994.
Rehearing Denied December 14, 1994.
*699 Laura E. Fahy, Patrick Dennis McArdle, New Orleans, for Ernest Phelps.
Chester James Rothkamm Jr., Baton Rouge, for Richard White et al.
Douglas Nealon Stracener, Baton Rouge, for Martrain Marine.
Before LABORDE, KNOLL and THIBODEAUX, JJ.
KNOLL, Judge.
This personal injury case involves a boating accident on Lake Concordia and raises questions of comparative fault and damages. Ernest Phelps, the surviving husband of Mary Phelps, appeals a jury determination that he was 75% at fault for the death of his wife in a boating accident and that Richard White (hereafter Mr. White), the operator of the other boat involved in the accident, was 25% at fault. Even though the jury found Mr. White 25% at fault, it neither awarded damages in favor of Mr. Phelps for the wrongful death of his wife nor recompensed him for property damages. The jury made no award for punitive damages.
Mr. Phelps contends that: (1) the jury's finding him 75% at fault was clearly wrong; and, (2) the jury's failure to award him damages for the wrongful death of his wife, property damages, and punitive damages is erroneous as a matter of law. We affirm in part, reverse in part, and render.
*700 FACTS
At approximately 4 p.m. on April 25, 1987, Mr. Phelps and his wife, Mary, launched their 14 foot wooden boat equipped with a 25 horsepower engine from the Sportsmen's Lodge and proceeded in a northeasterly direction on Lake Concordia to fish the lake. As the Phelps's boat proceeded from the dock, Mr. White was piloting a 16 foot Arrow Glass bass boat equipped with a 115 horsepower engine; the White boat was travelling parallel to shore and moving from east to west. When Mr. and Mrs. Phelps were approximately 150 feet from shore, Mr. White's bass boat struck their wooden boat on the starboard side at approximately the middle of the boat and became airborne. Mrs. Phelps was thrown into the water and died shortly thereafter from internal injuries associated with the collision of the two boats.
Mr. Phelps sued Mr. White, the owner and operator of the bass boat, Homer Miller, the previous owner of the boat and father-in-law of Mr. White, and Martrain Marine, Inc., the corporation which originally sold the boat and motor. Even though the jury rendered its verdict allocating fault 75% to Mr. Phelps and 25% to Mr. White, it awarded no damages. The trial judge granted judgment in accordance with the jury verdict and further awarded Mr. Phelps a proportionate share of $5,878, the stipulated medical and funeral expenses. Mr. Phelps' subsequent motion for JNOV was denied by the trial court. This appeal followed.
APPORTIONMENT OF FAULT
Mr. Phelps contends that the jury was manifestly erroneous in its assessment of any fault against him. Instead, he argues that Mr. White bears total fault for this boating accident.
For an appellate court to reverse a trial court's factual findings, it must find from the record that a reasonable factual basis does not exist for the trial court's findings and that the record establishes that the findings are clearly wrong. Mart v. Hill, 505 So.2d 1120 (La.1987). Accordingly, the reviewing court must do more than simply examine the record for some evidence which supports or controverts the trial court's findings. The appellate court must review the record in its entirety to determine whether the trial court's findings were clearly wrong or manifestly erroneous. Stobart v. State, Department of Transportation and Development, 617 So.2d 880 (La.1993).
The issue which the appellate court must resolve is not whether the trier of fact was right or wrong, but whether the conclusions of the fact finder were reasonable. Id. Even though a reviewing court may feel its own evaluations and inferences are more reasonable than the fact finder's, reasonable evaluations of credibility and reasonable inferences of fact should not be disturbed upon review where testimonial conflict exists. Id. The rule that questions of credibility are for the fact finder applies equally to the evaluation of expert testimony, unless the expert's reasons are patently unsound. Lirette v. State Farm Ins. Co., 563 So.2d 850 (La.1990).
In Rosell v. ESCO, 549 So.2d 840 (La. 1989), the Louisiana Supreme Court made it abundantly clear that where two permissible views of the evidence exist, the fact finder's choice between them cannot be clearly wrong. Nevertheless, Rosell further stated that where the documents or objective evidence so contradict the witness's story, or the story is so internally inconsistent or implausible on its face that a reasonable fact finder would not credit the witness's story, a reviewing court may find manifest error or clear wrongness even in a credibility determination. Id.
Applying this standard of review to the specific issue raised in the case sub judice, it is well settled that the jury's allocation of fault is a factual finding which an appellate court will not disturb, unless, upon articulated and detailed analysis and reasons, it is demonstrable that the jury's allocation of fault is clearly wrong. Rodgers v. National Dealer Services, Inc., 508 So.2d 1007 (La. App.2d Cir.), writs denied, 512 So.2d 1183 and 513 So.2d 1211 (La.1987).
As an introduction to our analysis of this issue, we refer first to the testimony of Captain Claude R. Davenport, Mr. Phelps's expert witness in marine safety. Captain Davenport *701 testified that there are rules of the road for waterways, just like there are for highways. In a crossing situation, he stated that the vessel which has the other vessel on its right (starboard) side is referred to as the burdened vessel and the vessel approaching the right (starboard) side of the other boat is the privileged vessel. If, however, one vessel comes from an angle of 35° from the stern (the rear or back of a boat), this becomes an overtaking situation and not a crossing situation. Thus, the ultimate facts which are determinative of liability rest squarely with the resolution of the question of whether Mr. White was either crossing or overtaking Mr. Phelps's boat.
Mr. Phelps testified that he and his wife were proceeding from the dock area at the Sportsmen's Lodge in a northeasterly direction at approximately 5 to 10 miles per hour. He stated that as he cleared the dock, he noticed a motor boat on his starboard side, running close to the shore at least ¼ mile away which posed no threat to his entry into the lake. He testified that just before the accident he was handling his boat and watching where he was going. However, when his boat was approximately 150 feet from shore, Mr. White's boat struck their boat, hitting Mrs. Phelps and throwing her overboard.
The owner of the Sportsmen's Lodge, Jean Bongiovanni, testified that she saw Mr. White's boat travelling fast and that there was a passenger riding on the pedestal seat of Mr. White's boat. She saw Mr. Phelps's boat idling as it traversed the lake in a northeasterly direction. She observed Mr. White's boat veer to the right toward Mr. Phelps's boat as Mr. White's boat approached the lodge's pier and watched it as it went airborne over Mr. Phelps's boat.
A family consisting of 7 members was fishing from 3 different boats in the area of the accident. Marie Worthey, one of the family members, testified that Mr. White's boat went past them several times, travelling fast and spraying water on their boats. She saw Mr. Phelps's boat drift out from the bank. At about the same time, she observed Mr. White's boat veer to the right and run over Mr. Phelps's boat. She thought that just prior to the accident, Mr. White's boat was going to hit the dock at the lodge. She further stated that immediately prior to the accident she saw Mr. Phelps bent over in his boat working on something and that he was in this position when the boats struck.
Mack Nations, Jr., another family member, testified that he did not witness the accident. He stated, much like Marie Worthey, that Mr. White's boat passed them going approximately 45 to 50 m.p.h. and sprayed three inches of water into their boat. Mr. Nations's wife, Barbara, corroborated her husband's testimony and further said that just before the accident Mr. White's boat was about 30 to 40 feet from the bank.
Another family member, Carolyn Saucier, mirrored the testimony of her family members. She further opined that if Mr. White had not changed course, he would have hit the dock, but instead he hit the Phelps's boat.
Herchel Thurman, a mechanical engineer, was another fisherman on the lake at the time of the accident. He testified that he was running circles in the middle of the lake, dragging a fish scaler which descaled his fish. He observed both Mr. Phelps's and Mr. White's boats. His testimony was that Mr. Phelps's boat was traveling at an idle speed as it moved away from the lodge's dock, and that it never changed course. On the other hand, he observed Mr. White's boat coming a long way down the river close to the bank, casting a white spray from the back of the boat. He testified that when Mr. White was approximately 100 to 150 feet from Mr. Phelps's boat, Mr. White's boat turned to the right and ran over Mr. Phelps's boat. He suggested that based on his vantage point, if Mr. White had not turned right, he would have missed the Phelps's boat. He further said that Mr. White's boat went over the Phelps's boat as if it were a ski ramp; Mr. White's boat became airborne and his passenger was thrown from the bow of Mr. White's boat. He described Mr. White's speed as steady, going at least 40 m.p.h., that Mr. White's boat was riding high in the water, and that it was throwing spray behind it. Thurman further testified that Mr. White's boat struck Mr. Phelps's craft at an angle of 30° to 40°, not 90° as asserted by Mr. *702 White. Finally, Thurman stated that from his point of observation, Mr. White's boat overtook Mr. Phelps's from the stern quarter.
Mr. White testified that he was steering his boat along the shore near the Sportsmen's Lodge searching for gas. A friend of his, Randy Guinn, was seated at the bow of the boat helping him locate a gas source. He stated that he looked straight ahead and that he was travelling 50 to 70 yards from shore. He further stated that his speedometer was not functioning and that based on his experience as an operator of this boat he estimated that he was travelling at a speed of 20 m.p.h. He testified that he never saw Mr. Phelps's boat prior to the accident. He did not remember spraying water on other boats as was related by Marie Worthey and her family. Likewise, he did not remember telling Deputy Dennis Cowan after the accident that the collision was his fault, and that he failed to see Mr. Phelps's boat because he was looking for gas pumps at the lodge. Randy Guinn's testimony corroborated Mr. White's.
Captain Davenport testified as an expert in marine safety. After listening to the testimony of the eyewitnesses and viewing photographs of Mr. Phelps's boat, he concluded that Mr. White's boat was overtaking Mr. Phelps's boat and that Mr. Phelps had the right of way. He premised his opinion on physical evidence of boat damage to Mr. Phelps's boat which indicated to him that Mr. White's boat struck at an angle, not perpendicular to the side of the Phelps's boat and that Mr. Phelps had established his direction of travel in the lake.
Mr. Cole, an attorney and the marine safety expert who testified for Mr. White, concluded from the depositions of Mr. White, Mr. Guinn, who was Mr. White's passenger, and Mr. Miller, who was Mr. White's father-in-law and a previous owner of the boat, from testimony he heard at part of the trial, and his review of photographic evidence of damage to the Phelps's boat, that this was a crossing situation and that the two boats hit at a perpendicular angle because Mr. Phelps's boat was crossing Mr. White's path. He elaborated on the rules of the road by saying that in a crossing situation Mr. Phelps was the burdened or give-way vessel and Mr. White was the privileged or stand-on vessel. He opined that even though Mr. Phelps first saw Mr. White proceeding along shore at a distance of a quarter mile, he was obligated to stay out of Mr. White's path. He explained that under admiralty law and jurisprudence that a vessel proceeding from the dock is a burdened vessel until it establishes its course in the stream. He further stated that after a vessel is designated as the burdened vessel it cannot change its status by changing its course or speed.
Mr. Cole examined the photographic evidence which showed angular damage to the starboard side of Mr. Phelps's vessel, which was the physical evidence relied upon by Captain Davenport to support his contention that Mr. White's vessel was overtaking Mr. Phelps's. He opined that if the vessels had met at a low angle of impact, suggestive of Mr. White's overtaking of Mr. Phelps, then the boats would have bounced apart. Moreover, he opined that Mr. White's boat struck Mr. Phelps's boat almost perpendicularly and the angular damage resulted when Mr. Phelps's boat twisted or turned on impact, creating the effect of an angular crossing. On this basis, he concluded that Mr. Phelps failed to use every means available to ascertain that his entry into the lake could be safely accomplished and that as the burdened vessel, he crossed the path of the privileged vessel of Mr. White's.
After reviewing the testimony of the various witnesses, we find the testimony presented by Mr. White so internally implausible that it was manifestly erroneous for the jury to assign any credibility to the facts presented on his behalf. The testimony of disinterested eyewitnesses conflicted with the version of facts relied upon by Mr. White and Mr. Guinn. Likewise, the evidence shows that the primary testimony which Mr. Cole relied upon in formulating his expert opinion was the depositional testimony of Mr. White, Mr. Miller, and Mr. Guinn. Based on their versions of the facts, Mr. Cole formulated his opinion evidence. Although the record is not clear what portion of the live testimony Mr. Cole observed, there was no evidence to discount testimony such as that of Herchel *703 Thurman, an eyewitness who specifically stated that Mr. White's boat veered from its path and was overtaking Mr. Phelps's watercraft.
Moreover, the record further supports that Mr. Phelps's boat had established its position in the lake at a time when no other boat threatened it and that at no time did it vary from its established course. To the contrary, the record is uncontradicted that the only vessel to change course was Mr. White's. Even Mr. Cole, when presented with the testimony that Mr. White's boat veered suddenly toward Mr. Phelps's, testified that in this scenario there was nothing Mr. Phelps could have done.
In light of the uncontradicted testimony that Mr. White never saw Mr. Phelps's boat, that his concentration was focused on the location of gas pumps along the shore, and the strong testimony from all the other disinterested eyewitnesses on the lake that Mr. White was speeding and driving recklessly, we find that the jury erred in casting any fault to Mr. Phelps. Accordingly, we find that the only verdict supported by the record is that Mr. White was 100% liable for the wrongful death of Mrs. Phelps.
DAMAGES
Mr. Phelps next contends that the jury erred as a matter of law when it found Mr. White partially liable, yet failed to award him any damages for the wrongful death of his wife.[1] He also contends that the jury similarly erred when it failed to make an award for his property damages and his claim that Mr. White be cast with punitive damages under LSA-C.C. Art. 2315.4 (exemplary damages for injuries by a defendant whose intoxication while operating a motor vehicle causes injuries). In rebuttal, Mr. White argues that the jury did not err, contending that Mr. Phelps simply failed to prove his damage claims.
LSA-C.C. Art. 2324.1, the source provision for damages, states that in the assessment of damages in cases of quasi offenses much discretion must be left to the trier of fact. However, the jurisprudence is likewise well settled that a jury errs as a matter of law in refusing to award any damages when the facts of the injury have been clearly proven. Boulmay v. Dubois, 593 So.2d 769 (La.App. 4 Cir.1992). When a jury has erred as a matter of law as opposed to an abuse of discretion, the appellate court must assess the amount of damages unrestricted by Coco v. Winston Industries, Inc., 341 So.2d 332 (La.1977), since it is in effect making an initial damage award. Mart, supra.
In the present case, we find clear error in the jury verdict. Since it found at least partial liability with Mr. White and evidence of wrongful death damages was presented, we find that it erred as a matter of law in failing to award damages. Accordingly, we will review the record for proof of the items of damages urged by Mr. Phelps and, if proven, will assess them in accordance with the dictates of Mart.
Wrongful death damages. LSA-C.C. Art. 2315.2 grants the surviving spouse a right to recover damages suffered as the result of a wrongful death. The elements of damage for wrongful death are loss of love, affection, companionship, and support, as well as funeral expenses. Mathieu v. State, Department of Transportation and Development, 598 So.2d 676 (La.App. 3 Cir.), writ denied, 600 So.2d 665 (La.1992).
In the present case, Mr. Phelps testified that he was married to the decedent, Mary Phelps, for 22 and ½ years and they had three children, Clint, Holly, and Douglas, 18, 16, and 4 years of age, respectively at the time of the accident. Mrs. Phelps was 38 years of age at the time of the accident. He further stated that he and his wife had a close relationship and that he fished primarily with his wife for approximately the last 15 years. He testified that he and his wife had taken an annual vacation to Lake Concordia *704 for the past 15 years. It was uncontroverted that he missed his wife very much, and that he visited his wife's grave approximately four times a week for a year. He further testified that his children loved their mother and that the older two children have had significant problems since the death of their mother. Mr. Phelps stated that he considered not going on after the death of his wife, but decided otherwise when he realized that he now was the sole guardian and provider for his children, particularly his young son.
Based on this testimony, we find that the jury erred in not awarding Mr. Phelps damages for the wrongful death of his wife. Viewing the evidence before us, we find that an award of $350,000 will compensate Mr. Phelps for this element of damages.
Valuation of Mr. Phelps' boat. Mr. Phelps next contends that the jury erred in failing to compensate him for the loss of his wooden boat.
Although we have been unable to find jurisprudence relative to the loss of a boat, we find the total loss of an automobile analogous. Commenting on the burden of proof, we stated in Holt v. Rapides Parish Police Jury, 574 So.2d 525, 530 (La.App. 3 Cir.1991):
"[I]t is well-settled law that when an automobile is a total loss, the owner is entitled to recover the market value of the vehicle before the accident less its salvage value, if any. Proof of salvage value is an absolute prerequisite to a recovery for the total loss of a vehicle." (citations omitted).
Applying this jurisprudence to the present case, we find that we are unable to recompense Mr. Phelps for this item of property damage. Mr. Phelps, the only person to testify on this item of damages, approximated his loss at $1,400. He did not state what his original purchase price was, what condition the boat was in, or how he arrived at this figure. The only other testimony he had on this issue was that he did salvage the motor.
Based on this sketchy testimony, we find that Mr. Phelps failed to prove by a preponderance of the evidence that he was entitled to $1,400 for his boat.
Exemplary damages. Mr. Phelps next contends that the jury erred in failing to award exemplary damages because Mrs. Phelps's death was caused by the wanton or reckless disregard for her rights and safety by Mr. White's intoxication while operating his boat.
LSA-C.C. Art. 2315.4 provides:
"In addition to general and special damages, exemplary damages may be awarded upon proof that the injuries on which the action is based were caused by a wanton or reckless disregard for the rights and safety of others by a defendant whose intoxication while operating a motor vehicle was a cause in fact of the resulting injuries."
In Whittington v. American Oil Co., 508 So.2d 180, 186-87 (La.App. 4 Cir.1987), writ denied, 512 So.2d 436 (La.1987), our fellow judges of the Fourth Circuit summarized the law on this issue as follows:
"There is no statutory presumption of intoxication in civil matters. The finding of a specific blood alcohol content standing alone is not evidence that an individual is incapable of operating a motor vehicle and does not preclude recovery for damages caused by the negligent act of others.
The mere showing that one has imbibed alcohol prior to involvement in an automobile accident does not per se establish negligence contributing to the accident." (citations omitted).
The Third Circuit has held that although blood alcohol content alone is insufficient to establish causation, corroborative evidence other than expert testimony is sufficient to show that alcohol was a causal factor contributing to the accident. In McDaniel v. DeJean, 556 So.2d 1336 (La.App. 3 Cir.1990), there was no expert testimony presented at trial on the effects of alcohol impairing the defendant's driving ability. Instead, we examined the record as a whole to see whether there was corroborative evidence that intoxication was a cause-in-fact of the accident. In McDaniel, the arresting officer testified that defendant's eyes were bloodshot, that he smelled of alcohol, that he was unsteady on his feet, and that he failed the field sobriety test. When we examined this testimony together with defendant's 0.11 percent blood *705 alcohol content, we found that "the evidence preponderat[ed] that his intoxication was a cause in fact of the accident." Id. at 1340.
Likewise, in Duplechain v. Old Hickory Cas. Ins. Co., 594 So.2d 995 (La.App. 3 Cir. 1992), we addressed a similar issue. In Duplechain, the defendant stopped his car at night in the middle of the road, exited, and began arguing with his wife. The plaintiff was injured when his vehicle collided with defendant's stopped automobile. Defendant's blood alcohol level was 0.24 percent. Even though the trial court referred to evidence of the amount of alcoholic beverages which must be consumed to reach a 0.24 percent level, it did not mention any expert testimony about the effects that alcohol consumption had on the defendant's driving ability. Viewing the events preceding the accident with defendant's blood alcohol level, we concluded that defendant's intoxicated condition was a cause-in-fact of plaintiff's injuries.
In the present case, Mr. White testified that on the day of the accident he drank a couple of beers and nothing else. The record shows that Dennis Cowan, an investigator for the Concordia Parish Sheriff's Department, questioned Mr. White immediately after the accident. He stated that although Mr. White's eyes were bloodshot and that he could detect an odor of alcohol on Mr. White's breath, he could not recollect that Mr. White was swaying or that his speech was slurred. Deputy Cowan further stated that when he ran a breath analyzer test on Mr. White within 1 hour of the accident, Mr. White's blood alcohol level registered 0.05 percent.[2]
Deputy Cowan also stated that since this accident occurred on the water, the Louisiana Department of Wildlife & Fisheries was in charge of investigating whether to charge Mr. White with DWI. No one from Wildlife & Fisheries testified at this jury trial.
Dr. Maurice Gremillion, the acting coroner for Concordia Parish on the day of the accident, stated that alcohol causes a person to react more slowly, decreases his vision, and affects his judgment as to speed and distance. Dr. Gremillion offered no opinion as to whether Mr. White was intoxicated on the day of the accident or whether intoxication was a cause of the fatality. The only other expert testimony presented was that of David Cole, a marine consultant. As a former Coast Guardsman, he corroborated Dr. Gremillion's general testimony on alcohol's affect on the appreciation of distance and reaction time and further testified that he is aware of the statistics which show that 51% of boating fatalities involve a blood alcohol content of 0.04 percent or greater. Mr. Cole did not offer an opinion on whether Mr. White was intoxicated on the day of the accident or whether intoxication caused the tragic accident which resulted in the death of Mrs. Phelps.
Mr. Phelps testified that while attempts were made to resuscitate his wife on the bank, he smelled a strong odor of alcohol on Mr. White, saw Mr. White's bloodshot eyes, and stated that Mr. White's speech was slurred.
Based on this evidence, some of it conflicting, we do not find that Mr. Phelps proved by a preponderance of the evidence that Mr. White's intoxication was shown to the wanton and reckless level established in McDaniel and Duplechain, and thus there was no proof that Mr. White's imbibing of alcoholic beverages was a cause-in-fact of this accident. From the facts presented, it may be that inattention of the boat operator alone was the cause of the accident.
For the foregoing reasons, the judgment of the trial court is affirmed in its rejection of Mr. Phelps's claims for property damage to his boat and punitive damages. The judgment of the trial court is reversed and set aside in its allocation of fault and its rejection of Mr. Phelps's damage claims for the wrongful death of his wife. Accordingly, we recast those portions of the judgment which are in conflict with the opinion of this court.
IT IS ORDERED, ADJUDGED, and DECREED that Richard White is cast with *706 100% fault for the wrongful death of Mary Phelps.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that there be judgment herein favor of Ernest Phelps and against Richard White in the sum of Three Hundred Fifty Thousand Dollars and Zero cents ($350,000.00) plus legal interest from the date of judicial demand until paid, representing damages for the wrongful death of Mary Phelps.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that there be judgment herein in favor of Ernest Phelps and against Richard White in the sum of Five Thousand Eight Hundred Seventy-Eight Dollars and Zero Cents ($5878.00) plus legal interest from the date of judicial demand until paid, representing funeral expenses of $5,079.00 and medical expenses of $799.00 for Mary Phelps.
Costs of trial and this appeal are assessed to Richard White.
AFFIRMED IN PART, REVERSED IN PART, AND RENDERED.
NOTES
[1] In his appellate brief Mr. Phelps particularly abandons his claims for mental anguish damages for witnessing his wife's death and the survival action for his wife's pre-death terror, pain and suffering. We also note that we are not asked to award damages to the children of Mr. and Mrs. Phelps for the wrongful death of their mother. Accordingly, these items of damages were abandoned.
[2] In a criminal trial, LSA-R.S. 32:662 provides that if the weight of alcohol in the person's blood is 0.05 percent or less, it shall be presumed that the person was not under the influence of alcoholic beverages. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1905170/ | 490 F.Supp. 442 (1980)
Iris PENNA, Plaintiff,
v.
The UNITED STATES ARMY, CORPS OF ENGINEERS, NEW YORK DISTRICT; the United States Civil Service Commission; Maurice Lustig; and Sylvester Salzano, Defendants.
No. 79 Civ. 4923.
United States District Court, S. D. New York.
June 3, 1980.
James Andres, New York City, for plaintiff.
William M. Tendy, U. S. Atty. for the Southern District of New York, New York City, for defendants; Edward G. Williams, Asst. U. S. Atty., New York City, of counsel.
OPINION
EDWARD WEINFELD, District Judge.
Plaintiff, formerly a non-probationary career employee in the United States Civil Service, was discharged in June 1977 from her position as a clerk-typist assigned to the Acquisition Branch of the Realty Section, United States Corps of Engineers, Department of the Army (the "Army"). She commenced this action for judicial review of the agency's decision to discharge her, seeking reinstatement and back pay. The defendants moved for summary judgment pursuant to Fed.R.Civ.P. 56 dismissing the complaint, based upon the administrative record. Upon a thorough review of that record, the Court concludes that the agency action must be sustained and the motion granted.
*443 Plaintiff was first employed by the Army in 1974. She was assigned to her last positionwith the Acquisition Branchin November 1975. In April 1977, plaintiff was notified by Sylvester Salzano, the Branch Chief, that he proposed to terminate her employment upon thirty days' notice.[1] The assigned reason was "inefficiency in the performance of [plaintiff's] official duties." Salzano's specifications of unsatisfactory performance were threeaccuracy in typing, rate of production, and attitude. The notice listed fifteen specific examples of deficient typing, hostile or insolent attitude, and of complaints received from plaintiff's supervisors. Plaintiff submitted a written reply on May 24, 1977, in essence denying each charge, and countercharging that she had been "harrassed, insulted and slandered" on numerous occasions while employed in the Acquisition Branch.
On June 5, 1977, plaintiff was informed by Maurice Lustig, Chief of the Real Estate Division, of his determination, upon a review of the pertinent documents, that her discharge was warranted and that she would be separated as of June 17, 1977. Plaintiff thereupon appealed to the Federal Employee Appeals Authority of the Civil Service Commission (the "FEAA") on June 9, 1977.[2] A hearing was conducted by the FEAA on August 25, 1977 at which both plaintiff and the Army presented and were permitted to cross-examine witnesses. Plaintiff was represented by Robert D. Jensen, a National Representative of the American Federation of Government Employees.
The FEAA filed its opinion in November 1977. It found first that a majority of the specific items listed by the Army in the notices sent to plaintiff lacked the specificity and detail required to enable her to adequately refute them and, accordingly, it did not consider those charges against her. The FEAA also found, however, that seven remaining specifications were sufficiently detailed. Six of these items were instances of poor typing, the other involved an occasion when plaintiff, after an argument with a supervisor, left the office without permission. The FEAA further found that the Army had complied with all applicable procedures in effectuating plaintiff's discharge and that the record as a whole supported the charges relating to poor typing and low productivity.[3] The FEAA concluded that the Army's decision was neither arbitrary nor capricious and that it was taken for good cause such as to promote the efficiency of the service;[4] it therefore sustained plaintiff's discharge.
The scope of judicial review of a federal agency's decision to terminate an employee is narrowly confined. Review is based solely upon the administrative record.[5] The function of the reviewing court *444 is not to pass upon the wisdom or good judgment of the agency's decision but only to determine whether (1) the agency complied with applicable procedures in effectuating the dismissal, and (2) whether its action was arbitrary or capricious.[6] However, since a federal employee may be discharged only "for such cause as will promote the efficiency of the service,"[7] for an agency's decision not to be arbitrary and capricious, the reasons for the discharge must be rationally related to the efficiency of the service.[8]
Plaintiff does not claim that there were any procedural deficiencies in the administrative proceedings surrounding her discharge; nor does she contend that the reasons given for her dischargepoor typing ability and poor productivitylack a rational connection to the efficiency of the service. She does argue, however, that the agency action terminating her was arbitrary and capricious. She first claims that the seven specific instances of deficient performance considered by the FEAA were insufficient to sustain the Army's action. This is so, she contends, because those specific instances of error represent but a small percentage of the letters she typed for the Acquisition Branch.
This contention is without merit. The specific letters relied on by the Army to substantiate its decision to terminate plaintiff did not purport to be an exhaustive compilation of plaintiff's typing errors but were merely exemplars of plaintiff's deficient performance. Moreover, even if these errors were the only mistakes made by the plaintiff, the Court could not hold that they did not justify the Army's decision to terminate her. To do so would require the Court to do precisely what a reviewing court must refrain from doing in such casesto impose upon the agency the Court's judgment as to what level of accuracy should be required of a typist; in other words, to pass upon the wisdom of the Army's decision.
In any event, the implication in plaintiff's argument that the specific instances referred to in the Army's letter constitute the only evidence in the record of plaintiff's typing problems is incorrect. At the hearing before the FEAA, three of plaintiff's immediate supervisorsrealty specialists in the Acquisition Branch for whom plaintiff did typingas well as Salzano, the Branch Chief, each testified to the general inadequacy and error-ridden quality of plaintiff's typing. Plaintiff's own witnessher former supervisor, Beuhla Kaplantestified that plaintiff's typing was "very, very bad." *445 In short, the administrative record contains abundant evidence to support the FEAA's decision to sustain plaintiff's discharge for reasons of inefficiency due to poor typing and low productivity. Nothing therein supports plaintiff's contention that the decision was either arbitrary or capricious.
Plaintiff's second claim is that the refusal of the Merit Systems Protection Board (the "MSPB")[9] to grant her a hearing to present new evidence was arbitrary and capricious. This contention too is without support in law or the record. Two requests relating to the reopening of plaintiff's case were made on her behalf. On December 5, 1977, shortly after the FEAA rendered its decision, plaintiff's representative, Jensen, requested that the Appeals Review Board of the Civil Service Commission reopen her case for reasons allegedly meeting the criteria to warrant reconsideration.[10] In April 1979, Thomas Feeney, an attorney representing plaintiff, noting that a decision on the Jensen request was still pending, requested a hearing before the MSPB for the purpose of presenting new evidence in support of plaintiff's position, pursuant to the provisions of the Civil Service Reform Act.[11] Feeney's letter did not specify the nature of this "new evidence."
On May 3, 1979 the Board denied the Feeney request. It stated that since the administrative proceeding, including plaintiff's request for reopening and reconsideration, predated the Civil Service Reform Act, it was governed by the then-applicable regulations which did not provide for a hearing as of right before the Board. The Board's position was entirely proper. While under the Civil Service Reform Act an employee is entitled to a hearing before the MSPB,[12] section 902(b) of the Act states "[n]o provision of this Act shall affect any administrative proceedings pending at the time such provision takes effect. Orders shall be issued in such proceedings and appeals shall be taken therefrom as if this Act had not been enacted." Under the regulations in force prior to the Act which provided for an appeal to the Appeals Review Board there was no right to a hearing before the Board.[13] In sum, plaintiff was not entitled to the hearing requested by Feeney and there is no basis for her contention that the MSPB acted arbitrarily, capriciously or otherwise than according to law in refusing to grant a hearing to receive new evidence some 22 months after the FEAA's decision and in the absence of any offer of proof with respect to such evidence.
Accordingly, the Court concludes that the administrative decision to discharge plaintiff *446 was neither arbitrary nor capricious and was for such good cause as to promote the efficiency of the service. The defendants' motion for summary judgment is granted.
So ordered.
NOTES
[1] 5 C.F.R. § 752.202(a) (1978).
[2] Id. § 752.203 (1978).
[3] The FEAA did not sustain the charge of deficiency related to attitude and it is not considered here.
[4] 5 C.F.R. § 752.104(a) (1978). Cf. 5 U.S.C. § 7513(a) (1980).
[5] See, e. g., Doe v. Hampton, 566 F.2d 265, 272 (D.C. Cir. 1977); Higa v. McLucas, 549 F.2d 152 (9th Cir.), cert. denied, 433 U.S. 909, 97 S.Ct. 2976, 53 L.Ed.2d 1094 (1977); Polcover v. Secretary of Treasury, 477 F.2d 1223, 1225-26 (D.C. Cir.), cert. denied, 414 U.S. 1001, 94 S.Ct. 356, 38 L.Ed.2d 237 (1973); Henkle v. Campbell, 462 F.Supp. 1286 (D.Kan.1978); McKenzie v. Calloway, 456 F.Supp. 590, 593-94 (E.D. Mich.1978); Hadigan v. Board of Governors, 463 F.Supp. 437, 439 (D.D.C.1978), aff'd without opinion, 612 F.2d 586 (D.C. Cir. 1980); Ford v. United States Dep't Housing, 450 F.Supp. 559, 562 (N.D.Ill.1978). Cf. Porter v. Califano, 592 F.2d 770 (5th Cir. 1979) (de novo review may be proper where agency fact-finding procedure is inadequate).
Plaintiff contends that the Court is not limited in its review to the administrative record and has submitted two affidavits not contained in the record in support of her position on the merits of this motion. Her contention is without merit; the authorities she cites in support of it are utterly inapposite and as indicated above, a wealth of contrary authority exists. The Court has not considered, in deciding the present motion, the two affidavits which abound in a multitude of hearsay allegations and charges.
[6] See, e. g., United States v. Professional Air Traf. Con. Org., 438 F.2d 79, 80-81 (2d Cir. 1970), cert. denied, 402 U.S. 915, 91 S.Ct. 1373, 28 L.Ed.2d 661 (1971); McTiernan v. Gronouski, 337 F.2d 31, 34 (2d Cir. 1964); Gilbert v. Johnson, 601 F.2d 761 (5th Cir. 1979); Hurley v. United States, 575 F.2d 792, 793-94 (10th Cir. 1978); Doe v. Hampton, 566 F.2d 265, 271 (D.C. Cir. 1977); Higa v. McLucas, 549 F.2d 152, 153 (9th Cir.), cert. denied, 433 U.S. 909, 97 S.Ct. 2976, 53 L.Ed.2d 1094 (1977); Sexton v. Kennedy, 523 F.2d 1311, 1314 (6th Cir. 1975), cert. denied, 425 U.S. 973, 96 S.Ct. 2171, 48 L.Ed.2d 796 (1976); Wroblaski v. Hampton, 528 F.2d 852 (7th Cir. 1976); Grebosz v. United States Civil Service Comm'n, 472 F.Supp. 1081, 1084 (S.D.N.Y.1979); Hardin v. Carlson, 77 Civ. 976 (LBS) (S.D.N.Y. August 9, 1978); Lee v. Bolger, 454 F.Supp. 226 (S.D.N.Y.1978); Hadigan v. Board of Governors, 463 F.Supp. 437, 439-40 (D.D.C.1978), aff'd without opinion, 612 F.2d 586 (D.C. Cir. 1980); Henkle v. Campbell, 462 F.Supp. 1286, 1288 (D.Kan.1978); Courts v. Economic Opport. Auth., 451 F.Supp. 587, 591-92 (S.D.Ga.1978).
Some courts reviewing adverse personnel actions have purported to apply a so-called "substantial evidence" testeither in addition to or by way of applying the arbitrary and capricious standard. See, e. g., Phillips v. Bergland, 586 F.2d 1007, 1012 (4th Cir. 1978); Alsbury v. United States Postal Serv., 530 F.2d 852, 855 (9th Cir.), cert. denied, 429 U.S. 828, 97 S.Ct. 85, 50 L.Ed.2d 91 (1976). This is not, however, the rule in the Second Circuit. Moreover, as the District of Columbia Court of Appeals has noted, it is not clear that it much matters how reviewing courts label the test they apply. See Doe v. Hampton, 566 F.2d 265, 271 n.15 (D.C. Cir. 1977).
[7] See note 4, supra.
[8] See Doe v. Hampton, 566 F.2d 265, 272-73 (D.C. Cir. 1977); McClelland v. Andrus, 606 F.2d 1278, 1290-91 (D.C. Cir. 1979); Phillips v. Bergland, 586 F.2d 1007, 1010-12 (4th Cir. 1978); Grebosz v. United States Civil Service Comm'n, 472 F.Supp. 1081, 1085-87 (S.D.N.Y. 1979).
[9] The FEAA was reorganized into the Merit Systems Protection Board as of January 1, 1979 pursuant to the Civil Service Reform Act of 1978, Pub.L. 95-454 (Oct. 13, 1978).
[10] 5 C.F.R. § 772.310(a) (1978) provided in part:
The Board may reopen and reconsider the decision when the party requesting reopening submits written argument or evidence which tends to establish that:
(1) New and material evidence is available that was not readily available when the decision of the appeals officer was issued;
(2) The previous decision of the appeals officer involves an erroneous interpretation of law or regulation, or a misapplication of established policy; or
(3) The decision of the appeals officer is of a precedential nature involving new or unreviewed policy considerations that may have effect beyond the case at hand.
[11] Pub.L. 95-454 (Oct. 13, 1978).
[12] See 5 U.S.C. § 7701 (1980); 5 C.F.R. § 752.405 (1979).
[13] 5 C.F.R. § 772.310(f) (1978) provided in part:
The Board shall review any request to reopen to determine whether a basis for reopening . . . has been established.. . When the Board reopens a previous decision, the Board will determine and conduct whatever further investigation is necessary. There is no right to a hearing before the Board. (emphasis added)
On June 19, 1979, the MSPB denied plaintiff's request for reopening on the ground that none of the representations in the Jensen letter submitted in support of the request tended to establish any of the criteria for reopening but rather constituted an attempt to relitigate the merits of the FEAA decision. Plaintiff does not take issue with this determination but a review of both the request and the administrative record makes it eminently clear that the denial was entirely justified. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2497681/ | 84 F.Supp.2d 154 (1999)
Vincent QUILES, Plaintiff,
v.
SIKORSKY AIRCRAFT, A Division of United Technologies Corporation, and United Technologies Corporation, Defendants.
No. Civ 98-11208-DPW.
United States District Court, D. Massachusetts.
September 8, 1999.
*155 *156 Jeffrey P. Petrucelly, Petrucelly & Nadler, Boston, MA, for Vincent Quiles, plaintiff.
Raymond L. Mariani, New York City, Richard P. Campbell, Campbell, Campbell & Edwards, Boston, MA, Amy C. Cashore, Campbell Campbell & Edwards, Boston, MA, for Sikorsky Aircraft, A Division of United Technologies Corporation, defendant.
Richard P. Campbell, Amy C. Cashore, Campbell Campbell & Edwards, Boston, MA, for United Technologies Corporation, defendant.
MEMORANDUM AND ORDER
WOODLOCK, District Judge.
Plaintiff Vincent Quiles brought this action against Sikorsky Aircraft, a division of United Technologies Corporation, and against United Technologies Corporation, asserting claims stemming from a helicopter accident which occurred on April 17, 1995. On that day, an HH-60J Coast Guard helicopter experienced a hard landing as a result of a crack in a part called a tip cap. The accident caused back injuries and related problems to Quiles, at the time a flight mechanic for the United States Coast Guard. Quiles has brought claims against the defendant companies, which designed and built the helicopter, for design and manufacturing defects on negligence and strict liability theories, as well as for breach of warranties, failure to warn, and failure to recall. Defendants have moved for summary judgment on all counts based on the government contractor defense, which shields contractors from liability in cases in which they followed government specifications. Plaintiff contends primarily that the defendants did not follow the government's specifications in building the allegedly defective helicopter and moves to strike the defendants' affidavits. I will grant in part and deny in part the plaintiff's motion to strike, and I will grant the defendant's motion for summary judgment.
I. BACKGROUND
A. The Parties
Plaintiff Vincent Quiles, currently a resident of Pennsylvania and formerly a Massachusetts resident, was a flight mechanic for the United States Coast Guard stationed at Otis Air Force Base in Massachusetts at the time of the incident in question. (Compl.¶¶ 1, 2.) Defendant Sikorsky Aircraft (hereinafter "Sikorsky") was an unincorporated operating division of United Technologies Corporation ("UTC") and is now a business entity organized under Delaware law with a place of business in Connecticut. (Answer ¶ 3.) Sikorsky designs, manufactures, and sells helicopters, including the Model HH-60J. (Id.) Defendant UTC is a Delaware corporation with a place of business in Connecticut. (Id. ¶ 4.)
B. The Accident
On April 17, 1995, a U.S. Coast Guard HH-60J helicopter was forced to "crash *157 land," or, alternatively stated, "sustained a hard landing," on a beach near Plymouth, Massachusetts. (Sikorsky Aircraft's Mem. of Law in Supp. of Its Mot. for Summary Judgment ("Defs.' Mem.") at 1; Pl.'s Mem. of Law in Supp. of His Opp'n to Defs.' Mot. for Summary Judgment ("Pl.'s Mem.") at 3.) The helicopter was forced to land when a "tip cap," a part at the end of the main rotor blade, fractured and detached, damaging the blade. (Id.) The two crew members who were piloting the helicopter apparently were unharmed and have not filed suit. (Defs.' Mem. at 1.) Quiles, however, asserts that he has experienced severe back pain, as well as stress and related difficulties as a result of the accident. (Compl. ¶¶ 7, 17.)
C. The Lawsuit
Quiles brought suit in Massachusetts Superior Court, alleging negligence in design, manufacture, and failure to warn (Count I), strict product liability resulting from defective design and manufacture and inadequate warning (Count II), breach of implied and express warranties (Count III), failure to warn (Count IV), and failure to recall a defective product (Count V). (Compl. ¶¶ 18-32.) Defendant removed the action to this court and now moves for summary judgment based on the government contractor defense approved by the Supreme Court in Boyle v. United Technologies Corp., 487 U.S. 500, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988). Plaintiff argues that the government contractor defense does not apply and moves to strike all or parts of the affidavits submitted by defendant. Before reaching the legal issues, I will consider the development of the helicopter and the part at issue as well as the governing specifications and whether the tip cap in this case met those specifications. These factual issues form the crux of my determination of whether the government contractor defense applies in this case.
D. Design and Approval of the Helicopters at Issue
The helicopter involved in this case was an HH-60J Coast Guard helicopter bearing serial number 163816, but the tip cap which fractured had originally been manufactured by Sikorsky for a UH-60A army helicopter bearing serial number 88-26085. (Sikorsky Aircraft's Statement of Uncontested Facts Pursuant to Rule 56.1 ¶¶ 6, 9.) The Army had removed the tip cap from service because it was cracked, and the Coast Guard used it after repair despite apparent knowledge of its maintenance history. (Defs.' Mem. at 7; Defs.' Doc. App., Exs. 18, 19.) Defendants have provided an exhaustive account, largely undisputed by the plaintiff, of the process which led to the design of the Army and Coast Guard helicopters at issue.
The Army opened up a bidding process for a specific type of helicopter in the 1970s. As part of this process, UTC submitted a proposal which was extensively reviewed and revised by the Army. (Defs.' Mem. at 4.) After several levels of review, the Army chose UTC to build the Blackhawk or UH-60A helicopter, but required UTC to go through additional levels of review and testing before the helicopters were built and accepted. (Id. at 4-5.) The government specified not only the design of the Blackhawk, but also the precise method by which it was to be manufactured. (Id. at 5.) Defendants assert that the Blackhawk helicopter from which the tip cap at issue here came was built to these specifications. (Id.)
UTC followed similar processes in designing similar helicopters for other services. Specifically, the Coast Guard decided to model its HH-60J or Jayhawk substantially after the SH-60B or Seahawk, a Blackhawk derivative developed by the Navy. (Id.) While the design of the rotor blade for the Jayhawk is very similar to that for the Blackhawk, the two helicopters have different uses which in turn require different replacement times for various parts, including tip caps. The Coast Guard requires that a tip cap be replaced after 6700 hours as opposed to *158 the 13,000 hours specified by the Army. (Id. at 6.)
The military became aware of many instances of tip caps cracking long before the specified replacement time in Blackhawks and related helicopters at least as early as 1988. (Defs.' Mem. at 7; Brisbois Aff. ¶¶ 7-10; Eagar Aff., Ex. H.) The military informed the defendants about the problem, and the parties discussed potential solutions, eventually deciding to manufacture the tap cap out of a composite material rather than aluminum. (Defs.' Mem. at 7; Brisbois Aff. ¶¶ 7-10.) The tip cap in question in this case was manufactured according to the original design, rather than the later composite design. (Defs.' Mem. at 7.) Defendants contend that they did not know of any information regarding problems with tip caps that they did not communicate to the government. (Defs.' Mem. at 7; Brisbois Aff. ¶ 11; Crawford Aff. ¶ 10; Potts Aff. ¶ 19.) The plaintiff has provided no evidence to the contrary, submitting instead a report filed by the Army about the problem and one submitted to the Army by the defendants, suggesting that the Army had at least as much knowledge about this problem as the defendants did, and that the defendants shared all relevant information they possessed. (Eagar Aff., Ex. H.)
E. Conformance to Government Specifications
Plaintiff asserts that the tip cap and helicopter at issue in this case did not conform to the specifications approved by the government. Plaintiff, primarily through his expert, Thomas Eagar, contends that the thickness of the fairing of the tip cap at issue was 0.060 inches, while the government required a thickness of 0.063 inches. (Pl.'s Mem. at 4; Eagar Aff. ¶¶ 17, 18.) Eagar contends that a five percent deficiency in the thickness of the tip cap, which he asserts was the case here, would result in a significantly faster rate of crack growth, which in turn could make detection of the crack in time to avoid a problem less likely. (Id. ¶ 18.)
Eagar based his conclusions primarily upon a Materials Engineering Laboratory Report, which he identified as coming from the defendants, but which defendants state was in fact prepared by the government. (Id. ¶ 17; Sikorsky Aircraft's Reply Mem. of Law in Further Supp. of Its Mot. for Summary Judgment ("Defs.' Reply Mem.") at 2; Potts Supplemental Aff., attached to Defs.' Reply Mem., ¶ 4.) The report states in relevant part, "The fairing material averaged 0.060 inch thickness adjacent to the countersunk fastener area. The drawing requirements call for a nominal 0.063 inch thickness, however, stretch forming of the fairing could account for the reduction to the measured thickness." (Eagar Aff., Ex. D at 3.) Plaintiff also includes a report from an earlier incident of tip cap cracking, in which UTC itself had written, "Fairing wall thickness in several areas adjacent to the crack ranged between .059-.061 inch. The drawing calls for a .063 inch nominal stock thickness requirement. However, stretch forming and sanding generally reduce this, typically to the thickness measured." (Eagar Aff., Ex. H at 3.)
Defendants contend that the 0.063 inch requirement is for the thickness of the aluminum stock before it is formed and fashioned into a tip cap. They assert that the minimum thickness required for the tip cap after it is formed is 0.052 inches, which the part in question more than met. (Defs.' Reply Mem. at 5-6.) They base this assertion upon an affidavit and a note to a government design drawing which they assert sets out the required proportions. (Potts Supplemental Aff. ¶¶ 5, 6; Design Drawing XXXXX-XXXXX, Note 7, Ex. 23 to Defs.' Doc.App.)
The design drawing itself is difficult for an untrained observer to interpret. Note 7 states, "Minimum sheet thickness prior to stretch forming .059. Minimum thickness after stretch forming and prior to chemical etch .052." (Design Drawing XXXXX-XXXXX, Ex. 23 to Defs.' Doc.App.) The note does not specify which part of the *159 tip cap it refers to. The 0.063 inch figure shows up at least twice in the drawing, once (near the label "Sect C-C") clearly in reference to unformed stock (as it says ".063 stock"), but the other time (near the label "Sect B-B") next to what may appear to be a finished part and labeled ".063 ref". The defendants contended in argument that the plan specifies the required thickness of the aluminum used in the tip cap at three different stages: 0.063 for unformed stock, 0.059 after some processing but before stretch forming, and 0.052 after stretch forming and prior to chemical etching. The plaintiff's expert, Eagar, in an affidavit, candidly states that, based on his review of the relevant documents, he cannot confirm or deny that Note 7 refers to the thickness of the entire tip cap or that it applies to the part that cracked in this case. (Eagar Third Aff. ¶ 8.) However, Len Meyer, a design engineer for Sikorsky, stated in an affidavit that "[i]t is a fundamental tenet of blueprint reading that a Note applies to the entire drawing unless it states otherwise. There is no question that Note 7 governs thickness of the tip cap skin throughout the drawing because it does not state any limitation otherwise." (Meyer Aff. ¶ 5.)
The plaintiff's expert states that the growth of the tip cap's crack suggests additional stresses upon the tip cap which may reflect further defects. (Eagar Aff. ¶ 20.) Specifically, he asserts that the defendants improperly lacked a screw tightening sequence and probably misaligned the screw holes in the tip cap fairing. (Id. ¶¶ 21-24, 27.) He noted that the Coast Guard, in a report stemming from this incident, stated:
Recommendations ... for DPRO Sikorsky:
(1) Revise tip cap installation procedures as needed to assure there is no interference with following areas: tip block, weights, rosan inserts, excess primer, excess adhesive, and attachment screws (hole alignment).
(2) Establish tip cap fastener tightening sequence to assure no lateral preload occurs between screws and tip cap.
...
(4) Revise spare tip cap manufacturing process, as needed, to assure universal fit regarding screw hole location.
(Eagar Aff. ¶ 21, Ex. C ¶ 11.) In addition, the government's engineering report noted that "there was a discrepancy in the fit between the tip cap and the main rotor blade." (Eagar Aff., Ex. D at 3.) In another document, a Coast Guard commander noted:
NADEP Cherry Point expressed their concern with the type of fastener system used by the tip cap assembly, the absence of guidance from Sikorsky on tightening sequence for the fasteners, the points of contact between the tip cap fairing and the Main Rotor Blade, and questioned the tolerance/accuracy of the production fixture used to make "spare" tip cap fairings and its match with holes made by the primary Main Rotor Blade/Tip Cap hole drilling fixture because of the increasing problem with hole alignment of new spare tip caps to previous production main rotor blades.
(Eagar Aff., Ex. F.) A Sikorsky document about the incident indicates that the bottomside tip-block screw holes were elongated and distressed, while the topside holes were in good condition, (Eagar Aff., Ex. G), which Eagar interprets to mean that the screw holes in the tip cap fairing were probably misaligned. (Id. ¶ 24.)
Defendants contend that none of the plaintiff's assertions about the installation, screw tightening, or alignment of the tip cap is relevant to this case. Defendants state that, because the tip cap which failed was installed by the Coast Guard rather than by the defendants, the defendants cannot be faulted for any problems related to installation. (Defs.' Reply Mem. at 6; Potts Supplemental Aff. ¶¶ 8, 9.) Phillip Potts, a UTC official who oversaw the design of rotor systems including tip caps, stated in his affidavit that the Coast Guard *160 used its own manual for installation of replacement tip caps. He added that the Coast Guard's manual notes that a tip cap replacement may not identically match the fit of the original tip cap and provides instructions on how Coast Guard mechanics should align screw holes. (Potts Supplemental Aff. ¶ 8; Defs.' Doc.App., Ex. 24.[1]) Potts stated that the Coast Guard manual, which is under the exclusive control of the Coast Guard, would have been the appropriate place for a screw tightening requirement in this case and that the Coast Guard is familiar with screw tightening procedures. (Potts Supplemental Aff. ¶ 9; see Defs.' Doc.App., Ex. 25, ¶ 8.21.) Finally, defendants point out that a U.S. Navy report concluded in this case, "No material deficiencies or abnormalities were noted that would have predisposed this tip cap to fail." (Defs.' Doc.App., Ex. 16, ¶ 108; Meyer Aff. ¶ 6.)
Before turning to the issue of whether the defendants meet the requirements of the government contractor defense, I will consider plaintiff's motion to strike, which will in turn determine the evidence I may draw upon in deciding the defendants' motion for summary judgment.
II. MOTION TO STRIKE
The plaintiff moves to strike all of the defendants' affidavits because of alleged deficiencies in form. Specifically, plaintiff asserts that the affidavits are not signed under the pains and penalties of perjury and do not indicate in which state or county they were signed. He further asserts that the affidavit of Charles C. Crawford does not state that it was sworn to. (Pl.'s Mot. to Strike, ¶ I.) I will not strike defendants' affidavits on these grounds.
Some of plaintiff's allegations are simply wrong. The affidavit of Charles C. Crawford begins by stating that Crawford "after first being sworn by me did under oath state the following." (Crawford Aff.) All of the affidavits except Crawford's indicate in the caption that they were signed and sealed in Fairfield County, Connecticut, and the seal on Crawford's affidavit says Fulton County, Georgia. Furthermore, all of the affidavits except Crawford's, which is even more explicit, say that the witness was "duly sworn." While the affidavits do not explicitly say that they were signed "under the pains and penalties of perjury," that standard is implied in the fact that the witnesses were "duly sworn." I will not disregard the affidavits purely on the basis of word choice.
In addition, plaintiff moves to strike seven individual portions of defendants' affidavits, asserting that they contain statements not within the personal knowledge of the witness or that they contain inadmissible hearsay. Defendants contend that the plaintiff waived the right to challenge defendants' affidavits when he withdrew his notice for depositions of defendants' witnesses. (Sikorsky Aircraft's Mem. of Law in Opp'n to Pl.'s Mot. to Strike Affidavits at 2-3.) However, defendants cite no case law to support this proposition. Further, plaintiff withdrew the deposition notices after learning that he could not compel the defendants' witnesses to appear in Boston for the depositions, suggesting that the reason for the withdrawal might be the cost of traveling to Connecticut for the depositions. (See Defs.' Doc.App., Exs. 26-28.) I will not find plaintiff to have waived all rights to challenge defendants' evidence simply because he chose to limit his own discovery. However, defendant is correct in asserting that plaintiff, without having deposed defendants' witnesses, has little independent basis upon which to determine the scope of *161 their personal knowledge. With that caveat, I will proceed to briefly examine the individual passages challenged by plaintiff.
In ruling upon a summary judgment motion, I may consider only admissible evidence. See, e.g., Garside v. Osco Drug, Inc., 895 F.2d 46, 49 (1st Cir.1990). Specifically, I may not consider inadmissible hearsay. Id. at 50. Further, affidavits must be made on personal knowledge. Fed.R.Civ.P 56(e). Fed.R.Evid. 803(8) provides a relevant exception to the hearsay rule for:
Records, reports, statements, or data compilations, in any form, of public offices or agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report ..., or (C) in civil actions and proceedings ..., factual findings resulting from an investigation made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.
A. Plaintiff challenges the first and second sentence of ¶ 14 of the affidavit of Phillip Potts, in which Potts states that the government "decided upon the tip cap design following an exhaustive multi-year development program" and that the government "did more than `rubberstamp' the Blackhawk design since it conducted several design reviews...." Potts asserted in his affidavit that he has worked for Sikorsky since 1972 and worked with the rotors group, which designed tip caps, since 1980. (Potts Aff. ¶¶ 1, 2.) Potts stated that he has personal knowledge of the design, manufacture and delivery of the tip caps, (Id. ¶ 2), and it is reasonable to assume, absent any contrary evidence, that this personal knowledge extends to Sikorsky's interaction with the government in the design and manufacture of these parts. As a result, I will not exclude the contested sentences as outside Potts' personal knowledge. These sentences certainly do not contain hearsay, as they describe what the government did, rather than setting out statements of others to assert the truth of those statements.
B. Plaintiff next challenges the fourth and fifth sentences of ¶ 17 of Potts' affidavit, in which Potts states that "Government and Sikorsky investigators agreed" that cracks in the tip cap stemmed from stress on the part and that the crack was not related to any manufacturing problem. Certainly, plaintiff is correct in asserting that Potts could not know what the government believed and therefore can only know of the government's agreement through statements of government officials. As such, his assertion of the government's agreement is hearsay because it relates a statement by the government for the truth of that statement. However, government officials related the conclusion that the cracking stemmed from stress and not from a manufacturing defect in a Navy letter admissible as a government document under Fed.R.Evid. 803(8). (Defs.' Doc.App., Ex. 16, ¶¶ 10A, 10D.) These conclusions are themselves admissible and form the basis for Potts to make an admissible statement that the government agreed with Sikorsky. Plaintiff also asserts that Potts' statements are inadmissible because he has not been qualified as an expert to give an opinion as to the source of the cracking. However, Potts did not in fact give his own opinion, instead relating what investigators concluded, so his expert status is irrelevant.
C. Plaintiff moves to strike the third and fourth sentence of ¶ 6 of the affidavit of James Thach III, in which he states that in the course of a trip to the Coast Guard's Aircraft Repair and Supply Center in North Carolina to look at cracked tip caps, "[w]e discussed that the Navy was experiencing similar premature cracking on their Seahawks. The Coast Guard, Navy and Sikorsky all agreed that the manufacturing process was not an issue and that the stresses on the tip cap were causing cracking at certain of the *162 screw holes." Here, Thach appears to be relating specific statements made to him by personnel he encountered at the Aircraft Repair and Supply Center, and defendants evidently seek to admit these statements for their truth. As a result, I find these statements to be inadmissible hearsay. The government document exception is of no use here because Thach's statements relate what was told to him personally, rather than reflecting government documents he has seen that are independently admissible.
D. Plaintiff moves to strike ¶ 8 of the affidavit of Frederick Brisbois as inadmissible hearsay. Brisbois' statement that the military agreed about the cause of cracking is admissible because it was based, in this case explicitly, on admissible government documents, as explained above. (See Brisbois Aff. ¶ 8; Defs.' Doc. App., Ex. 16 ¶¶ 10A, 10D.) His statements about the military discussing possible design changes and eventually deciding upon a composite "doubler" are admissible because they relate what the government did (i.e., discussed and decided), which Brisbois asserts he knew about personally. Brisbois does not relate statements made by the military in the course of these discussions, and defendants do not attempt to assert the truth of any such statements. As a result, this paragraph is admissible.
E. Plaintiff challenges as hearsay the second sentence of ¶ 9 of Brisbois' affidavit in which he states that the military agreed with Sikorsky's recommendation that the military pay particular attention to the area of attachment screws when performing inspections. A government inspection document provided by defendants explicitly states that inspectors should "pay particular attention to attachment screw area." (Defs.' Doc.App., Ex. 30, ¶ 5e(2).) Because this document is admissible under Fed.R.Evid. 803(8) and Brisbois' statement is based upon the document, his statement is admissible.
F. Plaintiff moves to strike ¶ 10 of Brisbois' affidavit, which states:
When the tip caps continued to crack, even with the larger composite doubler, the military began to consider changing to an all composite tip cap. These discussions were well under way before this incident. Thus, the military had already decided that the composite doubler and inspection program was insufficient to prevent premature fatigue cracking.
Once again, with the first two sentences of this paragraph, Brisbois states what the military did (i.e., consider and discuss), rather than relating statements by the military for the truth of those statements, so these sentences do not constitute hearsay. While it is not entirely clear how Brisbois, a Sikorsky employee, would have personal knowledge of internal military discussions, it is not inconceivable that, as Deputy Program Manager for Safety at Sikorsky, he was updated as to the government's discussions about safety issues related to Sikorsky products. I have no basis to assume that he lacked personal knowledge of the substance of these first two sentences, so I find them to be admissible. The third sentence, which relates the conclusion that the military came to, does appear to present hearsay, but, as defendants point out, the substance of that sentence is contained in a letter from the Coast Guard upon which Brisbois could have relied. (See Eagar Aff., Ex. E ¶ 4a.) Because the Coast Guard letter, here attached by plaintiff's expert, is admissible as a government document, Brisbois' statement apparently referencing it is admissible as well.
G. Plaintiff moves to strike ¶¶ 18 and 19 of the affidavit of William F. Schlenk, in which Schlenk describes various levels of government review of design and production by Sikorsky, as well as testing of products made by Sikorsky. Plaintiff argues that these paragraphs do not apply specifically to the helicopter and parts at issue, that they are outside of Schlenk's personal knowledge, and that they are conclusory and speculative. Schlenk's statements in these two paragraphs do indeed describe general review and testing procedures, *163 rather than the specific procedures applied to the products at issue in this case. The paragraphs are still relevant, however, as the procedure generally used may reflect the procedure applied in the specific circumstances of this case. I find nothing conclusory or speculative in a description of regular review and testing procedures. Moreover, since Schlenk asserts that he has personal knowledge of the procurement process, specifications, and requirements for the UH-60A and HH-60J helicopters and that he had responsibility to make sure that these helicopters complied with government specifications, (Schlenk Aff. ¶ 1), it is reasonable to conclude that he has personal knowledge of the government's review and testing procedures. I find these paragraphs to be admissible.
III. SUMMARY JUDGMENT
A. Standard of Review
Summary judgment is appropriate when "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). A material fact is one which has the "potential to affect the outcome of the suit under applicable law." Sanchez v. Alvarado, 101 F.3d 223, 227 (1st Cir.1996). A genuine issue is "one that must be decided at trial because the evidence, viewed in the light most flattering to the nonmovant, would permit a rational factfinder to resolve the issue in favor of either party." Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990) (citations omitted).
Therefore, to succeed on a summary judgment motion, "the moving party must show that there is an absence of evidence to support the nonmoving party's position." Rogers v. Fair, 902 F.2d 140, 143 (1st Cir.1990). In order to preclude summary judgment, the nonmoving party must submit "sufficient evidence supporting the claimed factual dispute to require a choice between the parties' differing versions of the truth at trial." LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 841 (1st Cir.1993), cert. denied, 511 U.S. 1018, 114 S.Ct. 1398, 128 L.Ed.2d 72 (1994) (internal quotations and citations omitted).
B. Eagar's Affidavits
Before moving to the substance of this motion, I will briefly consider the defendants' request that I reject Thomas Eagar's affidavits because they do not satisfy the threshold for competency set out in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). The Supreme Court in Daubert stated that a trial judge, in evaluating potential scientific expert testimony, must determine "whether the expert is proposing to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue." 509 U.S. at 592, 113 S.Ct. 2786. In Kumho Tire, the Court held that the same gate-keeping inquiry which applies to pure scientific testimony also applies to an engineering expert's experience-based analysis. 119 S.Ct. at 1174-76. The Court also held that a series of non-exclusive factors identified in Daubert may be applied, if appropriate, to experience-based technical or scientific testimony. Id. at 1175-76. These factors are: (1) whether "a theory or technique ... can be (and has been) tested"; (2) whether that theory or technique has been the subject of peer review and publication; (3) whether a technique is subject to a "known or potential rate of error" and whether standards exist for the operation of that technique; and (4) "whether the theory or technique enjoys `general acceptance' within a `relevant scientific community'." Id. at 1175 (quoting Daubert, 509 U.S. at 592-94, 113 S.Ct. 2786).
I note first that Eagar's credentials as an academic and a court expert are impeccable. *164 As Daubert makes clear, however, an inquiry into the reliability of expert scientific testimony does not end with the credentials of the expert, so I will consider the factors identified above for evaluating expert testimony. I find applying the factors set out in Daubert and Kumho Tire to Eagar's affidavits to be a difficult exercise because the affidavits contain very few identifiable techniques or theories. Eagar primarily appears to have read government reports and plans and drawn conclusions based on his reading. He is acting essentially as an interpreter of engineering documents. As such, he does not appear to be relying on a method subject to testing, peer review, or publication. Further, any rate of error or level of acceptance is the result of Eagar's individual ability to interpret and his specific execution in this case, rather than the strength of a theory or technique.
The Court in Kumho Tire upheld the district court's finding that a tire expert's analysis of a visual and tactile inspection of a tire was unreliable based on similar grounds to those the defendant urges here. Specifically, the lower court had found unreliable "the scientific basis, if any, for such an analysis," and the Supreme Court noted that the theoretical basis of the contested testimony was weak and that the proposed expert's uncertainty about important issues was too great to support a finding of reliability. 119 S.Ct. at 1176-77. In that case, as in this one, the technique at issue was simply an interpretation of readily accessible information. The defendants here assert that, as in Kumho Tire, Eagar's affidavits indicate frequent errors, a misunderstanding of the relevant plans and documents, and untenable conclusions.
I find the defendant's contentions to carry some weight. Eagar's affidavits do not show signs of an exhaustive or careful examination, nor do they indicate the use of any scientific theories or techniques which have been shown to be reliable. Further, as explained below, I find that his conclusions are not supported by significant evidence. As such, I would be hard pressed to find that Eagar's affidavits present scientific knowledge helpful to the trier of fact, and I would be inclined not to allow Eagar to be presented to a jury without, at a minimum, substantial sharpening of his proposed testimony. However, Eagar's affidavit provides the primary basis for the plaintiff's opposition to the summary judgment motion, and Eagar's conclusions might be suggested by several documents he cites. Accordingly, in order to insure a full consideration of plaintiff's position, I will consider his affidavits in my summary judgment analysis.
C. The Government Contractor Defense
The Supreme Court outlined the government contractor defense in 1988 in Boyle v. United Techs. Corp., 487 U.S. 500, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988). The Court reasoned that the liability of independent contractors performing an obligation for the government implicates "uniquely federal" interests similar to those implicated by the liability of government officials and is therefore governed by federal law. Id. at 505-06, 108 S.Ct. 2510. The Court found that liability on the part of government contractors may create a "`significant conflict' between federal interests and state law." Id. at 511, 108 S.Ct. 2510.
Specifically, the Court noted that in the Federal Tort Claims Act, Congress authorized plaintiffs to recover damages from the United States for harm caused by negligent or wrongful conduct of government employees, but excepted from this consent to suit, "any claim ... based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused." Id. (quoting 28 U.S.C. § 1346(b)). The Court found that the military's selection of appropriate designs for military equipment is a discretionary function protected from liability by this provision. *165 Id. The Court further reasoned that "[i]t makes little sense to insulate the Government against financial liability for the judgment that a particular feature of military equipment is necessary when the Government produces the equipment itself, but not when it contracts for the production," in which case the added costs of liability would be passed through to the government anyway. Id. at 511-12, 108 S.Ct. 2510.
The Court in Boyle formulated a three-part test for determining when the government contractor defense applies:
Liability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.
Id. at 512, 108 S.Ct. 2510. The first two of these conditions ensure that the design of the equipment at issue constituted a "discretionary function" by the government, while the third condition counteracts any incentive for contractors to withhold knowledge of risks. Id.
The First Circuit has apparently never applied the government contractor defense, but various district and appellate courts in other circuits have elaborated on the three elements in the Boyle test and have applied the test to manufacturing defect and failure to warn claims as well as design defect claims,[2] as explained below. Courts have held that the government contractor defense may provide a basis for granting summary judgment. See, e.g., Tate v. Boeing Helicopters, 55 F.3d 1150, 1156 (6th Cir.1995) (affirming grant of summary judgment for design defect claim); In re Aircraft Crash Litigation Frederick, Md., May 6, 1981, 752 F.Supp. 1326, 1336 (S.D.Ohio 1990), aff'd sub nom. Darling v. Boeing Co., 935 F.2d 269, 1991 WL 105753 (6th Cir.1991) ("There is no doubt that the Boyle defense can be established as a matter of law. Cases following Boyle have so held ... in the context of a motion for summary judgment....").
D. Applying the Boyle Test
Plaintiff only contests the second condition of the Boyle test: conformance to specifications; accordingly, I will focus on that condition, but I will briefly touch upon the other two requirements.
First, to show that the government approved reasonably precise specifications, defendants need not prove that the government itself formulated the specifications, but they must prove that the government did more than merely give a "rubber stamp" to defendants' own specifications. See Tate, 55 F.3d at 1154; Trevino v. General Dynamics Corp., 865 F.2d 1474, 1480-81 (5th Cir.1989), cert. denied, 493 U.S. 935, 110 S.Ct. 327, 107 L.Ed.2d 317 (1989). The Boyle test's first condition is satisfied, however, "where the government and the contractor engage in a `continuous back and forth' review process regarding the design in question." Tate, 55 F.3d at 1154 (quoting Harduvel v. General Dynamics Corp., 878 F.2d 1311, 1320 (11th Cir.1989), cert. denied, 494 U.S. 1030, 110 S.Ct. 1479, 108 L.Ed.2d 615 (1990)). In this case, defendants, through affidavits of Sikorsky officials and a former senior engineer for the Army, produce evidence of an extensive `continuous back and forth' review process between Sikorsky and the Army, Navy, and Coast Guard before the government gave final approval to the design for the helicopters at issue. (See *166 Crawford Aff., Schlenk Aff., Potts Aff., Thach Aff., Brisbois Aff.) Plaintiff produces no evidence to the contrary. I find that defendants have established the first element of the government contractor defense.
While apparently conceding that the government approved reasonably precise specifications for the helicopter and tip cap at issue, plaintiff vigorously contests defendants' assertion that the parts at issue conformed to the government's specifications. Essentially, plaintiff asserts that defendants improperly manufactured the tip cap which cracked in this case such that it did not conform to the government's specifications. If plaintiff is correct, the government contractor defense does not apply. "A manufacturer's miscue in the manufacturing process failure to conform to government design specifications cannot be insulated from tort liability." Mitchell v. Lone Star Ammunition, Inc., 913 F.2d 242, 246 (5th Cir.1990). See also Trevino, 865 F.2d at 1481 n. 6 ("A manufacturer is liable for manufacturing defects no matter who designed or approved the specifications.")
However, it is worth noting that the second Boyle requirement does not simply mean that design defect claims are covered by the government contractor defense, while manufacturing defect claims are not. Where a contractor consciously varied the design of an item produced for the government from the government's specifications, a design defect claim could proceed despite the government's approval of specifications. Because there is no evidence in this case to support an assertion that the defendants disregarded the specified design in favor of an alternative design, I find that the defendants have established the second Boyle condition as it applies to plaintiff's design defect claims. I also note that some courts have found that manufacturing defect claims may be covered by the government contractor defense where the contractor followed government specifications in the process of manufacturing the product. See Snell v. Bell Helicopter Textron, Inc., 107 F.3d 744, 749 (9th Cir.1997). This distinction does the defendants little good here; if the defendants produced a tip cap which does not conform to government design specifications, as plaintiff asserts, then the defendants have failed to establish the second Boyle condition regardless of whether they adhered to manufacturing specifications.
I will turn first to defendants' contention that the government's execution of a Form DD-250 Material Inspection and Receiving Report, which defendants have produced for the helicopters at issue in this case, (Defs.' Doc.App., Exs. 5, 9), conclusively establishes a product's conformance with government specifications. Several opinions lend support to this contention. A Southern District of New York opinion held in 1992 that "Evidence that the government inspected and accepted the products produced by the private contractor is sufficient to establish conformity with reasonably precise specifications." Lewis v. Babcock Indus., Inc., 1992 WL 142751, at *7 (S.D.N.Y. June 8, 1992), aff'd, 985 F.2d 83 (2d Cir.1993), cert. denied, 509 U.S. 924, 113 S.Ct. 3041, 125 L.Ed.2d 727 (1993). And a Northern District of Texas opinion held that a plaintiff had not produced any evidence that the government's acceptance of the helicopter at issue was not correct, and, "[a]bsent such proof, the Court finds that pursuant to the contract and [Armed Services Procurement Regulation] 7-103.5, the DD250 acceptance conclusively established that [the] helicopter ... conformed to the contract specifications." Hendrix v. Bell Helicopter Textron Inc., 634 F.Supp. 1551, 1557 (N.D.Tex.1986). Cf. United States v. Cannon, 41 F.3d 1462, 1469 (11th Cir.1995), cert. denied, 516 U.S. 823, 116 S.Ct. 86, 133 L.Ed.2d 44 (1995) (noting in reference to the DD-250 that the government "signs the form signifying acceptance and conformance of the goods").
The Hendrix court, however, makes an important distinction in holding that the DD-250 is proof of conformance *167 only absent any proof that the government's acceptance of the product was incorrect. Hendrix, 634 F.Supp. at 1557. In the case at hand, plaintiff argues that he has evidence that the product did not conform to specifications. I must then move beyond the DD-250 forms and consider the plaintiff's evidence. Indeed, I find persuasive the Supreme Court of Connecticut's statement that "[a]lthough we acknowledge that initial acceptance by the United States government, in the form of a signed DD-250, is some evidence that the aircraft complied with specifications, such preliminary acceptance cannot foreclose the possibility that the aircraft, in fact, was nonconforming." Miller v. United Techs. Corp., 233 Conn. 732, 777, 660 A.2d 810 (1995). See also Trevino, 865 F.2d at 1480 n. 5 (noting, in connection to the first Boyle element, that the signature of government employee must not be enough by itself to establish approval because, if it was, contractors would bargain for a guaranteed signature to eliminate any possibility of liability.) I will examine the plaintiff's allegations of non-conformance.
Plaintiff asserts that the tip cap did not meet the thickness requirement specified by the government. Specifically, plaintiff argues that the government required that the tip cap be 0.063 inches thick, while the tip cap which cracked in this case was measured at 0.060 inches thick. The plaintiff's expert asserts that this five percent deficiency led the crack in the tip cap to grow faster than it would have otherwise, therefore increasing the chance that it would cause a problem before inspections revealed the crack. (Eagar Aff. ¶ 18.) The government report referenced by Eagar and apparently misidentified as a report prepared by the defendants states, "The fairing material averaged 0.060 inch thickness adjacent to the countersunk fastener area. The drawing requirements call for a nominal 0.063 inch thickness, however, stretch forming of the fairing could account for the reduction to the measured thickness." (Eagar Aff., Ex. D at 3.) Also relied upon by the plaintiff is a report prepared by UTC in response to an earlier incident of tip cap cracking, which states, "Fairing wall thickness in several areas adjacent to the crack ranged between .059-.061 inch. The drawing calls for a .063 inch nominal stock thickness requirement. However, stretch forming and sanding generally reduce this, typically to the thickness measured." (Eagar Aff., Ex. H at 3.)
The defendants respond that the 0.063 inch thickness requirement is only for the unformed stock from which the tip cap fairing is to be fashioned, while the government has specified that the finished product need only be 0.052 inches thick. (Defs.' Reply Mem. at 5-6.) The design drawing which defendants point to for support is, as noted above, complex. Note 7 to the drawing states, "Minimum sheet thickness prior to stretch forming .059. Minimum thickness after stretch forming and prior to chemical etch .052." (Design Drawing XXXXX-XXXXX, Ex. 23 to Defs.' Doc.App.) I do not observe the drawing to indicate specifically which part this specification applies to and Eagar appears to assert that the note does not conclusively provide this information. (Eagar Third Aff. ¶ 8.) However, Meyer asserts in his affidavit that a note to a blueprint applies to the entire drawing unless explicitly limited and that Note 7 therefore applies to the thickness of the skin of the entire tip cap. (Meyer Aff. ¶ 5.) The defendants explained the presence of the three different thickness requirements (0.063, 0.059, and 0.052 inches) in oral argument, asserting that they represent three different stages in production of tip caps unformed stock, aluminum which has gone through some processing but not stretch forming, and aluminum after stretch forming. I note that the number 0.063 does show up at least twice on the plan, once clearly marked as "stock," suggesting the required thickness before forming, but once (the time highlighted by defendants) next to what might be a finished product. Finally, the defendants' witness Potts, states *168 in his affidavit that the 0.063 inch thickness requirement applies only to aluminum stock as purchased and that the requirement for the finished product is 0.052 inches, thus supporting defendants' interpretation. (Potts Supplemental Aff. ¶¶ 4-6.)
The fact that both the government, in a report following the accident, and UTC, in an earlier report, state that the design drawing requires a nominal thickness of 0.063 without mentioning that the drawing sets out a different specification for the thickness of the finished product might at first blush call into question defendants' interpretation of the design drawing. (Eagar Aff., Exs. D at 3, H at 3.) Yet both of these reports also note that stretch forming could reduce the thickness of the aluminum, and the UTC report indicates that stretch forming in fact normally reduces the thickness to 0.059-0.061 inches. (Id.) To be sure, the fact that stretch forming normally has a thinning effect is not dispositive; if the only thickness requirement given for the tip cap fairing is in fact 0.063, then defendants did not conform to that requirement in this case, regardless of whether this tip cap is the same as most tip caps that they produce.
It is important to observe that neither of the reports quoted state explicitly that the tip cap at issue violated specifications. Moreover, the relevant plan appears to be entirely consistent with the defendants' explanation of multiple thickness requirements, and the government and UTC reports are not inconsistent with such an interpretation. Potts' and Meyer's affidavits lend further support to the defendants' version and appear to provide a clear refutation of Eagar's assertion that the plans are insufficient to confirm or deny the applicability of the 0.052 inch thickness requirement. Finally, a Navy report appears to conclude that the tip cap at issue had "no material deficiencies or abnormalities." (Defs.' Doc.App., Ex. 16, ¶ 10B; Meyer Aff. ¶ 6.)
A clear explanation in an admissible document (rather than in argument) of where and when each of the three different thickness requirements applies would have made resolution of this issue more straightforward. Nonetheless, after careful review, I find that the plaintiff has produced no evidence creating a genuine issue of material fact as to any violation by the defendants of a tip cap thickness requirement. The reports are not inconsistent with the defendants' position, and I do not find that Eagar's affidavits provide any convincing evidentiary or theoretical support for an opposing position. Accordingly, I find that the defendants have met the second element of the Boyle test as to the thickness of the tip cap because they conformed to the government's thickness specifications.
The plaintiff's expert also asserts that the growth of the crack suggests further stresses upon the tip cap, which he argues were likely caused by defendants' failure to implement a screw tightening sequence and misaligning the screw holes in the tip cap fairing. (Eagar Aff. ¶¶ 20-24, 27.) However, defendants point out, persuasively, that the tip cap in this case was not installed by defendants, but rather by the Coast Guard as a replacement and in accordance with the instructions in the Coast Guard's own manual. (Potts Supplemental Aff. ¶¶ 8-9.) As a result, improper screw tightening or misalignment of screws suggests an error in assembly rather than design, to be sure, but one by the Coast Guard rather than by the defendants.
Plaintiff can produce little evidence to counter this seemingly fatal flaw in its assembly argument. Plaintiff points to the Coast Guard's recommendations to Sikorsky following the accident which call for Sikorsky to revise tip cap installation procedures, establish a screw tightening sequence, and revise the tip cap manufacturing process to assure universal fit of screw holes in the tip cap. (Eagar Aff., Ex. C *169 ¶ 11.) The fact that these post hoc recommendations were aimed at Sikorsky does not provide evidentiary support for the proposition that the Coast Guard allocated some responsibility to Sikorsky for the installation problems. In any event, if defendants did not perform the installation and no evidence has been produced to suggest that they did then they cannot be found to have performed it in violation of government specifications. The fact that the Coast Guard made a series of recommendations for changes after the accident suggests that there were no specifications before the accident requiring Sikorsky to come up with a screw tightening sequence or to manufacture tip caps with screw holes that assured universal fit.
A government report finding a discrepancy in fit between the tip cap and the rotor blade and a Sikorsky document indicating screw positions which suggest that the screw holes in the tip cap fairing were misaligned are no more helpful to the plaintiff. (Eagar Aff. ¶ 24, Ex. D at 3, Ex. G.) These documents suggest problems with the installation by the Coast Guard or difficulties to be addressed in the future, but not failures on defendants' part to conform to government regulations. In another document slightly more troubling for defendants, a Coast Guard commander wrote:
NADEP Cherry Point expressed their concern with the type of fastener system used by the tip cap assembly, the absence of guidance from Sikorsky on tightening sequence for the fasteners, the points of contact between the tip cap fairing and the Main Rotor Blade, and questioned the tolerance/accuracy of the production fixture used to make `spare' tip cap failings and its match with holes made by the primary Main Rotor Blade/ Tip Cap hole drilling fixture because of the increasing problem with hole alignment of new spare tip caps to previous production main rotor blades.
(Eagar Aff., Ex. F.) Here, the Coast Guard commander seems to be implying that the manufacturing of the fairing was imperfect (had problems with "tolerance/accuracy"). Nonetheless, this passage too fails to establish that the tip cap at issue did not conform to government specification. Instead, the commander appears to criticize the Coast Guard's assembly, as well as to mandate future guidance from Sikorsky as to screw tightening sequence and greater attention by Sikorsky to manufacturing replacement tip cap fairings for attachment to existing rotor blades which was not necessarily an objective at all when the tip cap in question was manufactured, because it was built for a specific helicopter rather than as a replacement. The documents plaintiff has produced suggest steps that defendants could have taken to make their product safer. However, these documents do not overcome the fact that the Coast Guard performed the installation of the tip cap. Plaintiff has not pointed to any failure on defendants' part to conform to government specifications in its failure to provide a screw tightening sequence or in its alignment of the screw holes.[3] I find that *170 the plaintiff has not established a genuine issue of material fact as to non-conformance with government specifications other than for the thickness of the tip cap fairing.
Finally, to meet the third requirement of the Boyle test, defendants must show that they warned the government about dangers known to them in the use of the equipment. The contractor's duty to warn only extends to dangers of which it has actual knowledge and of which the government is not aware. See Sundstrom v. McDonnell Douglas Corp., 816 F.Supp. 587, 590 (N.D.Cal.1993). Defendants' witnesses, including a former senior engineer for the Army, state that defendants never withheld from the government any relevant information about the Blackhawk or Jayhawk helicopters or about tip cap cracking. (Crawford Aff. ¶ 10; Potts Aff. ¶ 19; Thach Aff. ¶ 8; Brisbois Aff. ¶ 11.) Plaintiff has produced no evidence which suggests otherwise. Plaintiff includes a report prepared by UTC for the Army in 1988 addressing a premature tip cap crack, as well as an Army response finding UTC's report inadequate because it failed to explain why the tip cap cracked or to present a way to solve the problem for existing helicopters. (Eagar Aff., Ex. H.) While these documents suggest that the defendants did not address the tip cap problem as quickly or effectively as the Army would have liked, they do not indicate that defendants failed to warn the government of any dangers.[4] If anything, these documents reflect early and frequent communication between defendants and the government about the tip cap problem and suggest that the defendants knew too little, rather than too much, about the potential dangers the tip caps presented.
I find that defendants have established all three Boyle requirements. As a result, I will grant summary judgment on Counts I, II, III, and V to the extent that they assert theories of design defect or manufacturing defect. I will consider plaintiff's failure to warn claims separately.
E. Failure to Warn Claims
The plaintiff asserts that defendants cannot establish the government contractor defense for failure to warn claims merely by establishing the elements of the Boyle test for design defect claims. Defendants argue that state law failure to warn claims are preempted when the contractor establishes that the government approved design specifications for a product and that plaintiff here did not in fact state any failure to warn claims.
Massachusetts recognizes common law failure to warn claims. See doCanto v. Ametek, 367 Mass. 776, 785, 328 N.E.2d 873 (1975). Various courts have found that the government contractor defense may apply to failure to warn claims, but that in order for defendants "to establish that Boyle displaces any state law duty to warn, [defendants] must show that the applicable federal contract includes warning requirements that significantly conflict with those that might be imposed by state law." In re Joint Eastern & Southern Dist. N.Y. Asbestos Litig., 897 F.2d 626, 630 (2d Cir.1990). See also Tate, 55 F.3d at 1157 ("[W]hen the government exercises its discretion and approves warnings intended for users, it has an interest in insulating its contractors from state failure to warn tort liability."); Yeroshefsky v. Unisys Corp., 962 F.Supp. 710, 718 (D.Md. 1997) (adopting the 6th Circuit's analysis *171 in Tate). Applying this type of analysis, "[t]he possibility remains that while the government contract may focus on the content and design of the product, the issue of warnings was left to the contractor's discretion," meaning that the government contractor defense will apply to design defect claims but not to failure to warn claims. Ritch v. AM Gen. Corp., 1996 WL 310297, at *3 (D.N.H. Mar.28, 1996). But see Russek v. Unisys Corp., 921 F.Supp. 1277, 1293-94 (D.N.J.1996) (adopting the approach that "where the manufacturer has established a Boyle defense as to the design defect, and the relevant specifications are silent as to warnings, Boyle bars the failure to warn claims as well").
It is not necessary for me to resolve exactly how to apply the Boyle test to failure to warn claims. I note first that, to the extent that Massachusetts law permits a claim for the defendants' failure to warn the Coast Guard, summary judgment as to that claim is appropriate on this record. As set out above, defendants have established that they passed on to the government any information they possessed concerning dangers presented by the helicopters and tip caps at issue, and plaintiff has produced no evidence indicating that defendants withheld any such information.
The only remaining issue, then, for a failure to warn claim is defendants' failure to warn Quiles himself of the potential dangers presented by the tip cap on his helicopter. However, that information would have been useless to Quiles. As one court noted in a similar case, Quiles, "as a military officer who must follow orders, could not have refused to fly even if defendants had warned him" that the tip cap in his helicopter presented a potential danger. Sundstrom, 816 F.Supp. at 596. Quiles has not presented any evidence suggesting that a warning could have had any beneficial effect. Accordingly, summary judgment is appropriate on plaintiff's failure to warn claims.
Thus, even if I were to apply Tate, which I am inclined to find the most compelling approach to this issue[5], and find that elements of the government contractor defense have not been established as to the failure to warn claims in this case, because plaintiff has not presented any claim or argument to suggest that a warning would be appropriate or effective, I will grant defendants' motion for summary judgment as to plaintiff's failure to warn claims.
IV. CONCLUSION
For the reasons set forth above:
1. Plaintiff's motion to strike is GRANTED as to the third and fourth sentences of ¶ 6 of the affidavit of James Thach III, but otherwise DENIED.
2. Defendants' motion for summary judgment is GRANTED.
NOTES
[1] While the excerpts from the Coast Guard manual do contain instructions for attaching a tip cap, there is no explicit reference to the tip cap replacement not matching the fit of the original tip cap. The manual does state relevantly: "MRB's repaired at NADEP facilities may have used NPN517-3-5 screws in tip cap positions requiring the use of NAS7203P5 screws ....... NPN517 screws are an authorized alternate, NAS203P5 are the preferred part." (Defs.' Doc.App., Ex. 24 at 4.)
[2] Plaintiff's claims all essentially boil down to claims of design defect, manufacturing defect, and failure to warn. Counts I and II (negligence and strict product liability) allege all three of these theories of liability; Count III (breach of warranties) is based on assertions of design and manufacturing defect; Count IV (failure to warn) is self-explanatory; and Count V (failure to recall) seems to be based on an allegation of design defect and perhaps on allegations of manufacturing defect.
[3] My analysis is not altered by Eagar's assertions that the same specifications apply to Army and Coast Guard tip caps with the exception of color and that "interchangeability" between tip caps and helicopters is mandatory. (Eagar Third Aff. ¶¶ 2-6, Ex. 1.) First, this argument does not address any problems resulting from installation by the Coast Guard or, for that matter, from the screw tightening sequence. In addition, evidence that the same specifications applied to Army and Coast Guard tip caps does not translate to evidence of a defect in this case. To make such a leap, I would have to infer that the possible misalignment of screw holes of a tip cap from an Army helicopter when attached to a Coast Guard helicopter resulted from a failure to meet design specifications in the tip cap based only on the fact that all tip caps should meet the same specifications. No evidence supports such a leap, as any misalignment that did occur may have resulted from the attachment or from earlier use of the tip cap. Further, the defendants assert that the mandatory interchangeability required in Note 1 of the design drawing included as Exhibit 1 to Eagar's Third Affidavit refers to tools and manufacturing processes, rather than to the interchangeability of tip caps and helicopters. (Meyer Aff. ¶ 4.) While Eagar's interpretation of this note is not implausible, he does not provide any supporting evidence for it, and, even if correct, it would not necessarily indicate a defect in this case. Accordingly, I do not find that the plaintiff's interpretation provides a genuine issue of material fact as to non-conformance with any government specification.
[4] Nor do these documents necessarily suggest failure to conform to specifications; they simply show that the government expected UTC to explain why its products, apparently designed and built according to specifications, did not perform as they were supposed to.
[5] As noted above, some courts find that the government contractor defense preempts failure to warn claims whenever the defense applies to design defect claims and the specifications are silent about warnings. Russek, 921 F.Supp. at 1293-94. On the opposite extreme, some other courts imply a requirement that the government prohibit warnings before the defense may be invoked for a failure to warn claim. See Yeroshefsky, 962 F.Supp. at 717-18 (surveying different circuits' approaches to this issue). I find the 6th Circuit's approach in Tate the most compelling since it embodies the requirement of government discretion that was central to the Supreme Court's holding in Boyle. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2562115/ | 111 F.Supp.2d 783 (2000)
Noor Begum KARIM, et al.
v.
FINCH SHIPPING COMPANY, et al.
No. CIV. A. 95-4169.
United States District Court, E.D. Louisiana.
May 23, 2000.
Paul C. Miniclier, Law Office of Paul C. Miniclier, New Orleans, LA, Priscilla M. Schwartz, Metairie, LA, for plaintiffs.
James A. Cobb, Jr., Randolph J. Waits, John F. Emmett, Emmett, Cobb, Waits, Kessenich & O'Neil, New Orleans, LA, for defendant Finch Shipping Co., Ltd.
David James Motter, Capella Law Firm, Metairie, LA, for movant Mac Rahman.
Andrew Struben, deKlerk, Joseph Dwight Lablanc, III, Frilot, Patridge, Kohnke & Clements, LC, New Orleans, LA, for Alpina Ship Management APS.
Thomas H. Kingsmill, III, Alanson Trigg Chenault, Rice, Fowler, Kingsmill, Vance Flint & Rodriguez, New Orleans, LA, Woody Falgoust, Thibodaux, LA, for *784 third-party defendant Barwil Agencies (N.A.) Ltd.
Thomas M. Richard, Jamie M. Bankston, Chopin, Wagar, Cole, Richard, Reboul & Kutcher, LLP, Mandeville, LA, for Third-party defendant BPE, Inc.
FALLON, District Judge.
Before the Court are two motions by plaintiff Fazal Karim for new trial and/or reconsideration and/or amendment of judgment regarding: 1) the Court's April 14, 2000 Findings of Fact and Conclusions of Law and Judgment, and 2) the Court's May 2, 2000 minute entry permitting defendant Finch Shipping Co. to reduce its ad interim stipulation. For the following reasons, plaintiffs motions for new trial and/or reconsideration and/or amendment of judgments are DENIED.
On April 14, 2000, this Court issued its Findings of Fact and Conclusions of Law in the above captioned matter and rendered a Judgment awarding the plaintiff damages for past and future wages, past and future medical expenses, general damages, litigation costs including attorneys fees, and prejudgment interest. On April 28, 2000, the plaintiff filed a motion for new trial and/or reconsideration or, in the alternative, amendment of judgment pursuant to Rule 59 of the Federal Rules of Civil Procedure.
On May 2, 2000, this Court granted the defendant's motion to reduce its ad interim stipulation. The plaintiff filed an additional motion for new trial and/or reconsideration and amendment of judgment on May 9, 2000 challenging the Court's order reducing the defendant's ad interim stipulation.
A district court has considerable discretion in deciding whether to grant a motion under Rule 59. See Edward H. Bohlin Co., Inc. v. The Banning Co., Inc., 6 F.3d 350, 355 (5th Cir.1993). Rule 59 motions have been granted when the movant shows:
(1) that the judgment is based upon a manifest error of fact or law;
(2) the existence of newly discovered or previously unavailable evidence;
(3) manifest injustice would otherwise result; or
(4) in intervening change in controlling law occurred.
Id. The need for justice generally favors a Rule 59 motion only when the moving party demonstrates a mistake of law or fact or presents newly discovered evidence that was previously unavailable. See Stephens v. Witco Corp., 1998 WL 426214, at *1 (E.D.La. July 24, 1998). Rule 59 should not be used to relitigate old matters, raise new arguments, or submit evidence that could have been presented earlier in the proceedings. See Simon v. United States, 891 F.2d 1154, 1159 (5th Cir.1990); Campbell v. St. Tammany Parish School Board, No. 98-2605, 1999 WL 777720, at *1 (E.D.La. Sept.29, 1999). A motion for new trial pursuant to Rule 59 is an extraordinary remedy that should be used sparingly. See Avondale Industries, Inc. v. Board of Commissioners of the Port of New Orleans, No. 94-2786, 1996 WL 413645, at *2 (E.D.La. Jul.24, 1996).
With respect to both motions for new trial and/or reconsideration or amendment of judgment, the plaintiff resubmits arguments he previously presented in his opposition briefs and at trial. The plaintiff cites several areas of disagreement with the Court's Findings of Fact and Conclusions of Law and also disputes the Court's reasons for reducing the defendant's ad interim stipulation. What the plaintiff does not identify, however, is a recognized ground for relief under Rule 59. The plaintiff fails to demonstrate a manifest error of fact or law, newly discovered or previously unavailable evidence, manifest injustice, or an intervening change in controlling law. Because mere disagreement with either the Court's April 14, 2000 Findings of Fact and Conclusions of Law or the Court's May 2, 2000 order granting a reduction in the defendant's ad interim *785 stipulation does not justify relief under Rule 59, plaintiffs motions for new trial and/or reconsideration or amendment of judgment must be denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2568879/ | 94 F.Supp.2d 727 (2000)
Noor Begum KARIM, et al.
v.
FINCH SHIPPING CO. LTD., et al.
No. Civ.A. 94-4169.
United States District Court, E.D. Louisiana.
April 14, 2000.
*728 *729 *730 FINDINGS OF FACT AND CONCLUSIONS OF LAW
FALLON, District Judge.
I. BACKGROUND
Finch Shipping Company, Ltd. ("Finch") petitions this Court for exoneration and limitation of liability from damages sustained by Mr. Fazal Karim when he was injured while serving aboard Finch's vessel, the M/V LOUSSIO. Karim answers contesting exoneration and limitation of liability because he claims his injuries were caused by the negligence of Finch or by the unseaworthiness of the M/V LOUSSIO, of which Finch had privity and knowledge. In addition, Karim has filed a claim in the limitation proceeding seeking maintenance and cure as well as damages under the Jones Act, general maritime law, international law, or other applicable law.[1]
The transnational nature of maritime activities often produces complex questions of jurisdiction, applicable law, or proper venue. The present case raises issues in each of these areas. A Bangladeshi seaman injured on the high seas aboard a Panamanian flagged vessel, owned by a Maltese corporation with its base of operations in Pakistan and managed by a Danish company, has filed an answer and claim in a limitation proceeding instituted by the foreign vessel owner in the Eastern District of Louisiana. Does the Court have jurisdiction over the limitation proceeding? What is the proper forum for this case? What law should the Court apply? The legal voyage begins with a review of the factual and procedural histories.
A. FACTUAL HISTORY
Fazal Karim, a Bangladeshi citizen residing near Chittagong, Bangladesh, joined the crew of the bulk cargo vessel, M/V LOUSSIO, as a seaman/helmsman on January, 18, 1995. Prior to boarding the Panamanian flagged vessel in Rotterdam, Netherlands, Karim had passed an annual physical examination and had suffered no physical ailments. He signed shipping articles prepared and negotiated by the Bangladeshi government for the protection and benefit of Bangladeshi seamen.
Finch Shipping Company ("Finch") owned the M/V LOUSSIO. Finch, a Maltese corporation whose principal shareholder, Mohammed Ilyas Shaik, is a Pakistani citizen currently residing in the United Arab Emirates, acquired the M/V LOUSSIO from a Liberian corporation in January 1995. Upon acquiring the M/V LOUSSIO, Finch hired Overseas Shipping Agency of Chittagong, Bangladesh, to staff the crew of the vessel which consisted of Bangladeshi seaman and Pakistani officers. Finch also contracted with Alpina Shipping, a Danish management company based in Copenhagen, Denmark, to manage the daily operations of the vessel and to secure employment and voyage charterers for Finch.
*731 The M/V LOUSSIO engaged in "tramp" trade which involves transporting cargo at the direction of any interested charterer rather than committing to regular voyages for a particular charterer. The itinerary of the M/V LOUSSIO, therefore, depended upon who chartered the vessel and where the charterer directed the vessel to transport cargo. Finch did not decide where the M/V LOUSSIO sailed.
On August 4, 1995, the M/V LOUSSIO left Piraeus, Greece for a Gulf port to obtain a cargo of grain. While at sea off the coast of Bermuda, the crew prepared for the grain shipment by cleaning the holds of the vessel which had stored coal on the previous voyage from South Africa to Greece. This preparation included washing the sides and sweeping the bottom of the No. 7 hold.
At 8:00 a.m. on August 17, 1995, several crew members reentered cargo hold No. 7 to complete their cleaning operations. They remained in the hold until 10:00 a.m. when they suspended their activity and left the hold for morning tea. As the crew members departed, they tracked a mixture of coal dust and water on the ladder way.
To enter and exit the hold, crew members used a ladder way composed of three sections. The first section consisted of four rung-type ladders leading to several platform landings. In the second section, five step pads and a right-side hand railing allowed crewman to navigate a slope sheet that had been installed at a forty-five degree angle from the base of the third landing to prevent cargo from accumulating on the walls of the hold. The third section of the ladder way began at the base of the slope sheet and included a "pigeon hole" ladder that led vertically to the bottom of the hold. This portion of the ladder way consisted of steel sheet in which holes had been cut at twelve inch intervals to serve as rungs and handholds. Crewmen used this ladder way system to access eight of the nine cargo holds in the M/V LOUSSIO.
At 10:30 a.m., the crew members finished their morning tea and returned to cargo hold No. 7. Karim was the first crew member to reenter the hold. Wearing clean boots and gloves, Karim proceeded down the ladder way without incident until he reached the transition area between the slope sheet and the pigeon hole ladder. When making the transition from the sloped sheet to the pigeon hole ladder, his foot slipped causing him to lose his balance and fall some twenty to thirty feet to the bottom of the hold. Only Mokhlesur Rahman, a seaman/helmsman who followed Karim into the hold, witnessed the accident, and his view was partially obstructed.
Karim suffered severe injuries from his fall. He fractured his lumbar vertebrae and hip, pelvis, leg, ankle, heel, and wrist on his left side. Additionally, Karim suffered several herniated discs in his back and neck as well as a detached retina in his right eye.
Karim was moved by fellow crew members to a dry portion of the hold and eventually evacuated using a cargo hook to raise him vertically from the cargo hold on a canvas stretcher which lacked any support. The pain during this period was "unbearable." He was then taken to the ship's infirmary where he was placed on a cot. The second officer of the M/V LOUSSIO, acting as ship's medical officer, monitored his vital signs and administered aspirin and other non-narcotic medication to Karim because other pain medications, including codeine and morphine, had expired. Crew members visited Karim daily to turn and clean him. Because of his injuries, Karim was unable to use the bathroom independently and had to urinate and defecate with the help of crew members who came to his cot.
Captain Mohammed Yosuf notified the owner and manager of the vessel of Karim's situation and contacted the international medical service, C.I.R.M. Medical Italia, by telex for assistance. Although advised by telex from doctors in Rome to evacuate Karim, Captain Yosuf could not obtain helicopter service from Bermuda *732 because of an impending tropical storm. Captain Yosuf chose to proceed past the Bahamas and not to transfer Karim to Bermuda on a smaller vessel or to seek treatment in the Bahamas or Florida. Following discussions with the Coast Guard and doctors from C.I.R.M., Captain Yosuf directed the vessel to its New Orleans destination nine days hence. Throughout this time, Karim endured excruciating pain. His ordeal during this nine-day voyage to New Orleans was a window into Hell.
Up to this point, the United States had no connection to the chain of events surrounding Karim's injury or treatment. The matter involved injuries to a Bangladeshi seaman serving aboard a Panamanian flagged vessel sailing on the high seas of the Atlantic Ocean. As mentioned, the vessel was owned by a Maltese corporation with operations in Pakistan and was managed by a Danish company. Only when Mr. Karim was evacuated by helicopter to Jo Ellen Smith Hospital in Algiers, Louisiana, upon the arrival of the vessel in New Orleans, did the United States become involved. This involvement consisted of first medical services and next legal process. It is appropriate to turn first to the latter.
B. PROCEDURAL HISTORY
The legal history of this case began on November 30, 1995 when Karim and his wife brought suit against Finch, Alpina Shipping, and several other parties in the Civil District Court for the Parish of Orleans, State of Louisiana.
Karim first invoked the protections of this Court on December 5, 1995 when he sought to enjoin the Immigration and Naturalization Service from deporting him because of his debilitated condition and urgent need for medical care. (Civil Action No. 95-4021). The Court granted Karim's request for a temporary restraining order on December 5, 1995 and issued a preliminary injunction on December 15, 1995 preventing his deportation. On April 10, 1997, the Court dissolved the preliminary injunction finding that Karim's medical condition had improved and he was capable of travel. The Fifth Circuit Court of Appeals denied Karim's request for a stay pending his appeal. The preliminary injunction ended on April 15, 1997, and Karim was returned to Bangladesh.
On April 3, 1996, one year before Karim's return to Bangladesh, Finch instituted a limitation of liability proceeding in this court pursuant to 46 U.S.C.App. § 181 et seq. (Civil Action No. 96-1175).[2] The Court entered a monition and concursus restraining the prosecution of any state court claims and requiring all parties with claims against Finch to direct them to this Court. Karim filed an answer in this proceeding contesting Finch's right to exoneration and limitation and sought damages for his injuries under the Jones Act, 46 U.S.C.App. § 688, general maritime law of the United States, international law, or other applicable law. On October 16, 1996, this Court stayed the limitation proceeding and lifted the monition, and, after receiving an appropriate stipulation, allowed Karim to pursue his claims against Finch in state court while at the same time preserving Finch's right to seek limitation in this Court.[3]
*733 On July 9, 1997, the Civil District Court for the Parish of Orleans found that Finch had insufficient contacts with Louisiana to allow that court to exercise personal jurisdiction over it. The Fourth Circuit Court of Appeals affirmed the ruling of the civil district court. See Karim v. Finch Shipping Co., Ltd., 718 So.2d 572 (La.App. 4 Cir.1998). On November 25, 1998, the Louisiana Supreme Court denied review of the appellate court decision. See Karim v. Finch Shipping Co., 729 So.2d 568 (La. 1998).
The limitation proceeding initiated by Finch on April 3, 1996 remains the only surviving action in this case (Civil Action No. 96-1175).[4] On May 17, 1999, Finch moved to dismiss its claim for limitation on the grounds of lack of personal jurisdiction, res judicata, and forum non conveniens. Alternatively, Finch moved for summary judgment on Karim's penalty wage claim brought pursuant to 46 U.S.C. § 10313. Finch's motion to dismiss its limitation proceeding was denied. Karim had filed an answer and claim in response to Finch's voluntary, albeit defensive, petition for exoneration and limitation of liability. The Court found that it was inappropriate to allow Finch to unilaterally dismiss the proceeding into which an answer and claim had been filed.[5] The Court, however, granted summary judgment on Karim's penalty wage claim and dismissed that portion of the suit.
II. LIABILITY
The Court now considers the limitation proceeding brought by Finch and the answer and claim filed in this proceeding by Karim.[6]
A. JURISDICTION
Limitation of a ship owner's liability is a universal concept among nations that recognize the potentially perilous nature of maritime transportation.[7] United States courts initially rejected the idea of limitation of liability, but Congress adopted the concept with the rise of the American merchant marine. See Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty 818-19 (2nd ed.1975); see also The Rebecca, 20 F.Cas. 373 (D.Me.1831).
In the mid-Nineteenth Century, Congress passed the original Limitation of Vessel Owner's Liability Act (the "Limitation Act") to encourage shipbuilding and investment in this industry. See Act of Mar. 3, 1851, ch. 43, § 1, 9 Stat. 635 (current version at 46 U.S.C.App. § 181, et seq. (1999)); Beiswenger Enterprises Corp. v. Carletta, 86 F.3d 1032, 1033-34 (11th Cir. 1996). Under this Act, a vessel owner when faced with liability for a maritime accident may invoke the jurisdiction of a federal court by posting adequate security and filing a petition for limitation of liability. See 46 U.S.C.App. § 183. The security serves as the res which gives the Court in rem jurisdiction. Provided that the accident in question occurred without the vessel owner's "privity or knowledge," the Limitation Act limits the owner's liability to the value of the owner's interest in the vessel and its pending freight. Id. The *734 tragic sinking of the Titanic established the rule that foreign vessel owners may also seek relief under the United States Limitation Act regardless of where the accident occurred. See Ocean Steam Navigation Co. Ltd. v. Mellor (The Titanic), 233 U.S. 718, 731, 34 S.Ct. 754, 58 L.Ed. 1171 (1914).
Federal district courts have exclusive jurisdiction to determine whether a vessel owner is entitled to exoneration from or limitation of liability. See 46 U.S.C.App. § 185; Fed.R.Civ.P. Rule F; Langnes v. Green, 282 U.S. 531, 540, 51 S.Ct. 243, 75 L.Ed. 520 (1931). After a vessel owner deposits with the district court an amount representing the value of the vessel and its freight (the limitation fund), the district court upon request stays all related claims against the vessel owner pending in other forums and directs all potential claimants to file their claims before the district court within a specific period of time. See 46 U.S.C.App. § 185; Fed.R.Civ.P. Rule F(3)-(4). Once the damage claims have been filed, the court proceeds to resolve the exoneration and limitation claim, and if appropriate, distributes the proceeds of the limitation fund.
In the present case, Finch filed for exoneration and limitation and posted a bond. This gave the Court a res over which to exercise in rem jurisdiction. Finch now argues that this Court no longer retains jurisdiction over its limitation action. Because Karim chose to pursue his claims in state court, and that court dismissed his claims for lack of personal jurisdiction, Finch contends there is no need to continue with its limitation proceeding.
Finch's argument misses the mark. Karim's claims in state court were in personam claims. The state court did not consider the merits of the claims and only held that it had no in personam jurisdiction. The limitation proceeding in this Court, however, is an in rem proceeding. The Court has in rem jurisdiction over the res or bond which was posted by Finch when it instituted its limitation action. The fact that a state court, or for that matter even this Court, lacks in personam jurisdiction does not deprive this Court of its in rem jurisdiction.
It now appears that Finch has changed its mind and would prefer to abandon its limitation proceeding without prejudice and quietly float away. The Court cannot permit this. When Finch filed for limitation, it exercised the Court's injunctive powers to prohibit the filing of any claims against it and to stay all claims previously filed outside of the limitation proceeding. Finch's action stopped Karim from proceeding in another forum and required him to file an answer and a claim in this limitation proceeding. This answer and claim must now be processed. It is anomalous that Finch, who originally sought a safe harbor by invoking United States law, now argues that United States law should not apply. This Court has a responsibility to provide a complete remedy to satisfy the answers and claims filed in Finch's limitation proceeding pursuant to its requested monition. See Just v. Chambers, 312 U.S. 383, 386-87, 61 S.Ct. 687, 85 L.Ed. 903 (1941); Hartford Accident & Indemnity Co. v. Southern Pacific Co., 273 U.S. 207, 217, 47 S.Ct. 357, 71 L.Ed. 612 (1927).
In moving forward in this limitation proceeding, the Court applies United States law because limitation is a procedural right governed by the law of the forum. See Mellor, 233 U.S. at 733, 34 S.Ct. 754. Two questions must be answered to determine whether Finch is entitled to limit its liability in this case. "First, the court must determine what acts of negligence or conditions of unseaworthiness caused the accident. Second, the court must determine whether the shipowner had knowledge or privity of those same acts of negligence or unseaworthiness." Beiswenger Enterprises Corp., 86 F.3d at 1036. The damaged claimant bears the initial burden of establishing liability and the vessel owner then bears the burden of establishing lack of privity and knowledge.
*735 The facts reveal that as Karim descended the ladder way, he reached the transition between the step portion of the ladder and the pigeon hole portion of the ladder. With his left foot on the last step and his right foot in the pigeon hole, Karim testified that he caught his right hand in a bent portion of the hand rail. While attempting to free his right hand, he leaned forward and his left foot slipped on wet coal dust. He lost balance and fell. A fellow crew member, who was on the ladder and saw Karim fall, testified that Karim had passed the hand rail portion of the ladder when his foot slipped, causing him to lose his balance and fall. Whether Karim's hand became stuck in the portion of the ladder is uncertain, but it is certain that his foot slipped due to the slippery condition of the ladder steps and that this was the proximate cause of his fall.
This condition resulted from the negligent actions of fellow crew members in tracking coal dust onto the rungs of the ladder or failing to remove it. This circumstance also rendered the ladder unseaworthy. This negligent and unseaworthy condition, however, was without privity or knowledge of Finch. Thus, the answers to the above questions are that Karim's injuries were caused by Finch's negligence or the vessel's unseaworthiness and that Finch had no privity or knowledge of the negligent acts and unseaworthiness. Therefore, Finch's claims for exoneration are denied, but limitation is granted. This conclusion, however, does not end this legal voyage. This Court has a responsibility with regard to distribution of the limitation fund.
B. CHOICE OF LAW
While United States law governs the procedural issues of the limitation proceeding, this Court must decide what substantive law applies to the underlying cause of action. The fact that United States law determines limitation does not automatically mean that United States law should supply the substantive law for the underlying claim. See Mellor, 233 U.S. at 732-34, 34 S.Ct. 754 (applying United States law for limitation and British law to the underlying tort claim). The nations implicated in this case are truly diverse; they include: Bangladesh, Denmark, Malta, Panama, and Pakistan. Mr. Karim insists that United States law should apply as the law of the forum while Finch contends that the law of Bangladesh or another nation implicated in the case should govern the underlying substantive dispute.
The Court decides a choice of law inquiry in a maritime injury case by following the Lauritzen-Rhoditis test. See Hellenic Lines, Ltd. v. Rhoditis, 398 U.S. 306, 90 S.Ct. 1731, 26 L.Ed.2d 252 (1970); Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921, 97 L.Ed. 1254 (1953). Under the Lauritzen-Rhoditis test, the Court considers several factors to determine what law applies: (1) the location of the injury, (2) the law of the flag, (3) the domicile of the injured party, (4) the allegiance of the shipowner, (5) the place of the contract, (6) the inaccessibility of a foreign forum, (7) the law of the forum, and (8) the base of operations of the shipowner. See Coats v. Penrod Drilling Corp., 61 F.3d 1113, 1119 (5th Cir.1995). "The test is not a mechanical one in which the court simply counts the relevant contacts; instead, the significance of each factor must be considered within the particular context of the claim and the national interest that might be served by the application of United States law." Fogleman v. ARAMCO, 920 F.2d 278, 282 (5th Cir. 1991).
In this case, the injury occurred on the high seas off the coast of Bermuda. The vessel flew a Panamanian flag and was owned by a Maltese corporation which maintained a base of operations in Pakistan. Karim is a resident and citizen of Bangladesh who contracted with Finch when signing shipping articles in Bangladesh. The Bangladesh government solicited and negotiated Karim's employment on the vessel. In addition, the Shipping Articles afforded Karim a choice of pursuing a claim under Bangladeshi workers' compensation laws or instituting a civil suit *736 for damages. See Def.'s Ex. 1. Furthermore, Karim, who is permanently disabled from seaman's work, presently resides in Bangladesh. Bangladesh clearly has a greater interest than any other nation involved in this dispute.
While Karim contests that the United States has at least as great of an interest as Bangladesh because it is the host forum, the Court finds that the relationship of the United States to this case is merely fortuitous. The vessel could have docked in Bermuda or the Bahamas. The fact that she came to New Orleans instead cannot, in and of itself, be the basis for determining the substantive law. If this were the case, the choice of law analysis directed by the Supreme Court in the Lauritzen-Rhoditis test would prove meaningless. "[F]oreign law applies because American law clearly does not." Gonzalez v. Naviera Neptuno A.A., 832 F.2d 876, 880 (5th Cir.1987). Because Bangladesh's interest predominates over those of the other involved nations, its law should apply to Karim's tort claims.
It is tempting at this point for the Court to simply close this case, i.e. dismiss it with a conditional transfer to a Bangladeshi court. See Baris v. Sulpicio Lines, Inc., 932 F.2d 1540, 1551 (5th Cir.1991) (holding that courts should impose conditions on the transfer of cases to other forums that include assurances that the plaintiff will be able to bring their claim in the receiving jurisdiction). After all, everything must end, particularly a four year-old case. Moreover, the prospect of divining the applicable Bangladeshi law seems daunting. But, is transfer the appropriate action in this case?
C. FORUM NON CONVENIENS
Finch argues that this Court is not the most convenient forum to entertain Karim's claims. Therefore, the case should be dismissed on the grounds of forum non conveniens. The doctrine of forum non conveniens rests upon a court's inherent power to control the parties and cases before it and to prevent its process from becoming an instrument of abuse or injustice. Through this power, a federal district court may decline to exercise its jurisdiction, even though the court has jurisdiction and venue, when it appears that the convenience of the parties and the court and the interests of justice indicate that the case should be tried in another forum. See Piper Aircraft Co. v. Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981); Koster v. Lumbermens Mutual Cas. Co., 330 U.S. 518, 67 S.Ct. 828, 91 L.Ed. 1067 (1947); Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947); In re Air Crash Disaster Near New Orleans, 821 F.2d 1147, 1162 (5th Cir.1987); See generally Edward L. Barrett, The Doctrine of Forum Non Conveniens, 35 CAL. L.REV. 380 (1947); Alexander Bickel, The Doctrine of Forum Non Conveniens as Applied to Federal Courts in Matters of Admiralty, 35 CORNELL L.Q. 12 (1949); Michael Butterworth, Forum Non Conveniens - The Fifth Circuit's New Test Collides with Admiralty Law, 13 TUL. MAR. L.J. 179 (1988). Under the forum non conveniens doctrine, the moving party bears the burden of establishing that an adequate and available forum exists as to the parties, and that both private and public interests weigh heavily on the side of trial in the foreign forum. See In re Air Crash Disaster Near New Orleans, 821 F.2d at 1164.
At first blush, this case appears appropriate for dismissal on the grounds of forum non conveniens. The case, after all, involves a Bangladeshi plaintiff injured on the high seas aboard a Panamanian flagged vessel owned by a Maltese corporation with its base of operations in Pakistan. The United States became involved in this case only after Karim was treated here for his injuries which treatment began more than a week after his accident. On the other hand, the parties in this case have been before this Court for more than four years in several different causes of action. Much of this time was spent litigating in state court and preparing for and trying the limitation proceeding which Finch filed in this Court. Finch made a timely motion to dismiss for forum non *737 conveniens, but the Court could not consider the issue of forum non conveniens until Finch's claim for limitation of liability was resolved. This Court was the most convenient forum to resolve limitation issues because a limitation proceeding is governed by the law of the forum. See Mellor, 233 U.S. at 733-34, 34 S.Ct. 754. Now that the question of exoneration and limitation of liability has been resolved, the Court may focus on the forum non conveniens issues.
While Bangladesh at one time may have been an available, adequate and convenient forum to try the present case, the situation has changed. First, consider the private interest factors. The vessel itself has been scrapped. She no longer exists. The photographs and video-recordings that memorialize her for this litigation are kept here and were made by witnesses available here. Karim received his medical treatment in this jurisdiction. The only marine surveyor who saw and inspected the vessel resides here. Depositions of all the fact witnesses have been taken in this proceeding. Many of these witnesses are no longer accessible. Counsel for both parties are based in this forum, and a transfer of this case to another forum would entail tremendous expense and logistical prowess from both parties since much of the evidence would have to be translated and reassembled in accordance with other procedures. Finally, the limitation case has already been tried in this Court and all of the evidence is in this Court's record.
Next, consider the public interest factors. The parties have litigated before this Court for more than four years. Although the Court finds that it must apply the law of Bangladesh to substantive claims of this litigation, "the need to apply foreign law is not alone sufficient to dismiss under the doctrine of foreign non conveniens." R. Maganlal & Co. v. M.G. Chemical Co., Inc., 942 F.2d 164, 169 (2nd Cir.1991). Both the private and public factors favor litigation in this forum. Moreover, the Court also notes that Finch, the only remaining defendant in this case, is a defunct corporation that no longer exists. Finch thus could not be served, could not participate in litigation, nor could Finch satisfy any judgment against it in another court. Karim only may recover from Finch in this Court because of the security Finch posted in this proceeding. If the Court removes this case to another jurisdiction, it may well remove any possibility Karim has for executing a potential judgment against Finch. Thus, there is a serious question as to whether a Bangladeshi forum is available and adequate to resolve the issues in this case, and the defendant has failed to carry its burden in this regard. Such a situation dictates keeping the case in this Court. See In re Air Crash Disaster Near New Orleans, 821 F.2d at 1165.
Therefore, the Court finds that both the private and public interest factors demonstrate that no other forum is adequate, available or more convenient that this Court to entertain the present litigation. Accordingly, this Court will resolve this matter pursuant to Bangladesh law. See In re Oil Spill by the Amoco Cadiz, 954 F.2d 1279, 1324-25 (7th Cir.1992) (holding that a shipowner may argue foreign substantive law even when its claim for exoneration and limitation liability is denied).
III. QUANTUM
The Court, having found that Karim's injuries were proximately caused by Finch's negligence, now considers the appropriate measure of Karim's damages under the law of Bangladesh.[8]
*738 A. BACKGROUND
To understand the development and current status of the Bangladeshi legal system, as well as the cultural underpinnings that explain its tort award structure, it is helpful to briefly review the historical origins of Bangladesh. The country which is now called Bangladesh is part of Bengal, the northeastern portion of the Indian subcontinent. It boasts a rich cultural past combining Dravidian, Indo-Aryan, Mongol, Arab, Persian, Turkish and Western European cultures.
The earliest reference to the region was a kingdom called Vanga, or Banga. Buddhists ruled the area for centuries, but by the Tenth Century, Bengal was primarily Hindu. In 1576, Bengal became part of the Mogul Empire, and the majority of the East Bengalis converted to Islam. The area was then subsumed by the British Empire in the late Eighteenth Century. Britain governed the region from 1757 until it withdrew in 1947 and created the states of India and Pakistan. Pakistan was formed out of the two predominantly Muslim regions of the Indian subcontinent: West Pakistan and East Pakistan, the eastern portion of Bengal, formerly known as East Bengal. Although West Pakistan and East Pakistan were united by religion (Islam), their people were separated by culture, physical features, and 1000 miles of Indian territory. In 1971, East Pakistan seceded from Pakistan and became the Republic of Bangladesh.
Today, Bangladesh is an independent republic within the British Commonwealth. Its population of 127,117,000 spans an area of 55,598 square miles (about the size of Wisconsin) and lives to an average age of 60.6 years. Although one of the world's poorest and most densely populated countries, Bangladesh continues to feed its rapidly increasingly population by producing food domestically and by importing food from abroad. Its predominantly agrarian economy provides an average annual income to its residents of approximately $354.00, or less than $1.00 per day.
The law of torts in Bangladesh, as well as in India and Pakistan, is based on the rules of English Common Law. See C. Kameswara Rao, Law of Damages and Compensation, 8 (3d ed. 1959) (Def.'s Ex. 47, Tab 4). The laws that were prevalent during the period of British India continued in India and Pakistan following independence from Britain in 1947. Similarly, the laws prevalent in Pakistan continued after secession of Bangladesh in 1971. See Bangl. Const. art. 149 (Constitution of the People's Republic of Bangladesh) (Def.'s Ex. 47, Tab 1). When there are gaps or even a scarcity of Bangladeshi legal authority or precedent on any topic, the Bangladeshi courts routinely look to the court decisions of India, Pakistan or England. See Ramaswamy Iyer, The Law of Torts 57 (7th ed. 1975) (Def.'s Ex. 47, Tab 3).
The legal system of Bangladesh affords employees (including seamen) who are injured in the course of their employment a choice of either proceeding under the Workmen's Compensation Act before a commissioner or filing a tort claim in a civil court. See Def.'s Ex. 45 at 3. These remedies are mutually exclusive so that the pursuit of one forecloses the right to pursue the other. In the present case, had Karim pursued (or been eligible to pursue) a worker's compensation remedy, he would have been entitled to recover Taka 184,240 ($3,684.80). See Def.'s Ex. 1, art. 16, at 9. Karim, however, did not pursue a worker's compensation remedy. Instead, he filed a tort claim in civil court seeking monetary damages resulting from his physical injuries.
Physical injuries as a result of negligent conduct are not rare occurrences in Bangladesh, but few injured persons file tort claims in the Bangladeshi courts. The Indian, Pakistani and Bangladeshi law reports *739 contain a dearth of tort cases. Legal scholars postulate that injured persons fail to assert their legal rights because of insufficient appreciation of such rights, difficulties in proving claims and obtaining trustworthy testimony, and concerns regarding the high fees and delays of Bangladeshi courts. See Iyer, supra, at 23.
B. ELEMENTS OF DAMAGE UNDER BANGLADESHI LAW
Bangladeshi tort law recognizes the following elements of damage: medical expenses, pecuniary loss ("real damages"), pain and suffering ("general damages"), nominal damages, aggravated damages, and exemplary ("punitive") damages. In addition, litigation costs including attorney's fees, may be allowed at the discretion of the court. See Serajul Islam Chowdhury v. Jainal Abedin, 49 DLR (AD) 164 (1997) (Def.'s Ex. 48, Tab 1); Rao, supra, at 21-22. An examination of each of these elements will determine the appropriate damage award for Karim under Bangladeshi tort law.
1. MEDICAL EXPENSES
Bangladeshi law allows recovery of past, present and future medical expenses incurred as a result of negligence. See Def.'s Ex. 45 at 5. In this case, Karim required extensive medical treatment for the injuries sustained aboard the M/V LOUSSIO. When the vessel arrived in the Mississippi River on August 26, 1975, Karim was flown to Jo Ellen Smith Hospital in New Orleans. On his admission to Jo Ellen Smith, he was initially diagnosed as having fractures of the left hip, pelvis, lumbar spine, left wrist, left ankle & heel. Subsequent examinations revealed ruptured intervertebral discs in both the lumbar and cervical spine as well as a detached retina in the right eye.
Karim underwent numerous surgical procedures on his hip, back, ankle and wrist, including a cervical and lumbar laminectomy and fusion. Doctors also attempted to repair his right eye through extensive surgery, but the operations failed to save Karim's sight in that eye. For his various injuries, Karim underwent an extended period of inpatient care and outpatient treatment.
Karim received his medical treatment from American doctors and hospitals and convalesced in the United States. When medical services are received in a foreign country, Bangladeshi law allows recovery for the amount charged or incurred in that country without attempting to determine its cost in Bangladesh. See Karnataka State Road Transp. Corp. v. R. Sethuram, A.C.J. 1022 (Karnataka H.C. 1996) (Def.'s Ex. 36, Tab 6). The total past medical expense is $316,710.10. Finch has paid $204,667.69 of this expense, leaving an outstanding balance of $63,668.16 due and owing for past medical expenses.[9] The evidence supports the conclusion that these medical expenses were necessary and that the amount is reasonable. Thus, the defendant is liable for the outstanding balance of $63,668.16.
In addition to the past medical expenses, the evidence reveals that Karim will need future medical care. Karim returned to live in Bangladesh in April, 1997 and has continued to have some pain, particularly in his right eye. He will likely require future treatment consisting of the removal of his right eye and another procedure on his foot. There is no evidence as to the expected cost of this care, or even its availability, in Bangladesh. Nevertheless, the evidence indicates that the cost of this care in the Untied States would be $20,000. Accordingly, this amount will be allowed for Karim's future medical expense.
2. LOSS OF WAGES
Bangladeshi law also provides compensation for loss of wages as a result of negligence. See Def.'s Ex. 45 at 5. At the *740 time of his injury, Karim was 41 years of age, earned a yearly base wage of Taka 89,448 (approximately $1800.00), plus overtime for a total annual wage of Taka 186,500 ($3,730.00). As a result of his injuries, Karim is totally and permanently disabled.
The parties have stipulated that the report of economist Kenneth J. Boudreaux, Ph.D., accurately portrays the unrebutted past and future income loss. See Pl.'s Ex. 15. Bangladeshi law allows recovery for the loss of income resulting from personal injury due to the negligence of another. See Dr. Durga Das Basu, The Law of Torts 65 (10th ed. 1988) (Def.'s Ex. 47, Tab 2). Based on the testimony and Dr. Boudreaux's report as evidence of Karim's income loss, the Court finds that Karim's past loss is Taka 654,064 ($13,081.28) and the future loss is Taka 1,322,585 ($26,451.70), constituting a total past and future wage loss of Taka 1,976,649 ($39,532.98).
3. PAIN AND SUFFERING
Karim endured and continues to endure significant physical and mental pain as a direct result of the injuries he suffered aboard the M/V LOUSSIO. His travail invokes memories of Job's ordeal. Although he is clearly entitled to monetary damages as economic compensation for his hardship, the seminal question for the Court is by what standard should these damages be measured.
Karim argues that the value of general damages is universal and should be measured the same regardless of where a person lives because these damages are non pecuniary losses and are not dependent on economic circumstances. Karim then suggests that this Court should evaluate his general damages in the same way it would determine damages for a resident of the United States. While this argument is appealing at first blush, it relies upon a false premise and is not empirically supported.
Karim falsely assumes that general damages can be measured without regard to context. The monetary evaluation of a non pecuniary loss, such as pain and suffering, is a philosophical and policy exercise more than a legal or logical one. Happiness has no medium of exchange. No market exists for pain and suffering. The only requirement for an award of general damages is that the award be fair and reasonable according to facts and circumstances. Thus, the monetary worth of non pecuniary damage is contextual, not universal or perpetual. Its value depends upon time and place.
Damage awards from tort cases in the United States during the 1930's 1940's and 1950's demonstrate the significance of time on general damage awards. In the 1930's for example, a twenty-eight year old who sustained a compound comminuted fracture of the left leg, which resulted in amputation of the leg below the knee, was awarded $6,000. Martin v. Toye Bros. Yellow Cab Co., 162 So. 257 (La.App.1935), aff'd 164 So. 175 (La.App.1935). In the 1940's, a minor was awarded $3,250 for a crushed foot. See Walsdorf v. Perrett, 23 So.2d 782 (La.App.Orleans1945). In the 1950's, a twenty year old fire department captain who lost his eye, sustained a brain concussion, and suffered various other injuries was awarded $2,500 for pain and suffering. See McDowell v. Nat'l Sur. Corp., 68 So.2d 189 (La.App.1953). The paltry amounts of these earlier awards, compared to current standards for pain and suffering, illustrate differences in the value of general damage awards and not differences in the amount of pain suffered by United States tort victims.
Moreover, the value of general damages differs according to place just as it differs according to time. General damage awards in Bangladesh differ from awards in the United States not because Bangladeshi residents suffer any less than American residents but because Bangladesh values general damages differently. To utilize the quantum standards of the United States simply because Karim obtained medical treatment in this country is neither justified nor appropriate. Karim *741 is a Bangladeshi citizen who lives in Bangladesh. Bangladeshi law is applicable, not the law of the United States. This Court must, therefore, determine what a Bangladeshi resident such as Karim would receive in general damages under Bangladeshi law.
In Bangladesh, Karim's civil action would be tried by a judge without a jury. Bangladeshi judges customarily refer to comparable cases for guidance in fixing the amount of general damages. See Iyer, supra, at 57. Following this procedure, a Bangladeshi court would first look to Bangladeshi case law. A review of the Dhaka Law Reports for tort cases, however, reveals a dearth of case law reporting general damage awards. In fact, the Dhaka Law Reports has published only two opinions from Bangladeshi courts considering tort claims.
In Awal v. Ahmed, a principal of Dacca college was injured when a piece of building material fell from a scaffold and hit his feet, fracturing three toes on his right foot and lacerating his left foot. 27 DLR 628 (1975) (Def.'s 47, Tab 14). He remained an indoor patient for a month and was disabled for five to six months thereafter. See id. at 630. Although the incident in Awal occurred in 1958, the case did not proceed to trial until 1965. In 1975, the appellate court issued its opinion and awarded Taka 15,000 ($300) for physical and mental pain.
Serajul Islam Chowdhury v. Jainal Abedin involves a tort claim for damages due to trespass. 49 DLR (AD) 164 (1997). The plaintiff and defendant were owners of adjoining yards in which ships were dismantled for scrap. A feud developed between the parties and culminated when the defendant intentionally and with malice beached a vessel in plaintiff's yard causing disruption of business and mental pain and suffering. Although the appellate court recognized the availability of special, general, and punitive damages in tort cases, it concluded that the evidence in this case did not support a damage award other than for nominal damages. See id.
Neither of these cases is directly relevant to the quantum issues in the present case. The Awal case occurred over forty years ago, and the Chowdhury case involved the tort of trespass. When there is a paucity of Bangladeshi or Pakistani precedent, as there is on the issue of general damage awards, it is common practice for Bangladeshi courts to turn to the case law of the United Kingdom or India. Accordingly, this Court will look to the British and Indian courts for guidance in determining the appropriate damage award for Karim.
In Britain, like Bangladesh, civil cases are tried to a judge without a jury. To assist British judges in evaluating general damages in personal injury cases, the Judicial Studies Board-a judicial administrative office-has compiled quantum guidelines. See Judicial Studies Board, Guidelines for the Assessment of General Damages in Personal Injury Cases 9-47 (4th ed.1998-99) [hereinafter "Guidelines"] (Def.'s Ex. 47, Tab 6). The Guidelines suggest a general damage quantum range for various injuries. Courts are not constrained by the guidelines; instead, the Guidelines are intended as guides to assist a court in determining the appropriate amount for general damages.
The 1998-99 Guidelines for the quantum range for general damages, in pounds sterling, for the type injuries sustained by Karim is as follow:
Injury Low High
Ankle £6,500 £12,750
Back £18,500 £30,000
Eye £26,000 £30,000
Heel £12,190 £18,600
Neck £25,000 £25,000
Pelvis £18,500 £24,000
Thigh £8,500 £13,250
Wrist £6,000 £11,750
Def.'s Ex. 50. For a case involving multiple injuries, it is customary for English judges to total the amounts for the various injuries to obtain the sum of the general damages. See Brown v. Woodall 1955 PIQR 36 (Def.'s Ex. 47, Tab 17); Def.'s *742 Ex. 45 at 4. The total of the amounts for these various injuries ranges from £121,190 ($193,904) to £165,350 ($264,560). See Def.'s Ex. 50.
A review of the 1998 English cases confirms that English courts render general damage awards for similar multiple injuries within the parameters of the guidelines. For example, in Bawden v. Gardner, the plaintiff sustained a comminuted right distal tibia fracture and fractures of both medial and lateral malleoli, requiring a fixation pin to be applied through the heel. (1998) 98(6) Q.R (Def.'s Ex. 36, Tab 7). His right ankle had also been dislocated and there was damage to the arterial blood supply, requiring the placement of a plate and screws. He also suffered a pelvic injury involving multiple fractures. For these injuries, he was awarded general damages of £22,000 ($35,200).
In Shone v. Rigby, the plaintiff received a head injury involving a depressed fracture of the left parietal occipital region of the skull. (1998) 98(6) Q.R. (Def.'s Ex. 36, Tab 7). The dura was ruptured with herniation. Some of the brain was surgically removed. He was left with significant diminution of intellectual ability, particularly in relation to memory, learning, organization of information and concentration. The plaintiff also sustained a serious eye injury comprising total destruction of the left occipital cortex leaving loss of all field of vision out of both eyes. He was awarded general damages in the amount of £85,000 ($136,000).
In Davies v. Clarkson, a 28 year old man sustained a brain injury, displacement of his left knee, a ruptured ligament in his right knee, and a broken collar bone. (1999) 11 C.I. 168 Q.B. (1999 WL 1111866). He underwent five operations on his left knee culminating in a total knee replacement. He is not able to walk more than 50 yards without extreme pain. His brain damage has caused him to lose 20 I.Q. points and to suffer severe depression and a deteriorated memory. He was awarded £50,000 ($80,000).
In Samler v. Shaw, a 17 year old female was injured in a car accident and sustained brain injuries, a fractured neck, facial injuries, and a smashed kneecap requiring removal. (1999) 10 C.L. 195 Q.B.(1999 WL 919114). As a result of the brain injury, her personality has been devastated. She has lost the sense of smell, is partially incontinent, and has lost the left field of vision in both eyes. Her condition is permanent. She was awarded £ 90,000 ($144,000) as general damages.
Based on a review of the quantum guidelines, current English cases, and the testimony of the experts, the Court finds that a fair estimate of Karim's general damage under English law is between £125,000 ($200,000) and £175,000 ($280,000).
In addition to consulting English legal authorities, Bangladeshi courts would also look to the courts of India for guidance. The court was directed to a plethora of Indian cases. The following were the most relevant for determining the range of damages in rupees (Rs.) typically awarded by Indian courts for general damages in cases involving similar injuries causing serious disability.
In Ranjit Singh v. Beant Singh, a 32 year old lost his right eye and was rendered permanently incapacitated. (1997) 759 (Punjab & Haryana) (Def.'s Ex. 36, Tab 5). He was awarded Rs. 40,000 ($1,000) for pain and suffering.
In Basant Rai Saxena v. Madhya Pradesh State Road Transp. Corp., a person who sustained a fracture of the ulna bone of the right arm with residual disabilities received Rs. 25,000 ($625). (1997) 1236 (Madhya Pradesh) (Def.'s Ex. 36, Tab 5).
In Mahesh Kumar v. Vidhya Vati, an individual who sustained a fracture of the right humerus bone with injuries to the knee and back for which he was hospitalized for 12 days and "could not work for a long time" received Rs. 25,000 ($625). (1997) 1070 (Madhya Pradesh) (Def.'s Ex. 36, Tab 5).
*743 In Ramu Kallappa Kiwada v. U. Ramadas Naik, a 32 year old who had an amputation of his left leg with fractures of the collar bone right leg which left him crippled, disfigured and permanently disabled, was awarded Rs. 145,000 ($3,625) which included medical expenses and loss of earnings. (1997) 1212 (Karnataka) (Def.'s Ex. 36, Tab 5).
In Delhi Transport Corp. v. Arun Sondhi, a 21 year old university student had his left leg amputated below the knee and suffered severe fractures of the spine which resulted in paralysis from his hip down. (1997) 1286 (Delhi) (Def.'s Ex. 36, Tab 5). He is totally and permanently disabled and will require assistance in everyday living. He was awarded Rs. 868,781 ($21,719) which included medical expenses plus loss of wages.
In Karnataka State Road Transp. Corp. v. R. Sethuram, a 33 year old sustained injuries to his head, arm, right leg and thigh. (1997) 1022 (Karnataka H.C.) (Def.'s Ex. 36, Tab 6). He was in a coma for six weeks, was hospitalized in India for four months, received at least four operations in the United States where he was working at the time of his injury, and is permanently and totally disabled. The Court explained that the "injured became crippled for life as his right hand always remains in a clawed position and he cannot walk without the aid of stick." Id. He was awarded Rs. 200,000 ($5,000) for pain and suffering.
Based on these and similar cases, and considering the testimony of the expert witness, a fair reading of the Indian jurisprudence compels the conclusion that an award of between Rs. 2,000,000 ($50,000) and Rs. 4,000,000 ($100,000) would represent the range of damages allowed under the law of India for pain and suffering for the type of injuries sustained by Karim.
Bangladeshi courts recognize, as do our courts, that there is no fixed amount for general damages applicable to all cases. Each case is dependent on its own unique facts and circumstances. Prior cases from Bangladesh, India and the United Kingdom are not determinative, but they are instructive because the objective of this Court is to determine fair compensation for general damages under Bangladeshi law. Taking into consideration the prior jurisprudence as well as the testimony of the experts, and factoring in the unique facts and circumstances surrounding the nature and extent of Karim's injuries and disabilities, this Court finds that a fair compensation under Bangladeshi law for Karim's pain and suffering, past, present and future, is Taka 8,000,000 ($160,000).
4. NOMINAL DAMAGES
Bangladeshi law further provides for the recovery of nominal damages. See Chowdhury, supra, at 171. A nominal damage award is a trivial sum awarded not by way of compensation for any actual loss suffered, but merely as a means of recognizing the existence of some legal right vested in a plaintiff and violated by the defendant. See id. Nominal damages are usually applicable when there have been no other damages. Because Karim is entitled to actual damages, an award of nominal damages is not appropriate in this case.
5. AGGRAVATED AND PUNITIVE DAMAGES
Bangladeshi law also allows recovery for aggravated and punitive damages. See id. at 167. Aggravated damages differ from punitive damages in that the plaintiff's loss must be increased by the defendant's conduct for aggravated damages to apply. Moreover, aggravated damages are not usually applicable in personal injury cases because the general damage award compensates for all damages, and thus an award of aggravated damages in tort cases would allow double recovery. See A.B. v. South West Water Services, Ltd. (1993) 507 Q.B. (Def.'s Ex. 48, Tab 5). In any event, aggravated and punitive damages are only applicable when there is malevolence, spite, intentional or wanton disregard. *744 See Basu, supra, at 64; Rao, supra, at 19-20.
The facts of the present case do not support an award of either aggravated or punitive damages. Finch is clearly negligent in this case, but its negligence does not rise to the level required for aggravated or punitive damages. The condition which caused Karim's injury was transitory in nature and without the direct privity and knowledge of the vessel owner. The captain directed the vessel to the nearest, safest, and best medically equipped port considering the fact there was a hurricane in the Gulf that excluded geographically closer ports. The ship's medical chest was inadequately equipped, but not because of intentional, willful or grossly negligent conduct by Finch. Thus, neither aggravated nor punitive damages are appropriate.
In addition, Karim argues that he is entitled to penalty wages under Bangladesh law. Under the Bangladesh Merchant Shipping Ordinance ("MSO") of 1983, a law that defines the rights of merchant seaman, Karim is entitled to wages and provisions for the work he performs. See The Bangladesh Merchant Shipping Ordinance § 151 (1983) (Bangl.) (Pl.'s Ex. 34). Karim claims that Finch owes him a debt for wages and argues that failure to pay the debt renders it liable for penalties under the MSO.
Finch does not owe Karim penalty wages because the MSO does not apply to Karim's service aboard the M/V LOUSSIO. The MSO only applies to:
(a) all Bangladesh ships wherever they may be, except inland ships as defined by the Inland Shipping Ordinance, 1976 (LXXII of 1976); (b) all ships deemed to be registered under this Ordinance wherever they may be; (c) all ships, not being Bangladesh ships, licensed under this Ordinance in coasting trade, while engaged in such trade; and (d) all other ships while in a port or place in, or within the territorial waters of Bangladesh.
§ 1(4). The M/V LOUSSIO does not satisfy any of the categories necessary to apply the MSO because it is a foreign vessel neither registered nor serving in Bangladesh. See Def.'s Ex. 46 at 6. Because Karim was injured upon a foreign vessel outside of Bangladesh, the requirements of the MSO, including the penalty wage provision, do not apply to him.
Even if the MSO were to apply, Karim is not entitled to penalty wages because there is no debt for wages upon which to base a claim for penalty wages. Karim contends that he is owed penalty wages because he was not paid wages afforded to him by section 153(1)(b) of the MSO.[10] Section 153 explains that a seaman whose service terminates before the date agreed to in his contract "by reason of ... his unfitness or inability to proceed on the voyage, ... shall be entitled to receive ... wages for the period from the date his service is terminated until he is returned to and arrives at a proper return port subject to such limits as may be prescribed." MSO § 153. Pursuant to section 153(1)(b), Karim argues that he is entitled to wages from the time he left the service of the M/V LOUSSIO until the time he was returned to Chittagong, Bangladesh.
Karim's argument for penalty wages misses the mark because he mistakenly *745 assumes Finch owes him any wages. First, Finch owes Karim no earned wages because the evidence indicates that he received payment for his work aboard the M/V LOUSSIO when he terminated his service aboard the vessel in New Orleans. See Def.'s Ex. 1. Karim confirmed his termination and receipt of past earned wages by signing the Shipping Articles. See id. Although Karim contends he did not understand what he was signing because he does not read English, his signature simply acknowledges his receipt of wages. Therefore, Karim has no debt for earned wages upon which he may base a claim for penalty wages.
Second, Finch does not owe Karim penalty wages because it owes him no statutory wages provided by section 153(b)(1). Karim affirmatively chose to remain in the United States for almost two years despite Finch's efforts to repatriate him according to section 136 of the MSO.[11] A Bangladeshi court would not apply section 153(b)(1) to award wages to a Bangladeshi seaman who actively prevented his repatriation. See Def.'s Ex. 46 at 8. An award of section 153(b)(1) wages for Karim's decision not to return to Bangladesh would result in an unjust enrichment. Moreover, section 153(1)(b) explains that wages are to be awarded "subject to such limits as may be prescribed." MSO § 153(1)(b). Bangladeshi law prescribes limits to an award of wages under 153(b)(1) if a seaman refused repatriation, regardless of whether the seaman had good reason for not returning to his home port. See Def.'s Ex. 46 at 8. Thus, Karim is not entitled to penalty wages because he chose to remain in the United States and not to return to Bangladesh.
C. PREJUDGMENT INTEREST
In addition, Bangladesh law allows the court to award, at its discretion, pre-judgment interest at a rate that the court considers reasonable. See Bangl. Code Civ. P., Art. 34 (Pl.'s Ex. 35). This principle is consistent with the general maritime law of the United States which also allows for prejudgment interest on past damages, with the starting date left to the discretion of the judge. See Marathon Pipe Line Co. v. M/V Sea Level II, 806 F.2d 585 (5th Cir.1986); Doucet v. Wheless Drilling Co., 467 F.2d 336 (5th Cir.1972).
Finch originally filed its petition for limitation of liability on April 3, 1996. The proceeding, however, was stayed at the request of Karim on October 16, 1996 so that he could pursue his claims in state court. The action before this Court was not reactivated until November 25, 1998 after the state courts dismissed Karim's claims for lack of personal jurisdiction. Thus, prejudgment interest on past damages should commence at the rate of 5.67% per annum from November 25, 1998.
D. LITIGATION COSTS
Finally, the law of Bangladesh allows the Court to assess litigation costs, including attorney's fees. See Bangl. Code Civ. P., Art. 35 (Pl.'s Ex. 35). The amount is discretionary with the Court and is dependent, in large part, upon the effort and result. See Pl.'s Ex. 37, ¶ 6. Contingency fees are disfavored in Bangladesh, and an award of attorneys fees should be based upon the work of the counselor. See id; Def.'s Ex. 46 at 5-6. Taking these factors into consideration, the Court concludes that an award for the Plaintiff's litigation costs including attorney's fees is appropriate and that these costs are to be borne by the defendant in the amount of Taka 3,500,000 ($70,000).
*746 IV. CONCLUSION
For the foregoing reasons, the Court finds that the plaintiff Fazal Karim sustained damages because of the defendant Finch's negligence and the unseaworthiness of the M/V LOUSSIO. Nevertheless, the Court finds that Finch had neither privity nor knowledge of the unseaworthy condition of the M/V LOUSSIO and accordingly grants Finch's petition to limit its liability.
Karim is entitled to recover from Finch the following damages: Taka 654,064 ($13,081.28) for past earnings lost; Taka 1,322,585 ($26,451.70) for future earnings lost; Taka 3,183,408 ($63,668.16) for outstanding medical expenses; Taka 1,000,000 ($20,000) for future medical expenses; Taka 8,000,000 ($160,000) for general damages (Taka 5,000,000 ($100,000) attributed to past general damages and Taka 3,000,000 ($60,000) for future general damages); and, Taka 3,500,000 ($70,000) for litigation costs including attorneys fees.
Additionally, Karim is entitled to prejudgment interest on the above past losses totaling Taka 8,837,472 ($176,749.44) at the rate of 5.6% per annum from November 25, 1998 until the date of this judgment, and interest at the same rate on all sums from the date of judgment until the judgment is paid.
NOTES
[1] This case came to trial on the liability phase before the Court without a jury beginning on January 24 and ending on January 25, 2000. After hearing the testimony and reviewing the exhibits and the relevant record, the Court renders the following findings of fact and conclusions of law. To the extent a finding of fact constitutes a conclusion of law, the Court adopts it as such. To the extent a conclusion of law constitutes a finding of fact, the Court also adopts it as such.
[2] Karim has pursued other litigation in this Court. On December 15, 1995, he filed an action against the M/V LOUSSIO in rem, Finch, and several additional defendants (Civil Action No. 95-4169). On December 20, 1995, Finch posted a security bond for the M/V LOUSSIO and the vessel was released from arrest on December 21, 1995 after plaintiff's counsel had an opportunity to conduct discovery. In April, 1997, the Court granted Karim's motion to voluntarily dismiss his claims and entered a judgment in favor of the defendants, thereby closing Civil Action No. 95-4169. The Fifth Circuit Court of Appeals affirmed this ruling on March 22, 1999. See Karim v. Finch Shipping, 177 F.3d 978 (5th Cir.1999).
[3] On August 2, 1996, Karim dismissed his in personam claims against Finch and its insurer, Ocean Marine Mutual Assurance Company, but retained the in rem claims in this Court. On September 17, 1996, Karim dismissed the claims against the remaining defendants in this Court and in state court. Thus, multiple claims no longer existed.
[4] Karim brought an additional complaint against Finch and its insurer in this Court on August 17, 1998 for claims similar to those made in its original federal court action (Civil Action No. 95-4169). Considering the deadline for filing claims set in the Court's April 4, 1996 monition in the limitation proceeding (Civil Action No. 96-1175), the Court dismissed Karim's claims filed in Civil Action No. 98-2437 and entered a judgment on December 29, 1998.
[5] While Finch raised its exoneration and limitation claim in defense of potential claims against it, Finch voluntarily chose to invoke the protections of this Court and correspondingly subject itself to this Court's jurisdiction. In December, 1998, the Court denied additional claims by Karim in federal court because of the monition and concursus entered by the Court on Finch's behalf (Civil Action No. 98-2437).
[6] The Court dismissed Karim's wife's claims for lack of evidence and proof.
[7] For a review of the history of limitation see James J. Donovan, The Origins and Development of Limitation of Shipowners' Liability, 53 TUL. L.REV. 999 (1979).
[8] Following the trial on the limitation and liability phase of this matter, a trial was held on the quantum aspect of the case. The parties were afforded an opportunity to offer relevant material and sources concerning the substantive law of Bangladesh. See Federal Rules of Civil Procedure, Rule 44.1; see generally 9 Charles Alan Wright & Charles R. Miller, Federal Practice and Procedure § 2441 (1999). The Court also heard expert testimony and argument from B.K. Agnihotri, Chancellor of Southern University Law School, attorney, and former trial judge in India, as well as two distinguished members of the Bangladeshi Bar, Ajmalul Hossain, Q.C. and Dr. M. Zahir. These expert witnesses testified to the issue of quantum and were very knowledgeable in the laws of Bangladesh, India, and the United Kingdom.
[9] The additional difference between the amount paid and the amount owing reflects discounts from medical providers and other arrangements made between the parties.
[10] Karim also contends that he is owed penalty wages for Finch's failure to pay him contractual wages according to Article 11 of the Shipping Articles. See Def.'s Ex. 1 at 7. That provision provides for a subsistence allowance "to a seaman on return to his port of engagement on completion of a period of service." Id. These wages, however, are not earned wages contemplated by section 146. Karim could not be owed the wages cited by Karim from the Shipping Articles once he returned to Bangladesh because he already had initiated litigation and avoided any contact with Finch. Finch also was out of business at this time and could not execute the contract. Therefore, Finch did not and could not owe wages under the Shipping Articles that may be subject to the penalty wage provision of the MSO.
[11] Section 136 provides:
When the service of a seaman or apprentice terminates, without the consent of the seaman or apprentice, at a port or place outside Bangladesh, and before expiration of the period for which the seaman was engaged ..., the master or owner of the ship shall, in addition to adequate provision for the maintenance of the seaman ... and for the return of that seaman or apprentice to a proper return port.
MSO § 136. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2399247/ | 86 F. Supp. 2d 624 (2000)
WASHINGTON LEGAL FOUNDATION, et al.,
v.
TEXAS EQUAL ACCESS TO JUSTICE FOUNDATION, et al.
No. A-94-CA-081 JN.
United States District Court, W.D. Texas, Austin Division.
January 28, 2000.
*625 *626 Steven W. Smith, Law Offices of Steven W. Smith, Austin, TX, Daniel J. Popeo, Richard A. Samp, Washington Legal Foundation, Washington, DC, for Washington Legal Foundation, William R. Summers.
Michael J. Mazzone, Dow, Cogburn & Friedman, Houston, TX, for Michael J. Mazzone.
Darrell E. Jordan, Hughes & Luce, L.L.P., Dallas, TX, H. Robert Powell, Hughes & Luce, Austin, TX, Brittan L. Buchanan, Hughes & Luce, L.L.P., Austin, TX, Richard A. Johnston, Hale and Dorr, L.L.P., Washington, DC, Francine Rosenzweig, Hale & Dorr, L.L.P., Boston, MA, Geoffrey S. Stewart, Jones, Day, Reavis & Pogue, Washington, DC, for Texas Equal Access to Justice Foundation.
*627 H. Robert Powell, Hughes & Luce, Austin, TX, Brittan L. Buchanan, Hughes & Luce, L.L.P., Austin, TX, Richard A. Johnston, Hale and Dorr, L.L.P., David A. Wilson, Hale and Dorr, L.L.P., Washington, DC, Francine Rosenzweig, Hale & Dorr, L.L.P., Boston, MA, Geoffrey S. Stewart, Jones, Day Reavis & Pogue, Washington, DC, for W. Frank Newton, Chairman, Texas Equal Access to Justice Foundation.
Darrell E. Jordan, Hughes & Luce, L.L.P., Dallas, TX, H. Robert Powell, Hughes & Luce, Austin, TX, Harry G. Potter, III, Attorney at Law, Austin, TX, Brittan L. Buchanan, Hughes & Luce, L.L.P., Austin, TX, Nancy A. Trease, Assistant Attorney General, Austin, TX, for Thomas R. Phillips, Raul Gonzalez, Jack Hightower, Nathan Hecht, Lloyd A. Doggett, Bob Gammage, Craig T. Enoch, John Cornyn, Rose Spector.
Rande K. Herrell, Attorney General's Office, Austin, TX, for Supreme Court DFTS, defendant.
Scott J. Atlas, Vinson & Elkins, Houston, TX, J. David Bickham, Jr., Vinson & Elkins, Austin, TX, Robert A. Long, Jr., Caroline M. Brown, Covington & Burling, Washington, DC, Robbi B. Hull, Vinson & Elkins, LLP, Austin, TX, for Iolta Programs (NAIP), amicus.
MEMORANDUM OPINION AND ORDER
NOWLIN, District Judge.
Before the Court is the above-entitled cause of action. A bench trial was held before this Court on September 22, 1999 and September 23, 1999. Plaintiffs submitted Plaintiffs' Post-Trial Brief (Clerk's Doc. No. 141) on November 2, 1999. Defendants submitted Defendants' Post-Trial Brief (Clerk's Doc. No. 143) on November 29, 1999. Having considered the testimony and evidence presented at trial, as well as the relevant law, the Court enters the following Opinion and Order. This Memorandum Opinion and Order constitutes the Court's findings of fact and conclusions of law. See FED.R.CIV.P. 52(a).
I. Procedural Background
The Plaintiffs in this cause of action are: the Washington Legal Foundation, a nonprofit public interest law and policy center; Michael Mazzone, a Texas resident and attorney licensed to practice law by the State Bar of Texas; and William Summers, a Texas resident and consumer of legal services. Plaintiffs bring this case pursuant to 42 U.S.C. § 1983 asserting that Defendants' mandatory Interest on Lawyers' Trust Account ("IOLTA") program violates the First and Fifth Amendments of the United States Constitution. The IOLTA program is implemented and overseen by Defendant the Texas Equal Access to Justice Foundation ("TEAJF"). In 1984, the Texas Supreme Court Justices adopted Article XI of the Rules of the State Bar of Texas which established the IOLTA program. In 1988, the Justices made the program mandatory. This Court entered an order on January 4, 2000 dismissing the Texas Supreme Court Justices on the basis of legislative immunity.
By Order dated January 19, 1995, this district court granted summary judgment for Defendants on the basis that Plaintiffs could not establish a constitutionally cognizable property interest because, but for the IOLTA program, no interest could be earned on the funds in the IOLTA account. Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 873 F. Supp. 1, 7 (W.D.Tex.1995). The Fifth Circuit reversed this court, concluding that the interest earned on client funds held in IOLTA accounts is a property interest within the reach of the Fifth Amendment. Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 94 F.3d 996 (5th Cir.1996). The Supreme Court affirmed the Fifth Circuit's decision and determined that the interest income generated by the Texas IOLTA program is the "private property" of the owner of the principal. Phillips v. Washington Legal Foundation, 524 U.S. 156, 118 S. Ct. 1925, *628 1934, 141 L. Ed. 2d 174 (1998). This holding was limited to its determination of the existence of a property interest in the interest income. Id. The Supreme Court remanded the case for consideration of whether or not IOLTA funds have been "taken" by the State, as well as the amount, if any, of just compensation due Plaintiffs. Id. Thus this Court must once again consider the fate of IOLTA.
II. What is IOLTA?
The Texas Interest on Lawyers Trust Account ("IOLTA") is fashioned from a complex web of federal banking regulations, state law, Internal Revenue Service Rulings, and ethical rules. All these rules work in conjunction to create a unique class of revenue which the state then directs to the delivery of legal services to low income individuals.
In 1980 Congress passed legislation creating Negotiable Order of Withdrawal ("NOW") accounts, which allowed federally insured banks to pay interest on demand accounts. 12 U.S.C. § 1832. Absent an agreement with the client, Texas ethical rules require lawyers to keep client funds separate from the attorney's funds and that these funds be available to the client upon demand. TEX. DISCIPLINARY R. PROF. CONDUCT 1.14, reprinted in TEX. GOV'T CODE ANN., tit 2, subtit. G app. A (Vernon's Supp.1998) (TEX. STATE BAR R. ART. X, § 9). Before the creation of NOW accounts, lawyer trust accounts were almost without exception non-interest bearing accounts. Therefore, only banks benefitted from the deposits lawyers made into client trust accounts.
NOW accounts are permitted only for deposits that consist of funds "only where the entire beneficial interest is held by one or more individuals or by an organization which is operated primarily for religious, philanthropic, charitable, educational, political, or other similar purposes and which is not operated for profit." 12 U.S.C. § 1832(a)(2). For-profit corporations and partnerships are prohibited from earning interest on demand accounts. Id. The Federal Reserve Board, however, has interpreted § 1832(a) to convey that corporate funds may be held in NOW accounts if the funds are held in trust pursuant to a program in which charitable organizations have the exclusive right to the interest earned. See Phillips at 159, 118 S. Ct. 1925 (citing Letter from Federal Reserve Board General Counsel Michael Bradfield to Donald Middlebrooks (Oct. 15, 1981)).
Article XI of the State Bar Rules of Texas provides that an attorney who receives funds that are "nominal in amount or are reasonably anticipated held for a short period of time" must place these funds in a separate interest-bearing NOW account that is denominated an IOLTA account. TEX. STATE BAR R., Art. XI, § 5(A); TX. R. EQUAL ACCESS RULE 4, 7 (West 1999). Under the IOLTA rules, an attorney must initially determine whether the funds are capable of earning a net interest for the client. Id. RULE 6. In making this determination the attorney must decide if:
such funds, considered without regard to funds of other clients which may be held by the attorney, law firm, or professional corporation, could not reasonably be expected to earn interest for the client or if the interest which might be earned on such funds is not likely to be sufficient to offset the cost of establishing and maintaining the account, service charges, accounting costs, and tax reporting costs which would be incurred in attempting to obtain the interest on such funds for the client.
Id.
The Internal Revenue Service does not attribute income earned in an IOLTA account to the individual client for federal income tax purposes so long as the client has no control over the decision whether to place the funds in the IOLTA account and does not designate who will receive the interest generated by the account. See Rev.Rul. 81-209, 1981-2, C.B. 16; Rev.Rul. 87-2, 1987-1 C.B. 18. Under the Internal *629 Revenue Code any interest from a non-IOLTA pooled account or sub-account must be reported separately. Rev.Rul. 87-2, 1987-1 C.B. 18.
The TEAJF is the designated beneficiary for the interest earned on the funds in the Texas IOLTA Program. The TEAJF is a non-profit organization established by the Supreme Court of Texas. TEX. STATE BAR. R., Art. XI, §§ 3, 4; TX. R. EQUAL ACCESS RULE 9(a). The TEAJF distributes these funds to nonprofit organizations whose primary purpose is the delivery of legal services to low income individuals. TX.R. EQUAL ACCESS RULE 10.
The parties to this litigation agree that the TEAJF does not enforce the portion of Rule 6 stating that an attorney must consider whether a client's funds can generate net interest "without regard to the funds of other clients." Id. RULE 6.
III. Standing
Standing is a judicially-developed doctrine designed to ensure an Article III court is presented by parties before it with an actual case or controversy. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992) ("[S]tanding is an essential and unchanging part of the case-or-controversy requirement of Article III").
To establish standing, a party must allege a "personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Id. That injury must be "distinct and palpable and not abstract or conjectural or hypothetical." Id. (Internal quotes omitted). This injury requirement ensures that courts will decide only actual disputes and not abstract policy questions more properly decided by coordinate branches of government. See, e.g., Allen v. Wright, 468 U.S. 737, 746, 104 S. Ct. 3315, 82 L. Ed. 2d 556 (1984) (stating that the law of Art. III standing is built on a single basic ideathe idea of separation of powers). Additionally, standing requires courts to base decisions on a concrete, actual set of facts, so that a court may appropriately limit the precedential value of its decisions. See Valley Forge Christian College v. Americans United for the Separation of Church and State, 454 U.S. 464, 102 S. Ct. 752, 70 L. Ed. 2d 700 (1982).
A. To Whom Does the Money Belong?
On February 4, 1994 Plaintiffs brought suit against Defendants based upon a $1000 retainer Mr. Summers paid his attorney Mr. Mazzone and his firm Dow Cogburn & Friedman P.C., ("Dow Cogburn"). This money was paid in May of 1993 in connection with civil litigation filed against Mr. Summers and Glenloch Homes in 1992[1]. Mr. Summers again paid a retainer of $250 to Mr. Mazzone in 1999 after this case was remanded by the Supreme Court.
Defendants argue that Mr. Summers does not have standing to bring this cause of action because the money placed in the Dow Cogburn IOLTA account did not belong to him, but to another entity, Abbey Enterprises. Defendants further assert that since this entity was a corporation, it could not earn interest on the $1000 retainer outside of IOLTA. Defendants assert that the Supreme Court holding that clients possess a property interest in the interest earned in an IOLTA account is based upon abstract principles of Texas property law and was not a factual determination that Mr. Summers possessed a property interest in the interest earned by the Dow Cogburn IOLTA account.
The evidence at trial established that the check with which Mr. Summers retained Mr. Mazzone in 1993 was not paid from his personal account, but from the account of a corporation, Abbey Enterprises. Transcript at 43. This money was placed under the client number for Glenloch Homes. Glenloch Homes was sued in conjunction with Mr. Summers, but was no longer in existence at the time the suit was *630 filed. Transcript at 44, 111. The evidence established that Mr. Summers owned 60% of Abbey Enterprises and possessed the ability to write himself a check to pay his salary. Transcript at 114. Summers testified that he paid personal income taxes in 1993 on the $1000 he used to retain Mr. Mazzone. Transcript at 125. The evidence at trial further established that Abbey enterprises was not party to the litigation supported by the $1000 retainer.
Mr. Mazzone testified that four days prior to filing the instant suit in February of 1994, he instructed the bookkeeper at his firm to create a client number for Mr. Summers and to transfer the $1000 retainer from the Glenloch Homes client number to Mr. Summers' name. Transcript at 53, 84.
Plaintiff Summers maintains that this check, drawn on a corporate account was merely a distribution or salary payment to Mr. Summers and was treated as such on Abbey's books. Therefore, Plaintiffs argue that the money in issue was the property of Mr. Summers. Moreover, Plaintiffs argue that Summers paid Mr. Mazzone an additional retainer of $250 which Mr. Mazzone also placed in the Dow Cogburn IOLTA account. Transcript at 63. This check was written on Plaintiff's personal account. Plaintiffs' Trial Exhibits 13 and 14. Based on this, Plaintiffs assert that the ownership of the original retainer is irrelevant.
The Court finds that, for the purposes of this litigation, the $1000 retainer was the property of Mr. Summers sufficient to establish standing. Heinrichs v. Evins Personnel Consultants, Inc., Number One, 486 S.W.2d 935, 936 (1972). Moreover, even if the Court had not found that the $1000 is the property of Mr. Summers, it is clear the second retainer of $250 is Mr. Summers' personal property sufficient to support standing.
B. Should the Money Ever Been Placed in IOLTA?
Defendants argue that the $1000 retainer paid on the Abbey Enterprises account never should have been placed in an IOLTA account in the first place. The Court finds that pursuant to IOLTA Rule 6 Mr. Mazzone properly determined at that time that the money would not generate net interest. Transcript at 46. Mr. Mazzone testified that he was unaware of the TEAJF policy of refunding interest on funds inadvertently placed in an IOLTA account until "recently." Transcript at 59. Mr. Mazzone further testified that he did not believe he had placed the $1000 in IOLTA by mistake. Id. The Court finds that pursuant to the Rules governing IOLTA at the time Mr. Mazzone placed Mr. Summers' retainer funds in the IOLTA account, Mr. Mazzone properly placed the money in his firm's IOLTA account. The Court further finds that Mr. Mazzone's determination that the $250 retainer should be placed in IOLTA is also proper.
C. Mr. Summers' Bankruptcy
Defendants contend that due to a Chapter 7 bankruptcy filing, Mr. Summers cannot claim the benefit of the interest his funds allegedly earn in IOLTA. The testimony established that Mr. Summers filed for bankruptcy in June of 1999. Transcript at 61. The testimony further established that at this time, Mr. Summers owed the firm of Dow, Cogburn & Friedman in excess of $1000 in unpaid legal fees. Transcript at 119.
In light of Mr. Mazzone's continued representation of Mr. Summers, the Court finds that the retainer is still the property of Mr. Summers held in trust by Mr. Mazzone. Although Mr. Mazzone's failure to apply the $1000 retainer to an outstanding bill is somewhat unorthodox, his choice not to do so will not be questioned by this Court at this juncture. No evidence was submitted to this Court that any creditor of Mr. Summers laid claim to the $1000. Mr. Summers also testified that he informed the bankruptcy trustee of the existence *631 of the $1000 retainer. Transcript at 120. Therefore, the Court finds that the nature of the ownership of $1000 retainer cannot be re-characterized by Mr. Summers' bankruptcy.
IV. Failure to Join an Indispensable Party
A. Special v. General Accounts
Defendants argue that this Court should reconsider the Supreme Court's determination that a client has a property interest earned on money placed in an IOLTA account. Defendants contend that the Supreme Court's decision was based on the assumption that the client owned the principal. Defendants contend that the Supreme Court "implicitly assumed" that IOLTA accounts are special in nature. In fact, Defendants assert, IOLTA accounts are general accounts, and the bank owns the principal instead of the client. Texas Commerce Bank v. Townsend, 786 S.W.2d 53 (Tex.App.Austin 1990, writ denied).
In Texas, accounts are assumed to be general accounts unless the parties can establish that the account was a special account under an agreement with the bank that those particular deposits would be kept separate from the banks other funds. Id. There is no evidence that the parties at any time attempted to establish that the IOLTA account in issue was a special account.
In a special account, the depositor retains an interest in the specific principal placed on deposit. In a general account, all ownership rights in the principal are transferred to the financial institution and a debtor-creditor contractual relationship is established. Hudnall v. Tyler Bank & Trust Co., 458 S.W.2d 183, 186 (Tex.1970).
Mr. Mazzone testified that the Dow Cogburn trust account was a general account. Transcript at 54. Mr. Mazzone further testified that he understood that in a general account his firm only had the contractual right to be repaid a sum equal to the original deposits in that account. Transcript at 90. The Court finds that the Dow Cogburn IOLTA account is and was a general account.
The Court finds that the Supreme Court's finding was not based on an assumption that IOLTA accounts are special in nature. In Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980), which the Supreme Court relied largely upon in coming to its determinations in Phillips, the account in issue was an interest-bearing general account and not a special account. In fact, in most cases a special account is not an interest-bearing account. See Testimony of Karen Neeley, Transcript at 363-64. As a matter of common sense, a bank would not pay interest on funds it could not use. Therefore an IOLTA account would not be feasible as a special account. The Court finds that Defendants' assertion that the Supreme Court assumed IOLTA accounts are special accounts is without merit. Therefore the Court declines to reconsider the property interest issue on this basis.
B. Banks as Indispensable Parties
Defendants assert that in a general account Texas law states that the financial institution holds title to the funds deposited. Paulsen et al v. Texas Equal Access to Justice Foundation, 1999 WL 1078698, No. 03-98-00709-CV (Tex.App.Austin, Dec. 2, 1999, n.w.h.). Therefore, based upon the legalism "interest follows principal" the banks in which Mr. Mazzone's law firm maintained it IOLTA accounts relevant to this cause of actionChase Bank of Texas and Southwest Bank of Texas hold title to the interest generated by IOLTA as well as the funds. Defendants request this Court to dismiss this cause of action pursuant to FED.R.CIV.P. 19(a)(1), for failure to include the banks as indispensible parties. The Court finds this argument must fail.
The Rule provides that a party is "necessary" and "shall be joined" if:
*632 (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
FED.R.CIV.P. 19(a). "A decision whether to dismiss must be made pragmatically, in the context of the substance of each case, rather than by procedural formula." Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 119, n. 16, 88 S. Ct. 733, 19 L. Ed. 2d 936 (1968).
The Court finds, after carefully considering all the factors set forth in Rule 19(a), that Chase Bank of Texas and Southwest Bank of Texas are not necessary parties to this cause of action. First, in the absence of these parties, Plaintiffs can be afforded complete relief. They request injunctive relief only. An order enjoining TEAJF from applying the IOLTA program to Plaintiffs would provide them with complete relief.
In the alternative, failure to join these financial institutions would not "as a practical matter impair or impede the person's ability to protect" the banks' interest in IOLTA accounts. Mr. Mazzone contracted with these banks to pay the interest generated by his firm's IOLTA account to TEAJF. See Plaintiff's Exhibit 6, Affidavit of Professor Rounds. Certainly, a necessary change in this contractual relationship by the injunction of IOLTA will not impede the banks' interest. In fact, it might be in the banks' better interests to retain the interest on these accounts as they did pre-IOLTA. Lastly, failure to join the banks would not "leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest." FED. R.CIV.P. 19. Obviously, because Plaintiffs seek only declaratory and injunctive relief, failure to join these financial institutions would not leave the other Defendants open to multiple obligations. The Court finds that these financial institutions are not necessary parties to this litigation. Therefore, the Court denies Defendants' motion to dismiss on this basis.
V. First Amendment
Plaintiffs allege that Texas' mandatory IOLTA program violates Plaintiffs' First Amendment rights by forcing them to finance speech they find objectionable. Plaintiffs originally asserted these claims before the district court in Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 873 F. Supp. 1 (W.D.Tex.1995). In that opinion, this Court found that Plaintiffs' First Amendment claims "at least as far the client is concerned ... is necessarily predicated upon the Plaintiffs' claim that the funds generated by the IOLTA accounts are, in fact, the property of the client." Id. at 9. This Court further found that:
the IOLTA Program in no way compels any of the Plaintiffs to actually associate or otherwise be linked with the recipient organizations that they find repugnant (e.g. by becoming members or being publicly listed as benefactors). Because the Plaintiffs have failed to adequately allege any connection between themselves and the IOLTA recipient organizations, the Court finds that the Texas IOLTA Program does not unconstitutionally burden the Plaintiffs' First Amendment rights.
Id.
Neither the Fifth Circuit nor the Supreme Court directly addressed Plaintiffs' First Amendment challenge to IOLTA[2]. *633 However, to the extent that this court's earlier opinion is premised upon the finding that the interest generated by the IOLTA funds qualifies as "property" the Court revisits the First Amendment issue.
A. Compelled Speech
Plaintiffs assert that the Texas IOLTA Program compels them to speak in violation of the First Amendment. The Supreme Court has acknowledged in two distinct lines of cases, two counterparts to the First Amendment's guarantee of free speech: the right not to speak, West Virginia State Board of Education v. Barnette, 319 U.S. 624, 642, 63 S. Ct. 1178, 87 L. Ed. 1628 (1943); and the right not to be compelled to subsidize others' speech, Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S. Ct. 1782, 52 L. Ed. 2d 261 (1977); Keller v. State Bar of Cal., 496 U.S. 1, 110 S. Ct. 2228, 110 L. Ed. 2d 1 (1990). The first line of cases involves individuals being required to engage in involuntary affirmations of public belief. See Wooley v. Maynard, 430 U.S. 705, 714, 97 S. Ct. 1428, 51 L. Ed. 2d 752 (1977) (displaying a government motto); West Virginia State Board of Education v. Barnette, 319 U.S. 624, 642, 63 S. Ct. 1178, 87 L. Ed. 1628 (1943) (pledging allegiance to the flag). The second line of cases involves compelled financial support of private organizations. Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S. Ct. 1782, 52 L. Ed. 2d 261 (1977), and Keller v. State Bar of California, 496 U.S. 1, 110 S. Ct. 2228, 110 L. Ed. 2d 1 (1990). Plaintiffs rely on these two lines of Supreme Court cases in support of their arguments.
B. The Right Not to Speak
Defendants assert that a compelled speech cause of action requires a showing that the Plaintiff[3] will be identified with the message he finds objectionable and that Plaintiff cannot do so in the instant case. The Court finds that Defendants are correct with regard to the West Virginia State Board of Education v. Barnette line of cases. Plaintiffs agree that this line of cases requires that Plaintiffs show that they are being identified with the expressive activity to which they object. See PruneYard Shopping Center v. Robins, 447 U.S. 74, 87-88, 100 S. Ct. 2035, 64 L. Ed. 2d 741 (1980).
In PruneYard, the Supreme Court sustained a California law requiring the proprietors of shopping malls to allow visitors to solicit signatures on political petitions. The Supreme Court based that decision at least in part upon the fact that the solicitations would "not likely be identified with those of the owner," and that "no specific message is dictated by the State to be displayed on appellants' property." Moreover, the proprietors could "expressly disavow any connection with the message by simply posting signs in the area where the speakers or handbillers stand." Id. at 87, 100 S. Ct. 2035.
At trial Mr. Summers testified that he did not believe that the people of the State of Texas identified him with the causes funded by TEAJF with IOLTA funds. See Transcript at 116. The Court finds that no specific message is dictated by the variety of legal services that TEAJF funds with IOLTA dollars. Moreover, the Court finds Summers is free to publicly disassociate himself with the views of any IOLTA-funded litigation with which he disagrees. In fact, to a limited extent he has done so by filing this cause of action.
The relationship between Mr. Summers, Mr. Mazzone, IOLTA, the TEAJF, and the programs funded by the TEAJF with IOLTA funds is not easily traceable. Mr. Summers admitted that his money was placed in the Dow Cogburn IOLTA account long before he was aware of the existence of IOLTA, let alone the causes *634 funded by IOLTA. See Transcript at 51, 112. No evidence was submitted at trial of any identification of Mr. Summers with the programs funded with IOLTA monies. Therefore the Court finds that Summers has failed to establish that he is being identified with the expressive activities to which he objects and any claim premised upon this fails based upon the dictates of PruneYard.
C. Compelled Financial Support
Plaintiffs are still free to assert that they prevail under the compelled financial support line of cases. Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S. Ct. 1782, 52 L. Ed. 2d 261 (1977); Keller v. State Bar of Cal., 496 U.S. 1, 110 S. Ct. 2228, 110 L. Ed. 2d 1 (1990). Pursuant to these cases, Plaintiffs argue that the Texas IOLTA Program violates the First Amendment's prohibition on compelled speech by forcing Mr. Summers to financially support private organizations to which he objects. Plaintiff Summers objects on ideological grounds to the use of his funds to support IOLTA. See Transcript at 116.
Taken as a whole, the compelled contribution line of cases require a showing of three factors. First there must be an involuntary contribution. Abood, 431 U.S. 209, 97 S. Ct. 1782, 52 L. Ed. 2d 261 (1977). Second, the message supported by the involuntary contribution must be political or ideological. Keller, 496 U.S. 1, 9-17, 110 S. Ct. 2228, 110 L. Ed. 2d 1 (1990). Third, even when the message supported by the involuntary contribution is political or ideological, no First Amendment violation exists if the message supports the government's policy interests. Id.
The Court notes that "the government does not, however, violate the First Amendment whenever it forces an individual to subsidize speech." Hays County Guardian v. Supple, 969 F.2d 111, 123 (5th Cir.1992). "Rather, the First Amendment prohibits the government from forcing an individual to contribute to the ideological expression of other private citizens for the purpose of advancing those citizens ideological biases rather than substantial public interests." Id.
1. Compelled Involuntary Contribution
Defendants argue that Plaintiff Summers was not required to make an actual financial contribution, such as union dues, Abood v. Detroit Board of Educ., 431 U.S. 209, 97 S. Ct. 1782, 52 L. Ed. 2d 261 (1977), or bar dues, Keller, 496 U.S. 1, 110 S. Ct. 2228, 110 L. Ed. 2d 1 (1990), to the IOLTA Program. Defendants argue that therefore Plaintiffs cannot maintain the argument of compelled financial support. Defendants maintain that in this case, the client made no financial contribution at all. Defendants assert that without the IOLTA Program Plaintiff Summers' money would have gone into a non-IOLTA account with the interest benefitting only the bank.
Defendants further contend that Plaintiff Summers was not "compelled" to contribute to IOLTA because the client has already voluntarily relinquished all beneficial use of his money to the bank. PruneYard Shopping Center v. Robins, 447 U.S., 74 87-88, 100 S. Ct. 2035, 64 L. Ed. 2d 741 (1980). Defendants assert that the State is not requiring the client to contribute anything that he has not already given up.
Plaintiffs argue that Mr. Summers' participation in IOLTA is not voluntary. They correctly assert that since Mr. Summers was not even aware of IOLTA for nearly a year following the placement of his funds in an IOLTA account, he could not have consented to participation. Transcript at 112. Defendants' assertion of voluntariness is premised on the fact that Mr. Summers willingly turned over the $1000.00 retainer to his attorney. Plaintiffs maintain that Defendants' assertion is incorrect as a matter of constitutional law. Plaintiffs assert that this case is akin to the finding that a state cannot condition employment in a government job on public support of a political party. The First Amendment is violated even though the *635 plaintiff may avoid the compelled speech by refusing to accept the proffered job. Elrod v. Burns, 427 U.S. 347, 96 S. Ct. 2673, 49 L. Ed. 2d 547 (1976).
The issue of voluntariness in this case is highly related to this Court's findings regarding the ability of Mr. Summers' funds, placed in the Dow Cogburn IOLTA account, to generate interest that would equate to a measurable contribution. Lehnert v. Ferris Faculty Ass'n, 500 U.S. 507, 111 S. Ct. 1950, 114 L. Ed. 2d 572 (1991). For the sake of Plaintiffs' First Amendment claims, the Court will assume that Mr. Summers was required to involuntarily contribute to IOLTA.[4]
2. Ideological or Political Activity
Plaintiffs contend that the activities funded by TEAJF are ideological and/or political in nature. Plaintiffs assert that the advocacy of legal rights is by its very nature an inherently expressive activity and thus is subject to the compelled speech doctrine. Lehnert v. Ferris Faculty Assoc., 500 U.S. 507, 111 S. Ct. 1950, 114 L. Ed. 2d 572 (1991). Plaintiffs further argue that IOLTA funds have been expended to finance a lawsuit by a group of Democrats seeking to overturn the election results in Val Verde County, Texas[5] and to assist illegal aliens resisting deportation. Transcript at 211-212. Plaintiffs maintain that these are ideological and/or political activities to which Mr. Summers objects.
Defendants argue that the Texas IOLTA Program does not support a discernable message. Moreover, Defendants argue that a compelled contribution violates the First Amendment only where the "dissenter's objection rests on political or ideological disagreement with the content of the message." Glickman v. Wileman Bros. & Elliott, 521 U.S. 457, 471, 117 S. Ct. 2130, 138 L. Ed. 2d 585 (1997). Defendants argue that Mr. Summers has failed to identify the message propounded by the TEAJF with IOLTA funds, with which he disagrees.
At issue in this case is whether Plaintiff Summers objects to certain programs supported with IOLTA funds or whether he objects to the very existence of the IOLTA Program. The Court finds that Mr. Summers' objections to certain programs are a vehicle for his general objections to IOLTA. Mr. Summers does not object to the use of IOLTA funds because it creates a "crisis of conscience;" but rather, because he simply objects to the TEAJF's control over the IOLTA funds. See Glickman v. Wileman Bros. & Elliott, 521 U.S. 457, 471, 117 S. Ct. 2130, 138 L. Ed. 2d 585 (1997). The concept of helping ensure equal access to the justice system for low income citizens is in itself a non-controversial idea, Logan v. Zimmerman Brush Co., 455 U.S. 422, 102 S. Ct. 1148, 71 L. Ed. 2d 265 (1982), and therefore does not qualify as a political or ideological activity. Hays County Guardian v. Supple, 969 F.2d 111 (5th Cir.1992). To the extent that Mr. Summers complains that the IOLTA Program is in itself expressive activity his claim fails. However, the Court finds that the TEAJF's activities in funding certain litigation could be ascribed certain political or ideological components and therefore potentially qualify as expressive activity against which Plaintiffs may lodge a First Amendment claim. The Court finds that Plaintiffs' First Amendment claims nevertheless fail.
3. Core Government Function
Defendants assert that the Texas IOLTA Program supports a core government *636 function by providing access to the Texas justice system.
In Abood, the Supreme Court addressed the First Amendment claims of dissenting employees subject to an "agency-shop" agreement between their government and a union. The agreement required each employee to pay the union a "service fee" equal to the dues required of union members, but limited no one's right to speak separately and obliged no employee to join the union, personally espouse unionism, or participate in the union in any other way. Abood v. Detroit Board of Education, 431 U.S. 209, 97 S. Ct. 1782, 52 L. Ed. 2d 261 (1977). The Supreme Court found in that case that the union's use of the dissenter's service fees for expressive purposes unrelated to collective bargaining violated the First Amendment rights of those employees. Abood struck down the service fee because it funded the union's expression of support for "ideological causes not germane to its duties as collective bargaining representative." Id. at 235, 97 S. Ct. 1782.
In Glickman v. Wileman Brothers & Elliott, Inc., the Supreme Court solidified its holding in Abood and stated that:
the Court reads Abood for the proposition that the First Amendment places no limits on government's power to force one individual to pay for another's speech, except when the speech in question is ideological or political in character and is not germane to an otherwise lawful regulatory program.
521 U.S. 457, 471-472, 117 S. Ct. 2130, 138 L. Ed. 2d 585 (1997).
Therefore, the question now before the Court is whether the IOLTA Program itself and the expressive activity that Mr. Summers objects to the TEAJF funding are germane to an otherwise lawful regulatory program and support a substantial public interest that of supplying legal services to the poor. Hays County Guardian v. Supple, 969 F.2d 111 (5th Cir.1992). The Court finds that the compelled contribution of Plaintiff's funds to IOLTA accomplishes and is germane to the "government's vital policy interest" of making legal services accessible to all. Lehnert v. Ferris Faculty Ass'n, 500 U.S. 507, 111 S. Ct. 1950, 114 L. Ed. 2d 572 (1991). "Improving the quality of legal services" is an important state interest. Keller v. State Bar of Cal., 496 U.S. 1, 7, 110 S. Ct. 2228, 110 L. Ed. 2d 1 (1990) (citing Lathrop v. Donohue, 367 U.S. 820, 81 S. Ct. 1826, 6 L. Ed. 2d 1191 (1961)). Plaintiffs have failed to identify any instance where TEAJF funds were used in a manner not consistent with providing access to legal services. Unlike in Keller, the TEAJF has not used IOLTA funds to lobby or in an attempt to legislate. The Court finds that compelled funding of IOLTA does not "significantly add to the burdening of free speech." Lehnert, 500 U.S. at 521, 111 S. Ct. 1950. Moreover, "[t]he reason for permitting the government to compel the payment of taxes and to spend money on controversial projects is that the government is the representative of the people" See Abood, 431 U.S. at 259, n. 13, 97 S. Ct. 1782 (Powell, J., concurring in judgment).
The sole purpose of the TEAJF is to fund legal services for the poor. Its activities in funding various programs are germane to this government interest. Based on the foregoing, the Court finds that Plaintiffs' First Amendment claims must fail.[6]
*637 VI. Fifth Amendment
Having addressed Plaintiffs' First Amendment claims, the Court now turns to the central issue in this case whether or not a taking occurred pursuant to the Fifth Amendment and if so, what is the just compensation for that taking.
The Fifth Amendment provides that "private property" shall not be "taken for public use without just compensation." U.S. CONST., amend. V. To prove an unconstitutional taking, Plaintiffs must first establish that a cognizable property right exists in the thing taken in this case the interest earned on client funds placed in IOLTA accounts. See Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124-25, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978). The United States Supreme Court determined that the interest income held in IOLTA accounts is the "private property" of the owner of the principal. The Court stated:
We express no view as to whether these funds have been "taken" by the State; nor do we express an opinion as to the amounts of "just compensation," if any, due respondents. We leave these issues to be addressed on remand.
Phillips v. Washington Legal Foundation, 524 U.S. 156, 118 S. Ct. 1925, 1934, 141 L. Ed. 2d 174 (1998). Thus the Court must address these issues on remand.
The parties to this cause of action have stipulated, and the United States Supreme Court has recognized, that during the period of this litigation, from 1994 to the present, Texas lawyers were permitted under the IOLTA rules to pool client trust funds into a single account; either a IOLTA or non-IOLTA savings or NOW account that generated net interest for clients. See Pre-trial Order at 7.
"The Fifth Amendment does not proscribe the taking of property; it proscribes taking without just compensation." Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U.S. 172, 194, 105 S. Ct. 3108, 87 L. Ed. 2d 126 (1985). The Court addresses the issue of just compensation first.
A. Just Compensation
Regardless of the Court's determination of whether a taking occurred, the crux of this case rests on the issue of just compensation. "As its language indicates, and as the Court has frequently noted, [the Takings Clause] does not prohibit the taking of private property, but instead places a condition on the exercise of that power. This basic understanding of the Amendment makes clear that it is designed not to limit the governmental interference with property rights per se, but rather to secure compensation in the event of otherwise proper interference amounting to a taking." First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 314-315, 107 S. Ct. 2378, 96 L. Ed. 2d 250 (1987). Of all the terms used in the Takings Clause, "just compensation" has the strictest meaning. The Fifth Amendment does not allow simply an approximate compensation but requires "a full and perfect equivalent for the property taken." Monongahela Navigation Co. v. United States, 148 U.S. 312, 326, 13 S. Ct. 622, 37 L. Ed. 463 (1893).
In determining just compensation, "the question is what has the owner lost, not what has the taker gained." Boston Chamber of Commerce v. Boston, 217 U.S. 189, 195, 30 S. Ct. 459, 54 L. Ed. 725 (1910). The government is not obligated to compensate a property owner for a "loss of theoretical creation, suffered by no one in fact." Id. at 194, 30 S. Ct. 459. "Just compensation" generally means "the full monetary equivalent of the property taken." United States v. Reynolds, 397 U.S. 14, 16, 90 S. Ct. 803, 25 L. Ed. 2d 12 (1970). *638 at 194. In determining the amount of just compensation for a taking, a court seeks to place a claimant "in as good a position pecuniarily as if his property had not been taken." United States v. 564.54 Acres Land, 441 U.S. 506, 510, 99 S. Ct. 1854, 60 L. Ed. 2d 435 (1979) (quoting Olson v. United States, 292 U.S. 246, 255, 54 S. Ct. 704, 78 L. Ed. 1236 (1934)). The Court must calculate any loss objectively and independently of the claimant's subjective valuation. See, e.g., Kimball Laundry Co. v. United States, 338 U.S. 1, 5, 69 S. Ct. 1434, 93 L. Ed. 1765 (1949).
The factual issue before the Court in deciding what award would be needed to place Mr. Summers in as good a position as he would have enjoyed without the alleged taking, is what is the monetary amount of the net interest or net benefit lost by Mr. Summers because his funds were placed in IOLTA. The Court will measure any required compensation by Mr. Summers' loss, not by the government's gain, or in this case the gain enjoyed by the recipients of TEAJF funding.
Plaintiffs argue that the value taken in this case is easily ascertainable. Whatever the amount of interest earned by Mr. Summers' monies, regardless of expenses incurred to generate the interest, is the amount of Mr. Summers' just compensation. Mr. Summers testified at trial that he was no worse off because of IOLTA. Transcript at 136. Additionally, this evaluation would only be appropriate if the Court applies a per se analysis, which the Court declines to do.
Plaintiffs assert in this case that although a client's money placed in an IOLTA account cannot garner net interest without IOLTA it could still tally a net benefit to the client. Plaintiffs assert that the costs that a lawyer must consider when placing funds in her IOLTA account are incorrectly distributed. In determining whether to place funds in an IOLTA account a lawyer is asked to consider internal costs: the expense of the attorney's or law firm's staff time in establishing a separate account; the expense of preparing and filing IRS forms, (1099's); the bookkeeping and accounting expenses for tracking the account; the monthly reconciliation of the account for the client; and, the closing of the account at the bank and remitting the funds to the client. A lawyer is also directed to consider the following external costs: the minimum balance at the bank at which the account is placed; the service charges, if any, assessed against the account by the bank; and other additional fees that the bank may have for investment policies. See Defendants' Exhibit 1.
Plaintiffs argue that the internal costs are costs the lawyer or firm will incur regardless of whether the funds are placed in an IOLTA or non-IOLTA account. Plaintiffs argue that client funds can generate a net benefit to the client when not placed in IOLTA. The Court finds that the testimony at trial established otherwise. There are innate costs to the firm or lawyer in a non-IOLTA account that differ from those in an IOLTA account. The Court carefully considered the various evidence presented at trial regarding infirm pooling, sub-accounting, and the net benefit theory. In light of the evidence before the Court, the Court finds that Mr. Summers did not suffer a compensable loss.
1. In-Firm Pooling
Plaintiffs offered the testimony of Robert Randell at trial. Mr. Randell is an attorney in New York who has established an in-firm pooling method for his own solo practice. Mr. Randell testified that he possesses a computerized system of linked ledger sheets that makes in-firm pooling inexpensive to the lawyer and beneficial to clients. Mr. Randell testified that he places all escrow deposits in a money market account. This includes corporate funds which cannot be placed in a NOW account unless the interest is paid to a charitable organization. Mr. Randell makes no initial determination whether the *639 money is capable of earning net interest on its own, but places all client monies in the same fund. See Transcript 142-154. Plaintiffs offered Exhibit 24 which shows two accounts belonging to Mr. Randell's clients. This evidence illustrates Mr. Randell's method of calculating interest and fees. Mr. Randell testified that after the bank notifies him of the interest earned on the account, he apportions the interest to each client. He then charges an administrative fee which is about one-half of the interest earned, or in his characterization, one percent of the client's interest plus principal. Mr. Randell testified that he rarely has the funds of more than six clients in his account. He also testified that in his own practice there are times when he does not place client funds in an interest-bearing account because it is too little money or for too short a period of time to gain a net benefit for the client.
The Court finds that Texas lawyers can make benefit of this process if it earns net interest for the clients. In fact, to do so is mandated by IOLTA. Tx. R. EQUAL ACCESS RULE 4B (West 1999). However, the funds described in Mr. Randell's in-firm pooling scenario are funds that in most cases would earn a net benefit for the client without in-firm pooling. Moreover, Mr. Randell's allocation of the administrative fee by percentage of the client's money changes the ultimate determination of net interest. Seemingly, the administrative costs of allocating $2000 should not be less than those for the of allocation $200,000. In Mr. Randell's scheme, the larger dollar amounts in his "pool" in effect pay the costs for the smaller amounts and allow those smaller amounts to earn interest. There may be net interest on the smaller accounts but only at a loss to the larger. This system would only affect a small percentage of money that otherwise would be placed in IOLTA and fails to address small amounts of money held for short periods of time that could not earn interest at all. Mr. Randell's unique situation, where he deals with a small number of transactions, larger amounts of money, and over lengthy time periods is not illustrative for purposes of any determination regarding IOLTA. IOLTA requires the attorney to make an initial determination of whether the client funds can earn net interest. In cases where the funds can earn net interest, the attorney is to place the funds in an appropriate financial product. Only in such cases would Mr. Randell's in-firm pooling arrangement be feasible. Even in these cases, Mr. Randell is subsuming the bank's role in an effort to generate an added administrative fee for his practice, albeit with the agreement of his clients. Added to this, Mr. Randell must prepare the 1099 forms for each client earning in excess of $10 in interest. Moreover, Mr. Randell's system is not a demand account as mandated by the rules of ethics. TEX. DISCIPLINARY R. PROF. CONDUCT 1.14, reprinted in TEX. GOV'T CODE ANN., tit 2, subtit. G app. A (Vernon's Supp.1998) (TEX. STATE BAR R. ART. X, § 9). The Court finds that Plaintiffs have failed to establish that Mr. Summers' monies could earn net interest if placed in an infirm pooled account.
2. Sub-accounting[7]
Plaintiffs offered evidence at trial in an effort to establish that client monies could earn net interest through sub-accounting practices. Sub-accounting is a banking product where an entity such as a law firm opens a master account in its name and a linked sub-account for each client for whom the firm is holding funds. Defendants' Exhibits 42 and 43. These sub-accounts are interest bearing accounts *640 with the interest rate aligned with that earned in a money market account. In the Chase Client Funds Account, which Plaintiffs offer as an example of the service, the bank provides a monthly report to the attorney or firm tracking every disbursement, and interest earned in each sub-account. The bank also prepares IRS 1099 forms at the end of the year for each sub-account. Chase advertises this product as "specifically suited to high balance, low activity, escrow funds management." The monthly fee is $21.00 if the balance is below $5,000; $15 if the balance is between $5000 and $14,999; and $10 if the balance is between $15,000 and $39,999. Additionally, the bank charges activity fees for almost all transactions. These fees vary from $.20 for a deposited check to $25.00 for a daily report by fax on five accounts. The evidence establishes that the Citibank sub-accounting product charges similar fees, but that Citibank offers a no fee business account as long as the average balance exceeds $1000. However, it is not clear from the evidence offered at trial the terms and conditions of this particular type of account.
Mr. Randell testified as to the availability of bank sub-accounting products in the state of New York. See Plaintiffs' Exhibits 21, 22, and 23. These exhibits are advertisements demonstrating the availability sub-accounting products in New York by Chase and Citibank. None of these advertisements discuss the costs of sub-accounting products. Mr. Randell further testified that nothing in the IOLTA rules prohibits the use of bank sub-accounting products. Transcript at 179. On cross-examination, Mr. Randell testified that with regard to the sub-accounting products offered by Chase, if the client account is zero for ten consecutive days, the account would be closed and the interest forfeited. Transcript at 184; Defendants' Exhibit 42, Terms and Conditions for Business Accounts and Services at 16.
A lawyer using this product is limited to three withdrawals by check per month and may make an additional three transfers by telephone, computer, pre-authorized third party payments, and pre-authorized transfers to another account. Transactions exceeding these limits are charged banking fees. There is no limit on the number of withdrawals or transfers made; in-person, by mail, by messenger, or at an ATM.
Claude Ducloux, a solo practitioner from Austin Texas, testified about the operation of his IOLTA account. Mr. Ducloux testified to the following: that IOLTA costs to an individual attorney operating an IOLTA account are zero, see Transcript at 269-270; that on average he keeps the funds of 20-30 clients in his account in the amount of $20,000 to $30,000; that he keeps most of the client funds in the account for 30 to 60 days and garners an interest rate of 72 hundredths of one percent, Transcript at 272; that his IOLTA account earns less than $15 in interest per month; that transactional fees and internal costs in his own time would make apportioning this $15 interest among his 25 clients a net loss; that in the month of August 1999 he had a net interest of $10 on the $32,000 in his non-IOLTA firm account and bank charges of $12.
Ducloux also testified to the following: that for sub-accounting to be feasible for his use the product would have to be free and that would not take into account his time spent reconciling the account; that included in his expenses of allocating interest would be determining the date the check clears, the interest rate, deductions for any transactions using the client money, and recalculations of interest, Transcript at 277; that if in-firm pooling software were available he would still have the costs of buying the software and inputting the data; and that it requires five minutes for him to reconcile his IOLTA account each month.
Plaintiffs assert that reconciliations like Mr. Ducloux's still have a cost and that cost is passed on to the client. Dean Frank Newton testified that many Texas firms do not consider their own overhead *641 when determining whether to place funds in IOLTA. Transcript at 223. Therefore some funds are not placed in IOLTA that theoretically should be placed in IOLTA under the rules. Dean Newton also testified that prior to the institution of IOLTA, these same funds did not earn interest. Transcript at 217.
Karen Neeley, general counsel for the Independent Bankers' Association of Texas testified that banks in Texas are not offering sub-accounting because such products are too expensive for the banks. Transcript at 331. Ms. Neeley testified to the following: that it is time consuming for banks to set up each sub-account; that bank charges are generally on the increase, Transcript at 336; that in her opinion, in many cases the use of sub-accounting would result in a net of less than zero, Transcript at 343; and that the termination of the IOLTA program would not result in the advent of sub-accounting availability in Texas, but the pre-1984 status quo where lawyers' trust accounts earned no interest.
Ms. Neeley also testified to the following: that a demand account may not offer interest; that a NOW account and a savings account are not demand accounts, Transcript at 360; and that many banks waive fees for IOLTA accounts, but that some banks still charge these fees. Transcript at 362.
Mr. Bruce Buell, a solo practitioner from Colorado with a specialization in banking and trust and estate law testified that after NOW accounts were authorized in 1980, the IRS ruled that if interest earned on NOW accounts went to IOLTA there was no tax liability for individual clients. This was because the client had no authority to determine where the money was allocated.
Mr. Buell also testified that under the current IOLTA program attorneys can place client monies that they determine cannot earn net interest in an IOLTA account or, if the attorney determines that the client's money can earn net interest, in a separate NOW account, separate savings account, in-firm pooling, or sub-account. Transcript at 384-86.
Mr. Buell also testified to the following: that in his opinion, sub-accounting is appropriate only for higher balance accounts with less activity, Transcript at 389; that IOLTA accounts are cheaper in bank service charges and cost less in attorney time than non-IOLTA accounts, Transcript at 401; that in IOLTA accounts, the TEAJF pays the service and maintenance fees so there is no charge to the attorney, Transcript at 397; that generally banks do not require minimum balances on IOLTA accounts, there are no restrictions on transfers or withdrawals, and that there is one monthly reconciliation, Transcript at 398; that sub-accounts will have maintenance and service fees, minimum balances, restrictions on transfers and withdrawals, and monthly reconciliations for the master account and each sub-account; that the man-hour time in reconciling the accounts as well as tracking transfers would be significant, Transcript at 399; and that separate accounts for each client would be more expensive that sub-accounts, but that the costs in man hours for the attorney would be similar. Transcript at 400.
Lastly, Mr. Buell testified that the costs to the lawyer of maintaining a sub-account are much greater than those of maintaining an IOLTA account. Therefore, the costs of maintaining an IOLTA account are not passed to the clients, while the costs or maintaining a sub-account would. Transcript at 418. Moreover, Mr. Buell testified that since the TEAJF bears the costs of maintaining IOLTA accounts, these accounts are less expensive to administer than other alternatives. Transcript at 396.
The Court finds that the costs of sub-accounting in lawyer and staff hours and in addition to bank charges exceed the costs of IOLTA. These costs make net interest to clients infeasible except in cases where large sums of money are held or when client funds are held for long periods of *642 time. In these cases, the client funds would not be placed in IOLTA. Therefore, the Court finds that Plaintiffs' have failed to establish through the evidence before the Court that Mr. Summers' funds could theoretically earn net interest in a sub-account.
3. Net Benefit Theory
Plaintiffs offer the theory that even if Plaintiffs' money cannot generate net interest for the client, the money can attain a net benefit for the client. This theory is difficult to fathom, but in a nutshell is that by decreasing the lawyer's costs through use of the client's money, the client will benefit. Although this may be true to an extent, this option is generally foreclosed by Cannon 11 of the Canon of Professional ethics, See Plaintiff's Exhibit 16, and specifically by the applicable ethical rules.
Canon 11 provides:
A lawyer should refrain from any action whereby for his personal benefit or gain he abuses or takes advantage of the confidence reposed in him by his client. Money of the client or collected for the client or other trust property coming into possession of the lawyer should be reported and accounted for promptly, and should not under any circumstances be commingled with his own or be used by him.
Texas State Bar Rule of Professional Conduct 1.14 provides:
(a) A lawyer shall hold funds and other property belonging in whole or in part to clients or third persons that are in the lawyer's possession in connection with a representation separate from the lawyer's own property. Funds shall be kept in a separate account, designated as a "trust" or "escrow" account, maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person. Other client property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of [five years] after termination of the representation.
(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
TEX. DISCIPLINARY R. PROF. CONDUCT 1.14, reprinted in TEX. GOV'T CODE ANN., tit 2, subtit. G app. A (Vernon's Supp.1998) (TEX. STATE BAR R. ART. X, § 9). The Comment to this Rule reads:
A lawyer should hold property of others with the care required of a professional fiduciary.... All property which is the property of clients or third persons should be kept separate from the lawyer's business and personal property and, if monies, in one or more trust accounts....
The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction.
Id. The Court finds that allowing attorneys to benefit from their clients' trust accounts, even if they pass this benefit on to clients, would qualify as an ethical violation. Therefore, the Court must discount Plaintiffs' argument regarding net benefit.
More importantly, the Court finds that Plaintiffs' arguments about "net benefit" and theoretical costs are made somewhat in a vacuum. Plaintiff's have failed to present any evidence that Mr. Summers' money, either the $1000 or the $250, did *643 and could generate net benefit or net interest if not for IOLTA. Plaintiffs failed to establish an actual number denominating Mr. Summers' loss. With regard to this case and Mr. Summers' monies, Plaintiffs have failed to carry their burden of proof. Although this case turns on endless abstractions and near impossible mathematical conclusions it is without doubt that at a minimum Plaintiffs must present evidence to this Court that Mr. Summers is materially worse off because of IOLTA. At trial Mr. Summers testified that he is no worse off because of IOLTA. Transcript at 136.
The main source of net interest derived from IOLTA is generated by corporate and partnership monies which are disallowed from earning interest by federal banking law. Mr. Summers' money, since this Court has determined that it indeed belongs to him, is not the type of money from which IOLTA derives a great benefit. In fact, it is entirely possible, that Mr. Summers' money, placed in an IOLTA account, derived a negative benefit to IOLTA. See Testimony of Frank Newton at Transcript 225 (stating that 46-47% of IOLTA accounts cause TEAJF to lose money and that TEAJF pays negative fees). Plaintiffs fail to challenge 12 U.S.C. § 1832(a) and 12 C.F.R. § 204.130 (1997), which without a doubt, make possible and provide the greatest source of income for IOLTA.
The Court finds, based upon the evidence before the Court regarding in-firm pooling and sub-accounting, that without IOLTA the interest generated by Mr. Summers' principal would possess no economically realizable value. Plaintiffs have failed to present evidence of a loss. The Court finds that, based upon all the evidence before it, Mr. Summers's loss is zero. The Court finds that with regard to the Plaintiffs' net benefit theory, Plaintiff's loss is also nothing. Even if the Court accepted Plaintiffs' theory, Plaintiffs failed to establish how and in what amount this "net benefit" would be passed on to clients. Without an identifiable compensable loss, the Court finds there has been no taking without compensation in violation of the Fifth Amendment.[8] Accordingly Plaintiffs' Fifth Amendment claims fail. However, as directed by the Supreme Court and the Fifth Circuit Court of Appeals, this Court will go on to address the related issue of whether a taking has occurred.
B. Has a Taking Occurred?
1. Per Se Analysis v. Ad Hoc Analysis
The United States Supreme Court has distinguished two general categories of takings: per se takings and regulatory takings. Government action that deprives property owners of all productive use of their property or physically invades property boundaries is often determined to be a per se or categorical taking. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S. Ct. 3164, 73 L. Ed. 2d 868 (1982). If a government regulation is not considered a per se taking, this Court must still consider whether a regulatory taking has occurred by considering three different factors: 1) the severity of the economic impact on the takings claimant; 2) the extent to which the regulation interferes with investment-backed expectations; and 3) the character and benefits of the government regulation. Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978). The panel's opinion in the instant case gave no explicit indication whether the court viewed the case as a regulatory or per se takings case. Washington Legal Foundation v. Texas Equal Access to Justice Foundation, 106 F.3d 640, 645 (5th *644 Cir.1997) (Benavides, J., dissenting from decision to failure to grant rehearing en banc). Thus, this Court must determine whether to apply a per se or regulatory analysis with limited guidance from the higher courts.
Plaintiffs argue that a per se takings analysis is applicable when the government invades or appropriates private property. Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 427, 102 S. Ct. 3164, 73 L. Ed. 2d 868 (1982); Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 112 S. Ct. 2886, 120 L. Ed. 2d 798 (1992); Kaiser Aetna v. United States, 444 U.S. 164, 100 S. Ct. 383, 62 L. Ed. 2d 332 (1979). Plaintiffs further maintain that a per se analysis is appropriate when, as in this case, the property in issue is money. Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980). Plaintiffs also assert a related argument that a per se taking has occurred because Plaintiff has lost the right to exclude others from making beneficial use of his property.
Defendants maintain that per se analysis is inappropriate in this case and that the "ad hoc, factual" takings inquiry set forth in Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978), should apply. Defendants assert that Loretto and Kaiser Aetna relate to the permanent physical invasion of real property. They further argue that appropriation of money does not qualify as a physical appropriation of property since money is fungible, "unlike real or personal property." United States v. Sperry, 493 U.S. 52, 62 n. 9, 110 S. Ct. 387, 107 L. Ed. 2d 290 (1989).
Defendants further contend that the Supreme Court did not apply a per se takings analysis in Webb's Fabulous Pharmacies and that the balancing of interests in that case was inconsistent with a per se takings analysis. Defendants argue that the takings claims succeeded in Webb's not because the Court applied a per se test, but because the state offered no reasonable basis to support the monetary analysis.
The Court finds that Defendants are correct and that Loretto, Lucas, and Kaiser Aetna all differ from this case because those cases involve the physical invasion of real property. The Court finds that Plaintiff's related right to exclusion claim fails because the cases he relies on for that proposition all deal with real property, and this case deals with money, which is fungible. Sperry, at 62 n. 9, 110 S. Ct. 387. Therefore, Plaintiffs cannot rely on the real property cases to establish that a per se analysis is applicable here. However, Plaintiffs assert that this differentiation between cases where a per se analysis is applied from those in which an ad hoc analysis is applied, fails to explain the Supreme Court's holding in Webb's Fabulous Pharmacies[9]. Plaintiffs assert that Webb's did not involve real property and yet the Court applied a per se analysis. This Court begins with analysis of Webb's, since the Supreme Court relied on that case in determining that Plaintiffs possess a property interest in the interest generated by funds placed in IOLTA accounts. Phillips v. Washington Legal Foundation, 524 U.S. 156, 118 S. Ct. 1925, 1934, 141 L. Ed. 2d 174 (1998).
In Webb's, the Supreme Court found that a Florida statute, allowing a Florida county to take the interest generated by an interpleader fund as its own, when that county charged a separate fee for the clerk's services in receiving the fund into the registry, was violative of the Fifth Amendment. Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 156, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980). The appellant in that case filed an interpleader action in Florida state court and tendered the sum at issue, nearly $2 million, to the court. In addition to deducting $9,228.74 from the interpleader fund as a fee "for services rendered," the clerk of court also retained the more than $100,000 in interest income generated by the deposited funds. *645 Id. at 157, 101 S. Ct. 446. The Supreme Court held that the statute authorizing the clerk to confiscate the earned interest violated the Takings Clause. Id. at 164, 101 S. Ct. 446. The Supreme Court stated, "a State by ipse dixit, may not transform private property into public property without compensation" simply by legislatively abrogating the traditional rule that "earnings of a fund are incidents of ownership of the fund itself and are property just as the fund itself is property." Id. The Court distinguished "confiscatory regulations" from "those regulating the use of property" and stated that "a State may not sidestep the Takings Clause by disavowing traditional property interests long recognized under state law." See id., at 163-164, 101 S. Ct. 446; see also Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1029, 112 S. Ct. 2886, 120 L. Ed. 2d 798 (1992).
In this case, the Court finds IOLTA does not qualify as a confiscatory regulation of Mr. Summers' property. Distinguishable from Webb's, the instant case is one where the client's money cannot be placed in an IOLTA fund unless it cannot earn interest elsewhere. TX. R. EQUAL ACCESS RULE 4B, 6 (West 1999). In Webb's, there was net interest in issue. Webb's at 163, 101 S. Ct. 446. Net interest could have been earned on that money regardless of whether it was interpleaded into the court or held in a private bank account. In this case the legislative and regulatory framework makes net interest impossible outside of the context of IOLTA; but for IOLTA, the money necessarily would lie fallow.
The monetary interest at issue in Webb's arose out of the operation of a specific, separately identifiable fund of money, from which the government collected a fee. See Eastern v. Apfel, 524 U.S. 498, 118 S. Ct. 2131, 2134, 141 L. Ed. 2d 451 (1998). In Webb's net interest was extant even after the applicable fees were subtracted from the principal. In this case, the costs of generating interest exceed the interest a client could earn, or by definition the funds would not be placed in IOLTA. On this basis the instant case is easily distinguishable from Webb's. In the instant case there is no money to confiscate outside the mechanisms which make IOLTA possible, therefore it cannot qualify as a confiscatory taking.[10]Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980).
The Supreme Court stated in Phillips, "[a]s to the principal, then the IOLTA rules at most `regulate the use of the property'" Phillips, 118 S.Ct. at 1930 (citing Yee v. City of Escondido, 503 U.S. 519, 522, 112 S. Ct. 1522, 118 L. Ed. 2d 153 (1992)). The Court finds that this case is one in which the interference with property cannot be characterized as a physical invasion by the government. Plaintiffs claimed interference clearly stems from "some program adjusting the benefits and burdens of economic life to promote the common good." Penn Central, 438 U.S. at 116-118, 98 S. Ct. 2646. Therefore, the Court finds that the ad hoc analysis consistent with a claims of a regulatory taking is applicable.
Government regulation often "curtails some potential for the use or economic exploitation of private property," Andrus v. Allard, 444 U.S. 51, 65, 100 S. Ct. 318, 62 L. Ed. 2d 210 (1979), and "not every destruction or injury to property by governmental action has been held to be a `taking' in the constitutional sense," Armstrong v. United States, 364 U.S. 40, 48, 80 S. Ct. 1563, 4 L. Ed. 2d 1554 (1960). *646 "In light of that understanding, the process for evaluating a regulation's constitutionality involves an examination of the "justice and fairness" of the governmental action." Eastern Enterprises v. Apfel, 118 S.Ct. at 2146. "That inquiry, by its nature, does not lend itself to any set formula." Id. The determination is essentially ad hoc and fact intensive. Kaiser Aetna v. United States, 444 U.S. 164, 175, 100 S. Ct. 383, 62 L. Ed. 2d 332 (1979). The Supreme Court has identified several factors that have particular significance: "the economic impact of the regulation, its interference with reasonable investment backed expectations, and the character of the governmental action." Penn Central, 438 U.S. at 124, 98 S. Ct. 2646.
2. Applying the Ad Hoc Analysis
The Court now considers: 1) the economic impact of the regulation; 2) the extent of interference with "distinct investment backed expectations"; and 3) the nature of the governmental action. Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978).
Defendants argue that at most, the Texas IOLTA Program has no impact on the client principal or interest. Defendants argue that since the client could not have earned net interest absent IOLTA, there is no economic impact on the client, Mr. Summers. Plaintiffs assert that the economic impact factor tips in their favor, because IOLTA expropriates 100% of the interest earned on IOLTA. The Court finds that the costs of administering the money placed in a non-IOLTA account exceed those in an IOLTA account. These costs would subsume the interest earned if not for IOLTA. The client's funds would be unable to generate net interest absent IOLTA. Therefore the economic impact of the regulation on Plaintiffs is nill. Moreover, in the absence of IOLTA, the money would necessarily generate no interest for anyone but the banks. See 12 U.S.C. § 1832(a); see also TEX. DISCIPLINARY R. PROF. CONDUCT 1.14(b), reprinted in TEX. GOV'T CODE ANN., tit 2, subtit. G app. A (Vernon's Supp.1998) (TEX. STATE BAR R. ART. X, § 9).
Defendants further argue that Plaintiffs have no reasonable, investment-backed expectation in the interest earned on principal placed in IOLTA. This is because, Defendants argue, if the Plaintiffs' funds could earn interest outside of IOLTA the funds should not be placed in IOLTA. Therefore any expectation of interest could only be created by IOLTA itself and would disappear without IOLTA. However, Plaintiffs note in Webb's that the Court found a compensable taking had occurred despite the fact that the parties in that case had no right to insist that the court holding the interpleaded funds invest the money. The Court found that, once the funds were invested, the owner of the principal owned the interest. Once again, this Court distinguishes Webb's based on the fact that net interest was in issue that could have been earned regardless of whether the funds were held by the court or by the owner. In this case, Plaintiffs cannot hold a legitimate investment-backed expectation of interest when funds placed in IOLTA cannot by definition earn net interest.
Defendants further assert that IOLTA is a beneficial government program which by regulation transfers the benefit (the "use value") of funds unable to earn interest outside of IOLTA from banks to TEAJF in order to provide legal services to the poor. Plaintiffs respond that the character of the government action, in this case the expropriation of money, suggest that the IOLTA program constitutes a compensable taking. Plaintiffs argue that they have been unfairly singled out by the government to bear a burden they had no role in creating. Eastern Enterprises v. Apfel, 524 U.S. at 520, 118 S. Ct. 2131.
Plaintiffs in the instant action cannot maintain they are being unfairly singled out to bear a burden, when they are in fact bearing no burden at all. The IOLTA program costs Plaintiffs nothing. The governmental action in this case does not implicate fundamental principles of "justice *647 and fairness" because there is no cost to Plaintiffs. Id.
Employing an ad hoc analysis, and applying the fundamental principles of justice and fairness the Court finds that a taking has not occurred. The IOLTA Program is not in any way unfair to Plaintiffs. "It cannot be said that the Takings Clause is violated whenever legislation requires one person to use his or her assets for the benefit of another." Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 223, 106 S. Ct. 1018, 89 L. Ed. 2d 166 (1986). Therefore, Plaintiffs' Fifth Amendment claims fail on this additional basis.
IT IS THEREFORE ORDERED ADJUDGED AND DECREED that all Plaintiffs' claims against all Defendants in this cause of action are hereby DISMISSED WITH PREJUDICE.
IT IS FURTHER ORDERED that this cause of action is CLOSED and that all pending motions are hereby DENIED AS MOOT.
NOTES
[1] This case was dismissed in 1998 for want of prosecution. Transcript at 56.
[2] Plaintiffs assert that the Fifth Circuit's opinion that the grant of summary judgment was reversed in its entirety and therefore Plaintiffs' First Amendment claims have been fully revived. See Plaintiffs' Motion for Summary Judgment at 11.
[3] Plaintiffs have abandoned their claim that Mr. Mazzone's First Amendment rights are being violated by mandatory participation in IOLTA. See Trial Transcript at 51.
[4] The Court notes the Defendants' contention that an attorney and client may both avoid placing funds in IOLTA by "creative" structuring of the financial relationship. Mr. Mazzone required that Mr. Summers pay a retainer but he could have chosen an alternative form of payment.
[5] The TEAJF submits that no IOLTA funds were earmarked for this litigation and that TEAJF restricts the use of IOLTA money through the terms of the grant.
[6] The Court is prepared to determine if the IOLTA program is narrowly tailored to the compelling state interest of making legal services accessible to all citizens. However, the parties seem to have abandoned any claims of this nature. See Parties' Agreed Pre-Trial Order. The Court finds that IOLTA is a content neutral program. See Plaintiffs' Motion for Summary Judgment at 17. Therefore an intermediate level of scrutiny is applicable. United States v. O'Brien, 391 U.S. 367, 377, 88 S. Ct. 1673, 20 L. Ed. 2d 672 (1968). In this case, it seems clear that IOLTA furthers an important government interest, unrelated to the suppression of free speech, and the incidental burdens on First Amendment freedoms is no greater than is essential to the furtherance of that interest. Id. The government's interest in making legal services accessible would be achieved less effectively absent the existence of IOLTA. Ward v. Rock Against Racism, 491 U.S. 781, 791, 109 S. Ct. 2746, 105 L. Ed. 2d 661 (1989).
[7] The parties presented a multiplicity of evidence at trial in an effort to determine whether sub-accounting is in fact available in Texas. The Court finds that at this point in time sub-accounting is not available in Texas. See Testimony of Karen Neeley and Frank Newton. However, a lawyer could in theory, and with his client's agreement, open a sub-account outside of Texas. See Transcript at 209. Nevertheless, the Court finds that this issue is irrelevant to this cause of action.
[8] Although the Plaintiffs are only requesting declaratory and injunctive relief, they must still prove that a taking occurred "without just compensation" in order to establish a violation of the Fifth Amendment, which is a prerequisite to relief. First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304, 314-315, 107 S. Ct. 2378, 96 L. Ed. 2d 250 (1987).
[9] Webb's was decided before the Supreme Court articulated the per se test.
[10] The test the Court applied in Webb's, arguably the case most on point with the instant case, seems to fall somewhere in between a per se and regulatory ad hoc analysis. Plaintiffs seemingly acknowledge this and offer a new, three-prong test for this Court to apply. The Court declines to do so. The articulation of a new test in the area of takings law is a task better left to a higher Court. However, the Court could find that even applying a hybrid test Plaintiff's claims would fail. The exaction in this case does not go to general government revenues, but is earmarked to legal services and this cost is reasonably related to the costs of using a lawyer. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2429608/ | 154 F. Supp. 2d 360 (2001)
Charles WELLNER, Plaintiff,
v.
TOWN OF WESTPORT and Town of Westport Police Department, Defendants.
No. 3:99 CV 2070 GLG.
United States District Court, D. Connecticut.
August 8, 2001.
Thomas W. Bucci, Willinger, Shepro, Tower & Bucci, Bridgeport, CT, for Plaintiff.
Stephen P. Fogerty, Halloran & Sage, Westport, CT, for Defendants.
MEMORANDUM DECISION
GOETTEL, District Judge.
Plaintiff moves to reargue this Court's granting of summary judgment to the defendant. The defendant filed its motion for summary judgment in late April of this year. When no opposition had been received by July 6, 2001, the motion was granted in the absence of opposition. Plaintiff's counsel states that he had not opposed that motion because he had misdiaried the return date. A mistake in diarying might account for a one month mistake but more than two months passed here. However, since defense counsel has graciously agreed not to oppose the request for re-argument and to allow the *361 motion to be considered on the merits, we will proceed to consider the original motion with the now submitted opposition.
BACKGROUND
The following facts are not in dispute:
1. The plaintiff was born on December 14, 1942 in Bridgeport, Connecticut.
2. The plaintiff was employed by the City of Norwalk Police Department as a police officer from Jul. 22, 1976 until Jan. 6, 1993.
3. The plaintiff resigned from employment with the City of Norwalk Police Department on Jan. 6, 1993.
4. During his employment with the Norwalk Police Department, the plaintiff sustained a back injury. He was ascribed a 21% permanent partial disability by Dr. Polifroni, his treating orthopedist.
5. The plaintiff was hired as a Traffic Agent by the Town of Westport Police Department in 1996.
6. On or about February of 1998, the plaintiff applied for the position of Special Police Officer with the Town of Westport Police Department.
7. The Town of Westport Police Department employs Traffic Agents, Special Police Officers, and Police Officers. Generally, the employment track follows the course of Traffic Agent to Special Police Officer to Police Officer. An applicant must work for at least a year as a "traffic agent" before applying for a position as a Special Police Officer. (Special Police Officers work only part-time taking overtime jobs that regular police officers reject.) Regular police officers are hired only from the ranks of Special Police Officers.
8. Plaintiff was extended a conditional offer subject to a polygraph test, a psychological examination, and a background check.
9. Detective Batten conducted the background check of the plaintiff.
10. That background investigation revealed several alleged incidents which Chief Chiarenzelli, chief of the Westport Police Department, states that he found disturbing, including plaintiff's lying to a superior officer, completing a false application, sleeping on the job, smoking marijuana, and undergoing a physical agility test at the Bridgeport Police Department while under disability leave at Norwalk Police Department.
11. After a conference with other employees of the Police Department, Chief Chiarenzelli recommended not offering the Special Police Officer position to the plaintiff because of the events revealed by the background investigation.
12. The only fact upon which the plaintiff bases his retaliation claim is a discussion he had with Chief Chiarenzelli about the plaintiff's prior Commission on Human Rights and Opportunities ("CHRO") filings.
13. The plaintiff is physically qualified to perform the functions and tasks of a Special Police Officer.
14. Dr. Polifroni stated that the plaintiff could perform the job duties of a Special Police Officer.
15. The plaintiff has been certified as a police officer by the Police Officers Standards and Training Council.
16. After the plaintiff was not recommended for the position of Special Police Officer, he continued to work for a time as a Traffic Agent.
17. The plaintiff voluntarily requested a leave of absence from the Town of Westport in 1998 and was granted that leave. The plaintiff has not returned to work as a Traffic Agent since then.
*362 DISCUSSION
Plaintiff contends that the defendants have known of the information they allegedly relied upon in rejecting his application for employment as a Special Police officer since the time he applied to be a traffic agent. It appears that the defendants were aware of the problems the plaintiff had when he was a police officer in Norwalk from the City of Norwalk personnel files. Other information clearly was not possessed earlier, such as the defendants' knowledge of plaintiff's discrimination complaints filed against other police departments. Defendants have annexed to their moving papers affidavits of the other employees of the police department consulted by the Chief as well as a score of pages of reports detailing the results of the investigation performed in 1998. No contention is made by plaintiff that these documents are not authentic. While plaintiff contests the accuracy of some of the reports, the issue is not whether they were correct but, rather, whether defendant relied on them in not recommending plaintiff for the position.
Plaintiff claims that, although he does not have a disability which would significantly restrict his ability to perform as a police officer, the defendants believe that he has such a disability. Plaintiff also claims that the defendants are retaliating against him because of the various claims he has previously filed against other police departments which refused to employ him. Neither of these claims is persuasive.
1. Disability
The Americans with Disabilities Act ("ADA"), 42 U.S.C. §§ 12101-12213 (1995), defines disability as "a physical or mental impairment that substantially limits one or more of the major life activities" of an individual. 42 U.S.C. § 12102(2)(A). An individual is also considered disabled under the statute if he or she has a record of having such an impairment or is so regarded. 42 U.S.C. § 12102(2)(B), (C). Plaintiff takes the curious position that his back impairment would not prevent him from performing the strenuous functions of a police officer but does significantly impair his ability to recreate and socialize. He claims that recreation and socializing are major life activities. We will readily concede that a back ailment (one of the most common of human afflictions) can impair certain recreational activities (such as golf) and certain social activities (such as sexual intercourse) but not prohibit them. Recreation and socializing are not considered major life activities. See Colwell v. Suffolk County Police Dep't, 158 F.3d 635, 642-43 (2d Cir.1998), cert. denied, 526 U.S. 1018, 119 S. Ct. 1253, 143 L. Ed. 2d 350 (1999). The implementing regulations define "major life activities" as "functions such as caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working." 29 C.F.R. § 1630.2(i) (2000); see also Sutton v. United Air Lines, Inc., 527 U.S. 471, 480, 119 S. Ct. 2139, 144 L. Ed. 2d 450 (1999).
In addition, it does not appear that the defendants regarded plaintiff's back problem as being disabling. They had received medical documentation and State approval of plaintiff's physical qualifications. He was already performing satisfactorily as a traffic agent and would have continued as such had he not resigned. The evidence is overwhelming that the decision not to offer him the position as a Special Police officer was due to the adverse information obtained on the background check.[1] Reports *363 of lying to a superior officer, using illegal drugs, completing false applications, and undergoing a physical agility test for one city police department while on disability leave from another department do not commend a person for appointment to a job requiring high moral standards, such as a police officer. Therefore, we find that the plaintiff has failed to make out a prima facie claim under the ADA.
2. Retaliation
Plaintiff maintains that the defendants retaliated against him because he had filed charges of employment discrimination against other police departments.[2] The Police Chief acknowledged concern over these matters since it could impair his ability to discipline the plaintiff because of fear of being sued by him. That raises an interesting and apparently novel question of law. May a prospective employer consider the litigious nature of an employment applicant where some of his earlier complaints have involved claims of employment discrimination? It becomes particularly controversial where the applicant seeks to join an organization requiring fairly strict disciplinary obedience.
We decline to decide that issue in a vacuum. In this case, there were sufficient other grounds for not hiring the plaintiff that the possible impact of his earlier discrimination complaints can not be considered a legal cause of the adverse employment action.
CONCLUSION
The plaintiff's motion for reconsideration [Doc. # 15] is GRANTED. After considering the merits of the Defendant's motion for summary judgment [Doc. # 11], the Court adheres to its earlier granting of the motion.
The Clerk will enter judgment for the defendant.
SO ORDERED.
NOTES
[1] The plaintiff maintains that these claimed reasons could not be genuine since he was not advised of their significance until after he filed an administrative complaint with the CHRO. By now, employers have learned that if they disclose adverse facts concerning prospective employees, they will be sued not only for employment discrimination but also for defamation.
[2] Plaintiff lost some of these suits, including two against the Town of Weston, and settled others. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449485/ | 615 S.W.2d 184 (1981)
EL PASO NATIONAL BANK et al., Petitioners,
v.
SHRINERS HOSPITAL FOR CRIPPLED CHILDREN et al., Respondents.
No. B-8999.
Supreme Court of Texas.
April 1, 1981.
Rehearing Denied June 3, 1981.
Mark White, Atty. Gen., Amie Rodnick, Asst. Atty. Gen., Austin, Brandon C. Janes and William T. Kirk, El Paso, for petitioners.
Gade & Schwarzback, Thor G. Gade, El Paso, Joel William Ellis, Harlingen, for respondents.
GREENHILL, Chief Justice.
This is a will construction case.
The wills of Mamie F. and Cesle C. Dues, husband and wife, contain similar provisions. *185 For purposes of this opinion, they will be considered one. The will and codicil created a charitable trust to be administered by the El Paso National Bank.
Among other things, the will and codicil provided that the trustee should have sole discretion in the distribution of the income of the trust for charitable, scientific, or educational purposes.[1]
They also provided that "in so far as practicable, that the property of the foundation be primarily used for crippled children's work in El Paso, Texas, and the State of Texas" by agencies of the Elks and Shriners.
Because of the creation of a charitable trust, the Attorney General of Texas was made a party.
Upon the trial of the case, evidence was introduced. The judgment of the trial court states that the trust (or foundation) "was created for the exclusive benefit of the Shriners' Hospital and the Elks Foundation," and that the Shriners and Elks "are entitled to receive all the net annual income... on an equal (50-50) division ...."
In response to requests for findings of fact, the trial court found, "at the conclusion of the trial, all parties agreed that there was no fact issue to be determined by the court. Accordingly no findings are necessary." All parties agree that the will is not ambiguous.
The Attorney General and the trustee bank appealed. They brought forward no statement of facts.
The Court of Civil Appeals concluded that because evidence was admitted, and there was no statement of facts, the judgment of the trial court must be sustained. It affirmed the judgment of the trial court. 588 S.W.2d 411. We disagree; and accordingly, we reverse.
This Court has held that an unambiguous will must be construed as written, and within the four corners of the instrument. Frost National Bank of San Antonio v. Newton, 554 S.W.2d 149 (Tex.1977). The intent must be drawn from the will, not the will from the intent. Huffman v. Huffman, 161 Tex. 267, 339 S.W.2d 885 (1960).
When words are capable of more than one meaning, evidence is admissible on the intent of the testator in using the words. In Stewart v. Selder, 473 S.W.2d 3 (Tex.1971), the testatrix devised "cash" to a certain beneficiary. The question was whether "cash" included stocks and bonds which were readily convertible to cash. The trial court in Stewart concluded that the testatrix intended "cash" to include the stocks and bonds. This Court concluded that since the will did not clearly express the intention of the testatrix, evidence was admissible to determine the sense in which the testatrix used the word "cash." The conclusion reached was that the will was unambiguous and that "cash" did not include stocks and bonds. The opinion stated that "[t]here is no basis then for concluding that the words of the will have anything other than their usual and ordinary meaning." 473 S.W.2d at 10.
There are no dispositive words in this carefully drawn will and codicil which are capable of more than one meaning. The words that the trustee should have "sole discretion" are clear. Similarly the precatory words, "in so far as practicable,... [the] property ... be used primarily" by the Elks and Shriners are also clear. "Primarily" does not mean "exclusively." The will does not mean, as found by the trial court, that the trust income should be used exclusively for the Elks and Shriners.
In a great many instances, unnecessary to detail here, a statement of facts is necessary. One is not necessary here. There is no ambiguity. There are no issues of fact. The trial court and all parties so agreed. There are no dispositive words which are alleged to have different meanings; and only questions of law are involved.
*186 The case of Thornhill v. Elskes, 381 S.W.2d 99 (Tex.Civ.App.Waco 1964, writ ref'd n.r.e.), is in point. It involved the construction of an unambiguous will. As here, the trial court's judgment recited that, among other things, that "having heard the pleadings and the evidence ..., [the court] finds ..."
No statement of facts was brought with the appeal in Thornhill. The court of civil appeals held that none was necessary for the construction of that unambiguous will. An examination of the record in Thornhill shows that two points of error were addressed to the proposition that absent a statement of facts, the appellate court was bound by the judgment of the trial court. The appellate court wrote, "[w]e reject the contention, since ... the construction of the will and codicil is a matter of law." We denied the application for writ of error.
We, therefore, conclude that the trial court erred in its construction of the will and codicil. The Court of Civil Appeals erred in affirming that judgment on the basis of the lack of a statement of facts.
The Trustee Bank has other points asking this Court's approval of its detailed proposed "Foundation Operating Philosophy." This we decline to do. We will not render such an advisory opinion. Rather, we refer it to the will itself. It is to have the discretion set out in the will. The Trustee Bank is, in its discretion, also to give due weight to the portions of the codicil which direct that "insofar as practicable, the property of the Foundation be primarily used for crippled children's work in El Paso County, Texas, and the State of Texas, as conducted by" the Elks and Shriners.
The judgment of the Court of Civil Appeals is reversed, and the cause is remanded to the trial court for entry of judgment in accordance with this opinion.
NOTES
[1] The will and codicil contained restrictions, not at issue here, to insure compliance with the regulations of the Internal Revenue Service. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1259291/ | 179 Ariz. 151 (1994)
876 P.2d 1186
STATE of Arizona, Appellant,
v.
David Gene CORNO, Appellee.
No. 1 CA-CR 91-1863.
Court of Appeals of Arizona, Division 1, Department A.
June 28, 1994.
*152 Richard M. Romley, Maricopa County Atty. by Gerald R. Grant, Deputy County Atty., Phoenix, for appellant.
Killian, Nicholas, Fischer, Wirken, Cook & Pew, P.L.C. by Charles W. Wirken, Mesa, for appellee.
OPINION
VOSS, Judge.
The State of Arizona appeals from an order denying its motion to withdraw from a plea agreement after the court rejected a stipulation that defendant's conviction for possession of drug paraphernalia be designated a class 6 felony at sentencing. Because the sentencing judge erred in denying the motion, we remand for further proceedings consistent with this decision.
FACTUAL AND PROCEDURAL BACKGROUND
Appellee David Gene Corno (defendant) was charged by information with one count of possession of narcotic drugs (cocaine), a class 4 felony and one count of possession of drug paraphernalia, a class 6 felony. Defendant agreed to plead guilty to the latter charge. The written agreement stated:
The parties stipulate to the following additional terms: (These stipulations are subject to court approval at the time of sentencing as set forth in paragraph 7.) The offense shall be designated a felony at time of sentencing. Defendant shall be placed on probation and pay $2000 fine to Arizona Drug Enforcement Fund. No other agreements.
(Emphasis added.) The parties also agreed that the cocaine possession charge would be dismissed.
At the change of plea proceeding, the trial judge found the plea was knowingly, voluntarily, and intelligently entered and was supported by a factual basis. He deferred acceptance of the plea until the time of sentencing.
Prior to sentencing, the judge announced his acceptance of the plea and pronounced judgment on the possession of drug paraphernalia charge. However, the judge then stated that, in light of defendant's drug addiction and lack of a criminal record, he found the parties' stipulated designation of the offense "unduly harsh." The judge stated that the matter should remain undesignated pending a probationary term. He said that "the parties do not have the discretion to tell the Court whether or not [the offense] should or should not be designated a felony. And I believe that that's something, as a matter of law, the parties are not free to bargain for." The state moved to withdraw from the plea. The judge denied the motion. He left the offense undesignated and placed defendant on three years probation.
*153 The state filed a timely notice of appeal and now contends that the trial court erred in denying its motion to withdraw from the plea agreement.
DISCUSSION
1. Jurisdiction
Defendant challenges this court's jurisdiction to consider the state's appeal. He argues that Ariz. Rev. Stat. Ann. (A.R.S.) section 13-4032(6) (1989), which allows the state to appeal from "[a] sentence on the grounds that it is illegal," does not apply. The state, however, has not sought review of the sentence at all, but rather has challenged the trial judge's denial of its motion to withdraw from the plea agreement.[1] That ruling is appealable as "[a]n order made after judgment affecting the substantial rights of the state...." A.R.S. § 13-4032(4) (Supp. 1993). The state's motion to withdraw from the plea agreement and the court's denial of that motion, followed the oral pronouncement of judgment of defendant's guilt. A "substantial right" is implicated because the state ordinarily may withdraw from a plea agreement when the trial court rejects a sentencing stipulation. State v. Superior Court in and for County of Maricopa, 125 Ariz. 575, 578, 611 P.2d 928, 931 (1980); State v. Oatley, 174 Ariz. 124, 125, 847 P.2d 625, 626 (App. 1993); cf. Rule 17.4(e), Arizona Rules of Criminal Procedure (Rule(s)) (providing that defendant has right to withdraw from plea agreement if court rejects it). See also State v. Rutherford, 154 Ariz. 486, 487, 744 P.2d 13, 14 (App. 1987) (noting jurisdiction under A.R.S. section 13-4032(5) over state's appeal from trial court order modifying probationary term in contravention of plea agreement). Thus, we have jurisdiction over this appeal.
2. Stipulation of Felony Designation
The sentencing judge's determination that the parties could not bargain regarding the designation of a class 6 offense rested upon his interpretation of A.R.S. section 13-702(H) (1989), which states in pertinent part:
Notwithstanding any other provision of this title, if a person is convicted of any class 6 felony not involving the intentional or knowing infliction of serious physical injury or the use of a deadly weapon or dangerous instrument and if the court, having regard to the nature and circumstances of the crime and to the history and character of the defendant, is of the opinion that it would be unduly harsh to sentence the defendant for a felony, the court may enter judgment of conviction for a class 1 misdemeanor and make disposition accordingly or may place the defendant on probation in accordance with chapter 9 of this title and refrain from designating the offense as a felony or misdemeanor.
(Footnote omitted.) The judge stated that the parties were precluded from bargaining about the designation of the class 6 offense because the authority of the court regarding designation was "procedural" rather than "substantive." He indicated that the distinction was crucial:
I believe that it's not a substantive provision subject to the bargaining powers of the State. The State makes the decision whether or not to charge a particular offense and can allow a plea to a lesser-included offense. But a class six felony is a class six felony.
It's up to the discretion of the Court in weighing the character and background of the defendant. And I believe because of the fact that the courts have held it is not a penal statute but is a procedural statute, I believe that procedural [sic] is something that cannot be bargained for....
On appeal, defendant acknowledges Rule 17.4(a), which provides that "the parties may negotiate concerning, and reach an agreement on, any aspect of the disposition of the case." He does not dispute that, as a general proposition, the state may withdraw from a plea agreement when the judge indicates an intention to deviate from a sentencing stipulation. State v. Superior Court, 125 *154 Ariz. at 578, 611 P.2d at 931. However, he argues that matters of procedure are subject to A.R.S. section 13-102(A) (1989), which states: "Except as otherwise provided by law, the procedure governing the accusation, prosecution, conviction and punishment of offenders and offenses is not regulated by this title but by the rules of criminal procedure." (Emphasis added.) He contends that such a limitation on the criminal rules is found in the initial language of A.R.S. section 13-702(H), which states: "Notwithstanding any other provision of this title...." The effect of this introductory passage, defendant argues, is to override A.R.S. section 13-102(A) and preclude the application of the criminal rules, including Rule 17.4, to the designation of class 6 felony offenses. As a result, he contends that the parties were not free to stipulate that the offense be designated as a felony. We disagree.
The phrase "[n]otwithstanding any other provision of this title" does not preclude bargaining regarding the designation of a class 6 felony. Such an interpretation would be at odds with the immediately following statutory language in A.R.S. section 13-702(H), which states: "if a person is convicted of any class 6 felony...." That language makes it clear that the paragraph applies to the trial court's exercise of sentencing authority which necessarily follows a "conviction" not to the negotiation of a plea agreement, which necessarily precedes it.
Thus, "notwithstanding" more general sentencing provisions, the paragraph at issue expands the sentencing options otherwise available for a class 6 felony without limiting the scope of negotiable terms available to the parties. The fact that the paragraph gives the judge broadened sentencing discretion has no effect on the rules applicable to plea bargaining. Rule 17.4(d) prohibits the parties from precluding the exercise of that discretion by agreement, stating: "The court shall not be bound by any provision in the plea agreement regarding the sentence or the term and conditions of probation to be imposed, if, after accepting the agreement and reviewing a presentence report, it rejects the provision as inappropriate." However, the trial judge may not exercise that discretion by imposing a sentence at variance with the plea agreement unless the State agrees. Oatley, 174 Ariz. at 125, 847 P.2d at 626.
The premise of the trial court in this case that the designation of an offense is not subject to the agreement of the parties was implicitly rejected by our supreme court in State v. Diaz, 173 Ariz. 270, 842 P.2d 617 (1992). In that case, the supreme court considered whether a defendant should be permitted to withdraw from a plea to a class 6 "open," offense when the sentencing judge announced his intention to designate the offense as a felony. The supreme court held that the fact the plea was to an "open" offense did not preclude the trial court from making a felony designation. The court stated:
The plea agreement contains no language that limits the trial court's ability to designate the offense a felony. Although plea agreements may, and sometimes do, stipulate that the offense will remain undesignated at the time of original sentencing or that the defendant will be placed on probation (subject, of course, to court approval), this one did not. The dialogue between the commissioner and defendant at the change of plea hearing clearly establishes that the plea agreement was not intended to and did not take away any of the trial court's options at the time of sentencing.
Id. at 273, 842 P.2d at 620 (emphasis added). The supreme court's recognition that parties may agree to the deferral of designation of a class 6 offense necessarily implies that the parties may otherwise bargain with regard to that determination. In this respect, the agreement in this case was no different than the one at issue in Diaz.
This court has recognized that the language of Rule 17.4 is "broad." Rutherford, 154 Ariz. at 488, 744 P.2d at 15; see also Rule 17.4(a), Comment ("Plea bargaining and plea agreements may cover any and all aspects of the disposition of the case."). No case has stated that the parties are limited to bargaining only "substantive" matters, as the sentencing judge ruled in this case. The *155 sentencing judge relied on State v. Winton, 153 Ariz. 302, 736 P.2d 386 (App. 1987). Winton considered whether the language permitting deferral of designation of class 6 offenses, which was added to the statute by a 1984 amendment, could be applied to a defendant whose crime occurred prior to that amendment. This court held that the authority of the trial court to defer designation was "procedural" and, as a result, did not impermissibly alter the penalty for the class 6 offense. Id. at 305, 736 P.2d at 389. Winton did not address the issue in this case: whether the authority of the trial court regarding designation of class 6 offenses could be limited by agreement of the parties.
CONCLUSION
As we have noted, the trial court is not bound by any sentencing provision in a plea agreement it finds inappropriate. Rule 17.4(d); Oatley, 174 Ariz. at 125, 847 P.2d at 626. While the trial judge indicated that he found the stipulated felony designation unduly harsh, he also stated that, if that term were legally enforceable, he would impose sentence in accordance with the parties' agreement. The appropriate remedy is a remand to permit the trial court to accept or reject the sentencing stipulation. If the judge accepts the stipulation, he must designate the offense as a felony. If the judge rejects the stipulation, the State and defendant must be permitted to withdraw from the plea agreement.
GRANT, P.J., and EHRLICH, J., concur.
NOTES
[1] The notice of appeal states: "The State of Arizona ... hereby gives notice that it appeals from the trial court's order of December 2, 1991, denying the State's motion to withdraw from the plea agreement." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1434393/ | 684 P.2d 556 (1984)
Frankie Lee JACOBSON, Appellant,
v.
The STATE of Oklahoma, Appellee.
No. F-82-577.
Court of Criminal Appeals of Oklahoma.
June 21, 1984.
Opio Toure, Asst. Appellate Public Defender, Norman, for appellant.
Michael C. Turpen, Atty. Gen. of Oklahoma, Thomas L. Spencer, Asst. Atty. Gen., Oklahoma City, for appellee.
*558 OPINION
BUSSEY, Presiding Judge:
The appellant, Frankie Lee Jacobson, was convicted of Second Degree Murder, After Former Conviction of Two Felonies, in Muskogee County District Court, Case No. CRF-81-503, was sentenced to fifty (50) years' imprisonment, and he appeals.
On October 24, 1981, the body of Maxine Goforth was found floating in the Arkansas River near Muskogee, wrapped in a green comforter. A brown electrical cord flecked with white paint was tied tightly through the mouth as a gag and also around her neck; another piece of the same cord bound her feet, while her hands were tied behind her with red shoelaces. A laceration which was approximately one inch in length and about a quarter of an inch deep, was present on the back of the victim's head.
The appellant had been employed by Go-forth as an apprentice barber and had done various household repairs for her over a period of several years.
During the course of their investigation, Muskogee police officers went to the Jacobsons' house and were given consent to enter and search by his wife, who signed a waiver of consent to search form. Between the living and dining rooms, two blood-soaked patches were found. In a small storage building behind the residence, a pole lamp with approximately a foot of brown electrical cord with specks of white paint on it was discovered. Additionally, a blood soaked towel was found in a trash can behind the Jacobsons' residence. The blood of the victim and the blood on the stained areas and the towel were both type "O". Upon inquiry by officers regarding a green bedspread and red shoelaces, Mrs. Jacobson responded that such a bedspread was indeed missing and the red shoelaces from one of her daughter's roller skates could not be found.
Melbajo Butler, the appellant's next door neighbor, testified that she heard a woman cry out about 1:30 p.m. on October 21, 1981.
Dr. Mohammed F. Merchant, of the chief medical examiner's office, testified that the scalp laceration to the victim severed no major arteries, that there was no evidence of a skull fracture, and that the wound was not such as to have caused death. It was his opinion, due to the presence of petechial hemorrhages in the throat area (larynx and epiglottis) and hemorrhaging present in the strap muscle of the neck, that the cause of death was manual strangulation.
The appellant testified on his own behalf regarding his past and related that he had dropped out of high school and joined the Army; he spent about 2 1/2 years in Vietnam and had seen considerable combat action; he returned to Muskogee and had worked for and with the victim as a barber.
He stated that the pair had become intimately involved despite the fact that Goforth was more than 20 years his senior. He told the jury that he had borrowed $675 from Goforth and repaid $175 in cash and had worked on her car for three days; however, she was unsatisfied and, in addition, wanted him to roof an apartment *559 house to repay the debt, which he refused to do, maintaining that he had other debts that needed his attention and the value of the roofing job was between $1,600 and $2,000. On the date in question, Goforth came to his home demanding payment of the debt and threatening to expose their relationship to the appellant's newest wife, his third, and to whom he had been married for a little over a month. Further, when Goforth pointed a finger at him, Jacobson admittedly pushed her and she hit her head on an exposed door hinge. She was knocked unconscious and began to bleed profusely, so, according to the appellant, he put ice in a towel and placed it on the wound. Goforth regained consciousness in about 10 minutes and told the appellant "It's all right, Frankie, It's all right, Frankie"; but she then screamed, grabbed her head and passed out again, landing about a foot from where she had originally been. Jacobson applied a second towel with ice for about 10 minutes more but when he checked her pulse, as he had been trained by the Army to do, he determined that she was dead.
Appellant felt he could not call the police so he put the body in the green blanket and, although he had difficulty keeping the arms and legs in the blanket, took it to the shed behind the house. With a length of cord from a lamp, he bound her feet and, with a red shoelace from his daughter's roller skates, he also bound her hands. To keep his children from discovering the body, he drove to a department store and purchased a lock to keep the shed secured; he left Goforth's car in the store's parking lot with the keys in it and walked home.
In an attempt to divert attention from him, the appellant cut a piece of cord from a lamp in his bedroom and used it as a gag on the body. Later that evening, he took the body and threw it into the river. He stated he thought that Goforth had bled to death.
I.
In one of his assignments of error, the appellant asserts that the trial court committed reversible error by admitting into evidence fruits of an illegal arrest, because the State failed to prove sufficient probable cause to make a warrantless arrest.
It has long been held that the test for the validity of a warrantless arrest is:
"Whether, at the moment the arrest was made, the officers had probable cause to make it whether at that moment the facts and circumstances within their knowledge and of which they had reasonably trustworthy information was sufficient to warrant a prudent man in believing that the petitioner [arrestee] had committed or was committing an offense." Beck v. Ohio, 379 U.S. 89, 91, 85 S. Ct. 223, 225, 13 L. Ed. 2d 142 (1964). One does not have probable cause unless he had information of facts which, if submitted to a magistrate, would require issuance of an arrest warrant. Mere suspicion is not enough. Mallory v. United States, 354 U.S. 449, 77 S. Ct. 1356, 1 L. Ed. 2d 1479 (1957).
Greene v. State, 508 P.2d 1095 (Okl.Cr. 1973).
The facts and circumstances in the instant case are such that a prudent man would believe that Jacobson committed the crime. His wife voluntarily consented to police entering and searching the couples' home. The officers found two patches of blood soaked carpet between the living room and dining room and a towel saturated with blood in their trash can. Further, Mrs. Jacobson informed the officers that one red shoelace from her daughter's skates was missing, and a green bedspread was also gone. Additionally, in the small shed in back of the house, a pole lamp was found with all but about one foot of brown cord, flecked with white paint, cut off. These facts were ample to allow the officers to make a valid warrantless arrest of the appellant. Jacobson's statements to police, in the first of which he stated that after Goforth had regained consciousness he grabbed her, pinned her to the floor and then bound her, were properly admitted as a product of a valid warrantless arrest. This assignment of error is without merit.
*560 II.
In another assignment of error, the appellant maintains that his sixth amendment right to counsel was violated, and a statement that was taken following his alleged request for an attorney should not have been admitted at trial. We do not agree.
The record before us reveals that, after the appellant had been advised of his rights and given the Miranda warnings, which he stated he understood and signed a written waiver of rights form, Detective Allen Simmons asked him, "Why did you kill Mrs. Goforth?" (Tr. 257). After a moment's silence, Jacobson responded, "I think I need an attorney." Questioning by the police ceased and a cigarette and a cup of coffee were provided the appellant. Although a telephone was an "arms length" distance from him on a table, (Tr. 258) Jacobson did not use it. Appellant soon stated, "Well, I might as well just talk to you." (Tr. 258) Police questioning commenced anew, but was halted in order for a tape recorder to be procured to record the interview. With the appellant's knowledge, a tape recording of the inquiry was made.
For purposes of this opinion, we need not decide whether or not the appellant's statement, "I think I need an attorney" was an actual invocation of his right to counsel as we did in our recent decision styled Kaposci v. State, 668 P.2d 1157 (Okl.Cr. 1983). As, in a recent opinion, a divided Supreme Court of the United States has dealt with the issue of waiver of the right to counsel. See, Oregon v. Bradshaw, 462 U.S. 1039, 103 S. Ct. 2830, 77 L. Ed. 2d 405 (1983).
After reviewing the facts in the case before us, it appears that the appellant "initiated" further conversation regarding the subject matter of the investigation with the police after questioning had ceased; consequently, the conversation should not have been excluded from evidence under Edwards v. Arizona, 451 U.S. 477, 101 S. Ct. 1880, 68 L. Ed. 2d 378 (1981). It also appears, under the totality of the circumstances, that the appellant's waiver of his right to counsel was voluntarily, knowingly and intelligently entered without any coercion by the police. The two pronged test advocated by Justices Rehnquist, Burger, White and O'Conner in Oregon v. Bradshaw, supra, was met in the instant case. We are of the opinion that, even if he had "unequivocally requested" an attorney, the appellant waived his right to counsel; accordingly, this assignment of error is without merit.
III.
Next, the appellant contends that the trial court committed reversible error by admitting three photographs which were prejudicial and had no probative value. The photographs showed the victim's bound hands, feet and mouth, respectively. Appellant concedes that the admission of photographs and other evidence rests within the sound discretion of the trial court. Grizzle v. State, 559 P.2d 474 (Okl.Cr. 1977). As we have stated on numerous occasions:
The rule is that admissibility of demonstrative evidence such as photographs is a question of legal relevance for the trial court. When the probative value is not outweighed by the danger of prejudice to the defendant, the photographs are admissible. Assadollah v. State, 632 P.2d 1215 (Okl.Cr. 1981), citing Oxendine v. State, 335 P.2d 940 (Okl.Cr. 1958).
The photographs in the case before us were not overly gruesome and they corroborated the testimony of several witnesses regarding how the victim was bound with the paint-flecked electrical cord and especially how she was gagged. We hold that the trial court did not abuse its discretion in admitting the photographs; this assignment of error is without merit.
IV.
Appellant next asserts that prosecutorial comments in the closing argument were so prejudicial and inflammatory that he was deprived of a fair trial and reversal of his conviction is necessary. The record reflects that at trial only one objection was made to the remarks of which the appellant now complains, and no admonition was requested *561 for the single objected to comment. We have held on numerous occasions that when an objectionable statement is made by the prosecuting attorney it should be called to the attention of the trial court by timely objection, together with a request that the jury be instructed to disregard the improper statement. See for instance, Blades v. State, 619 P.2d 875 (Okl.Cr. 1979), cert. den. 449 U.S. 845, 101 S. Ct. 129, 66 L. Ed. 2d 54 (1980). In the instant case, because defense counsel failed to object to the comments complained of, error, if any, was waived. Moreover, even if the comments had been properly preserved, they were not had been properly preserved, they were not such as to have swayed the verdict of the jury. This assignment of error is without merit.
V.
Jacobson also assigns as reversible error the trial court's refusal to instruct the jury on insanity as a defense. He argues that he suffered from "posttraumatic stress disorder," present among veterans of the Vietnam conflict. Mitchell Townsend, who counsels veterans, testified that the disorder could affect a person's ability to distinguish between right and wrong, but he had never met Jacobson and could not express an opinion as to Jacobson's ability to discern right from wrong. Additionally, Dennis Keeley, a supervisor with the Veterans Administration, testified that the V.A.'s records reflected that Jacobson had been treated for "nerves" and "acute anxiety"; Patsy Moore, the Director of the State Department of Mental Health in Muskogee, stated that records of the Department showed that Jacobson had sought aid from the Department. Mariott Fowler, a social worker with the Department of Mental Health, related that she had interviewed Jacobson about a year and a half before Goforth's death and that her report shows that he was depressed and contemplating suicide at that time. None of the above witnesses expressed an opinion as to Jacobson's ability to distinguish right from wrong on the day the victim died. Further, the appellant does not assert that he was incapable of distinguishing right from wrong at the time of Goforth's death; rather, he merely claims that he did not know "what was all going on" or "what to do." (Appellant's Brief p. 17).
It is true, as the appellant points out, that the M'Naghten test of legal sanity is followed in our jurisdiction and the question for determination is whether a person is capable of knowing right from wrong at the time of the commission of the act. See, 21 Ohio St. 1981, § 152(4). It is also true that, if the defense is insanity, it is the defendant's burden to raise a reasonable doubt as to his sanity, since the presumption is that the defendant was sane at the time of the crime with which he is charged. See, Richardson v. State, 569 P.2d 1018 (Okl.Cr. 1977). From the facts presently before us, we are of the opinion that there was insufficient evidence presented to rebut the presumption of the appellant's sanity. See, Frazier v. State, 654 P.2d 639 (Okl.Cr. 1982); and Johnson v. State, 621 P.2d 1162 (Okl.Cr. 1981). Accordingly, the trial court properly refused to instruct on the defense of insanity as there was "no independent evidence ... presented tending to prove insanity." This assignment of error is without merit.
VI.
Lastly, the appellant complains that his sentence is excessive. The fifty (50) year sentence he received is within the statutory limits for Murder in the Second Degree, After Former Conviction of Two Felonies and it does not shock the conscience of this Court. See, Baldwin v. State, 596 P.2d 1269 (Okl.Cr. 1979), and cases cited therein.
The judgment and sentence is AFFIRMED.
PARKS, J., concurs in results.
BRETT, J., concurs.
PARKS, Judge, concurring in results:
I concur with the opinion as written, excepting the phrase, "under the totality of the circumstances," on page 560 thereof. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1684636/ | 348 S.W.2d 523 (1961)
W. F. WALLACE, Sr., Relator,
v.
Hon. Cullen W. BRIGGS, District Judge, et al., Respondents.
No. A-8394.
Supreme Court of Texas.
July 19, 1961.
*524 Lyman & Sudduth, Corpus Christi, for relator.
Matthews, Nowlin, Macfarlane & Barrett, San Antonio, King, Anderson & Porter, Corpus Christi, for respondents.
CULVER, Justice.
The relator prays for a writ of mandamus to the Honorable Cullen W. Briggs, Judge of the 117th Judicial District of Nueces County, requiring him to rescind an interlocutory order in a divorce suit entitled Mary Ethel Pope Wallace v. W. F. Wallace, Sr. that commanded relator Wallace to pay over to respondent wife the sum of $10,500 for attorneys' fees and $1,300 for future expenses that may be incurred by her in the prosecution of this divorce action.
Mrs. Wallace filed suit for divorce on or about October 2, 1960. On the following day a temporary restraining order was issued in the usual form enjoining the defendant husband, W. F. Wallace from disposing of any of the community assets and from threatening or communicating with the plaintiff at any time and place. Thereafter, temporary injunction was granted continuing in force the matters enjoined in the restraining order, ordering an inventory and appraisement and awarding to the plaintiff the sum of $1,000 per month as temporary alimony.
Mrs. Wallace then filed a motion asking that there be set aside to each of the parties the sum of $50,000 from the community assets for the purpose of "making gifts and paying all necessary expenses in the operation of community affairs prior to the end of the taxable year ending on December 31, 1960". At a hearing the relief sought on that motion was denied. But notwithstanding the fact that no written motion had been filed asking for the payment of attorneys' fees and the allowance for future expenses, the court proceeded to receive testimony as to those matters. He then ordered that W. F. Wallace pay over to Mrs. Wallace forthwith the following sums: $805 for expenses incurred by her to the date of this hearing; $1,300 for *525 expenses to be incurred by her in the future in the prosecution of this case, and $10,500 for attorneys' fees incurred for services to date.
The attorneys' fees allowed consisted of the following:
To the firm of Barlow, Bland & Rehmet $1,500.00
To the firm of King, Anderson & Porter of Corpus Christi 3,500.00
To Burcham Budd of Dallas, an attorney specializing in tax
matters 3,000.00 and
To W. F. Wallace, Jr., the son of the plaintiff and defendant
for advice and consultation, attorney's fees in the sum of 2,500.00
It appears that at the present time none of these are presently attorneys of record, both of the named firms having withdrawn from the case.
William R. Anderson who represented Mrs. Wallace at this hearing testified that a reasonable fee for his services up to the time of the hearing was $3,500; that the value of Mr. Bland's services for the time and work he devoted to the case and who had theretofore withdrawn, was reasonably worth the sum of $1,500. Mr. Anderson also testified that it was necessary to employ an attorney to render advice in respect to tax problems that would arise; that Mr. Burcham Budd of Dallas had been retained for that purpose and that the reasonable value of Mr. Budd's services would run from $2,500 to $3,000. It is not clear whether that fee was claimed for services that had been rendered or were to be rendered in the future. However, Mr. Budd had sent in no statement for his services and Mr. Anderson had no idea of how much time Mr. Budd had spent on the case.
W. F. Wallace, Jr. testified that he was his mother's personal attorney and had consulted with Mr. Bland and Mr. Anderson and Mr. Budd, and had devoted some time every day since October 1, 1960, in connection with her business. He claimed that a conservative estimate of the value of his services since October 1st would be $2,500. The witness also testified that he would probably be compensated by his mother if she wanted to pay him, otherwise he would not be.
Wallace, Jr. also denied that his mother had employed him as an attorney in the case, but that she employed him as a general attorney and he was counseling and working with the attorneys handling the divorce case for her; that he was not "her counselor for the divorce".
The court predicates his authority to enter this order upon the provisions of Art. 4636, Vernon's Ann.Civ.Stat., which reads:
"Pending suit for a divorce the court, or the judge thereof, may make such temporary orders respecting the property and parties as shall be deemed necessary and equitable."
That article has been construed to confer the power upon the trial court to make such temporary orders as to appoint a receiver to take charge of the property, to award temporary custody of children, to direct the filing of an inventory and appraisement, to set apart the homestead for the temporary use of the wife and children, to award temporary alimony and the like. But the order here entered is in no sense temporary in its nature. It fixes the payment of attorneys' fees for past services rendered to date of the hearing, and as to that matter is final and conclusive. We know of no such authority vested in the trial court by either statute or usage.
The court has the power on the final disposition of the case to award attorneys' fees to the wife, the reasonableness *526 of which are to be determined by the trier of the facts, and they are then entered as a part of the final judgment. Even then there is no authority for the judge to summarily order them paid or attempt to enforce that order by contempt proceedings.
In support of her contention that the judge has the authority to order the payment of these attorneys' fees by summary action and in advance of the trial, Mrs. Wallace cites Hendry v. Hendry, Tex.Civ. App., 238 S.W.2d 821, no writ history, as "probably the closest case in point". This was a divorce suit in which a receiver had been appointed to take charge of the community property. On the plea of the husband that he was an invalid and in destitute circumstances, the court directed the receiver to pay over to him out of the moneys on hand of the community estate the sum of $200 and to pay a like sum to the wife upon her request and to hold the balance of the funds for further orders. It clearly appears that these payments were in the nature of temporary alimony and so the matter lay within the Court's discretionary authority. In our opinion the decision has no bearing at all on the question here.
The respondent argues that the wife may be allowed an attorney's fee even though the suit for divorce is dismissed or where the divorce has been denied. The cases he cites support that proposition but in no way do they uphold the summary order of the trial judge in our case.
In McClanahan v. McClanahan, Tex.Civ. App., 197 S.W.2d 581, no writ history, the trial court and dismissed the plaintiff's suit for divorce because she had not met the statutory residence requirement and also dismissed her claim for attorneys' fees. On appeal the trial court was found to have been in error in so far as the dismissal of the claim for attorneys' fees because she was entitled to a hearing and a determination of that case. Such attornetys' fees as were found reasonable would have been determined and fixed by a final judgment.
Speer's Law of Marital Rights, 3rd Ed., § 638, p. 796, provides:
"It is not essential that the wife recover to have her attorney's fee. If the suit be brought in good faith, she may ordinarily recover them, or where she is the defendant she may recover them, such expenses being ordinarily a necessary. Whether they are a necessary depends largely on the good faithprobable grounds of the wife in instituting the suit or making the defense."
But all that this means is that the attorneys' fees may be recovered in a suit and fixed by a final judgment based upon the evidence. This is well illustrated by the holding in Roberts v. Roberts, 144 Tex. 603, 192 S.W.2d 774. In that case the jury had found that the plaintiff husband had not been an actual bona fide inhabitant of the state for one year next preceding the filing of his suit and that a reasonable fee for appellee wife's attorney was $900. In the judgment of dismissal the trial court found that the wife had acted in good faith and on probable grounds in contesting the husband's suit and awarded her the attorneys' fees. We held that the trial court was fully warranted in entering judgment in favor of the wife for the sum allowed by the jury as attorneys' fees. So we do not question Mrs. Wallace's right to recover attorneys' fees at the end of this litigation, but we say that the trial court has no authority to determine those fees and allow them in advance of the trial.
Mrs. Wallance cites Turman v. Turman, Tex.Civ.App., 99 S.W.2d 947, 951, writ of error dismissed, w. o. j., as being a case where the judge of the trial court under a separate order allowed attorneys' fees for plaintiff's wife and directed them paid out by the receiver from the assets in his hands. The Court of Civil Appeals observed in that case as follows:
"The trial court had the right and authority, under a separate order, to allow attorneys' fees for appellee and *527 to order same paid out by the receiver from the assets in his hands. This order is not a part of, nor is it incorporated in the final judgment appealed from here, and appellant cannot attack such an order on this appeal, under the circumstances."
The opinion does not reveal at what stage in the proceedings the attorneys' fees were ordered to be paid nor is it shown whether or not the trial court's judgment was superseded. At any rate in our opinion the decision in that case does not support the action of the trial court complained of here.
The only pleading filed by Mrs. Wallace in this case requesting any allowance for attorneys' fees is in her original petition wherein she prays that on final hearing on her suit for divorce she have judgment for attorneys' fees.
Admittedly the power conferred upon the court by Art. 4636, Vernon's Ann.Civ.Stat., is broad and discretionary, yet it is not unlimited and does not extend beyond the granting of temporary and necessary relief. Rudasill v. Rudasill, Tex.Civ.App., 206 S.W. 983; Dyer v. Dyer, Tex.Civ.App., 87 S.W.2d 489.
Mrs. Wallace urges that attorneys' fees for representing the wife are necessaries and it had been so held. Moore v. Moore, Tex.Civ.App., 192 S.W. 929. In that case the court held that the fee allowed by the court for the wife in a divorce case must be reasonable and the trial court may determine whether the fee to be allowed is a necessary under the circumstances and likewise determine the amount. The court there, however, is not speaking of a temporary order made in advance of the trial, but rather of a matter that is to be passed on along with other issues in the trial of the case.
This being an interlocutory order from which no appeal will lie the petitioner's only remedy is by way of a writ of mandamus. In similar situations we have issued writs of mandamus where it appears that the trial judge in entering interlocutory orders has abused his discretion. Crane et al. v. Tunks, Tex., 328 S.W.2d 434; Womack v. Berry, 156 Tex. 44, 291 S.W.2d 677; Southern Bag & Burlap Co. v. Boyd, 120 Tex. 418, 38 S.W.2d 565.
Mrs. Wallace lays considerable stress upon the fact that this is a rather large community estate and her attorney estimates the value of the same to be approximately a million and a quarter dollars. But that affords no justification for unauthorized allowances. The record does disclose, however, that this estate is now indebted to the extent of some $400,000 and it may not be amiss to observe that it may be quickly dissipated unless the proper procedures are followed.
The expense item of $1,300 comprises, according to Mr. Anderson, future deposition costs of $1,000 and $300 by way of travel expense. The order for these future expenses is based solely upon Mr. Anderson's conclusion without any proof of necessity, but wholly speculative. The expense of taking depositions is an item of court costs and properly chargeable as such. Of course traveling expense is not chargeable as costs. If the same are taken and prompt payment becomes necessary provision therefor may be timely made.
We hold that the order complained of in so far as attorneys' fees and future expenses are concerned is unauthorized at law and void and that the trial judge in so entering the same has abused his discretion. We note that the enforcement of this order had been suspended pending our action on the application for this writ and we take it that the same will be rescinded in the light of our views herein expressed. Consequently we think that it will be unnecessary for the writ of mandamus to issue at this time. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1754551/ | 999 S.W.2d 494 (1999)
WYLER INDUSTRIAL WORKS, INC., Appellant,
v.
Robert GARCIA, Appellee.
No. 08-97-00581-CV.
Court of Appeals of Texas, El Paso.
July 29, 1999.
*498 David M. Driscoll, Carr, Flora, Carroll & Driscoll, P.C., El Paso, for Appellant.
Enrique Moreno, Moreno and Fry, El Paso, for Appellee.
Before Panel No. 1 LARSEN, McCLURE, and CHEW, JJ.
OPINION
ANN CRAWFORD McCLURE, Justice.
Wyler Industrial Works, Inc. (Wyler) appeals from a wrongful termination suit in which the jury found that it discharged Robert Garcia (Garcia) because he had filed a workers' compensation claim in good faith. For the reasons stated below, we affirm.
SUMMARY OF THE EVIDENCE
Robert Garcia was employed as a pipefitter's helper by Wyler Industrial Works, Inc. On December 18, 1991, Garcia sustained a work-related injury and thereafter filed a claim with the Texas Workers' Compensation Commission. Garcia did not work for four months following the injury. During this time, Garcia was visited by Gene Reimer (Reimer), Wyler's General Manager. Reimer offered Garcia "light duty work" at full salary, which Garcia refused. Garcia ultimately returned to work on April 21, 1992, after being released for full duty by his physician.
On July 30, 1992, Garcia was terminated. Reimer told Garcia that he was laid off because the "budget [was] low."[1] However, less than a month after Garcia's termination, Wyler accepted an application for a pipefitter's helper and shortly thereafter, hired the employee for the same position held by Garcia. In correspondence to the Equal Employment Opportunity Commission (EEOC), Reimer stated that Garcia was terminated because he "was a helper and was not available for Saturday work."
On October 18, 1993, Garcia brought suit alleging violations of the Texas Workers' Compensation Statutes. See TEX.LAB.CODE ANN. § 451.001 (Vernon 1996) (formerly TEX.REV.CIV.STAT.ANN. art. 8307c). The jury returned its verdict in favor of Garcia, finding that he was laid off because he filed a workers' compensation claim and awarding damages totaling $60,000. Wyler filed a motion for judgment notwithstanding the verdict and a motion for new trial or remittitur. Both motions were denied and this appeal follows.
STANDARDS OF REVIEW
Wyler presents five issues for review. We begin with a discussion of the legal and factual sufficiency standard of review, under which Issues One and Two will be addressed. We follow with a discussion of the abuse of discretion standard of review, under which Issues Three through Five will be addressed.
Sufficiency Standards
A "no evidence" or legal insufficiency point is a question of law which challenges the legal sufficiency of the evidence to support a particular fact-finding. There are two separate "no evidence" *499 claims. When the party having the burden of proof suffers an unfavorable finding, the point of error challenging the legal sufficiency of the evidence should be that the fact or issue was established as "a matter of law." Where, as here, the party without the burden of proof suffers an unfavorable finding, the challenge on appeal is one of "no evidence to support the finding." See Creative Manufacturing, Inc. v. Unik, Inc., 726 S.W.2d 207, 210 (Tex.App.Fort Worth 1987, writ ref'd n.r.e.). The standard of review requires a determination by the appellate court as to whether, considering only the evidence and inferences that support a factual finding in favor of the party having the burden of proof in a light most favorable to such findings and disregarding all evidence and inferences to the contrary, there is any probative evidence which supports the finding. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965); Southwest Craft Center v. Heilner, 670 S.W.2d 651, 653 (Tex.App.San Antonio 1984, writ ref'd n.r.e.); Terminix International, Inc. v. Lucci, 670 S.W.2d 657, 662 (Tex.App.San Antonio 1984, writ ref'd n.r.e.); Dayton Hudson Corp. v. Altus, 715 S.W.2d 670, 672 (Tex.App.Houston [1st Dist.] 1986, writ ref'd n.r.e.). If more than a scintilla of evidence supports the finding, the "no evidence" point fails. Tseo v. Midland American Bank, 893 S.W.2d 23, 25 (Tex.App.El Paso 1994, writ denied); Hallmark v. Hand, 885 S.W.2d 471, 474 (Tex.App.El Paso 1994, writ denied).
"Insufficient" evidence or factual insufficiency involves a finding that is so against the great weight and preponderance of the evidence as to be manifestly wrong. When the party having the burden of proof complains of an unfavorable finding, the point of error should allege that the findings "are against the great weight and preponderance of the evidence." The "insufficient evidence" point of error is appropriate only when the party without the burden of proof on an issue complains of the court's findings. Neily v. Aaron, 724 S.W.2d 908, 912 (Tex.App. Fort Worth 1987, no writ). The latter applies here.
The test for factual insufficiency points is set forth in In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951). In reviewing a point of error asserting that a finding is against the great weight and preponderance of the evidence, we must consider all of the evidence, both the evidence which tends to prove the existence of a vital fact as well as evidence which tends to disprove its existence. It is for the jury to determine the weight to be given to the testimony and to resolve any conflicts in the evidence. Carrasco v. Goatcher, 623 S.W.2d 769, 772 (Tex.App. El Paso 1981, no writ). The jury's finding should be sustained if there is some probative evidence to support it and provided it is not against the great weight and preponderance of the evidence. Id.The parlance used by the courts of appeals is that such a finding "shocks the conscience" or that it is "manifestly unjust," limited by such phrases as "the jury's determination is usually regarded as conclusive when the evidence is conflicting," "we cannot substitute our conclusions for those of the jury," and "it is the province of the jury to pass on the weight or credibility of a witness's testimony." See, e.g., Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 30-31 (Tex. 1994); Beall v. Ditmore, 867 S.W.2d 791, 795-96 (Tex.App.El Paso 1993, writ denied). Thus, we cannot substitute our judgment for that of the fact finder even if we find a fact contrary to that found by the jury, provided the jury finding is supported by probative evidence and is not against the great weight and preponderance of the evidence. If, however, the verdict is so contrary to the great weight and preponderance of the evidence as to be manifestly unjust, the point should be sustained.
Abuse of Discretion Standard
"A [party] who attacks the ruling of a trial court as an abuse of discretion labors under a heavy burden." Johnson *500 v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex.1985) (orig.proceeding). The test for abuse of discretion is not whether, in our opinion, the facts present an appropriate case for the trial court's actions. Rather, it is a question of whether the court acted without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S. Ct. 2279, 90 L. Ed. 2d 721 (1986); Amador v. Tan, 855 S.W.2d 131, 133 (Tex.App.El Paso 1993, writ denied). Stated more simply, the test is whether the act was arbitrary or unreasonable. Downer, 701 S.W.2d at 242 citing Smithson v. Cessna Aircraft Co., 665 S.W.2d 439, 443 (Tex.1984); Amador, 855 S.W.2d at 133. The mere fact that a trial court may decide a matter within its discretionary authority in a different manner than an appellate judge in a similar circumstance does not demonstrate that an abuse of discretion has occurred. Downer, 701 S.W.2d at 242, citing Southwestern Bell Telephone Co. v. Johnson, 389 S.W.2d 645, 648 (Tex.1965). A mere error of judgment is not an abuse of discretion. Loftin v. Martin, 776 S.W.2d 145, 146 (Tex.1989).
SUFFICIENCY OF THE EVIDENCE
Liability Issue
In Issue One, Wyler complains that the evidence is legally and factually insufficient to support the jury's determination that Garcia was terminated because he filed a workers' compensation claim. Question No. 1 inquired, "Did WYLER INDUSTRIAL WORKS, INC. discharge or lay off ROBERT GARCIA because he filed a worker's compensation claim in good faith, or instituted or caused to be instituted, a worker's compensation claim in good faith?" The accompanying instruction read:
There may be more than one cause for an employment decision. An employer does not discharge or discriminate against an employee for filing a worker's compensation claim in good faith, or instituting or causing to be instituted a worker's compensation claim in good faith, if the employer would have discharged or laid off the employee when he did even if the employee had not filed a worker's compensation claim in good faith or instituted or caused to be instituted a worker's compensation claim in good faith.
The jury answered in the affirmative.
Causal Connection
This Court has previously held that in a wrongful termination case, the employee has the burden of establishing a causal connection between the termination and his claim for workers' compensation benefits. Urquidi v. Phelps Dodge Refining Corp., 973 S.W.2d 400 (Tex.App.El Paso 1998, no pet.); Investment Properties Management, Inc. v. Montes, 821 S.W.2d 691, 694 (Tex.App.El Paso 1991, no writ); Paragon Hotel Corp. v. Ramirez, 783 S.W.2d 654, 658 (Tex.App.El Paso 1990, writ denied). We also concluded in Montes that the employee need not prove that the compensation claim was the sole cause of the termination; he merely has to show that it contributed to the employer's decision to terminate him. Montes, 821 S.W.2d at 694; Mid-South Bottling Co. v. Cigainero, 799 S.W.2d 385, 390 (Tex. App.Texarkana 1990, writ denied). Agreeing that the plaintiff need not prove that his filing of a workers' compensation claim was the sole cause of his termination, the Supreme Court has articulated the standard of causation for anti-retaliation cases under Section 451.001 of the Labor Code: the employee's protected conduct must be such that, without it, the employer's prohibited conduct would not have occurred when it did. Continental Coffee Products Co. v. Cazarez, 937 S.W.2d 444, 450-51 (Tex.1996). Thus, we must determine whether there is any evidence of probative force to raise a fact issue on the question whether, but for Garcia's filing of a workers' compensation claim, Wyler would not have terminated him when it *501 did. Id. Circumstantial evidence that has been recognized as supporting a finding of unlawful discrimination includes:
the employer's knowledge of the compensation claim by those making the decision to terminate;
a negative attitude towards the employee's injured condition;
failure to adhere to established company policies;
discriminatory treatment of the injured employee in comparison to similarly situated employees; and
providing incentives to refrain from reporting on-the-job injuries.
Montes, 821 S.W.2d at 694-95; Paragon, 783 S.W.2d at 658-59; see America West Airlines, Inc. v. Tope, 935 S.W.2d 908, 912-13 (Tex.App.El Paso 1996, no writ). Further, proof that the stated reasons for discharge are false is sufficient to establish that the employee was terminated in violation of Section 451.001. Continental Coffee, 937 S.W.2d at 452; see Paragon, 783 S.W.2d at 660. We turn now to the record.
Evidence Elicited at Trial
Knowledge of the Claim
Reimer, who made the decision to terminate Garcia, testified that he did not remember seeing the letter from the Texas Workers' Compensation Commission. However, when asked whether he was aware that Garcia had filed a claim, Reimer answered, "I'm sure that's correct."
Negative Attitude
The jury also heard testimony regarding Reimer's attitude toward Garcia. Reimer visited Garcia while he was recovering at home in order to deliver Garcia's Christmas bonus check and to offer him "light duty work."[2] Garcia told Reimer that he was not ready to return and that he could not even get out of bed. Garcia testified that after he refused the light duty work, Reimer appeared "annoyed" and "irritated." He also stated that Reimer's attitude changed. Reimer himself related to the jury his attitude toward workers' compensation claims.
Q. Is it your testimony that the company is indifferent as to whether or not a worker had a workers' compensation history? Didn't matter to the company. Is that your testimony, sir?
A. No. That's not my testimony.
Q. It does matter to you, doesn't it, sir?
A. Yes, it matters.
Q. Because I asked you about your attitude in your deposition and I think you told me that you didn't want workers that made it a lifestyle out of filing workers' compensation claims?
A. That's correct. That was my testimony.
Q. And that you didn't want to bring people like that into your employment. That was your testimony; wasn't it, sir?
A. That is correct.
Q. And you felt that there were an awful lot of people out there that were making excessive amounts of claims and taking advantage of companies and insurers. You feel that way, don't you, sir?
A. That was what I stated in testimony.
Q. And that you didn't want Wyler Industries to be caught up in that type of situation. That's what you told me?
A. That is correct.
The record also reveals that Garcia received a pay raise after he returned to work and before he was laid off. And *502 when Reimer talked with Garcia about the layoff, he told Garcia that he would give him a good reference and that he would not contest his unemployment benefits. Lastly, Garcia acknowledged that his immediate supervisor never manifested a negative attitude toward him.
Failure to Adhere to Policy and Falsity of the Reason for Discharge
These two factors are inextricably entwined. The layoffs at the company were purportedly predicated on the decline in business volume. Despite resignations, Reimer decided that layoffs were necessary in both the office and the field. One office worker was let go.[3] The determination of which hourly worker was to be laid off was based upon seniority, skill level, whether the employee was complying with company policy, and whether it would be difficult to replace the employee. At the time, the company had three pipefitter helpers, one of whom had already indicated he would be returning to school in the fall. The remaining two employees were Garcia and Billy Speights. Speights had been hired three days before Garcia and had demonstrated a willingness to work weekends. Speights was retained and Garcia was laid off. Although Garcia was told that another worker had also been laid off, and despite similar written representations to the EEOC, the evidence at trial indicated that such was not the case.
Thus, Reimer testified at trial that Garcia was "let go" due to lack of work. However, in correspondence with the EEOC, Reimer stated that Garcia was terminated because he "was a helper and was not available for Saturday work."[4] The boiler shop foreman was responsible for orchestrating the Saturday work crews. He recalled instances when he asked Garcia to work on a weekend and Garcia responded that he would not work weekends because he wanted to spend time with his family. Of the fourteen weekends after Garcia returned to work following his injury, he only worked two while Speights worked ten weekends during the same period of time. The problem of Garcia's weekend availability was echoed by Patrick Berry. On one occasion when Berry asked Garcia to work on a Saturday, Garcia refused. Berry decided not to write him up for it at the time, although the second time it happened, Berry prepared a writeup and discussed the situation at a weekly meeting. However, handwritten and undated memoranda in Garcia's personnel file contained some inaccuracies. For example, on one of the Saturdays that Garcia supposedly refused to work, he actually worked ten hours.
Dolores Romo (Romo), Chief Financial Officer for Wyler, testified that Garcia was the only person in the pipefitting department who had filed a workers' compensation claim. Romo also admitted that a worker had to be assigned to work on Saturdays. In other words, a helper could not decide that he wanted to work a weekend.[5] There had to be work available and someone other than the helper made the decision as to who would work on weekends.
Garcia testified that he often worked on the weekends and that he never told anyone at Wyler that he preferred not to work on Saturdays. In fact, he had worked the Saturday before his termination. Further, on the very day he was terminated, Garcia had been told he needed to work the next Saturday and he had agreed to do so. Garcia also emphasizes that refusing to work on Saturdays was a serious violation of company policy, that notwithstanding *503 this purported violation, Garcia was never warned or disciplined for refusing weekend work, and that Wyler's failure to discipline violated the company's progressive disciplinary policy.
Garcia also draws to our attention the fact that Wyler's explanation for the termination changed during the course of the litigation. In correspondence with the EEOC five weeks after the termination, Wyler said Garcia was laid off because he was not available for Saturday work. This reason was repeated in Wyler's initial answers to interrogatories. In an affidavit filed one month before trial, Reimer stated that Garcia was selected for lay off based on seniority and based on the fact that he had previously refused to work on Saturdays. The supplemental answers to interrogatories, also filed one month before trial, explained that Garcia's selection for lay off was based on seniority and that his unavailability for Saturday work was a "secondary consideration." Yet, Wyler states in its brief in this Court:
Garcia was one of three pipefitter helpers. He and Billie Speights has [sic] been hired almost on the same date, so there was no issue of seniority. Of the three pipefitter helpers, Oscar Valdez, had the least seniority, but had announced that he was leaving so there was no need to lay him off. The determination of who to lay off was made based on their willingness to work weekends. Garcia had expressed his reluctance to work on Saturdays which was required of all employees. Billie Speights, on the other hand, had worked 10 out of 14 Saturdays after Mr. Garcia came back to work. [Emphasis added].
Lastly, less than a month after Garcia was terminated, Wyler accepted an application for another pipefitter's helper and within a week of the application, Garcia's position was filled.
Disparity of Treatment
Of the three pipefitter's helpers, Garcia was the only worker selected for lay off and happened to be the only individual who had filed a workers' compensation claim. Garcia urges that we infer discrimination from the fact that if, following his return to work, he worked fewer weekends than other employees, it was because the weekend schedule was a decision made by management. Implicit in this argument is the idea that Garcia was being set up or targeted for termination. While before his injury, Garcia was the only pipefitter's helper who was assigned his own company vehicle, following his return to work and for reasons that were never explained to him, Garcia was never reassigned his own truck.[6] And although Wyler contended that the layoff was based on its financial condition, the record reflects that another worker in the same position as Garcia received a pay raise following Garcia's termination.
After hearing all of the testimony and weighing the credibility of the witnesses, the jury determined that Wyler terminated Garcia because he filed a workers' compensation claim in good faith. We cannot substitute our conclusions for those of the jury and we cannot interfere with the jury's resolution of conflicts in the evidence or pass on the weight or credibility of the witnesses' testimony. While there was certainly evidence to support Wyler's claim that the company was suffering from an economic downturn, there was also evidence to support Garcia's contention that "but for" the filing of his workers' compensation claim, he would not have been terminated. We conclude that there is both legally and factually sufficient evidence to support the jury's finding that Garcia was terminated because he filed a workers' compensation claim. Accordingly, Issue One is overruled.
*504 Damages Issue
Question No. 2 read as follows:
What sum of money, if any, if now paid in cash, would fairly and reasonably compensate ROBERT GARCIA for his damages, if any, that resulted from such conduct?
Consider the elements of damages listed below and none other. Consider each element separately. Do not include damages for one element in any other element. Do not include interest on any amount of damages you may find.
Reduce lost wages, if any, by wages earned, if any, in the past.
Answer in dollars and cents, if any, or `None' if you answered `Yes' to Question 1.
a) Lost earnings and employee benefits in the past (between the date of discharge or layoff and today).
b) Compensatory damages in the past which may include emotional pain and suffering, inconvenience, mental anguish, loss of enjoyment of life and other non-pecuniary losses.
The jury answered "$60,000" to this question. In its second issue for review, Wyler argues that there was legally and factually insufficient evidence to support this damage award. It suggests that because the trial court did not segregate the damage elements, it is impossible to ascertain what amounts the jury awarded for lost income and what amounts they awarded for mental anguish.
Preservation of Error
Prior to addressing the merits of this contention, we turn to Garcia's argument that Wyler has failed to preserve error on the legal sufficiency complaint. We agree.
In Aero Energy, Inc. v. Circle C Drilling Company, 699 S.W.2d 821 (Tex.1985), the Supreme Court determined that as a prerequisite to a no evidence point of error on appeal, the appellant must have presented the no evidence point to the trial court by motion for instructed verdict, objection to the submission of the special issue, motion for judgment non obstante veredicto, motion to disregard the contested jury findings, or motion for new trial. The issue was raised again in Salinas v. Fort Worth Cab & Baggage Co., Inc., 725 S.W.2d 701 (Tex.1987). Mrs. Salinas was sexually assaulted by one of the defendant's cab drivers and was awarded judgment of $2,000,000 in actual damages and $500,000 in punitive damages because the cab company had failed to exercise a high degree of care and was grossly negligent in allowing the driver to operate one of its cabs. In its application for writ of error, the cab company complained that there was no evidence of impairment of the familial relationships and no evidence of negligence or violation of a duty to the plaintiff. The Court relied upon its holding in Aero Energy and noted that the cab company had not presented the issue to the trial court in any of the methods enumerated therein. While it had objected to the submission of the special issue on other grounds, it had not specifically objected on a no evidence ground and the error was waived.
After Aero and Salinas, motions for new trial were required in the specified instances contained in TEX.R.CIV.P. 324(b),[7] and in *505 all other instances if the specific complaint or objection had not previously been called to the trial court's attention by some other means. This generally recognized theory was rebuked in Wilson v. Dunn, 800 S.W.2d 833 (Tex.1990), which involved a default judgment. The defendant timely filed a motion for new trial, which did not complain of any defects in service of citation. On appeal, the defendant/appellant raised those complaints and the plaintiff/appellee argued that error had been waived because the issue of defective service had not been raised in the trial court. In holding that error had been preserved, the Court noted by way of footnote:
Rule 324 states that no complaints other than those specified in the rule need be raised in a motion for new trial as a prerequisite to appeal. The rule was amended in 1978 and 1981 to limit the use of motions for new trial to preserve error. However, Texas Rule of Appellate Procedure 52(a) provides that a complaint is not preserved for appellate review unless it is presented to the trial court and a ruling obtained. This rule serves the salient purpose of requiring that all complaints to be urged on appeal first be presented to the trial court so that any error can be corrected without appeal, if possible. How Rule 52(a) applies to complaints which cannot be raised prior to judgment but are not specifically required by Rule 324 to be raised in a motion for new trial, is unclear. On the one hand, if Rule 52(a) required that such complaints be raised by some means tantamount to a motion for new trial but simply not called by that name, then Rule 324 would be deceptive and its policy impaired. On the other hand, if Rule 52(a) does not apply to such complaints, then its language is overly broad and its policy undermined. These problems should be considered in future amendments to the rules.
Wilson, 800 S.W.2d at 837-38 n. 9. Logically, the hearing giving rise to the default judgment in Wilson was a bench trial. The ruling is interesting in light of a prior Supreme Court decision which is unmentioned in Wilson and which offered an intelligent means to harmonize the requirements of the rules of civil procedure and the rules of appellate procedure. In Luna v. Southern Pacific Transportation Company, 724 S.W.2d 383 (Tex.1987), the respondent urged cross-points on the apportionment of damages. The Court concluded that these points had been waived because they had not been referenced in the motion for new trial. Southern Pacific contended that Rule 324 obviated the necessity of a complaint on this issue in a motion for new trial. The Court stated:
We disagree. `[T]he purpose of the amendment is to make more liberal the prerequisites of appeal once a point of error has been preserved ...' Western Constr. Co. v. Valero Transmission Co., 655 S.W.2d 251, 256 (Tex.App.Corpus Christi 1983, no writ). Southern Pacific did not otherwise preserve error. Therefore, a motion for new trial incorporating the apportionment complaint was required. [Emphasis in original.]
Luna, 724 S.W.2d at 384. At roughly the same time as the Wilson opinion issued, former TEX.R.APP.P. 52(d) was amended to provide that "[a] party desiring to complain on appeal in a nonjury case that the evidence was legally or factually insufficient to support a finding of fact ... shall not be required to comply with paragraph (a) of this rule." As a result of the 1997 amendments to the Texas Rules of Appellate Procedure, this rule has now been deleted. We are left then with TEX. R.CIV.P. 324, which has already been set forth, and TEX.R.APP.P. 33.1, which provides:
(a) In General. As a prerequisite to presenting a complaint for appellate review, the record must show that:
(1) the complaint was made to the trial court by a timely request, objection, or motion that:
(A) stated the grounds for the ruling... and
*506 (B) complied with the requirements of the Texas Rules of Civil or Criminal Evidence or the Texas Rules of Civil or Appellate Procedure....
Subsection (B) was designed to eliminate conflict between the Rules of Civil Procedure and the Rules of Appellate Procedure. If a litigant complied with other rules for preservation of error, the issue could be raised on appeal. Regardless of the intent behind the rule amendment, it appears that the new rule requires that the objection comply with the appropriate rules, i.e., TEX.R.CIV.P. 324, AND that it have been presented to the trial court, even if the applicable rule does not require presentation.[8]
Here, Wyler urged an oral motion for instructed verdict complaining only that there was no causal connection between the filing of the workers' compensation claim and Garcia's termination. Because there was some evidence at least as to lost wages, an instructed verdict on that issue would have been pointless.[9] Next, Wyler objected to the charge, but once again, quite properly, not on the issue of damages.[10] However, following the jury's verdict, Wyler filed a motion for judgment non obstante veredicto which urged only a legal sufficiency complaint as to Question 1, the liability issue. There was no allegation addressing the sufficiency of the evidence as to damages. Finally, in its motion for new trial, Wyler complained of the legal and factual insufficiency of the evidence as to the liability issue, but urged only a factual sufficiency complaint as to damages. We conclude that only a factual sufficiency complaint is preserved.
Lost Earnings
The record reflects that at the time of his layoff, Garcia was earning $6 per hour. He was unemployed for a period of three months, resulting in lost earnings of $2,880. ($6 per hour X 40 hours per week X 4 weeks per month X 3 months). He then began working for a different company at the rate of $5.50 per hour, where he remained for approximately fifteen months. Thereafter, Garcia received hourly pay in excess of what he earned at the time of his termination. The income differential during this period of time totals $1,200. ($.50 per hour X 40 hours per week X 4 weeks per month X 15 months). Accordingly, the aggregated lost wages slightly exceed $4,000. Wyler does not contest these figures; instead, it focuses on the mental anguish damages.
Mental Anguish Damages
Mental anguish damages cannot be awarded without either "direct evidence of the nature, duration, and severity of [plaintiffs'] mental anguish, thus establishing a substantial disruption in the plaintiffs' daily routine," or other evidence of "`a high degree of mental pain and distress' that is `more than mere worry, anxiety, vexation, embarrassment, or anger.'" Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex.1995). Compensable mental anguish includes a mental sensation of pain resulting from "such painful emotions as grief, severe disappointment, indignation, wounded pride, shame, despair or public humiliation or a combination of any of these." Wal-Mart Stores, Inc. v. Odem, 929 S.W.2d 513, 528 (Tex. App.San Antonio 1996, writ denied). Not only must there be evidence of the *507 existence of compensable mental anguish, there must also be some evidence to justify the amount awarded. Saenz v. Fidelity & Guaranty Insurance Underwriters, 925 S.W.2d 607, 614 (Tex.1996). While the impossibility of any exact evaluation of mental anguish requires that juries be given a measure of discretion in finding damages, that discretion is limited. Burlington Coat Factory Warehouse of El Paso, Inc. v. Flores, 951 S.W.2d 542, 548 (Tex. App.El Paso 1997, no writ). Juries cannot simply pick a number and put it in the blank. Id. at 548. They must find an amount that, in the standard language of the jury charge, "`would fairly and reasonably compensate' for the loss." Id.citing Saenz, 925 S.W.2d at 614. "Compensation can only be for mental anguish that causes `substantial disruption in ... daily routine' or `a high degree of mental pain and distress.' "Id.citing Parkway, 901 S.W.2d at 444.
The Supreme Court has recently revisited the issue in a legal malpractice case. In Latham v. Castillo, 972 S.W.2d 66 (Tex. 1998), the Castillos sued their attorney who had failed to timely file a medical malpractice action arising from the death of their twin daughters, alleging a violation of the Deceptive Trade Practices Act (DTPA), breach of contract, fraudulent misrepresentation, and negligence. The trial court granted a directed verdict for Latham that the Castillos take nothing. The court of appeals reversed and remanded in part, concluding that the Castillos had presented some evidence to prevent a directed verdict on their DTPA claim, remanded without comment the breach of contract and fraudulent misrepresentation claims, and affirmed the directed verdict on the negligence claim. The Supreme Court affirmed the remand of the DTPA claim and reversed and rendered that the Castillos take nothing on the remaining claims. Id. at 67. After concluding that Latham's misrepresentation to the Castillosthat he had filed and was actively prosecuting the medical malpractice suit constituted unconscionable conduct, the court addressed whether the Castillos' mental anguish damages constituted actual damages under the Act and whether Latham's conduct was the producing cause of those damages. The Court concluded that the Castillos had satisfied their burden on the damages element of a DTPA cause of action if they had presented "some evidence" of mental anguish. Id. at 69. In reviewing the evidence, the Court compared its recent opinions:
The plaintiffs in Parkway alleged that they were `hot,' `very disturbed,' `not pleased,' and `upset.' Id. at 445. We held that these allegations were `mere emotions' that did not rise to a compensable level. Id.; see also Saenz v. Fidelity & Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex.1996)(holding that plaintiff's allegations that she `worried... a lot' did not rise to a compensable level under Parkway); Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 342 (Tex.1995)(Spector, J., concurring) (stating that plaintiff's allegations that she was `very upset' by the offending conduct did not rise to the level of any evidence of compensable mental anguish required under Parkway). In each of these cases, the plaintiffs' evidence of mental anguish amounted to `mere emotions.' The mental anguish testimony in this record, however, exceeds that in Parkway, Saenz, and Stoker.
Id. at 70. The Court then recounted the testimony of Mr. Castillo concerning his reaction when Latham told him he had filed the medical malpractice suit when, in fact, he had not:
A. Well, it made me throw up.
Q. Made you sick?
A. Sick, nervous, mad.
Q. Tell the jury how you felt about that, what it did to you.
A. It justit just hurt me a lot because I trusted in him and Iand if I had known, I would have looked for more lawyers. And he promised me he was going [to] do it, and I *508 trusted him to do it. Because of what they had done to my daughters, I would have never stopped; what the doctors done, I would have never stopped.
Similarly, Mrs. Castillo testified that "I my heart was broken. I was devastated, I felt physically ill."[11] The Court then concluded that "there is some evidence that Latham's conduct caused the Castillos a `high degree of mental pain and distress' that a jury could consider." Id.
With a view toward the standard enunciated by the Supreme Court, we turn now to Garcia's testimony.
Q. Mr. Garcia, I want you to look at this Jury and tell them how you felt when you lost your job?
A. I felt humiliated. I felt likeyou know, I always wanted to be an employee of Wyler because that was my object to be there a long time and be with the company that I so much desired to work for. And, you know, all my dreams went down, you know, that they would lay me off just like that when I knew there was work. And I knew I was a good worker. And I just wanted to be a hundred percent so I could work. And I knew there was work because I was working. But I felt, like, humiliated and, I mean, it's like I was crying inside.
. . .[12]
A. Yes. Well, like I said, I just felt I had been lied to and I felt like I had lost something that I had so much worked for, to be a member of Wyler, Incorporated, you know. And I just felt like I had been humiliated. I mean, it's a feeling that, you know, I can't really describe, you know. You know, it was sad for me. It was sad for me.
Q. How long were you unemployed Mr. Garcia?
A. Approximately three months.
Q. Would you describe, for the benefit of the ladies and gentlemen of the Jury, in that three-monthapproximate three-month time period how you felt, physically.
A. Physically I feltlike I say, I felt humiliated and I just, you know, I lost self-esteem, you know. I didn't sleep that good and I was having marital problems with my wife, and I was grouchy with my kids. And I just felt like, you know, feeling that I was empty. I felt empty. I really felt empty, you know.
Q. You said it affected your family?
A. Yes. We, me and my wife, had little problems, you know, and I was getting grouchy. And, you know, I pay child support and my ex-wife was, you know, coming down pretty hard. So
Q. Did you have problems financially?
A. Well, yes.
Q. Can you describe what some of those are?
A. Couldn't pay the rent. And I couldn't give my kids what they wanted. I couldn't pay no child support. I felt, you know, like doing nothing, just sleeping all day. But other than that, I couldn't help my wife with the bills, you know, stuff like that. Stuff that, you know, a man usually does to help out the family.
On cross-examination, Garcia acknowledged that he had not visited with a psychiatrist, psychologist, family counselor, or any other doctor concerning the mental anguish he was suffering. He further admitted *509 that the mental anguish lasted only until he secured employment and that he had no financial concerns or employment uncertainties after that. At the request of Wyler's counsel, Garcia told the jury that he believed he was entitled to $200,000 for the mental anguish he had suffered. In reviewing the evidence, we pay particular attention to the Parkway requirement that there be evidence of the nature, duration, and severity of the mental anguish. As to the nature of Garcia's distress, we have previously determined that evidence of marital discord, even if brief in nature, can be sufficient to show a substantial disruption in daily routine over and above mere worry, anxiety, vexation, embarrassment, or anger. Burlington Coat Factory Warehouse of El Paso, Inc., 951 S.W.2d at 548. The evidence here reveals a relatively short-term duration of approximately three months. However, an award for mental anguish, even if it only existed during a four-month period of unemployment, is not unreasonable. Id.In considering the severity of the mental anguish, we note that Garcia testified to a loss of self-esteem, a heightened sense of humiliation, sleep disorders running the gamut from not sleeping well to "sleeping all day." Even some five years after the termination, Garcia continued to get a knot in his stomach whenever he saw a Wyler truck because of the way they treated him. Financial concerns were troubling, and Garcia mentioned his inability to pay his child support and his former wife's attempts to "come down pretty hard." While Garcia's inability to pay rent or help his wife with the bills would be cause for some concern, nonpayment of child support would generate far greater distress inasmuch as it is punishable by contempt and carries the potential of incarceration. Lastly, there was some evidence designed to quantify the damages, although the jury returned a verdict in a far lesser amount than that which Garcia requested.
We conclude that the compensatory damages were not against the great weight of the evidence. Accordingly, Issue Two is overruled.
PREJUDGMENT INTEREST
In Issue Three, Wyler argues that the court abused its discretion in awarding prejudgment interest of ten percent compounded annually from February 8, 1993, which is the 180th day after the date Wyler received written notice of a claim and ending on the date preceding the date the judgment is rendered. Wyler contends the trial court erred because (1) there is no evidence in the record of any request being sent; (2) the prejudgment interest should not have been compounded annually; and (3) the prejudgment interest should be reduced because of delays caused by Garcia. The first two grounds have been waived inasmuch as Wyler never urged these complaints in the trial court. TEX.R.APP.P. 33.1(a). Only the third ground was preserved via Wyler's motion for new trial.
An order of dismissal was entered on December 30, 1996 due to Garcia's lack of diligence in prosecuting the case.[13] The case was then reinstated by order dated February 27, 1997. In its motion for new trial, Wyler argued that prejudgment interest should run from the date of reinstatement. In that event, Garcia would only be entitled to seven months of interest.
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 of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex.1998), citing Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549, 552 (Tex.1985). The two legal sources for *510 prejudgment interest are general principles of equity and an enabling statute. Id. In Cavnar, the Supreme Court adopted a rule permitting recovery of prejudgment interest on personal injury, wrongful death and survival actions, the interest to be compounded daily. Cavnar, 696 S.W.2d at 554. Two years after Cavnar issued, the Legislature added Section 6 to TEX.REV. CIV.STAT. art. 5069-1.05. Section 6 codified and modified the Cavnar rule by mandating the inclusion of prejudgment interest on judgments in wrongful death, personal injury, and property damage cases. Johnson & Higgins, 962 S.W.2d at 529. The statute shortened the time frame for the accumulation of prejudgment interest[14] and provided that the interest would be computed as simple interest. Id. One other modification is applicable here. The statute permits tolling accrual of prejudgment interest during periods of delay caused by the plaintiff or the defendant. To the extent section 6 does not apply, any award of prejudgment interest is governed by the common law.[15] Here, however, section 6 applies inasmuch as mental anguish is considered a personal injury under Texas law. City of Alamo v. Casas, 960 S.W.2d 240, 259 (Tex.App.Corpus Christi 1997, writ denied).
The award of prejudgment interest is generally discretionary with the trial court. Lege v. Jones, 919 S.W.2d 870, 875-76 (Tex.App.Houston [14th Dist.] 1996, no writ); Southwest Airlines Co. v. Jaeger, 867 S.W.2d 824, 837 (Tex.App.El Paso 1993, writ denied). The trial court's decision in refusing to offset from its interest calculations periods of delay caused by a litigant are reviewed under the abuse of discretion standard. Because the offset is discretionary rather than mandatory, the reviewing court should not substitute its opinion for that of the trial court. See City of Alamo, 960 S.W.2d at 260 (where the appellate court affirmed the trial court's denial of offset despite the case having been twice dismissed for want of prosecution as a result of the plaintiff's inaction). We conclude that the trial court did not abuse its discretion and overrule Issue Three.
LIABILITY INSTRUCTION
In Issue Four, Wyler contends the court erred in submitting the instruction on liability. We review the court's charge under an abuse of discretion standard. Texas Dep't of Human Services v. E.B., 802 S.W.2d 647, 649 (Tex.1990). The trial court's failure to submit a requested instruction will constitute reversible error if the failure probably caused the rendition of an improper judgment. TEX.R.APP.P. 44.1(a)(1); see Sanchez v. King, 932 S.W.2d 177, 182 (Tex.App.El Paso 1996, no writ). Rule 273 provides that either party may present to the court and request written questions, definitions, and instructions to be given to the jury, and the court may give them or a part thereof, or may refuse to give them, as may be proper. TEX.R.CIV.P. 273. The court shall submit such instructions and definitions as shall be proper to enable the jury to render a verdict. TEX.R.CIV.P. 277. Furthermore, the court shall submit the questions, instructions, and definitions that are raised by the written pleadings and the evidence. TEX.R.CIV.P. 278; see Elbaor v. Smith, 845 S.W.2d 240, 243 (Tex.1992). An instruction *511 is proper only if it (1) assists the jury, (2) accurately states the law, and (3) finds support in the pleadings and evidence. McReynolds v. First Office Mgmt., 948 S.W.2d 342, 344 (Tex.App.Dallas 1997, no writ). The trial court has considerable discretion in submitting explanatory instructions and definitions to enable the jury to render a verdict. Mobil Chemical Co. v. Bell, 517 S.W.2d 245, 256 (Tex.1974).
The question and the accompanying instruction were submitted by the trial court according to the recommendation in the Pattern Jury Charges. See STATE BAR OF TEXAS, TEXAS PATTERN JURY CHARGESBUSINESS CONSUMER & EMPLOYMENT PJC 107.5 (1997). The question and instruction are in substantially correct form and are supported by the evidence. Finding the submission to be neither arbitrary nor unreasonable, we conclude the trial court did not abuse its discretion. Issue Four is overruled.
EVIDENTIARY COMPLAINT
In Issue Five, Wyler claims the court erred in excluding evidence of the amounts received by Garcia from workers' compensation and from unemployment compensation. The admission and exclusion of evidence is a matter within the discretion of the trial court. Gee v. Liberty Mutual Fire Insurance Co., 765 S.W.2d 394, 396 (Tex.1989). The collateral source rule prevents introduction of evidence relating to benefits received by an employee in a worker's compensation retaliation case. Azar Nut Co. v. Caille, 720 S.W.2d 685, 688 (Tex.App.El Paso 1986), citing McLemore v. Broussard, 670 S.W.2d 301 (Tex.App.Houston [1st Dist.] 1983, no writ), aff'd, 734 S.W.2d 667 (Tex. 1987); Texas General Indemnity Co. v. Hamilton, 420 S.W.2d 735 (Tex.Civ.App. San Antonio 1967, writ ref'd n.r.e.); Traders & General Insurance Co. v. Reed, 376 S.W.2d 591 (Tex.Civ.App.Corpus Christi 1964, writ ref'd n.r.e.).
The issue of collateral source payments was the subject of a motion in limine. However, a trial court's ruling on a motion in limine does not preserve error. Hartford Accident and Indemnity Co. v. McCardell, 369 S.W.2d 331, 335 (Tex.1963); Collins v. Collins, 904 S.W.2d 792, 798 (Tex.App.Houston [1st Dist.] 1995), writ denied, 923 S.W.2d 569 (Tex.1996). To preserve error concerning the exclusion of evidence, the complaining party must actually offer the evidence and secure an adverse ruling from the court. Johnson v. Garza, 884 S.W.2d 831, 834 (Tex.App. Austin 1994, writ denied). While the reviewing court may be able to discern from the record the nature of the evidence and the propriety of the trial court's ruling, without an offer of proof, we can never determine whether exclusion of the evidence was harmful. Thus, when evidence is excluded by the trial court, the proponent of the evidence must preserve the evidence in the record in order to complain of the exclusion on appeal. Weng Enterprises, Inc. v. Embassy World Travel, Inc., 837 S.W.2d 217, 221 (Tex.App.Houston [1st Dist.] 1992, no writ); see TEX.R.EVID. 103. Compliance with the evidentiary rules on an offer of proof preserves error for appellate review. TEX.R.APP.P. 33.1(a)(1)(B). The reason for the offer of proof is explained in Anderson v. Higdon, 695 S.W.2d 320 (Tex.App.Waco 1985, writ ref'd n.r.e.):
When tendered evidence is excluded, whether testimony of one's own witness on direct examination or testimony of the opponent's witness on cross-examination, in order to later complain it is necessary for the complainant to make an offer of proof on a bill of exception to show what the witness' [sic] testimony would have been. Otherwise, there is nothing before the appellate court to show reversible error in the trial court's ruling.
Id. at 325.
The issue of collateral source income was discussed outside the presence of the jury on several occasions during the *512 trial. Wyler's counsel argued that the evidence of collateral source income should be admitted for the purposes of impeaching Garcia regarding his inability to pay bills and provide for his family. Even if we were to agree that exclusion of the evidence was error, we cannot determine whether the error was harmful. Wyler has failed to demonstrate that the judgment turned on the particular evidence excluded or to otherwise direct us to any harm suffered from the exclusion. By failing to offer the excluded evidence, nothing has been preserved for review. Accordingly, we overrule Issue Five. See TEX. R.APP.P. 33.1.
Having overruled the five issues presented for review, we affirm the judgment.
NOTES
[1] Wyler contends that during the first six months of 1992, the business volume was very low, down $152,761 from the same period in 1991.
[2] Wyler's philosophy was that it was in the injured worker's best interest to return to work as soon as possible.
[3] This employee held a secretarial position which was eliminated.
[4] Because of the nature of Wyler's business as an industrial repair company, weekend work is necessary and is a condition of employment.
[5] Garcia testified that the reason employees liked weekend work was the fact that they received overtime pay.
[6] The injury giving rise to Garcia's workers' compensation claim resulted from a serious traffic accident in which his assigned truck was totaled. The record does not reflect whether Wyler replaced the vehicle.
[7] TEX.R.CIV.P. 324(a) provides that a motion for new trial is not required in either a jury or nonjury case except as provided in subsection (b). Subsection (b) provides that a motion for new trial is required as a prerequisite to the following complaints on appeal:
a complaint on which evidence must be heard such as one of jury misconduct or newly discovered evidence or failure to set aside a judgment by default;
a complaint of factual insufficiency of the evidence to support a jury finding;
a complaint that a jury finding is against the over-whelming weight of the evidence;
a complaint of inadequacy or excessiveness of the damages found by the jury; or
a complaint of incurable jury argument if not otherwise ruled on by the trial court.
[8] We urge the Supreme Court to consider a clarification of the rule in subsequent amendments.
[9] An instructed verdict is proper only in response to a legal sufficiency, or no evidence, complaint. If there is some evidence presented, the trial court cannot direct a verdict. Mills v. Angel, 995 S.W.2d 262, ___ (Tex. App.Texarkana 1999, n.p.h.); Brookshire Brothers, Inc. v. Wagnon, 979 S.W.2d 343, 350 (Tex.App.Tyler 1998, pet. filed).
[10] Similarly, if there is some evidence presented, the trial court errs in failing to submit the issue. Cash America International, Inc. v. Hampton Place, Inc., 955 S.W.2d 459, 462 (Tex.App.Fort Worth 1997, pet. denied).
[11] These excerpts of testimony constitute the full range of evidence referenced by the Court.
[12] The proceedings were interrupted by a courthouse evacuation alarm. Mr. Garcia continued his testimony when the trial reconvened.
[13] The order of dismissal notes that the lack of diligence occurred prior to the substitution of Garcia's current counsel.
[14] Section 6 provides that prejudgment interest generally begins to accrue on the earlier of (1) 180 days after the date the defendant receives written notice of a claim, or (2) the day the lawsuit is filed. TEX.REV.CIV.STAT. art. 5069-1.05, § 6(a).
[15] The Supreme Court has recently determined 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 the lawsuit is filed, accrues at the rate for postjudgment interest, and is to be computed as simple interest. Johnson & Higgins, 962 S.W.2d at 531-32. The holding was expressly applied to all cases in which judgment was rendered on or after December 11, 1997 and to all other cases in the judicial pipeline in which the issue was preserved. Id. at 533. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1767141/ | 633 So. 2d 521 (1994)
STATE of Florida, DEPARTMENT OF INSURANCE, as Receiver of Atlantic General Life Insurance Company, Appellant,
v.
William B. BLACKBURN, Pamela Jeanne Turbow Rush, Susan Lynn Boswell, Tower Investment Group, Inc., Gulf Coast Aircraft Charter, Inc., Blackburn & Company and Bay Harbour Investments, Inc., Appellees.
No. 92-04449.
District Court of Appeal of Florida, Second District.
March 9, 1994.
*522 Joseph L. Rebak, Thomas C. Tew and Matias R. Dorta of Tew & Garcia-Pedrosa, Miami, for appellant.
W. Donald Cox and Javier M. Guzman of Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., Tampa, for appellees.
RYDER, Acting Chief Judge.
The State of Florida Department of Insurance, as Receiver of Atlantic General Life Insurance Company (AGL), challenges the trial court's order dismissing with prejudice its sixteen-count complaint as to all defendants in this action involving claims of breach of fiduciary duty, waste of corporate assets, civil theft and conspiracy. Because we conclude that the Department may be able to state a claim against appellees, we reverse to allow the Department the opportunity to amend.
On September 1, 1992, the Department of Insurance, as the Receiver for AGL, filed a complaint against the appellees. AGL was incorporated and licensed as an insurer in the State of Florida in 1985. The complaint alleged that from that time until August 1988, it was a wholly owned subsidiary of Guarantee Security Life Insurance Company (GSL). GSL was placed into receivership on August 12, 1991, under the provisions of chapter 631, Florida Statutes (1991). During that period, William B. Blackburn was an officer and director of GSL and the president of AGL.
In 1988, as part of an agreement for Blackburn to sever his association and ownership interest in GSL and its parent company, Transmark USA, Blackburn acquired the stock of AGL from GSL in a less-than-armslength transaction. Prior to the transfer of AGL's stock to Blackburn, GSL made a cash contribution to AGL of $1.7 million which increased AGL's total capital surplus to approximately $3.3 million. GSL also transferred certain of its reserves and cash, totalling approximately $20 million to AGL under a coinsurance agreement. In August 1988, Blackburn allegedly purchased stock of AGL for $3.3 million. From August 1988 until March 10, 1992, when AGL was adjudicated insolvent and placed into receivership, AGL was the wholly-owned subsidiary of Blackburn & Co. Mr. Blackburn was an officer, director and shareholder of Blackburn & Co. and Pamela Rush was an officer and director of that company. During this time period, Blackburn was the chairman, president and a director of AGL, Rush was the secretary, treasurer and a director of AGL and Susan Boswell was the vice-president and a director of AGL. Blackburn, Rush and Boswell allegedly engaged in a course of conduct and series of transactions whereby they methodically depleted AGL's assets to enrich themselves.
From August 1988 through March 10, 1992, all administrative and insurance related activities of AGL were performed by GSL pursuant to the coinsurance agreement. From 1988 through 1991, all investment services relating to AGL's assets were handled by two entities owned and controlled by Blackburn, namely, Blackburn Management and Tower Investment Group, Inc. For the four years that AGL was under the management of Blackburn, Rush and Boswell, it had approximately $400,000 in total premium income, all of which was derived from seven insurance policies sold by AGL prior to August 1988 and from AGL's coinsurance agreement with GSL. Despite AGL's lack of activity during this time period, Blackburn, Rush and Boswell caused AGL to incur expenses, salaries, fees and benefits in excess *523 of $1.5 million, in addition to the fees paid by AGL to GSL, Blackburn Management and Tower. These expenses were allegedly exorbitant, wasteful, unnecessary and duplicative since GSL, Blackburn Management and Tower were performing all the services necessary for AGL's business.
Additionally, Blackburn, Rush and Boswell caused AGL to enter into numerous contractual arrangements and transactions with entities controlled by Blackburn for the alleged purpose of depleting AGL's assets and enriching themselves. These contractual arrangements and transactions included the following:
(1) AGL made twenty-five payments totalling $325,000 to Gulf Coast Aircraft Charter, Inc. for the use of an aircraft even though AGL did not use or need an aircraft. Gulf Coast was owned by Blackburn and Rush was a director and executive officer of Gulf Coast;
(2) AGL purchased for $2,342,000 worthless preferred stock of Blevins Concession Supply Company, Inc. from Bay Harbour Capital, Inc. owned by Blackburn. Rush was a director and executive director of Bay Harbour Capital. Additionally, Blackburn was a majority shareholder and a director of Blevins and Rush was a director and secretary of Blevins.
(3) AGL purchased for $1.2 million worthless preferred stock of Hallmark Packaging Products, Inc. from Bay Harbour Investment Inc. owned by Blackburn. Rush was a director and executive officer of Hallmark. Additionally. Blackburn was a majority shareholder, director and executive officer of Hallmark and Rush was an executive officer of Hallmark.
(4) Blackburn, Rush and Boswell caused AGL to purchase Hallmark notes of $1,558,000, even though at the time, Blackburn and Rush knew that the notes were worthless;
(5) Blackburn & Co. purchased an office building from an unrelated third party for $1 million and sold it that same day to AGL for $1,350,000 even though AGL conducted virtually no insurance business and did not need the building;
(6) From March 1989 through December 1989, after Tower assumed performance of the services previously performed by Blackburn Management, Blackburn, Rush and Boswell caused AGL to pay Blackburn Management in excess of $440,000 even though they allegedly knew that Blackburn Management was not providing any services which were beneficial to AGL. At that time, Blackburn owned Blackburn Management and Rush was a director and executive officer of that company.
On March 10, 1992, AGL was adjudicated insolvent. The consent order of liquidation for AGL appointed the Department of Insurance as Receiver of AGL pursuant to chapter 631.
All of the appellees moved to dismiss the complaint. Without the benefit of appellant's response to the amended motion to dismiss, the trial court entered its order stating that "[b]y virtue of William B. Blackburn's status as sole shareholder and the Department's status as successor to Atlantic General Life Insurance Company there is no way that this Complaint could be amended to state a cause of action against Defendants." This appeal ensued.
In Counts I through IX and XV of the complaint, the Department asserts claims on behalf of AGL for breach of fiduciary duty, waste of corporate assets, civil theft and other civil remedies for criminal practices allegedly engaged in by its officers and directors, including RICO claims. Counts X through XIV and XVI assert claims under sections 631.261(1) and 631.399, Florida Statutes (1991). Counts X and XI demand that payments made to Gulf Coast and Tower by Blackburn, Rush and Boswell be deemed voidable transfers and Counts XII through XIV seek judgment against Gulf Coast, Tower and Blackburn & Co. for transfers prior to the petition for liquidation. The Department seeks in Count XVI to recover from any "affiliate" the amount or value of distributions other than stock dividends made to Gulf Coast, Blackburn & Co., Bay Harbour Investments and Tower during the five years preceding the petition for liquidation by AGL.
*524 Appellant argues that the trial court erred in limiting its focus to the receiver's role in asserting claims on behalf of the entity in receivership pursuant to section 631.141(2), Florida Statutes (1991). A receiver is also authorized to assert claims under sections 631.261(1), 631.262(2) and 631.399 that belong exclusively to it. These claims can only arise after the receiver is appointed, and, therefore, cannot belong to the entity. Moreover, appellees' counsel acknowledged that the receiver could amend its complaint to recover fraudulent transfers.
The appellees argue that all the entities named in Counts X through XIV and XVI are commercial conduits and are therefore not liable. The commercial conduit rule protects those intermediary transferees that are controlled by the actual intended transferee. See In re Anchorage Marina, Inc., 93 B.R. 686 (Bankr.D.N.D. 1988). The commercial conduit rule to fraudulent transfers is, however, an affirmative defense and cannot support the dismissal of the receiver's complaint with prejudice. Hammonds v. Buckeye Cellulose Corp., 285 So. 2d 7 (Fla. 1973). Moreover, the "conduit exception" is equitable in nature and protects innocent transferees. See In re Anchorage Marina at 694. Here, Gulf Coast, Tower and Blackburn & Co. were alleged to be knowing participants and recipients of the fraudulent transfers identified in the complaint.
Appellants argue that all of the elements of a cause of action under section 631.261(1) were pled in Counts X and XI. Section 631.261(1) operates to void transfers made within four months prior to the commencement of any delinquency proceeding with the intent of giving any creditor of the insurer a preference or enabling him to obtain a greater percentage of his debt than any other creditor of the same class.
Appellees contend that Counts X and XI are deficient because they demand recovery from affiliates without establishing or identifying a prejudiced creditor. At a minimum, appellant should be afforded the opportunity to amend the complaint to identify the creditors. We conclude that for the limited purpose of withstanding a motion to dismiss that all of the elements have been adequately pled.
Appellees present a "sole shareholder" argument with respect to Counts I through IX and XV brought by the Department as a successor to the liquidating entity. They argue that a sole shareholder or any number of shareholders owning 100% of the stock among them may transfer that corporation's assets without restrictions unless these transactions prejudice creditors or violate regulatory requirements. L.R. Schmaus Co. v. Comm'r, 406 F.2d 1044, 1045 (7th Cir.1969). Thus, Blackburn, as AGL's sole shareholder, had complete discretion to transfer AGL's assets. Consequently, appellees assert that the receiver's complaint amounts to a claim that Blackburn defrauded himself and such a claim is not actionable as a breach of fiduciary duty, civil theft, fraud or conspiracy. In re Tufts Electronics, 746 F.2d 915, 917 (1st Cir.1984). As a successor, the receiver can only bring causes of action that were possessed by the corporation placed in receivership. Hamilton v. Flowers, 134 Fla. 328, 183 So. 811, 817 (1938). Appellant responds that it could amend the complaint to name Melanie Forlong, Blackburn's former wife, as a joint shareholder of stock of AGL's parent company. Moreover, there may also be other creditors and insurance policyholders who are due money. Thus, the argument fails that allegedly Blackburn is just stealing from himself; not so, other interests are involved.
Appellees also present the argument that they are not liable because the imputation rule operates to impute the officers' and directors' conduct and knowledge to AGL. Here, however, where it is alleged that the agents were acting adversely to the corporation's interests, the knowledge and misconduct of the agent are not imputed to the corporation. Tew v. Chase Manhattan Bank, N.A., 728 F. Supp. 1551 (S.D.Fla. 1990). Furthermore, the imputation rule can only be invoked to protect innocent parties, and it is not available to the person who perpetrated the misconduct sought to be imputed. FDIC v. O'Melveny & Myers, 969 F.2d 744, 751 (9th Cir.1992).
*525 Based upon the foregoing discussion, we conclude that the trial court erred in dismissing the complaint with prejudice without affording the Department the opportunity to amend. We therefore reverse the trial court's order of dismissal and remand for further proceedings.
PARKER, J., and SCHAEFFER, SUSAN F., Associate Judge, concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2389782/ | 347 S.W.2d 918 (1961)
J. D. WHEELER, Receiver of Texas Mutual Insurance Company, Petitioner,
v.
AMERICAN NATIONAL BANK OF BEAUMONT et al., Respondents.
No. A-8088.
Supreme Court of Texas.
June 28, 1961.
Rehearing Denied July 26, 1961.
Cecil C. Rotsch, Austin, Tatum & Ball, Beaumont, Groce & Hebdon, Charles L. Smith, San Antonio, for petitioner.
*919 Strong, Moore, Pipkin, Strong & Nelson, Beaumont, for First Nat. Bank of Beaumont.
Marcus, Weller & Evans, Beaumont, for V. C. Thompson.
Orgain, Bell & Tucker, Beaumont, for The American Nat. Bank.
SMITH, Justice.
On January 19, 1955, J. D. Wheeler, as Receiver for Texas Mutual Insurance Company, filed a cross-action in a suit styled E. E. Langham et al. v. Hergot S. Lowry et al. pending in the 60th District Court of Jefferson County, Texas, to recover actual and exemplary damages on the principal basis of a conspiracy to defraud against certain individuals, who were alleged to have been organizers, officers, and directors of Texas Mutual; the First National Bank of Beaumont, Texas, hereinafter referred to as First National Bank; the American National Bank of Beaumont, Texas, hereinafter designated as American National Bank; V. C. Thompson, an examiner for the Board of Insurance Commissioners of the State of Texas, hereinafter referred to as Thompson; Samson Carr, hereinafter referred to as Carr, and Carl A. Kohler, hereinafter referred to as Kohler.
On February 10, 1956, the trial court sustained a plea of privilege as to certain individual defendants. Thereafter, the Court ordered a severance and separate trial of the Receiver's cross-action against the First National Bank, the American National Bank, Thompson, Carr, and Kohler. This severed cause of action was styled J. D. Wheeler, Receiver of Texas Mutual Insurance Company v. The American National Bank of Beaumont et al.
The banks and Thompson filed motions to dismiss and pleas in abatement alleging that the Receiver's complaint did not state a cause of action against them.
On March 30, 1956, such motions were sustained. The Receiver refused to amend, whereupon the suit as to Thompson and the banks was dismissed. The Court on its own motion dismissed the defendants Carr and Kohler from the suit.
On Appeal the Court of Civil Appeals at Beaumont, Texas, affirmed the judgment of the trial court in so far as the banks, Carr, and Thompson were concerned, but reversed and remanded as to Kohler, 338 S.W.2d 486. Kohler has not filed an application for writ of error. Therefore, the judgment of the Court of Civil Appeals as to him is final.
The controlling question here is whether the cause of action asserted against the two banks, Thompson, and Carr may be prosecuted by the Receiver of the Texas Mutual Insurance Company on the theory that the recovery sought by the Receiver is for assets belonging to Texas Mutual. The trial court and the Court of Civil Appeals have sustained the pleas in abatement on the theory that the suit is one for damages personal to policyholders, claimants, and creditors of Texas Mutual, for which they alone can bring suit.
In dismissing the suit as to the banks and the above named parties on the ground that the alleged cause of action against the banks could not be prosecuted by the Receiver of the Texas Mutual Life Insurance Company, the trial court and the Court of Civil Appeals incidentally passed upon and dismissed the alternative contention raised by the pleadings of the Receiver that the banks, if not liable on the general conspiracy cause of action, then at least such Banks should be held liable on the theory that each bank should be held for the amount it represented was on deposit in its Bank. This theory of estoppel as to the banks is presented here by the Receiver through points asserting that the Court of Civil Appeals erred in holding that the banks did not convert and/or misappropriate assets of Texas Mutual, and erred in holding that the banks were not estopped to deny that Texas Mutual and its creditors, claimants, and policyholders were the *920 owners of and entitled to those sums of money which each bank "falsely" represented Texas Mutual to own.
This appeal will turn on the construction of the Receiver's pleadings. The pleadings consist of more than one hundred and sixty legal-size pages. In passing upon the questions before us, we do not pass upon the merits of this suit. We are not concerned with whether the allegations contained in the petition can be proved. The Receiver's allegations, so far as this appeal is concerned, must be accepted as true. All references in this opinion with respect to the facts relate solely to the allegations in the Receiver's pleadings.
We have concluded that the Receiver had the right to maintain this cause of action on behalf of the creditors, policy-holders, and claimants of the Texas Mutual, and that the Court of Civil Appeals erred in sustaining the pleas in abatement and in dismissing this suit. However, we have also concluded that the pleadings, so far as the banks are concerned, fail to connect the banks with the alleged overall conspiracy. The Receiver's cause of action as to the banks is limited to his alternative pleadings wherein he alleges that by virtue of the transaction entered into between the First National Bank and the American National Bank and the officers of the Texas Mutual pertaining to the $20,000 fictitious loan transaction involving the First National Bank to obtain the permit to do business in Louisiana; the $20,000 1950 year end fictitious loan transaction between Texas Mutual and the First National Bank; the $50,000 1950 year end fictitious loan transaction between Texas Mutual and the American National Bank; the $50,000 Taylor draft transaction between Texas Mutual and the First National Bank; and the $25,000 1951 year end fictitious loan transaction between Texas Mutual and the American National Bank, the banks were aiding the officers of the Texas Mutual in creating fictitious assets of the Texas Mutual so that the officers could represent to the Insurance Commission of Texas and to the Insurance Commissions of other states in which the company was operating that Texas Mutual had the necessary surplus required by law to do an insurance business. It is alleged that such transactions were fraudulent and that by virtue of such fraudulent transactions the First National Bank and the American National Bank are estopped to deny that the Texas Mutual was the owner of such sums of money, and that when they took back such assets under the guise of repayment of purported loans, they converted and mis-appropriated the assets of Texas Mutual in fraud of Texas Mutual and its claimants, creditors, and policyholders. The alternative pleadings, in effect, allege that the furnishing of money to be deposited in the bank and the certification by the banks that Texas Mutual had at certain specific times money on deposit with them, and the arrangement between the management of Texas Mutual and the banks was such that the money was loaned to Texas Mutual under circumstances whereby it could not be removed from the bank without the signature or approval of the bank itself and its officers, were false and that the making of such false certificates was for the purpose of leaving the impression with the Insurance Commission that the Texas Mutual was in better financial condition than the true facts would reflect. Under such pleadings, the liability of each bank is limited to the amount it represented Texas Mutual had on deposit.
The facts alleged by the Receiver in his alternate plea concerning the banks entering into the above enumerated transactions to aid Texas Mutual in bolstering its assets are comparable in principle to such cases as McWhirter v. First State Bank of Amarillo, Tex.Civ.App., 182 S.W. 682, wr. ref.; Shaw v. Borchers, Tex.Com.App., 46 S.W.2d 967, and Farmers State Bank in Merkel v. Largent, Tex.Civ.App., 132 S.W.2d 482, wr. ref., where makers of promissory notes gave their notes to a bank in order to aid the bank in its original incorporation. In *921 those cases, the Court held that in a situation where the note was executed to aid the bank in bolstering its assets and to show false assets to bank examiners in making examinations for the State, the maker of the note was estopped to assert its invalidity. In such cases, where a fraud action was brought against the maker of the note, the courts have held that the Receiver is the proper party to bring the suit and not the creditors or depositors of the insolvent bank.
The Receiver argues that a cause of action has been alleged in the present case, in that the banks having knowingly mis-represented the financial condition of the Texas Mutual as reflected by the bank records, the banks are estopped to urge the falsity of the banks' own statements.
We can see no sound distinction between the present case and the case of Golden v. Cervenka, 278 Ill. 409, 116 N.E. 213, 280. The facts in the Golden case are lengthy and somewhat involved, but the acts alleged against the Central Trust Company in that case are very similar to the acts alleged against the banks in the present case. In the Golden case, the Receiver of the defunct LaSalle Street Trust & Savings Bank brought an action against the stock-holders to enforce the stockholders' statutory double liability and also joined in such action an action against the Central Trust Company of Illinois, to recover assets of the insolvent bank in the amount of $1,250,000 that the Central Trust Company, another bank, had converted to its own use.
As to the cause of action alleged against the stockholders to enforce their statutory double liability, the Court held that under the Constitution of Illinois, the Receiver could not maintain such action, since under the Constitution such right was given exclusively to the creditors. However, the Court held that the Receiver had the right to maintain the action against the Central Trust Company, and affirmed the judgment of the trial court in favor of the Receiver against the Central Trust Company.
The laws of Illinois under which the State Bank was organized required the payment of capital and surplus in cash before the bank could commence business and before the issuance of the Auditor's Certificate. The scheme devised to evade the laws of Illinois was to have the stockholders of the National Bank subscribe to the stock of the new State Bank, with no intention that such subscriptions would be paid, and to temporarily obtain $1,250,000 from the Central Trust Company so that the officers of the newly organized State Bank, the LaSalle Street Trust & Savings Bank, could then make an affidavit, as required by law, to the Banking Commissioner that the full amount of capital stock and surplus of $1,250,000 was actually paid in cash as required by law and that such amount of cash was in the hands of the proper officers to be used solely in the legitimate business of the bank and so that the officers could further physically exhibit $1,250,000 in cash to satisfy the Banking Commissioner that the new state bank actually possessed such sum in capital and surplus and was entitled to commence business.
After obtaining the charter and license for the new bank, the scheme was then for the new state bank to take over the national bank's assets, assume its liabilities and then have the stockholders in the old national bank to exchange their stock for stock in the new state bank. Under the arrangement, the new bank started operating on the assets and liabilities of the old bank and since the old bank was insolvent, and since due to the fact that the $1,250,000 allegedly dedicated to the business of the new bank was not in fact so dedicated, the new bank started operating in an insolvent condition and after about two years operation wound up in receivership.
In sustaining the judgment of the trial court against the Central Trust Company for the $1,250,000 it had gratuitously permitted the new bank to use and represent to be its assets, the Court held:
*922 "Since the statute contained no provision for the conversion of the national bank into a state bank, there was no provision of law for the examination of the national bank by the state authorities before the transfer. The statute contemplated only one method of organizing the state bank, and only one character of assets. The auditor had no authority to issue a certificate authorizing the bank to commence business, unless he was satisfied that it possessed in cash the amount of capital and surplus named. The grant of authority to commence business was based upon the possession of the money. The affidavit of the directors stated that the money was in the hands of the proper officers, and the money was paid over to Lorimer by the Central Trust Company upon the check of the LaSalle Street Trust and Savings Bank. The object of the Banking Act is the protection of depositors and creditors of the bank, and the requirement of the possession of the whole amount of capital and surplus in cash at the organization of the bank is for their benefit. Whoever becomes a creditor of the bank has a right to rely upon its capital as a fund whereby its indebtedness is secured, and any loss incurred in its business may be made good, so that the depositors or other creditors may not suffer. The elaborate system of notes, checks, and book-keepers' entries, debit and credit, do not affect the substance of the transaction. They did not create any cash, and if none of those documents had been executed and none of the entries made the substance of the transaction would still have been the same, and that was, that the Central Trust Company, at Lorimer's request, permitted him to hand to the auditor's representative $1,250,000 of the trust company's money as the money which the directors of the LaSalle Street Trust & Savings Bank had in their affidavit stated was in the hands of the officers of the bank, to be used solely in its legitimate business. Of course, the auditor's agent was not brought there to satisfy himself that there was that much money in some bank in Chicago, and, of course, nobody thought so. The counting of the money is spoken of as a technical requirement of the auditor, but if it is properly regarded as a technical requirement nobody could reasonably imagine that the counting of $1,250,000 of anybody's money would satisfy the requirement. It was the bank's capital and surplus about which the auditor was required to satisfy himself, and the exhibition and delivery of the money to him was as the bank's capital, which was stated in the affidavit to be in the possession of the bank's officers, and was produced from their depositary for his inspection. This amounted to a solemn declaration that the particular currency which was there present was the property of the LaSalle Street Trust and Savings Bank, dedicated solely to its business and subject absolutely to its control. The Auditor's certificate was based on this representation. All persons giving credit to the bank were entitled to rely upon the auditor's certificate, and it is in accordance with the plainest principles of equity that no person who procured that certificate to be made could afterward be permitted to deny its truth, or the truth of his representation on which it was based, as against a subsequent creditor of the bank who was injured by reason of its falsity. It is immaterial whether such subsequent creditor knew of the previous representation or not. If he was injured by reason of the false certificate he has a right to seek redress against those who caused it to be made. It is also immaterial whether the Central Trust Company or Dawes had any fraudulent intention, knew anything about the condition of the national bank or made any profit out of the transaction. The trust company is estopped, as against creditors who had a right to rely upon *923 the auditor's certificate, to deny that the cash exhibited was the property of the trust and savings bank, for which the trust company must account as a part of the bank's capital." [Emphasis added].
The Court further held:
"The receiver, who represents the creditors as well as the stockholders of the bank, may in equity require the restoration of the fund for the benefit of the creditors."
The pleadings in the present case present a situation where the banks involved herein, as did the Central Trust Company, aided the officers and directors of Texas Mutual in creating fictitious assets in order that such officers and directors could represent to the Insurance Commissioners of Texas and other states that it had the capital and surplus required by law to do business. The banks herein, as did the Central Trust Company, further represented to the Board, or its examiner, that such assets were the absolute assets of the Texas Mutual.
The principles laid down by the Court in Golden v. Cervenka, supra, were followed by the Supreme Court of the State of Colorado in the case of Johnson v. Elliott, 76 Colo. 358, 231 P. 675, 678. In the Johnson case, the Centennial Mutual Insurance Company was incorporated under Colorado laws which are almost identical to those under which Texas Mutual was incorporated. In following the principles announced in the Golden case, supra, the Colorado Supreme Court said:
"Golden v. Cervenka, 278 Ill. 409, 116 N.E. 273, was a case where the court enforced the equitable principle that is enforced in the instant case. The Golden case was not the same as this in its facts, but we think it is authority for our conclusion here. In that case the court said that one who enables a bank to evade the statute requiring the capital stock and its surplus to be paid in cash is liable to the bank's creditors.
"The Illinois statute did not permit a bank to begin business until an auditor's certificate was issued that the bank's capital and surplus had been fully paid, and it was in accordance with the plainest principle of equity, the court said, that a person who procured such a certificate to be made could not afterward be permitted to deny its truth or the truth of the representations upon which it was based, as against a subsequent creditor of the bank by reason of its falsity.
"So here, where an insurance company is not permitted to begin business until the state insurance commissioner has issued its license and that license may not be issued until the insurance company has received 200 bona fide applications for insurance on which the premiums for the first year have been paid, and that an amount equal to the premiums is held on deposit by the insurance company, one who makes the representation is liable to a policy holder who is injured thereby. That is, where, as here, the intervener, as the court and jury found, represents to the insurance commissioner that bonds and securities which she owns, are the property and assets of the insurance company, and thereby enables the insurance company to procure from the insurance commissioner authority to transact business, may not be heard to say, as against a policy holder, who becomes such by relying upon the truth of such representations and suffers loss, that the property belongs not to the insurance company but to her."
The Receiver relies primarily upon the case of McTamany et al. v. Day, 23 Idaho 95, 128 P. 563, 565, for authority supporting the contention that the allegations of fraud against all of the defendants were wrongful acts against the corporation and the recovery for such wrongs is an asset of the *924 corporation and upon receivership any action brought to recover such assets should be by the Receiver. We agree with the Receiver that the McTamany case supports our holding in the present case that the cause of action against all of the defendants, including the banks, belong to the Receiver. In that case McTamany sued the directors of the State Bank of Commerce in Wallace, Idaho, for the balance of his account in the bank which had suspended business. McTamany contended under the allegations of his complaint that his was an action to recover damages because of the unlawful acts, fraud, misconduct, and neglect of the directors to do their sworn duty to the state and the depositors in the bank; that it was, in effect, a common law action to recover damages for deceit affecting the plaintiff only, and, taking that as true, the plaintiff, McTamany, had a right to maintain the cause of action. McTamany's suit was dismissed by the trial court and such action was sustained by the Supreme Court of Idaho upon the theory that the cause of action belonged to the liquidator of the bank and did not belong to the individual. The Court in holding against McTamany, said:
"The Wallace State Bank is in the hands of a receiver, and he is authorized to proceed and marshal and collect all of the assets of the bank, and distribute them prorata among the creditors or as the court may direct."
McTamany alleged as grounds of recovery:
"(1) the illegal payment of dividends;
"(2) the making and publication of false reports;
"(3) the unlawful permitting of excessive loans;
"(4) that the plaintiff made deposits in the bank while it was insolvent under circumstances whereby the defendants could have known of the insolvency of the bank had they exercised proper diligence."
With reference to these alleged grounds of recovery, the Court said:
"In case of a recovery on all or either of said grounds, the amount recovered is an asset of the bank, and in that case any action brought to recover the same should be by the receiver."
Undoubtedly, the result reached in the McTamany case was correct. It appears that dividends had been declared out of capital rather than surplus by the Board of Directors. By such action, the controlling stockholders certainly depleted the capital structure of the corporation and as a result thereof the corporation suffered damage.
In this regard, the Court said:
"If the bank has suffered loss on account of the directors having declared dividends contrary to the provisions of Section 2981, Rev.Codes, or has suffered loss in consequence of the directors' fraud, gross negligence, or willful breach of duty, after such corporation is placed in the hands of a receiver, it it the duty of the receiver, as the representative of all concerned, to proceed and collect such illegal dividends and all other claims of such corporation due said bank by contract or caused by the fraud, gross negligence, or willful breach of duty of the officers thereof, so that whatever may be recovered may be properly distributed among all of the creditors of the bank as the law or court may direct." [Emphasis added.]
In connection with this action, false statements as to the banks' capital structure and surplus were circulated and published. However, the issuance of false statements seems to have been incidental to the unlawful declaration of dividends.
The McTamany case was followed with approval by the Supreme Court of the State of Missouri in the case of Kirrane v. Boone, 334 Mo. 558, 66 S.W.2d 861. Here again, a depositor brought suit in his individual right and in behalf of other depositors *925 charging that the directors of the defunct bank had failed and omitted to discharge their duties but to the contrary permitted the cashier to make illegal loans and deplete the bank's money which resulted in insolvency. The Court held that the cause of action belonged to the receiver and not to the individual depositor. The individual depositor could maintain such a suit only upon allegations that the receiver had wrongfully refused to act and prosecute the cause of action. This, again, was not a case where mere false statements alone were made the one and only ground of recovery on behalf of the receiver. The Court in the McTamany case, supra, recognized there was a division of authority on the question as to whether the receiver is the proper party to maintain an action of this nature. However, we believe the result of the McTamany case, as well as the other cases herein discussed, are thoroughly in accord with the weight of authority. For other cases of similar holding, see Bailey v. Mosher, 8 Cir., 63 F. 488; Douglass v. Dawson, 190 N.C. 458, 130 S.E. 195; Hornor v. Henning, 93 U.S. 228, 23 L. Ed. 879; Sain v. Love et al., 207 N.C. 588, 178 S.E. 98.
It is unnecessary for us to go as far in this case as the Court did in the McTamany case. The banks are estopped to deny that the funds represented as belonging to the company were the absolute property of the latter. The Receiver clearly has a cause of action for recovery of company assets alleged to have been misappropriated by the individual conspirators. We therefore do not reach the question of whether the receiver is also entitled to sue and recover for fraud on the creditors and public resulting from the publication of false statements.
The Court of Civil Appeals has held that since Thompson, the official examiner of the Board, did not convert or misappropriate assets of Texas Mutual, he was, therefore, not liable to Texas Mutual for the false examination report made by him concerning Texas Mutual. The Receiver complains of such holding. We sustain the Receiver.
The Receiver's pleadings allege against Thompson that as an official examiner for the Board, he knowingly and intentionally made a false examination and report of the affairs of Texas Mutual and accepted what amounted to bribes for so doing; that upon the basis of such acts, the Board was led to place its stamp of approval upon unlawful, wrongful, and fraudulent bolstering of assets by the officers of the company; that Thompson, by his acts, aided and joined in the overall conspiracy to convert and misappropriate assets of Texas Mutual and to make and use fictitiously evaluated assets of the company in the annual statements, publications in the newspapers, financial statements used to gain admittance in other states, and the financial statements issued to the public.
In view of these pleadings, together with other pleadings connecting Thompson with the alleged overall conspiracy, we hold that the Court of Civil Appeals erred in dismissing him from the suit and in affirming the trial court's action in sustaining Thompson's plea in abatement.
This disposes of all parties except Carr. As heretofore stated, the trial court, on his own motion, dismissed Carr from the suit on the ground that the pleadings were insufficient and failed to state a cause of action as to Carr. The Court of Civil Appeals has affirmed. The Receiver contends here that the pleadings allege that Carr, a nonofficial of Texas Mutual, joined and aided the officers, directors, and others in the misappropriation, conversion, dissipation and waste of Texas Mutual's assets and the fraudulent management of its affairs. We agree with the Receiver that the pleadings are sufficient to state a cause of action against Carr.
The Receiver's pleadings specifically allege against Carr that he knowingly made a false and fraudulent appraisal of Texas Mutual home office building; that by virtue *926 of such false appraisal Carr aided in the ultimate use of such property by the company as an asset at the highly overinflated value to the extent of hundreds of thousands of dollars. It is alleged that this overinflated value was used by the Texas Mutual to present a false financial picture which in turn was used in obtaining a certificate to write nonassessable policies. It is further alleged that such overinflated value was used to show a false condition of solvency and surplus in the company's application for a license to do business in other states and in Annual Statements, newspaper publications, and the financial statements distributed to the creditors, policyholders, and the public, and that all such acts were in violation of the law.
The pleadings show that Carr, at all times involved herein, was an employee of Paul Lowry, one of the organizers of Texas Mutual, and that Carr, one of the appraisers, joined in the fraudulent appraisal of such property; that Lowry prepared a false, fraudulent and deceitful statement which set forth the appraised value as being $561,000, whereas, the reasonable market value was not in excess of $94,000. The petition alleges that after the "preparation of this false, fraudulent and mis-leading appraisal", Carr "signed the appraisal and embraced and adopted it as his own."
These pleadings bring Carr under the rule announced in Fountain Spring Park Co. v. Roberts, 92 Wis. 345, 66 N.W. 399, 400.
"The principle of law that, where several persons combine to carry out a fraudulent conspiracy to cheat another, each and all of such persons are liable to the defrauded party, without reference to the amount of the fruits of the fraudulent transaction he obtains, or the degree of his activity in the scheme, is too well settled to admit of discussion, or to need any citation of authority in support of it. It is on that principle that the defendants Roberts and Russell are charged in this case, and the allegations of the complaint in that regard, as appears from the statement of facts, make out a conspiracy to defraud, entered into and carried out by all the defendants; hence all are equally liable, and the complaint states a good cause of action, as to each."
In view of the holdings herein made, we affirm the judgment of the Court of Civil Appeals reversing and remanding the cause as to Kohler. As to the First National Bank, American National Bank, Thompson and Carr, the judgments of both the trial court and the Court of Civil Appeals are reversed, and the cause is remanded to the trial court for trial in accordance with this opinion. The trial court is instructed to continue its order of severance of the Receiver's cause of action as against the banks.
Affirmed in part and reversed and remanded in part. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1492533/ | 789 S.W.2d 569 (1990)
The GENERAL LAND OFFICE OF the STATE of TEXAS and its Commissioner, Garry Mauro, Appellants,
v.
OXY U.S.A., INC., f/k/a Cities Service Oil & Gas Corp., f/k/a Oxy Petroleum, Inc., Appellee.
No. C-9289.
Supreme Court of Texas.
May 16, 1990.
*570 Jose Manuel Rangel, Austin, for appellants.
Robert D. Jenkins, Kent E. Westmoreland, Houston, Edward D. Burback, Austin, for appellee.
OPINION
HIGHTOWER, Justice.
The question which this court must decide is whether this direct appeal should be dismissed because the controversy upon which the appeal is based has been rendered moot. We hold that it is, and grant OXY U.S.A., Inc.'s (OXY) motion to dismiss the cause.
This dispute began when OXY filed suit seeking to enjoin the General Land Office (GLO) from conducting hearings regarding OXY's rights under certain oil and gas leases. The trial court found that the GLO's statutory right to adjudicate lease obligations pursuant to sections 52.135(b), (c) and (d) through and including section 52.140 of the Texas Natural Resources Code violated article II, section 1 and article V, section 1 of the Texas Constitution. Accordingly, pending appeal, the trial court enjoined GLO's administrative proceedings as they concerned OXY.
Pursuant to Rule 140(b) of the Texas Rules of Appellate Procedure, the GLO filed a notice of accelerated direct appeal to this court. Shortly after the GLO filed the direct appeal, OXY filed a motion requesting that the underlying cause be dismissed without prejudice. Finding that the GLO had sought no affirmative relief that would defeat this motion, the trial court dismissed the cause.
This court has reiterated that, under article V, section 8 of the Texas Constitution, the "judicial power does not embrace the giving of advisory opinions." Fireman's Ins. Co. v. Burch, 442 S.W.2d 331, 333 (Tex.1968). "It is axiomatic that appellate courts do not decide cases in which no controversy exists between the parties." Camerena v. Texas Employment Comm'n., 754 S.W.2d 149, 151 (Tex.1988). Accordingly, if no controversy continues to exist between the GLO and OXY, the appeal is moot and this court must dismiss the cause. See City of Garland v. Louton, 691 S.W.2d 603, 604-605 (Tex.1985).
OXY contends that the trial court's dismissal rendered the appeal moot. Pursuant to Rule 162 of the Texas Rules of Civil Procedure, and the holdings of this court, "a plaintiff has an absolute, unqualified right to take a non-suit upon timely motion as long as defendant has not made a claim for affirmative relief." Greenberg v. Brookshire, 640 S.W.2d 870, 871 (Tex. 1982) (quoting McQuillen v. Hughes, 626 S.W.2d 495, 496 (Tex.1981)).
To qualify as a claim for affirmative relief, a defensive pleading must allege that the defendant has a cause of action, independent of the plaintiff's claim, on which he could recover benefits, compensation or relief, even though the plaintiff may abandon his cause of action or fail to establish it.
Weaver v. Jock, 717 S.W.2d 654, 657 (Tex. App.Waco 1986, writ ref'd n.r.e.) (citing Newman Oil Co. v. Alkek, 614 S.W.2d 653, 655 (Tex.App.Corpus Christi 1981, writ ref'd n.r.e.)). If a defendant does nothing more than resist plaintiff's right to recover, the plaintiff has an absolute right to the nonsuit. Alkek, 614 S.W.2d at 655. (citations omitted).
Without citing to any authority, the GLO contends that seeking a final ruling on the constitutionality of the statutes in question constitutes affirmative relief under Rule 162 of the Texas Rules of Civil Procedure. However, seeking an advisory opinion on the constitutionality of the statutes in question does not constitute affirmative relief under Rule 162. See Weaver v. Jock, 717 S.W.2d at 657; Greenberg v. Brookshire, 640 S.W.2d at 872; Newman Oil Co. v. Alkek, 614 S.W.2d at 655. Since GLO did not file a claim for affirmative *571 relief, but merely resisted OXY's actions, the trial court was correct in granting the nonsuit.
The "fact that a temporary injunction has been issued does not prevent the plaintiff from taking a non-suit." Chicago, Rock Island & Pacific R.R. Co. v. Southern Pacific Co., 458 S.W.2d 234, 235 (Tex.Civ.App.Houston [1st Dist.] 1970, writ ref'd n.r.e.). When a temporary injunction is granted and appeal is perfected therefrom, the trial court loses jurisdiction over its temporary injunction, but not of the underlying case which remains pending. International Ass'n of Machinists v. Federated Ass'n of Accessory Workers, 133 Tex. 624, 625, 130 S.W.2d 282, 283 (Tex.Comm'n App.1939, opinion adopted). In this case, the trial court had jurisdiction over the underlying case and correctly granted the nonsuit, irrespective of the fact that an appeal had been perfected. As a consequence of the trial court's granting the nonsuit, the temporary injunction ceased to exist and the appeal became moot. Federated Ass'n, 130 S.W.2d at 283. The GLO's contention that the appeal is not moot because the trial court did not sign a separate order specifically dissolving the temporary injunction is without merit. It was not necessary for the trial court to enter such a separate order because when the underlying action was dismissed, the temporary injunction dissolved automatically. See generally Homeright Co. v. Exchange Warehouses, Inc., 526 S.W.2d 241 (Tex.Civ.App.Tyler 1975, writ ref'd n.r. e.).
Recognizing that the actions of the trial court render the appeal moot, we must now determine if any of the exceptions to the mootness doctrine apply so as to confer upon this court jurisdiction to decide the merits of this case.
This court has recognized two exceptions to the mootness doctrine: (1) the capability of repetition yet evading review exception; and, (2) the collateral consequences exception. State v. Lodge, 608 S.W.2d 910, 912 (Tex.1980). "The `capable of repetition yet evading review' exception is applied where the challenged act is of such short duration that the appellant cannot obtain review before the issue becomes moot." Spring Branch I.S.D. v. Reynolds, 764 S.W.2d 16, 18 (Tex.App.Houston [1st Dist.] 1988, no writ). The `collateral consequences' exception has been applied when Texas courts have recognized that prejudicial events have occurred "whose effects continued to stigmatize helpless or hated individuals long after the unconstitutional judgment had ceased to operate. Such effects were not absolved by mere dismissal of the cause as moot." Id. at 19.
The GLO contends that both exceptions apply in this case. It argues that the "capable of repetition yet evading review" exception applies because the temporary order was too short in its duration to be fully litigated by the GLO. Also, the GLO argues that there is reason to expect that it will be subjected to the same action in the future because OXY did not concede that the statutes in question were constitutional.
The "capable of repetition yet evading review" exception has only been used to challenge unconstitutional acts performed by the government.[1] This exception was not created to preserve the right to appeal on behalf of the government when the complaining party abandons its claim for relief. Even if this exception could be applied in such a manner, the GLO has not met the requirements of the exception. The GLO's contention that the temporary injunction was of such short duration that it evaded review fails to recognize that two cases are pending in which the same issues are presented: The General Land Office v. Rutherford Oil Corp., et al, No. 3-90-037-CV (Tex.App.Austin *572 1990); The General Land Office v. Flag-Redfern Oil Co., No. 3-89-258-CV (Tex. App.Austin 1990).
The GLO asserts that the "collateral consequences" exception is applicable because of both the public interest in resolving this important question of administrative law, and the ruling's effect upon the numerous administrative hearings which are pending.
This is not the type of case which was envisioned when this exception was created. There are "no Texas cases in which the collateral consequences exception has been applied on behalf of the government, or on behalf of a known person who has not chosen to bring suit." Spring Branch, 764 S.W.2d at 18. Even if the "collateral consequences" exception could be applied in such a manner, the fact that an important question of administrative law is involved, the resolution of which would aid the agency, is not sufficient impetus for this court to render an advisory opinion. Texas Parks & Wildlife Dept. v. Texas Assoc. of Bass Clubs, 622 S.W.2d 594, 596 (Tex.App.Austin 1981, writ ref'd n.r.e.).
Although we appreciate the GLO's desire to have a definite answer from this court on the substantive issues presented, for the reasons stated herein, without reaching the substantive issues, we hold that the controversy is moot, and dismiss the cause.
NOTES
[1] See generally, State v. Lodge, 608 S.W.2d 910 (Tex.1980) (challenging unconstitutional mental commitment); Ex Parte Ullman, 616 S.W.2d 278 (Tex.App.San Antonio 1981, writ dism'd) (challenging unconstitutional mental commitment); Carillo v. State, 480 S.W.2d 612 (Tex. 1972) (challenging method of adjudicating juvenile delinquents); Iranian Muslim Organization v. City of San Antonio, 615 S.W.2d 202 (Tex. 1981) (challenging prior restraints on free speech). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1317699/ | 263 P.2d 997 (1953)
VANEK et ux.
v.
FOSTER et al.
No. 7825.
Supreme Court of Idaho.
January 14, 1953.
On Rehearing December 23, 1953.
S. T. Lowe, Burley, for appellants, and Kales E. Lowe, Burley, for appellants on rehearing.
William H. Foster and Herman E. Bedke, Burley, for respondents.
*998 KEETON, Justice.
The parties to this proceeding will be referred to as they appeared in the trial court. Appellants will be referred to as plaintiffs, respondents as defendants.
By the terms of a written contract entered into on the 20th of February, 1950, defendants T. D. Foster, Jr. and the Foster Company, agreed to sell and plaintiffs agreed to buy the North 30 ft. of Lot 3, and the South 20 ft. of Lot 4, Block 7, Homeland Addition to Burley, Idaho, for a consideration of $7,100. The contract of sale and receipt for the down payment of $800 was signed:
"The Foster Co.
T. D. Foster, Jr.,
Seller"
The complaint set out the contract haec verba, alleged performance in full on the part of the plaintiffs, and failure and refusal of defendants to perform, asked for damages for failure to timely comply and that the contract be specifically performed.
The complaint further alleged that the Foster Company was a co-partnership, that the defendant T. D. Foster, Jr. was the owner of the legal title to the property, and the Foster Company was the equitable owner.
The answer was a general denial. No affirmative defense was alleged.
At the time the contract of sale was entered into, the Foster Company or T. D. Foster, Jr., did not own the premises in controversy. Whatever title the defendants, or either, had in the property at the time of the trial was acquired by it or him subsequent to entering into the contract of sale.
On evidence introduced, the court found that the defendant T. D. Foster, Jr. was doing business under the name of the Foster Company, and was the owner of the premises described in the complaint; that the contract in question was entered into between the parties; that the plaintiff had paid $800 on the purchase price; that the balance was to be paid by a Federal Housing Administration Loan in the sum of $6,300 to be paid monthly for 240 payments; that the property was to be conveyed by warranty deed, and bill of sale, free and clear of incumbrances, with certain unimportant exceptions. The court found that the Foster Company did not exist except as a trade name of the defendant Foster, and that it did not agree to convey said premises to the plaintiff.
The court further found that the plaintiffs had demanded compliance of the contract on the part of the defendant Foster, and that he had failed and refused to execute and deliver a deed conveying the property in question; that plaintiffs, so far as they were able, without default on their part, timely did and performed all things required of them by the contract of purchase, and plaintiffs have been and are ready and willing to execute all documents required of them by the contract upon delivery of the deed to said premises, and that there was no failure on the part of the plaintiffs timely to do or perform any act required of them; that the agreement provided for the construction and completion on or before May 1, 1950, of a dwelling house on the premises so sold and purchased, and such plans and specifications had been approved by the Federal Housing Administration; that the dwelling house was not completed or placed in such condition as could be used prior to September 6, 1950, and possession of the premises was not at any time surrendered or delivered to the plaintiffs.
The court found that plaintiffs had made a further payment of $70 on the purchase price because of a change in the original plans and specifications of the dwelling so constructed, and found that the use and occupation of the dwelling house in question was worth the sum of $60 per month.
The court concluded that the receipt and agreement to purchase was not a valid and enforceable contract against the Foster Company, a copartnership, for the reason that the Foster Company did not at any time exist as a copartnership, and further concluded that whether or not T. D. Foster, Jr. was liable on the contract in question was not within the issues, and that by reason of the non-existence of the entity whose contract as seller is alleged in the *999 complaint, namely the Foster Company, the trial court cannot conclude that the receipt and agreement to purchase was breached by the Foster Company, and declined to rule whether or not T. D. Foster, Jr. was personally liable; further that by reason of the non-existence of the entity whose contract said "Receipt and Agreement to Purchase" is alleged to have been executed, plaintiffs are not entitled to a decree of specific performance, or to recover damages.
The court then concluded the plaintiffs should have back the money paid in the sum of $870, together with interest.
Plaintiffs contend that on the findings thus made, they are entitled to a decree of specific performance and for damages for the failure of defendants to timely comply with the terms of the contract.
"* * * Contracts, obligations, and transactions entered into under an assumed or fictitious name are valid and binding * * * if there is no doubt with respect to the identity of the person acting under the assumed or fictitious name. Their validity as to third persons does not depend on whether the person contracting is as well known by the assumed name as by his true name, but on whether, with respect to the particular transaction, the name is used in good faith by the person adopting it as a description personae." 65 C.J.S.Names, § 9a, p. 10.
In this case, the identity of the defendant Foster as being the same person as the Foster Company or as Thomas D. Foster, Jr., was established by findings of the court. Contracts for the sale of real estate cannot be avoided on the extremely technical grounds advanced here. Such contracts between seller and purchaser are not entered into for the purpose of trapping the unwary, unskilled, gullible, credulous, misinformed, trusting buyers. Whether the title to the real estate in question is owned by the defendant, T. D. Foster, Jr., or the Foster Company, as a copartnership, or a trade name, is of no importance. Both were made defendants to the action and filed a joint answer. When the action was commenced plaintiffs had reason to believe that the Foster Company was a copartnership. The fact that it developed during the trial that it was a trade name is inconsequential for a determination of the rights of the parties to the contract. Plaintiffs had no way of knowing the identity of the Foster Company until the court made findings of fact.
Defendants contend that whether or not defendant Foster and the trade name of the Foster Company could be required to convey the property in question pursuant to the terms of the contract is not within the issues. With this contention we do not agree.
The complaint asked that the property be transferred to the alleged copartnership of the Foster Company and by it to the plaintiffs, or in the alternative, directly to plaintiffs, and further asked for general relief as plaintiffs might be entitled to.
It was within the jurisdiction of the trial court to grant any relief consistent with the proof and embraced within the issues where an answer is filed and a matter is tried on the merits.
Sec. 10-704, I.C. reads:
"The relief granted to the plaintiff, if there be no answer, cannot exceed that which he shall have demanded in his complaint; but in any other case the court may grant him any relief consistent with the case made by the complaint embraced within the issue."
The question involved in this case is whether or not the defendants, either or both, have bound themselves, or either, to perform the obligations contained in the contract. We hold that they have.
The terms of the contract, and the identity of the parties were fully established. The court had jurisdiction to grant the relief sought, or other relief consistent with the proof. Schlieff v. Bistline, 52 Idaho 353, 15 P.2d 726; Burke Land & Livestock Company v. Wells Fargo & Co., 7 Idaho 42, 60 P. 87; Dover Lumber Company v. Case, 31 Idaho 276, 170 P. 108; Dennis v. Cooperative Pub. Co., 46 Idaho 534, 269 P. 82.
*1000 Where a court has acquired jurisdiction to make equitable disposition of a case, he has jurisdiction to do equity even though its disposition may be grounded upon some theory not set forth in the pleadings. Stearns v. Williams, 72 Idaho 276, 240 P.2d 833; Parsons v. Kootenai Rural Electrification, 71 Idaho 510, 234 P.2d 828.
In this proceeding no showing was made and the court did not find that the defendants could not perform. No affirmative defense was alleged. Only a general denial was pleaded. See Wormward v. Taylor, 70 Idaho 450, 221 P.2d 686. The facts on the issues thus joined were found against the defendant. A trade name or a description personae cannot be used for the purpose of avoiding a liability voluntarily assumed and thus perpetrate a fraud on an innocent, unsuspecting purchaser.
The judgment is reversed with instructions to the trial court to enter a decree granting specific performance of the contract in accordance with its terms and for the damages suffered by the plaintiffs for defendants' failure to timely comply. Should it develop for any reason, that the defendants cannot comply with the contract according to its terms, then the court to find and fix the damages suffered by plaintiffs by reason of defendants' failure or inability to perform. In fixing damages suffered by plaintiffs the court may, if it seems desirable, take further testimony as to such damages. Costs to appellants.
GIVENS and TAYLOR, JJ., concur.
PORTER, Chief Justice (dissenting).
Appellants, by their complaint, pleaded that the defendant, the Foster Co., was and is a copartnership and "that at all times hereinafter mentioned, the defendant T. D. Foster, Jr., was and now is the holder of the naked legal title, and The Foster Company is the equitable owner of that certain real estate" described in the complaint. Appellants tried their case on such theory, which theory made immaterial the marital status of T. D. Foster, Jr., and obviated the question of community property.
Respondents filed a general denial to the complaint. During the course of the trial it incidentally appeared that T. D. Foster, Jr., at the times in question, was a married man, but when respondents attempted to make direct proof of his marital status, appellants objected upon the ground that the marital status of T. D. Foster, Jr., at the time the contract of sale was entered into was not within the issues; and the court sustained the objection.
The trial court found that the Foster Company was not a copartnership but was merely a trade name; and the trial court specifically declined to rule whether or not the contract of sale was binding upon T. D. Foster, Jr., personally, for the reason that such liability was not within the issues formed by the pleadings or consistent with the theory upon which the cause was tried and said defendant had not been called upon or had opportunity to plead or advance any defense he might have thereto.
The majority opinion states that at the time the contract of sale was entered into on February 20, 1950, the premises in controversy were not owned by respondents. It is true that formal deed to the premises was made to T. D. Foster, Jr., and Esther Foster, his wife, under date of June 5, 1950. However, the uncontradicted testimony of T. D. Foster, Jr., was that he acquired such premises prior to the execution of such contract of sale. He testified as follows:
"Q. And where did you when did you buy this land Mr. Foster? A. Which land, block 7, the last five homes?
"Mr. Foster: Yes.
"A. Acquired it from Mr. Goold.
"Q. When, approximately when?
A. Approximately the first of, well let's see, right around the first of January, 1950, I believe about then."
The majority opinion holds that the evidence shows a personal liability on the contract of sale on the part of T. D. Foster, Jr., but ignores the fact that the evidence also shows that the property was acquired during coverture and is presumed to be community property.
The majority opinion directs the entry of judgment for specific performance. *1001 This court has repeatedly held that under the provisions of Section 32-912, I.C., a contract for the sale of community real estate not signed and acknowledged by the wife, is unenforceable and void. Coppedge v. Leiser, 71 Idaho 248, 229 P.2d 977, and cases cited. In Childs v. Reed, 34 Idaho 450, 202 P. 685, a judgment on such a contract of specific performance or in lieu thereof damages, was held to be in excess of the trial court's power and void. The court said, 34 Idaho 455, 202 P. 686:
"Appellant's ability to perform his contract, so far as the conveyance of their community property was concerned, depended upon securing his wife to join with him in executing and acknowledging the deed. It was formerly the practice in England in such a case for the court to order the husband to procure his wife's consent, and to imprison him until he succeeded. It is now held that performance is impossible, and therefore will not be decreed (Pomeroy on Specific Performance, § 295, note; 2 Pomeroy on Equitable Remedies, § 756, p. 1272), and that the husband ought not to be put in a position by a court of equity to tempt him to coerce his wife to join him in a deed (Barbour v. Hickey, 2 App.D.C. 207, 24 L.R.A. 763)."
In the instant case, the wife neither signed the contract of sale nor is a party to this suit. In my opinion the decision of the majority in ordering specific performance is directly contrary to the holding in the Childs case and, in effect, overrules the same.
The majority opinion further orders that if specific performance cannot be had, damages be assessed for defendants' failure or inability to perform the terms of the contract of sale. In the Childs case the court stated that it was not deciding whether an action at law for damages for a breach of the contract could be maintained. This right to damages is granted in the instant case without pleading, proof or briefs on the question of such right.
I am of the opinion that if the judgment of the trial court is to be reversed, then the cause should be remanded with directions to permit the parties to amend their pleadings if they so desire, to interplead on the issue of personal liability under the contract on the part of T. D. Foster, Jr., for specific performance or damages.
I am authorized to say that THOMAS, J., concurs in this dissenting opinion.
On Rehearing.
KEETON, Justice.
Rehearing was granted in the above matter and re-argument had on the 9th day of November, 1953. The issues presented have again been examined.
The primary purpose of the contract sued on was to secure construction of, and title to, a dwelling on land described in the contract. In the construction of the dwelling defendants were to furnish all labor and material, perform all work and convey the dwelling and land by warranty deed to plaintiffs, free and clear of incumbrances. It appears from the testimony that defendant Foster was in the construction business, that is, making improvements on land and selling the same to purchasers under a plan of the Federal Housing Administration. The latter organization took mortgages on the land and improvements and advanced the money to pay the balance due when the improvement was completed and approved. The Federal Housing Administration approved the loan in the instant case, and stood ready to pay over the money when the defendants performed and conveyed a good title to plaintiffs. Plaintiffs executed all papers required by the contract, and the Federal Housing Administration agreed to advance the money to pay defendants, the loan to be repaid by plaintiffs at so much per month.
In the findings the court found that plaintiffs had performed all acts required of them by the contract to be performed. Defendants refused to perform, for what reason does not appear, and no valid excuse or reason is disclosed by the pleadings or the testimony.
As stated in the original opinion, title to the land in question was conveyed to defendant *1002 Foster subsequent to the time the improvement on the land, under the contract, should have been completed. The deed dated June 5, 1950 (defendants' Exh. 2) describes Thomas D. Foster, Jr., and Esther Foster, his wife, as grantees. This is subsequent to the time the dwelling should have been completed and conveyance to plaintiffs made (May 1, 1950).
The issue of the property being community property, if it was, was not raised by the pleadings. The wife was not a party and has not here asserted any interest in the land or the contract. The legal principles involved are very similar to those discussed in Morgan v. Firestone Tire & Rubber Co., 68 Idaho 506, 201 P.2d 976.
When the land was conveyed to Foster and wife, the rights of plaintiffs in the land and improvements had already accrued and defendant Foster acquired the land, or his interest in it, subsequent to the contract of sale, in which he agreed to convey to plaintiffs.
The character of community property is vested at the time of its acquisition, and the wife's interest, if any, vested at that time (June 5, 1950).
It should also be noted, in the findings the trial court found that defendant Foster was the owner of the premises described in the complaint. Being the owner, and the question of community property, if any, being only incidentally involved or mentioned, we conclude that Foster was, or should have been, in a position to comply with the contract and no legal reason appears why he should not do so. He had contracted to make a good merchantable title.
The husband, as manager or agent of the community, could acquire realty subject to liens or outstanding rights of third persons. This he did in this case.
We adhere to the opinion as originally written and the conclusion reached.
GIVENS and TAYLOR, JJ., concur.
PORTER, C. J., and THOMAS, J., dissent; and continue to adhere to the original dissenting opinion filed herein. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1383123/ | 20 S.W.3d 692 (2000)
KECK, MAHIN & CATE, GRANT COOK, and Robert A. Plessala, Petitioners,
v.
NATIONAL UNION FIRE INSUANCE COMPANY OF PITTBURGH, PA, Respondent,
v.
Insurance Company of North America, Respondent.
No. 98-0034.
Supreme Court of Texas.
Argued January 5, 2000.
Decided May 25, 2000.
*694 William Key Wilde, Tracie J. Renfroe, Deborah E. Rank, Houston, for Petitioners.
Curtis J. Kurhajec, Austin, Iris H. Robinson, Kevin D. Jewell, Houston, Robert B. Summers, Austin, C. Mark Stratton, Houston, for Respondent.
*695 Chief Justice PHILLIPS delivered the opinion of the Court in which Justice ENOCH, Justice OWEN, Justice BAKER, Justice ABBOTT, Justice HANKINSON, Justice O'NEILL and Justice GONZALES joined.
Following the settlement of a third-party liability claim, the excess insurance carrier, as the insured's equitable subrogee sued the primary insurance carrier and the attorneys the primary insurer hired to defend the insured. The excess carrier alleged that it had been forced to settle the third-party claim for too much because the attorneys and primary carrier had mishandled the insured's defense. We consider two primary issues: (1) whether a release agreement, executed between the insured and its attorneys during the attorneyclient relationship, bars the insurance carriers' equitable subrogation claims for legal malpractice; and (2) whether the primary carrier and attorneys may assert the excess carrier's own negligence in settling the third-party claim as an affirmative defense to the excess carrier's equitable subrogation claim. We conclude that the release agreement is not a complete bar. We further conclude that appropriate allegations of negligence or misconduct against the excess carrier may be asserted in defense to that carrier's equitable subrogation claim. Although we do not agree in all respects with the court of appeals' reasoning, we conclude that its judgment is correct, and we affirm it. 955 S.W.2d 120.
I. Procedural History
In September 1991, Wolf Point Shrimp Farm and its owner sued Granada Food Corporation for damages allegedly caused by Granada's improper processing and marketing of shrimp grown and harvested at Wolf Point the previous fall. Granada immediately hired the law firm of Keck, Mahin & Cate (KMC) as its attorneys in the suit. Shortly thereafter, KMC tendered the defense of the suit to Granada's primary insurance carrier, Insurance Company of North America (INA), and Granada's excess insurance carrier, National Union Fire Insurance Company of Pittsburgh, Pa. (National). INA's primary policy for the relevant period provided a limit of $1 million per occurrence. National's commercial umbrella policy provided an additional $9 million in excess coverage.
INA agreed to defend Granada under a reservation of right to contest coverage. Granada, which under the INA policy had the right to select its own defense counsel, chose to keep KMC. INA therefore formally engaged KMC to defend Granada in the Wolf Point litigation, with Grant Cook and Robert A. Plessala assuming primary responsibility for the defense. The excess policy did not require National to investigate or defend claims against Granada as long as another underlying insurance carrier was providing a defense. While National did have the right to associate in the defense and trial of any claim it deemed a threat to its liability, it did not exercise that right in the Wolf Point litigation.
During the litigation, Wolf Point demanded $3.6 million to settle the suit. Both INA and National were informed of the demand, but neither insurer expressed interest in settling for this amount, and KMC advised that the case could probably be settled for less than half this sum.
In January 1992, the trial court gave the Wolf Point litigation a preferential trial setting for April 28, 1992. KMC's efforts to continue the setting were unsuccessful, and the case proceeded to trial. On the first day of trial, INA tendered its policy limits to National. Two days later, National settled the suit for $7 million, and a final judgment was later signed for that amount.
Less than two years later, National filed this suit against INA and KMC to recover the money it paid to settle the Wolf Point suit. National alleged that INA and the attorneys had mishandled Granada's defense, forcing National to settle the thirdparty claim to protect both Granada and *696 itself from an excess judgment. National's claims against INA included allegations of negligence, gross negligence and violations of the Texas Insurance Code, and its claim against KMC was for legal malpractice. Because all of these claims belonged to the insured, National asserted them under the doctrine of equitable subrogation.
INA denied responsibility and asserted a cross-claim against KMC for malpractice and an affirmative defense against National, based on the excess carrier's contributory negligence or comparative responsibility. KMC also denied responsibility and affirmatively pled that a release agreement between it and the insured barred National's and INA's claims. KMC additionally asserted affirmative defenses of contributory negligence and comparative responsibility against National. All parties filed motions for summary judgment.
The trial court's rulings on these motions eliminated for trial all but National's negligence claim against INA. The trial court granted summary judgment for KMC on the two insurance carriers' subrogation claims for malpractice because of the KMC-Granada release agreement. The trial court also granted partial summary judgment for National, rejecting INA's and KMC's affirmative defenses of contributory negligence and comparative responsibility. Finally, the trial court granted INA a partial summary judgment, eliminating National's claims of gross negligence and Insurance Code violations. After resolving these motions, the trial court severed National's and INA's claims against KMC, assigned these claims a new cause number, and rendered a final judgment that the two insurers take nothing against KMC. National and INA appealed.
The court of appeals affirmed in part,[1] reversed in part, and remanded the cause to the trial court. 955 S.W.2d 120. Concluding that the Granada-KMC release was not a bar to the insurance carriers' malpractice claims, the court reversed the take-nothing summary judgment and remanded these claims to the trial court. The court also reversed the trial court's ruling on National's motion for summary judgment, holding that KMC and INA could raise National's comparative responsibility as a defense. The court, however, limited the relevant time period for proving this defense to National's conduct after INA's tender of the primary policy limits. Because we agree that these claims must be remanded to the trial court for further proceedings, we affirm the court of appeals' judgment. We agree that KMC and INA can raise National's comparative responsibility in defense to the respective negligence claims against them. We further agree that KMC was not entitled to summary judgment on the release, although we disagree with how the court of appeals construed that agreement.
II. The Release
KMC and Granada signed the release on April 10, 1992, a little more than two weeks before the Wolf Point trial was to begin. According to KMC, Granada owed it a substantial sum for past legal services unrelated to Wolf Point and wanted to clear that debt from its balance sheet. Thus, in exchange for KMC's promise to forgive these unpaid fees, Granada released KMC from "all demands, claims or causes of action of any kind whatsoever, statutory, at common law or otherwise, now existing or that might arise hereafter, directly or indirectly attributable to the rendition [of] professional legal services by KMC to Granada between June 1, 1988 and April 1, 1992." The trial court concluded that the release of "all demands, claims or causes of action" was broad enough to cover the Wolf Point litigation. *697 The court of appeals construed the release more narrowly, however, concluding that the parties' intention "in entering into this release was to resolve the issue of unpaid fees, not to release KMC from any and all legal malpractice claims." 955 S.W.2d at 129. Because INA, not Granada, was paying for the Wolf Point defense, the court of appeals concluded that it was not included within the release.
A. Scope of the Release
KMC complains that the court of appeals erroneously implies "unpaid fees" as a limitation on its consideration under the release. KMC submits that its consideration for the agreement is set forth in paragraph 2 which, in plain language, releases any and all claims Granada may have against KMC directly or indirectly attributable to KMC legal services between June 1, 1988 and April 1, 1992. Unpaid legal fees are not mentioned.
Unpaid fees are only mentioned in the recitals at the beginning of the agreement and again in the first numbered paragraph which sets out Granada's consideration for the release. The agreement begins:
WHEREAS, KMC has performed legal services for Granada since June of 1988;
WHEREAS, as of the date written above, Granada owes KMC a substantial sum for outstanding and unpaid invoices for professional legal services rendered to Granada up to April 1, 1992 (the "Unpaid Fees");
WHEREAS, KMC and Granada desire to resolve the issue of the Unpaid Fees to their mutual satisfaction; and
WHEREAS, KMC has advised Granada in writing that independent representation is appropriate in connection with the execution of this Agreement.
NOW, THEREFORE, in exchange for the mutual promises, agreements and releases herein contained, KMC and Granada do hereby agree as follows:
* * *
Paragraphs 1 and 2 immediately follow and set out the consideration to Granada and to KMC for the agreement. In paragraph 1, KMC forgives Granada for all unpaid legal fees for services rendered between June 1, 1988 and April 1, 1992:
1. KMC hereby releases, and by these presents does hereby release, acquit and forever discharge Granada, its agents, servants, employees, officers, directors, affiliates and all persons, natural or corporate, in privity with them or any of them from any demands, claims or causes of action of any kind which KMC had or might have, directly or indirectly attributable to the Unpaid Fees owed to KMC by Granada for professional legal services rendered between June 1, 1988 and April 1, 1992, it being intended to release Granada from any obligation to pay such Unpaid Fees.
Then in paragraph 2, Granada releases all claims it has, or may have, against KMC in connection with KMC's legal services to Granada during the same time period:
2. Granada hereby releases and by these presents does hereby release, acquit and forever discharge KMC, its agents, servants, employees, partners, affiliates and all persons, natural or corporate, in privity with it, from any and all demands, claims or causes of action of any kind whatsoever, statutory, at common law or otherwise, now existing or that might arise hereafter, directly or indirectly attributable to the rendition or [sic] professional legal services by KMC to Granada between June 1, 1988 and April 1, 1992.
The court of appeals thus reads the "unpaid fees" mentioned in the recitals and paragraph 1 as an implied limitation on the claims mentioned in paragraph 2. KMC sees no reason to imply this limitation. But the court of appeals relies on our holding in Victoria Bank and Trust Co. v. Brady, 811 S.W.2d 931 (Tex.1991), to read the release narrowly. In Brady, we said that a releasing instrument must mention *698 the claim to be released to be effective. Id. at 938.
Because the release agreement here did not mention the Wolf Point claim, the court concluded it should be applied only to those claims which were mentioned; i.e. those claims involving unpaid fees. 955 S.W.2d at 129.
We conclude that our decision in Brady does not control the construction of this release. The agreement in Brady purported to release all claims attributable to a specific loan transaction between a bank and its customer. In subsequent litigation between these parties, the customer raised claims relating to another transaction with the bank, and the bank raised the release in defense. In rejecting the bank's defense, we noted that the parties' agreement plainly limited itself to the specific loan and thus did not cover this other transaction. Id. at 939. The present release is clearly broader than the one in Brady. It is not expressly limited to a specific claim or transaction but rather purports to cover "all demands, claims or causes of action of any kind whatsoever." Nothing in Brady forbids such a broadform release. Brady simply holds that the release must "mention" the claim to be effective. Id. at 938. It does not require that the parties anticipate and identify each potential cause of action relating to the release's subject matter. See Memorial Med. Center v. Keszler, 943 S.W.2d 433, 435 (Tex.1997). Although releases often consider claims existing at the time of execution, a valid release may encompass unknown claims and damages that develop in the future. See Cannon v. Pearson, 383 S.W.2d 565, 570 (Tex.1964); Quebe v. Gulf, C. & S.F. Ry., 98 Tex. 6, 81 S.W. 20, 22 (1904).
Thus, we conclude that this release was sufficient to forgive all claims against KMC for malpractice attributable to legal services rendered to Granada "between June 1, 1988 and April 1, 1992." Although the release does not identify specific cases, it does expressly forgive Granada's existing debt to KMC for legal services rendered from June 1, 1988 to April 1, 1992 in return for Granada's release of all present and future claims attributable to KMC's legal work during this same period. The court of appeals' construction imposes a symmetry that is simply absent from the agreement's language. While the recitals in this release are concerned primarily with the issue of Granada's unpaid legal fees, they do not convey an intent to limit the consideration to KMC for the forgiveness of those fees. The recitals merely state the parties' general desire "to resolve the issue of Unpaid Fees to their mutual satisfaction." Paragraphs 1 and 2 then explain the parties' mutual satisfactionKMC forgives all unpaid legal bills; Granada releases all claims relating to KMC's legal services rendered during a specific time period. Because the release forgives KMC for any legal malpractice it may have committed during this period, the court of appeals erred in holding to the contrary.
Nevertheless, we do not agree with KMC that this release completely bars National's and INA's claims.[2] The release does not apply to "claims of causes or action ... directly or indirectly attributable to the rendition [of] professional legal services by KMC to Granada" after April 1, 1992. Because the Wolf Point trial did not begin until April 28, 1992, and KMC's representation continued through trial, the plain terms of the release do not bar National's or INA's malpractice claims based solely on services KMC rendered after April 1, 1992. Thus, while the release may bar proof of certain elements of National's malpractice claim, it may not bar other elements.
B. Validity of the Release
As Granada's equitable subrogee, National also challenges the validity of this *699 release. The court of appeals did not reach this issue because of its view that the release covered only KMC's "unpaid" legal work. 955 S.W.2d at 129. Because we disagree with that view, we consider this additional challenge.
National contends that the trial court erred in enforcing the release because Granada did not understand the agreement and was not fully informed before signing it. Alternatively, National argues that if Granada intended to release the Wolf Point claim, the agreement is a sham. At the very least, National submits, there are fact questions about whether the release was negotiated at arms length and in good faith. National urges that the summary judgment for KMC was erroneous under either argument.
Contracts between attorneys and their clients negotiated during the existence of the attorney-client relationship are closely scrutinized. See Archer v. Griffith, 390 S.W.2d 735, 739 (Tex.1964). Because the relationship is fiduciary in nature, there is a presumption of unfairness or invalidity attaching to such contracts.[3]See Ames v. Putz, 495 S.W.2d 581, 583 (Tex.Civ.App.Eastland 1973, writ ref'd). Further, our disciplinary rules forbid an attorney from making an agreement that prospectively limits the attorney's malpractice liability to the client unless (1) the agreement is permitted by law, and (2) the client is independently represented in making the agreement. See TEX. DISCIPLINARY R. PROF'L CONDUCT 1.08(g). KMC maintains that its conduct can withstand this scrutiny, but it also argues that National waived this issue by failing at any time to plead it in the trial court. See TEX.R. CIV. P. 94. We disagree. By raising the issue of the release's validity in its response to KMC's motion for summary judgment, National preserved the issue for appeal. See In re B.I.V., 870 S.W.2d 12, 13 (Tex.1994); Womack v. Allstate Ins. Co., 156 Tex. 467, 296 S.W.2d 233, 237 (1956).
KMC had the burden on summary judgment to prove that the release agreement it negotiated with Granada was fair and reasonable. See Archer, 390 S.W.2d at 739; see also Willis v. Maverick, 760 S.W.2d 642, 646 (Tex.1988); Texas Bank & Trust v. Moore, 595 S.W.2d 502, 508-09 (Tex.1980); International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576 (Tex.1963); Thigpen v. Locke, 363 S.W.2d 247, 252 (Tex.1962); Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d 256, 261 (1951); Cooper v. Lee, 75 Tex. 114, 12 S.W. 483, 486 (Tex.1889). Further, it was KMC's burden as a fiduciary to establish that Granada was informed of all material facts relating to the release. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 175 (Tex.1997)(citing Johnson v. Peckham, 132 Tex. 148, 120 S.W.2d 786, 788 (1938))(fiduciary duty requires full disclosure of all important information). The present summary judgment record does not establish the state of Granada's information or that the agreement was fair and reasonable. The only evidence that KMC identifies is a recitation in the release that KMC "advised Granada in writing that independent representation [would be] appropriate in connection with the execution of this Agreement." This bare recitation is not sufficient to rebut the "presumption of unfairness or invalidity attaching to the contract." Archer, 390 S.W.2d at 739; see also Ames, 495 S.W.2d at 583. Accordingly, KMC has not carried its summary judgment burden. Because KMC has not established that the release agreement is a complete defense to National's and INA's equitable subrogation claim, we next consider if any other defenses are available to KMC.
*700 III. Equitable Subrogation
In American Centennial Insurance Co. v. Canal Insurance Co., 843 S.W.2d 480 (Tex.1992), we recognized an excess insurer's right to assert a legal malpractice claim against the insured's defense attorney through equitable subrogation. Although Texas law does not permit a nonclient to sue an attorney for malpractice, we reasoned that permitting an excess carrier to stand in the shoes of its insured and assert the insured's claims would not burden the existing attorney-client relationship with additional duties or create potential conflicts of interest for the attorney. Id. at 484. "Subrogation permits the insurer only to enforce existing duties of defense counsel to the insured." Id. In a concurring opinion, a majority of the Court in Canal also stated that the defendant to the equitable subrogation claim, whether the primary carrier or an attorney, should "have any defense available against either the insured or the excess carrier, including the excess carrier's unreasonable refusal to cooperate in the defense and settlement of the action." Id. at 486 (Hecht, J. concurring).
In this case, KMC and INA claim that National's own negligence caused it to settle the third-party claim against Granada for more than it otherwise would have. Relying on the concurring majority's observation in Canal, KMC and INA argue that the fact finder should consider National's alleged negligence in apportioning responsibility for Granada's allegedly mishandled defense. While the court of appeals agreed that KMC and INA could assert National's contributory negligence or comparative fault against National, it concluded that National had no duty to act, and thus could not itself have been negligent, until after the primary carrier tendered or exhausted its policy limits. The court accordingly limited proof of National's negligence to conduct after INA tendered its policy limits on April 28. 955 S.W.2d at 138. Both KMC and INA complain of that limitation here.
A. Excess Carrier's Duty to Defend
KMC argues that the finder of fact should be permitted to consider National's conduct before INA's tender of the primary policy limits equally with National's post-tender conduct. Although INA was providing Granada's defense, KMC suggests that National's pre-tender conduct was relevant because National also had a duty to contribute to that defense. According to KMC, that duty arose once liability under the excess policy became reasonably clear. KMC cites four cases and two commentaries in support of its position. Both commentators explain, however, that KMC's favored view is not shared by a majority of courts that have considered the issue. See OSTRAGER & NEWMAN. HANDBOOK ON INSURANCE COVERAGE DISPUTES, § 6.03[c], at 296 (10th ed.2000); 14 COUCH ON INSURANCE 2nd § 51:36, at 446-47 (1982).
The majority rule is that "[w]here the insured maintains both primary and excess policies, ... the excess liability insurer is not obligated to participate in the defense until the primary policy limits are exhausted." See Texas Employers Ins. Ass'n v. Underwriting Members of Lloyds, 836 F. Supp. 398, 404 (S.D.Tex.1993)(quoting 14 COUCH ON INSURANCE 2nd § 51:36, at 446 and citing numerous cases); see also 14 Russ & SEGALA, COUCH ON INSURANCE 3rd §§ 200:44-200:45 (1999); OSTRAGER & NEWMAN, supra § 6.03[b], at 294. The majority rule is supported by the reasonable expectations of the insured and its insurance carriers. Excess insurers are able to provide relatively inexpensive insurance with high policy limits because they require the insured to contract for underlying primary insurance with another carrier. The primary carrier generally provides a much lower amount of coverage, but must insure against what is likely to be a greater number of claims and must provide a defense. See Harville v. Twin City Fire Ins. Co., 885 F.2d 276, 279 (5 th Cir. *701 1989); Hartford Accident & Indem. Co. v. Continental Nat'l Am. Ins. Cos., 861 F.2d 1184, 1187 (9 th Cir.1989). The premiums charged are thus a reflection of the risks undertaken. Because the primary insurer's duty to defend extends to covered claims without regard to their amount, an excess insurer's duty to defend is not typically invoked merely because a claim has been asserted against the insured in excess of primary limits. See 1 WINDT, INSURANCE CLAIMS & DISPUTES § 4.11 (3 rd ed.1995). Thus, we agree with the court of appeals that National's alleged negligence in failing to participate in or otherwise contribute to Granada's defense before the primary carrier's tender of policy limits is irrelevant to the claims of contributory negligence or comparative fault.
Although National's duty to defend was not invoked before tender, neither could National affirmatively disrupt or harm the insured's defense. See Canal, 843 S.W.2d at 486 (Hecht, J. concurring); see also Bank One, Texas, N.A. v. Stewart, 967 S.W.2d 419, 434 (Tex.App.Houston [14th Dist.] 1998, pet. denied)(duty to cooperate is implied in every contract in which cooperation is necessary for performance). Any evidence that National interfered with or controlled the defense before tender may be relevant to the issue of comparative responsibility. See, e.g., Birmingham Fire Ins. Co. v. American Nat'l Fire Ins. Co., 947 S.W.2d 592, 596 (Tex.App.Texarkana 1997, writ denied)(comparative responsibility issue submitted against excess carrier who negligently disclosed information to plaintiff's counsel in third-party claim against insured). KMC complains that National failed to appear for a deposition during the Wolf Point litigation and was held in contempt by the trial court. It is not clear from the summary judgment record how this conduct harmed the insured's defense; but if KMC can show that it did, such evidence would be relevant to the issue of National's comparative responsibility.
B. Excess Carrier's Duty to Settle
KMC also argues that the $7 million settlement was excessive and that National should bear some responsibility because it had the opportunity to settle the case for much less. Specifically, KMC points out that National did not respond to, suggest counter offers to, or even discuss the plaintiff's $3.6 million settlement demand presented weeks before the trial began.
An insurer's duty to settle is independent of its duty to defend. 14 COUCH ON INSURANCE 3rd §§ 203:12-203:13; 1 WINDT, supra § 5.26, at 350. An excess insurer owes its insured a duty to accept reasonable settlements, but that duty is also not typically invoked until the primary insurer has tendered its policy limits. 1 WINDT, supra § 5.26; Cf. Employers Nat'l Ins. Co. v. General Accident Ins. Co., 857 F. Supp. 549, 554-55 (S.D.Tex.1994)(when excess liability is likely, an excess insurer may interject itself into settlement negotiations before tender by the primary insurer). Here the primary insurer did not tender its limits until the trial began, well after the $3.6 million demand had been withdrawn. National did not assume control of the defense before INA tendered its limits and had no duty to evaluate the $3.6 million settlement demand until after that tender. Accordingly, National's failure to respond to the settlement demand is not evidence of its contributory negligence or comparative fault.
C. Excess Carrier's Duty of Ordinary Care
INA[4] complains that even though National may not have been under a duty *702 to participate in the defense, investigation or negotiation of the Wolf Point case prior to INA's tender, INA should nevertheless be permitted to use evidence of National's mismanagement of the excess claim to show National's comparative responsibility. INA urges that a reasonably prudent excess carrier would have done more than National did to protect itself from liability under the excess policy. Specifically, INA says that National should have: explored coverage issues more diligently, reserved its rights against the insured, investigated the merits of the third-party claim more thoroughly, hired independent counsel to monitor the third-party claim, supervised its claims adjuster more closely, and demanded to settle the claim months before trial. These actions, INA submits, were necessary under National's duty to protect itself. See Walgreen-Texas Co. v. Shivers, 137 Tex. 493, 154 S.W.2d 625, 630 (1941)(contributory negligence is that conduct which creates an unreasonable risk of harm to oneself).
The court of appeals, however, concluded that National could not have been negligent in failing to take the actions suggested by INA because it had no duty to act before INA tender its policy limits. We agree. As we have explained, before INA's tender, responsibility for Granada's defense rested with the primary carrier and KMC. During this period, National was not required to supervise the insured's defense and had no duty to anticipate that INA or Granada's attorneys were not performing appropriately, if indeed they were not. See De Winne v. Allen, 154 Tex. 316, 277 S.W.2d 95, 98 (1955)(claimant is not contributorily negligent for failing to anticipate the negligence of another). In fact, INA and KMC still deny that the defense was mishandled, contending instead that National was so disorganized that it failed to reasonably follow the progress of the case. But, as we have explained, National had no duty to act until INA tendered its limits and surrendered the defense to National. See 1 WINDT, supra § 2.01, at 31. Accordingly, we agree with the court of appeals that National's pre-tender conduct is irrelevant to the issue of comparative responsibility unless there is evidence that National interfered with the insured's defense or assumed control of the defense at some earlier point in time.
D. Excess Carrier as a Volunteer
KMC contends that National is not entitled to equitable subrogation because National voluntarily settled the case against Granada. KMC submits that had National thoroughly investigated the underlying claim it would have discovered that its excess policy did not provide coverage for the Wolf Point claim. If National was indeed under no obligation to indemnify its insured, KMC reasons, subrogation would not be available. We disagree.
An insurer who pays a thirdparty claim against its insured is not a volunteer if the payment is made in good faith and under a reasonable belief that the payment is necessary to its protection. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 447 (5 th Cir.1991). In the context of equitable subrogation, "Texas courts have been liberal in their determinations that payments were made involuntarily." Argonaut Ins. Co. v. Allstate Ins. Co., 869 S.W.2d 537, 542 (Tex.App.Corpus Christi 1993, writ denied). An excess insurer's payment to settle a suit against the insured has been said to be presumptively involuntary for subrogation purposes. See id. at 543.
*703 KMC's position is contrary to our liberal application of the reasonable belief rule. Adopting it would significantly increase potential conflicts of interest between insureds and their insurers. "If an insurance company's right to subrogation could be challenged by the wrongdoer on the grounds that the policy did not actually provide coverage, it would necessarily be in the company's interest to litigate all questionable claims with its insured. The effect of ignoring the reasonable belief rule, therefore, is to discourage insurance companies from paying or settling disputed claims and thereby force insureds more often into litigation with their insurers." 1 WINDT, supra § 10.10 at 150-51. KMC's conception of the volunteer doctrine is bad public policy, and we decline to adopt it.
E. Causation
INA argues that because National's subrogation rights are based upon equitable principles, fairness requires that all of National's conductboth pre- and post-tenderbe considered in a comparative responsibility issue. The parties' respective liability theories, however, fail to raise any issue about National's pre-tender conduct.
INA asserts that National caused its own harm by deciding to negotiate and settle the Wolf Point litigation without first making a reasonable assessment of coverage, liability facts or potential damages. This lack of preparation, INA reasons, caused National to pay too much. Similarly, KMC asserts that National settled the Wolf Point litigation for too much not because of any fault by KMC, but because National erroneously lacked faith in KMC's work. KMC likewise attributes the excessive settlement to National's own panic following INA's abrupt tender of the primary policy limits. National, on the other hand, agrees that it may have settled the claim for too much, but contends that it was forced to negotiate the $7 million dollar settlement because INA's inadequate supervision and KMC's inept trial preparation put it and the insured at grave financial risk. Thus, everyone apparently agrees that the settlement was excessive. They only disagree on who was at fault for the excessive amount being paid.
To recoup any of its payment, National must prove that its $7 million settlement was excessive in the abstract, yet reasonable under these circumstances because of the defense provided for Granada. If the value of the case with a competent defense would have equaled or exceeded $7 million, then National suffered no harm regardless of whether INA or KMC mishandled the insured's defense. Even if National can prove that its settlement was excessive, it must also prove that INA or KMC mishandled the defense and that a judgment for Wolf Point in excess of the case's true value[5] would have resulted from KMC's malpractice. National's entitlement to damages will thus depend on proof that the true value of Wolf Point's claim was less than $7 million but that KMC's malpractice inflated its value. Assuming such proof, National may then recover as damages the difference between the true and inflated value less any amount saved by the settlement.
IV. Conclusion
The release agreement between KMC and the insured, assuming it is valid, does not foreclose legal malpractice claims arising from KMC's actions or omissions after April 1, 1992. The court of appeals therefore correctly reversed the summary judgment for KMC and remanded National's and INA's claims for trial. The court of appeals also correctly reversed the summary judgment for National on KMC's and INA's affirmative defense of comparative responsibility. The court of appeals further properly limited the scope of that defense to National's post-tender conduct, although pre-tender conduct might be admissible *704 if the insured's defense were harmed by National's interference. Because there is no error in the judgment of the court of appeals, we affirm.
Justice HECHT filed a concurring opinion, joining Parts I and II of the Court's Opinion and the Court's Judgment.
Justice HECHT, concurring in part and concurring in the judgment.
I agree with the Court's statement of the case and its resolution of the issues relating to the release; hence, I join in Parts I and II of the Court's opinion. I also conclude on the record before us that Insurance Company of North America, the primary insurer against a third-party liability claim, and Keck, Mahin & Cate, the attorneys hired to defend the claim, have not shown that they should be entitled, in defense of this equitable subrogation action brought by the excess carrier, National Union Fire Insurance Company of Pittsburgh, PA, to offer evidence of National's conduct that occurred before INA tendered its policy limits to settle the liability claim against its insured. But I do not agree with the broad basis on which the Court founds this conclusion in Part III of its opinion.
INA provided $1 million in primary liability coverage, and National provided $9 million in excess coverage. As the Court states, "[t]he excess policy did not require National to investigate or defend claims against [the insured] as long as another underlying insurance carrier was providing a defense."[1] But as the Court also notes, "National did have the right [under its policy] to associate in the defense and trial of any claim it deemed a threat to its liability".[2]
National alleges in this equitable subrogation action that it had to pay an excessive amount to settle a liability claim because of INA's and KMC's mishandling of the defense of the claim. INA and KMC argue that National's own conduct contributed to the payment of an excessive settlement. The Court holds that National's conduct prior to INA's tender of policy limits to the third-party liability claimant is irrelevant unless National interfered with or took control of the defense. The Court bases this holding on a general rule that an excess insurer has no duty to defend or settle a liability claim before the primary insurer has tendered the limits of its policy.
The Court purports to follow the "majority rule" that an "`excess liability insurer is not obligated to participate in the defense [of a third-party claim] until the primary policy limits are exhausted.'"[3] The authority cited for this proposition is the 1982 Couch on Insurance treatise, which adds, two sentences later: "But certain courts have held that the excess carrier must participate in the defense and share in the cost of defense when it is clear that the potential judgment against the insured may be substantially greater than the amount of the primary policy limits."[4] It is not at all clear from the 1999 supplement to the treatise whether the rule stated in 1982 still holds true.[5] Later treatises, including the third edition of Couch on Insurance, which the Court cites as additional source material, reflect some erosion from the so-called "general rule". One of these treatises explains:
Where the insured maintains both primary and excess policies, the general rule is that an excess liability insurer is *705 not obligated to participate in the defense until the primary policy limits are exhausted.
Accordingly, it has been held that an excess insurer has no duty to defend where there was no evidence that the underlying policy limits would be exceeded, where an exclusion in primary insurer's policy relieved the primary insurer of the duty to indemnify the insured, or where there was no allegation that the primary insurer might become insolvent.
An excess insurer may have a duty to defend an insured where the claim against the insured is in excess of the limits of the underlying coverage. Some courts have held that an excess carrier must participate in the defense and share in the cost of defense when it is clear that the potential judgment against the insured may be substantially greater than the amount of the primary policy limits.[6]
The other treatise refers to the Court's rule as "the traditional view" but cites numerous cases for the proposition that "in appropriate circumstances, excess carriers may owe a duty to participate in the insured's defense."[7]
The Court offers one policy justification for the "general rule"that excess insurance is less expensive because excess insurers' "duty to defend is not typically invoked".[8] In this case, however, National's refusal to involve itself in the defense of the claim resulted in its ultimately paying $7 million to settle a claim that plaintiffs had been willing earlier to settle for $3.6 million. This is some indication, at least, that an excess insurer's complete abstention from the litigation until the primary limits are tendered makes excess insurance more expensive, not less expensive. INA and KMC never believed that the claim could be settled within primary policy limits, and thus INA had little to gain by tendering its limits. Had National intervened to attempt to settle the case, the result would almost certainly have been far less than the $7 million it paid after trial began. These circumstances are hardly unique. Even if National succeeds in its claims against INA and KMC and recoups a part of what it paid, insurance rates will still be affected. The point is, it is not intuitively obvious, as the Court seems to thinkand it is certainly not obvious from this casethat the Court's "general rule" keeps down insurance costs.
I am not persuaded that an excess insurer never has a duty to defend or settle a claim against its insured before primary coverage is exhausted. An excess carrier that has the right to intervene in the defense may be obligated to do so to protect itself and its insured when it is clear that the liability claim will exceed primary coverage. Take the following example. P sues D, whose primary insurer, PI, assumes the defense. P's claim is probably worth $5 million, which exceeds PI's $100,000 policy limits and EI's excess policy limits of $1 million. P offers to settle for $1.1 million, but PI refuses, believing D has an absolute defense to P's claim. EI does nothing. When P obtains a judgment for $5 million, PI must pay $100,000, EI must pay $1 million, and D must pay $3.9 million. D has no Stowers claim against PI because it never received a settlement demand within its policy limits, and, under the Court's absolute rule, D has no claim at all against EI.[9] This result obtains even though D paid premiums for insurance that would have settled his liability. Also, EI has no subrogation claim against *706 PI because D has no claim to which EI could be subrogated. Thus, the principal cause of the excess judgment, PI, is wholly insulated from responsibility. This is but one instance in which I think an excess insurer's duty to be involved in the defense of a claim must be carefully examined.
A rule absolutely insulating an excess insurer from responsibility for any defense of a claim prior to tender of the primary coverage is even less defensible, it seems to me, in an equitable subrogation action like this one. Suppose in my example that A, the attorneys hired to defend the claim, urge PI to accept P's offer, but PI refuses. So A writes EI as follows:
We know that you have no duty to assist in the defense of this case, but you do have the right under your policy to protect your own interests, and you should exercise that right now. P has made a settlement offer within primary and excess coverage although liability could be much greater. We are worried that not only could your limits be exhausted but that D himself could even be exposed personally. We have handled this case superbly to have obtained as low an offer as P has made. Attached is a complete summary of what we have done and what we have decided not to do. If P ultimately obtains by judgment or settlement much more than the present offer, as we almost certainly think he will, then it will not surprise us if you try to shift some of the responsibility for your inaction to us, claiming that we did not properly handle the case. If that happens, we want to be able to defend ourselves by showing that you were fully warned, and that any complaints you make against us are pretextual to cover your own ineptness. So if you sue us later, we intend to introduce this letter into evidence so that the jury can see what really happened.
Assuming EI has refused to involve itself in D's defense, the Court's rule would bar A from offering this evidence that EI's subsequent malpractice claim was a disingenuous effort to look for someone else to share in the burden of what was paid to P. A strong argument can be made, I think, that the excess insurer's hands are not clean for purposes of its equitable claim of subrogation.
But I do not have to decide that issue here. I am not prepared to decide exactly when an excess insurer may be liable for refusing to involve itself in the defense of a claim. The weight of the learned commentary and the differences in the multitude of cases in the area convinces me that the Court should proceed more carefully than it does today. The record before us does not present circumstances that justify admission of the type of evidence KMC and INA wish to offer against National. I do not say that no such evidence exists, only that it is not reflected in our record. On that narrow basis, I agree that the court of appeals reached the correct result.
NOTES
[1] The court of appeals agreed that INA was entitled to summary judgment on National's claims of gross negligence and violation of the Insurance Code because National's theory of equitable subrogation limited it solely to indemnification. 955 S.W.2d at 133. National has not appealed that part of the court's opinion and judgment, and that issue is not before us.
[2] We assume, without deciding, that Granada's agreement with KMC could affect National's and INA's respective rights against KMC because neither insurance carrier argues differently in this Court.
[3] The presumption applies in this case because the release was negotiated during KMC's representation of Granada. Conversely, had Granada severed the attorney-client relationship with KMC and hired new attorneys before agreeing to the release, the presumption would not have arisen.
[4] As the court of appeals explained, the merits of National's negligence claim against INA is not a part of this appeal because the trial court denied INA's motion for summary judgment, leaving the claim for trial. 955 S.W.2d at 125-26. Such claim was therefore not part of the severed cause appealed to that court. The court of appeals, however, considered the ments of INA's affirmative defense of comparative responsibility to National's negligence claim as being part of the appeal. On that issue it reversed the trial court's summary judgment that had foreclosed this defense. KMC has raised the identical issue in its appeal, and no other party has objected to including the merits of INA's separate but identical defense in the appeal. Under these rather unusual circumstances, we also consider INA's arguments as part of this appeal.
[5] The true value is the recovery Wolf Point would have obtained following a trial in which Granada had a reasonably competent, malpractice-free defense.
[1] Ante at 695.
[2] Ante at 695.
[3] Ante at 700 (quoting Texas Employers Ins. Ass'n v. Underwriting Members of Lloyds, 836 F. Supp. 398, 404 (S.D.Tex.1993) (quoting 14 GEORGE J. COUCH, COUCH ON INSURANCE 2D § 51.36 (1982))).
[4] 14 COUCH ON INSURANCE 2D § 51.36, at 446 (1982).
[5] See COUCH ON INSURANCE 2D § 51.36 (Supp. 1999) (citing numerous cases).
[6] LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE 3D §§ 200.44-.45 (1999) (footnotes omitted).
[7] BARRY R. OSTRAGER & THOMAS R. NEWMAN, HANDBOOK ON INSURANCE COVERAGE DISPUTES § 6.03 (9th ed., 1998) (footnotes omitted).
[8] Ante at 701.
[9] See Westchester Fire Ins. Co. v. American Contractors Ins. Co. Risk Retention Group, 1 S.W.3d 872 (Tex.App.Houston [1st Dist.], no pet.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1317698/ | 190 Va. 605 (1950)
ETTA TILLER, ADMINISTRATRIX OF THE ESTATE OF WILLIAM R. TILLER, DECEASED
v.
NORFOLK AND WESTERN RAILWAY COMPANY, A CORPORATION.
Record No. 3588.
Supreme Court of Virginia.
March 13, 1950.
Richardson & Kemper and Joseph S. Gillespie, for the plaintiff in error.
Bowen & Gillespie, for the defendant in error.
Present, Hudgins, C.J., and Gregory, Eggleston, Spratley and Buchanan, JJ.
1. Plaintiff's decedent was killed when the door of a boxcar in which he was riding during a shifting operation closed suddenly and crushed his head. Decedent, who had been engaged in unloading the car for his employer, had been instructed to stop work before the shifting operation began and decedent's foreman testified that employees under his supervision had been instructed to keep off cars while they were being moved or shifted. None of the members of the train crew knew until after the accident that decedent was riding in the car nor was there evidence of any circumstance which put them on notice that decedent was in the car. In riding on the car during the shifting operation decedent was clearly a bare licensee or a trespasser and the employees of defendant were guilty of no breach of duty which they owed to him.
2. In Virginia, the general rule that a railroad company owes to a trespasser or bare licensee on its property the negative duty not to injure him wantonly or wilfully after having discovered his presence is subject to the qualification that in order for a railroad company to incur liability to a trespasser it is not necessary that its employees should actually know of his danger or peril. It is enough if the employees have notice of what would cause a person, in the exercise of ordinary care, to be alerted to the danger. After such notice they must exercise ordinary care to avoid injuring a person, even though he be a trespasser.
3. When no one is known or believed to be in danger, a railroad company is under no obligation to prepare for what is not anticipated, or to stop or examine where no harm is suggested by the circumstances.
4. Under the facts of headnote 1, a fellow-employee of decedent testified that while the witness was standing in the doorway of the car he saw the conductor of the train standing on the loading platform talking to the foreman, and from this it was argued that the jury had the right to infer that the conductor, in the exercise of ordinary care, should have seen the witness in the car, but apparently this incident occurred just as the shifting engine arrived and the workmen unloading the car suspended their work. Under these circumstances, even if the conductor had then seen the witness, he had the right to assume that since the work on the car had been suspended, and the shifting operation was about to begin, the witness would remove himself to a place of safety by getting out of the car. There was nothing in this incident to put the conductor on notice that decedent, whose duties had never required him to be in the car, would thereafter board it.
5. Under the facts of headnote 1, it was argued that inasmuch as the conductor of the train testified that it was his duty to inspect the cars before moving them, and that he did so on this occasion, he was negligent in not discovering the presence of decedent in the car, but the railway company owed decedent no duty to search the car and ascertain whether he was aboard. Where there is no duty, there can be no actionable negligence.
6. Under the facts of headnote 1, when decedent boarded the car, where he had no duty to perform and knowing that it was to be shifted, he assumed the risk incident thereto.
7. The defense of assumption of risk, while closely associated with that of contributory negligence, is distinguishable therefrom. The essence of contributory negligence is carelessness; of assumption of risk, venturousness. Thus an injured person may not have acted carelessly; in fact, may have exercised the utmost care, yet may have assumed, voluntarily, a known hazard. If so, he must accept the consequence.
Error to a judgment of the Circuit Court of Tazewell county. Hon. Frank W. Smith, judge designate presiding. The opinion states the case.
EGGLESTON
EGGLESTON, J., delivered the opinion of the court.
William R. Tiller, an employee of Hardwood Products, Incorporated, was killed at St. Clair's crossing, in Tazewell county, while riding in a railroad boxcar which was being shifted by a train crew of the Norfolk and Western Railway Company. In an action for wrongful death his administratrix recovered a verdict against the Railway Company. Being of opinion that the Railway Company was not legally responsible for Tiller's death, the trial court set aside the verdict and entered a judgment for the defendant company, and to review that judgment the present writ of error has been allowed.
The Hardwood Products is engaged in the handling and processing of lumber and maintains a plant located on the south side of the main line of the Clinch Valley Division of the Norfolk and Western Railway Company at St. Clair's crossing. For the purpose of loading and unloading cars a spur track leaves the main railroad east of the Hardwood Products plant and runs back in a westwardly direction south of and nearly parallel to the main line. A loading platform of the approximate height of the floor of a railroad boxcar extends from the building to within a few feet of the southern side of the spur track. *608
On January 21, 1947, Tiller, the deceased, and three other employees of Hardwood Products had been assigned the task of unloading lumber from one of three boxcars standing on the spur track opposite the platform. John H. Lambert and Garney Alley were working inside the car, passing lumber through the open door to Tiller and Fred Ireson, whose duty it was to place the lumber on a small truck and roll it by hand along the platform to a point where it was to be stacked. During the afternoon, and while the car was being thus unloaded, a local freight train approached St. Clair's crossing from the west. This train carried a car which was to be left on the Hardwood Products spur track. For the purpose of facilitating the unloading, the foreman of the Hardwood Products had also requested the train crew to shift or change the relative positions of the three cars already standing on the spur track.
In order to superintend the necessary shifting the conductor of the freight train left the caboose, walked across the main line and spur track, and came up on the Hardwood Products loading platform.
Before the shifting operation began, J. H. Williams, the foreman of Hardwood Products, came by the car from which Tiller and his companions were unloading lumber, told them of the intended operation, and instructed them to stop work. This direction was promptly complied with. The shifting of cars in this manner was a daily occurrence, and the testimony of Williams is that the employees under his supervision had been instructed "to keep off those cars while they are being moved or shifted."
Despite this warning, before the shifting began, Tiller, unseen either by his foreman, by the conductor, or by any member of the train crew, either to escape from the severe cold weather, or in a spirit of adventure, got into the car which he had been assisting in unloading, and with his fellow-employee, Lambert, remained there throughout the shifting operation hereinafter described. *609
After the engine had been cut loose from the train of cars on the main track it was driven eastwardly beyond the switch, then reversed and run onto the spur track where it was coupled with the three cars standing alongside the plant. These cars were then pulled eastwardly along the spur track beyond the switch onto the main line. The engine was again reversed and the three cars were pushed westwardly along the main track toward the train of cars which had been left standing on the main line. As is customary, after the three cars had received considerable impetus from the engine, they were uncoupled and left to "drift" or proceed under their own momentum toward the standing cars and struck them with sufficient force to effect a coupling.
There was evidence on behalf of the administratrix that the impact of the three shifting cars with the stationary train of cars was unusually violent and noisy. Lambert testified that he was thrown to the floor of the car in which he and Tiller were riding. On the other hand, the testimony of the members of the crew was that the operation was carried out in the usual way, and that the engine imparted to the shifted cars only a sufficient momentum to take the upgrade at that point in order to effect a coupling with the standing cars.
At any rate, the impact was of sufficient force to cause the open door to slide suddenly to a closed position and crush Tiller's head, killing him instantly. At the time he was standing in the doorway of the car.
The gist of the claim of the administratrix is that in shifting the car the train crew failed to exercise ordinary care for decedent's safety after they knew or should have known that he was riding therein.
[1-3] In riding on the car during the shifting operation Tiller was clearly a bare licensee or a trespasser. His duties in connection with unloading the car had been suspended, pursuant to the orders of his foreman, and he had no business on it. He boarded it voluntarily for his own purpose and without the permission of the Railway Company or any of *610 its employees. See 52 C.J., Railroads, section 2121, p. 549, and cases there cited.
Ordinarily, a railroad company owes to a trespasser or bare licensee on its property the negative duty not to injure him wantonly or wilfully after having discovered his presence. It owes him no duty of prevision or preparation for his discovery ( Hawkins Beecham, 168 Va. 553, 560, 191 S.E. 640, 643), and, before shifting cars standing on a sidetrack, is not required to search for trespassers thereon. 44 Am. Jur., Railroads, section 430, pp. 650, 651; 43 A.L.R. 38, Anno.; Angiline Norfolk, etc., R. Co., 99 W.Va. 85, 128 S.E. 275, 277, 278, 43 A.L.R. 34.
In Virginia, and in some other jurisdictions, this general rule is subject to the qualification that in order for a railroad company to incur liability to a trespasser it is not necessary that its employees should actually know of his danger or peril. It is enough if the employees have notice of what would cause a person, in the exercise of ordinary care, to be alerted to the danger. After such notice they must exercise ordinary care to avoid injuring a person, even though he be a trespasser. Washington, etc., Railroad Taylor, 188 Va. 458, 50 S.E.(2d) 415.
To state the matter conversely, when no one is known or believed to be in danger, a railroad company is under no obligation to prepare for what is not anticipated, or to stop or examine where no harm is suggested by the circumstances. Tucker Norfolk, etc., R. Co., 92 Va. 549, 553, 24 S.E. 229; Atlantic Coast Line R. Co. Gates, 186 Va. 195, 200, 42 S.E.(2d) 283, 286.
Tested by these principles we are of opinion that the employees of the Railway Company were guilty of no breach of duty which they owed to the decedent.
The evidence is uncontradicted that none of the members of the train crew actually knew until after the accident that Tiller, or his companion, Lambert, was riding in the car during the shifting operation. *611
Nor was there evidence of any circumstance which put the members of the crew on notice that the decedent was in the car while it was being moved. All of the Hardwood Products employees working in and around the cars knew that the shifting operation was about to begin, and pursuant to the direction of their foreman, suspended work on the cars. The undisputed evidence is that none of these employees had on other occasions ridden on cars during shifting operations.
It is true that Lambert testified that while he was standing in or near the doorway of the car he saw the conductor on the near-by platform talking to the Hardwood Products foreman, Williams, and from this it is argued that the jury had the right to infer that the conductor, in the exercise of ordinary care, should have seen him (Lambert) in the car.
While Lambert's testimony is not entirely clear on the point, apparently this incident occurred just as the shifting engine arrived and the Hardwood Products employees suspended their work on the car. As Lambert said, Alley, his fellow-employee, had just gotten out of the car and there was no one else in there with him (Lambert).
Under these circumstances, even if the conductor had then seen Lambert, he had the right to assume that since the work on the car had been suspended, and the shifting operation was about to begin, Lambert would remove himself to a place of safety by getting out of the car.
Certainly, there was nothing in this incident to put the conductor on notice that Tiller, whose duties had never required him to be in the car, would thereafter board it.
It is argued that inasmuch as the conductor testified that it was his duty to inspect the cars before moving them, and that he did so on this occasion, he was negligent in not discovering the presence of the decedent in the car.
But, as has been pointed out, the Railway Company owed the decedent no duty to search the car and ascertain whether he was aboard. It is elementary that where there *612 is no duty, there can be no actionable negligence. Norfolk, etc., R. Co. Wood, 99 Va. 156, 158, 37 S.E. 846.
Since the conductor and other members of the crew were not chargeable with notice that the decedent was aboard the car during the shifting operation, it is not necessary that we decide whether they failed to exercise ordinary care for his safety in the manner in which the shifting operation was performed.
There is another ground upon which a recovery in favor of the administratrix is precluded. When Tiller voluntarily boarded the car, where he had no duty to perform and knowing that it was to be shifted, he assumed the risk incident thereto.
The defense of assumption of risk, while closely associated with that of contributory negligence, is distinguishable therefrom. As is tersely said in Hunn Windsor Hotel Co., 119 W.Va. 215, 193 S.E. 57, 58: "The essence of contributory negligence is carelessness; of assumption of risk, venturousness. Thus an injured person may not have acted carelessly; in fact, may have exercised the utmost care, yet may have assumed, voluntarily, a known hazard. If so, he must accept the consequence."
"While assumption of risk is often a matter of implied contract, as in case of master and servant, it is not always and necessarily so. The mere doing of an act, in the absence of any contract, may be the assumption of risk, as is illustrated by engaging in athletic sports and the like. A man who crosses a railroad track in front of an approaching train assumes the risk of getting across in safety. We assume risks in many ways every day, without any relation to contract." Weston Hospital of St. Vincent of Paul, 131 Va. 587, 593, 107 S.E. 785, 23 A.L.R. 907. See also, 38 Am. Jur., Negligence, secs. 171, 172, pp. 845, 846, 847.
For these reasons we are of opinion that the action of the trial court in setting aside the verdict was entirely proper, and therefore the judgment is
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2586262/ | 162 P.3d 988 (2007)
343 Or. 115
BOLES
v.
HILL.
No. S54784.
Supreme Court of Oregon.
June 19, 2007.
Petition for review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1215369/ | 759 P.2d 1012 (1988)
107 N.M. 430
Herbert C. LEWIS, Plaintiff-Appellee,
v.
Abe RODRIGUEZ, d/b/a Abe Rodriguez & Associates, Defendant-Appellant.
No. 8996.
Court of Appeals of New Mexico.
July 5, 1988.
*1013 Ernesto J. Romero, David C. Hughes, Albuquerque, for plaintiff-appellee.
Scott McCarty, Joseph William Reichert, Albuquerque, for defendant-appellant.
OPINION
APODACA, Judge.
Defendant Abe Rodriguez (Rodriguez) appeals from a judgment for plaintiff Herbert C. Lewis (Lewis) after a jury verdict. Lewis filed suit against Rodriguez for negligent administration of a polygraph examination, alleging professional malpractice. Two issues are raised on appeal: (1) whether the trial court erred in instructing the jury under a malpractice theory of negligence, as opposed to a simple negligence theory; and (2) whether the trial court erred in failing to instruct the jury on what is commonly referred to as the "locality rule," under which a professional person is bound to the standard of care established by other like professionals practicing under similar circumstances, giving due consideration to the locality involved. Implicit in Issue (1) is the sub-issue of whether a polygraph examiner is a professional.
With respect to Issue (1), we conclude that Rodriguez was a professional and that the instruction given was thus proper. With respect to Issue (2), we hold that Rodriguez failed to preserve the claimed error in the trial court and the issue is therefore not properly before us. We thus affirm the trial court's judgment.
Lewis was employed as a corrections officer at the Bernalillo County Detention Center. Confidential informants, who were residents of the jail, made statements alleging that Lewis was bringing drugs into the detention center. Because of these allegations, Lewis was required by his employer to submit to a polygraph examination given by Rodriguez.
At trial, Lewis testified that: (1) if he refused to submit to the examination, he would be terminated from employment; (2) just before the examination, Rodriguez became obnoxious and belligerent, yelled at him, and used obscenities; and (3) as a result of Rodriguez' abusive treatment, Lewis was angry and upset during administration of the test. Lewis also presented testimony from several polygraph examiners who testified regarding the procedures generally followed in administering and scoring an examination. Lewis was terminated from his employment based on the results of the polygraph examination administered and scored by Rodriguez. At trial, Lewis submitted an instruction modeled after the uniform jury instruction for medical malpractice, NMSA 1978, UJI Civ. 11.1 (Repl.Pamp. 1980) (now codified as SCRA 1986, 13-1101), and setting out the malpractice standard of care. In opposition, Rodriguez argued that the jury should be instructed under a simple negligence standard, and he submitted a negligence instruction modeled after NMSA 1978, UJI Civ. 3.2 (Repl.Pamp. 1980) (now codified as SCRA 1986, 13-302A-13-302F). Concluding that a polygraph examiner is a professional, the trial court instructed the jury under the malpractice standard.
*1014 Discussion
Issue (1)
Rodriguez first contends he was only required to adhere to a "reasonable man" standard of care. He cites no authority to support this contention. See In re Adoption of Doe, 100 N.M. 764, 676 P.2d 1329 (1984). On the other hand, Lewis argues that polygraphers are professionals and therefore subject to a malpractice standard. He encourages this court to hold, as a matter of law, that polygraphers are professional persons, and thus subject to a malpractice standard. See Garcia v. Color Tile Distrib. Co., 75 N.M. 570, 408 P.2d 145 (1965) (degree of care necessarily required by one who undertakes to render services to another in practice of trade that is result of acquired learning, or developed through special training and experience, is that which a reasonably prudent person skilled in such work would exercise).
In support of his contention, Lewis relies on the following: (1) Rodriguez testified that he regarded himself as a professional and that his professionalism had never been questioned; (2) SCRA 1986, 11-707 indicates the supreme court's recognition that professional polygraphers should be permitted to render their opinions in court when certain standards are met; (3) Rodriguez has complied with these standards, since he has testified in court on several occasions; (4) Rodriguez has been a licensed polygrapher since 1971 or 1972 and was chairman of the New Mexico Board of Polygraph Examiners during the 1970s; (5) polygraphy has progressed in recent years as a true profession; and (6) since Rodriguez clearly regards himself as a professional polygrapher, he should be subject to the same standards as other professional persons.
Lewis cites two cases that recognize a cause of action for negligent administration of a polygraph examination. See Lawson v. Howmet Aluminum Corp., 449 N.E.2d 1172 (Ind. App. 1983) and Zampatori v. United Parcel Serv., 125 Misc. 2d 405, 479 N.Y.S.2d 470 (1984). Neither of these cases specifically addresses the duty of care owed by the polygraph examiner to the examinee. In Lawson, supra, the Indiana Court of Appeals determined that the plaintiff-examinee was entitled to require that the defendant-examiner exercise reasonable care in administering the test fairly and impartially. The court reversed summary judgment in favor of defendant on this issue. In Zampatori, the New York Supreme Court also denied defendant-examiner's motion for summary judgment on the ground that the examiner had a duty of good faith and reasonable care in administering a polygraph to an examinee, and further, that the examiner could reasonably foresee that the negligent administration of a polygraph could result in damages for the employee-examinee. These two cases, however, do not directly discuss whether the polygraph examiner has the legal duty of a reasonably prudent person or the duty and care of a reasonably well-qualified polygraph examiner under similar circumstances. In essence, as the reviewing court in this case of first impression, we have been asked to determine the appropriate standard in this jurisdiction. To address this question, we must first decide whether a polygraph examiner is a "professional" and therefore subject to certain professional standards.
The factors used in determining whether certain individuals are "professionals" under the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA), may be helpful to us as examples of those duties performed by individuals generally considered to be professional persons.
The definition of a "professional employee" under the NLRA is aptly stated in the following summary:
For an employee to qualify as a "professional employee" under the National Labor Relations Act, his occupation must meet all four of the requirements outlined in 29 USCS § 152(12). The work must be predominantly intellectual and nonroutine * * * involving the consistent exercise of discretion and judgment * * * and must not be standardized in terms of time. * * * The position also must require knowledge customarily acquired *1015 by specialized study in an institution of higher learning.
Annotation, Who are Professional Employees Within Meaning of National Labor Relations Act (29 USCS § 152(12)), 40 A.L.R.Fed. 25, 35 (1978). Whether the employee is licensed by the state is persuasive as evidence of the employee's professional status, but such licensure is not deemed conclusive. Id. Also, with whom an employee works is significant; the fact that an employee works with professionals, for example, may qualify him as a professional. Id. Whether the employee is fully using his training is another factor to consider. Id.
Under the FLSA, an employee is deemed employed in a bona fide "professional" capacity if his primary duty:
[C]onsists of work requiring knowledge of an advanced type, in a field of science or learning, customarily acquired through a prolonged course of specialized intellectual instruction and study; or work that is original and creative in a recognized field of artistic endeavor; or the practice of law, medicine, or teaching; and whose work requires the consistent exercise of discretion and judgment * * * and is predominantly intellectual and varied in character * * * as opposed to routine mental, manual, mechanical, or physical work. The professional employee's work is of such a character that the output produced, or the result accomplished, cannot be standardized in relation to a given period of time * * *.
Annotation, Who is Employed in "Professional Capacity," Within Exemption, Under 29 USCS § 213(a)(1), from Minimum Wage and Maximum Hours Provisions of Fair Labor Standards Act, 77 A.L.R.Fed. 681, 688 (1986). We note that the factors considered under both the NLRA and the FLSA criteria are quite similar. Although the reasons for classifying employees as "professionals" under the NLRA and the FLSA are different from those in the present case, they nonetheless lend some guidance to us in our determination.
We likewise deem pertinent to our inquiry Rodriguez' testimony regarding the procedures a polygrapher follows when conducting a polygraph examination. He testified as follows: after being contacted by the party requesting that an examination be given, the polygrapher meets with that person to determine whether the issue is one that can be addressed by the examination. If so, he next acquaints himself with the relevant facts surrounding the issue. He then meets with the examinee and conducts a physical-psychological interview to ascertain the suitability of the person for examination. The examiner formulates a series of inquiries that include "relevant" and "control" questions. The relevant question is "going to be your most important question; basically, that is the question that addresses the issue. It is the question that is supposed to be well-worded, to the point and does not contain any rationale." See SCRA 1986, 11-707(A)(4). He then attempts to put the examinee at ease and goes over the sequence of questions with him. After connecting the polygraph machine to the examinee, he questions the examinee; the machine records the responses. The polygrapher measures and compares the responses and assigns a score to each response. Based on this scoring process, he finally determines whether the examinee was deceptive on particular questions.
Larry Galbreth, who has practiced polygraphy in New Mexico for about fourteen years, testified that the average polygraph school requires approximately three months of training. He also explained the scoring procedures generally followed by polygraphers.
Under NMSA 1978, Section 61-26-2 (Repl.Pamp. 1983), "polygraphy" is defined as follows:
[T]he employment of any instrument designed to graphically record simultaneously the physiological changes in human respiration, cardiovascular activity, galvanic skin resistance or reflex for the purpose of lie detection and includes the reading and interpretation of polygraphic records and results. (Emphasis added.)
*1016 Polygraphers are licensed by the state. The qualifications for licensure are set out in NMSA 1978, Section 61-26-7 (Repl. Pamp. 1983), which states in part:
To be eligible for licensure as a polygrapher, a person shall:
* * * * * *
C. * * * either:
(1) successfully pass an examination or another test of the ability to practice polygraphy as prescribed by regulation; or
(2) submit proof of holding, for at least two years immediately prior to the date of application, a current license to practice polygraphy in another jurisdiction whose standards equal or surpass those of New Mexico.
Based on the factors set out above, it becomes readily apparent that the work performed by a polygrapher is consistent with the type of work generally considered to be that of a professional. A polygrapher exercises judgment and discretion in: (1) deciding whether the issue sought to be resolved is one that can be addressed by a polygraph examination; (2) determining the suitability of the examinee for an examination; (3) formulating the series of questions; (4) reading and interpreting polygraphic records and responses; (5) determining what scores to assign the various responses; and (6) arriving at a conclusion, based on the scores, of whether the examinee is being truthful or deceptive. It is thus clear that the primary duties of a polygrapher require a consistent exercise of discretion. These duties are predominantly intellectual and varied in character because the polygrapher is faced with a different issue and a different examinee each time he administers a polygraph examination.
The questions a polygrapher formulates, and the responses recorded, are different for each examinee, and he must exercise discretion when he reads, interprets, and scores the responses. The output produced is of such a character that it cannot be standardized, since each examination is unique. A polygrapher attends a course of specialized intellectual instruction and study, since most polygraphers attend a polygraphy school. Although the study at the polygraphy school is not prolonged (approximately three months), trial testimony revealed that polygraphers often do an internship, during which they are supervised by a more experienced polygrapher. They also attend workshops or continuing education seminars. Finally, as we noted earlier, licensure is required by the state.
In light of our discussion, we hold that polygraphers are professionals subject to a malpractice standard of care. It makes sense to require expert testimony to prove negligent administration of a polygraph examination because the procedures followed in giving such examination are not common knowledge to the average juror. The need for expert testimony under the facts of this case is consistent with our holding that polygraph examiners are professionals. We conclude that the trial court properly instructed the jury under a malpractice theory of negligence.
Issue (2)
Rodriguez next contends that, even if he is held to be a professional subject to a malpractice standard of care, the trial court erred in failing to instruct the jury regarding the "locality rule." He cites to the medical malpractice instruction, UJI Civ. 11.1, and the applicable use note. He relies on the use note for the proposition that in instructing jurors on a malpractice standard of care, the instruction must also inform them that the professional person is bound to the standard of care established by other like professionals practicing under similar circumstances, giving due consideration to the locality involved.
Yet, Rodriguez did not submit an instruction containing the "locality rule," nor did he argue before the trial court that Lewis' proposed instruction was incorrect and should be modified to include the rule. The transcript of proceedings reflects that after the trial court ruled malpractice was the applicable theory of negligence, it encouraged both parties to prepare a complete set of instructions based on this ruling. The transcript indicates Rodriguez' attorney understood he could submit additional instructions that conformed to the trial court's ruling.
*1017 Prior to submitting the case to the jury, the trial court and the parties' trial counsel discussed the proposed instructions. Rodriguez' attorney objected to the use of the malpractice instruction and to the modification of it to include part of Rodriguez' requested instruction on negligence and part of Lewis' requested instruction on malpractice. However, Rodriguez did not alert the trial court to the absence of a reference to the "locality rule." In order to preserve error to a given instruction, he was required either to tender a correct instruction and alert the trial court to the fact that the tendered instruction corrected the defect complained of, or point out the specific vice in the instruction given by proper objection. See Budagher v. Amrep Corp., 97 N.M. 116, 637 P.2d 547 (1981). Rodriguez failed to preserve this issue, since he did not tender an instruction containing the "locality rule" nor object to the instruction given on the ground that it did not alert the jury to the rule. We conclude this issue was not preserved in the trial court and is consequently not properly before us for review. See SCRA 1986, 12-216.
We affirm the trial court's judgment.
IT IS SO ORDERED.
ALARID and GARCIA, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1571778/ | 437 F. Supp. 883 (1977)
Ralph HOWARD and wife, Kay F. Howard, Plaintiffs,
v.
SEARS, ROEBUCK AND COMPANY, Defendant.
Civ. A. No. H74-85(R).
United States District Court, S. D. Mississippi, Hattiesburg Division.
September 2, 1977.
*884 Leonard B. Melvin, Jr., Melvin & Melvin, Laurel, Miss., for plaintiffs.
Francis T. Zachary, Zachary & Gillespie, Hattiesburg, Miss., for defendant.
OPINION
DAN M. RUSSELL, Jr., Chief Judge.
Plaintiffs, husband and wife, residents of Ellisville, Mississippi, at the time their cause of action arose, brought this action under Mississippi's "wrongful death statute", Section 11-7-13, Mississippi Code of 1972 (formerly Section 1453, Mississippi Code of 1942) against Sears, Roebuck and Company, a New York corporation qualified to do business in Mississippi, for the death of their son, fatally burned when a Sears Coldspot freezer allegedly exploded and caught fire. Plaintiffs claim they are entitled to recover under theories of (1) strict tort liability because the freezer was defective; (2) breach of warranty, both express and implied; and (3) negligence in the design of the freezer in that its insulation consisted of polyurethane foam, a substance dangerous because of its flammability, and (4) because the freezer was negligently and improperly installed by Sears' employees. The defendant denied all charges.
The case was tried to the Court without a jury.
At the conclusion of plaintiffs' case in chief, Sears moved for a dismissal under Federal Rules of Civil Procedure, Rule 41(b), which the Court denied. At the conclusion of all the evidence, Sears again moved to dismiss, charging that plaintiffs, upon the facts and the law, had no right to relief. The Court reserved ruling on this motion pending its review of the evidence. Both plaintiffs and the defendant have furnished the Court with their respective proposed findings of fact and conclusions of law and briefs.
In a pre-trial order entered into evidence, the parties agreed that certain facts were established by the pleadings, stipulations or admissions of counsel. These facts, as adopted by the Court, follow.
Mark R. Howard, the infant son of the plaintiffs, was eleven months old on October 7, 1971 and in good health when he received fatal burns in the residence of Benton C. Pitts and wife, Martha Gay Pitts, Ellisville, Mississippi, where he was being cared for by Mrs. Pitts for compensation. Mark died on November 4, 1971, approximately 28 days after the fire, at the University Hospital, Jackson, Mississippi to which he was taken for treatment immediately following his burns. He had a life expectancy of 68.3 years. His parents, Ralph Howard and Kay F. Howard, plaintiffs herein, were the sole and only heirs at law of the deceased. Medical expenses incurred in Mark's treatment include the sum of $6,727.00 owed to University Hospital, $28.50 to Jones County Community Hospital, $505.00 to Dr. Richard *885 C. Miller, $25.00 to a Dr. McRae, and $96.25 to City of Laurel Ambulance Services. Funeral expenses were in the sum of $733.25.
On and prior to October 7, 1971, there was situated in the residence of Mr. and Mrs. Pitts a Sears Coldspot Flash Defrost Spacemaster Chest Freezer, Serial No. 91839576, Model 1047. During this time Sears was engaged in the distribution and sale of freezers, including the one purchased by the Pittses. Sears made no reference to a manufacturer other than Sears, Roebuck and Co. on the freezer and the materials distributed therewith, and Sears marketed the freezers to the general public under its trade name of Sears Coldspot.
Also by stipulation of the parties, exhibits P-1 through P-65 were entered into evidence by the plaintiff, and exhibits D-1 through D-90 were admitted into evidence on behalf of defendant, both sets without objection by either party as to authenticity or admissibility.
Plaintiffs' first witness was Mrs. Martha Gay Pitts, primarily a housewife who, at home, assisted her husband in keeping books for clients other than his regular employer, and who "babysat" other persons' children in her home for a small fee. She identified her residence on Fridge St., Ellisville, as reflected in photographs in evidence, showing outside views, and a floor plan of the various rooms, also in evidence. In November 1970, Mrs. Pitts and her husband went to the Sears' retail store in Hattiesburg, Mississippi, where they purchased a Sears' Coldspot chest freezer, the serial and model numbers being that given above. Although the freezer was a floor model and had a scratch across the front, the salesman represented it as new, and they were given a written one year warranty, free, against defects in material or workmanship, as well as other literature, all in evidence, pertaining to Sears' household appliances. Final payment, by check, was made in January 1971. The freezer was delivered to the Pitts' residence in the week following the purchase by a Sears' delivery truck at a time when Mrs. Pitts was alone. She instructed the two men on the truck, both Sears' employees, to place the freezer at the center of the south wall of the dining room where a double two-prong, twist-lock receptacle was available. Inasmuch as the power cord on the freezer had a three-prong plug, the Sears' employees obtained from the Sears' truck a two-prong adapter plug with a "pig-tail" ground wire affixed, which they added to the power cord and inserted in the wall receptacle. They did not ground the "pig-tail" or say anything about it to Mrs. Pitts. She had no problem with the freezer until about two weeks after its purchase when she noticed that the lid did not fit tightly and was letting cold air escape. Upon her calling the Hattiesburg Sears' store, a repairman went to her residence and installed a new gasket around the lid. She did not watch him make the repairs but went about her household duties. She signed a repair slip. From then on until the day of the fire, the Pittses had no more trouble with the freezer. They used it solely to freeze vegetables and meats, and, on the day of the fire, Mrs. Pitts estimated that the freezer was half-full.
Beginning with the school year in September 1970, Mrs. Pitts had regularly assumed the day-time care of Mark Howard, the eleven month old child of plaintiffs, both parents being teachers in the Ellisville schools. On school days, Mrs. Howard would leave Mark with Mrs. Pitts at about 7:30 a.m. and pick him up after school in the afternoons. Mrs. Pitts would feed the child breakfast and lunch and keep him comfortably dressed. In return she was compensated the sum of $2.50 per day. On the morning of October 7, 1971, Mrs. Pitts had fed Mark and dressed him. Some ten or fifteen minutes before 11:00 a.m., Mrs. Pitts finished her preparations for lunch, left the kitchen, south of the dining room, and proceeded through the dining room and living room to a bedroom on the front of the house adjacent to the living room where she sat posting checks in connection with her husband's bookkeeping. Her own son, Michael, then twenty-two months old, and Mark were playing in the kitchen-dining *886 room area. Mark, who was not old enough to walk unassisted, was in a stroller, following the older child as they would move back and forth. At approximately 11:00 a.m., Mrs. Pitts heard an explosion "like a cherry bomb" from the vicinity of the dining room that shook the house. She ran from the bedroom to the living room where she ordinarily would have a clear view into the kitchen. She saw Michael in the dining room running toward her and had an instantaneous glimpse of Mark just beyond the doorway between the dining room and kitchen, about three feet from the kitchen space heater, when a blast of yellow flame from the bottom of the freezer swept upwards, across the back of the freezer and across the doorway to the kitchen blocking her view into the kitchen and preventing her getting to Mark. Before the sheet of flame blocked her view she had seen no fire in the kitchen. She picked up her child and ran out the front of the house around to the back kitchen door to get to Mark. She was prevented from entering by fire and thick black smoke. She noted that most of the flame was coming from the east wall of the kitchen over the space heater. She ran back to the front of the house just as her next door neighbor to the west, Mrs. Linda Graham, arrived. Mrs. Graham, a friend as well as next door neighbor to Mrs. Pitts, testified that she heard the explosion and a scream. She recognized a second scream as that of Mrs. Pitts. Mrs. Graham looked out the east window of her bedroom and saw smoke pouring out of the Pitts' dining room. She called the Ellisville Fire Department and ran out her back door to the front of Mrs. Pitts' home where Mrs. Pitts was again trying to enter. After ascertaining that Mark Howard was the only child in the house, Mrs. Graham tried to enter from the front but said there was so much fire and smoke in the dining room around the walls and freezer she could not get through to the kitchen. She then ran to the back and could not at first enter because of fire and smoke in the kitchen. She heard a whimper, got flat on the floor to crawl in, but still could not get to Mark. She got a hoe from under the back porch and on her stomach was able to hook the hoe to the stroller and pull it and Mark with her as she slid backwards out of the kitchen. She did not believe she could have gotten by the space heater had it been on fire, and she was not burned. The child was unrecognizable from its burns. She sent someone for a blanket and to call an ambulance. By this time people were gathering around the Pitts' home, among them a licensed practical nurse who assisted Mrs. Graham in looking after the baby. In a few minutes, when an ambulance had not arrived, another bystander offered her car which Mrs. Graham and the nurse used to take Mark to an Ellisville doctor. There the baby was packed in ice and taken by ambulance to the Jones County Community Hospital, Laurel, Mississippi, and from there to the University Hospital, Jackson, arriving within three hours of the time it was burned and where the child died 28 days later.
In her testimony, Mrs. Pitts, on the floor plan in evidence, showed that the house faced north. She identified the various rooms, indicating the location of the freezer approximately four inches out from the south wall of the dining room, located five space heaters in the home, including the one at the east wall of the kitchen near the back door, none being in the dining room, and marked the places where she first saw both children following the explosion. This sketch also shows the location of a hot water heater in a bedroom east of the kitchen. Going north from the space heater, there is a door opening into this bedroom from the kitchen immediately south of the hot water heater in the northwest corner of the bedroom, both the door and the hot water heater being nearer to the door to the dining room than the space heater in the kitchen. The only furnishings in the dining room were a baby bed against the north wall, a dinette table in the center of the room, and six chairs, four around the table, and one on each side of the freezer. The power cord extended easterly from the lower right rear of the freezer along the back of the freezer near the baseboard of the south wall to the double twist lock *887 receptacle in the south wall, some eighteen inches to two feet above the baseboard. Mrs. Pitts occasionally ironed in the dining room near the entrance to the kitchen and used the lower receptacle for her ironing cord. She was not ironing on the day the freezer burned. As to it, Mrs. Pitts said neither she nor her husband had ever activated the defrost system, which was not automatic, had not had any trouble with the freezer since the lid gasket had been replaced by Sears' employees two weeks after their purchase, and that there had been no other repairs on the freezer. She said she had not laid clothes or anything else on the top of the freezer nor had it been misused in any way. On the morning of the fire, Mrs. Pitts said the weather was pleasant. Both the living room front door and the back door to the kitchen were open. None of the space heaters had been lit since the winter before. The knobs or handles to the various space heaters had been removed as a precaution against children playing with them, and these knobs were customarily kept in a kitchen cabinet out of the reach of the children, and were that morning. Her stove was operated by electricity, the space heater being the only gas appliance in the kitchen. Mrs. Pitts identified numerous photographs, in evidence, showing the charred and burned area behind the freezer with fire and smoke damage on the floor, baseboard, and wall with flame patterns swirling toward the kitchen, the metal back of the freezer itself which had obviously been exposed to tremendous heat, and the power cord burned completely through, laying at the foot of the baseboard. She acknowledged that there was a similar burn and charring behind and above the kitchen space heater as reflected in other photographs in evidence. After the removal of Mark to the hospital and the arrival of the fire trucks, Mrs. Pitts, in shock, went to Mrs. Graham's home. She did not return to her own home until late that evening, after a second fire had broken out and had been extinguished. Some weeks or months after the fire, Mrs. Pitts and an insurance adjuster went through the home which had not been repaired. She acknowledged that she signed a loss notice and claim report, in evidence, but denied that she attributed the fire and smoke to the explosion of the gas space heater, as appears on the notice but not in her handwriting. She knew the fire had started at the freezer as that was where the explosion occurred and where she first saw fire before the fire entered the kitchen. Because a fireman had said the fire started at the space heater, Mrs. Pitts had requested the gas company within a few days of the fire, to check for leaking gas, and no leak was discovered.
After returning from taking Mark to Ellisville, Mrs. Graham said that she and another neighbor, Mr. Aubie G. Richards, examined the Pitts' home closely. Smoke damage was throughout the house, with fire damage being confined to the dining room and kitchen. Mrs. Graham said the metal back of the freezer was distended, "blown out like a balloon", with the wall from the baseboard to the ceiling black and charred. Glass from a window to the west of the freezer was broken and shattered on the floor. East of the freezer, the door casing leading into the kitchen was burned, top and bottom, and the floor tile from the freezer into the kitchen was burned. The only damage she noted in the kitchen was above the space heater. That same afternoon around 2:00 p.m., Mrs. Graham noticed smoke coming out of the Pitts' attic from a vent at the front. She again called the fire department and went to the residence herself. This time the fire was in the ceiling over the dining room with no flame visible until the firemen chopped a hole in the ceiling. The fire was rapidly extinguished. Mrs. Graham acknowledged that the Pittses have not lived in the home since.
Plaintiffs' third witness was Aubie G. Richards who lived on a hill one block east of the Pitts residence. On the day of the fire, around 11:00 a.m., Richards heard a noise like a backfire and heard women screaming from the direction of the Pittses. He went to the scene, and, knowing that Mrs. Pitts often kept children, tried to find out if any more children were in the home. He said Mrs. Pitts way lying in the yard, *888 the burned baby on the back porch with two women looking after it, and he was unable to get a coherent answer. He entered the home from the back and proceeded through to the front. He found no other children. The house was full of smoke, but he saw little fire. He nonetheless took a water hose to douse the fire around the doorway between the dining room and kitchen and by the freezer. He could not remain inside for long at a time because of the density of the smoke. While he was so occupied, a fire truck arrived and someone took the baby to the hospital. Richards was aware of the location of the kitchen space heater, but did not note whether it was burning. He smelled no gas. He, too, identified photographs in evidence showing fire damage in the dining room in the area of the freezer and doorway. He did not remember spraying water on the kitchen wall behind the space heater and said, had it been flaming at the time he entered looking for children, neither he nor anyone else would have been able to enter by way of the back door which was adjacent to the heater. Around 2:00 p.m., Richards, too, saw smoke coming out of the attic of the Pitts' house. Using a ladder at the back porch, he accompanied a fireman, "Sonny" Patterson, into the attic to assist in putting the fire out.
Leslie Busby, by trade in the heating and air conditioning business since World War II, was the builder and owner of the Pitts' residence and sold it to the Pittses in 1968. Within a few days of the fire he was asked by Mr. Pitts and Pitts' father to check the damaged freezer and to check for gas leaks in the gas pipes to see if Busby could determine the source of the fire. Busby, in the company of both Pittses, looked at the freezer, and said it looked like it had "blowed out". The metal was not fractured or torn but bulged. He did nothing to or with it. He checked the space heater in the kitchen with the flame of a cigarette lighter and determined there were no leaks in it or its connections. With the knob or handle furnished him by the younger Pitts, Busby turned on the gas to the space heater. It lit and burned with a blue flame. Busby went under the house and, with his companions squatting down watching him, he, again with a lit cigarette lighter, checked all gas lines and every connection. He found no leaks. He recommended that Pitts get a man from Laurel by the name of Long, who was familiar with freezers, to examine the freezer. Busby saw the evidence of the fire behind the freezer and where fire had traveled from the freezer along the floor to the door into the kitchen and behind the space heater. Busby identified the space heater in the kitchen as one he had installed. It was well away from the wall and had a shield on it which Busby had installed. He said there was no way to turn the gas flame high enough for the wall and floor beneath to char as they did, particularly with the shield which would have deflected heat out and away from the wall.
Plaintiffs' next witness was William Jack Hays, Jr., an employee of Entex in Laurel. After the fire, he received a work order for a shut-in gas check of the Pitts' home. He responded to the call, and Mrs. Pitts confirmed that she had requested the check of the Pitts' home. First, Hays examined all the heaters in the house, then shut off all gas lines leading into the house, and turned off the pilot light to a hot water heater located in the northwest corner of the southernmost bedroom adjoining the kitchen on the east. He stated that every gas meter has a test hand which indicates gas is being used. With all the gas turned off in and about the house, he watched the test hand for 20 minutes, a standard test, and it did not move, indicating that there was no leak in the gas system or in any of the heaters. With a gas regulator, he had determined that there were four ounces of pressure in the lines at the time he watched the test hand. His inspection report, in evidence, reflects that he ran these tests on October 21, 1971, two weeks after the fire. He did not recall seeing the shield behind the kitchen space heater, but in his opinion the flame could not be turned high enough to have caused the charring that he saw behind the heater.
*889 Benton Pitts, husband of Martha Gay Pitts, confirmed that they had bought the house from Lester Busby in 1969 with all five space heaters hooked to natural gas lines. They had had no problems with any part of the gas system or space heaters. He, like his wife, said they kept the knobs or handles to the space heaters in a kitchen cabinet where they were not accessible to children. Together they bought the freezer from the Hattiesburg store after it had been represented to them as new, the salesman knocking $20.00 off the full price because of a scratch across the front. Pitts was not home when the freezer was delivered and installed; nor was he at home when a Sears' repairman replaced the lid gasket and a small red light that was supposed to burn all the time but had become loosened. No other repairs or maintenance was had while the freezer was in their possession. He was at work as an accountant for Sanderson Farms when his mother called him about the fire. He immediately drove the five miles to his home. He briefly looked at the damage in the house before going next door to Mrs. Graham's home to check on his wife. From there he drove to the hospital in Laurel where he remained with the Howards until Mark was placed in an ambulance for transport to University Hospital in Jackson. On plaintiffs' photographs in evidence, he noted where fire had been around and back of the freezer with a burn pattern on the floor leading into the kitchen. The back of the freezer was bulged and the power cord, burned completely through, was laying by the baseboard. He identified photographs of the burned two pieces of cord and the adapter which had been placed on the plug end by Sears. He said that the tile covering on the dining room and kitchen floors was the same pattern with the floor level through the doorway to the kitchen. In defendant's photographs in evidence he identified the burned and charred areas in front of the kitchen space heater and the wall behind as representative of what he saw after the fire. He also said that the knob was not on the space heater at the time of the fire. Although it appeared to him that the fire had started behind the freezer and led into the kitchen, he did not know the initial source of the fire. He gave this as his reason for calling Busby, who had sold him the house, to check the freezer and the gas lines. Mrs. Pitts also had called Entex for the gas check, and on Busby's recommendation, Pitts called William A. Long of Ellisville, experienced in heating and air conditioning, to check the freezer. Under cross-examination, Pitts said he did not call Sears as he would have expected Sears to pick up the freezer and he would never have seen it again. Within a few weeks after the fire, he turned his fire loss claim over to plaintiffs' attorney. He did not know why the Howards' suit was not filed until three years after the fire, nor did he know why the photographs taken on behalf of the plaintiffs were primarily of the dining room, the freezer, and its various parts, and not of the kitchen.
On the day of the fire and, after Pitts returned to Ellisville from seeing the Howards, he was at his father's home when he was called that his house was afire again, this time in the attic. He went to his home and saw smoke coming out of the attic. He identified from a photograph the hole in the dining room ceiling near the kitchen which was chopped by the firemen during the second fire, not the first. Also he removed the frozen meat and vegetables from the freezer which he said had not thawed.
Pitts affirmed his wife in saying they did not return to live in this house after the fire. It remained unrepaired at the time he sold it in March 1972. Neither Pitts, his wife, Busby, nor anyone else who testified, knew what had became of the space heater. Pitts said he sold it with the house.
William A. Long, in the heating and air conditioning business since 1968, got a service call during October 1971 to inspect the freezer in the Benton Pitts' home. He had never before been in the home and expected a repair job of some sort. He could tell that the freezer had obviously been in a fire and was not operational because of the burned cord. He visually examined inside the freezer around the motor and found a *890 pressure of 58 psi (pounds per square inch) equal on the low and high side of the compressor which he said was normal. In order to make this test, he had to remove two service ports which customarily are not on a freezer which has come straight from the factory, the ports indicating that the lines had been previously serviced. He also found a slight freon leak.
During the testimony of these witnesses, various experts, both for the plaintiffs and the defendant, were allowed to remain in the courtroom.
The first witness offered by plaintiffs as an expert was Dr. C. T. Carley, Jr., a full professor and head of the Mechanical Engineering Department of Mississippi State University, Starkville, Mississippi. The Court accepted Dr. Carley's qualifications as an expert in the field of mechanical engineering with knowledge of refrigeration systems and the use of various kinds of insulation including polyurethane. However, by his own admission, his experience in the design and manufacture and use of insulation in freezers of the type here involved was limited.
Dr. Carley first saw the Pitts' freezer on September 30, 1974 after receiving a call from plaintiffs' attorney. He and a mechanic on his staff, Thomas Didlake, went to the Pitts' home in Ellisville. The freezer was scorched and burned on the back as reflected in plaintiffs' photographs. The power cord was burned in two parts, laying on the floor behind the freezer. A filler plug, used at the factory to inject the liquid polyurethane into the freezer as insulation between the inner metal cabinet and the outer metal casing, located on the right rear bottom of the freezer, was deflected downward, its left end still attached to the parent metal. A similar plug, under the front of the freezer, remained flush with the metal. After visually examining the freezer, Dr. Carley observed the fire damage to the house and the electrical system, which included a simple type breaker box. He noted the two-prong adapter and grounding wire on the end of the power cord to the freezer. At his request the freezer, along with the power cord pieces, was removed from the Pitts' home in Ellisville to Didlake's garage in Starkville in order that they could examine them more closely. This examination took place in June 1975. They noted that the burn on the bottom of the freezer outside casing was similar to and led to that on the rear of the outer casing. Dr. Carley suspected that the insulation between the two metal cases had burned causing a blow-out. By cutting through the rear outer casing, Dr. Carley was able to note the blackened and charred insulation extending from the bottom rear of the freezer upwards in contrast to the white solidified foam insulation next to the inner casing and outside the burned area. The inner wires of the defrost system and condenser coils that were visible were badly corroded. He noted that the two pieces of the burned power cord matched, and that the three-strand copper wire exposed at one end where the insulation was burned off had beaded, indicating a hot fire. He suspected a short circuit from the evidence of copper in the burn area of the outside rear panel near the bottom where blisters were evident in the metal. He sent scrapings from this area to the chemical laboratory at the University. However, the subsequent report was that the traces of copper were insignificant. He noted that the defrost system could be activated by pulling a knob visible in the raised lid of the freezer. He removed the inner liner of the lid in order to inspect the defrost system. It consisted of a switch hooked to two thin wires that encircled the inner box several times, portions of which were visible when he removed the back of the outer liner, but most of which was not visible. At some time in his inspection and handling of the freezer, Dr. Carley inadvertently broke a part of the defrost wire that was visible and said that he soldered it together. As to the defrost switch, he noted that it was held together by a rubber band. When the band was removed, the switch fell apart. After putting the switch back together and replacing the rubber band, Dr. Carley attempted to energize the defrost system by pulling the defrost knob. He got a slight initial heating *891 of 15 seconds, then nothing. He called in an electrician, Conger Hall Jones, to check the electrical continuity of the switch and defrost system who tested same by attaching an ohmmeter to one end of the defrost wiring, then to the other end. From the ohmmeter readings, which he saw himself, Dr. Carley determined there was a short circuit in the defroster wiring in an area not exposed to view even after removing the back outer casing. As to the polyurethane insulation, Dr. Carley undertook to test its flammability by inserting unburned portions, which he removed from the freezer, into a 3" pipe. He inserted another pipe and applied flame. When heat of 200 to 300° Farenheit was reached, the polyurethane began to vaporize. There was no flame at that temperature. When the heat was increased to 400 to 500° Farenheit, ignition did occur but the flame died down within seconds. At the suggestion of Mr. Clayton Schneider, another expert witness for plaintiffs, Dr. Carley placed a sample of the polyurethane in an oblong pan to while he clamped a cover. He placed a small hole in the bottom. He exposed a propane torch with over 780° Farenheit to the bottom and obtained vapor; then a yellow flame shot out of the bottom hole and continued to burn for several minutes, charring a piece of wood approximately three to four inches from the bottom of the pan, the same distance the freezer was out of from the baseboard and wall in the Pitts' dining room. This test is reflected in plaintiffs' exhibit No. 73, a photograph taken by Dr. Carley himself. Although he obtained a flame at 780° Farenheit, he noted that the flame behind the freezer obviously reached as high as 1900° Farenheit, the degree necessary to cause the beading of the copper wires in a burned end of the power cord which would have been in the vicinity of the filler plug. In addition to the erratic and damaged defrost switch which he said may have caused an electrical short, Dr. Carley, on the basis of the ohmmeter test on the defrost circuitry which reflected a short, said that the short could have occurred in the defrost wiring imbedded in the polyurethane insulation in the vicinity of the bottom and back of the outer casing, with sufficient heat to initiate the degradation or pyrolyzation of the polyurethane, and, when this matter vaporized, it built up sufficient pressure in the freezer until it exploded out the point of least resistance, that is, the filler plug, and ignited in a yellow flash fire, as described by Mrs. Pitts, spewing flame downward out of the filler hole, some toward the window that was broken, up the wall behind the freezer and around westerly toward the door into the kitchen, and some westerly along the baseboard into the kitchen, all as reflected in the flame pattern evident in plaintiffs' photographs, in evidence. Alternatively, Dr. Carley was of the opinion that the power cord in back of the freezer arced against the outer casing in the vicinity of the filler plug, building up sufficient heat to vaporize the polyurethane which ejected from the filler hole at a high enough heat to self-ignite causing the same flame pattern as though the polyurethane was caused to pyrolyze and ignite from a defroster wire short within the casing. In speaking of a short in the defroster wire as opposed to an arc in the power cord, Dr. Carley explained that the defroster wire did not necessarily have to break, but only had to come in contact with some other substance so that the electrical current would take a route other than that intended. He felt that the short, wherever it occurred inside the freezer, dissipated heat to the back of the box near the filler plug and in the same vicinity as where the power cord burned in two pieces outside the freezer.
In September 1974 when Dr. Carley visited the Pitts' house, his attention was not called to the charring of the kitchen wall behind the natural gas space heater and floor beneath. The record does not reflect whether repairs had been begun in the kitchen at that time. Be that as it may, after he was shown photographs entered into evidence on behalf of the defendant reflecting as much as and the same type of charring in and around the space heater in the kitchen as shown in plaintiffs' photographs of the wall and floor in the dining *892 room behind the freezer, it was his opinion that the fire in the kitchen and the fire in the dining room occurred at practically the same time, and the polyurethane vapors exiting the filler vent, if not hot enough to ignite, drifted through the kitchen door into the bedroom on the left where the pilot light on the hot water heater furnished the ignition, the flame traveling back to the freezer with sufficient heat present to burn the power cord through and to cause the burning and charring behind the freezer. He explained that polyurethane, when ignited, casts a yellow flame with a lot of soot, the latter having been mentioned by the witnesses who saw the fire, as well as being reflected in the photographs. On the other hand, had natural gas escaped from the space heater in the kitchen and drifted into the dining room behind the freezer, and had there been exposed to a source of ignition, he felt that the gas would have "whooshed" back to its source, would have been a clean burn, insufficient to have caused the charring to the polyurethane and wall and leave the amount of soot behind the freezer, which polyurethane produces on burning and which is evident in plaintiffs' photographs. Returning to a short in the defrost wiring Dr. Carley said that it obviously did not occur next to the inner lining inasmuch as Mr. Pitts was able to save the frozen foods in the freezer, but, if such a short occurred, it was where the polyurethane had charred all the way through, that is, near the filler hole. At the same time he acknowledged that if there were no short in the defrost wiring, the eventual heat produced at the freezer had to be high enough to bead the copper wires in the power cord, such heat having to come from a spark or arc in the power cord outside the freezer or from some other source. Summarizing his testimony, he felt that polyurethane, being highly combustible, was a dangerous product to be used as freezer insulation, although he conceded that all appliance manufacturers were continuing to use it without the addition of flame retardants. He could not determine whether the polyurethane pyrolyzed from a source inside or outside the freezer, but stated that the fire behind the freezer had all the characteristics, that is, yellow flame and soot, of a polyurethane fire. For this to happen, obviously there had to be a source of ignition which he felt came from either the broken defroster switch or a short circuit in the electrical system. He thought it probable that the combustible polyurethane vapor drifted from the dining room into the kitchen and through a bedroom door and ignited from the hot water heater pilot light, even though there was no visible fire damage to the water heater or carpet underneath. He discredited the theory that natural gas escaped from the space heater in the kitchen, which would have to drift by the hot water heater first and then drift further to the back of the freezer to be ignited by the freezer relay inasmuch as the relay was enclosed. If natural gas so escaped, and was ignited by a short in the freezer, he felt that the burning gas would have "whooshed" back to its source, leaving no residue, and could not have caused the obvious charring of the wall behind the freezer, and smoke and soot which Mrs. Pitts said was everywhere. Dr. Carley did not know who put a rubber band around the defrost switch to hold it together, nor did he know who had serviced the freezer as evidenced by the addition of the service parts, but he assumed that it was Sears inasmuch as the Pittses testified that only Sears employees had serviced the freezer while it was in their possession.
Conger Hall Jones, an electrical engineer on Dr. Carley's staff, was asked by Dr. Carley to run a continuity test on the freezer. He prepared his own diagram of the circuitry and compared it with one of the freezer which had been furnished him. He found no inconsistencies between the two. To test the circuitry, he used a Simpson Volt-ohmmeter which measures voltage, resistance and current. Under Dr. Carley's supervision, he first ran a test on two burned out leads in the defrost system[1] and found only 26 ohms resistance in the whole *893 coil. He then tested from a coil to the outside metal casing and got a reading of 8000 ohms resistance, indicating a short between the wiring and casing. He also examined the defrost micro-switch held together by a rubber band and said when the rubber band was taken off, the switch fell apart. When he and Dr. Carley put it back and inserted it in place in the freezer lid, Jones said it fit in tightly, and, when in place, was "all right".
Clayton J. Schneider, Jr., East Aurora, New York, also testified on behalf of plaintiffs as an expert in pyrotechnics. Schneider holds a Bachelor's Degree in chemical engineering from Renessler Polytechnic Institute. He has had a number of years experience with private industry in the development of industrial materials including polymer derivatives, and, as a bench chemist, had formulated polyurethane foam. He has studied the combination of solids, liquids and vapors, and their characteristics for combustion. He has studied and written on safety practices in the polymer industry. For the last sixteen years, his field has been in the area of pyrotechnics, having performed research for the military and lectured on incendiaries. He is currently on the staff of Cal-Span Corporation connected with Cornell Acronautical, Inc. He also consults privately and has made numerous federal and state court appearances in regard to house and appliance fires and arson.
In connection with the Pitts' freezer, he was first furnished an electrical diagram of it in the spring of 1975, as well as plaintiffs' photographs of the freezer, and a sketch and photographs of the Pitts' home reflecting fire damage. He visited the home in May 1975 at a time when it was being refurbished but could see the residual traces of fire on the south wall of the dining room through to the kitchen and behind the kitchen space heater. He noted the hole in the dining room ceiling but saw no damage under the house. He saw the damaged freezer the same day in Starkville, in the company of Dr. Carley and Didlake. It was laying on its front with heavily damaged and deeply charred polyurethane visible at the bottom and rear of the box and where the back of the metal casing had been peeled back by Dr. Carley and Didlake. He noted that samples had been removed. He explained that polyurethane is a closed cell, foam, liquid when injected by a mixture gun into the cavity between the two liners of the freezer, where it then hardens. He said that if low heat is applied, it assumes liquid state, but, undamaged foam, if ignited, burns rapidly, emitting brown or dirty smoke, leaving little ash. If containerized, as in a freezer, and heat is applied, the atomic structure breaks down, forms vapors and combustible gases, and, if high heat is applied, the change is rapid, the vapors and gases taking the path of least resistance to escape outward. On this freezer he said the material in front was as originally injected, but that in the back and rear the matter had changed in appearance from the application of heat. He found evidence of increased pressure in that the back filler plug had been blown outward. Following the heating in this freezer, he said the vapor built up in the contained areas, and the weakest portion gave way at the filler plug. He added that, if the vapor is released fast, an explosive noise would follow as it did in this freezer. Of the 13 pounds of rigid polyurethane in the freezer, he estimated that two or three pounds degraded. The release was rapid as indicated by the open filler plug, the witnesses who heard the explosion, and the charred condition of the wall behind the freezer. He estimated 25 to 30 cubic feet of pressurized vapor was released, and, if the combustible vapors were ignited, there would have been a blast of yellow flame. In response to the question had he found a source of ignition, his reply was in the affirmative a highly probable source from an arc in the power cord to the outer metal skin of the freezer. Schneider confirmed that he recommended to Dr. Carley that a higher heat than Dr. Carley had first used be applied to the polyurethane which should be put in an enclosed container to more nearly approximate the freezer itself. In one of these tests performed in Schneider's presence, the enclosed pan was heated to 1000° Farenheit, *894 sufficient to cause incandescence in the metal pan and more than enough to ignite the polyurethane. Schneider examined the two pieces of the power cord, saw that they matched, and said they evidenced an explosion at a high temperature, at least 1900° Farenheit, at which copper wires in the power cord melted and beaded. According to him this could have been caused only by intense heating at the back of the freezer, which degraded the polyurethane into vapors which built up sufficient pressure to break through the filler plug. The vapors were ignited while traveling up the back of the freezer, further degrading the polyurethane, resulting in a yellow flame. The initial heat as well as ignition was from an arc in the power cord outside the freezer to the metal casing, at or near the filler hole and where the cord was burned in two pieces. As a chemical engineer who had basic courses in electricity, he felt he knew the principles of arcing, and said whether the arc was the from the copper wire to metal skin or wire to wire touching the metal skin, either could generate enough heat to cause pyrolyzation. The resulting vapor created sufficient pressure to bulge out the back metal skin and blow out the filler plug, releasing vapor to expand to atmospheric pressure. The vapor ignited from the arc, or was hot enough to self-ignite, with burning gases rising above the top of the freezer and burning up the dining room wall as reflected in plaintiffs' photographs, particularly Nos. P-33, 34 and 35 which were taken shortly after the fire. At the time of these tests, Schneider did not know about the fire in the kitchen behind the space heater, nor was it evident in plaintiffs' photographs, his comment being that the kitchen fire was under-documented. He nevertheless felt from plaintiffs' photographs that the incident was within his expertise. Accordingly, he went to the Pitts' residence and examined for all traces of fire, as noted above, finding traces of soot, and, from the new flooring and new walls, could tell these areas were damaged, in the kitchen as well as in the dining room. He then went to Starkville to examine the freezer as related above. During the trial at which he saw defendant's photographs of the damage in the kitchen and videotapes of tests run by Whirlpool, including those on undamaged freezers, he found them interesting enough to double check his conclusions and found no reason to change them. He carefully examined the two pieces of the insulated power cord, in evidence as well as shown in defendant's photographs, and concluded there had to be a break through the insulation, even though that part burned, to represent the potential source of energy, saying there was nothing else to furnish the heat that the back of the freezer was exposed to. He found evidences of an arc from the power cord in the different colors in the burn on the back of the freezer. When asked why this arc did not break the 15 amp breaker in the fuse box, his reply was that a 15 amp breaker would allow enough voltage to let 1500 watts of current pass, sufficient to initiate pyrolyzation. Before the breaker would enter the picture, he felt enough heat would have been generated in seconds to begin degradation of the polyurethane insulation. The vapors which emitted by way of the filler plug then hit the power cord arc and ignited, or were hot enough to self-ignite, a process taking from a few seconds to no more than a minute. In his opinion, the vapors bursting out the filler plug would have resulted in an explosive noise, like a bang, and the burning of the vapor would result in a fast hissing sound. Simply put, Schneider said, had there been no arc against the outer casing, there would have been no explosion and fire. In his opinion, the fact that the pigtail wire on the two-prong adapter had not been grounded made no difference. On plaintiffs' exhibits Nos. 34 and 35, Schneider pointed out the flame was thrust downward and toward the west windows from the angle of the partially blown-out filler plug, then upward toward the ceiling, and along the ceiling and the baseboard toward the kitchen. He denied that the white area above the freezer shown on plaintiffs' exhibit No. 35 was a camera distortion saying that this white part was a part of the flame pattern that went over the entire wall. The Court notes that this same pattern is *895 depicted in plaintiffs' exhibits, Nos. 17, 32, 33, 34 and 45, Nos. 17, 35 and 45, incidentally, showing the location of the space heater through the doorway into the kitchen. By means of a mathematical formula used in the field of chemistry, Schneider concluded that the vaporous gas produced in the pyrolyzation of the polyurethane foam produced a flame covering an area of 50 to 90 cubic feet, saying that vaporization and ignition occurred over a period of minutes, reaching a point when vaporization lessened, ignition failed, and the fire burnt itself out. The Court notes that when the neighbor, Richards, reached the scene, the fire had died down except where the charred wooden wall and door facing still had some flame.
Summarizing Schneider's testimony, he heard Dr. Carley testify and agreed with him as to the combustibility of polyurethane vapors. They disagreed as to the initial source of heat to cause pyrolyzation, Dr. Carley believing a "hot spot" developed inside the freezer, and Schneider concluding that the source of heat started from a damaged power cord; nevertheless both agreed that polyurethane foam was directly responsible for the fire. Schneider offered no explanation as to how the power cord became damaged sufficiently to arc or spark.
Plaintiffs' next expert was Mr. Joseph E. Leininger, a graduate of Tulane University, New Orleans, Louisiana, with a degree in mechanical and electrical engineering. He professed years of experience in the design and sales of heating and ventilating systems for private industry; he also served as an engineer and facilities officer with the U. S. Navy, and is presently a consultant in mechanical and electrical engineering involving heating, air conditioning, plumbing, all mechanical systems, and in fire prevention and protection. He has, over a period of fourteen years, been involved in the investigation of fires for insurance companies and adjusters. He, too, has testified as an expert witness in litigation.
After first talking with plaintiffs' attorney in February 1975, Leininger went to Ellisville to examine the scene of the fire. The freezer had been removed to Starkville, and although the Pitts' residence was in the process of renovation, he could still see traces of where the fire had been. He inspected the house electrical system including the distribution panel and the breaker box. He inspected where the space heater had been in the kitchen, the hot water heater in a bedroom leading into the kitchen, and the attic. In the attic, he removed some insulation so he could see the pattern of where electrical wires lay. While there he inspected the hot water vent, found the flue clean inside, and determined that it had not been exposed to great heat. He also inspected a simple pole circuit breaker and socket meter outside the residence where power had been cut off. He inspected the double receptacle in the dining room wall. Although sooty on the outside, the inside revealed no burn. At a later date, November 21, 1975, Leininger met with Dr. Carley to examine the freezer. The back outside casing had been removed, enabling Leininger to see inside and inspect the defrost system. He determined that the polyurethane insulation had been exposed to heat sufficient to cause pyrolysis. He also found the defrost wiring damaged, in that a piece was missing near the top of the freezer but in the damaged area. He tested the continuity of the electrical circuitry and found an open circuit in the defrost wiring. Referring to his examination of the Pitts' attic which showed no burning on the top of the attic fiber glass insulation and a little burning underneath, with slight damage to an electric cable underneath the fiber glass, and with no damage to the hot water heater flue, Leininger determined there was no source of fire in the attic. From his examination of the Pitts' home, the traces of soot in the dining room and kitchen, his inspection of the freezer, and his inspection of both plaintiffs' and defendant's photographs, he stated that it was obvious that the fire started in the freezer. In his opinion, the broken defrost wire inside the freezer supplied the initial heat for pyrolyzation to begin, with the source of ignition of the combustible portion of these vapors coming from an arc in the power cord laying along the back of the freezer. He saw *896 the two pieces of the power or extension cord, noted the copper beading which occurs when the wire is exposed to heat of 1900° Farenheit, more than sufficient to ignite the combustible vapors generated during pyrolyzation. He stated that polyurethane, not exposed to oxygen, will not burn, but once sufficient heat, 600° to 800° Farenheit, or up to 250° Celsius, is applied, polyurethane will pyrolyze, about 30 percent turning into vapors, half of which is flammable. He again said that the initial pyrolyzation of the polyurethane caused release of the vapors through the perforated filler plug, which when exposed to oxygen in the air, were ignited from the arc in the damaged power cord, causing an explosive noise and fire. When told that the broken defrost wire he had seen in the freezer was accidently broken by Dr. Carley and repaired by Dr. Carley, Leininger was still of the opinion that defective defrost wiring created a hot spot that gradually built up a temperature sufficient to cause pyrolyzation. He felt that the defrost wire, of low resistance, could have kinked, stretched or broken from the vibration of the compressor, causing electricity to go where it should not have. He estimated that it could have taken fifteen minutes to a half an hour or longer for the hot spot to generate heat up to 500° Farenheit for pyrolyzation to begin. He explained that from the circuitry diagram of this freezer, electricity normally enters by way of the power cord from the wall receptacle and goes either to the defrost system and back to the power cord, or to the compressor for cooling and back to the cord. When one system is energized, the other is not, if the system is working as it should. The defrost wires are designed to distribute heat evenly. However, if the defroster switch, which behaved erratically when Dr. Carley examined it, activated the defrost system, current should have flowed evenly. In Leininger's opinion, it did not, but built up at a hot spot. After Dr. Carley put the switch back together again and inserted it in place with a tight fit, both systems worked as demonstrated in the courtroom. Leininger pointed out, however, that this test was not run long enough to observe whether heat built up at a hot spot. When informed that a bi-metal thermostat in the defrost wiring system was designed to break the current at over 95° Farenheit, Leininger pointed out that this thermostat, in the upper portion of the freezer, had insulation between it and the hot spot in the lower part of the freezer and thus would not be affected by heat at the hot spot.
Although Leininger had not seen the space heater inasmuch as it had been removed from the kitchen when he inspected the residence, he had indicated in his deposition that the flame pattern in front and behind the heater, as reflected in defendant's photographs, came from the heater. When he learned during the trial that this heater had a shield behind it, he testified that he then doubted that the burn came from the heater. He further felt that if the space heater had been turned on, the natural gas would have first diffused into the bedroom where the hot water heater pilot light was on, yet he found no burn in the bedroom. In summarizing Leininger's testimony, he concluded that the erratic switch had activated the defrost wiring system in which a hot spot developed some fifteen to eighteen inches from the filler plug. When pyrolyzation began, vapors and gas built up enough pressure to explode out the filler plug. He admitted that the pyrolyzation would have had to go fifteen inches to the right and five inches downward before the heated vapors could damage the extension or power cord. He contended that the pyrolyzation process continued for some time before ignition was supplied by an arc or short in the extension cord.
Testifying last on behalf of themselves were Mr. and Mrs. Howard. Neither was present during the events leading up to the fire and during it. Necessarily their testimony was limited to the fact that Mark was their only child and son, a happy baby in good health. Mrs. Howard was not allowed to see her son from the time of his injuries until two weeks after his admission at University Hospital, and then for only five minutes during every hour. Although he *897 could not move much, she said Mark was responsive to her and her husband. She identified a color photograph of Mark made one week before he was burned. Mr. Howard was only allowed to see Mark one week after his admission to University Hospital. According to Howard, Mark's skin was charred, his fingers burned off and his ears crusted. Even on those parts of his body where the crust had been surgically removed, the underlying flesh was blackened. Burns covered his entire body except in the diaper area.
Following argument on defendant's motion to dismiss, which the Court denied, defendant first offered the deposition of Dr. Kurt Charles Frisch of Gross Ile, Michigan, taken on May 27, 1977 in Chicago, Illinois, in the presence of Mr. Schneider, one of plaintiffs' expert witnesses. This deposition is in evidence. Dr. Frisch was unable to appear in person at the trial which began on June 15, 1977 as he was in Europe. He holds graduate degrees in organic chemistry from the Universities of Vienna and Brussels and from Columbia University. He is and has been for the last nine years a full professor of polymer engineering and a director of the Polymer Institute at the University of Detroit, Detroit, Michigan. A lengthy list of his accomplishments is attached to his deposition. As a full time professor he teaches graduate students seeking master and doctorate degrees in polymer science and polymer engineering. As director of the Polymer Institute he is responsible for research in the polymer field, funded by international and private industry as well as the United States government. He explained that polymers deal with the science or technology of large molecules such as are found in plastics, rubber, coatings, films, and fibers and include cellular plastics such as polyurethane foam, both flexible and rigid. From his detailed experience Dr. Frisch has been unquestionably instrumental in introducing the use of polyurethane foam into American private industry where its use is now prevalent as insulation in building construction and as insulation in appliances such as the freezer involved herein made by the Whirlpool Corporation of Benton Harbor, Michigan, bearing a Sears' brand. He described the chemical make-up of polyurethane common to this type of foam as roughly sixty percent polyetherpolyols, and approximately thirty percent of crude toluene diisocynate (TDI). Remaining are two catalysts, tertiary amine which accelerates reaction, and a silicone surfactant which acts as a cell control agent, and a nonflammable blowing agent falling under the generic classification of fluorocarbons, particularly, trichlorofluoromethane. At his request a sample of the foam from the freezer involved was sent to him by Whirlpool in order for him to perform on it a test known as "Oxygen Index" which measures combustion. According to Dr. Frisch it is a standard test recognized by the American Society of Testing Materials, reproducible from one laboratory to another in which the test is carried out by increasing the amount of oxygen in an atmosphere of air, being oxygen and nitrogen, until burning starts. A value of 21 is the point at which the foam is considered as self-extinguishing.[2] On the sample sent to Dr. Frisch the oxygen index test performed under his supervision scored 19.5 Although this score did not reach the self-extinguishing point of 21, Dr. Frisch felt it relatively high. He added that a score of 19.5 compared favorably with the oxygen index of polyurethane foam used in the freezer industry in 1969 when the Pitts' freezer was manufactured, saying that the type and composition of the foam used in 1969 is essentially the same as currently used with no generic variations. He admitted that on an oxygen index scale to 21, a score of 19.5 indicated flammability which he said would have a relatively slow rate of burning as distinct from "highly flammable" which would be more likely in foam used in furniture, mattresses and for packaging. He acknowledged that in 1973 the Federal *898 Trade Commission had filed suit against twenty-five companies in the plastics industry and the Society of Plastics Industry alleging the mislabeling of foams as "fire proof" or "self-extinguishing" in that industry tests did not reflect actual fire conditions, and admitted that the suit ended in a consent judgment, adding, however, that the suit was specifically brought with regard to foams used in the building and construction industry, which he did not consider the same as freezer foam. Despite the oxygen index test recognized by the Society of Testing Materials, a type of test he said was available in 1969, Dr. Frisch stated that there were no industry or government standards applicable to the use of polyurethane foam in freezers or refrigerators then and none today. As to this particular foam which he found typical of foams being used today, he did not consider it dangerous in any way in that it was enclosed in metal housing. He thought it significant that its use is increasing year to year in place of fiber glass. After examining pictures of the freezer, he conceded that the foam, such as used in this freezer, was flammable, characterizing it as slow burning. Like any other foam he said it would pyrolyze and in the pyrolysis, give off a number of degradation products, naming them as: (1) flammable gases which could burn if a source of heat was present; (2) non-combustible gases such as water vapor and carbon dioxide; (3) the formation of liquids which are partially pyrolyzed polymer; (4) char, which he felt desirable as it acts as a protective layer, preventing air or oxygen from coming into contact with combustible gases; and (5) smoke. He said the combustible gases at any given time would constitute but a few percent of the whole. From his examination of two photographs of the burned freezer, attached to his deposition, he was not surprised that "only a minor section of the total of foam was charred and seemed to have been consumed." He ruled out the possibility that the flammable gases given off by this foam could create a flash fire reaching a radius of eight to ten feet which could be expected from a highly flammable substance such as natural gas. Because the foam was encased in metal, he was of the opinion that the size of any flame exiting the filler hole could have been no more than "a couple of inches at the most", would be directed directly upwards, and did not produce an explosion, else the container would have shattered. He added that the only sound emitted would be a hissing sound as the foam (fluorocarbon) gas escaped.
Under cross-examination, Dr. Frisch admitted that during the process of pyrolyzation, pressure could have built up in the freezer, and it was obvious to him that there was flame inside the freezer. He was not familiar with the defrost system, but thought it highly improbable that it could have initiated flame inside the freezer. He conceded that polyurethane is more flammable than fiber glass but said the former was replacing the latter, not only because it was cheaper, but because it afforded more usable space for the user than fiber glass, and thus had a higher insulation value. At the end of his deposition, under re-direct examination, Dr. Frisch was of the opinion that the smoke given off during pyrolyzation would be a light smoke, a type that would not be dense, and which would not prevent discernibility of objects or persons in the room.
During his deposition, Dr. Frisch found occasion to say that he knew Dr. Shelby F. Thames, a nationally and internationally known scientist, who was defendant's first live witness. Dr. Thames of Hattiesburg, Mississippi with a doctorate in organic chemistry from the University of Tennessee, is currently teaching polymer sciences to graduate students at Mississippi Southern University, Hattiesburg, where he is dean of the college in sciences. He likened a scientist's construction of polymer to that of an architect responsible for the construction of a house. On a large courtroom blackboard, Dr. Thames wrote the formula for polyurethane, filling both sides without completing the formula. He received from Whirlpool a copy of its polyurethane formula similar to that on the blackboard. After examining the freezer, he determined that *899 its foam contained the same ingredients as the blackboard formula. He has made rigid foams himself although his major interest is in coatings and paints. He described the rigid foam, such as that in the freezer, as subject to thermal degradation, or pyrolysis, beginning at 250° Centigrade. During the process the rigid matter generates carbon dioxide (gas), TDI (liquid), propane (gas), and water (liquid). Of these propane and TDI are combustible. The carbon dioxide and water are not. Also generated are char and smoke. Percentage-wise the CO2 (carbon dioxide), H2O (water), C6 H6 (propane) and TDI comprise .62% of the whole, leaving 99.38% polymer and char, as represented in plaintiffs' exhibits Nos. 5, 6 and 7. Of the .62% representing gases that went into the atmosphere, only one-half were combustible. From other formulas he determined that .01376 cubic feet of combustible gas pyrolyzed from one pound of foam. He had been told by Dr. Frisch that only two pounds of the freezer foam had pyrolyzed. In a dining room containing 1,229.44 cubic feet of room value, he concluded that the volume of flammable gases entering the atmosphere was too low to be combustible. He knew nothing about the electrical system in the freezer, could not tell whether pyrolyzation took place within or outside the freezer, and admitted that all his calculations were based on degradation at 300° Centigrade, 250° Centigrade being the lowest heat at which pyrolyzation begins.
Wyonie "Sonny" Patterson, with 21 years' experience as a fireman with the City of Ellisville, and two other Ellisville firemen, responded to the call that the Pitts' home was on fire. He testified that they arrived within 10 to 15 minutes. It took 30 seconds to set the fire truck up to pump water. While one fireman entered the house from the front, Patterson attempted to enter from the back. He saw a lot of heavy smoke with red and blue fire leaping out the back door, which suddenly died down. The child had already been removed. When Patterson first arrived, he said the main portion of the fire was around the space heater, although he could later see where it had led along the floor from the back of the freezer in the dining room. He identified his official report, in evidence, on which he and the other firemen concluded that the fire started at the space heater. He had smelled no gas, but stated that when natural gas was burning it had no odor and could not be put out by water. When he left the premises, he noted that the gas line into the house had been cut off outside the house. Under cross-examination Patterson admitted that he had told plaintiffs' attorney that the fire had started at the freezer and trailed to the space heater in the kitchen, and that the knob or handle was not on the heater. He said he did not examine the gas connection, but saw no fire damage or soot around the hot water heater. He verified that there was no fire in the attic during the first fire, but that they were called back in the afternoon for an attic fire at which time he knocked a hole in the dining room ceiling.
Richard Seib, a research engineer with Whirlpool since 1976, with a bachelor's degree in chemistry from the University of Evansville, Indiana, and currently working on his doctorate in organic chemistry, testified that he has been engaged in projects regarding the flammability of polymers, polyesters, coatings and paint furnishings. He professed familiarity with the chemical content of polyurethane used as the insulation in Whirlpool freezers, saying that there have been only slight changes since 1969, none affecting pyrolyzation. In preparation for this trial he worked through the chemical formula exhibited by Dr. Thames and agreed with it. He was advised of plaintiffs' allegations, was furnished a sketch of the Pitts' home, photographs of the freezer and burned areas in the dining room and kitchen. He and another Whirlpool employee ran eleven tests, video-taped and documented. He assumed an external fire, as apparent on the burned freezer in evidence, and, using several variables, tried to reconstruct what happened that caused the fire in the Pitts' home. The videotapes, five in number, were shown in the courtroom and they, with a written description, are in evidence. Several of these tests *900 were simulated in a laboratory, and others were run on actual freezers, all the insulation, according to Seib, being identical to that in the burned freezer, except for added freon which increases density. In the first six tests a steel container of sheet stock, identical to the steel outer container of the freezer, was filled with polyurethane foam and flame was applied at or near a one inch filler hole. In the first test a meeker burner, with the air inlet taped shut and gas flow set at 43 BTU/M (British Thermal Unit per minute) was placed four inches below the center of the steel panel. A burning candle was placed one-half inch in front of the filler hole. With a timer set at zero, after eleven minutes and thirty-five seconds, the steel sheet having obtained a maximum heat of 337° Farenheit and the foam a maximum heat of 503° Farenheit, nothing happened. The second test was a duplicate of the first except that the burner was set at 46 BTU/M. At the end of three minutes and fifteen seconds vapor released at the filler hold was not ignited by the candle. At the expiration of an additional thirty seconds, the vapor extinguished the candle. The candle was re-lit and the filler hole ignited and continued to burn with a maximum foam temperature of 470° Farenheit obtained at the end of eight minutes. The third test duplicated the first, except that the candle was placed two and a half inches in front of the filler hole. At the end of six minutes, light smoke was noted at the filler hole; in three minutes and fifty seconds more, light gas was noted at the filler hole. At the end of ten minutes and twenty-three seconds, escaping gas extinguished the candle. When re-lit, the gases did not ignite. At the end of fifteen minutes, an attempt to ignite the filler hole several times failed in that the gases would burn three or four seconds and self-extinguish. A maximum foam temperature of 501° Farenheit was obtained at the end of twelve minutes. In the fourth test, the candle was placed two inches in front of the filler hole which was taped to shut off air. At the end of seven minutes and thirty seconds, gases escaped across the candle flame but did not ignite. At seven minutes forty seconds, the released gases extinguished the candle. At seven minutes fifty seconds, the candle was re-lit and ignited the filler hole. Taping was stopped at nine minutes and ten seconds with a maximum foam temperature of 630° Farenheit obtained at five minutes. In the fifth test a 3/8 inch tyril burner with no air mixing and a gas flow of 28 BTU/M was positioned four and one-half inches below the surface of the sheet metal with flame impinging one inch from the side. Up to seven minutes and thirty seconds, smoke was noted with no ignition. From seventeen minutes and fifteen seconds up through twenty-eight minutes and twenty seconds, there would be momentary burns at the pour hole. A maximum foam temperature of 488° Farenheit was obtained at ten minutes. In a sixth test, with a gas flow of 64 BTU/M from a meeker burner located at three inches below the metal panel and with flame impinging one inch from the filler hole, smoke was visible at the end of fifteen seconds, flame at thirty-five seconds; with the burner removed, flame contained for one minute and ten seconds and died; when the burner was again applied, flame occurred in forty-five seconds, continued to burn when the burner was removed at the end of two minutes and fifteen seconds, dying out at the end of eight minutes eight seconds into the experiment. With flame re-applied, burning at the filler hole began again in two minutes, continued for six minutes and thirty seconds when the burner was shut off, with flame continuing for thirty-four seconds before dying out. A maximum foam temperature of 305° Farenheit was achieved at the end of sixteen minutes.
The next five tests were run on three separate 17 cubic feet Sears Coldspot freezers. The first test was in a sealed room, monitored for temperature and smoke density. A 23 hole pipe burner was positioned three inches up the back of a freezer, centered over the filler hole one and a half inches from the outer metal skin and set at 74 BTU per hour. A 9 hole pipe burner, furnishing heat at 1200° Farenheit, was *901 positioned below the unit just behind the filler hole so that flaming from the burner swept under the freezer. A pilot light set at 10,500 BTU per hour was impinged on both sides of the filler hole. Flaming began on the bottom surface in fifty-five seconds. At the end of one minute and fifteen seconds into the test, a flaming drip, white, was noted; at the end of two minutes, flame appeared at the filler hole; at the end of three minutes gas released at the filler hole and ignited with yellow fire, tapering off at the end of seven minutes. The room was filled with smoke caused by the degradation of the foam. Maximum smoke density was attained at the end of eleven minutes with visibility at 4.5%, and a maximum temperature in the room of 111° Fahrenheit. The second test was a duplicate of the first except that transite sheets were used behind and below the freezer, the 23 hole burner was placed 5" up the back of the freezer with the 9 hole burner at the bottom, and the room exhaust was on throughout the test. The burner reached a temperature of 1100° Farenheit. Flames were noted at the back in one minute, at the end of six minutes, flames extended six inches above the rear of the freezer, in ten seconds more gases were visible on the right side of the freezer; at the end of seven minutes and thirty-nine seconds, the gases ignited, projecting out from the front of the freezer varying in length from six inches to twenty-eight inches. At the end of nine minutes and forty seconds, the gasket at the top of the freezer began to burn until the gas was cut off at the end of eighteen minutes. In this test a power cord was placed below the flame source. Its insulation is not flammable according to Seib, but will melt. In this test the cord did not ignite.
In the third freezer test Seib undertook to ignite the foam by maintaining an electrical arc to the back casing, wired to a fusable circuit, with one end of the power cord taped to the back of the freezer. With a 15 amp fuse a contact wire to the steel panel produced a short, blew the fuse instantly and fused the copper wire to the panel. With 20 amp and 30 amp fuses, there was an instantaneous short with no sustained arcing to the panel. Using a Miller Thunderbolt 2251 Holiaric Welder, with a 50 amp fuse, several arcings were attempted with no ignition to foam. With a 75 amp fuse, the arc cut a hole in the panel and a tape holding the power cord to the panel caught on fire and burned for a few seconds. The cord did not burn. With a 100 amp fuse, the whole was broadened, and the foam ignited for twenty-one seconds, only a small flame being visible. With a 150 amp fuse, combustible gases burned at the filler hole for about thirty seconds. With the same fuse and the weld at a new area in one place, the foam burned for thirteen seconds and at another area burned for four seconds.
In the last two tests, Seib attempted to determine if a blow out or explosive noise could be obtained with more intense heating on the back of the freezer in one test and on the front of the freezer in the other. A 17 hole burner, reaching a temperature of 1400° Farenheit, with a flow of 78,300 BTU per hour was mounted fifteen inches above the filler hole with a transite sheet behind the freezer. Thirteen seconds after ignition, metal expansion noises were heard with no explosive noises. A temperature censor cut off the gas supply at the end of five minutes and thirty-eight seconds. With the burner lowered to five inches, the foam reignited and smoke exuded out of the gasket area. With the burner lowered to one inch above the filler hole, the foam dripped and flamed, diminishing after six minutes. When the gas flame was extinguished, the filler hole continued to burn for twenty seconds.
Sears' last witness was Howard Brehm, Jr., for the last eighteen years the director of product safety for Whirlpool at Benton Harbor, Michigan. He identified the Pitts' freezer as having been manufactured for Sears at Whirlpool's division at St. Paul, Minnesota. Brehm has a graduate degree in chemical engineering and is certified in that field. He belongs to numerous related societies including safety councils, identifying one as "Z-21", which establishes national *902 standards for gas burning products. He has written articles in trade journals, and in the early 1960's developed a three-man life support system for manned space vehicles, adopted in the Mercury and Apollo flights. He claims to be heavily oriented toward product safety, and conducts seminars in product safety in home appliances. He is also experienced in the study of fire prevention. He is called upon by Whirlpool to reconstruct and determine the cause of fires attributed to Whirlpool products. He was familiar with the type of freezer purchased by the Pittses. He stated that Whirlpool has used polyurethane rigid foam as insulation in its freezers since 1962 and there have been no major changes in the chemical content since. Prototypes are inspected and approved by Underwriters Laboratory. In describing the make-up of the freezer he said the inside liner is made up from 20 gauge cold rolled steel sheets purchased from steel mills, as is also the outer shell with the sides and bottom welded. The defrost wires are looped four times around the inner shell. The defrost wiring is coiled with a fiber glass center, around which is wrapped a resistance wire of copper which is not conductive. The fiber glass is rigid and not subject to stretching. A silicone rubber sleeving is extruded around the fiberglass. Ten inches from either end of the wiring is copper wire, leaving two ends cold, with a heating wire in between. Aluminum tape secures the defrosting wire in its loops around the inner casing of the freezer. The defrost wire hooks up with the defroster switch located inside the lid of the freezer. The defrost system is tested for 120 volts of electricity. It also has a bi-metal thermostat set to break the current if the ambient temperature exceeds 95° Farenheit. Brehm said he tested the defrost wiring during the trial with an ohmmeter and it did not have continuity as it was broken. However, he said all other wiring was all right. As to the switch, it is connected to a knob which must be manually pulled to activate the system. It has a common connector with two exits or different terminals. There is no way for the switch to be activated when the lid is closed properly. The switch is machine made, and when taken apart is almost impossible to fit back together. Brehm said when the switch fell apart in Dr. Carley's hand and had been put back together, it was still operable as determined by Brehm's use of an ohmmeter some twenty-five times during the trial. In his opinion, if the freezer had sat in a garage in Starkville during the preceding year it was conceivable that the behavior of the switch would be erratic. Using the wiring diagram of the freezer to illustrate, Brehm said current goes through the left side to the defroster switch, then to the bi-metal thermostat. When he put a bag of dry ice in the inner liner reducing the temperature below 50° Farenheit, the ohmmeter showed continuity. When he applied hot air from a hair dryer to over 95° Farenheit, ohmmeter readings showed a break in continuity. For the defrosting system to activate automatically the lid would have to be left open and the switch be broken. Even then, if temperature exceeded 95°, the thermostat would break the current. From tests he was familiar with, the defrost system would have to run 98 hours for the wiring to achieve a temperature of 196° Farenheit. Maximum heating obtained after 192 hours was 205° Farenheit with a maximum voltage of 128 volts. As the foam does not begin to pyrolyze until a heat of 482° Farenheit, Brehm said there was a 280° safety leeway. He also said the defroster wire cannot kink. It is applied by machine to the inner liner and inspected before being buried in the liquid foam next to the inner line. When the foam solidified, the wiring is equally rigid. In his opinion, if the wire did kink, if the kink was overlooked in an inspection, if the switch was defective, and, if the thermostat failed, there would still be only localized heating which would break the tiny wire in the center of the defroster wire, opening the circuit, and all electricity would cease. And as Brehm pointed out, the polyurethane next to the inner liner around which the defroster wires were looped was not damaged or degraded. Of the over thirteen pounds of insulation between the two liners, only that polyurethane next to the outer *903 liner showed charring in configuration with the burn pattern obvious on the rear panel and bottom of the freezer. Continuing with his account of the method of freezer construction, polyurethane is injected into two filler holes, one in the bottom panel near the front and one in the bottom panel near the rear. The filler holes are left open deliberately to prevent air pockets. When the cavity has been filled, a mechanical arm wipes across the liner closing these vents. All other attachments are then made, including the compressor, and the machine then taken to the testing department. Whirlpool buys the extension or power cords which Whirlpool installs. In the testing function each freezer is tested for 150 volts of current in its electrical systems, visually inspected, and then activated and run until it has been determined to be successfully cooling. Every hundredth freezer goes through special tests, including for safety. There is also a random test from a freezer lot, where all switches, wires and component parts are specially tested. If a defect is found, the whole lot is suspect.
Brehm's first knowledge of the fire in the Pitts' home was in late 1974 after suit was filed in October 1974. In May 1975, he and a Whirlpool products engineer visited the home in Ellisville. They examined the home for the fire damage in the dining room, kitchen and attic in the presence of plaintiffs' attorney. Because the burned areas were being repaired with new wallboard and new floor tile, Brehm asked for permission to remove same which was granted. The underlying burn around the space heater and freezer are reflected in defendant's photographs. They had photographs taken which are in evidence on behalf of the defendant. They drove to Starkville to look at and photograph the freezer in Didlake's garage. During his testimony, Brehm again looked at the two sections of the power cord, and, except where burned, said it appeared to be in as good condition as when it left the factory. As to the two service ports on either side of the compressor, Brehm admitted they would not have been put on at the factory. Their presence indicated to him that the machine had been serviced after it left production. Returning to his inspection of the home, he noted the burn pattern on the floor and behind the kitchen space heater. The heater itself had been removed but its connections were still present. He particularly noted the flared end of the copper tube gas supply line, as reflected in defendant's exhibit No. 62. Inside the flared end, he found a soft, carbon residue. From his thirty years' experience related to gas appliances, and his last ten years' experience in fire prevention, this soft carbon demonstrated to him that fire occurred in the flared end upstream of the heater itself. He said if the space heater had been properly connected, there would have been no carbon deposit.
Returning to his examination of the freezer, with the permission of the plaintiff, Brehm said he had a portion of the charred polyurethane sent to Dr. Frisch for examination. During his testimony he drew on a blackboard a wiring diagram showing the defroster wire with electricity coming in the freezer from a common terminal to the defroster switch, then past the bi-metal thermostat, looping four times around the inner box and returning to the common terminal. Under this circuitry, he said a short in the defroster wire would not affect the system and heating would continue. The Court notes that Mrs. Pitts said she had never activated the defrost switch by pulling the knob that did so. As to an arc on the back of the outer liner, and, assuming that the power cord was damaged, Brehm said if either wire, with its insulation gone, touched the metal liner, nothing would happen. If both wires, with the insulation gone, touched the back of the freezer, an arc would occur immediately breaking up to a 20 amp breaker. He further stated that an arc between copper and steel would have left a deposit of copper with a blue discoloration. He did not take scrapings from the outside liner, but found no traces of copper from his visual inspection. Even had an arc occurred producing intense heat, Brehm said an arc is instantaneous, not sustaining, and the intense heat would not have been *904 transmitted to the back of the freezer long enough to initiate pyrolysis or flame.
Finally, Brehm was asked for his expert opinion as to what caused the fire that resulted in the death of plaintiffs' son. He admitted in a deposition taken before the trial that he thought heat from the attic fire had caused a combustible substance in the attic to fall down through the hole in the dining room ceiling to behind the freezer, but, after he learned from Mrs. Pitts' deposition that the attic fire occurred some three hours after the fire in the dining room and kitchen, and that firemen had chopped the ceiling hole during the second fire, he changed his opinion. From his examination of the physical evidence, the photographs, and having heard the evidence during the trial, it was his opinion that natural gas escaped from a loose connection entering into the space heater. As the gas accumulated, it drifted into the dining room and was ignited from a spark from the terminals on the freezer compressor. It did not necessarily enter the bedroom to be exposed to the pilot light in the hot water heater. Once ignited, the burning gas traveled back to its source faster than its supply producing a low order of explosion. Ignition or flame around the heater occurred when the gas pressure at its source equalized with the returning flame. He said that natural gas flame is blue until aerated when it becomes yellowish. In his opinion the burn around the heater and on the wall behind was a typical natural gas fire. His explanation of the fire in and around the freezer was that combustible matter of some sort laying on the floor behind the freezer caught fire from the exploding natural gas, burning long enough to damage the extension cord and heat the back metal panel of the freezer sufficiently to initiate pyrolysis of the foam and some combustion which eventually burned itself out. He said that a freezer is not built to be exposed to escaping natural gas, nor are other appliances such as refrigerators and air conditioners. He conceded that the fire later in the day in the attic was an aftermath of the morning fire.
By way of rebuttal, Mrs. Pitts returned to the stand to deny that there was any flammable matter or debris behind the freezer, saying she swept the dining room floor, including behind the freezer every day. She also denied that the door from the kitchen into the bedroom was closed, saying that it was open when she was last in the kitchen before the fire, and it was hard to close because the bottom of the door dragged on the carpet.
It became apparent to the Court throughout this eight day trial and at its conclusion that no one, lay witnesses or experts, actually knew how this fire, resulting in tragedy, started. The experts, both for the plaintiffs and the defendant, with the benefit of the lay testimony and their own inspections of the freezer and the house, after the fire, as reflected in the numerous photographs in evidence, each had his own theory within the realm of his expert knowledge. The plaintiffs' experts were hampered in that they were not timely advised of the charred floor and wall behind the space heater in the kitchen, the charring and burn being equal if not more than that behind the freezer and on the dining room wall. Sears and Whirlpool had no knowledge that their freezer was suspected as the culprit until four years after the fire when their experts found the house partially repaired and the space heater gone. Nonetheless their respective theories elicited during the well-tried case have presented issues to be resolved by the Court as difficult as that presented to Solomon with all his wisdom.
The Court initially concludes that plaintiffs may not recover on their negligence theory based on negligence in the design of the freezer, and negligence in the installation of the freezer. Plaintiffs, through Dr. Carley and Schneider, claimed that the design of the freezer was negligent in that it was designed to contain polyurethane, a dangerously flammable substance, as its insulation. The evidence, however established that since 1962 to the present, this substance has been used by all manufacturers of freezers, and was in 1969 at the time this freezer was manufactured, and its *905 production is yearly increasing for similar uses. Plaintiffs wholly failed to show that such use in 1969 was in disrepute, or that manufacturers at that time had adopted the addition of flame retardants to the formula. Mr. Brehm testified that Whirlpool had recently added a flame retardant to its foam. But what has occurred recently is not the test. See Ward v. Hobart, Miss., 450 F.2d 1176, 1182, and Fincher v. Ford Motor Co., D.C., 399 F. Supp. 106, 114, wherein this Court had occasion to cite the rule as announced in Ward. Plaintiffs' claim of negligence in the installation of the freezer by Sears' employees is based on the fact that when they added a two prong adapter with a "pig-tail" ground wire to the extension cord to fit the Pitts' two-hole receptacle they failed to ground the pig-tail. However, the experts for both plaintiffs and defendant who addressed their testimony to this feature, agreed that the failure to ground was immaterial to the aspects of this case.
As to the breach of express or implied warranty in the failure of the freezer to perform in the manner for which it was intended, as pointed out by the defendant, the Mississippi wrongful death statute,[3] which specifically created a cause of action in the decedent's parents as next of kin, applies only to three categories of liability for death. The first two are both tortious, (1) a wrongful negligent act or omission or (2) death caused by unsafe machinery, way or appliances. The third based on expressed or implied warranties is limited to the "purity and fitness of foods, drugs, medicines, beverages, tobacco or any and all other articles or commodities intended for human consumption". The statute has historically been strictly construed,[4] and, as such, has not been construed by a Mississippi court to apply to the circumstances of this case, even though under Section 41A:2-318 of Mississippi's Uniform Commercial Code, Section 75-2-318 of the 1972 Code, a seller's warranty, whether express or implied, extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty. In Edwards v. Sears, Roebuck and Company, 512 F.2d 276, 290-291, the Fifth Circuit Court of Appeals declined to predict how the Mississippi Supreme Court would rule when faced with similar circumstances.
The Court does find that this action was properly brought under the strict liability in tort theory relating to a defective product as construed by the Mississippi courts beginning with State Stove Manufacturing Company v. Hodges, 189 So. 2d 113. State Stove adopted the principle as it appears in Section 402A of the American Law Institute's Restatement of Torts (Second), pp. 347-348, which is as follows:
§ 402-A. Special Liability of Seller of Product for Physical Harm to User or Consumer
(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate consumer, or to his property, if
(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
(2) The rule stated in Subsection (1) applies although
(a) the seller has exercised all possible care in the preparation and sale of his product, and
(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.
This statement of the rule is immediately followed by a caveat that the Institute expresses no opinion as to whether the rule *906 applies to the benefit of persons other than users or consumers, such as Mark Howard, who as a paying guest in the Pitts' home was an innocent bystander. However, State Stove cites with approval language from Prosser, Torts, pp. 658-661 (3rd E. 1964), as follows:
". . . Some of the courts have continued to speak the language of `inherent danger', but it seems clear that this now means nothing more than that substantial harm is to be anticipated if the chattel should be defective. . . . It is certainly the prevailing view that it extends to any product whatever which, if in fact negligently made, may reasonably be expected to be capable of inflicting injury . . . The conclusion is clear that the duty extends to any one who may reasonably be expected to be in the vicinity of the chattel's probable use, and to be endangered if it is defective." (underscoring added).
Under the circumstances of this case, the Court has no hesitation in holding that Mark Howard was a person to whom this duty was owed. It remains for this Court to determine if the freezer was defective, and if this defect caused the fire that fatally burned the deceased.
In determining the burden of the plaintiffs on proof of a defect, this Court is mindful of language of the Fifth Circuit Court of Appeals in its fairly recent decision in Price v. Admiral Corp., 527 F.2d 412, a case involving a house fire alleged to have resulted from a defect in a freezer. As a diversity case, Mississippi law controlled, as here. The Appellate Court stated:
"There was abundant evidence, direct and circumstantial, from which the jury could infer that a defect existed in the refrigerator, without pinpointing that defect. In Ford Motor Company v. Matthews, 291 So. 2d 169, 1973, the Mississippi Supreme Court held that it is unnecessary for a plaintiff to prove a specific defect in a product in a cause of action based on strict liability."
The Appellate Court noted that the Mississippi court in Matthews quoted with approval an excerpt from 2 Frumer and Friedman, Products Liability, § 16A[A]e, at pp. 3-306 to 3-310, thusly:
"Absolute proof that injury was the result of the defect is not essential, and the burden of proof can be satisfied by showing sufficient facts to allow a jury to infer defective quality and that such defective quality was a substantial element in producing the claimant's injury."
The Appellate Court cited other Mississippi cases in accord with this view and also cited Mississippi cases holding that the causal relation between an agency and an injury can be proved circumstantially.
The initial issue raised by the direct and circumstantial evidence in this case is whether the holocaust that occurred in the dining room and kitchen, short in time as it may have lasted, was triggered by a defect in the freezer or by natural gas escaping from a faulty connection in the space heater which allowed this gas to permeate through to an area behind the freezer and ignite there.
Plaintiffs' experts, Dr. Carley, Schneider and Leininger, each offered his own theory that the freezer contained one or more defects which triggered the fire. Each theory, logical as it may have seemed, depended on one or more factual suppositions that could not be proved. Because of this, defendant contends that each theory supported merely a possibility, one offsetting the others, and therefore there was insufficient evidence to support a probability, necessary to plaintiffs' burden of a preponderance of the proof. The Court, mindful that it is not plaintiffs' burden to pinpoint the causative defect, does not entirely agree, particularly as there was no way for any of these experts to have knowledge of the underlying factual suppositions. For example, Dr. Carley's theory depended on not only a defective switch, but a defect in the defroster wiring that caused a hot spot in the metal casing at the back of the freezer, hot enough to initiate pyrolysis of the polyurethane. There is no question in the Court's mind but that this freezer was not "like new". The defrost switch was held *907 together by a rubber band. Initially the lid, according to Mrs. Pitts, did not fit tightly enough to prevent cold air escaping. Service ports were present indicating that the freezer had been serviced before its purchase by the Pitts. But one or more of these defects had to be causally related to the injury. Accepting Dr. Carley's theory that there was a defective switch, he also had to assume a hot spot from the defroster wiring, in an area not visible on inspection, as opposed to defendant's proof that no such hot spot could occur in view of the bi-metal thermostat, and a house breaker that was not thrown, and even if one did, in view of defendant's proof that a short in the wire, sustained over a period of time as long as 205 hours did not build up a heat sufficient for pyrolysis to begin. Continuing with Dr. Carley's theory, there still had to be ignition outside the freezer either from the vapors emitted during pyrolysis having to come into contact with the pilot light of the hot water heater when there was no evidence of any burn in that area, or from an arc in the extension cord which had to have been damaged in some way not shown, or from the self-ignition of the polyurethane as its vapors emitted the filler hole. In Schneider's theory, ignition had to come from a damaged extension cord, damaged enough to expose the inner copper wire for it to short or arc against the back of the freezer causing ignition within one second to a minute. Missing from this theory is how Sears could be liable for damage to an extension cord that suddenly became damaged after being in the possession of the Pittses for eleven months. Leininger's theory also depended on a hot spot caused by a short in the defroster wire which he saw broken, only to learn later that this wire was repaired by Dr. Carley who had inadvertently broken it in handling the charred polyurethane. To complete his theory, Leininger, like Schneider, said ignition came from an arc in the extension cord, differing with Schneider only in that Leininger though it took a longer period of time for the heat to build up to 1900° Farenheit, evidenced by the beading in the copper. When confronted with evidence of fire in and around the space heater, all three had to assume that the vapors and/or fire emitted from the filler hole with pressure sufficient to cause an explosive noise, the fire so emitted having to turn a corner and enter the kitchen in order to cause the damage there. Similar to these inferences drawn from the evidence, the Court has wondered if an explosion at the vent hole of the freezer, which according to Mrs. Pitts shook the house, could have jarred loose the connections to the space heater, but no witness on behalf of plaintiffs advanced this theory.
Although any one of the theories of plaintiffs' experts could be persuasive, none is in view of the obvious fact that the kinds of ignition proposed by plaintiffs have not explained the fire in the kitchen. Under the tests run by Brehm and Seib, pyrolysis, triggered by flame, followed by the application of flame to the resulting combustible vapors, at most, caused a flame of no more than 28 inches in length and resulted in no explosion, in sharp contrast to the flame pattern seen in the photographs which reached as high as the dining room ceiling before swirling toward the kitchen. Further according to the calculations of Frisch and Dr. Thames, the pyrolyzation of no more than two pounds of polyurethane did not emit sufficient combustible vapors to cause an explosive emission and flame comparable to that in the dining room and kitchen.
The Court does view with alarm the admission on the part of the defendant that when a flow of natural gas is exposed to the normal sparking of the compressor of the freezer, an explosion and fire may result. If this is what occurred, defendant claims it is protected by the "second accident" principle as adopted by the Mississippi Supreme Court in cases stemming from Walton v. Chrysler Motor Corporation, 229 So. 2d 568, such as Ford Motor Co. v. Simpson, 233 So. 2d 797, and, as upheld in a Mississippi diversity case by the Fifth Circuit Court of Appeals in Turner v. Big Four Automotive Equipment Corp., 511 F.2d 133. This defense is applicable to the circumstances here. Whether defects in the freezer *908 caused pyrolyzation of the polyurethane and fire, that fire, alone, did not cause the injuries and death to Mark Howard. It had to be triggered or augmented by fire that had its source from natural gas in and around the space heater. In Walton and its progeny, the Supreme Court of Mississippi has followed a limited or narrow path in that it restricts foreseeability to the normal use for which the product was manufactured.
"The strict liability rule for products liability cases adopted by this Court eliminates the necessity to show negligence in the manufacture of the product where it is shown that the product left the hands of the manufacturer in a defective condition, but this rule does not eliminate the requirement that, even where there is a defect in the product, that there must be some duty owed to plaintiff with regard to the defect, growing out of the intended normal use for which the product was manufactured." 299 So. 2d 573 (Underscoring added).
In the everyday use of gas and electric appliances in the modern household, if it were left alone to this Court to say, it would be constrained to find that if a holocaust could result from the inadvertent or accidental exposure of natural gas to a normal spark in the relay of a freezer compressor, then the industry should be required to prevent such by whatever means it takes to insulate the spark. Moreover, if a defect in the freezer ignited natural gas, this Court would give careful consideration, as it has here, as to whether the defect could rightfully be treated as a contributing cause. It may not do so under the Mississippi rule, cited from Walton above.
Accordingly, the Court finds that defendant's motion for dismissal of the action, made at the conclusion of the evidence, should be sustained, and that plaintiffs have no relief against the defendant.
The Clerk is directed to enter a judgment denying relief to the plaintiffs, furnishing a copy of said judgment to all attorneys of record.
NOTES
[1] The defrost wire was inadvertently broken by Carley, but later repaired.
[2] Under cross-examination, Dr. Frisch conceded that foam at a value of 21, if exposed to direct flame, will still burn.
[3] Section 11-7-13, Mississippi Code of 1972.
[4] Smith v. Garrett, Miss., 287 So. 2d 258, 260. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2444286/ | 869 S.W.2d 941 (1994)
The STATE of Texas, Petitioner,
v.
Linda MORALES, Tom Doyal, Patricia Cramer, Charlotte Taft and John Thomas, Respondents.
No. D-2393.
Supreme Court of Texas.
January 12, 1994.
*942 Harry G. Potter, III, Dan Morales, Austin, for petitioner.
J. Patrick Wiseman, Pamela C. Oglesby, Austin, Nell Hahn, Lafayette, LA, for respondents.
CORNYN, Justice, delivered the opinion of the Court, in which GONZALEZ, HIGHTOWER, HECHT and ENOCH, Justices join.
Equity jurisdiction does not flow merely from the alleged inadequacy of a remedy at law, nor can it originate solely from a court's good intentions to do what seems "just" or "right;" the jurisdiction of Texas courtsthe very authority to decide casesis conferred solely by the constitution and the statutes of the state.[1]
In this state's bifurcated system of civil and criminal jurisdiction, a civil court has jurisdiction to declare constitutionally invalid and enjoin the enforcement of a criminal statute only when (1) there is evidence that the statute at issue is unconstitutionally applied by a rule, policy, or other noncriminal means subject to a civil court's equity powers and irreparable injury to property or personal rights is threatened, or (2) the enforcement of an unconstitutional statute threatens irreparable injury to property rights. A naked declaration as to the constitutionality of a criminal statute alone, without a valid request for injunctive relief, is clearly not within the jurisdiction of a Texas court sitting in equity.[2]
This is a constitutional challenge to TEX.PENAL CODE ANN. § 21.06 (Vernon 1989) ("21.06"),[3] Texas' sodomy statute. The trial court declared this criminal statute to be unconstitutional and enjoined its enforcement.[4] The court of appeals affirmed solely on the basis that the statute violates the plaintiffs' constitutional right of privacy under the Texas Constitution. We conclude, however, that neither this court, nor the courts below, have jurisdiction to enjoin the enforcement of, or issue a declaratory judgment determining the constitutionality of, 21.06.[5] Therefore, we reverse the judgment of the court of appeals and remand this case to the trial court with instructions to dismiss.
Linda Morales, Tom Doyal, Patricia Cramer, Charlotte Taft, and John Thomas ("plaintiffs"), *943 filed this suit challenging the constitutionality of 21.06, which they claim, by its very existence, stigmatizes them as criminals for engaging in conduct protected by their privacy rights under the Texas Constitution. They also allege that 21.06 limits homosexuals' career and employment opportunities and encourages hate crimes. Although they do not dispute the Attorney General's contention that 21.06 has not been, and in all probability will not be, enforced against private consensual conduct between adults, the plaintiffs also claim to fear prosecution.
The Attorney General denies the statute is unconstitutional; but he also contends that civil courts under these circumstances have no power to grant either injunctive or declaratory relief based on the unconstitutionality of a criminal statute. See, e.g., Crouch v. Craik, 369 S.W.2d 311, 315 (Tex.1963) ("It is only where a criminal statute is void and vested property rights are being impinged as the result of an attempt to enforce such void statutes that the jurisdiction of the courts of equity can be invoked.").
Furthermore, the Attorney General argues that the plaintiffs seek adjudication of a hypothetical controversy: there is no record of even a single instance in which the sodomy statute has been prosecuted against conduct that the plaintiffs claim is constitutionally protected; none of the plaintiffs claims a specific instance of career or employment opportunities having been restricted by the existence of the statute;[6] none of the plaintiffs alleges having been the victim of a hate crime, or a fear of becoming the victim of any specific threatened future event.
The court of appeals acknowledged the general validity of the State's argument: civil equity courts have no jurisdiction to enjoin the enforcement of criminal statutes in the absence of irreparable harm to vested property rights. However, the court of appeals held that this court had enlarged a civil court's equity jurisdiction to protect personal rights in Passel v. Fort Worth Indep. Sch. Dist., 440 S.W.2d 61 (Tex.1969), on appeal after remand, 453 S.W.2d 888 (Tex.Civ. App.Fort Worth 1970, writ ref'd n.r.e.), cert. denied, 402 U.S. 968, 91 S. Ct. 1667, 29 L. Ed. 2d 133 (1971). The court of appeals, therefore, proceeded to the merits of the case and affirmed the judgment of the trial court, declaring the sodomy statute unconstitutional and enjoining its enforcement. 826 S.W.2d 201, 202-03.
I.
Equity jurisdiction is limited. Justice Joseph Story has explained the historical reasons for this limitation, as follows:
[I]n the infancy of our Courts of Equity, before their jurisdiction was settled, the chancellors themselves, "partly from their ignorance of the law (being frequently bishops or statesmen), partly from ambition and lust of power (encouraged by the arbitrary principles of the age they lived in), but principally from the narrow and unjust decisions of the Courts of Law, had arrogated to themselves such unlimited authority as hath totally been disclaimed by their successors for now (1765) above a century past. The decrees of the Court of Equity were then rather in the nature of awards, formed on the sudden, pro re nata, with more probity of intention than knowledge of the subject, founded on no settled principles, as being never designed, and therefore never used, as precedents."
JOSEPH STORY, 1 STORY'S EQUITY JURISPRUDENCE 18 (Melville M. Bigelow ed., 13th ed. 1886) (quoting 3 WILLIAM BLACKSTONE, COMMENTARIES *433) (emphasis added). Such unlimited authority, over time, became circumscribed by rules of procedure and limitations on jurisdiction. If an equity court's jurisdiction was limited only by its reach, *944 experience demonstrated that the arbitrary exercise of that power was certain to result. And if we endeavored:
To determine every particular case according to what is just, equal, and salutary, taking in all circumstances [it] is undoubtedly the idea of a court of equity in its perfection; and had we angels for judges such would be their method of proceeding without regarding any rules: but men are liable to prejudice and error, and for that reason, cannot safely be trusted with unlimited powers. Hence the necessity of establishing rules, to preserve uniformity of judgment in matters of equity as well as of common law: the necessity is perhaps greater in the former, because of the variety and intricacy of equitable circumstances. Thus though a particular case may require the interposition of equity to correct a wrong or supply a defect; yet the judge ought not to interpose, unless he can found his decree upon some rule that is equally applicable to all circumstances of the kind. If he be under no limitation, his decrees will appear arbitrary, though substantially justand, which is worse, will often be arbitrary, and substantially unjust; for such, too frequently, are human proceeding when subjected to no control. General rules, it is true, must often produce decrees that are materially unjust; for no rule can be equally just in its application to a whole class of cases that are far from being the same in every circumstancebut this inconvenience must be tolerated, to avoid a greater, that of making judges arbitrary. A court of equity is a happy invention to remedy the errors of common law: but this remedy must stop some where; for courts cannot be established without end, to be checks one upon another. And hence, it is, that, in the nature of things, there cannot be any other check upon a court of equity but general rules.
HENRY HOME, PRINCIPLES OF EQUITY 46 (2d ed. 1767). See also THE FEDERALIST No. 51, at 337 (Alexander Hamilton or James Madison) (Sherman F. Mittell ed., 1937) ("If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.").
The long-standing limitation on equity jurisdiction that controls this case relates to the narrow circumstances under which an equity court can construe a criminal statute. See JOHN NORTON POMEROY, 1 POMEROY'S EQUITY JURISPRUDENCE 509-10 (Spencer W. Symons ed., 5th ed. 1941) ("[E]quity will not ordinarily interfere with criminal prosecutions under unconstitutional statutes or ordinances unless the prevention of such prosecutions is essential to the safeguarding of rights of property.").[7]
II.
There are four types of cases in which a party might seek relief from an equity court based on the alleged unconstitutionality of a criminal statute: (1) the statute is enforced and the party is being prosecuted, (2) the statute is enforced and the threat of prosecution is imminent, although the party has yet *945 to be prosecuted, (3) there is no actual or threatened enforcement of the statute and the party does not seek an injunction against its enforcement, but the statute is nonetheless integrally related to conduct subject to the court's equity jurisdiction, or (4) there is no actual or threatened enforcement of the statute and no complaint of specific conduct remediable by injunction.
Most cases fall in either of the first two categories. In those contexts:
It is well settled that courts of equity will not interfere with the ordinary enforcement of a criminal statute unless the statute is unconstitutional and its enforcement will result in irreparable injury to vested property rights. The underlying reason for this rule is that the meaning and validity of a penal statute or ordinance should ordinarily be determined by courts exercising criminal jurisdiction. When these questions can be resolved in any criminal proceeding that may be instituted and vested property rights are not in jeopardy, there is no occasion for the intervention of equity. A person may continue his activities until he is arrested and then procure his release by showing that the law is void.
Passel, 440 S.W.2d at 63 (citations omitted). The holdings of our courts are legion that intervention by an equity court is inappropriate under these circumstances, unless the statute is unconstitutional and there is the threat of irreparable injury to vested property rights.[8]
The third scenario is Passel. In Passel, the minor plaintiffs sought a declaration that a penal statute unconstitutionally denied rights of free association, and an injunction to prevent school officials from denying them admission to public schools because of membership in certain student clubs. Passel, 440 S.W.2d at 62. No injunctive relief was sought against the statute itself, Article 301d,[9] which prohibited certain clubs in all *946 public schools of the state below college level. Passel, 440 S.W.2d at 64. Rather, injunctive relief was sought solely to "prevent administrative enforcement of an administrative regulation adopted for the purpose of implementing the statute." Id. Under those facts, we explained that an injunction may be granted to protect personal as well as property rights.[10]
The crucial distinction in Passel is that the plaintiffs did not seek a naked declaration of the penal statute's unconstitutionality. Rather, they sought a declaration of the invalidity of the statute and an injunction against enforcement of the school district rule that effectively suspended a student until the student's parents signed a form certifying that their child was not a member of a prohibited club. Id. at 62-63. In other words, even though "no prosecution [under the relevant criminal statute was] threatened or even contemplated," the plaintiffs' immediate complaint was about the rule, a matter within the court's equity jurisdiction and remediable by the court's injunction, if otherwise appropriate. Id. at 64.
We did not hold in Passel that a personal right can be uniformly substituted for a property right and that a civil court's equity jurisdiction over criminal statutes was thereby expanded.[11] Rather, in Passel we held that an injunction directed at the offending school district rule was potentially available as a remedy, and that the protection of personal rights would be a sufficient justification.[12] To the extent that the court of appeals read Passel more broadly, it was in error.[13]
The fourth posited scenario describes this case. In this most abstract of contexts from which to decipher constitutional mandates, equity jurisdiction is plainly lacking.
An injunction will not issue unless it is shown that the respondent will engage in the activity enjoined.[14]See Frey v. DeCordova Bend Estates Owners Ass'n, 647 S.W.2d 246, 248 (Tex.1983) (holding that the fear or apprehension of the possibility of injury is *947 not a basis for injunctive relief); Camp v. Shannon, 348 S.W.2d 517, 519 (Tex.1961) (explaining that injunction should not issue on mere surmise of injury); Transport Co. v. Robertson Transports, Inc., 152 Tex. 551, 261 S.W.2d 549, 552 (1953) (requiring showing of a "probable injury" if respondent not restrained). As we have already noted, there is no allegation that absent an injunction prohibiting enforcement of 21.06 that the statute will be enforced. While we are sympathetic to plaintiffs' argument that nonenforcement deprives them of an adequate remedy at law, as they are deprived of a forum in which to adjudicate their constitutional objections if there are no criminal proceedings in which to raise them, equity jurisdiction does not rise or fall solely on the basis of the adequacy of their remedy at law. Otherwise, a denial of an injunction on the merits because of an adequate remedy at law would be tantamount to a dismissal for want of jurisdiction. That is not the case, however, and neither is it true that a civil court necessarily has equity jurisdiction to pass on a criminal statute simply because the statute is not enforced.
As we explained more than fifty years ago:
An injunction is a remedial writ which courts issue for the purpose of enforcing their equity jurisdiction. In such cases jurisdiction must exist before the writ can issue. In England chancery courts exercise nonjudicial, as well as judicial, powers; but our equity courts possess only judicial powers.... Under our constitution our government is divided into three co-ordinate branches,that is, into three distinct departments; the legislative, the executive, and the judicial.... From the above it is fundamental that the judicial and executive departments of government are without legislative powers, unless such powers be constitutionally conferred. It is also fundamental that neither the judicial nor the executive branch of the government can create remedies or causes of action.... Under our system there is no such thing as the inherent power of a court, "if, by that, be meant a power which a court may exercise without a law authorizing it."
Ex Parte Hughes, 133 Tex. 505, 129 S.W.2d 270, 273 (1939) (quoting Messner v. Giddings, 65 Tex. 301, 309 (1886)) (citations omitted).
Just as an injunction is a remedial writ that depends in the first instance on the existence of the issuing court's equity jurisdiction, we have held that the Uniform Declaratory Judgments Act, Tex.Civ.Prac. & Rem.Code §§ 37.001-.011 (Vernon 1986 & Supp.1994), is merely a procedural device for deciding cases already within a court's jurisdiction. Texas Ass'n of Business v. Texas Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993). A litigant's request for declaratory relief cannot confer jurisdiction on the court, nor can it change the basic character of a suit.
For the same reasons that equity courts are precluded from enjoining the enforcement of penal statutes, neither this court, nor the courts below, have jurisdiction to render a declaratory judgment regarding the constitutionality of 21.06. The legislature did not intend to enlarge such jurisdiction when it promulgated the Declaratory Judgments Act. Stecher v. City of Houston, 272 S.W.2d 925, 928 (Tex.Civ.App.Galveston 1954, writ ref'd n.r.e.). A civil court simply has no jurisdiction to render naked declarations of "rights, status or other legal relationships arising under a penal statute." Malone v. City of Houston, 278 S.W.2d 204, 206 (Tex.Civ.App.Galveston 1955, writ ref'd n.r.e.); see also State v. Margolis, 439 S.W.2d 695, 699 (Tex.Civ.App.Austin 1969, writ ref'd n.r.e.) (holding that suit for declaratory judgment will not lie unless proof made of bona fide threat of prosecution).
Finally, the limitation on equity jurisdiction that we affirm today has a pragmatic justification, especially in Texas, where we have separate and distinct jurisdiction allocated by the Texas Constitution to our civil and criminal courts, including two courts of last resort: this court in civil cases and the court of criminal appeals in criminal cases. As was noted in Roberts v. Gossett, the prospect of both civil and criminal courts construing criminal statutes
would tend to "hamstring" the efforts of [law] enforcement officers, create confusion, *948 and might result finally in precise contradiction of opinions between the [civil courts] and the Court of Criminal Appeals to which the Constitution has intrusted supreme and exclusive jurisdiction in criminal matters.
88 S.W.2d 507, 509 (Tex.Civ.App.Amarillo 1935, no writ).
It was because of this concern in Dearing v. Wright, 653 S.W.2d 288 (Tex.1983), that this court declined to intervene in a prosecution for possession of marijuana based on the alleged unconstitutionality of Texas' marijuana possession statute. The court observed that if civil courts were to accept jurisdiction, a potential for conflicting decisions, between our civil and criminal courts of last resort on the validity of such statutes, was a very real danger. Id. at 290.[15] Indeed, to demonstrate how close the supreme court and the court of criminal appeals have come to conflicting decisions on this very issue, one need only consider the latter court's recent rejection of a criminal defendant's state constitutional challenge, albeit under a different provision of our constitution than that relied upon by the court of appeals to affirm the trial court's judgment. See Boutwell v. State, 719 S.W.2d 164, 169 (Tex.Crim.App. 1985) (rejecting an Equal Rights Amendment attack).[16]
The dissent urges adoption of a Morales exception to the jurisdictional limitations that bind this court. 869 S.W.2d at 949 (Gammage, J., dissenting). The dissent's exception is triggered only when: (1) there is irreparable injury to property or personal rights, and (2) "where the inadequacy of the remedy at law is clearly demonstrated by evidence of lack of prior enforcement and by a stipulation by the State that enforcement in the near future is unlikely." 869 S.W.2d at 952. The dissent's proposed Morales exception, however, is flawed. First, under item (1), the dissent's harm test is exactly the same as the test derived from a misreading of Passel, rejected today by the court. As we have already explained, this test implodes upon itself, for any unconstitutional statute will necessarily impact upon personal rights. See supra note 13. Second, under item (2), even the dissent recognizes the unavoidable imprecision in determining at what point a criminal statute can be declared to be "unenforced." Yet the dissent is satisfied that a mere stipulation by the State that "enforcement in the near future is unlikely" is sufficient. Without commenting on whether the Attorney General has either the power or the requisite knowledge to make such a stipulation, such a stipulation cannot be the linchpin of the jurisdiction of this court. Cf. Poe v. Ullman, 367 U.S. 497, 501, 81 S. Ct. 1752, 1754, 6 L. Ed. 2d 989 (1961) ("Formal agreement between parties that collides with plausibility is too fragile a foundation for indulging in constitutional adjudication.").
Our decision today does not, despite the protestations of the dissent, exalt property rights over personal rights. The personal rights of the citizens of this state are protected from infringement by criminal statutes by the criminal courts of Texas. If the harm alleged by a citizen flows not from enforcement of the statute, but rather, from some other cause susceptible to the equity powers of a civil court, then personal rights can serve as a sufficient justification for the granting of such equitable relief. Passel, 440 S.W.2d at 63 (holding that the granting of an injunction against enforcement of the school district's rule could be justified with a protection of personal rights). To note that there are also situations in which a party might allege irreparable injury to her property rights justifying equitable relief, does not *949 exalt one right over another, but simply recognizes that many different rights are afforded protection by Texas courts.
The very balance of state governmental power imposed by the framers of the Texas Constitution depends on each branch, and particularly the judiciary, operating within its jurisdictional bounds. The power of government emanates from the people's delegation of power to government. The checks and balances inherent in our form of government depend upon the judiciary's equanimity and particularly upon our self-restraint. When a court lacks jurisdiction, its only legitimate choice is to dismiss. Accordingly, we reverse the judgment of the court of appeals and remand this case to the district court with instructions to dismiss for want of jurisdiction.
GAMMAGE, Justice, joined by PHILLIPS, Chief Justice, DOGGETT and SPECTOR, Justices, dissenting.
Today this court declares that a court in equity cannot address the constitutional merits of the plaintiffs' claims because vested property rights are not affected. The court also holds that equity jurisdiction does not turn on the inadequacy of a remedy at law. Such reasoning ignores the rule that an equity court's primary concern in enjoining a criminal statute is whether there is irreparable harm. That issuenot whether property is involvedis and should be the overriding question. State v. Logue, 376 S.W.2d 567, 570 & 572 (Tex.1964) ("It is the adequacy of the remedy at law that marks off the limitations as well as the jurisdiction of equitable relief.... [T]he requirement of property rights being affected is related to adequacy of remedy at law...."); City of Dallas v. England, 846 S.W.2d 957, 959 (Tex.App. Austin 1993, writ dism'd w.o.j.). The power of a court to assume jurisdiction of a cause on the ground of irreparable injury is the fundamental characteristic of equity jurisdiction. Sisco v. Hereford, 694 S.W.2d 3, 7 (Tex.App.San Antonio 1984, writ ref'd n.r.e.) ("It has long been established that the inadequacies of the remedy at law is both the foundation of and conversely the limitation on equity jurisdiction."); Burford v. Sun Oil Co., 186 S.W.2d 306, 314 (Tex.Civ.App.Austin 1944, writ ref'd w.o.m.) ("[T]he inadequacy of the remedy at law is both the foundation of, and conversely a limitation on, equity jurisdiction."); Joseph R. Long, Equitable Jurisdiction to Protect Personal Rights, 33 Yale L.J. 115, 116 (1921) ("[T]he jurisdiction of equity does not properly depend on the nature of the right involved, whether a right of person or of property; the true test of equity jurisdiction is the existence of a justiciable right for which there is not a full, adequate, and complete remedy at law."); 27 Am.Jur.2d Equity § 21 (1966).
Nearly a century ago, this court recognized that the proposition that a court of equity will not enjoin a criminal prosecution is subordinate to the general principle that equity will grant relief when there is not a plain, adequate, and complete remedy at law. City of Austin v. Austin City Cemetery Ass'n, 87 Tex. 330, 336, 28 S.W. 528, 529 (1894). In City of Austin, we concluded that if a statute criminalizes conduct, a party typically has a remedy because that individual can continue to engage in the conduct and assert the statute's unconstitutionality in courts with jurisdiction over criminal matters. Id. at 336, 28 S.W. at 530. More importantly, we recognized that there are cases in which there is no pending nor anticipated prosecution but the statute nonetheless injures the party regulated. Accordingly, we determined that in such cases there is no adequate remedy through criminal courts and a court of equity can enjoin enforcement of the statute. To hold otherwise would disregard the fundamental principle upon which such courts are established. Id. at 337, 28 S.W. at 530.
Although the injury in City of Austin involved a property interest, the decision turned not on that property interest, but on the inability of the party to obtain judicial review of an alleged unconstitutional statute.[1]See State v. Logue, 376 S.W.2d at 570 (noting *950 that City of Austin rested on the premise that unless the courts of equity took jurisdiction, there would be no way ever to test the constitutionality of the ordinance); Air Curtain Destructor Corp. v. City of Austin, 675 S.W.2d 615, 618 (Tex.App.Tyler 1984, writ ref'd n.r.e.) (noting that City of Austin applies in cases in which it is highly unlikely that an ordinance may be tested); City of Dallas v. Dallas County Housemovers Ass'n, 555 S.W.2d 212, 214 (Tex.Civ.App.Dallas 1977, no writ) (noting that the threshold requirement to invoke equity jurisdiction of irreparable harm is related to the adequacy of the remedy at law and stating the rule under City of Austin that the remedy at law is inadequate where a party is effectively prevented from ever challenging the validity of the statute in a criminal prosecution). A number of cases involving property subsequently came before Texas courts,[2] and City of Austin was cited as authority for a court in equity to enjoin criminal prosecution in cases in which an unconstitutional statute irreparably harms a property right.[3] Some courts continued to recognize that property or civil rights could be at issue and that the ultimate issue was irreparable harm.[4] Other courts, perhaps because property injuries were alleged, relied strictly on the property exception.
In 1969, we returned to the issue of the jurisdiction of a court sitting in equity, stating:
It has also been said that courts of equity are concerned only with the protection of civil property rights. Ex parte Sterling, 122 Tex. 108, 53 S.W.2d 294. This is not the modern view, and it seems clear to us that the Texas statute is broad enough to authorize the granting of an injunction for the protection of personal rights....
Plaintiffs are not attempting to enjoin prosecution under Article 301d. Apparently no prosecution is threatened or even contemplated.
* * * * * *
The criminal courts cannot determine the meaning and validity of the statute unless a prosecution is instituted, and plaintiffs have no way to attack the rule except by an administrative review or civil action. The civil courts are not powerless to grant relief under these circumstances, and we hold that the trial court erred in dismissing the cause on the ground that it had no jurisdiction to construe and determine the *951 constitutionality of the criminal statute in this proceeding.
Passel v. Fort Worth Indep. Sch. Dist., 440 S.W.2d 61, 63-64 (Tex.1969).[5] This court analyzed the State's argument that courts of equity will not interfere with the ordinary enforcement of a criminal statute unless it is unconstitutional and its enforcement will result in irreparable injury to vested property rights. We concluded the rationale for such a rule is that the meaning and validity of a penal statute or ordinance should ordinarily be determined by courts exercising criminal jurisdiction. Id. at 63. We expanded the exception to personal rights, however, and reversed the trial court's dismissal for lack of jurisdiction because the plaintiffs had no way to test the penal statute because no prosecutions were threatened or even contemplated. Id. at 64.
Passel was part of a larger trend in which courts discarded the property/personal rights distinction. The notion this court resurrects todaythat equity will intervene only when property is at stakehas long fallen into disuse.[6] As another Texas court, cited with approval for that point by Justice Walker writing for this court in Passel, observed:
This is, in our opinion, as it should be, because the personal rights of citizens are infinitely more sacred and by every test are of more value than things that are measured by dollars and cents. Such a rule ... makes "the system of equity suitable only to a semisavage society which has much respect for property but little for human life. Our equity jurisprudence does not quite deserve so severe a reproach. It does, indeed, do much for the protection of personal rights, although it has not been willing to acknowledge the fact but has persisted in declaring the contrary."
Hawks v. Yancey, 265 S.W. 233, 237 (Tex. Civ.App.Dallas 1924, no writ) (citations omitted) (concluding that Texas courts are not required to search for rights of property on which to base jurisdiction to grant injunctions to protect personal rights).[7] The court correctly notes that the cases cited in Passel as support for "the modern view," such as Hawks, did not involve challenges to criminal statutes. But protection of personal and civil rights is also the modern trend in our nation's jurisprudence on the narrower issue of equity jurisdiction over criminal law.[8]
*952 Today the court not only rewrites Passel;[9] it also overturns the driving principle announced in 1894 in City of Austin. The court inflicts this damage to its own precedent because, it says, it fears the court will be confronted with untold cases challenging criminal statutes. But the City of Austin/Passel remedy applies only in exceptional situations such as the present casewhere the statute is alleged to be unconstitutional, where there is irreparable harm to property or personal rights, and where the inadequacy of the remedy at law is clearly demonstrated by evidence of lack of prior enforcement and by a stipulation by the State that enforcement in the near future is unlikely. The paucity of cases meeting this requirement of nearly complete lack of enforcement is reflected by the fact that only twice in the last century have we had occasion to consider this issue of equity jurisdiction over challenges to criminal statutes in the context of a plaintiff who is effectively prevented from asserting the challenge in criminal court. See City of Austin, 87 Tex. at 336-37, 28 S.W. at 530; Passel, 440 S.W.2d at 64. The court states that the real danger of our assuming jurisdiction here is the prospect that the Court of Criminal Appeals will decide to exercise its jurisdiction in the future and issue an opinion conflicting with ours. But such a prospect exists any time an equity court assumes jurisdiction of a challenge to a criminal statute, even when it does so on the traditional ground of preventing irreparable injury to property rights. The court does not explain why it is not bothered by this same prospect when property rights or administrative rules are involved.[10]
*953 The rationale for such a rule is readily apparent. Equity courts usually decline to interfere with a criminal prosecution because an individual can assert the unconstitutionality of the statute as a defense in a criminal prosecution. See City of Austin, 87 Tex. at 336, 28 S.W. at 530. Sometimes additional harms flow from prosecution. But we require injury to reputation, for example, to be remedied through the criminal courts during prosecution because to allow equity to intervene would prevent prosecution under every criminal statute. Under these circumstances, we say that a party who is prosecuted and can defend and gain an acquittal has an adequate remedy at law. If property rights may irreparably be harmed during some prosecutions, we say we will protect those property rights when the statute is clearly unconstitutional. See Bielecki v. City of Port Arthur, 12 S.W.2d at 978. City of Austin and Passel recognize that sometimes damages accrue even when there is and will be no prosecution, and that these damages can include harm to personal as well as property rights. That is the situation Morales presents us with today. In these infrequent and unusual cases, the fact that there will be no prosecution evidences the lack of an adequate remedy at law because the complaining party is denied an opportunity to argue the unconstitutionality of the statute in the criminal court system. Such were the circumstances in City of Austin and Passel, creating the unique situation which gives rise to an equity court's jurisdiction. As Justice Cardozo in 1937 quoted from even earlier cases, "`Where equity can give relief plaintiff ought not to be compelled to speculate upon the chance of obtaining relief at law.' ... `The remedy at law cannot be adequate if its adequacy depends upon the will of the opposing party.'" American Life Ins. Co. v. Stewart, 300 U.S. 203, 214-15, 57 S. Ct. 377, 379-80, 81 L. Ed. 605 (1937) (respectively quoting Davis v. Wakelee, 156 U.S. 680, 688, 15 S. Ct. 555, 558, 39 L. Ed. 578 (1895), and Bank of Kentucky v. Stone, 88 F. 383, 391 (D.Ky. 1898)).
The court confuses harm with prosecution by asserting there is no harm when it means there is no actual or threatened prosecution. Whether prosecution is imminent rather than a mere possibility matters only if the allegations are of anticipated harm rather than already accrued injury. See Frey v. DeCordova Band Estates Owners Ass'n, 647 S.W.2d 246, 248 (Tex.1983). Here plaintiffs alleged actual harm beyond the threat of criminal prosecution, as expressly acknowledged by the court of appeals opinion.[11] This court also offers a confusing discussion of lack of jurisdiction because reaching the merits would be an advisory opinion, which is somehow linked to this absence of harm. If there is any need for more than an allegation of harm, it was satisfied in this case. The State stipulated[12] that plaintiffs' job choices are limited, that they face discrimination in housing, family, and criminal justice matters, and that they suffer psychological harm to *954 their relationships because they are labeled criminals by the very existence of the statute. Without in any way reaching the merits (i.e., the constitutionality of the statute), the court must concede the plaintiffs here have established that stipulated harm. Instead of making that admission, the court attempts to impose a threat of prosecution requirement as a predicate to recognizing actual harm.
Other jurisdictions expanding their equity jurisdiction over criminal statutes to encompass the protection of personal rights have not been unduly hampered by the prospect of equity overstepping its bounds.[13] Many of this court's cases clinging to the property rights limitation on equity jurisdiction over criminal statutes do not even state a rationale. See, e.g., Texas Liquor Control Bd. v. Canyon Creek Land Corp., 456 S.W.2d 891, 894 (Tex.1970); City of Fort Worth v. Craik, 411 S.W.2d 541, 542 (Tex.1967); Crouch v. Craik, 369 S.W.2d 311, 315 (Tex.1963). Those that do state a rationaleprevention of conflicts between the two high courtsare not applicable to cases such as this involving a clear lack of enforcement, as noted above. See, e.g., Logue, 376 S.W.2d 567, 569 (Tex. 1964). To quote Justice Holmes: "It is revolting to have no better reason for a rule of law than that so it was laid down in the reign of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past." O.W. Holmes, The Path of the Law, 10 Harv. L.Rev. 457, 469 (1897).
Shirking its equitable duty to provide a remedy for a wrong,[14] the court allows the State to insulate its laws from judicial scrutiny. Under the court's analysis, the State may adopt all manner of criminal laws affecting the civil or personal rights of any number of citizens, and by declining to prosecute under them, ensure that no court ever reviews them.
Declining to even consider the merits of the pleas for equitable relief before us today could have an impact far beyond the class of citizens immediately affected. By its holding the court effectively denies standing in Texas courts to any individual or group of citizens who seek equitable relief under the Texas Constitution, because of an unenforced Texas criminal statute, for the alleged deprivation of any personal liberty or civil right which does not also involve what the court may perceive as an adequate vested property interest.
The plaintiffs here are among over a quarter of a million Texas citizens who identify themselves as harmed by the existence of this statute.[15] Today, this court tells these plaintiffs that it will not contemplate granting them a remedy even though the State agreed there is harm to their personal rights, absent their also showing harm to a vested property right. Because I believe this is wrong, I dissent.
NOTES
[1] See Pope v. Ferguson, 445 S.W.2d 950, 952 (Tex.1969) ("This court was created by the Constitution of the State of Texas and has only such jurisdiction as is conferred upon it by the Constitution and statutes of the State.... This is not a lately developed philosophy, born of a desire to escape responsibility in a troublesome area of the law. It has always been the rule of decision in this State.").
[2] The plaintiffs have not sought to invoke the equitable powers of our courts to enjoin any rule or policy promulgated pursuant to 21.06; rather, they seek an injunction solely against prosecutions under 21.06, a request that is at odds with their argument that it is unlikely that 21.06 will even be enforced.
[3] Section 21.06 provides as follows:
Homosexual Conduct
(a) A person commits an offense if he engages in deviate sexual intercourse with another individual of the same sex.
(b) An offense under this section is a Class C misdemeanor.
TEX.PENAL CODE ANN. § 21.06 (Vernon 1989).
"Deviate sexual intercourse" is defined in § 21.01(1) as:
(A) any contact between any part of the genitals of one person and the mouth or anus of another person; or
(B) the penetration of the genitals or the anus of another person with an object.
TEX.PENAL CODE ANN. § 21.01(1) (Vernon 1989).
[4] Plaintiffs claim that the statute violates their constitutional right to privacy, see Texas State Employees Union v. Texas Dept. Mental Health and Mental Retardation, 746 S.W.2d 203, 205 (Tex.1987), and both the due course of law, TEX. CONST. art. 1, §§ 13, 19, and the equal protection, TEX. CONST. art. 1, §§ 3, 3A, provisions of the Texas Constitution.
[5] But see City of Dallas v. England, 846 S.W.2d 957, 959 (Tex.App.Austin 1993, writ dism'd w.o.j.) (noting that the plaintiff had actually suffered "the concrete injury that the plaintiffs in Morales alleged they would suffer" in a case in which relief was sought from a specific hiring policy of the police department) (emphasis added). We dismissed the City's application for writ of error because no motion for rehearing, upon which our jurisdiction depended, was filed in the court of appeals. Thus, we did not address the merits of that case.
[6] Without resolving the question of whether, generally, an employee can have a prospective property interest in her job, we hold that these plaintiffs' allegations concerning employment are insufficient to satisfy the irreparable-injury-to-property-rights requirement for equity jurisdiction. Although the plaintiffs allege, generally, that their employment opportunities are affected by the mere existence of 21.06, not one of the plaintiffs points to any specific instance of such an injury to employment, making the fashioning of any specific equitable relief impossible. Further, as the irreparable harm to property rights must flow from attempted enforcement of the statute, the plaintiffs cannot simultaneously urge the mutually exclusive contentions that 21.06 is not enforced and that the enforcement of 21.06 affects their employment opportunities.
[7] The dissent places great emphasis on City of Austin v. Austin City Cemetery Ass'n, 87 Tex. 330, 28 S.W. 528 (1894), 869 S.W.2d at 949 (Gammage, J., dissenting). Austin City Cemetery Ass'n, however, cites to authority requiring injury to property. 28 S.W. at 529 (citing Spinning Co. v. Riley, L.R. 6 Eq. 551). Further, all of the potential "injuries" discussed by the court in Austin City Cemetery Ass'n flow from potential enforcement of the statute. 28 S.W. at 530 (speculating that the in terrorem effect of the ordinance accomplishes the same result that enforcement of the ordinance would accomplish a "prohibition against the burial of the dead within the limits of the city of Austin"). If the cemetery owner, or as in the case of the hypothetical discussed by the Austin City Cemetery Ass'n court, a butcher, faced no threat of prosecution whatsoever, the ordinance would have no in terrorem effect. For if the facts of Austin City Cemetery Ass'n were the same as the facts before us today, and there were no alleged threat of prosecutions under the statute, there would be no in terrorem effect to the ordinance. Without a threat of enforcement, there is no in terrorem effect, and thus no injury justifying an injunction. When a statute is not enforced, a party cannot "do an act which may cause him to be arrested and prosecuted, however clear he might be in his own mind that the act constituted no violation of the criminal law." 28 S.W. at 529-30 (emphasis added). The Austin City Cemetery Ass'n court depended on the potential enforcement of the statute; the dissent, which continually decries the lack of any potential enforcement of 21.06, cannot find support from such inapposite authority.
[8] See, e.g., Bielecki v. City of Port Arthur, 12 S.W.2d 976, 978 (Tex. Comm'n App.1929, judgm't adopted); Ex parte Phares, 122 Tex. 104, 53 S.W.2d 297, 298 (1932); Kemp Hotel Operating Co. v. City of Wichita Falls, 141 Tex. 90, 170 S.W.2d 217, 219 (1943); State ex rel. Flowers v. Woodruff, 150 Tex. Crim. 255, 200 S.W.2d 178, 181 (1947); Smith v. Decker, 158 Tex. 416, 312 S.W.2d 632, 634 (1958); State ex rel. Burks v. Stovall, 168 Tex. Crim. 207, 324 S.W.2d 874, 875-76 (1959); State v. Logue, 376 S.W.2d 567, 569 (Tex.1964); Crouch v. Craik, 369 S.W.2d 311, 315 (Tex.1963); City of Fort Worth v. Craik, 411 S.W.2d 541, 542 (Tex.1967); City of Richardson v. Kaplan, 438 S.W.2d 366 (Tex.1969) (per curiam); Passel v. Fort Worth Indep. Sch. Dist., 440 S.W.2d at 63; Dearing v. Wright, 653 S.W.2d 288, 290 (Tex.1983) (Robertson, J., concurring); Hurt v. Oak Downs, Inc., 85 S.W.2d 294, 296 (Tex.Civ.App.Dallas 1935), dism'd as moot, 128 Tex. 218, 97 S.W.2d 673 (1936); Roberts v. Gossett, 88 S.W.2d 507, 510 (Tex.Civ.App.Amarillo 1935, no writ); Adams v. Antonio, 88 S.W.2d 503, 506-07 (Tex.Civ.App.Waco 1935, writ ref'd); Barkley v. Conklin, 101 S.W.2d 405, 407 (Tex.Civ.App.Waco 1937, no writ); Love v. Worsham, 101 S.W.2d 598, 600 (Tex.Civ.App. Beaumont 1937, no writ); Gurtov v. Williams, 105 S.W.2d 328, 330 (Tex.Civ.App.Galveston 1937, writ dism'd); Shupe v. City of Fort Stockton, 123 S.W.2d 408, 409 (Tex.Civ.App.El Paso 1938, no writ); Angelo v. Brown, 139 S.W.2d 197, 198 (Tex.Civ.App.Galveston 1940, no writ); Townsend v. McDonald, 149 S.W.2d 1038, 1039 (Tex.Civ.App.San Antonio 1941, writ ref'd); Brazell v. Gault, 160 S.W.2d 540, 542 (Tex.Civ.App.Amarillo 1942, no writ); City of Ballinger v. Boyd, 173 S.W.2d 363, 364 (Tex.Civ. App.Austin 1943, no writ); Salinas v. Moore, 201 S.W.2d 68, 69 (Tex.Civ.App.San Antonio 1947, no writ); Pierce v. City of Stephenville, 206 S.W.2d 848, 851 (Tex.Civ.App.Eastland 1947, no writ); Liegl v. City of San Antonio, 207 S.W.2d 441, 443 (Tex.Civ.App.San Antonio 1947, writ ref'd n.r.e.); City of Corsicana v. Wilson, 249 S.W.2d 290, 292 (Tex.Civ.App.Waco 1952, writ ref'd n.r.e.); Department of Public Safety v. Buck, 256 S.W.2d 642, 646 (Tex.Civ. App.Austin 1953, writ ref'd); Stecher v. City of Houston, 272 S.W.2d 925, 928 (Tex.Civ.App. Galveston 1954, writ ref'd n.r.e.); Malone v. City of Houston, 278 S.W.2d 204, 206 (Tex.Civ.App. Galveston 1955, writ ref'd n.r.e.); City of Fort Worth v. McDonald, 293 S.W.2d 256, 259 (Tex. Civ.App.Fort Worth 1956, writ ref'd n.r.e.); Bell Dental Laboratory, Inc. v. Walton, 307 S.W.2d 342, 345 (Tex.Civ.App.Houston 1957, no writ); Young v. City of Seagoville, 421 S.W.2d 485, 487 (Tex.Civ.App.Dallas 1967, no writ); City of Corpus Christi v. Gilley, 458 S.W.2d 124, 127 (Tex.Civ.App.Corpus Christi 1970, writ ref'd n.r.e.); Covarrubia v. Butler, 502 S.W.2d 229, 231 (Tex.Civ.App.San Antonio 1973, writ ref'd n.r.e.); Air Curtain Destructor Corp. v. City of Austin, 675 S.W.2d 615, 617-18 (Tex.Civ. App.Tyler 1984, writ ref'd n.r.e.); Lindsay v. Papageorgiou, 751 S.W.2d 544, 551 (Tex.Civ. App.Houston [1st Dist.] 1988, writ denied).
[9] Act of May 17, 1949, 51st Leg., R.S., ch. 429, 1949 Tex.Gen.Laws 803 (TEX.PENAL CODE art. 301d (1925)) (repealed and recodified 1969) (current version at Tex.Educ.Code Ann. §§ 4.20-.21 (Vernon 1991)).
[10] Passel, 440 S.W.2d at 63 ("[I]t seems clear to us that the Texas statute [formerly TEX.CIV.STAT. ANN. art. 4642, now TEX.CIV.PRAC. & REM.CODE § 65.011 (Vernon 1986 & Supp.1994)] is broad enough to authorize the granting of an injunction for the protection of personal rights."). This court refused, however, to affirm the temporary injunction, concluding that it was not warranted by the evidence in the record. Id. at 65. On remand the validity of the regulation was upheld. Passel v. Fort Worth Indep. Sch. Dist., 453 S.W.2d 888 (Tex.Civ.App.Fort Worth 1970, writ ref'd n.r.e.).
[11] In fact, the very year after Passel was decided, Justice Walker, its author, again noted for a unanimous court the general rule limiting an equity court's power to interfere with the enforcement of a criminal statute. See Texas Liquor Control Bd. v. Canyon Creek Land Corp., 456 S.W.2d 891, 894 (Tex.1970).
[12] Of the three cases the Passel court cited to support its conclusion that injunctions could issue to protect personal rights, Passel, 440 S.W.2d at 63, none involved a criminal statute. See Ex Parte Warfield, 40 Tex. Crim. 413, 50 S.W. 933, 935 (Tex.Crim.App. 1899) (holding in habeas corpus proceeding that court could enjoin relator from alienating the affections of plaintiff's wife although no property rights were involved); Hunt v. Hudgins, 168 S.W.2d 703, 705 (Tex.Civ. App.Waco 1943, no writ) (explaining that husband seeking to end an "illicit relationship" was entitled to an injunction against his former paramour even though no property rights were involved); Hawks v. Yancey, 265 S.W. 233, 237 (Tex.Civ.App.Dallas 1924, no writ) (holding that equity will intervene to protect female from assault and slander by her boyfriend despite the lack of any implication of property rights).
[13] The personal rights directly threatened in Passel were of constitutional magnitude. Thus, if Passel is misread as the court of appeals appears to have read itthat a court has jurisdiction to decide whether a statute affects "personal rights" even though no action is anticipated that might affect the exercise of those rightsthe two limitations of unconstitutionality and irreparable harm to protected rights are collapsed into one. Rather than being required to prove that the statute is both unconstitutional and that its enforcement would result in irreparable injury, a party would only need to show that the statute is unconstitutional and that its hypothetical enforcement will harm a personal right of constitutional significance. This near tautology means that any statute that is unconstitutional, necessarily infringes on a Passel-personal right. Once the court satisfies itself that the statute is unconstitutional, it has satisfied the test which is supposed to be the very limit on its ability to declare such statutes unconstitutional. We disapprove of this interpretation of Passel.
[14] Any injunctive relief sought against 21.06 would clearly fail this test as the parties have agreed that 21.06 is not routinely enforced.
[15] Two justices concurred on the basis that although this was a civil, not criminal case, Dearing did not allege irreparable injury to a vested property right caused by the State proceeding with the criminal case. Therefore, they argued, the case should be dismissed for lack of jurisdiction. Id.
[16] The dissent argues that the court of criminal appeals' decision to decline exercising its jurisdiction in this matter renders any comity concerns a nullity. 869 S.W.2d at 949 (Gammage, J., dissenting). But it is the prospect that civil courts will get into the business of construing criminal statutes which represents the real danger. Simply because in this case the court of criminal appeals has decided not to exercise its jurisdiction, does not mean that it will decline to exercise its jurisdiction in the future so as to avoid a conflict with a decision from this court exercising jurisdiction that we never had.
[1] Although the plaintiff's problem in City of Austin was not lack of enforcement but rather an inability to break the law, the result is the same: an inability to get into criminal court to test the validity of the law.
[2] See, e.g., Bielecki v. City of Port Arthur, 12 S.W.2d 976, 978 (Tex. Comm'n App.1929, judgm't adopted) (dance hall); Townsend v. McDonald, 149 S.W.2d 1038, 1039 (Tex.Civ.App. San Antonio 1941, writ ref'd n.r.e.) (fruit); Shupe v. City of Fort Stockton, 123 S.W.2d 408, 409 (Tex.Civ.App.El Paso 1938, no writ) (house); Hurt v. Oak Downs, 85 S.W.2d 294, 296 (Tex.Civ. App.Dallas 1935, writ dism'd) (dog racing operation); Barkley v. Conklin, 101 S.W.2d 405, 406 (Tex.Civ.App.Waco 1937, no writ) (marble machines).
[3] See, e.g., Townsend v. McDonald, 149 S.W.2d 1038, 1039 (Tex.Civ.App.San Antonio 1941, writ ref'd n.r.e.); Bielecki v. City of Port Arthur, 12 S.W.2d at 978.
[4] See, e.g., Brazell v. Gault, 160 S.W.2d 540, 541-42 (Tex.Civ.App.Amarillo 1942, no writ) ("[G]enerally, courts of equity deal only with civil and property rights ... and an injunction will not be granted to restrain officers from ... the prosecution of crime. It is only in rare instances, where it is evident that no adequate legal remedy exists, that the rule will be extended.") (emphasis added); Roberts v. Gossett, 88 S.W.2d 507, 510 (Tex.Civ.App.Amarillo 1935, no writ) (discussing the property requirement and stating that it is but "another way of saying that as a general rule prosecution ... will not be enjoined unless it appear that the officers are acting without authority of law ... and not then except where civil or property rights are involved, for the protection of which no full and adequate remedy at law exists.") (emphasis added).
These cases recognize an exception to the general proposition that equity has no jurisdiction in criminal matters not affecting property. See also 27 AM.JUR.2d Equity § 57 (1966) ("Matters which do not involve property or civil rights, it is said, are beyond the scope of the court's equity jurisdiction, and, therefore, if rights of this character are not called in question, the court may not take cognizance of that which is criminal.") (emphasis added); Hawks v. Yancey, 265 S.W. 233, 237 (Tex.Civ.App.Dallas 1924, no writ) (concluding that Texas courts are not required to search for rights of property on which to base jurisdiction to grant injunctions to protect personal rights, cited with express approval on this point by Associate Justice Ruel C. Walker writing for the court in Passel v. Fort Worth Indep. Sch. Dist., 440 S.W.2d 61, 63 (Tex.1969)); 27 Am.Jur.2d Equity § 65 (1966) (suggesting a trend in equity to protect personal rights openly rather than pretend that they attach to some property right).
[5] See also Dreyer v. Jalet, 349 F. Supp. 452, 466-67 (S.D.Tex.1972), aff'd without opinion, 479 F.2d 1044 (5th Cir.1973) (citing Passel for the proposition that Texas law sanctions injunctive relief to protect both property and personal rights).
[6] In many cases, courts have squarely held or have recognized as a principle that equity jurisdiction exists and will be exercised to protect personal rights even when no property right is implicated. See 27 AM.JUR.2D Equity § 65 (1966); e.g., Webber v. Gray, 228 Ark. 289, 307 S.W.2d 80, 83-84 (1957) (following the trend to remedy injuries to personal rights by injunction); Kenyon v. Chicopee, 320 Mass. 528, 70 N.E.2d 241, 244-45 (1946) (stating that equity protects personal rights by injunction upon the same conditions upon which it would protect property); Gluck v. Texas Animal Health Comm'n, 501 S.W.2d 412, 415 (Tex.Civ.App.El Paso 1973, writ ref'd n.r.e.) ("[E]quity will interfere when necessary to protect civil or property rights...."); Neiman-Marcus Co. v. City of Houston, 109 S.W.2d 543, 547 (Tex.Civ.App. Galveston 1937, writ ref'd) (holding that equitable relief should not be granted against the enforcement of a penal ordinance unless the ordinance is unconstitutional on its face and its enforcement would constitute an unlawful invasion of property or personal rights).
[7] The Hawks court noted that even the Chancery Courts of England, originators of the restriction that an injunction could not issue except to safeguard property, now freely protect purely personal rights, including reputation. Id.
[8] Several jurisdictions create an exception to the general rule that equity will not interfere with the enforcement of criminal laws, where the law is unconstitutional and its enforcement would result in irreparable injury to property or personal rights. See, e.g., Olan Mills, Inc. v. Panama City, 78 So. 2d 561, 562 (Fla.1955) (reversing the dismissal of a suit to enjoin enforcement of an ordinance taxing transient photographers); Norcisa v. Board of Selectmen, 368 Mass. 161, 330 N.E.2d 830, 834-35 (1975) (reversing the lower court's declaration that a penal transient vendor ordinance was unconstitutional and issuing an injunction against a pending criminal prosecution under the ordinance); Smith v. State, 242 So. 2d 692, 695 (Miss.1970) (in a suit to declare void and enjoin the enforcement of an anti-evolution statute carrying penal sanctions, holding that the plaintiff had stated a cause of action for injunctive relief by alleging the denial of a personal right, to wit, her right to learn); see also Severns v. Wilmington Med. Ctr., Inc., 421 A.2d 1334, 1349 n. 12 (Del.1980) (stating that a "Court of Chancery may enjoin a criminal prosecution, to protect a property right [citation omitted] or a personal right" and that a criminal prosecution may be enjoined where it infringes upon some constitutional right); cf. Gospel Army v. City of Los Angeles, 27 Cal. 2d 232, 163 P.2d 704, 728 (1945) (Carter, J., dissenting) (arguing that even if no injury to property rights is threatened, injunctive relief is appropriate where it is claimed that a criminal statute violates personal rights, meaning one of the personal liberties guaranteed by the constitution, since these are even more precious than property rights).
Other jurisdictions create an exception where there is irreparable harm to property or certain constitutional rights. See, e.g., Rathke v. MacFarlane, 648 P.2d 648, 653 (Colo.1982) (holding that "before a trial court may enjoin the enforcement of a criminal statute in a preliminary injunction proceeding, the moving party must establish, as a threshold requirement, a clear showing that injunctive relief is necessary to protect existing legitimate property rights or fundamental constitutional rights"); Hursey v. Town of Gibsonville, 284 N.C. 522, 202 S.E.2d 161, 166-67 (1974) (reversing the granting of injunctive relief on the grounds that the plaintiffs had not proven injury to a property or constitutional right); City of Ashland v. Heck's, Inc., 407 S.W.2d 421, 423-24 (Ky.Ct.App.1966) (holding that equity may enjoin criminal proceedings where "justified by exceptional circumstances and by the necessity to afford adequate protection to constitutional rights" and determining that an earlier case requiring property rights had been overruled by subsequent case law).
[9] Contrary to the court's assertion that Passel turned on the attempt to enjoin an administrative rule, the central issue in Passel was the same as the one before us todaya civil court's power to determine the constitutionality of a criminal statute. 440 S.W.2d at 62-63. The administrative rule at issue was based on the statute and its fate depended on the resolution of the constitutional issue. Id. at 64 (stating that "the rule, which is based upon the statute, should stand or fall with the statute"). Indeed, the Passel court held that "the trial court erred in dismissing the cause on the ground that it had no jurisdiction to construe and determine the constitutionality of the criminal statute in this proceeding." Id. (emphasis added).
Apparently, the court here assumes a court's determination that a statute is unconstitutional affects nothing other than rules based on the statute. Rather than explaining why such a decision would not also void the statute, the court instead requires that in each case there be a rule dependent on the statute and that each rule be litigated separately.
[10] Texas courts already have developed a policy of harmonizing civil and criminal review of penal statutes and ordinances. Humble Oil and Refining Co. v. City of Georgetown, 428 S.W.2d 405, 411-12 (Tex.Civ.App.Austin 1968, no writ). This court ordinarily considers it a duty to follow a Court of Criminal Appeals' construction of a criminal statute; if refusal to follow the Court of Criminal Appeals would create an intolerable or overly confusing situation, "it is our duty not to refuse ... but to follow the ruling of that court." Shrader v. Ritchey, 158 Tex. 154, 309 S.W.2d 812, 814 (1958). The Texas Court of Criminal Appeals follows the same policy regarding this court's decisions. Jernigan v. State, 166 Tex. Crim. 302, 313 S.W.2d 309, 310 (1958). It is important to note that in this case, the Court of Criminal Appeals has declined jurisdiction. This court's citation to Dearing v. Wright, 653 S.W.2d 288, 289-90 (Tex.1983), is therefore inapt. In Dearing, the danger of conflicting decisions between our civil and criminal courts was very "real" because, unlike the present case, the appellant was currently under indictment for violating the allegedly unconstitutional statute, and the constitutionality of the statute was pending before the Court of Criminal Appeals in three other causes. Dearing does not require that we decline jurisdiction here, because the appellant in Dearing had an adequate remedy by appeal through defense of his prosecution.
[11] The court of appeals wrote, 826 S.W.2d at 203:
The State does not dispute appellee's assertions that § 21.06 causes harm beyond the threat of criminal prosecution. In fact, the State in the district court stipulated to all of the evidence offered by appellees regarding these harmful consequences of the statute.
[12] Stipulations are favored and should be given effect whenever possible. Johnson v. Swain, 787 S.W.2d 36, 38 (Tex.1989). When the stipulation is to a legal conclusionin this case discrimination causing harmwhich necessarily rests on several facts, then the effect of the agreement is to stipulate to each fact necessary to establish that conclusion. Strippelmann v. Clark, 11 Tex. 296, 298 (1854). Factual stipulations also establish all facts necessarily inferable from the stipulated facts. Handelman v. Handelman, 608 S.W.2d 298, 301 (Tex.Civ.App.Houston [14th Dist.] 1980, writ ref'd n.r.e.). The Attorney General has broad discretionary power in his conduct of litigation to meet his legal obligations to defend the State. Terrazas v. Ramirez, 829 S.W.2d 712, 721 (Tex.1991); Maud v. Terrell, 109 Tex. 97, 200 S.W. 375 (1918). No party suggests the stipulations were anything but binding in this case, and the court errs in ignoring the stipulated harm in its jurisdictional analysis.
[13] It is true that most other jurisdictions do not have a bifurcated system such as ours, and therefore do not run the same risk of conflicting decisions from two high courts. However, the risk run in our peculiar judicial system by exercising jurisdiction over causes such as Morales' is minimized by a requirement of clear evidence of lack of prior enforcement and stipulations as to the unlikelihood of enforcement in the near future.
[14] This court ignores the most important rule of equityequity will not suffer a right to be without a remedy. Chandler v. Welborn, 156 Tex. 312, 294 S.W.2d 801, 807 (1956); Miers v. Brouse, 153 Tex. 511, 271 S.W.2d 419, 421 (1954) ("The first maxim of equity is that it will not suffer a right to be without a remedy. As Lord Holt early said: `If the plaintiff has a right, he must of necessity have a means to vindicate and maintain it.... It is a vain thing to imagine a right without a remedy.'") (citations omitted); Southwest Weather Research v. Duncan, 319 S.W.2d 940, 944 (Tex.Civ.App.El Paso 1958) ("[E]quity was created for the man who had a right without a remedy, and, as later modified, without an adequate remedy."), aff'd, 160 Tex. 104, 327 S.W.2d 417 (1959); 27 Am.Jur.2d Equity § 120 (1966); 34 Tex.Jur.3d Equity § 20 (1984).
[15] The parties stipulated to the scientific validity of several statistical projections, all of which exceed 250,000. These statistics are taken from the affidavits of William Simon, Ph.D. and Gregory M. Herek, Ph.D. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1952149/ | 47 B.R. 540 (1985)
In re AIR VERMONT, INC. and North Atlantic Airlines, Inc., Debtors.
AIR VERMONT, INC. and North Atlantic Airlines, Inc., Plaintiffs,
v.
Ralph CUTILLO, Defendant.
Bankruptcy Nos. 84-00017, 84-00019, Adv. Nos. 84-0044, 84-0046.
United States Bankruptcy Court, D.Vermont.
March 8, 1985.
*541 John P. Cain, Burlington, Vt., for Ralph Cutillo.
Joseph C. Palmisano, Barre, Vt., for debtors.
MEMORANDUM OPINION
CHARLES J. MARRO, Bankruptcy Judge.
A battery of motions have been filed with respect to certain aircraft that were property of the estate at the commencement of this case. The debtor, Air Vermont, Inc. ("Air Vermont") has filed complaints to determine the validity of liens and for turnover of property in connection with three aircraft, referred to herein as "104AQ," "2456D," and "3529A." Also pending in the case are (1) Air Vermont's motion to find the defendant, Ralph Cutillo ("Cutillo") in contempt of court and a show cause order in connection with the contempt motion; (2) motions by Cutillo for relief under Bankruptcy Code ("Code") section 1110 with respect to 104AQ and 2456D; (3) Cutillo's motion for summary judgment on Air Vermont's turnover and lien complaints; (4) motions by Air Vermont, Inc. to avoid a lien under Code section 544, to avoid a preferential transfer under Code section 547, and for summary judgment thereon, all with reference to 3529A; and (5) a motion by Air Vermont to assume an executory contract in connection with 3529A. No longer pending is Air Vermont's motion to reject an executory contract concerning 3529A. See, In re Air Vermont, 40 B.R. 61 (Bankr.D.Vt.1984).
Currently before the court are Cutillo's motions for section 1110 relief and for summary judgment, and Air Vermont's motion for summary judgment. The matter came on regularly for a hearing. The testimony and records in the case establish the facts which follow. The findings of fact summarize the record as to 104AQ, 2456D and 3529A.
FACTS
The debtor filed for relief under chapter 11 of the Code in January 1984.
In May 1983 Air Vermont bought 3529A from Cutillo for $170,000 under a conditional sales contract, evidenced in part by a $170,000 promissory note, that has never been filed with the Federal Aviation Administration ("F.A.A.") for recordation. Air Vermont has made no payment on the promissory note since the commencement of this case. Postpetition, in February 1984, Air Vermont voluntarily relinquished possession of the aircraft to Cutillo in contemplation of a sale of the aircraft by Cutillo to a third party for the purpose of minimizing Air Vermont's deficiency exposure under the promissory note. Shortly after taking possession Cutillo sold the aircraft for $125,000 in an arms-length transaction. At the time Air Vermont abandoned the aircraft, the outstanding balance on the promissory note exceeded $164,000 with a $57 per diem. Since 1979 Cutillo has been the owner of F.A.A. record of 3529A.
In November 1981 Air Vermont bought 104AQ from Cutillo for $165,000 evidenced in part by a $155,000 promissory note, under a conditional sales contract that was subsequently filed for recordation with the F.A.A. in September 1982. The contract was in fact recorded postpetition by the F.A.A. Air Vermont has made no payment on the promissory note since bankruptcy day. Postpetition, in February 1984, Air *542 Vermont voluntarily relinquished possession of the aircraft to Cutillo for the reason that Air Vermont believed that the aircraft had no value to the estate, it appearing that the fair market value of the aircraft was less than the sum owed under the promissory note. At the time Air Vermont abandoned the aircraft, the outstanding balance on the promissory note exceeded $107,000 with a $44 per diem.
In October 1981 Air Vermont bought 2459D from Cutillo for $9,000 evidenced in part by an $8,500 promissory note under a conditional sales contract that was subsequently filed for recordation in December 1981. The contract was in fact recorded postpetition by the F.A.A. Postpetition, Air Vermont defaulted under the promissory note. Cutillo sent a notice of default to Air Vermont in accordance with contractual terms, and Air Vermont received the same. Subsequently, Cutillo repossessed the aircraft in accordance with contractual terms. At the time of repossession, the outstanding balance on the promissory note was in excess of $2,000 and now exceeds $3,000. The default has never been cured.
Air Vermont never petitioned the court for an order approving abandonment of 104AQ or 3529A. Also, Air Vermont never made an arrangement with Cutillo for an extension of time to cure arrearages as to 2459D.
The delay between the date of the filing for recordation of the 104AQ and 2459D contracts and the date of recordation of those contracts is accounted for by the fact that the F.A.A. chose not to record the contracts until certain related power of attorney documents were filed for recordation. When the contracts were filed for recordation, the F.A.A. Conveyances Administrator filed but did not record the contracts; additionally, in connection with each contract, the Conveyances Administrator filed an F.A.A. form directing Cutillo to submit the relevant power of attorney authorizations.
DISCUSSION
The substance of the various complaints and motions in this consolidated adversary proceeding overlap. For example, if Cutillo is entitled to a judgment as a matter of law on the issue of rightful possession of any of the three aircraft, then as to that aircraft Air Vermont's complaints for turnover and to determine the validity of liens would be moot, as would the related contempt motion. Similarily, if Cutillo has a right in 2459D that is superior to the right of Air Vermont in that aircraft, or if the 2459D conditional sales contract is not an executory contract within the purview of Code section 365(a), then Air Vermont's motion to assume executory contract does not survive. For the reasons which follow, Cutillo is entitled to prevail on motion for summary judgment with respect to aircraft 104AQ, 2459D and 3529A.
AIRCRAFT 2459D
All complaints and all motions put on by Air Vermont as to 2459D must be dismissed, with the exception of the motion to assume executory contract, which must be denied.
It is not disputed that the 2459D conditional sales contract was a transaction intended to have effect as security. As, prepetition, the contract was filed for recordation, Cutillo is the holder of a perfected purchase money equipment security interest in the aircraft. Perfection of the interest occurred as of the time Cutillo filed the contract for recordation with the F.A.A. See, e.g., Matter of Disney, Inc., 24 B.R. 155, 157, 158, (Bankr.D.Idaho 1982). In that the interest was perfected prepetition, Code section 544 does not empower Air Vermont to avoid Cutillo's interest. In that perfection took place before the preference period of Code section 547, the perfection does not constitute an avoidable preference. In that the default under the promissory note was not cured within the period for cure of Code section 1110, (in fact no tender of cure has ever been made), Cutillo as the holder of a perfected purchase money equipment security interest in a civil aircraft is entitled to possess 2459D free of the automatic stay of Code section *543 362(a). See House Report No. 595, 95th Cong. 1st Sess. 405 (1977); Senate Report No. 989, 95th Cong., 2d Sess. 116 (1978) U.S. Code Cong. & Admin.News 1978 p. 5787; In re Air Vermont, 44 Bankr. 433 (Bankr.D.Vt.1984); In re Air Vermont, 45 B.R. 926 (Bankr.D.Vt.1984) see generally In re Air Vermont, Inc., 45 B.R. 931 (Bankr.D.Vt.1985); In re Air Vermont, Inc., 41 B.R. 486, 492 (Bankr.D.Vt.) aff'd, Civil No. 84-209 (D.Vt.1984).
In that Cutillo's right to 2459D is not now stayed, a Code section 362(a) violation, if one occurred upon repossession of the aircraft by Cutillo, would be a technical violation only, for which the sanction of contempt is inappropriate. See In re Bray Enterprises, Inc., 38 B.R. 75, 79 (Bankr.D. Vt.1984); In re Harlow, 12 Bankr. 1 (Bankr.D.Vt.1981); In re Porter, 25 B.R. 425 (Bankr.D.Vt.1982).
The "executory contract" Air Vermont seeks to assume under Code section 365(a) is the conditional sales contract under which Air Vermont obtained an interest in the aircraft. The legislative history of section 365(a) states,
[t]hough there is no precise definition of what contracts are executory, it generally includes contracts on which performance remains due to some extent on both sides. A note is not usually an executory contract if the only performance that remains is repayment. Performance on one side of the contract would have been completed and the contract is no longer executory.
House Report No. 595, 95th Cong., 1st Sess. 347 (1977); Senate Report No. 989, 95th Cong.2d Sess. 58 (1978), U.S.Code Cong. & Admin.News, pp. 5787, 5844, 6303. Once Cutillo had delivered the aircraft, his only executory duty was to deliver title after Air Vermont completed paydown on the promissory note. Paydown on a note is not an executory contract within the purview of Code section 365(a). In re Braley, 39 B.R. 133 (Bankr.D.Vt.1984). Executory contracts subject to rejection by the chapter 11 debtor are understood to be contracts under which "the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other." See Countryman, Executory Contracts in Bankruptcy Part 1, 57 Minn.L.Rev. 439, 460 (1973); see also id. Part 2, 58 Minn.L. Rev. 479 (1974). Where the obligee's unexecuted performance is the transfer of title upon receipt of payment in full, such transfer, if withheld by the obligee, may be effectuated by the court. Thus, a recalcitrant obligee under an installment sales contract may not avoid the legal effect of full performance by the obligor, and the contract is therefore not an executory contract subject to rejection once the obligee puts the obligor in possession of the collateral. The uniform judicial conclusion is that installment sales contracts under which the seller's only remaining obligation is to transfer title are not executory contracts which can be assumed by the debtor. See, e.g., In re Rojas, 10 Bankr. 353, 355 (Bankr.App. 9th Cir.1981); In re Shada Truck Leasing, Inc., 31 B.R. 97, 8 C.B.C.2d 1107 (Bankr.D.Neb.1983). The result is that Air Vermont may not assume the instant agreement as an executory contract. It is of no import here that on May 2, 1984 the court considered the cause of Air Vermont for abandonment of 104AQ and 3529A under the executory contract terminology advanced by Air Vermont. See In re Air Vermont supra. The concern of the court in May was to counsel caution on the part of a debtor engaged in severing assets from the estate at the outset of the reorganization proceeding where directly or indirectly the value of such assets might properly inure to the benefit of unsecured creditors including employees in the event of a successful reorganization or in the event that a defect inhered in Cutillo's secured status. To that end, the court in May made its determination on the facts then of record; today the court makes its determination on the rule of section 365(a). The motion to assume executory contract must be denied.
*544 AIRCRAFT 104AQ
All complaints and all motions put on by Air Vermont as to 104AQ must be dismissed.
As the holder, under a conditional sales contract intended to have effect as security, of a purchase money equipment security interest perfected prepetition and before the preference period, Cutillo is entitled to a judgment as a matter of law on issues arising under Code sections 544 and 547. Moreover, Cutillo is entitled on the facts to relief under Code section 1110 for the reason that Air Vermont tendered no cure of default within the section 1110 period for cure. Even if Cutillo assumed possession of the aircraft at a time when, abandonment by Air Vermont hypothetically absent, the automatic stay of Code § 362(a) would have been in effect, the sanction of contempt is not appropriate in that Cutillo took possession pursuant to an affirmative act of abandonment of the aircraft by Air Vermont. Simultaneously with the abandonment of 104AQ, Air Vermont lost whatever rights it previously may have had under the contract and related documents. See In re Booth, 43 B.R. 197, 200 (Bankr.D.Vt.1984).
AIRCRAFT 3529A
All complaints and all motions put on by Air Vermont as to 3529A must be dismissed.
As owner of record since 1979, Cutillo is entitled to summary judgment on issues arising under Code sections 544 and 547. In that Air Vermont voluntarily abandoned the aircraft, no sanction of contempt is appropriate. Abandonment by Air Vermont of 3529A hypothetically absent, Cutillo as owner is nevertheless entitled to relief under section 1110.
CONCLUSION
Air Vermont's rights in 2459D ended upon the expiration of the period for cure under section 1110. Air Vermont's rights in 104AQ and 3529A ended when Cutillo took possession pursuant to Air Vermont's abandonment of the aircraft. See In re Booth supra. Abandonment hypothetically absent, Cutillo is entitled to relief under section 1110. In view of the circumstances complained of, the sanction of contempt is not appropriate. As a final matter, the facts developed on motion to reject executory contract, see In re Air Vermont supra, 40 B.R. 61, are not res judicata as to Cutillo for the reason that Cutillo was not joined as a party under that motion. That Cutillo appeared as a party in interest concerning that motion does not foreclose Cutillo from developing his proof in connection with the complaints and motions which constitute this adversary proceeding. Facts and mixed questions of law and fact appearing in the discussion today are incorporated into the statement of facts. Judgment is to be entered accordingly. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2425234/ | 809 S.W.2d 216 (1991)
Eugene PEREZ, Petitioner,
v.
BRIERCROFT SERVICE CORPORATION, Respondent.
No. D-0220.
Supreme Court of Texas.
May 8, 1991.
Rehearing Overruled June 12, 1991.
O.F. Jones, III, Victoria, for petitioner.
Charles B. Frye, Lubbock, for respondent.
OPINION
GONZALEZ, Justice.
In this action for damages arising from a home improvement project, the principal issue is whether a plaintiff-consumer is entitled to rescission or cancellation of a note when such relief was not specifically pleaded but the defendant asserted a defense or limitation of liability which raised the plaintiff's right to rescission or cancellation. The court of appeals held that rescission must be specifically pleaded. Under the facts of this case, we disagree. Consequently we affirm in part and reverse in part the judgment of the court of appeals and remand the cause to the trial court for rendition of judgment in accordance with this opinion.
Eugene Perez contracted with Perma-Stone to make improvements on his home. Perma-Stone provided financing for the improvements by executing a promissory note and retail improvement contract for $13,500 which was secured by a mechanics lien on Perez's home. Before the work was completed, Perma-Stone sold the note to Briercroft Service Corporation.[1] Several months later Perez began experiencing many problems with the work performed *217 by Perma-Stone: the siding began to fall off the house, the replacement windows fell apart, the screen doors would not shut completely and the sewer vents terminated in the attic instead of extending through the roof, causing foul odors within the house. Perez stopped making payments on the note after Perma-Stone failed in its attempt to repair the home. Perez brought suit against Briercroft for breach of contract and DTPA damages resulting from home improvements that allegedly were not completed in a good and workmanlike manner.[2] Later, Perma-Stone and Glispin filed bankruptcy and were dismissed from the suit. Briercroft answered asserting that the Federal Trade Commission (FTC) rule limited its liability to the amount Perez had paid under the contract. After a trial, the jury found that the improvements had no value and awarded Perez $13,500 as actual damages. The trial court rendered judgment for Perez in conformance with the jury verdict. On appeal, Briercroft asserted that Perez was entitled only to a refund of the money paid and that he was not entitled to cancellation of the note because he had not specifically prayed for rescission. Based on the FTC rule, the court of appeals modified the judgment to reflect the amount of the money Perez had paid on the note prior to his default. Nevertheless, the court of appeals refused to cancel the note because Perez had not specifically pleaded rescission.
The FTC rule provides that when the proceeds of a consumer credit contract are used to purchase goods or services, the contract must contain the following provision:
NOTICE
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RCOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER, (emphasis added).
This rule was enacted to protect consumers in situations where they financed the purchase of goods or services but the seller of the service and the holder of the note were separate entities. Statement of Basis and Purpose, 40 Fed.Reg. 53,506, 53,522 (1975). Prior to this rule, consumers found themselves liable to pay notes to finance payment of these goods or services, which at times were secured by their homes, even though the sellers failed to live up to their agreements. In these circumstances, the creditor, having purchased the note from the seller, was a holder in due course immune to defenses and claims that the consumer could have raised against the seller. Id.; see also Guidelines on Trade Regulation Rule Concerning Preservation of Consumers' Claims and Defenses, 41 Fed.Reg. 20,022, 20,023 (1976). The FTC rule remedied this situation by making the creditor subject to all claims and defenses that the debtor could assert against the seller. This rule transferred liability to consumer credit contract assignees, who the commission felt were "in a better position to absorb the loss or recover the loss from the guilty party the seller," Home Sav. Ass'n v. Guerra, 733 S.W.2d 134, 135 (Tex.1987), but limited their liability to the amount paid by the consumer on the note and cancellation of the balance of the note.
Narrowly interpreting the FTC rule by relying on its language that "recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder," the court of appeals modified the trial court's judgment by lowering the award of damages to Perez from $13,500 to $4,144.94, the total amount Perez had paid under the consumer credit contract. However, stating that Perez did not specifically plead for rescission, the court of appeals declined to cancel the note and thereby left him still owing on the note secured by a lien on his home despite a judgment which *218 effectively established that there was a total failure of consideration.
The court of appeals based its holding on a requirement that rescission must be specifically pleaded citing Green Tree Acceptance, Inc. v. Pierce, 768 S.W.2d 416 (Tex. App. Tyler 1989, no writ) and Burnett v. James, 564 S.W.2d 407, 409 (Tex.Civ.App. Dallas 1978, writ dism'd). These cases are distinguishable on their facts from the instant case. Here, the plaintiff alleged facts in his petition that consideration for the contract had failed and "that he is at least entitled to recover the amount that he had paid to Defendant" in addition to his prayer for general relief. More importantly, the defendant's answer raises the FTC rule as a defense. Briercroft's answer states:
Defendant would show that any liability to Plaintiff, if such there be, is limited by regulations promulgated by the Federal Trade Commission to cancellation of the outstanding debt and refund of any money paid to this Defendant to wit: 16 C.F.R. 433.
Ultimately, the purpose of pleadings is to give the adversary parties notice of each parties claims and defenses, as well as notice of the relief sought. This purpose is served, however, when the defendant pleads a defense or limitation of liability which contemplates a particular remedy; then the plaintiff is entitled to that relief despite a failure to plead specifically for such relief. Furthermore, by pleading cancellation as a limitation, Briercroft cannot contend it is not an issue. See Land Title Co. v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex.1980) (defense of ratification supplied by another party's pleadings); Whittington v. Glazier, 81 S.W.2d 543, 545 (Tex.Civ.App. Texarkana 1935, writ ref'd) (trial court authorized to supply omissions in pleadings of one party by allegations contained in pleadings of other parties in case).
Additionally, Briercroft alleges that Perez took an inconsistent position in seeking breach of contract damages and rescission, when it was actually Briercroft who took an inconsistent position with regard to its liability in this case. Although it could assert its right under the FTC rule to avoid paying Perez more than he paid on the note, Green Tree, 768 S.W.2d at 420 (FTC rule limits consumer's recovery to amounts paid and cancellation of balance due), Briercroft, instead, attempted to take advantage of the rule's protection from unlimited liability while it denied Perez's right to cancellation of the note.
Mindful of the intent of the FTC rule and Briercroft's raising of rescission in its pleadings, we affirm that part of the judgment awarding Perez $4,144.94 in damages, postjudgment interest, and attorney's fees, and reverse and remand the cause to the trial court to render judgment rescinding the promissory note executed by Perez and cancelling the mechanics' lien on Perez's home.[3]
NOTES
[1] At the time of the transcation in question, Briercroft Service Corporation was owned by Briercroft Savings Association. This association was closed by the Federal Home Loan Bank Board and its assets were transferred to Southwest Savings Association. Subsequently, this entity was declared insolvent by the Office of Thrift Supervision and the Resolution Trust Corporation (RTC) was appointed receiver of Southwest Savings Association. The note and lien in question have since been transferred to Southwest Federal Savings Association under the conservatorship of the RTC.
[2] Initially, Perez also filed suit against Perma-Stone and its owner, George Glispin, but they subsequently filed bankruptcy and were dismissed from the suit.
[3] During oral submission to this court, Briercroft argued that the award of attorney's fees to Perez was improper. We note, however, that Briercroft failed to preserve error as to this issue. Since Briercroft is attempting to obtain a more favorable judgment than that rendered by the court of appeals, it should have field an chuleta v. International Ins. Co., S.W.2d 120, 123 (Tex. 1984). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2009086/ | 222 F. Supp. 73 (1963)
Stanley CLEMOCHEFSKY, Plaintiff,
v.
Anthony J. CELEBREZZE, Secretary of Health, Education and Welfare, Defendant.
Civ. No. 7681.
United States District Court M. D. Pennsylvania.
September 17, 1963.
*74 *75 Robert W. Munley, Scranton, Pa., for plaintiff.
Bernard J. Brown, U. S. Atty., Scranton, Pa., for defendant.
NEALON, District Judge.
On November 4, 1959, Stanley Clemochefsky made application to the Social Security Administration to establish a period of disability as provided in 42 U.S.C.A. § 416(i) and for disability insurance benefits under 42 U.S.C.A. § 423. The Bureau of Old Age and Survivor's Insurance denied the application in January of 1960 and affirmed the original denial after a request for reconsideration had been made.
Pursuant to claimant's request a hearing was held in Scranton, Pennsylvania, on September 26, 1961, at which time Mr. Clemochefsky and his physician, A. F. Antognoli, M. D., testified before a Hearing Examiner. Also before the Examiner were the claimant's original application, the Bureau's claim representative's contact reports and the written examination reports of Drs. E. J. McGuire, Albert J. Cross and John E. Swift, all of whom were retained at Government expense. On November 27, 1961, the Hearing Examiner determined that the claimant was not entitled to disability insurance benefits. A request for review of the Hearing Examiner's decision was submitted to the Appeals Council of the Social Security Administration and the request was denied. This denial became the final administrative decision on the claim and constitutes the decision of the Secretary of Health, Education and Welfare.
On April 30, 1962, Mr. Clemochefsky filed a complaint in this Court, asking that the decision of the Appeals Council be reviewed, reversed and set aside, and a period of disability established. The Government filed an answer asking for judgment dismissing the complaint, and finally, on January 22, 1963, the Government filed a motion for summary judgment, contending that the transcript and entire record of the administrative proceedings disclose that the decision denying Mr. Clemochefsky's claim was supported by substantial evidence.
Arguments on this motion were heard on May 31, 1963, and the matter has been submitted for determination.
It is elementary in cases of this nature that the Secretary's findings of fact and the reasonable inferences drawn therefrom are conclusive if they are supported by substantial evidence. Ferenz v. Folsom, 237 F.2d 46 (3d Cir., 1956). The Statute, 42 U.S.C.A. § 405 (g), is specific on this point. However, Courts must now assume more responsibility than some Courts have shown in the past for the reasonableness and fairness of decisions of Federal agencies, and *76 reviewing Courts must be influenced by a feeling that they are not to abdicate the conventional judicial function. Universal Camera Corporation v. National Labor Relations Board, 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1951).
The Statute requires that the claimant prove he has a disability, i. e., that he is unable to engage in any substantial, gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. 42 U.S.C.A. § 423(c) (2). The Act is remedial and is to be construed liberally. Celebrezze v. Bolas, 316 F.2d 498 (8th Cir., 1963).
Disability must be established by such relevant evidence as a reasonable mind might accept as adequate to support a conclusion and it must be based on the record as a whole. National Labor Relations Board v. Columbia Enameling & Stamping Company, 306 U.S. 292, 59 S. Ct. 501, 83 L. Ed. 660 (1939); Universal Camera Corporation v. National Labor Relations Board, 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1951). The determination of the presence of substantial evidence is to be made on a case-to-case basis. Celebrezze v. Wifstad, 314 F.2d 208 (8th Cir., 1963). It is for the Court then to determine whether there was substantial evidence in the record to support the findings of the Examiner that Mr. Clemochefsky was not precluded by his physical condition from substantial, gainful activity. Boyd v. Folsom, 257 F.2d 778 (3d Cir., 1958).
A two-part test has been established to determine the existence of the required disability (1) what is the extent, if any, of the claimant's physical or mental impairment, and (2) does the impairment result in his inability to engage in any substantial, gainful activity? Klimaszewski v. Flemming, 176 F. Supp. 927 (E.D.Pa.1959).
There seems to be little question in this case that claimant suffers some physical impairment. The record shows that examining physicians on both sides agree that he is suffering from anthracosilicosis in the second stage and is totally and permanently blind in the left eye; also that he is suffering a cardio-renal disease causing an enlarged aortic heart. Plaintiff's doctor also finds that claimant suffers from arthritic changes of the joints and emphysema in both lung fields. The claimant himself asserts that he suffers shortness of breath at the least exertion, i. e., walking up an incline or climbing steps; that he can only walk a city block without any trouble, and then only "if he takes it real easy and takes a rest in between." He also complains of arthritic pains in his shoulders, hands and legs. Indeed, the Examiner specifically found that claimant was unable to continue his usual occupation as a miner, miner's helper or general company laborer in view of his respiratory condition.
In light of the existence of a physical impairment, the questions forming the crux of the controversy, therefore, are: (1) what work, if any, is he physically capable of doing in this condition; (2) is he qualified by reason of age, education and background for the kind of work he is physically capable of doing, and (3) are there jobs available to him for which he is suited?
To answer the first question we must analyze the reports of the doctors who examined the claimant.
The claimant's own physician, after specifically pointing out claimant's physical limitations, concluded that he was "totally disabled from employment." The inference being that any kind of employment will aggravate and worsen the claimant's condition and jeopardize his health. The other examining physicians do not say what he is physically capable of doing without endangering his health. Dr. Swift says he is an industrial hazard and that he would be a liability to any employer who put him near machinery or in a place where dust was a prominent feature. Then, without any medical testimony as to the physical movements and activities this physically impaired man can safely perform, the Doctor concludes that "he should be able *77 to do light work as a janitor, maintenance man or similar employment." Dr. Cross also says that claimant can do light work of a general nature without any specific findings of what he is safely capable of doing.
Examining physicians, in cases of this nature, should set forth the physical facts that form the basis for their general conclusions concerning ability or inability to perform certain types of work. The conclusionary phrase, "light work of a general nature", means nothing to Examiners unless they know what the claimant is capable of doing physically without endangering his life or aggravating his existing physical impairment. I believe it is an unreasonable and unfounded conclusion to say, on the basis of the evidence in this record, that claimant can perform light work as a janitor or maintenance man and I question any opinion which equates "light work" with the duties which must be performed by a janitor or maintenance man. It is difficult to understand why janitorial or maintenance work is classified as "light work."
The Examiner expressly relies on claimant's statement that he is able to drive his car about once a week, and go fishing a few times a month and take care of his personal requirements, as showing an ability to work. But the claimant's ability to perform the simplest of tasks should not disqualify him from benefits under the Social Security Act. The disability which the claimant must show need not be commensurate with "helplessness, bed ridden or at death's door." Aaron v. Fleming, 168 F. Supp. 291 (M.D.Ala.1958). In attempting to show his disability the claimant is not required by the use of a catalogue of the nation's industrial occupations to go down the list and virtually negative his capacity for each of them or their availability to him as an actual opportunity for employment. Butler v. Flemming, 288 F.2d 591 (5th Cir., 1961). The claimant must be able to perform substantial services with reasonable regularity in some competitive employment or self-employment. Foster v. Ribicoff, 206 F. Supp. 99 (W.D.S.C. 1962). Congress in enacting this legislation did not intend that it should be impossible for a person to bring himself within its terms and have the benefits which prompted its enactment. Campbell v. Flemming, 192 F. Supp. 62 (W.D.Ky.1961).
Although the Examiner is the finder of fact and his findings are entitled to great weight, the reviewing Court cannot close its eyes to factual realities in order to solidify and validate the Examiner's findings. Therefore, the present record is incomplete and does not justify the Examiner's conclusions that this physically impaired claimant is, nevertheless, able to engage in substantial, gainful activity.
As to the second question, i. e., claimant's qualifications for the type employment he is physically capable of performing, the record reveals that at the time of the hearing Mr. Clemochefsky was fifty-six years of age. He had only eight years of formal education and no vocational training. He had spent all his adult life, from 1921 to 1958, working in and around anthracite coal mines as a miner, miner's helper and general company laborer. His employment required little other than physical strength and fitness and a willingness to work. It can readily be seen that claimant by education, background and experience is fit for little other than physical labor. There is no testimony or evidence that he can safely do more. There is not a whit of evidence in the record indicating that claimant has maintenance or janitorial qualifications. The record should explore more fully the problem of claimant's qualifications for the employment he is physically capable of performing.
The final question to be considered is: Are there jobs available to claimant for which he is suited?
The Third Circuit Court of Appeals has recently stated in Hodgson v. Celebrezze, 312 F.2d 260 (3d Cir., 1963): "Not only must `[t]he capabilities of the individual * * * be viewed in context with his own physical, educational and *78 vocational background'," Sobel v. Flemming, 178 F. Supp. 891 (E.D.Pa.1959), "but also the following question must be asked and resolved: `[W]hat employment opportunities are there for a man who can do only what applicant can do?'" Mere theoretical ability to engage in substantial, gainful activity is not enough if no reasonable opportunity for this is available. Kerner v. Flemming, 283 F.2d 916, 921 (2d Cir., 1960). The capabilities of the claimant must be considered in relationship with the industrial complex in which he finds himself. Ellerman v. Flemming, 188 F. Supp. 521 (W.D.Mo. 1960).
In Farley v. Celebrezze, 315 F.2d 704 (3d Cir., 1963), our Circuit Court of Appeals stated further: "Cases under 42 U.S.C. §§ 416(i) and 423 must be decided on a case by case basis, depending on the particular facts of each separate litigation. It is difficult to apply general formulae to meet what is indigenous to each claimant who urges a specific disability." Farley further holds that it need not be necessarily impossible for claimant to find work for him to be entitled to disability benefits. The word "any" substantial, gainful activity must be read in the light of what is reasonably possible, not what is conceivable. It was not the intention of Congress to exact as condition precedent to the maintenance of a claim the elimination of every possibility of gainful employment. Here, as in Hodgson and Farley, there is a suggestion that claimant can perform light work of a general nature, such as a janitor or maintenance man. Even if he were fit for such work, the possibility of plaintiff, with his physical impairments, age and educational background obtaining employment of this nature is not shown to be a reasonable one.
Adopting the language of Hodgson, when the record is tested by the principles set forth above, there fails to appear substantial evidence to support a finding necessary to the Secretary's determination that there existed a reasonable opportunity for Mr. Clemochefsky to engage in a substantial, gainful employment. Neither the bare suggestion in a medical report that the claimant might be able to work as a janitor or maintenance man, nor the less specific allusions in the reports to "light work of a general nature" constitutes such evidence.
Although claimant has the burden of proof, the satisfying of that burden must be judged in a practical way. Bernstein v. Ribicoff, 192 F. Supp. 138 (E.D.Pa.1961). Once proper medical evidence, buttressed by subjective evidence from claimant, has shown a sufficiently severe impairment, it must be determined if such impairment, plus claimant's educational and work status, preclude any substantial, gainful activity. Blankenship v. Ribicoff, 206 F. Supp. 165 (S.D.W.Va.1962). In cases of this kind, where the claimant alleges inability to engage in substantial, gainful activity, and his personal physician, the man in whose charge claimant has entrusted his health, claims likewise, if examining physicians are to dispute this contention, they must give the medical basis for their opinions. It is not sufficient to say that a man suffers some form of physical impairment yet can do "light work." It must be shown medically that he can perform the physical activities certain jobs require without serious aggravation to present physical impairment or to general health. Otherwise, the Hearing Examiner's findings would amount to pure speculation. Specific findings are essential to support ultimate facts the absence of such findings will render the basis for the Examiner's findings insufficient as a matter of law. Seldomridge v. Ribicoff, 204 F. Supp. 707 (E.D.Pa. 1962).
Viewing the record as a whole, there is not substantial evidence to support the final decision of the Secretary. For the reasons set forth above, this matter will be reversed and remanded. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2435457/ | 897 S.W.2d 482 (1995)
QUANTO INTERNATIONAL COMPANY, INC., Relator,
v.
The Honorable Russell LLOYD, Judge of the 334th District Court, Harris County, Texas, Respondent.
No. 01-94-00942-CV.
Court of Appeals of Texas, Houston (1st Dist.).
April 4, 1995.
*484 Daniel J. Leftwich, Washington, DC, for relator.
William Pannill, Roy L. Barnes, Houston, for respondent.
Before LEE DUGGAN, Jr., HUTSON-DUNN and ANDELL, JJ.
OPINION
LEE DUGGAN, Jr.,[*] Justice (Retired).
Quanto International Company, Inc., relator and plaintiff in the trial court, filed a motion for leave to file a petition for writ of mandamus, asking this Court to order Judge Lloyd to vacate the following orders: (1) the May 27, 1994 order, reinstating its case because the trial court was without jurisdiction and violated Tex.R.Civ.P. 162; (2) the September 6, 1994 order, granting a motion for reconsideration because the trial court no longer had plenary power; and (3) the November 3, 1993 arbitration order.
Facts
In 1993, Quanto filed suit against several defendants,[1] asserting claims that arose out of two oil and gas ventures. In response to the lawsuit, the defendants filed motions to compel arbitration of Quanto's claims. On November 3, 1993, the trial court granted the defendants' motions and referred all claims to arbitration.
On May 2, 1994, Quanto filed a motion for nonsuit of its entire case. In response to the motion, the defendants filed motions to enforce the court's arbitration order. The defendants asserted that their demand for arbitration was affirmative relief that could not be dismissed by the nonsuit under TEX. R.CIV.P. 162. On May 16, 1994, the trial court signed a written order nonsuiting and dismissing Quanto's case without prejudice. On May 25, 1994, the trial court denied the defendants' motions to enforce the arbitration order.
On May 23, 1994, one of the defendants, Lawrence Glenn, filed a motion to reinstate the case and for sanctions under Tex.R.Civ.P. 13. On May 27, 1994, the trial court granted Glenn's motion to reinstate. On June 15, 1994, the defendants filed a motion for reconsideration of the trial court's May 25, 1994 order, which denied their motion to enforce the arbitration order. On September 6, 1994, the trial court granted the motion to reconsider the motion to enforce the arbitration order and modified the arbitration order.
Reinstatement Order
Quanto asks this Court to grant mandamus relief and order the trial court to vacate its May 27, 1994 reinstatement order because the trial court did not have jurisdiction to reinstate the case after Quanto filed its nonsuit.
Mandamus relief
A plaintiff has an absolute and unqualified right to take a nonsuit, as long as the defendant has not made a claim for affirmative *485 relief.[2]BHP Petroleum Co. v. Millard, 800 S.W.2d 838, 840 (Tex.1990). In the absence of a claim by a defendant for affirmative relief, a trial court's refusal to grant the nonsuit violates a ministerial duty and should be corrected by mandamus. Hooks v. Fourth Court of Appeals, 808 S.W.2d 56, 59 (Tex.1991); Greenberg v. Brookshire, 640 S.W.2d 870, 872 (Tex.1982).
Likewise, a trial court's reinstatement of a plaintiff's case after a nonsuit may be reviewed by mandamus. Johnson v. Harless, 651 S.W.2d 259, 260 (Tex.1983). In Harless, the supreme court granted mandamus relief to a plaintiff, like Quanto, whose case was reinstated on a defendant's motion after the plaintiff had been granted his nonsuit. Id.[3]
Plenary power after nonsuit
Quanto argues that the moment it filed its nonsuit, the trial court was divested of jurisdiction and could not reinstate the case with its May 27, 1994 order. We disagree. A court retains plenary power to reinstate a cause after a nonsuit. Harris County Appraisal Dist. v. Wittig, 881 S.W.2d 193, 194 (Tex.App.Houston [1st Dist.] 1994, orig. proceeding); Hjalmarson v. Langley, 840 S.W.2d 153, 156 (Tex.App.Waco 1992, orig. proceeding); Whitaker, 815 S.W.2d at 350 n. 2; McClendon v. State Farm Mut. Auto. Ins. Co., 796 S.W.2d 229, 233 (Tex. App.El Paso 1990, writ denied); see TEX. R.CIV.P. 329b(d).
Here, the trial court signed the order of nonsuit and dismissal on May 16, 1994. This date of the written order triggers the appellate deadline and the court's plenary power. Harris County Appraisal Dist., 881 S.W.2d at 194. The trial court signed the reinstatement order on May 27, 1994, which was during its plenary power. Id.; TEX. R.CIV.P. 329b(d).
Quanto contends, however, that the order reinstating "this cause" only reinstated the case as to defendant Glenn, and that the remaining defendants were not reinstated until the trial court granted their motion for reconsideration on September 6, 1994, which Quanto contends was after the trial court lost plenary power over those defendants.
Quanto asserts that, at the hearing on the defendants' motion for reconsideration, the trial court stated it initially ordered reinstatement for the limited purpose of hearing defendant Glenn's motion for sanctions but was now reinstating the case as to all the defendants. The defendants challenge this assertion and contend that the trial court's May 27, 1994 order reinstated the entire case. There is no statement of facts from the hearing, and Quanto's assertion is not in the record before us. However, the reinstatement order is in the record.
The reinstatement order reads:
Came on this day to be heard defendant Larry Glenn's Motion to Reinstate and Motion for Sanctions [u]nder Tex.R.Civ.P. 13. The Court, having heard the arguments of counsel and considered the motions, is of the opinion that the same are well taken. It is therefore,
ORDERED, ADJUDGED AND DECREED that this cause is reinstated in the 334th Judicial District Court of Harris County, Texas.
The same rules of interpretation apply in construing the meaning of a court *486 order or judgment as in ascertaining the meaning of other written instruments. Lone Star Cement Corp. v. Fair, 467 S.W.2d 402, 404-05 (Tex.1971). If taken as a whole, the judgment or order is unambiguous, then the court must declare the effect of the order in light of the literal meaning of the language used. Barnard v. Barnard, 863 S.W.2d 770, 772 (Tex.App.Fort Worth 1993, no writ).
Here, the body of the order purports to reinstate the entire case and the caption on the order lists all defendants. We find the order is unambiguous on its face. The May 27, 1994 order, which was signed by the trial court during its plenary power, reinstated the entire cause as to all defendants. Therefore, Quanto's argument that the trial court reinstated some defendants on September 6, 1994, after it lost plenary power, is without merit.
Appropriateness of nonsuit
Quanto also argues that the May 27, 1994 reinstatement order should be vacated because the trial court violated rule 162 by reinstating its case on a defendant's motion to reinstate. We previously held that the reinstatement order reinstated the entire case. Quanto correctly asserts that a defendant cannot force a plaintiff to continue an action after it has voluntarily dismissed the suit prior to the defendant's filing a claim for affirmative relief. George v. George, 564 S.W.2d 172, 174 (Tex.Civ.App.Tyler 1978, no writ). However, it is also true that a nonsuit cannot affect a defendant's request for affirmative relief that was pending before the nonsuit was filed. See Orion Inv., Inc. v. Dunaway and Assoc., 760 S.W.2d 371, 374 (Tex.App.Fort Worth 1988, writ denied).
The defendants contend the trial court did not abuse its discretion by reinstating the case because their request for arbitration is affirmative relief under rule 162 that could not be prejudiced by Quanto's right to take a nonsuit. If the defendants had a claim for affirmative relief pending at the time Quanto filed its motion for nonsuit, then the trial court did not abuse its discretion by reinstating the case. See BHP Petroleum Co., 800 S.W.2d at 842.
We must now determine whether the defendants' request for arbitration, which resulted in the trial court's November 1993 arbitration order, is "affirmative relief." If a request for arbitration is "affirmative relief," then the trial court did not abuse its discretion by reinstating the case.
"To qualify as a claim for affirmative relief, a defensive pleading must allege that the defendant has a cause of action, independent of the plaintiff's claim, on which he could recover benefits, compensation or relief, even though the plaintiff may abandon his cause of action or fail to establish it." General Land Office v. OXY U.S.A., Inc., 789 S.W.2d 569, 570 (Tex.1990). If a defendant does nothing more than resist a plaintiff's right to recover, the plaintiff has an absolute right to the nonsuit. BHP Petroleum Co., 800 S.W.2d at 841 (pleading that merely restates defenses in the form of a declaratory judgment action cannot deprive a plaintiff of a nonsuit); General Land Office, 789 S.W.2d at 570 (seeking advisory opinion on constitutionality of statute does not constitute affirmative relief under rule 162).
We have not found any Texas cases, nor have the parties cited any, addressing the issue of whether a request for arbitration is a request for affirmative relief under rule 162. Quanto cites two federal court cases holding a motion to compel arbitration and stay proceedings does not preclude a plaintiff's ability to nonsuit under rule 41 of the Federal Rules of Civil Procedure. Hamilton v. Shearson-Lehman Am. Express, Inc., 813 F.2d 1532, 1534 (9th Cir.1987); Merit Ins. Co. v. Leatherby Ins. Co., 581 F.2d 137, 142-43 (7th Cir.1978). However, the requirements for nonsuit under rule 41 are significantly different from those under TEX. R.CIV.P. 162. Rule 41 provides in part:
[A]n action may be dismissed by the plaintiff without order of court (i) by filing a notice of dismissal at any time before service by the adverse party of an answer or of a motion for summary judgment, whichever first occurs, or (ii) by filing a stipulation of dismissal signed by all parties who have appeared in the action....
(Emphasis added.) Rule 41 does not contemplate the "affirmative relief" requirement essential to Tex.R.Civ.P. 162. Therefore, we *487 find these cases to be of limited value in our determination of this issue.
Whether a pleading is an affirmative claim for relief is determined by the facts alleged and not by the name given the plea or by the form of the prayer for relief. Baca v. Hoover, Bax & Shearer, 823 S.W.2d 734, 737-38 (Tex.App.Houston [14th Dist.] 1992, writ denied). In Baca, the court of appeals determined that a motion for restitution, seeking the return of monies garnished in the absence of an underlying final judgment, was a claim for affirmative relief. Id. The court held the facts alleged in the motion, and not its name, determined whether the motion was a claim for affirmative relief. Id. Similarly, if the defendants asserted facts in their motions to compel arbitration showing a cause of action, then their motions are claims for affirmative relief. See Progressive Ins. Co. v. Hartman, 788 S.W.2d 424, 426 (Tex. App.Dallas 1990, no writ).
In their motions to compel arbitration, the defendants invoke the Texas General Arbitration Act, Tex.Rev.Civ.Stat.Ann. arts. 225 and 235 (Vernon 1973), and the arbitration clause agreed to by the parties in a joint venture agreement. The arbitration clause provides that the parties agree that "all questions as to rights and obligations arising under the terms of this Agreement are subject to arbitration ... and such arbitration shall be governed by the provisions of the Texas General Arbitration Act...."
The Texas General Arbitration Act authorizes a party to initiate a proceeding in the trial court to compel arbitration. Article 225 of the Act provides in part:
Sec. A. On application of a party showing an agreement described in Article 224 of this Act, and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration....
Article 235 of the Act provides:
Sec. A. The jurisdiction of a court may be invoked by the filing with the clerk of that court of an application for the entry by the court of a judgment or decree or order provided for by the terms of this Act. Upon the filing of the initial application... the clerk shall docket the proceedings as a civil action pending in that court.
. . . .
Sec. G. In advance of the institution of any arbitration proceeding, but in aid thereof, an application may be filed for order or orders to be entered by the court, including but not limited to applications: (i) invoking the jurisdiction of the court over the adverse party and for effecting same by service of process on him in advance of the institution of arbitration proceedings... (iv) seeking the appointment of arbitrator or arbitrators so that proceedings before them under the arbitration agreement my proceed; or (v) seeking any other relief, which the court can grant in its discretion, needed to permit the orderly arbitration proceedings to be instituted and conducted and to prevent any improper interference or delay thereof.
The Act authorizes, as an independent cause of action, the invoking of a trial court's jurisdiction to compel arbitration. We find that the defendants' request to compel arbitration is a claim for relief independent of Quanto's causes of action, and therefore, is "affirmative relief" under rule 162. See General Land Office, 789 S.W.2d at 570.
Quanto's nonsuit could not prejudice or affect the defendants' right to be heard on their pending claim for affirmative relief. Tex.R.Civ.P. 162. Therefore, the defendants were entitled to have their claim for arbitration reinstated. The trial court did not abuse its discretion by reinstating the case.
Arbitration Order
Quanto contends that the trial court abused its discretion by ordering all claims against all defendants to arbitration.
Mandamus is an extraordinary remedy, not issued as a matter of right, but at the discretion of the court. Rivercenter Assoc. v. Rivera, 858 S.W.2d 366, 367 (Tex. 1993). Although mandamus is not an equitable remedy, its issuance is largely controlled by equitable principles. Id. One such principle is that "[e]quity aids the diligent and not those who slumber on their rights." Id. (quoting Callahan v. Giles, 137 Tex. 571, 155 S.W.2d 793, 795 (1941)).
*488 Here, the trial court signed the order compelling the parties to arbitration on November 3, 1993. Acting in compliance with the trial court's arbitration order, Quanto designated an arbitrator on January 14, 1994. Quanto waited over 10 months after the trial court ordered arbitration before challenging the order by mandamus. The record reveals no justification for this delay. Rivera, 858 S.W.2d at 367 (leave to file denied where relator delayed for over four months without explanation before asserting its rights in the trial court and by mandamus).
Conclusion
We deny the petition for writ of mandamus.
HUTSON-DUNN, J., dissents.
O'CONNOR, J., requested a vote to determine if the case should be heard en banc, pursuant to Tex.R.App.P. 79(d), (e) and TEX. R.APP.P. 90(e).
COHEN, MIRABAL, WILSON, ANDELL and DUGGAN, JJ., voted against en banc consideration.
TAFT, J., did not participate.
OLIVER-PARROTT, C.J., and HUTSON-DUNN, O'CONNOR and HEDGES, JJ., voted in favor of en banc consideration.
O'CONNOR, J., joined in HUTSON-DUNN's, J., dissent.
HUTSON-DUNN, Justice, dissenting.
I respectfully dissent. I do not agree with the majority's holding that the defendants' motion for arbitration stated a claim for affirmative relief sufficient to preclude Quanto's absolute right to take a nonsuit of its claims.
To state a claim for affirmative relief, a defensive pleading must assert a cause of action, independent of the claims already asserted by the plaintiff, on which the defendant could recover benefits, compensation, or relief, even if the plaintiff abandons its cause of action. General land Office v. OXY U.S.A. Inc., 789 S.W.2d 569, 570 (Tex.1990). Here, the defendants had to have asserted facts in their motion to compel arbitration showing an affirmative claim not already pled by Quanto. Baca v. Hoover, Bax & Shearer, 823 S.W.2d 734, 737-38 (Tex.App.Houston [14th Dist.] 1992, writ denied); see also Progressive Ins. Co. v. Hartman, 788 S.W.2d 424, 426 (Tex.App.Dallas 1990, no writ).
In their motion to compel arbitration, the defendants state that Quanto's claims arise under the joint venture agreement, which provides for arbitration; therefore, they are entitled to have Quanto's claims resolved through arbitration. This assertion alone, in my opinion, is insufficient to state a claim for affirmative relief.
Once Quanto abandoned its claims by filing a nonsuit, no other claims were on file to be resolved by arbitration. The defendants had to assert facts showing a claim not already pled by Quanto to preclude the nonsuit. In this case, arbitration was merely the vehicle for resolving Quanto's claims.
Therefore, I would grant the petition for writ of mandamus and direct the trial court to vacate the May 27, 1994, reinstatement order.
NOTES
[*] Justice Duggan, who retired on December 31, 1994, continues to sit by assignment for the disposition of this case, which was submitted prior to that date.
[1] The defendants and real parties in interest are Petrosakh U.S.A., Inc., Mark McKinley, Steven Wolf, Mike Kerr, Russell Gordy, James Sledge, and Lawrence Glenn.
[2] Rule 162 provides:
At any time before the plaintiff has introduced all of his evidence other than rebuttal evidence, the plaintiff may dismiss a case, or take a non-suit, which shall be entered in the minutes....
Any dismissal pursuant to this rule shall not prejudice the right of an adverse party to be heard on a pending claim for affirmative relief or excuse the payment of all costs taxed by the clerk. A dismissal under this rule shall have no effect on any motion for sanctions, attorney's fees or other costs, pending at the time of dismissal, as determined by the court....
[3] The defendants cite Missouri Pac. R.R. Co. v. Whitaker, 815 S.W.2d 348, 349 (Tex.App.Tyler 1991, orig. proceeding), in which the court of appeals denied mandamus relief to a defendant, finding that the defendant had an adequate remedy by appeal. The defendant sought mandamus relief to have the trial court vacate its order reinstating the plaintiff's case on the plaintiff's motion after the plaintiff took a nonsuit. Id. We find Whitaker distinguishable from this case because the plaintiff's right to take a nonsuit was not at issue. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2506541/ | 394 S.C. 579 (2011)
716 S.E.2d 454
WACHOVIA BANK, National Association, Respondent,
v.
William E. BLACKBURN, Judith Blackburn, Tammy S. Winner, Watson E. Felder, Gary F. Ownbey, and South Island Plantation Association, Inc., Defendants,
Of Whom William E. Blackburn and Judith Blackburn are, Appellants.
No. 4874.
Court of Appeals of South Carolina.
Heard April 5, 2011.
Decided August 24, 2011.
Rehearing Denied October 21, 2011.
*581 Glenn V. Ohanesian, of Myrtle Beach, for Appellant.
Robert C. Byrd and Krista McGuire, both of Charleston, for Respondent.
LOCKEMY, J.
In this mortgage foreclosure action, William and Judith Blackburn appeal the circuit court's order granting Wachovia's motion to strike their jury trial demand. We affirm in part and reverse in part.
FACTS/PROCEDURAL BACKGROUND
On February 14, 2006, William Blackburn delivered a promissory note (the note) to Wachovia in the amount of $463,967 to finance the purchase of "investment property" (the property) in South Island Plantation, a Georgetown County planned development. The note was secured by a mortgage on the property executed by William Blackburn, Judith Blackburn, Tammy Winner, and Watson Felder. Judith Blackburn, Winner, and Felder also executed personal guaranties to secure the note.[1] The note and each of the guaranties contained waiver of jury trial provisions. The note signed by William Blackburn contained the following jury trial provision:
WAVIER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF BORROWER BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND *582 INTENTIONALLY WAIVES ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO ACCEPT THIS NOTE. . . .
(bold and capitalization in original, font size not to scale). The guaranty signed by Judith Blackburn contained the following jury trial provision:
WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF GUARANTOR BY EXECUTION HEREOF AND BANK BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT EACH MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO ACCEPT THIS GUARANTY. . . .
(bold and capitalization in original, font size not to scale).
On November 13, 2008, Wachovia filed this foreclosure action against the Blackburns, Winner, and Felder, asserting the note was in default and it was entitled to a judgment against the defendants in the amount of $473,747.24. In response, the Blackburns filed a second amended answer, counterclaim, cross-claim, and third-party complaint in which *583 they asserted claims against Wachovia and several third-party defendants.[2] The Blackburns asserted the following counterclaims against Wachovia: (1) negligent misrepresentation, (2) unfair trade practices, (3) promissory estoppel, (4) breach of contract/breach of contract accompanied by a fraudulent act, (5) breach of fiduciary duty, (6) fraud/fraud in the inducement, (7) breach of contract/negligence, (8) breach of contract, (9) civil conspiracy, and (10) illegality of contract. The Blackburns alleged Wachovia partnered with the third-party defendants[3] to promote and sell the property at a "high pressure" sales event which included a lottery. According to the Blackburns, Wachovia and the third-party defendants defrauded buyers by artificially inflating property values and making misrepresentations regarding the construction of amenities in the development. The Blackburns demanded a jury trial.
On June 18, 2009, Wachovia filed a motion to strike the Blackburns' jury trial demand and refer the case to the master-in-equity. Wachovia argued the Blackburns waived their right to a jury trial in the note and guaranty. In a memorandum opposing Wachovia's motion to strike, the Blackburns alleged (1) there was not a knowing and voluntary waiver, (2) the language of the waivers did not apply to their counterclaims, (3) the waivers were unconscionable, and (4) the circuit court could order a jury trial in its discretion pursuant to Rule 39(b), SCRCP. In a December 7, 2009 order, the circuit court granted Wachovia's motion, finding the jury trial waivers in the note and guaranty were clear and unambiguous and the Blackburns' counterclaims were within the scope of the waivers. The circuit court held the Blackburns were charged with having read the contents of the note and guaranty and were on notice of the jury trial waivers. The circuit court found the Blackburns' Rule 39(b), SCRCP, argument was without merit, and referred the action to the master. This appeal followed.
*584 STANDARD OF REVIEW
"A mortgage foreclosure is an action in equity." U.S. Bank Trust Nat. Ass'n v. Bell, 385 S.C. 364, 373, 684 S.E.2d 199, 204 (Ct.App.2009). "In an appeal from an action in equity, tried by a judge alone, we may find facts in accordance with our own view of the preponderance of the evidence." Id. "Whether a party is entitled to a jury trial is a question of law." Verenes v. Alvanos, 387 S.C. 11, 15, 690 S.E.2d 771, 772 (2010). "An appellate court may decide questions of law with no particular deference to the [circuit] court." Id. at 15, 690 S.E.2d at 772-73.
LAW/ANALYSIS
I. Knowing and Voluntary Waiver
The Blackburns argue they did not knowingly and voluntarily waive their right to a jury trial. We disagree.
The Blackburns contend there is no evidence in the record they had actual knowledge of the waivers. They maintain the only evidence regarding whether they knowingly and voluntarily waived their right to a jury trial is their affidavit. In their affidavit, the Blackburns asserted they did not knowingly, voluntarily, or intentionally waive their right to a jury trial and were "not aware of any jury trial waiver" until Wachovia's motion to strike jury demand. In their brief, the Blackburns rely on Leasing Service Corp. v. Crane, 804 F.2d 828 (4th Cir.1986) to support their contention that a party seeking the enforcement of a waiver must prove that consent was both voluntary and informed. The Blackburns note the Crane court cited National Equipment Rental Ltd. v. Hendrix, 565 F.2d 255 (2d Cir.1977), wherein the Second Circuit affirmed a finding that a provision whereby a lessee waived a jury trial buried in the eleventh paragraph of a fine print, 16-clause agreement did not constitute a knowing and intelligent waiver of the lessee's right to a jury trial.
Wachovia argues that by signing the note and guaranty, the Blackburns are deemed to have read the documents and cannot avoid their effects by arguing otherwise. Wachovia maintains it did not have a duty to ensure the Blackburns had read and understood the terms of the note and guaranty. *585 Wachovia further contends the waivers are conspicuous, the note and guaranty are not lengthy documents, and there is no evidence the Blackburns are unsophisticated or were incapable of understanding the note and guaranty.
We agree with Wachovia. First, we note that while the Blackburns rely on federal case law in their brief, a parties' right to a jury trial in South Carolina is governed by state law. See Pelfrey v. Bank of Greer, 270 S.C. 691, 693, 244 S.E.2d 315, 316 (1978) (holding the Seventh Amendment to the United State Constitution is not applicable to the States).
We do not believe the Blackburns can avoid the waivers in the note and guaranty by arguing they were not knowing and voluntary. "A party may waive the right to a jury trial by contract." Beach Co. v. Twillman, Ltd., 351 S.C. 56, 63, 566 S.E.2d 863, 866 (Ct.App.2002). "Such a waiver must be strictly construed as the right to trial by jury is a substantial right." Id. at 64, 566 S.E.2d at 866. "When a contract is unambiguous a court must construe its provisions according to the terms the parties used, understood in their plain, ordinary, and popular sense." S.C. Farm Bureau Mut. Ins. Co. v. Oates, 356 S.C. 378, 381, 588 S.E.2d 643, 645 (Ct.App.2003). "A person who signs a contract or other written document cannot avoid the effect of the document by claiming he did not read it." Regions Bank v. Schmauch, 354 S.C. 648, 663, 582 S.E.2d 432, 440 (Ct.App.2003). "A person signing a document is responsible for reading the document and making sure of its contents." Id. "Every contracting party owes a duty to the other party to the contract and to the public to learn the contents of a document before he signs it." Id. "One who signs a written instrument has the duty to exercise reasonable care to protect himself." Id. at 665, 582 S.E.2d at 440. "The law does not impose a duty on the bank to explain to an individual what he could learn from simply reading the document." Id.
Here, the waivers are conspicuous and unambiguous. They are printed in all capital letters with the bold heading, "WAIVER OF JURY TRIAL." Furthermore, the note and guaranty are not lengthy documents and the waivers contained therein are not buried within the language of other provisions. Rather, the waivers are contained in separate *586 paragraphs located just above the signature lines. By signing the note and guaranty, the Blackburns are charged with having read their contents, and therefore, they cannot avoid their effects by arguing they were unaware of the inclusion of the waivers. See Regions Bank, 354 S.C. at 663, 582 S.E.2d at 440 ("A person who signs a contract or other written document cannot avoid the effect of the document by claiming he did not read it."); see also Id. ("Every contracting party owes a duty to the other party to the contract and to the public to learn the contents of a document before he signs it."). Accordingly, we find the jury trial waivers are enforceable.
II. Applicability
The Blackburns argue the jury trial waivers in the note and guaranty do not apply to their counterclaims. We agree.
Pursuant to the note and guaranty, the waivers at issue apply to
any litigation based on, or arising out of, under or in connection with this note [or guaranty], the loan documents or any agreement contemplated to be executed in connection with this note [or guaranty], or any course of conduct, course of dealing, statements (whether verbal or written) or actions of any party with respect hereto.
The Blackburns allege that while their counterclaims arise out of the same occurrence as the note, they do not arise out of the loan documents as required by the waivers. Pursuant to the note, "loan documents"
refers to all documents executed in connection with or related to the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and any letters of credit issued pursuant to any loan agreement to which this Note is subject, any applications for such letters of credit and any other documents executed in connection therewith or related thereto, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or *587 modifications, whenever any of the foregoing are executed, but does not include swap agreements.
The Blackburns contend their counterclaims arise from Wachovia's sales misrepresentations and failure to abide by promises to build infrastructure, amenities, and docks, and do not arise from the loan documents.[4] They maintain the definition of "loan documents" does not include sales contracts, deeds, promotional literature from the developer/seller, lottery procedure, or promises regarding docks and amenities and infrastructure. They also assert their counterclaims do not arise from the note, mortgage, loan application, financing statements, letters of credit, or any of the loan documents defined above. The Blackburns further argue the allegations of sales misrepresentations in their counterclaims are unrelated to the note, and thus, not subject to the waivers. The Blackburns rely heavily on Aiken v. World Finance Corp. of South Carolina, 373 S.C. 144, 644 S.E.2d 705 (2007) and Partain v. Upstate Automotive Group, 386 S.C. 488, 689 S.E.2d 602 (2010), two supreme court cases involving arbitration agreements, to support their argument.
Aiken involved a tort action based on the theft of Aiken's personal information by employees of World Finance. 373 S.C. at 146, 644 S.E.2d at 706. In Aiken, World Finance sought to enforce an arbitration clause to which Aiken had agreed in applying for a loan. Id. at 147, 644 S.E.2d at 707. The Aiken court found that "even the most broadly-worded arbitration agreements still have limits founded in general principles of contract law," and therefore, the court "will refuse to interpret any arbitration agreement as applying to outrageous torts that are unforeseeable to a reasonable consumer in the context of normal business dealings." Id. at 151, 644 S.E.2d at 709. The court provided that it did not seek to exclude all intentional torts from the scope of arbitration, but only "those outrageous torts, which although factually related to the performance of the contract, are legally distinct from the contractual relationship between the parties." Id. at 152, 644 S.E.2d at 709. The Aiken court found the theft of Aiken's *588 personal information by World Finance employees to be unanticipated and unforeseeable tortious conduct that was not within the scope of the arbitration agreement. Id. at 151, 644 S.E.2d at 709.
In Partain, Partain alleged Upstate Auto fraudulently replaced the truck he purchased with a different truck at the time of pick-up. 386 S.C. at 490, 689 S.E.2d at 603. Partain filed suit against Upstate Auto alleging he was the victim of a "bait and switch" in violation of the South Carolina Unfair Trade Practices Act. Id. Based on an arbitration agreement, Upstate Auto moved to dismiss Partain's claim. Id. The Partain court found Aiken was controlling and concluded the arbitration clause did not apply because "the alleged actions of Upstate Auto constituted `illegal and outrageous acts' unforeseeable to a reasonable consumer in the context of normal business dealings." Partain, 386 S.C. at 493, 689 S.E.2d at 604-05. Our supreme court noted Partain could not be held to have foreseen that Upstate Auto, after completing a sale, would substitute an entirely different vehicle in place of the truck he had agreed to purchase. Id. at 494, 689 S.E.2d at 605. Moreover, the court found Partain could not have "contemplated that, in signing the arbitration clause, he was agreeing to arbitrate claims arising from allegedly fraudulent conduct." Id.
Similarly, the Blackburns argue they cannot be held to have contemplated that, in signing the note and guaranty, they were agreeing to waive jury trial claims arising from allegedly fraudulent conduct. They contend that a reasonable person attempting to secure a loan from a bank could not foresee that the bank would partner with the developer/seller and make misrepresentations about the property and the construction of amenities.
Wachovia asserts the Blackburns' counterclaims are within the scope of the waivers because their claims concern Wachovia's "course of conduct," "course of dealing," "actions," and "statements" with respect to the loan transaction. Wachovia maintains the counterclaims arise out of the note because the Blackburns allege Wachovia, as part of its course of dealing, made misrepresentations to induce them to enter into the loan. Wachovia notes the Blackburns allege the marketing of *589 the property, the sale of the lots, and the provision of Wachovia loans were all part of a single transaction orchestrated by a partnership between Wachovia and the developers. Wachovia also alleges the Blackburns' counterclaims arise out of the property sales contract, which is an "agreement contemplated to be executed in connection with the note" and guaranty. Wachovia maintains our supreme court's holdings in Aiken and Partain (1) do not apply outside of the context of arbitration agreements, (2) apply only to consumer transactions, and (3) the Blackburns have not alleged any "outrageous" conduct like that which was excepted in Aiken and Partain.
We do not believe the allegations of sales misrepresentations and prepurchase fraud by the Blackburns are sufficiently related to the note, and thus, we do not believe they are subject to the waivers. Jury trial waivers are a substantial right and must be strictly construed. Beach Co., 351 S.C. at 64, 566 S.E.2d at 866. Pursuant to the note and guaranty, the waivers apply to "any litigation based on, or arising out of, under or in connection with [the] note, the loan documents or any agreement contemplated to be executed in connection with [the] note." First, we find the Blackburns' counterclaims are not based on nor do they arise out of the note. The Blackburns' claims are based on the sales contract, the promotional literature regarding the development, the lottery procedure, and the promises made regarding amenities. Second, we find the Blackburns' claims are not based on or arise out of the loan documents. The definition of "loan documents" does not include sales documents, and the sales documents were not "executed in connection with or related to the loan" as required by the definition. Third, we find the sales contract was not an "agreement contemplated to be executed in connection with [the] note," as it was executed months prior to the note. Finally, we find the waivers do not apply to "any course of conduct, course of dealing, statements (whether verbal or written) or actions of any party with respect [to the note]." We note this clause refers to conduct and actions with respect to the note and does not refer to the sales transaction.
Furthermore, the Blackburns could not have contemplated that in signing the note and guaranty, they were waiving their right to a jury trial on claims arising from allegedly fraudulent conduct. See Aiken, 373 S.C. at 151, 644 S.E.2d at 709 *590 (holding the theft of Aiken's personal information by World Finance employees was unanticipated and unforeseeable tortious conduct that was not within the scope of the arbitration agreement); see also Partain, 386 S.C. at 494, 689 S.E.2d at 605 (holding Partain could not have contemplated that, in signing the arbitration clause, he was agreeing to arbitrate claims arising from allegedly fraudulent conduct).[5] We find a reasonable buyer would not contemplate that a bank would partner with a developer/seller and make misrepresentations about a property and the construction of amenities. The Blackburns' counterclaims arise out of the alleged pre-sale misrepresentations and fraud of Wachovia, and not out of the note. Although the waivers are enforceable with regard to claims arising from the note, we find the Blackburns' allegations of sales misrepresentations and pre-purchase fraud are not within the scope of the waivers. Accordingly, applying a strict construction of the language of the waivers, we find they are unenforceable with regard to the Blackburns' counterclaims.[6]
CONCLUSION
We affirm the circuit court's determination that the Blackburns knowingly and voluntarily waived their right to a jury trial. However, we reverse the circuit court's determination that the Blackburns' counterclaims were within the scope of the waivers.[7]
AFFIRMED IN PART AND REVERSED IN PART.
WILLIAMS and GEATHERS, JJ., concur.
NOTES
[1] On October 12, 2007, Felder conveyed his interest in the property to Gary Ownbey.
[2] The Blackburns filed their original answer on February 2, 2009, and amended answer, counterclaim, cross-claim, and third party complaint on February 13, 2009.
[3] The third-party defendants included Winyah Bay Holdings, LLC; Source One Properties, LLC; and Waterpointe Realty, LLC.
[4] The Blackburns maintain Wachovia "injected itself into the marketing and sale of [the] property . . ., became a joint venturer or partner, and is therefore equally liable for sales misrepresentations made and failures to provide infrastructure, amenities, docks, etc."
[5] While Aiken and Partain involve arbitration agreements and not jury trial waivers, we believe they are instructive.
[6] We note this opinion does not preclude the circuit court, after appropriate discovery and/or testimony, from striking any or all of these counterclaims as insufficient and, if appropriate, referring any remaining equitable matters to the master-in-equity.
[7] Based upon our reversal of the circuit court's order granting Wachovia's motion to strike jury demand, we need not address the remaining issues on appeal. See Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 613, 518 S.E.2d 591, 598 (1999) (holding an appellate court need not review remaining issues when its determination of a prior issue is dispositive of the appeal). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2449080/ | 425 S.W.2d 818 (1968)
UVALDE ROCK ASPHALT COMPANY et al., Relators,
v.
Walter LOUGHRIDGE, District Judge et al., Respondents.
No. B-649.
Supreme Court of Texas.
March 6, 1968.
Dobbins, Howard & Harris, William P. Dobbins, San Antonio, for relators.
Clemens, Knight, Weiss & Spencer, Theodore F. Weiss, Denman, Franklin & Denman, San Antonio, for respondents.
*819 SMITH, Justice.
Relators, Uvalde Rock Asphalt Company, H. Randolph Brown, president of the Company, and William K. Clark, secretary of the Company, brought this original mandamus proceeding in this Court to have the trial judge expunge from the record an order for discovery. The sole question before us is whether the trial judge so abused his discretion as to render void his order for discovery which has deprived the Relators of a jury trial on the issue of whether a stockholder has a proper purpose in requesting the right to inspect the records of the corporation. We hold that the Relators' pleadings show that they are entitled to a jury trial on this issue for the reasons to be stated later in this opinion.
A statement of the events leading up to the filing of this proceeding is in order. Respondents, John H. White, Joella White Bitter et vir, and Evelyn White Thomson et vir, Individually and as Independent Executors and Trustees under the wills of Ethel S. White, Deceased, and R. L. White, Deceased, partners doing business under the names "R. L. White Co." and "R. L. White," hereinafter referred to as the Whites, shareholders of record of Uvalde Rock Asphalt Company, made a written demand to inspect the books and records of Uvalde Rock Asphalt Company. The Company, by letter, refused to permit the Whites to inspect the books because "the purposes of the demand, as outlined * * are not proper and to accede to same would not be to the best interest of the Company and its Stockholders."
WHITES' SUIT IN THE TRIAL COURT FOR MANDAMUS
The refusal of the Company to permit the Whites to inspect the books precipitated the filing of a suit in the trial court by the Whites wherein they sought a writ of mandamus to compel the Company to allow the Whites "immediate access to all books, records, minutes, records of shareholders and other books and records of [the Company]." The Whites alleged in their mandamus petition that they were stockholders of record and had been for more than six months, owned over five per cent of the stock in the Company, and had proper purposes for wanting to inspect the books; thereby complying with the requirements for inspection of the books by a shareholder as established by Art. 2.44, V.A.T.S. Bus. Corp. Act. The purposes given in the request for inspection were as follows:
"The proper purposes of such examination are: a determination of the causes and reasons for the precipitous decline in profits of the corporation; to assist and help the management of the corporation to reverse the adverse trend of the company's business and operations during recent years; to ascertain the unprofitable aspects of the company's business and operations; to examine generally into all expenditures in order to determine their reasonableness and wisdom; to determine whether excessive compensation is being paid to officers, directors or others close to management; to determine the extent to which stockholders have participated in stockholders' meetings and action taken at such stockholders' meetings, and generally to inquire into the details of the corporation's operations and practices for the purpose of protecting their investment."
THE COMPANY'S ANSWER
The Company filed an answer in which it alleged facts showing a long but disagreeable relationship between the Whites and Uvalde Rock Asphalt Company. According to the answer, the Whites had improper purposes for wanting to inspect the books; they sought information in order to obtain a competitive advantage in the area in which the Whites and the Company were competitors and in order to be able to continue a program of studied harassment of Uvalde Rock Asphalt Company. According to the Company, the Whites sought to force the Company either to purchase the Whites' stock in the Company *820 at a grossly inflated price or to sell to the Whites all of the Company's asphalt producing land at a grossly inadequate price. After filing this answer, the Company made a demand for a jury trial on the issue of whether the Whites had proper purposes in seeking to inspect the Company's books.
THE WHITES' MOTION FOR DISCOVERY
Thereafter, and before a trial of the alleged proper purpose issue, the Whites filed a motion for discovery requesting the right to inspect fourteen named items, comprising virtually all of the books and records of the Company. According to the Whites, these records constituted and contained evidence material to the matter involved in this action, and good cause existed for such motion. The Company filed a motion to strike the Whites' motion for discovery on the grounds that if the motion were granted, the Whites would be (in effect) awarded substantially all of the relief sought by them in the main suit and the Company would be denied their constitutional right to a trial by jury on the fact issues raised by their answer. The trial judge granted the motion for discovery and ordered that the Whites be allowed to inspect all fourteen items mentioned in the motion for discovery. The order of the court provided that the Company would not be required to produce and permit the inspection of books, accounts and other material pertaining to the rock asphalt phase of the Company's business. However, "in the event the [Company] is unable to separate and segregate the books, accounts and other records pertaining to its rock asphalt business, the [Company] is ORDERED to produce and permit the inspection of the complete records and accounts of the [Company]."
THE COMPANY'S ACTION IN THIS COURT
Relators filed a petition for writ of mandamus in the Court of Civil Appeals of the Fourth Supreme Judicial District to require Judge Loughridge to expunge his Order of Discovery. The court of civil appeals dismissed the petition for want of jurisdiction. Thereafter, Relators filed an original action in this Court pursuant to Article 1733, Vernon's Annotated Civil Statutes, seeking to have this Court issue a Writ of Mandamus ordering the respondent, Judge Walter Loughridge, to set aside his Order of Discovery as being void and to allow said case to proceed to trial.
Art. 2.44, V.A.T.S. Bus.Corp. Act, provides that any shareholder of record who meets certain qualifications shall have the right to examine "for any proper purpose" the books and records of the Company. A method for the enforcement of the right of inspection or examination of the books and record of a corporation is by mandamus. Moore v. Rock Creek Oil Corporation, 59 S.W.2d 815, 817 (Tex. Comm'n App.1933, jdgmt. adopted); 5 Fletcher Cyc. Corp. § 2251 (perm. ed. rev. repl. 1967). A mandamus action is a civil suit and is generally regulated by the same rules of procedure as other civil actions. Although the right to a jury trial does not exist in all situations where mandamus is applicable, it does exist in the situation where a corporation, in resisting a stockholder's attempt to inspect the books and records, raises by its pleadings a fact issue over whether the stockholder has a proper purpose for wanting to see the books. See Guaranty Old Line Life Co. v. McCallum, 97 S.W.2d 966 (Tex.Civ.App.1936, no writ) and Roberts v. Munroe, 193 S.W. 734 (Tex. Civ.App.1917, writ dism'd). In our view, the Company has raised a fact issue over whether the Whites had a proper purpose to inspect the Company's books. Judge Loughridge, in granting the Whites' motion for discovery, has deprived Relators of a jury trial on the issue of proper purpose since the Whites will receive through the order allowing discovery all of the relief sought in the main suit. Relators are entitled to a writ of mandamus ordering the trial judge to expunge his order for discovery. *821 In so holding, we are not passing upon the merits of the issues drawn by the pleadings in the Whites' suit.
We are certain that the trial judge will proceed in accordance with the law as we have held it to be in this opinion without the necessity of the actual issuance of a writ of mandamus, but in the event he should fail to so proceed, the Clerk will issue the necessary writ so as to render effective the judgment of this Court. All costs are assessed against respondents, John H. White, Joella White Bitter et vir, and Evelyn White Thomson et vir. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2545573/ | 26 So. 3d 1001 (2009)
In re Jada Dean SUTTLE (Private Adoption), Plaintiff-Appellee.
v.
Marcus EASTER, Defendant-Appellant.
No. 45,236-JAC.
Court of Appeal of Louisiana, Second Circuit.
December 10, 2009.
Writ Denied January 19, 2010.
*1002 Rachel King, for Appellant, Marcus Easter.
Kimberly S. Smith, for Appellee, Jada Dean Suttle.
Jerald N. Jones, for the Child.
Before BROWN, STEWART, CARAWAY, MOORE and LOLLEY, JJ.
CARAWAY, J.
This private adoption proceeding was brought by the stepfather of a three-year-old after the death of the child's mother. After receiving notice of the proceeding, the biological father opposed the adoption, and a contest over his parental rights ensued with the plaintiff claiming that the biological father had never manifested a substantial commitment to the child. The juvenile court agreed with the plaintiff and terminated the parental rights of the father. For the following reasons, we affirm.
Facts
On May 15, 2009, Jada Dean Suttle initiated proceedings for the private adoption of A.D., the biological daughter of Suttle's recently deceased wife, April. A.D. was born on May 15, 2006, and her birth certificate does not identify anyone as her biological father. Suttle and April were married five months later on October 14, 2006, and Suttle assumed the duties of parenting the minor child. On November 25, 2008, April, who was predeceased by her parents and had no siblings, died leaving no will designating a tutor or guardian for the minor child. The child has remained in Suttle's physical custody since April's death.
The adoption petition requested that notice of the proceedings be given to Marcus Easter, the alleged biological father of A.D., but asserted that his consent to the adoption was unnecessary due to his failure to take any steps to establish his parental rights. The court entered an order placing the minor child in the interim custody of Suttle during the pendency of the proceedings and set the adoption hearing for July 6, 2009. At the hearing, Easter made an appearance in proper person and requested DNA testing to determine paternity. The court ordered the testing, appointed an attorney to represent the *1003 child and reset the matter for further hearings.
On August 24, 2009, newly enrolled counsel for Easter filed an opposition to the adoption asserting DNA testing results which indicated a 99.999% probability of his paternity. Easter alleged that his attempts to locate April had been unsuccessful and that he had temporarily paid for the child's care until he learned that another man was claiming to be the father. Lastly, the opposition alleged that a 2007 paternity and child support suit filed by April had been dismissed.
Trial of Easter's opposition occurred on October 9, 2009, in what the court minutes reflect as a closed courtroom. Easter testified that he is 36 years old, has recently taken employment as a quality assurance supervisor for Game Stop, and has an annual income of approximately $50,000. He has never been married and has a family support system in both the Shreveport-Bossier and Dallas areas. He testified that once he received confirmation that he was the child's biological parent he contacted a pediatrician, visited a daycare center near his home and made arrangements to enroll A.D. in their preschool program, and moved from a one-bedroom to a two-bedroom apartment. He also indicated his willingness to assume parental responsibility for the child.
Easter testified that he and April met at a party in October of 2005 at the home of Brian Jackson, a mutual friend. Easter and April left the party together, went to Easter's residence and had sexual intercourse. Three weeks later, April phoned Easter to tell him that she was pregnant. At approximately six weeks of pregnancy, Easter went to visit April in the hospital where she told him that she suffered from Crohn's disease. He saw her once more. In January of 2006 he moved from Shreveport to Mesquite, Texas. Easter testified that April called him on May 16, 2006, to tell him that A.D. had been born the previous day. Easter first saw the baby on the weekend of July 4, 2006, when he took her to meet his family.
Easter asserts that he asked April to submit to DNA tests to confirm his paternity both before and after the birth. He claimed that although she agreed, she never made herself or the baby available. Easter also testified that after he returned to Mesquite, he sent April a money order. The amount of the money order, however, was not revealed. Sometime later he sent her a check but stopped payment on it before April had an opportunity to cash it. He did so because his sister told him that another man was claiming to be her father which caused him to question his paternity.[1]
Easter also filed in evidence certain pleadings from a November 2006 "Petition to Determine and/or Declare Paternity and to Establish Child Support" filed by the Louisiana Department of Social Services, on behalf of the minor child seeking a judgment against Easter establishing paternity and child support. The petition alleged that April and Easter "maintained a sexual relationship during 2005" which resulted in the conception and birth of the child.
Easter filed a handwritten answer and admitted to having had a sexual "relationship" with April and to knowledge of both the pregnancy and birth of the baby. *1004 Easter did not deny being the father of the child, but requested a DNA test to confirm paternity. The parties filed a joint motion for paternity testing and an order signed on April 19, 2007, directed April, Easter and A.D. to submit to the collection of tissue samples for DNA testing. No other pleadings from the action which may have occurred were offered into evidence. Easter testified that he submitted to the DNA testing at the designated location in Dallas, Texas, but on or around May 7, 2007, received a letter from Support Enforcement Services which read in pertinent part as follows:
Dear MARCUS EASTER:
Your child support case with the above referenced person has been closed with the Agency.
If you are under obligation to pay child support, any future child support payments should be paid directly to the custodial parent.
The termination of your obligation through this office does not exempt you from making child support payments. You should contact the custodial parent and/or your attorney to determine what actions you should take in the future.
Easter testified that the letter caused him to believe that April knew or was not sure whether he was the father, although he admitted that he had no direct communication with April about the support action at that time. He also claimed that he called support enforcement and was told that the letter meant "nothing" and that he did not have to do anything further. Easter admitted that he never consulted with or hired an attorney to investigate the paternity issue any further. When asked why he took no affirmative steps to resolve his confusion over paternity, Easter referred only to his failed attempts to contact April to request DNA testing.[2]
After considering the testimony and evidence, the trial judge ruled that Easter had not established his parental rights because he failed to establish a substantial commitment to his parental responsibility as required by La. Ch.C. art. 1138 (hereinafter "Article 1138"). Because of April's actions in informing Easter of his paternity before and after the child's birth, the trial court ruled that Easter "knew at a very early stage that there was a significant possibility that [he] had fathered a child." In a written judgment, the court terminated Easter's rights per La. Ch.C. art. 1138(D) and certified A.D. for adoption. The instant appeal followed.
Law
Louisiana recognizes three types of adoptions: agency adoptions, private adoptions and intra-family adoptions. La. Ch.C. art. 1170. The matter before us is a private adoption which is governed by Title XII, Chapter 10 of the Children's Code. La. Ch.C. arts. 1221, et seq. La. Ch.C. art. 1221 reads as follows:
A single person, eighteen years or older, or a married couple jointly may petition to privately adopt a child. When one joint petitioner dies after the petition has been filed, the adoption proceedings may continue as though the survivor was a single original petitioner.
Additionally, La. Ch.C. art. 1224 provides as follows in relevant part:
*1005 C. If the adoption petition names an alleged or adjudicated father and his parental rights have not been terminated by a court of competent jurisdiction, he shall be served with notice of the filing of the petition in accordance with Articles 1133, 1134, and 1136 and thereafter, his rights shall be determined in accordance with the provisions of Articles 1137 through 1143.
In keeping with these provisions from Chapter Ten, the trial court applied Articles 1137[3] and 1138 of the Children's Code for the adjudication of Easter's parental rights. Article 1138 of the Children's Code provides as follows:
A. At the hearing of the opposition, the alleged or adjudicated father must establish his parental rights by acknowledging that he is the father of the child and by proving that he has manifested a substantial commitment to his parental responsibilities and that he is a fit parent of his child.
B. Proof of the father's substantial commitment to his parental responsibilities requires a showing, in accordance with his means and knowledge of the mother's pregnancy or the child's birth, that he either:
(1) Provided financial support, including but not limited to the payment of consistent support to the mother during her pregnancy, contributions to the payment of the medical expenses of pregnancy and birth, or contributions of consistent support of the child after birth; that he frequently and consistently visited the child after birth; and that he is now willing and able to assume legal and physical care of the child.
(2) Was willing to provide such support and to visit the child and that he made reasonable attempts to manifest such a parental commitment, but was thwarted in his efforts by the mother or her agents, and that he is now willing and able to assume legal and physical care of the child.
C. The child, the mother of the child, and the legal custodian may offer rebuttal evidence limited to the issues enumerated in Paragraphs A and B of this Article. However, the primary consideration *1006 shall be, and the court shall accept evidence concerning, the best interests of the child.
D. If the court finds that the alleged or adjudicated father has failed to establish his parental rights, it shall decree that his rights are terminated.
E. If the court finds that the alleged or adjudicated father has established his parental rights, the court shall declare that no adoption may be granted without his consent. The court may also order the alleged or adjudicated father to reimburse the department, or the licensed private adoption agency, or other agency, or whoever has assumed liability for such costs, all or part of the medical expenses incurred for the mother and the child in connection with the birth of the child.
Although an unwed father's biological link to his child does not, in and of itself, guarantee him a constitutional stake in his relationship with that child, such a link combined with a substantial parent-child relationship will do so. When an unwed father demonstrates a full commitment to the responsibilities of parenthood and an ability to participate beneficially in the rearing of his child, his interest in personal contact with his child acquires substantial protection under the state and federal due process clauses. State in the Matter of R.E., 94-2657 (La.11/9/94), 645 So. 2d 205; In re Adoption of B.G.S., 556 So. 2d 545 (La.1990), citing Lehr v. Robertson, 463 U.S. 248, 103 S. Ct. 2985, 77 L. Ed. 2d 614 (1983); Caban v. Mohammed, 441 U.S. 380, 99 S. Ct. 1760, 60 L. Ed. 2d 297 (1979); Quilloin v. Walcott, 434 U.S. 246, 98 S. Ct. 549, 54 L. Ed. 2d 511 (1978); Stanley v. Illinois, 405 U.S. 645, 92 S. Ct. 1208, 31 L. Ed. 2d 551 (1972).
Under the statutory scheme implementing these principles, the unwed father is afforded notice and a hearing at which he has an opportunity to demonstrate his biological link and substantial relationship with the child. La. Ch.C. arts. 1130-1143; State in the Matter of R.E., supra. In accordance with the Louisiana Supreme Court's decision in In re Adoption of B.G.S., supra, the statutes (La. Ch.C. arts. 1137-1138) contemplate that the unwed father's constitutionally protected interest in a parent-child relationship does not come into existence until the father demonstrates his fitness for parental responsibilities, commitment to those responsibilities, concrete actions taken to grasp his opportunity to be a father, and the potential for him to make a valuable contribution to the child's development. The burden of proof is upon the putative father to show the preservation of his opportunity to establish parental rights by proving these interrelated elements by a preponderance of the evidence. La. Ch.C. art. 1138; State in the Matter of of R.E., supra. If the father carries this burden, his parental rights become established, no adoption may be granted without his consent, and custody of the child will be granted to him. Id. If the father fails to carry this burden, his parental rights are not brought into existence, and the court shall decree that the father's rights to oppose the adoption are terminated. Id.
The biological father does not necessarily have a fully established protected right to a parental relationship with his child until he demonstrates his fitness and commitment according to the standards provided by the law and our decisions. Due process guarantees him notice, hearing and an adequate opportunity to make such a showing; it does not require, however, that he be presumed fit and committed to parental responsibilities or that the burden of proving otherwise be allocated to the parties supporting the surrender *1007 and adoption of the child. State in the Matter of R.E., supra.
It is well settled that an appellate court cannot set aside a juvenile court's findings of fact in the absence of manifest error or unless those findings are clearly wrong. In re A.J.F., 00-0948 (La.6/30/00), 764 So. 2d 47. "Where there is conflicting testimony, reasonable evaluations of credibility and reasonable inferences of fact should not be disturbed upon review, even when the appellate court may feel that its own evaluations and inferences are as reasonable as those of the trial court." In re A.J.F., supra; Rosell v. ESCO, 549 So. 2d 840 (La.1989); Arceneaux v. Domingue, 365 So. 2d 1330 (La.1978). Where the fact finder is presented with two permissible views of the evidence, the fact finder's choice between them is not clearly wrong. Id.
Substantial commitment and parental fitness are factual findings that are entitled to deference unless the trial court is clearly wrong. In re Adoption of J.L.G., 01-0269 (La.App. 1st Cir.2/21/01), 808 So. 2d 491, citing In re A.J.F., supra.
Discussion
Easter's argument to the trial court and this court effectively admits his failure to have complied with the financial and emotional support requisites of Article 1138(B)(1). He does not claim that he ever "manifested a substantial commitment to his parental responsibilities" to the child during the child's life of three years before commencement of this action after the mother's untimely death. Instead, Easter attempted to prove under Article 1138(B)(2) that "he made reasonable attempts to manifest such a parental commitment, but was thwarted in his efforts by the mother."
The tests of Article 1138(B)(2) concern actions of both the father and the mother that may or may not lead the father to understand that he is the child's father and to accept his parental responsibilities. In this case, regarding the mother's actions, the most important fact is April's assertion to Easter before and after the child's birth that she believed him to be the father. Easter did not testify that he was ever told by April anything other than that he was the father. The consistency of April's claim when coupled with Easter's knowledge of their sexual encounter represents a strong proof of his paternity even though it is not the equivalent of the DNA testing that ultimately occurred. Article 1138(B)(2), however, does not require a DNA test. As to the mother, it requires that she not "thwart" an understanding that he is the father or his efforts to fulfill his parental commitment. In this case, April did not "thwart" Easter's understanding of her pregnancy and his probable paternity by her silence. Instead, she informed him of her well-founded belief that he was the father. Accordingly, from Easter's own testimony, he shows that April did exactly what the law expected of her. The parental rights he now belatedly claims were allowed by April to be exercised by Easter beginning at the child's birth, and he did not act.
In contrast to the directive to the mother under Article 1138(B)(2), the father is charged affirmatively to make reasonable efforts to begin performance of his parental commitment. That effort regarding financial support is shown under Article 1138 to begin during the pregnancy. With this in mind, the first significant period of action (and inaction) of Easter occurred between the time of the child's birth on May 15, 2006, and the time of the filing of the state's support action in October of 2006. His actions consisted of a brief summer visit with the mother and child and the tender of two support payments to aid them. The amount of one payment was *1008 never stated by Easter, and the other payment was withdrawn. The implications of those acts do not suggest that Easter harbored serious doubt about his paternity. His explanation for stopping payment on the check was not because April informed him that he was not the father. Throughout those first five months of the child's life, Easter ignored the financial duties and responsibilities of a father while never once protesting to April that she was in error regarding paternity or seeking confirmation of paternity through DNA testing. A measurement of whether he "made reasonable attempts" to fulfill his parental responsibilities during that time period alone finds him lacking.
In his argument, Easter asserts that he cannot be held to have neglected and abandoned his parental rights until a DNA test. As shown above, that is not the test of Article 1138, and April gave Easter a consistent view that he was the father. Under the rationale of the rulings of our highest courts, state and federal, discussed above, the unwed father does not waive his paternal rights; they come into existence only as he takes initiatives toward the child. This would include an initiative to clarify any doubt about his paternity as quickly as possible, so as to continue the development of the mutually beneficial and essential bond with the child.
Easter next asserts a timeline for the gestation period for the baby which allegedly gave him much doubt about his paternity. He claims that his one sexual encounter with April was in October 2005, so that the pregnancy lasted only seven months. Nevertheless, from the record, the specific date of the parties' sexual intercourse was not identified, nor was objective medical evidence presented confirming the child's premature birth. Moreover, he never reported that he confronted April with these concerns or examined the medical evidence of the gestation period upon the child's birth. Therefore, with objective evidence in support of this gestation argument missing from Easter's evidence, the trial court could ignore Easter's self-serving testimony regarding his timing for the parties' sexual relationship.
Easter's argument concerning the state's support action which was filed five months after the birth also gives him no justification for the continuation of his delinquency regarding a substantial commitment to his parental responsibilities. In the first place, the action itself is notice of his ongoing delinquency since the birth. The state based its petition on April's continued assertion of paternity to the state authorities. Most importantly, contrary to assertions in Easter's brief regarding the support action, April did not close the case. She was not a party to the case. The Department of Social Services was the party plaintiff on behalf of the child. Finally, when the support action was dismissed, whatever the unexplained reason for dismissal, Easter was instructed by the state that his obligation for support would continue.
As shown by Article 1138, the unwed father must affirmatively act "to make reasonable" efforts to fulfill parental responsibilities beginning at the child's birth. Overall, Easter's assertions rest upon an alleged dilemma which paralyzed him with indecision from the birth throughout the first three years of the child's life. He asserts his two conflicting desires causing this dilemma. His desire to be a father and make a substantial commitment to this child, and his desire to know for certain that he was the father. Since he never acted to satisfy his desire to establish paternity, he was content to indefinitely defer his other desire and forgo any relationship with the child. Since the record indicates that April acted reasonably at all *1009 times, fairly accommodating Easter's now expressed desire to meet his parental responsibilities, we do not recognize the dilemma which Easter now argues nor do we find it as justification for his inaction under the test of Article 1138.
In his remaining assignment of error, Easter asserts that the proceedings were improper due to the presence of "several other deputies" "in this closed hearing [which] gives a strong appearance of impropriety that should not be present in our judicial system" and "was intimidating to all witnesses including Appellant."
In view of this assignment of error and the lack of any contemporaneous objection or other indication in the record concerning other persons in the courtroom, this court requested that both sides provide further information regarding this matter. Easter's counsel argues that she "noticed the additional deputies and made serious objections" after the trial was complete when her client first called it to her attention. Counsel claims to have "turned around and noticed three (3) deputies sitting behind Appellant and wondered why all the additional persons were present." Easter himself claimed seeing "five (5) total deputies in the courtroom at different times," with "three (3) sitting together behind him, with one additional other deputy coming in and out of the courtroom." He claims that the presence of the officers made him uncomfortable. While Suttle concedes that "two (2) other deputies were present at the back of the courtroom during a portion of the proceeding," he contends that the individuals were not his friends and have no personal relationship with him.
Title IV of the Louisiana Children's Code addresses Juvenile Court Administration. Chapter 2 of Title IV contains provisions for the scheduling and conducting of cases. La. Ch.C. art. 407 is found in Chapter 2 and addresses the confidentiality of hearings as follows:
With the exceptions of delinquency proceedings pursuant to Article 879, child support proceedings, traffic violations pursuant to Chapter 2 of Title IX in parishes with a population between three hundred eighty thousand and four hundred thousand, and misdemeanor trials of adults pursuant to Chapter 4 of Title XV, proceedings before the juvenile court shall not be public. However, the court shall allow the proceedings to be open to the public when the alleged delinquent act committed by the child would be considered a crime of violence as defined in R.S. 14:2(B), or when the alleged delinquent act would be a second or subsequent felony-grade adjudication.
See also La. Dist. Ct. R. 42.3.
The minutes of the trial of Easter's objection to this adoption reflect that the matter was tried as a closed hearing in accordance with Article 407 of the Children's Code. Because of the seriousness of a violation of the privacy of the hearing, this court requested the attorneys to give their recollections of the issue to supplement the record. The agreement between these accounts is that two, or possibly three, deputies in addition to the bailiff were in the courtroom together for some unidentified period of time. Easter's counsel believes the other deputies were assigned to the court. Significantly, however, Easter's counsel does not assert that in her presentation of Easter's important testimony, she became aware that his testimony was affected in any manner by the presence of the officers.
While we believe that there was probably some violation of the privacy of the hearing, any such violation was by court personnel whose duties and office require them to honor and maintain the privacy of *1010 any such matters before the juvenile court. Moreover, any assertion of prejudice to the appellant is unfounded as his admissions of his failure to provide financial and emotional support to the child are clear. Accordingly, the issue raised by appellant does not support a reversal of the trial court's ruling.
Conclusion
For the foregoing reasons, the judgment of the juvenile court terminating the parental rights of Marcus Easter is affirmed. Costs of this appeal are assessed to appellant.
AFFIRMED.
LOLLEY, J., dissents with written reasons.
STEWART, J., dissents for reasons assigned by J. LOLLEY.
LOLLEY, J., dissenting.
I respectfully dissent from the ruling of the majority in this matter.
The present matter involves the request of petitioner to terminate the parental rights of the biological father of the child. Proper notice was obviously served on the biological father who retained counsel to represent him in these proceedings.
The proceedings were initiated because of petitioner's desire to adopt the child who was born of her late mother prior to her marriage to petitioner.[1]
The record clearly shows that the child had lived with her mother and stepfather consistently until the mother's death. Subsequent to the event, petitioner initiated procedures to adopt the child. However, to move forward with the adoption, the parental rights of the biological father had to first be terminated. A petition for involuntary termination of parental rights was filed in accordance with the provisions of the Louisiana Children's Code.
The record further indicates that another judge was initially assigned to hear this matter. However, that judge exercised recusal because of familiarity with the petitioner and other members of the Caddo Parish Sheriff's Department. The present judge was assigned, and the proceedings got underway.
The hearing was called into session and evidence was presented. At the conclusion of the hearing the court ordered that the parental rights of the biological father were terminated and that the child be freed for the purpose of adoption.
I am of the opinion that reversible error occurred during the proceedings and that the judgment/ruling of the juvenile court judge should be reversed and ultimately declared null.
A petition to terminate the parental rights of a biological parent is the most serious of all actions contemplated by the Louisiana Children's Code. This petition, whether advanced by the State of Louisiana or, as in the present matter, by the stepparent for purpose of potential adoption, sets the stage to forever sever what is amongst the strongest bonds, that of parent and child. It is, in fact and law, the parental death penalty. Additionally, because of the serious nature of the proceedings and its lasting consequences, a termination of parental rights proceeding has attached to it the second highest burden of proof in law, that of clear and convincing evidence.
The biological father has appealed the ruling of the juvenile court judge on *1011 grounds that the allegation did not rise to the level of clear and convincing evidence and on grounds that there was a serious breach of the rule(s) of sequestration at the termination of parental rights hearing itself.
A review of the entire record of these proceedings leads me to conclude that the actions/inactions of the juvenile court judge did, in fact, lead to serious and fatal breaches of the mandated rules of sequestration.
Hearings and the issues of sequestration are extensively discussed in the Louisiana Children's Code. Article 408 states that it is the duty of the judge to control the proceedings. Article 409 mandates sequestration of witnesses. In matters involving children in need of care, Art. 661 mandates who may be present at the proceedings. Article 1015 deals specifically with termination of parental rights. The sequestration effects of the above articles also are applicable to a termination of parental rights proceedings. Title XII of the Louisiana Children's Code deals specifically with the issues of adoption. Article 1184 specifically addresses admission to adoption hearings. It also specifically mandates sequestration at the hearing.
The thrust of all of the above articles in the Louisiana Children's Code is to maintain the confidentiality of the hearings, which are very serious in nature. The reasoning for this is that the parties to the proceedings rightfully should not be subjected to public scrutiny. A notable exception to this, however, is officers of the court.
In the matter before us the petitioner was, and is, a deputy sheriff employed by the Caddo Parish Sheriff's Office. The record clearly reflects that he was wearing his uniform during the entirety of the proceedings.[2] The record also reflects that other uniformed deputies entered the courtroom, sat down and observed the proceedings at the time. This was noted by both the biological father and his counsel. The biological father now urges, rightfully in my opinion, that this constitutes a fatal breach of the sequestration rule and that the decision of the juvenile judge should be reversed and the matter be sent back for another hearing.
As previously stated, officers of the court are generally exempted from the sequestration order and allowed to remain or enter the courtroom. I am of the opinion that this exception to sequestration applies only to officers of the court who are assigned to work that courtroom on that date on that case. Because of the nature of the case I am of the opinion that all others are subject to the sequestration rule/order and that it was error to allow their presence in the courtroom.
The majority is of the opinion that this complaint is of no consequence and should not be considered because a contemporaneous objection was not raised by counsel at the time(s) of occurrence. I disagree.
I am of the opinion that the error on the part of the juvenile judge was structural in nature and effect and therefore, any contemporaneous objection was not needed because the proceedings had become a nullity. The issues of structural error have been discussed by other courts of this state, including the Louisiana Supreme Court. It is error which by its very nature is not subject to a harmless error analysis. It impacts the entire framework of the trial from beginning to end without reference to any other trial consideration.
*1012 In the matter presently before this court I am of the opinion that the actions of the juvenile court judge failed in the area of maintaining a sequestered courtroom and in maintaining his duty to control the proceedings in the courtroom as mandated by Art. 408. In a proceeding such as this, any officers of the court cannot and should not casually come and go in a sequestered courtroom.
In a proceeding such as the one discussed here, it is of vital importance that all parties leave the courtroom with the feeling and/or opinion that they clearly received their fair day in court. With the stakes as high as they are in a termination of parental rights hearing for the purpose of adoption, these issues are of great importance. It is more important that a civilian with little or no knowledge of proceedings such as these leave the courtroom without feeling the chilling effect of the errors I believe were committed. He, like all others, has the absolute right to be afforded all of the due processes of the law applicable to the case as he stands before the court to answer to.
Accordingly, I respectfully dissent.
NOTES
[1] Easter's sister, Tiffany Alexander, testified that in September 2006, she saw A.D. in a mall in Shreveport accompanied by Suttle. Recognizing the child from the July 4th meeting, she approached Suttle, asked him the child's name and age and whether he was the child's father. Tiffany then called her brother, told him about the encounter and encouraged him to get a DNA test.
[2] Rory Jones, a former high school classmate of Easter's, former brother-in-law of Suttle's and friend of Brian Jackson's also testified to his knowledge of the events. Jones and Suttle had been acquainted for years but recently parted ways. Jones testified that Jackson had always believed that he was A.D.'s biological father, but that he did not communicate that information to Easter. In fact, Jones had not talked to Easter after his move to Texas. Jones alleged that Suttle asked him not to tell Easter about the adoption proceedings.
[3] La. Ch.C. art. 1137 provides:
A. An alleged or adjudicated father or his representative, if applicable, may oppose the adoption of his child by filing a clear and written declaration of intention to oppose the adoption. The notice of opposition shall be filed with the court indicated in the notice of filing of surrender within fifteen days after the time he was served with the notice of surrender, or from the time he was served with notice of the filing of an adoption petition in the event that no surrender was executed or filed.
B. Upon receipt of the notice of opposition, the court shall appoint an attorney to represent the child, subject to the limitations set out in Article 1121. Neither the child nor anyone purporting to act on his behalf may be permitted to waive this right. The costs of the child's representation shall be taxed as costs of court.
C. The court shall set the opposition for contradictory hearing, which hearing shall be held within twenty days of the filing of the opposition.
D. Notice of the hearing shall be served in accordance with Articles 1133 and 1134 on the opposing father, the legal custodian, counsel appointed for the child, and the mother of the child through the agency to whom the child was placed or through the attorney who represented the mother in a private surrender unless otherwise waived in the Act of Surrender executed pursuant to Article 1122.
E. If paternity is at issue, on its own motion or motion of any party, the court shall issue an order for immediate blood or tissue sampling in accordance with the provisions of R.S. 9:396 et seq. and shall order an expedited report. The hearing resolving this issue shall be held at the earliest time that the results of the testing can be reported to the court.
[1] The record also clearly indicates that respondent was identified as the biological father through DNA testing.
[2] I feel that the issue of petitioner being in uniform is of no consequence. He could well have been just coming off duty or reporting to duty after the hearing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1782420/ | 953 So. 2d 1077 (2007)
Eddie OAKS, Brenda Oaks, Oaks Insurance Agency, Inc. and Desoto Insurance, Inc.
v.
Donald E. SELLERS.
No. 2006-IA-00005-SCT.
Supreme Court of Mississippi.
April 12, 2007.
*1078 Lara A. Coleman, David A. Barfield, Jackson, attorneys for appellants.
Charles Abbott, attorney for appellee.
EN BANC.
EASLEY, Justice, for the Court.
¶ 1. This is an interlocutory appeal concerning whether the Circuit Court of DeSoto County erred by denying a motion for summary judgment. On January 13, 2003, Donald Sellers (Sellers) filed suit against DeSoto Insurance, Inc. (DeSoto Insurance), Eddie Oaks (Oaks), Brenda Oaks (Brenda), and Oaks Insurance Company (Oaks Insurance), collectively "the Defendants" in the Circuit Court of DeSoto County, Mississippi. Sellers alleged that the Defendants, as his insurance agents, negligently breached the duties owed to him by failing to procure an umbrella insurance policy, for business and personal liability, in the amount of $1 million; and by negligently misrepresenting to Sellers that he had complete coverage including personal, umbrella liability coverage in the amount of $1 million. The Defendants filed a motion for summary judgment *1079 claiming that Sellers's claim was barred by the statute of limitations. The trial court conducted a hearing and later denied the Defendants' motion for summary judgment. Thereafter, the Defendants filed a petition for interlocutory appeal with this Court. On February 24, 2006, this Court granted the Defendants' petition for interlocutory appeal.
FACTS
¶ 2. In July 1993, Sellers sought complete insurance coverage, including coverage for his unincorporated business, Donnie's Amoco, located in DeSoto County, Mississippi, from the Defendant's. Oaks and Brenda, agents for DeSoto Insurance, obtained a business liability policy for $1 million and an umbrella insurance policy for up to $1 million. The policies were issued and underwritten by American States Insurance Company (American States). The umbrella insurance policy provided coverage for business liability only and not personal liability. The same policy was renewed by payment of the premiums.
¶ 3. On September 28, 1996, Eddie Sellers, Sellers's son, was involved in a motor vehicle collision in Tennessee while driving Sellers's car. Shane Thurman and his minor son, Dalton, were traveling in the vehicle with Eddie. As a result of this accident, Dalton was killed and Shane suffered serious injuries. Eddie was not working for his father at the time of the accident. Sellers's insurance policy was in full force and effect on the date of the accident.
¶ 4. Sellers notified the Defendants of the accident. Sellers requested that the Defendants file a claim with American States under his umbrella policy. The Defendants filed a loss notice and sent it to American States. On August 26, 1997, American States sent Sellers written notice denying his claim on the basis that the umbrella policy did not provide coverage to Sellers's son since Eddie was not acting in the course and scope of Sellers's business at the time of the accident.
¶ 5. Thereafter, Sellers and his son, Eddie, were named as party defendants in a Tennessee lawsuit concerning the collision. Sellers's automobile insurance carrier, State Farm Insurance Company, defended him in the Tennessee action based on theories of imputed liability. In January 2000, the Tennessee circuit court determined Eddie to be liable for the wrongful death of Dalton and the injuries suffered by Shane. The Tennessee circuit court also determined that Sellers had no imputed liability under the business purpose doctrine or the Tennessee Family Purpose doctrine.
¶ 6. The ruling of the Tennessee trial court was appealed. On February 16, 2001, the Tennessee Court of Appeals handed down an opinion which affirmed the trial court ruling that there was no business purpose. However, the Tennessee Court of Appeals reversed the trial court's ruling as to imputed liability. The appellate court held that Sellers was personally liable for the injuries caused by his son's negligence pursuant to the Tennessee Family Purpose doctrine. On October 8, 2001, the Tennessee Supreme Court denied certiorari, which made the Tennessee Court of Appeals's ruling final.
¶ 7. On January 13, 2003, following the denial of writ of certiorari, Sellers filed suit against the Defendants for failure to procure the requested insurance and failure to adequately explain the coverage. After the trial court denied the Defendants' motion for summary judgment on the basis of the statute of limitations, the Defendants filed their petition for interlocutory appeal. This Court granted interlocutory appeal and the Defendants now raise the following issue: whether the trial court *1080 erred by denying the Defendants' motion for summary judgment based on the expiration of the statute of limitations pursuant to Miss.Code Ann. § 15-1-49 (Rev. 2003).
DISCUSSION
¶ 8. This Court applies a de novo standard of review on appeal from a grant of summary judgment by the trial court. Russell v. Orr, 700 So. 2d 619, 622 (Miss. 1997); Richmond v. Benchmark Constr. Corp., 692 So. 2d 60, 61 (Miss.1997); Northern Elec. Co. v. Phillips, 660 So. 2d 1278, 1281 (Miss.1995). Rule 56(c) of the Mississippi Rules of Civil Procedure provides that summary judgment shall be granted by a court if "the pleadings, depositions, answers to interrogatories and admissions on file, together with 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." M.R.C.P. 56(c) (emphasis added). The moving party has the burden of demonstrating that there is no genuine issue of material fact, while the non-moving party should be given the benefit of every reasonable doubt. Tucker v. Hinds County, 558 So. 2d 869, 872 (Miss.1990). "Issues of fact sufficient to require denial of a motion for summary judgment obviously are present where one party swears to one version of the matter in issue and another says the opposite." Id. In Simmons v. Thompson Mach. of Miss., Inc., 631 So. 2d 798, 801 (Miss.1994) (emphasis added)(citing Shaw v. Burchfield, 481 So. 2d 247, 252 (Miss.1985)), this Court held:
Of importance here is the language of the rule authorizing summary judgment `where there is no genuine issue of material fact.' The presence of fact issues in the record does not per se entitle a party to avoid summary judgment. The court must be convinced that the factual issue is a material one, one that matters in an outcome determinative sense . . . the existence of a hundred contested issues of fact will not thwart summary judgment where there is no genuine dispute regarding the material issues of fact.
The evidence must be viewed in the light most favorable to the non-moving party. See Northern Electric Co., 660 So.2d at 1281; Russell, 700 So.2d at 622; Richmond, 692 So.2d at 61; Simmons, 631 So.2d at 802; Tucker, 558 So.2d at 872.
¶ 9. To avoid summary judgment, the non-moving party must establish a genuine issue of material fact within the means allowable under the Rule. Richmond, 692 So.2d at 61 (citing Lyle v. Mladinich, 584 So. 2d 397, 398 (Miss.1991)). "If any triable issues of fact exist, the lower court's decision to grant summary judgment will be reversed. Otherwise the decision is affirmed." Richmond, 692 So.2d at 61.
¶ 10. The issue before this Court is whether Sellers is barred by the statute of limitations. There is no dispute between the parties that Miss.Code Ann. § 15-1-49 is applicable in this case. Miss. Code Ann. § 15-1-49(1) provides that "[a]ll actions for which no other period of limitation is prescribed shall be commenced within three (3) years next after the cause of such action accrued, and not after." (Emphasis added).
¶ 11. The issue in this case arises from each party's interpretation of when the statute of limitations began to run. Sellers filed suit on January 13, 2003. The Defendants argue that the statute of limitations began to run on August 26, 1997, the date that American States denied Sellers's claim. According to the Defendants, Sellers's claim was filed more than five years after denial of the claim.
*1081 ¶ 12. On the other hand, Sellers argues that the statute of limitations began to run on the date of actual injury. Sellers argues that the date of actual injury was February 16, 2001, when the Tennessee Court of Appeals imputed liability to Sellers. Therefore, Sellers contends that he filed within the statute of limitation, which was less than three years after the date of the Tennessee appellate decision.
¶ 13. The trial court and Sellers rely heavily on Owens-Illinois, Inc. v. Edwards, 573 So. 2d 704, 706 (Miss.1990), to support the proposition that Sellers had no actual damages and had not met the elements of a tort until the Tennessee court imposed liability on Sellers. Both the trial court and Sellers are correct that Owens-Illinois stands for the legal theory that "[a] cause of action accrues only when it comes into existence as an enforceable claim; that is, when the right to sue becomes vested," and the theory that an injury has to happen before a tort is considered to complete. Owens-Illinois, 573 So.2d at 706-707. However, Owens-Illinois was a personal injury case concerning products liability and negligence involving latent disease issues. This Court in Owens-Illinois made clear that the issue of when a cause of action accrues was considered in the context of latent injury or disease. Id. at 706.
¶ 14. The Defendants argue that Young v. Southern Farm Bureau Life Insurance, 592 So. 2d 103 (Miss.1991), is applicable to this case. In Young, the plaintiff sued Southern Farm Bureau on a bad faith claim for breach of contract. Young, 592 So.2d at 107. This Court considered when the action accrued for the insurance company's alleged wrongful refusal to pay life insurance benefits to Young. Id. This Court held that the six-year statute of limitations pursuant to Miss.Code Ann. § 15-1-49, in effect at the time of the Young case, did not begin to run until Young received notification from Southern Farm Bureau denying payment of the accidental death benefits. Id.
¶ 15. We find that the trial court erred in its reliance on Owens-Illinois. The trial court and Sellers couch the issue of the statute of limitations in terms of damage and injury accruing at the time the Tennessee court imposed liability on Sellers. The Defendants couch the issue of the statute of limitations in terms of damage and injury actually accruing when American States denied Sellers claim. As stated above, Owens-Illinois concerned the accrual of latent disease. In Young, a bad faith case, this Court held that the statute of limitations began running on an insurance claim from the receipt of written notice denying the claim. Young, 592 So.2d at 107. This case concerns a misrepresentation of the policy terms and failure to inform Sellers of the policy terms.
¶ 16. In Carter v. Citigroup, Inc., 938 So. 2d 809, 817 (Miss.2006), this Court held that "there is a three-year statute of limitations for claims of breach of a fiduciary duty, misrepresentation, and conspiracy." In Carter, this Court also analyzed Andrus v. Ellis, 887 So. 2d 175 (Miss.2004), which addressed the issues of negligent misrepresentation and fraudulent misrepresentation and concealment. (Sellers made no claims for fraudulent misrepresentation or concealment in this case.) This Court held that the plaintiffs had notice of the terms of the contract and the credit insurance and the claims accrued at the time of the execution of the loan agreements. Andrus, 887 So.2d at 180. This Court held:
In Andrus, this Court addressed a claim against a lender for fraudulent and negligent misrepresentation and fraudulent inducement in the purchase of credit life, disability, and property insurance. Andrus, 887 So.2d at 179. The Plaintiffs *1082 in Andrus alleged that they were either unaware that they purchased insurance, unaware that the insurance was not necessary, and the lender did not disclose the commission earned. Id. This Court found that the plaintiffs in Andrus were on notice of the terms of the contract and the credit insurance and all claims accrued at the time the loan agreements were executed. Id. at 180. In so far as the fraudulent concealment claim, the Court held that the Andrus plaintiffs had the documents in their possession and no one questioned any discrepancy between the document and their understanding of the document terms until filing suit. Id. at 181.
Carter, 938 So.2d at 817.
¶ 17. In Stephens v. Equitable Life Assur. Soc'y of the United States, 850 So. 2d 78, 82 (Miss.2003), this Court addressed the issue of knowledge of the content of insurance policies by holding:
Furthermore, this Court has held that whether an insured reads the entire insurance policy, the "knowledge of its contents would be imputed to them as a matter of law." Cherry v. Anthony, 501 So. 2d 416, 419 (Miss.1987) (citing Atlas Roofing Mfg. Co. v. Robinson & Julienne, Inc., 279 So. 2d 625, 629 (Miss. 1973)). This Court has held that:
[A] written contract cannot be varied by prior oral agreements. Moreover, as an evidentiary matter, parol evidence to vary the terms of a written contract is inadmissible. Finally, a person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract. Godfrey, Bassett & Kuykendall Architects, Ltd. v. Huntington Lumber & Supply Co., 584 So. 2d 1254, 1257 (Miss.1991) (citations omitted).
Likewise, in Andrus v. Ellis, 887 So. 2d 175, 180 (Miss.2004), this Court held:
In Mississippi, a person is charged with knowing the contents of any document that he executes." Russell v. Performance Toyota, Inc., 826 So. 2d 719, 725 (Miss.2002) (citing J.R. Watkins Co. v. Runnels, 252 Miss. 87, 172 So. 2d 567, 571 (1965) ("A person cannot avoid a written contract which he has entered into on the ground that he did not read it or have it read to him.")). "[A] person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract." Godfrey, Bassett & Kuykendall Architects, Ltd. v. Huntington Lumber & Supply Co., 584 So. 2d 1254, 1257 (Miss.1991). Accordingly, the Plaintiffs are charged with notice and therefore all claims accrued at the time the loan agreements were executed.
¶ 18. Sellers purchased insurance from the Defendants in 1993. Sellers continued the policy and prior to the accident renewed the policy with an effective date of July 30, 1996. Sellers's insurance policies were clearly for business insurance only and not personal coverage. Oaks submitted a claim to American States, at Sellers's request, after the accident. The notice claim was a general liability notice of occurrence claim to American States. On August 26, 1997, Sellers received written notification from American States that his claim was denied because the accident did not occur within the course and scope of Sellers's business. After initiating suit against the Defendants claiming that the Defendants failed to procure the requested personal coverage, Sellers contradicted that claim in his response for requests for *1083 admission admitting "[t]o the best of my knowledge, information and belief, I do not recall asking or consulting with any of the Defendants to quote personal lines coverage for me or my family from 1993 to the present."
¶ 19. Neither party disputes that Sellers purchased insurance for his unincorporated business and an umbrella insurance policy for $1 million in 1993. The record does not reveal whether Sellers received a copy of the policies. However, Sellers's response to the Defendants' motion for summary judgment revealed that while Oaks did not recall specifically reviewing the policy with Sellers, citing to the passage of many years, his general practice was to go over policies with clients. The record also does not contain a complete copy of the umbrella policy. However, the record does contain a copy of the declaration page of the policy. The declaration page indicates that it is a renewal declaration and the policy period ran from July 30, 1996 to July 30, 1997. There was no dispute that Sellers's insurance policy was in effect on the date of Eddie's accident. The general liability claim form submitted to American States also indicated that Sellers had a policy with a July 30, 1996, effective date.
¶ 20. Sellers sued Oaks, Brenda, Oaks Insurance, and DeSoto Insurance, not American States, in 2003. However, Sellers bought the policy in 1993. While the record is unclear whether Sellers received a copy of the policy, he renewed the policy in 1996. Even giving Sellers the benefit of doubt that he never received a copy of his insurance policy, he knew at the latest on August 26, 1997, that his claim was denied by American States. This notification made clear that either American States was mistaken in their denial of the claim or Sellers was mistaken in the type of coverage that the insurance policies provided to him.
¶ 21. Thereafter, American States paid no insurance proceeds on Sellers's claim. American States's denial of coverage deprived Sellers of legal representation paid by American States. Sellers had to rely upon his automobile insurance company, State Farm, to provide assistance in the automobile accident lawsuit in Tennessee. Sellers suffered damage when American States denied coverage that Sellers believed he was entitled to have and paid for via insurance premiums. In addition, the denial of benefits by American States placed Sellers on notice that the Defendants did not procure the type of business and personal insurance that he believed he had purchased. After American States denied coverage on August 26, 1997, Sellers had to face the wrongful death lawsuit without the possibility of any insurance coverage under the $1 million umbrella policy issued by American States.
¶ 22. Sellers filed suit against the Defendants on January 13, 2003. The filing occurred more five years after Sellers received the notice of denial of his claim on August 26, 1997. Clearly, Sellers filed his claim outside the three-year statute of limitations under Miss.Code Ann. § 15-1-49, and his claim is barred by the statute of limitations.
¶ 23. In addition, Sellers's claim that the Defendants failed to adequately explain his coverage terms is also without merit. Sellers made no claim for fraudulent concealment. Since the record is not clear when Sellers received a copy of the 1993 policy or the 1996 renewal, he was nevertheless placed on notice, at the very latest, by the denial of his claim in August 1997. He did not claim that he never received the policy. This Court has repeatedly held that the knowledge of an insurance policy is imputed to an insured *1084 regardless of whether the insured read the policy. Stephens, 850 So.2d at 82, see also Andrus, 887 So.2d at 180, Toyota, 826 So.2d at 725.
¶ 24. Accordingly, we find that the trial court erred by denying the Defendants' motion for summary judgment. Giving Sellers all benefit of the doubt, he knew in August 1997 that his claim was denied, which placed him on notice of a possible problem with the procurement and understanding of the terms of his insurance policy. Sellers did not file his claim until more than five years later, and well outside the three-year statute of limitations under Miss.Code Ann. § 15-1-49. We find that Sellers's claims are barred by the statute of limitations.
CONCLUSION
¶ 25. For the above reasons, we find that the three-year statute of limitations, pursuant to Miss.Code Ann. § 15-1-49, began to run at the latest on August 26, 1997, when Sellers received written notice that American States denied his insurance claim. Therefore, we find that the DeSoto County Circuit Court erred by denying the Defendants' motion for summary judgment. We now reverse the judgment of the Circuit Court of DeSoto County and render judgment to dismiss Sellers's claims against the Defendants, Eddie Oaks, Brenda Oaks, Oaks Insurance Agency, Inc., and DeSoto Insurance, Inc., as the claims are barred by the statute of limitations.
¶ 26. REVERSED AND RENDERED.
SMITH, C.J., WALLER, P.J., DIAZ, CARLSON AND GRAVES, JJ., CONCUR. DICKINSON AND RANDOLPH, JJ., CONCUR IN PART AND IN RESULT. COBB, P.J., NOT PARTICIPATING. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1184410/ | 531 P.2d 360 (1973)
George A. LONG, Plaintiff and Appellant,
v.
SMITH FOOD KING STORE, a Utah Corporation, and Cream O'Weber Dairy, a Utah Corporation, Defendants and Respondents.
No. 13252.
Supreme Court of Utah.
October 4, 1973.
Pete N. Vlahos of Vlahos & Gale, Ogden, for plaintiff and appellant.
Blaine V. Glasmann, Jr., of Young, Thatcher & Glasmann, Ogden, for Smith Food King Store.
Leonard H. Russon of Hanson, Brandt & Wadsworth, Salt Lake City, for Cream O'Weber Dairy.
CROCKETT, Justice.
Plaintiff, George A. Long, sued for injuries suffered when he slipped and fell on a piece of pumpkin pie on the floor of defendant's *361 store at Washington Terrace in South Ogden. On the basis of the pleadings and depositions, the court granted defendant's motion for summary judgment on the ground that upon the undisputed facts the plaintiff could show no basis for recovery. Plaintiff appeals, arguing that there are disputed issues of fact which if resolved in his favor would entitle him to recover.
On the evening of November 26, 1969, the defendant's supermarket was giving away small samples (about one inch square) of pumpkin pie topped with whipped cream, which were supplied by co-defendant, Cream O'Weber Dairy. An employee of the latter, Mrs. Lois Moss, set these samples on a tray and they were given or were available to customers. Plaintiff and his wife were shopping in the store when he slipped and fell on one of these pieces of pie in an aisle seven to ten feet away from the aisle where the samples were. Mrs. Moss states that she kept watch on the floor, but she did not see any pie or cream on it before the accident; and the store manager similarly so stated. There is no evidence that any store employee, or in fact that anyone else, saw anything of that nature on the floor prior to the accident. This includes the statements of both the plaintiff, his wife, and his attorney, that they did not know, nor know of anyone else who knew, that the pie was on the floor, how it got there, or how long it had been there.
The granting of defendant's motion for summary judgment was based upon the cases of Howard v. Auerbach Company,[1] Koer v. Mayfair Markets,[2] and Lindsay v. Eccles Hotel Company.[3] The soundness of the basic rules reflected in those cases is not questioned here: that in order to impose liability for an injury resulting from some foreign substance or defective condition it must have existed for such time and manner that in due care the defendant either knew or should have known, and remedied it; and the variant thereof, that if the condition or defect was created by the defendant himself or his agents or employees, the notice requirement does not apply.[4]
Plaintiff argues that this case is distinguishable from those cited above and should not be governed by the stated rules. He asserts that in addition to the question as to defendant's actual or constructive knowledge of the particular piece of pie on the floor, there is to be considered the antecedent condition: that the giving out of these samples of pie in that manner had inherent dangers because of the likelihood of its being dropped on the floor. These facts are pointed out as being significant: this was the day before Thanksgiving and therefore it was to be expected that the store would be filled with shoppers, as it was; that due to the unique character of pumpkin pie with whipped cream, it would be slippery and dangerous if dropped on the floor; and that from the foregoing circumstances it could reasonably be found that the dropping of pie and the injury to customers was something so likely to happen that it should have been foreseen, and that the standard of ordinary and reasonable care would require the defendant to exercise greater precautions than it did to protect its customers.
Plaintiff cites cases of a generally related character in support of his contention, e.g., Rhodes v. El Rancho Markets[5] where the plaintiff slipped on some lettuce. But there it was shown that lettuce was being uncrated all day long and it was common for loose leaves to be on the floor. El Grande Market No. 2 v. McAlpin[6] involved slipping on an apricot pit on a ramp. But there was affirmative testimony that apricot pits had been on the ramp for a substantial time (30 to 40 minutes to *362 three hours). In Mahoney v. J.C. Penney Company[7] the fall was due to the presence of gum on stairway. But it was shown that there was gum on stairway right along, both before and after accident. In Jasko v. Woolworth[8] the facts were closer to our case. Pizza in wax wrappers was sold to be eaten on the premises. But it was shown that there was constant debris therefrom on the floor which was known to the manager.
We acknowledge that the plaintiff's argument as to the law is supported by the cases he cites, and that it is not without merit as applied to appropriate fact situations. But as will be noted from our comments on each of those cases, the critical problem in each of them was as to the notice of the defendant; and that the ruling of the court was based on the premise that there was a reasonable basis in the evidence upon which it could be found that the defendant knew, or in the exercise of due care should have known, that the foreign substance was present for sufficient time that in due care it should have been removed.
Reverting to the instant case in the light of the law as discussed above: notwithstanding the admittedly correct rule requiring the defendant to exercise due care and prudence for the safety of its business invitees, it nevertheless is not an insurer of their safety.[9] It is entitled to have the standard of reasonableness under the circumstances applied to its conduct. In applying that standard to the question as to whether the defendant should have been expected to take further precautions to avoid injury to its customers, it is only fair and proper to make that determination from the standpoint of foresight and not hindsight. If its duty required further safety measures, we are made to wonder what they would be, and how far the defendant would have to go in protecting the customers, both in method and in area. There does not appear to be any reasonable and practical answer to that inquiry.
We reject the contention of the plaintiff that the giving away of samples was not an essential part of the operation of the supermarket and that such a promotional activity should itself impose a duty of extra caution. This is a well known and widely practiced method of merchandising and we see no reason why the same rules should not apply as to the other operations of the market.[10] Neither do we believe that the giving away of samples of pie should be regarded as inherently dangerous. Consequently, we are not persuaded to disagree with the view of the trial court: that plaintiff has not shown any basis upon which it reasonably could be found that defendant was negligent.
Our conclusion on the issue of the primary negligence charged against the defendant makes it unnecessary to comment upon the question of plaintiff's own contributory negligence in failing to make reasonable observation and observe due care for his own safety.
Affirmed. Costs to defendants (respondents).
CALLISTER, C.J., and HENRIOD, ELLETT and TUCKETT, JJ., concur.
NOTES
[1] 20 Utah 2d 355, 437 P.2d 895.
[2] 19 Utah 2d 339, 431 P.2d 566.
[3] 3 Utah 2d 364, 284 P.2d 477.
[4] Koer v. Mayfair Markets, supra, and authorities therein cited.
[5] 4 Ariz. App. 183, 418 P.2d 613.
[6] 13 Ariz. App. 302, 475 P.2d 961.
[7] 71 N.M. 244, 377 P.2d 663 (1963).
[8] 177 Colo. 418, 494 P.2d 839.
[9] See DeWeese v. J.C. Penney Co., 5 Utah 2d 116, 297 P.2d 898; Erickson v. Walgreen Drug Co., 120 Utah 31, 232 P.2d 210.
[10] So commented by Court of Appeals of Ohio, Morgan v. American Meat Co., 37 Ohio Law Abst. 327, 46 N.E.2d 669. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1184411/ | 524 P.2d 790 (1974)
In the Matter of Theresa Bernette WRIGHT and Lisa Marie Wright, dependent children under the age of 18 years.
No. 46601.
Supreme Court of Oklahoma.
July 2, 1974.
Stanley L. Foster, Richard Vallejo, Arthur Lory Rakestraw, Oklahoma City, for appellant.
Vivian Diffendaffer, Asst. Dist. Atty., Nan Patton, Asst. Public Defender, Oklahoma City, for appellee.
HODGES, Justice.
The issue presented is whether the trial court denied Edwina Mary Grace Clark, formerly Wright, appellant (Mother) due process by refusing to hear evidence which might have shown that she had corrected the conditions upon which the children were made wards of the court and declared dependent neglected children and which resulted in the ultimate termination of parental rights.
At the adjudicatory hearing on March 15, 1972, the children, Theresa and Lisa were made wards of the court as dependent and neglected children. The court ordered that:
"* * * said children remain in the temporary custody of the Department of Institutions, Social and Rehabilitative Services, State of Oklahoma; and that said Department be and hereby is requested to make an investigation and evaluation of the mother and her living arrangements; and that this matter be set for disposition upon receipt of said report."
*791 The transcript reveals that at this hearing the court made the following statements:
"The Department of Institutions, Social and Rehabilitative Services is ordered to make an investigation and evaluation of the mother and her living arrangements. This matter will be set for disposition when said report is received."
Counsel: I didn't hear the date, Judge.
The Court: No date. When I get the report, I'll notify you and we'll set it down.
In reliance on the court's order which indicated that the court would set the case for disposition, the respondent apparently awaited the disposition hearing. The hearing was set by the court on April 16, 1973, at the request of the Department of Institutions, Social and Rehabilitative Services (DISRS). The mother filed an answer and a cross-petition subsequent to the adjudicatory hearing. However, she was not allowed to present evidence to the court at the dispositional hearing although she requested an opportunity to show that she maintained regular contact with her children through DISRS during this period and that she had corrected all conditions At least part of the facts alleged by the which led to the dependent-neglect status. mother were corroborated by the DISRS report.
The court refused to consider the answer and the cross-petition, or the DISRS report. The court stated in respect to the DISRS report:
"* * * I did not use her report in arriving at my decision that respondent had failed to show the court the condition had been corrected within six months or apply for an extension of the six months."
The parental rights of the mother were terminated by the court on April 6, 1973, and her motion for new trial was denied by the court on April 27, 1973.
It is provided by 10 O.S. 1971 § 1115(a) (b) that:
"(a) After making an order of adjudication, the court shall hold a dispositional hearing, at which all evidence helpful in determining the proper disposition best serving the interest of the child and the public, including oral and written reports, may be admitted and may be relied upon to the extent of its probative value, even though not competent for the purposes of the adjudicatory hearing."
"(b) Before making an order of disposition, the court shall advise the District Attorney, the parents, guardian, custodian or responsible relative, or their counsel, of the factual contents and the conclusion of reports prepared for the use of the court and considered by it, and afford fair opportunity, if requested, to controvert them."
In this case the court refused to allow the mother to present any evidence other than evidence relating to her failure to show a change in condition or to apply for an extension within the six month period as provided by 10 O.S. 1971 § 1130(c)(3).
"The finding that a child is delinquent, or mistreated or neglected, shall not deprive the parents of the child of their parental rights, but a court may terminate the rights of a parent to a child in the following situations:
(c) A finding that a parent who is entitled to custody of the child.
(3) is unfit by reason of debauchery, intoxication, or habitual use of narcotic drugs, or repeated lewd or lascivious behavior or other conduct that is detrimental to the physical or mental health or morals of the child, and the parent has failed to show that the conditions have been corrected within a period of six (6) months after the child, or children, were adjudged dependent or neglected and a permanent termination of parental custody of the child, or children, is necessary to protect its physical or mental health or morals; provided further, that the court may extend the time in which such parent may show the condition has been corrected, if, in the judgment of the *792 court, such extension of time would be in the best interest of the child or children."
The Court based its order on the failure of the mother to show a change in condition by initiating proceedings on her own within six months, rather than making a finding that she had not changed the living condition of the family. The interpretation of the statute was based on a presumption rather than on a finding and was a denial of due process to the mother.
Due process requires notice and the right to a hearing. The mother was given notice as required by 10 O.S. 1971 § 1131, but she was denied the right to be heard. The court stated that it would sustain the motion to terminate parental rights "without any evidence other than what's in the record." 10 O.S. 1971 § 1131 provides that if personal notice is not served parental rights may not be terminated for 6 months.
The fundamental requisite of due process is the opportunity to be heard. Grannis v. Ordean, 234 U.S. 385, 394, 34 S.Ct. 779, 783, 58 L.Ed. 1363 (1914). This requirement is all the more important when the judicial procedure concerns the continuance to the parent-child relationship.
The United States Supreme Court held in Stanley v. Illinois, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551, 558, 559 (1972) that:
"The Court has frequently emphasized the importance of the family. The rights to conceive and to raise one's children have been deemed `essential,' Meyer v. Nebraska, 262 U.S. 390, 399, 43 S.Ct. 625, 626, 67 L.Ed. 1042 [1045, 29 A.L.R. 1446] (1923), `basic civil rights of man,' Skinner v. Oklahoma, 316 U.S. 535, 541, 62 S.Ct. 1110, 1113, 86 L.Ed. 1655 [1660] (1942), and `[r]ights far more precious ... than property rights,' May v. Anderson, 345 U.S. 528, 533, 73 S.Ct. 840, 843, 97 L.Ed. 1221 [1226] (1953). `It is cardinal with us that the custody, care and nurture of the child reside first in the parents, whose primary function and freedom include preparation for obligations the state can neither supply nor hinder.' Prince v. Massachusetts, 321 U.S. 158, 166, 64 S.Ct. 438, 442, 88 L.Ed. 645 [652] (1944). The integrity of the family unit has found protection in the Due Process Clause of the Fourteenth Amendment, Meyer v. Nebraska, supra, 262 U.S. at 399, 43 S.Ct. [625] at 626 [67 L.Ed. at 1045], the Equal Protection Clause of the Fourteenth Amendment, Skinner v. Oklahoma, supra, 316 U.S. at 541, 62 S.Ct. [1110], at 1113 [86 L.Ed. at 1660], and the Ninth Amendment, Griswold v. Connecticut, 381 U.S. 479, 496, 85 S.Ct. 1678, 14 L.Ed.2d 510, 522 (1965) (Goldberg, J., concurring)."
The U.S. Supreme Court held in Bell v. Burson, 402 U.S. 535, 91 S.Ct. 1586, 29 L.Ed.2d 90, 96 (1971) that:
"The hearing required by the Due Process Clause must be `meaningful,' Armstrong v. Manzo, 390 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965), and `appropriate to the nature of the case.' Mullane v. Central Hanover Bank & Trust Co., supra, 339 U.S. [306], at 313, 70 S.Ct. [652], at 657. [94 L.Ed. 865 at 872, 873] * * *"
It is a premise which hardly seems to need explanation that a hearing which excludes consideration of the elements essential to the decision of whether parental rights shall be terminated does not meet this standard.
The United States Supreme Court held in Stanley v. Illinois, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed. 551, 562 (1972) that:
"* * * The establishment of prompt efficacious procedures to achieve legitimate state ends is a proper state interest worthy of cognizance in constitutional adjudication. But the Constitution recognizes higher values than speed and efficiency. Indeed, one might fairly say of the Bill of Rights in general, and the Due Process Clause in particular, that they were designed to protect the fragile values of a vulnerable citizenry from the overbearing concern for efficiency and efficacy that may characterize praise-worthy *793 government officials no less, and perhaps more, than mediocre ones.
"Procedure by presumption is always cheaper and easier than individualized determination. But when, as here, the procedure forecloses the determinative issues of competence and care, when it explicitly disdains present realities in deference to past formalities, it needlessly risks running roughshod over the important interests of both parent and child. It therefore cannot stand."
The cause is therefore reversed and remanded to the trial court for a full evidentiary hearing on the question of whether the mother has corrected the conditions upon which this action is based and for a determination of what disposition is in the best interests of the children.
DAVISON, C.J., WILLIAMS, V.C.J., and BERRY, LAVENDER, BARNES, SIMMS and DOOLIN, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1184413/ | 111 Ariz. 399 (1975)
531 P.2d 156
Mary Louise McBETH, Petitioner,
v.
Honorable C. Kimball ROSE, Judge of the Superior Court, Maricopa County, Division 27-E, Real Party in Interest, Respondent. Carole Jean TATELY and Daniel P. Monohan, Petitioners,
v.
JUSTICE COURT OF the NORTHEAST PHOENIX PRECINCT, MARICOPA COUNTY, Justice of the Peace Harold Lee, and Moise Berger, County Attorney, Maricopa County, Respondents.
Nos. 11542, 11552.
Supreme Court of Arizona, In Banc.
January 24, 1975.
Rehearing Denied March 4, 1975.
Ross P. Lee, Maricopa County Public Defender by Oral W. Tucker, Jr., Deputy Public Defender, Phoenix, Lawrence W. Katz, Certified Third-Year Law Student Arizona State University, for petitioner McBeth.
Treon, Warnicke & Dann by B. Michael Dann and Richard T. Treon, Phoenix, for petitioner Tately.
*400 Trew & Woodford by C. Brad Woodford, Phoenix, for petitioner Monohan.
Moise Berger, Maricopa County Attorney by Alan Johnson and J.P. Shaw, Deputy County Attys., Phoenix, for respondents.
HOLOHAN, Justice.
Petitions for special action were filed by petitioners to prohibit criminal prosecution from proceeding against them. Since the petitions both raise substantially the same issues, we ordered them consolidated.
Petitioner Mary Louise McBeth (No. 11542) was arrested November 26, 1973 on two charges of assault with a deadly weapon. At the time of arrest she was seventeen years of age and would not become eighteen until January 15, 1974. She was booked into the county jail on the aforementioned charges, but upon learning of petitioner's age, she was referred to juvenile court. A hearing was scheduled in juvenile court for January 8, 1974, but on the day of the hearing the county attorney moved to dismiss the juvenile petition. The judge of the juvenile court granted the state's motion and dismissed the juvenile petition.
On January 18, 1974, three days after petitioner became eighteen, the state filed a felony complaint against petitioner accusing her of two counts of assault with a deadly weapon which were alleged to have occurred on November 26, 1973. It is conceded by the state that these are the identical charges previously contained in the juvenile petition which was dismissed in juvenile court.
Over objection of defense counsel, petitioner was held to answer in superior court on the charges. An information was filed in superior court on February 21, 1974. On March 20, 1974, at the omnibus hearing, the motion of the defense to dismiss was denied, and petitioner was ordered to stand trial on May 15, 1974.
This Court accepted jurisdiction of the special action filed by petitioner to prohibit the superior court from proceeding further with the criminal case.
Petitioners Carole Jean Tately and Daniel P. Monohan (No. 11552) were arrested on December 2, 1973 for illegal possession of marijuana. The matter was referred to juvenile court as each of the petitioners was seventeen at the time.
Petitions were filed in juvenile court, their case consolidated for an adjudication hearing which was set for March 14, 1974. Prior to the hearing, each of the petitioners became eighteen. On the day before the adjudication hearing, the deputy county attorney in charge of the case moved ex parte to dismiss the juvenile petitions pending against petitioners. The juvenile court judge granted the motions, dismissed the petitions, and vacated the adjudication hearing date.
On April 9, 1974 a complaint was filed by the state in justice court charging that the petitioners on December 2, 1973 illegally possessed marijuana. Petitioners filed a special action in this Court seeking to restrain further action in the criminal case until there was a lawful transfer of the case by juvenile court to adult prosecution.
The argument of the several petitioners is essentially that, once the juvenile court assumes jurisdiction of a case involving a juvenile, there can be no criminal prosecution of that case in adult court unless the juvenile court transfers the matter to adult court for prosecution. They argue that the procedure of simply dismissing the juvenile petition after or shortly before the juvenile turns eighteen and then commencing an adult prosecution violates the provisions of the Arizona Constitution, the Juvenile Code, and the Rules of Procedure for the Juvenile Court.
The Arizona Constitution, in Article 6, Section 15, provides:
"The superior court shall have exclusive original jurisdiction in all proceedings and matters affecting dependent, neglected, incorrigible or delinquent children, or children accused of crime, under *401 the age of eighteen years. The judges shall hold examinations in chambers for all such children concerning whom proceedings are brought, in advance of any criminal prosecution of such children, and may, in their discretion, suspend criminal prosecution of such children. The powers of the judges to control such children shall be as provided by law."
The Juvenile Code provides in A.R.S. § 8-202(D):
"Jurisdiction of a child obtained by the juvenile court in a proceeding under this chapter shall be retained by it, for the purposes of implementing the orders made and filed in that proceeding, until the child becomes twenty-one years of age, unless terminated by order of the court prior thereto."
It is further provided in A.R.S. § 8-246(A):
"When jurisdiction has been acquired by the juvenile court of a child, the child shall continue under the jurisdiction of the juvenile court until such child becomes twenty-one years of age, unless sooner discharged pursuant to law. From the time of commitment to the department of corrections, a child shall be subject to the control of the department of corrections until such child's absolute discharge."
Counsel for petitioners point out that the Rules of Procedure for the Juvenile Court, 17A A.R.S., especially Rules 12, 13 and 14, set forth the procedure to be followed if a juvenile case is to be transferred for adult prosecution. Our attention is directed to the requirements of Rule 14(b) which provides:
"The court may transfer the action for criminal prosecution to the appropriate court having jurisdiction of the offense if the court finds probable cause and reasonable grounds to believe that:
"(1) The child is not amenable to treatment or rehabilitation as a delinquent child through available facilities; and
"(2) The child is not commitable to an institution for mentally deficient, mentally defective or mentally ill persons; and
"(3) The safety or interest of the public requires that the child be transferred for criminal prosecution."
and Rule 14(c) which requires that:
"Upon such transfer the juvenile court shall state the reasons therefor by minute entry or written order and the child shall thereupon be transferred to the custody of an appropriate law enforcement officer, released on bail, if the offense is bailable, or released upon his own recognizance."
Although the issue presented by these cases is a matter of first impression in this Court, it has been decided in several other jurisdictions. In at least two jurisdictions the decision has been that an accused, who was under the age of eighteen at the time of the offense and who had a juvenile proceeding commenced but later dismissed before adjudication, could be charged and tried as an adult for such offense. Locke v. Commonwealth; Ky., 503 S.W.2d 729 (1973); State v. Kramer, 72 Wash.2d 904, 435 P.2d 970 (1967), cert. denied, 393 U.S. 833, 89 S.Ct. 103, 21 L.Ed.2d 103 (1968).
In Friedman v. Juvenile Court, 20 Ariz. App. 31, 509 P.2d 1068 (1973) Division Two of the Court of Appeals held that a juvenile cause pending and not heard on its merits prior to the time the juvenile reached eighteen results in loss of jurisdiction over the cause in the juvenile court. This Court, in Caruso v. Superior Court, 100 Ariz. 167, 412 P.2d 463 (1966), stated that jurisdiction in the juvenile court does not attach until there has been an adjudication based upon evidence that the child is dependent, neglected, incorrigible or delinquent. Both Friedman and Caruso dealt with dependency matters rather than delinquency.
In Burrows v. State, 38 Ariz. 99, 297 Pac. 1029 (1931), this Court held that a *402 defendant who had reached the age of eighteen, charged by information for a crime committed before his eighteenth birthday was nevertheless subject to prosecution, trial, and sentence as an adult. For cases from other jurisdictions see 89 A.L.R.2d 506 et seq.
The statute concerning juvenile jurisdiction under which Burrows was decided was substantially carried forward into the Arizona Constitution by amendment in 1960 and is now Section 15 of Article 6. We believe the rationale in the Burrows case is equally applicable to Section 15. The purpose of the juvenile provisions in Arizona concerns the treatment, not the capacity, of the offender, or as the Court stated in Burrows:
"... the purpose of the Arizona juvenile law is not to attempt to establish an arbitrary age below which the child is presumed to be ignorant of the consequences of his acts, but rather to provide a special method of treatment for minors under the age of eighteen who have violated the criminal law, and, even with such children, leaving the application of the juvenile or criminal code to the discretion of the trial court." 38 Ariz. at 111.
In effect, Burrows held that a juvenile could commit a crime, and his age made it no less a crime, but the law provided a special method of dealing with such a person by reason of his age. This age factor was to be determined as of the time of prosecution. If the age factor was not present at the time of prosecution the accused was to be tried as an adult.
Petitioners argue that Burrows is not applicable because in these cases, unlike Burrows, proceedings had been commenced in juvenile court. They contend that the only way the matters could have been made subject to adult jurisdiction was after hearing. Miller v. Quatsoe, 348 F. Supp. 764 (E.D.Wis. 1972). Petitioners contend that the state may not avoid a transfer hearing by the simple device of dismissing the juvenile petition.
The state argues that the petitioners are not all in the same status so far as a transfer hearing being required. The state contends that Monohan and Tately (No. 11552) both reached their eighteenth birthday before the juvenile court had made any adjudication or held any hearing on the merits of the case, and no transfer hearing was necessary because the juvenile court had no jurisdiction. We agree with this contention.
The authorities from other states generally hold that a juvenile who has reached his eighteenth birthday before being tried as a juvenile or before an adjudication of delinquency cannot validly be tried in juvenile court. Our cases, Caruso v. Superior Court, supra, and Friedman v. Juvenile Court, supra, are analogous in holding that juvenile court is without jurisdiction to adjudicate a person dependent who is over the age of eighteen.
Our state's constitution gives the superior court, as the juvenile court, exclusive jurisdiction over children accused of crime under the age of eighteen. Ariz.Const. Art. 6, § 15. When such a person is no longer a child under the age of eighteen the juvenile court has no jurisdiction to try him.
Nor do the statutes A.R.S. § 8-202(D) or A.R.S. § 8-246(A) grant jurisdiction to try a person over the age of eighteen in juvenile court. The retention of jurisdiction referred to in the cited statutes is limited to those persons whom the juvenile court has adjudicated as delinquent or dependent prior to their reaching their eighteenth birthday.
Unlike Monohan and Tately, the other petitioner, Mary Louise McBeth (No. 11542) was within seven days of her eighteenth birthday when the dismissal was granted. The juvenile court had full jurisdiction of the matter. Conceivably she could have been adjudicated a delinquent, if the evidence warranted, and a disposition made which would have prevented any action in the criminal courts resulting in a criminal record. It is equally possible that she *403 could have been transferred to adult criminal prosecution as she is now. Petitioner urges that the important aspect in her case is that she never had a hearing in juvenile court, and the practice of dismissing a case to avoid a transfer hearing to await an age change for adult prosecution should be stopped.
Petitioner McBeth further argues that she has a right to a transfer hearing before being prosecuted criminally, and indeed she does as long as she is under the age of eighteen. Neither she nor any person under the age of eighteen may be prosecuted criminally unless, after hearing, the juvenile court transfers the matter to the adult side of the law for criminal prosecution. Once the petitioner reached the age of eighteen, she was subject to criminal prosecution and the juvenile court had no jurisdiction. The decision to file a petition was a matter exclusively for the prosecutor. A.R.S. § 8-233. The dismissal of the juvenile petition and case was approved by the court. This left nothing pending in the juvenile court and freed petitioner from any further control of juvenile court.
The transfer procedure required by the juvenile rules assumes a pending juvenile petition. If the petition has been dismissed there is nothing for the court to hear. The dismissal of the petition removes any control which the juvenile court had on the juvenile by reason of the petition. The juvenile, if detained, must be released, and he is free to follow his own pursuits. There has been no jeopardy because there has been no hearing on the merits.
There is nothing in the constitution or statutes which prevents the court from dismissing a juvenile action on motion of the state. We find nothing which prevents the state from later refiling the charges. Therefore, we can find no sufficient reason to invalidate the procedure used in the McBeth case.
The relief sought in both petitions is denied.
LOCKWOOD and HAYS, JJ., HAIRE, Court of Appeals, Chief Judge, and EUBANK, Court of Appeals, Judge, concur.
Note: CAMERON, C.J., and STRUCKMEYER, V.C.J., did not participate in the determination of this matter. HAIRE, C.J., Court of Appeals, Chief Judge, Division One, and EUBANK, J., Court of Appeals, Judge, Division One, sat in their stead. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1644356/ | 994 So.2d 309 (2008)
DEROSA
v.
DOUBLE-D ROOFING, INC.
No. 2D08-4680.
District Court of Appeal of Florida, Second District.
October 23, 2008.
Decision without published opinion. Mand.denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1807824/ | 813 F.Supp. 443 (1993)
Ava Tyanne JENKINS, plaintiff,
v.
CITY OF GRENADA, MISSISSIPPI and Ron Morgan, defendants.
Civ. A. No. WC 91-168-D-G.
United States District Court, N.D. Mississippi, W.D.
January 25, 1993.
*444 David G. Hill, Oxford, MS, for plaintiff.
David E. Friedman and Susan D. Fahey, Jackson, MS, for defendants.
MEMORANDUM OPINION
DAVIDSON, District Judge.
Sexual harassment is the subject of this Title VII suit, premised on the landmark 1964 Civil Rights Act, 42 U.S.C. § 2000e, et seq. Specifically, plaintiff alleges sex discrimination manifested in quid pro quo sexual harassment and a sexually hostile work environment. The complaint, filed on December 27, 1991, also states a claim for retaliation. Retaliatory measures, plaintiff asserts, were taken against her for complaining to the city of Grenada and the Equal Employment Opportunity Commission (EEOC) about the alleged harassment. As a pendent state claim, plaintiff advances a cause for intentional infliction of emotional distress, on which defendants request partial summary judgment. The complaint includes a demand for a trial by jury and seeks compensatory and punitive damages. In a motion to strike, defendants assert that if plaintiff prevails on her Title VII claims, she may only recover equitable relief, not monetary damages. Furthermore, they contend, she is not entitled to a jury trial under Title VII.
Besides moving for summary judgment on the state claim, defendants direct their Rule 56 motion to plaintiff's Title VII claims against defendant Ron Morgan, individually; any possible finding of Title VII liability against Morgan, they assert, could only be in his officialnot individualcapacity. Both motions are well taken: Defendants' motion for partial summary judgment on the pendent state claim is granted; defendants' motion to strike plaintiff's request for a jury trial and an award of damages, punitive and compensatory, is similarly granted. All of plaintiff's above-described federal claims of sexual harassment and retaliation against municipal defendant Grenada and Ron Morgan, in his official capacity, remain intact for a bench trial before the undersigned on February 8, 1993 in Oxford, Mississippi. Set forth below is the opinion of the court.
Statement of the Facts
Until health reasons prompted her resignation on September 30, 1991, plaintiff held the job of city clerk for the city of Grenada, Mississippi. She was hired for the position on October 28, 1985. Under the hierarchial scheme of Grenada's city government operative *445 then, plaintiff, as city clerk, reported to the director of finance, Eddie Ray; Ray, as director of finance, reported to the city manager, a position then held by Jim Turner. In the course of giving deposition testimony, plaintiff acknowledged that she had received a reprimand from Ray while under his supervision and authority. (Pl.'s Dep. at 53.) The reprimand was ultimately removed from plaintiff's personnel file.[1]
Sometime during the period when she was working under Ray, plaintiff composed a memorandum charging him with sexual harassment. The memo was not addressed or sent to anyone in particular. As plaintiff explained in her deposition, "I typed a note, it wasn't to anybody, ... I put my feelings on paper."
The trouble between plaintiff and Ray occurred prior to defendant Morgan's employment with defendant Grenada. During plaintiff's initial two years in the city clerk post, defendant was not even a city employee Morgan was not employed with defendant municipality until 1987. In fact, for approximately the first four years of her employment as city clerk, plaintiff had no dealings with defendant Ron Morgan. Plaintiff first encountered defendant in her work as city clerk after he became city manager in 1989, the same year the city of Grenada began reorganization of its government. Changes in Grenada's governmental structure eliminated the office of city finance manager; duties and responsibilities of the position were subsequently assigned to the city clerk's office. Reorganization changed the order of reporting; it abolished the position of director of finance; rather than to the director of finance, the city clerk now reported to the city manager. Consequently, defendant Morgan became plaintiff's supervisor.
The two worked amicably together for the initial period of their professional relationship. Rumors circulated in City Hall that the two were carrying on an affair. Aware of these rumors but not the source, plaintiff discussed them with defendant, who likewise knew of the gossip. Shortly thereafter, trouble between them arose when defendant expressed a personal interest in plaintiff.
Defendant first expressed his sentiments for plaintiff one Friday in January, 1990 just after the two had returned from a conference in Jackson, Mississippi. Plaintiff recollects that defendant called her into his office for a conversation. During the exchange, defendant announced that he found plaintiff sexually stimulating; he wondered whether the reverse was true. By plaintiff's recount, defendant stated, "He needed to know how I felt ... to see where we could go from there." (Pl.'s Dep. at p. 66.) Claiming to be sexually excited by the plaintiff, defendant, according to plaintiff's statements in deposition, stated, "You have a way of standing in front of my desk with your hands in your pockets that arouses me ... I cannot get up from my desk when you leave." Plaintiff burst into laughter at the remark, and made her disinterest known. Furthermore, she never wanted to hear him mention the matter ever again. (Pl.'s Dep. at 77.)
Over the weekend, plaintiff became distressed over the Friday incident. When she reported for work the following Monday, she approached defendant in his office, asking him, "What do you expect me to do with that information you gave me Friday?" Defendant reiterated what he had told plaintiff: He needed to make his feelings known to plaintiff; he wanted to know whether the attraction was mutual; and where could they go from there. As she had previously, plaintiff spurned defendant's overtures, stating that she never wanted the matter raised or mentioned anymore. Despite her protests, defendant revisited the subject whenever the two were in conferences or meetings. According to plaintiff, "He wanted to make sure I was okay." (Pl.'s Dep. at 77.) Defendant continually brought up the subject into the spring of 1990. Each time, plaintiff scoffed at his proposals. Meanwhile, their *446 working relationship was quickly deteriorating. In late April, 1990, plaintiff received a poor performance review, which she attributed to her rejection of defendant's propositions. Tensions between the parties mounted as defendant's criticisms continued. Plaintiff accused defendant of being overly critical of her work, calling her deficient and threatening to build a case against her, if she did not quit. In May that same year, plaintiff complained about defendant's treatment of her to the mayor, who suggested that she file a grievance with the city council for sexual harassment, which she ultimately did. Plaintiff filed the first of two formal grievances[2] in Septemberfour months after her discussion with the mayor. The legislative body censured Morgan for poor judgment, but drew no conclusions as to whether he was guilty of sexual harassment.
On or about the time she filed her first grievance in the city council, plaintiff also filed the first of two EEOC complaints.[3] Two months earlier, on or about July 26, plaintiff sought medical treatment for a spastic colon[4] from Joseph Messina, M.D., whom she had been a patient of in 1986.[5] Dr. Messina diagnosed her condition as "irritable bowel syndrome". Messina recommended that plaintiff take a six week medical leave of absence.[6] In April, 1991, Jenkins began taking xanax for stress and anxiety. She sought further medical leave on the advice of her physician. A six week leave was granted in May, and later extended. She never returned to work and tendered her resignation that September.
LEGAL DISCUSSION
At the onset of its summary judgment analysis, the court disposes of plaintiff's state claim of extreme emotional distress. The facts, even when reviewed in a light most favorable to plaintiff, fail to suggest conduct that reasonable jurors could characterize as outrageous.
I. THE PENDENT STATE CLAIM: INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS
Meeting the requisite elements of a claim for intentional infliction of emotional distress is a tall order in Mississippi. The inquiry focuses on the conduct of the defendant rather than the physiological condition of the plaintiff. "[I]t is the nature of the act itself[not] the seriousness of [its] consequences[that] gives impetus to legal redress." Sears, Roebuck & Company v. Devers, 405 So.2d 898, 902 (Miss. 1981); McFadden v. State, 580 So.2d 1210, 1217 (Miss.1991). In fact, a plaintiff may recover damages for the intentional infliction of emotional distress even though no physiological consequences resulted. Id. (quoting Daniels v. Adkins Protective Service, Inc., 247 So.2d 710, 711 (Miss.1971).[7] Decisions rendered by the Supreme Court of Mississippi and federal courts sitting in diversity jurisdiction in the Magnolia state on intentional infliction of emotional distress claims consistently turn on whether a plaintiff satisfies the requisite elements set forth in the Restatement (Second) of Torts. To prevail, a plaintiff must demonstrate that the conduct complained of "must evoke outrage or revulsion." Mitchell v. Random House, Inc., 865 F.2d 664, 672 (5th Cir.1989). See Burris v. South Central Bell Telephone Co., 540 F.Supp. 905, *447 909 (S.D.Ms.1982) (to give rise to a claim of intentional infliction of emotional distress, conduct must be "extreme and outrageous") (quoting Restatement Second, Torts, § 46 comment (d)).
One who by extreme and outrageous conduct intentionally and recklessly causes severe emotional distress to another is subject to liability for such emotional distress, and if bodily harm to the other results from it, for such bodily harm.... [sic] generally, the case is one which the recitation of the fact to an average member of the community would arouse as a resentment against the actor, and lead him to exclaim, `outrageous.' The liability clearly does not extend to mere insults, indignities, threats, annoyances, petty oppression, or other trivialities.
Id. comment (d) (emphasis added). As an adjectival phrase, "extreme and outrageous" is somewhat difficult to define. Johnson v. Merrell Dow Pharmaceuticals, Inc., 965 F.2d 31, 34 (5th Cir.1992). See Wilson v. Monarch Paper Company, 939 F.2d 1138, 1142 (5th Cir.1991) ("Extreme and outrageous conduct" escapes precise definition; "case is one in which [] recitation of [] facts to [] average member of [] community would lead [citizen] to exclaim, "Outrageous."). It conjures up images of atrocious conduct that breaks "all possible bounds of decency," such that it is "utterly intolerable in a civilized community." Dean v. Ford Motor Credit Company, 885 F.2d 300, 306 (5th Cir.1989) (quoting Restatement (Second) Torts, § 46, Comment (d)). In the employment context, the Fifth Circuit has repeatedly stated that a claim for intentional infliction of emotional distress will not lie for mere "employment disputes." Johnson, 965 F.2d at 33. See Monarch Paper, 939 F.2d at 1143 (constructive discharge of employee through creation of unpleasant and onerous work conditions, as deplorable as such conduct sometimes may be, is not the sort of behavior or treatment that constitutes "extreme and outrageous" conduct). Most of the conduct complained of by plaintiff falls into the wide ranging category, "employment disputes": unfair criticism of job performance, poor evaluations, demands that she quit or face the threat of defendant fabricating a case against her to justify termination. Although defendant Morgan's treatment of plaintiff may have been nervewracking, upsetting, and even improper, no reasonable juror could conclude that it rose to the heightened level of "extreme and outrageous." Johnson, 965 F.2d at 34. Compare with Dean, 885 F.2d at 307 (planting company checks on plaintiff to give appearance she was stealing company money took case out of ordinary realm of employment dispute and into realm of outrageous conduct). Even "draw[ing] all inferences in favor of plaintiff-nonmovant," Matsushita v. Zenith, 475 U.S. 574, 587, 106 S.Ct. 1348, 1335-56, 89 L.Ed.2d 538, 552 (1986), the court is of the opinion that plaintiff's state claim cannot survive defendants' motion for partial summary judgment. Rather than a state claim of intentional infliction of emotional distress, the conduct complained of sounds in an action under Title VII, which defendants' motion does not encompass.
II. THE TITLE VII MATTERS
Federal jurisdiction rests with this court via Title VII of the Civil Rights Act of 1964, as amended by the Equal Employment Opportunity Act of 1972, 42 U.S.C. § 2000e-2 (1981). Before addressing whether jury trials are permissible in the Title VII context, the court takes up the issue of whether, under Title VII, liability extends to an individual defendant.
A. Individual Liability
Defendants' summary judgment request is properly tailored to cover only the issue of individual liability under Title VII, neither the sexual harassment nor retaliation claim has immediate relevance.[8] The essential thrust of their argument is that defendant Morgan is not an employer by statutory definition and, therefore, is not himself liable for any infringement of plaintiff's federal rights under the civil *448 rights laws. Section 2000e(b) defines "[t]he term `employer' [as] a person engaged in an industry affecting commerce ... and any agent of such a person.... Because [defendant Morgan's] liability [if any] under Title VII is premised upon [his] role as agent of the city, any recovery to be had must be against [him] in his official, not his individual, capacity." Harvey v. Blake, 913 F.2d 226, 227-228 (5th Cir.1990) (quoting Clanton v. Orleans Parish School Board, 649 F.2d 1084 (5th Cir. 1981)). Accordingly, defendants are entitled to summary judgment as to defendant Morgan's individual liability.
B. Defendants' Motion to Strike Plaintiff's Request for: 1) a Jury; and 2) Compensatory and Punitive Damages
1. Jury Trials and Title VII
With passage of the 1991 Civil Rights Act, which President Bush signed into law on November 21, 1991, discrimination claimants now enjoy the benefit of the right to a jury trial; whereas before, they did not: Title VII simply did not provide civil rights claimants with a right to trial by jury. See Kozam v. Emerson Electric Co., 739 F.Supp. 307, 314 (N.D.Miss.1990), aff'd., 928 F.2d 401 (5th Cir.1991). See also Collier v. Northland, No. EC 91-44-D-D (N.D.Miss. May 14, 1990) (Order Striking Jury Demand). Since the new legislation's enactment, however, courts have been grappling with a glaring oversight on the part of Congress;[9] the legislative drafters entirely overlooked the question of whether the new law applies retroactively.[10] As Judge Posner appropriately phrased it, "[Congress] dumped the [retroactivity] question into the judiciary's lap" with precious little guidance. Luddington v. Indiana Bell Telephone Co., 966 F.2d 225, 227 (7th Cir.1992).
Contending that the statute applies retroactively, plaintiff attempts to stretch its provisions back to events and occurrences spanning a time frame that predates enactment of the 1991 legislation. In launching this effort, plaintiff recognizes Fifth Circuit holdings to the contrary: "[T]he Act does not retroactively apply to cases arising out of conduct occurring before the Act was enacted." Valdez v. San Antonio Chamber of Commerce, 974 F.2d 592, 595 (5th Cir.1992) (citing Johnson v. Uncle Ben's, Inc., 965 F.2d 1363 (5th Cir.1992). Nevertheless, she argues, albeit unconvincingly, that retroactive application of the Act turns on whether or not a bench trial has already been conducted. From plaintiff's point of view, the act applies retroactively, unless a nonjury trial has already taken place. In other words, following plaintiff's logic, if no bench trial has been held, then there should be retroactivity, thus entitling her to a jury trial.
As support for her argument, plaintiff cites Landgraf v. USI Film Products, 968 F.2d 427 (5th Cir.1992) and Wilson v. Belmont Homes, Inc., 970 F.2d 53 (5th Cir. 1992). Landgraf holds that retroactive application should not be given "to allow a *449 jury trial, in a Title VII claim, when ... a bench trial on such claim" was conducted prior to the effective date of the Act; it does not hold the inverse. Valdez v. San Antonio Chamber of Commerce, 974 F.2d 592, 595 (5th Cir.1992). Plaintiff is drawing a large inference from Landgraf that the court is unwilling to make, given the Fifth Circuit's repeated refusal to apply the Act retroactively. Although it did not specifically decide the retroactivity issue in Johnson, 965 F.2d at 1372, the Fifth Circuit Court of Appeals was persuaded by the decisions of three other circuits "that the Act does not apply retroactively...." See Luddington, 966 F.2d at 227; Fray v. Omaha World Herald Co., 960 F.2d 1370 (8th Cir.1992); Mozee v. American Commercial Marine Service, Co., 963 F.2d 929 (7th Cir.1992); Vogel v. Cincinnati, 959 F.2d 594 (6th Cir.1992). Finding it unnecessary to decide specifically whether the Act's amendments to Title VII apply retroactively, the court "appl[ied] a general presumption against retroactive application of substantive laws[.]" Johnson, 965 F.2d at 1372. The presumption rang harmoniously with the Supreme Court's statement that retroactivity is not favored in the law. See Bowen v. Georgetown University Hospital, 488 U.S. 204, 208, 109 S.Ct. 468, 471, 102 L.Ed.2d 493 (1988) (congressional enactments will not be construed to have retroactive effect unless their language requires it).
While the Fifth Circuit managed to avoid deciding whether the Act applied retroactively to Title VII in Johnson, it explored the issue approximately one month later and concluded, "We will not give retroactive effect to the Act's arguably substantive amendments to Title VII." Rowe, 967 F.2d at 194.
In denying plaintiff's request, the court is mindful of its earlier decision in Lynn v. United Technologies, EC-90-219-D-D (N.D.Miss. January 17, 1992). In Lynn, the court formed an initial impression (based on the scarce authority that was available at the time) that retroactivity applied. It left the question open, however, and invited the parties to further argue the issue. Ultimately, the court stayed further ruling in Lynn after being informed that the issue of retroactivity had been certified for interlocutory appeal to the Fifth Circuit by another district court.[11]
Today's action is fully reconcilable with Lynn. By no means does the court's order staying one Title VII case, mandate that all other Title VII cases must be stayed as well. Lynn was decided in January, 1992 when no Fifth Circuit authority had yet emerged. Since that time, however, the case law has been developing almost daily. Given the strong indications from recent cases in this Circuit and others that the 1991 Act is not retroactive, the interlocutory appeal in Lynn would have, in all likelihood, been similarly decided. There has been every indication that the 1991 Civil Rights Act has prospective application only. In the opinion of the undersigned, the prudent approach is to adhere to the steady line of authority flowing from Fifth Circuit pronouncements.
2. The Request for Compensatory and Punitive Damages
With respect to plaintiff's request for compensatory and punitive damages, the retroactivity issue is less involved. The Act's allowance of punitive and compensatory damage awards has no retroactive application. Retroactive application of the Act's provisions for recovery of compensatory and punitive damages for conduct predating enactment would result in manifest injustice. Valdez, 974 F.2d at 595 n. 2; Landgraf, 968 F.2d at 433.
III. Summary of Defendants' Partial Summary Judgment Request and Motion to Strike Plaintiff's Requests for Jury and Damages in Title VII claims
Having considered defendants' motion, the parties' pleadings, briefs, summary judgment evidence and the record as a whole, the undersigned holds the opinion that the state claim for intentional infliction *450 of emotional distress, and the Title VII suit against defendant Morgan individually may be disposed of summarily. Accordingly, defendants' motion for partial summary judgment relief is granted. In a nonjury case such as the present where the trial judge assumes the role of factfinder, courts "`may grant summary judgment if trial would not enhance its ability to draw inferences and conclusions.'" In re Placid Oil Co., 932 F.2d 394, 398 (5th Circuit 1991) (quoting Nunez v. Superior Oil Co., 572 F.2d 1119, 1125 (5th Cir.1978). Summary Judgment, therefore, is appropriate in the present matter at this time. Fed.R.Civ.P. 56(c).
NOTES
[1] The circumstances relating to plaintiff's reprimand concerned misrepresentation of the investment status of certain city monies. Plaintiff gave Ray an investment date of February 17, 1989. Ray later discovered that the funds were not invested until after Monday, February 20, a bank holiday. The four day lag cost Grenada approximately $2,648.
[2] Plaintiff filed a second formal grievance with the city council in March, 1991, alleging continuing harassment and retaliation.
[3] Alleging retaliation from Morgan for filing charges with the EEOC, plaintiff filed a second complaint with the agency on March, 1991.
[4] Plaintiff complained of intermittent bouts of diarrhea and constipation.
[5] In 1986, Dr. Messina treated plaintiff for angioneurotic edema, a type of allergy. (Messina's Dep. p. 6.)
[6] Separate and apart from this lawsuit, plaintiff took a second medical leave of absence from November, 1990 through January, 1991 in connection with surgery for a hysterectomy.
[7] In contrast, a medically cognizable physical illness or injury is necessary to prevail on a claim of negligent infliction of emotional distress. Negligent conduct alone does not give rise to a recovery of damages for mental anguish. Sears, 405 So.2d at 902.
[8] Where a defendant's intent and state of mind are at issue in a Title VII action, summary judgment ordinarily is inappropriate. Rosen v. Thornburgh, 928 F.2d 528, 533 (2d Cir.1991).
[9] Congressional handling of the Civil Rights Act of 1991, Pub.L. No. 102-166, 105 Stat. 1071 (1991) has been criticized for a host of other perceived blunders, including Congress' effort to limit review of the Act's legislative history when construing § 105(a) of the Statute, codified as 42 U.S.C. § 2000e-2(k), the "disparate impact" doctrine, which emerged from the Supreme Court case, Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). The legislative drafters, in composing § 105(b) of the Act directed:
No statements other than the interpretive memorandum appearing at Vol. 137 Congressional Record S 1526 (daily ed. October 25, 1991) shall be considered legislative history of, or relied upon in any way as legislative history in construing or applying, any provision of this Act that relates to Wards Cove-Business necessity/cumulation/alternative business practice. N.Y.St.B.A. Committee on Federal Legislation, Committee Report: Legislating Statutory Interpretation: The `Legislative History' Provision of the Civil Rights Act of 1991, 65 N.Y.St.B.J. 44 (January 1993).
[10] It is worth noting that "Congress passed an explicitly retroactive Civil Rights statute in 1990, which the President vetoed because of what he felt to be `unfair retroactivity rules.' Congress failed to override the veto. The House then passed another expressly retroactive bill in 1991. A bi-partisan Senate [conference] committee, however, drafted a compromise bill, S. 1745, which deleted the retroactivity provisions. This bill became law." Rowe v. Sullivan, 967 F.2d 186 (5th Cir.1992) (quoting 136 Cong.Rec.S. 16562 (daily ed. Oct. 24, 1990)).
[11] Ultimately, the undersigned entered an order of dismissal with prejudice at the behest of all parties. Lynn v. United Technologies, EC 90-219-D-D (October 26, 1992). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1883701/ | 294 F.Supp. 1299 (1968)
The UNITED STATES of America for the Use and Benefit of MALPASS CONSTRUCTION COMPANY, Inc., a Virginia Corporation, Plaintiffs,
v.
SCOTLAND CONCRETE COMPANY, Inc., a North Carolina Corporation, and Hartford Accident and Indemnity Company, a Connecticut Corporation and Ballard's Crane Service, Inc., a Virginia Corporation, Defendants.
Civ. No. 583.
United States District Court E. D. North Carolina, Elizabeth City Division.
December 5, 1968.
*1300 Joseph J. Flythe, Ahoskie, N. C., for plaintiffs.
Hall & Hall, Elizabeth City, N. C., for defendants.
OPINION
KELLAM, District Judge.
Plaintiff filed this Miller Act[1] action against Scotland Concrete Company, Incorporated (Scotland), the prime contractor, Ballard Crane Service, Incorporated (Ballard), a sub-contractor, and Hartford Accident and Indemnity Company (Hartford), surety on the prime contractor's bond given pursuant to the provisions of the Miller Act.[2]
Scotland entered into contract with the United States to construct sewage treatment facilities at the Coast Guard Air Base in Elizabeth City, North Carolina. Thereafter, Scotland contracted orally with Ballard to furnish certain materials and install steel sheet piling, excavate, when work had been done by others, to come back and pull the piling and do backfilling. After Ballard commenced the work, and when it appeared the use of the equipment and performance of the work would not be completed as quickly as had been first anticipated, Scotland agreed with Ballard to pay him some rent on use of materials and equipment if the work was not completed in 60 days.
Ballard rented from use-plaintiff (plaintiff) quantities of steel sheet piling *1301 at a rental of $50.00 per ton for the first month for some portions thereof, and $100.00 per ton per month for the first month for other piling, and for each succeeding month the rental was $4.00 per ton per month until returned, plus market value of any part which could not be re-trimmed, and where it could be retrimmed, the cost of the re-trimming, etc. Ballard took possession of the material in June 1966. It was not returned or ready for return until January 6, 1967. Thereafter, plaintiff spent approximately two weeks in cleaning and trimming the damaged piling. So far as the record discloses, Ballard has been paid in full by Scotland. No dispute exists as to the correctness of plaintiff's claim of $2,836.11.
Ballard has not appeared or answered this action, although duly served.
Scotland did not know Ballard had rented the piling from plaintiff until March 1, 1967, when it was notified of the plaintiff's claim. Around November 1, 1967, Scotland notified Ballard it had completed its work in the area where the steel piling had been installed and that Ballard might remove the piling and commence the backfilling. However, the piling was not removed until the end of December or the first of January. After the piling was returned to plaintiff and payment was not made, on March 1, 1967, plaintiff notified Scotland, with copy to the agent for the bonding company, Ballard, and the Coast Guard. On March 7, 1967, the agent for the bonding company advised plaintiff he had discussed the matter with Scotland and Scotland would contact plaintiff. On March 16, 1967, plaintiff addressed a letter to the agent for the bonding company with copies to the other parties advising Scotland had not contacted plaintiff. On March 31, 1967, plaintiff wrote the bonding company direct. Each of the notices are sufficient to meet the requirements under the statute. Fleisher Engineering & Construction Co. v. United States, 311 U.S. 15, 61 S.Ct. 81, 85 L.Ed. 12. In the case at bar it is stipulated each of the letters were timely received. Scotland and Hartford contend the notice of March 1, 1967, is not timely. That is, it was not given within 90 days after the materials were furnished. They say the 90 day period begins to run from the date they notified Ballard it could commence removal of the piling and do the backfilling. Plaintiff says the time commences to run from the date the materials were returned to it, or ready for return to it. Scotland and Hartford further say that even if they are liable for the rental, they are not liable for the repairs to the steel piling, trimming, etc.
The Miller Act is highly remedial in nature. It requires government contractors to execute a penal bond 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.A. § 270a(a) (2). It is entitled to a liberal construction and application in order to properly effectuate the intent of Congress to protect those whose labors and materials go into public projects or contribute to the prosecution of the work. United States v. Carter, 353 U.S. 210, 216, 77 S.Ct. 793, 1 L.Ed.2d 776; MacEvoy Co. v. United States, 322 U.S. 102, XXX-XXX-XXX, 64 S.Ct. 890, 88 L.Ed. 1163; Fleisher Engineering & Construction Co. v. United States, 311 U.S. 15, 18, 61 S.Ct. 81, 85 L.Ed. 12; Noland Co. v. Allied Contractors, Inc., 273 F.2d 917, 920, 921 (4th Cir. 1959). The Act not only covers those "furnishing labor and materials directly to the prime contractor, but also cover[s] those who contribute labor and materials to subcontractors." MacEvoy v. United States, supra [322 U.S. 105, 64 S.Ct. 892]; United States for use of Hill v. American Surety Co., 200 U.S. 197, 204, 26 S.Ct. 168, 50 L.Ed. 437; Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 383, 37 S.Ct. 614, 61 L.Ed. 1206.
A claim for rental use of equipment and for repairs to the equipment is covered by the Miller Act and the bond executed pursuant thereto. Illinois Surety Co. v. John Davis Co., 244 U.S. 376, 383, 37 S.Ct. 614, 61 L.Ed. 1206; *1302 United States ex rel. Carter-Schneider-Nelson, Inc. v. Campbell, 293 F.2d 816, 818 (9th Cir. 1961); Moran Towing Corp. v. M. A. Gammino Construction Co., 363 F.2d 108, 115 (1st Cir. 1966); Roane v. United States Fidelity & Guaranty Co., 378 F.2d 40, 43 (10th Cir. 1967); Massachusetts Bonding & Ins. Co. v. United States, 88 F.2d 388, 389 (5th Cir. 1937). In Illinois Surety Co. v. John Davis Company, supra [244 U.S. 383, 37 S.Ct. 617] the Court said:
The specific objection made to the claim of the United States Equipment Company, for rental of cars, track, and equipment used at the Naval Training Station and the expense of loading the plant and freight thereon to and from the station, is also unfounded. The Surety Company contends that this is not supplying "labor and materials." The equipment was used in the prosecution of the work. Material was thus supplied, although a loan serving the purpose, no purchase of it was made. The expense of loading and freight was properly included with the fixed rental as recoverable under the bond. Title Guaranty & Trust Co. v. Crane Co., 219 U.S. 24, 34, 31 S.Ct. 140, 55 L.Ed. 72.
The issue then turns as to when the notice period provided by Title 40 U.S.C.A. § 270b begins to run. That section provides that every person who has furnished labor or materials "in the prosecution of the work" provided for in the contract who has not been paid in full therefor before the expiration of a period of 90 days "after the day on which the last of the labor was done * * * or material was furnished or supplied by him for which such claim is made" shall have a right to sue on such payment bond. The time for giving such notice begins to run from the date the equipment was last available for use. In this case, the date is January 18, 1967. In fact, the equipment was in use until that date when the sheet piling was pulled and returned to plaintiff. In United States ex rel. Carter-Schneider-Nelson Inc. v. Campbell, 293 F.2d 816, 820 (9th Cir. 1961), cert. denied 368 U.S. 987, 82 S.Ct. 601, 7 L.Ed.2d 524, in dealing with this question, the Court said:
We hold the correct solution of the problem is the one advanced by appellant. It contends that the notice period runs from the time the equipment was last available for use on the project. In the instant case, the parties agreed by stipulation that December 5, 1956, was the last day on which any of the leased equipment was at the Travis job site.
To the same effect, Friebel and Hartman, Inc., etc. v. United States for use of Codell Construction Co., 238 F.2d 394, 395 (6th Cir. 1956).
In United States v. Western Electric Co., 337 F.2d 568, 572 (9th Cir. 1964), in dealing with the time when the 90 day notice begins to run, said:
We do not find the phrases "substantially performed" or "substantially completed" used in any of the decided cases. A more accurate statement of the test to be applied is whether the work was performed and the material supplied as a "part of the original contract" or for the "purpose of correcting defects, or making repairs following inspection of the project". See United States v. Gunnar I. Johnson & Son, Inc., 8 Cir. 1962, 310 F.2d 899, where the court held that two bus duck elbows were component parts of an electrical equipment distribution system, although there was no evidence "as to the cost or value of such elbows, or as to whether they were of major or minor importance".
The said material and/or equipment having been available for use until January 18, 1968, the 90 day period began to run from that date. Hence, each of the notices given on March 1, 1967, March 16, and March 31, 1967, were within said 90 day period.
Scotland and Hartford's contention that the cost of repairing and replacing the lost and/or damaged piling does not come within the statute and the *1303 terms of the bond is without merit. Illinois Surety Co. v. John Davis Co., supra; Roane v. United States Fidelity & Guaranty Co., supra; Moran Towing Corp. v. M. A. Gammino Construction Co., supra. In this last cited case, the Court at page 115, 363 F.2d, said that "in the case of rented equipment, not only does the surety's obligation include the rental, but if the principal has undertaken to repair, or to assume the expense of ordinary wear and tear, its failure to perform in this respect may be a matter covered by the bond."
Scotland's contention that it has paid Ballard in full is of no moment, as was said in Illinois Surety Co. v. John Davis Co., supra [244 U.S. 380, 37 S.Ct. 616], "he who has supplied them [labor and materials] to a subcontractor may claim under the bond, even if the subcontractor has been fully paid." See also Mankin v. United States to Use of Ludowici-Celadon Co., 215 U.S. 533, 30 S.Ct. 174, 54 L.Ed. 315.
Hence plaintiff is entitled to judgment against Ballard, Scotland, and Hartford for $2,836.11 with interest from March 31, 1967. If payment is made by Hartford, it shall be entitled to judgment over against Scotland and Ballard, and upon payment by Scotland, it shall be entitled to judgment over against Ballard.
NOTES
[1] 40 U.S.C.A. §§ 270a through 270d.
[2] Id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2396612/ | 240 Md. 72 (1965)
212 A.2d 734
GEISLER
v.
EMINIZER
[No. 375, September Term, 1964.]
Court of Appeals of Maryland.
Decided August 25, 1965.
The cause was argued before PRESCOTT, C.J., and HAMMOND, HORNEY, SYBERT and BARNES, JJ.
William O. Goldstein and Robert Hess for the appellant.
Joseph I. Huesman, with whom was Thomas F. Dempsey on the brief, for the appellee.
*73 HORNEY, J., delivered the opinion of the Court.
We are concerned on this appeal with the monetary transactions between a grandfather (Roscoe Eminizer) and a grandson (Robert Geisler). In all there were twelve transactions (totaling $6,457.13) involving five different items or matters. The grandfather asserts that all were loans. Except for the first one, the grandson insists that all were gifts. The record indicates that four of the items or matters were loans, but it is not possible to ascertain from the record before us the nature of the fifth matter.
The first item in point of time involved the transfer of $300 in cash from the grandfather to the grandson, who was then in the Coast Guard, to buy an automobile for his use while off duty. It is conceded that this was a loan, that $100 was repaid prior to suit and that the balance due was $200.
The second matter (though not in chronological order) involved the issuance of four checks over a period of ten months to the grandson aggregating $640.13[1] with which the grandson was to construct a pile driver to enable him to go in business for himself after he had completed his duties in the Coast Guard. All of these checks were marked "loan pile driver" by the grandfather after the cancelled checks had been returned to him by the bank. According to the grandfather, they constituted a loan to be repaid after the grandson began working regularly with the pile driver. But, according to the grandson, these transactions were gifts.
The third item concerned the issuance of a check for $500 (exhibit ten dated December 23, 1961) to the grandson while he was still in the Coast Guard to be used to extricate himself from a situation he had gotten into. As to this check (which the grandson endorsed to his attorney) it was stipulated that if the attorney were called as a witness he would testify that the $500 was a loan; that he had charged his client a fee of only $25 for services rendered in solving the problem; and that he *74 gave the balance of $475 to the grandson believing that he would return it to the grandfather. This was never done, but the grandson testified that the attorney told him that the grandfather had said the money was to be used to purchase the machinery he needed to operate the pile driver.
The fourth item, represented by a check for $50 (exhibit seven dated July 19, 1962), was said by the grandfather to have been a personal loan, but the grandson claimed that it was a gift.
The fifth matter (the second transaction chronologically) concerned the purchase of a boat by the grandfather for $4800 and the repairs subsequently made thereon totaling $267. The grandson was in the Coast Guard at the time the boat was bought, but he worked in a private boatyard when he was on leave. The grandfather told his grandson on one of his off-duty periods that he wanted to buy a boat to go fishing in and asked him to look for one. Shortly thereafter the grandson found a boat he thought his grandfather should see and the grandfather, after looking it over, purchased the boat. It was paid for by a check (exhibit one dated July 22, 1962) on which the grandfather belatedly wrote "boat money." Although he referred to it as "my boat," the grandfather caused the boat to be titled in the name of the grandson so that, as the grandfather testified, no one could take it away from him (the grandson) in case he (the grandfather) should die. But, according to the grandson, the boat was so titled because his grandfather had never done anything for him and wanted him to have something. As to this, it was stipulated that if the broker who sold the boat (the broker was also the owner of the marina where the boat was purchased) were called as a witness he would testify that the boat was a gift from the grandfather to the grandson and that he (the broker) made out the application for title in the name of the grandson at the direction of the grandfather. The evidence with respect to who had possession of the boat and as to the use of it from time to time is meager and indefinite. The grandfather testified that the boat was kept in the marina where it was purchased until the grandson and the owner of the marina "had some words." When that happened the marina owner ordered the grandson to move the boat and he (the grandson) "carried it up" Stoney Creek *75 to a wharf near where he resided. The grandfather also testified that he used the boat whenever he wanted it and that he and his friends had gone out on the boat with the grandson "a couple of times." While it is likely that the grandson also used the boat whenever he desired, there was no testimony to that effect. The last time that the grandfather used the boat was on a weekend in June of 1963. On that occasion, having discovered that the boat was in bad condition, he docked it on his return at a boatyard in Bear Creek to be repaired. But the grandson, although he knew why the boat was placed in dock and that the grandfather intended to pay for the repairs, caused the Coast Guard to remove the boat from the boatyard and moor it at the wharf in Stoney Creek. The grandfather stated that he had not seen the boat since. Nor had he asked to use it because he deemed it useless since the grandson had told him that the boat was not his. The grandson testified that the boat was "still around" but there was no evidence as to whether it was usable. Following the purchase of the boat, the grandfather on four separate occasions over a period of more than nine months paid for repairs totaling $267. The grandfather testified that he gave the grandson a check for $135 to buy another steering gear but that the money was not used for that purpose. While the grandson does not deny that he was given money to buy a new steering gear, he claimed that the cost thereof was included in a check (exhibit two dated June 30, 1962) for $240.13, which, however, the grandfather claimed was money loaned for another purpose (see footnote one on page one). According to the grandfather the checks for $30 (exhibit nine dated December 2, 1961) and $50 (exhibit six dated June 21, 1962) and presumably the check for $52 (exhibit eight dated August 12, 1962), totaling $132, were also given for boat repairs. All were belatedly marked "loan," but according to the grandson all of them were gifts for his personal use or for boat equipment.
Aside from his testimony relative to the monetary transactions, the grandson sought to show that the relationship between him and his grandfather had always been amicable until the grandfather, having married a third wife after the transactions hereinbefore described had taken place, sought recovery of all monies the grandson had received. Even then, although the *76 grandfather testified that he had always assumed that he would be repaid when the business affairs of the grandson warranted repayment, it is not clear that the grandfather ever demanded repayment of all the monies particularly those expended for the boat and the repairs thereto he later claimed to have been loans.
On the evidence presented, the trial court, without filing a statement of the reasons for its decision, concluded that all transactions (except the item of $135 for a new steering gear which was either overlooked or purposely ignored) were not gifts but loans and entered judgment in favor of the grandfather against the grandson for $6322.13. We cannot say that the lower court was clearly in error in finding that the transfer of $1390.13[2] from the grandfather to the grandson constituted loans and not gifts. But we think it is clear that the court was wrong in finding that the monies expended for the boat and boat repairs, totaling $4932 (exclusive of $135 for the steering gear), constituted a loan. Whatever the transactions concerning the boat may have been they were obviously not loans. but it is not possible, on the record before us, to determine the exact nature of these transactions.
(i)
In order for there to have been a valid gift inter vivos of the $1390.13 there must have existed, in addition to the delivery and acceptance thereof, an intent on the part of the grandfather that title to as well as possession of the money was to be absolute in the grandson and was to go into immediate effect. Berman v. Leckner, 193 Md. 177, 66 A.2d 392 (1949) and cases cited therein. As to this sum, the evidence supported the finding of an intent to make a loan rather than a gift. Moreover, it was proper for the court to examine the facts to ascertain what was intended and not to be governed by the lack of formal evidence of indebtedness. Cf. Howard v. Hobbs, 125 Md. 636, 94 A. 318 (1915). See Snowden v. Reid, 67 Md. 130, 8 A. 661 *77 (1887), where the question was also whether or not a particular transaction was a gift or loan and one of the factors considered in determining that the transaction was a loan and not a gift was the fact that the check evidencing the transfer of funds was marked as a loan. The judgment must therefore be affirmed to the extent of $1390.13.
(ii)
As above indicated, the money expended for the boat and boat repairs (aggregating $5067 including the steering gear), absent positive evidence of the purpose or intention of the parties, presents a problem that cannot be determined without guessing. We shall therefore remand the case to the lower court insofar as the boat is concerned, pursuant to Maryland Rule 871 a, for further proceedings, including the taking of additional evidence, to the end that the court may fully examine the characteristics of these transactions at law or in equity and determine the nature of the dealings with respect to the boat.
Judgment affirmed to the extent of $1390.13 and reversed as to remainder; and the case is remanded for further proceedings and a determination of the nature of the transactions with respect to the boat; 1/4th of the costs to be paid by appellant and 3/4ths by appellee.
NOTES
[1] This sum consisted of a check (exhibit five dated December 7, 1961) for $100; a check (exhibit two dated June 30, 1962) for $240.13; a check (exhibit three dated August 20, 1962) for $150; and a check (exhibit four dated September 5, 1962) for $150.
[2] This sum of $1390.13 includes the balance due of $200 on the automobile loan, the $640.13 for the pile driver, the $500 (minus the counsel fee of $25) use for pile driver machinery, and the $50 for personal use. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2396614/ | 212 A.2d 715 (1965)
Ronald HARRIS
v.
Harold V. LANGLOIS, Warden.
M.P. No. 1731.
Supreme Court of Rhode Island.
August 19, 1965.
William F. Hess, Jr., for petitioner.
J. Joseph Nugent, Attorney General, Corinne P. Grande, Special Counsel, for respondent.
JOSLIN, J.
This is a petition for habeas corpus brought by Ronald Harris to determine the validity of his detention by the respondent, a detention previously challenged for different reasons. See Harris v. Langlois, 98 R.I. 387, 202 A.2d 288. The petitioner is in custody pursuant to an order of a justice of the superior court entered on February 18, 1963 committing him to the adult correctional institutions to serve a ten-year sentence for violation of a deferred sentence agreement entered into on November 23, 1955 following a plea of nolo contendere to an indictment charging him with the crime of rape. Although he was in court and before the bar, the plea of nolo contendere was entered on his behalf by counsel who at least implicitly by that action withdrew a former plea of not guilty to the *716 same indictment. We issued the writ and thereafter by leave of court the case was submitted on briefs without oral argument.
Attached to the petition was a brief which when we issued the writ we considered as though it were a part of the application for relief. Although both petition and brief purport to have been prepared by petitioner, they bear the earmarks of having been drafted by one trained in the law. Subsequent to the filing of the petition but prior to submission of the case, counsel other than the attorney who represented petitioner in the superior court entered an appearance in his behalf and filed a brief.
The petition is grounded upon allegations that petitioner was not fully apprised of the nature and effect of the plea of nolo contendere and that the failure of the trial justice to inform him thereof prior to reception of the plea deprived him of the constitutional guarantees of due process of law and the equal protection of the laws. In substance he alleges that he was denied his constitutional right to a trial by jury for the reason that he was uninformed as to the consequences of a plea of nolo contendere and was not advised thereof by the justice who accepted the plea.
In two cases decided during the current term of court we considered at length conditions justifying the vacation of a plea of nolo contendere. Lonardo v. Langlois, 98 R.I. 493, 205 A.2d 19; Cole v. Langlois, 99 R.I. 138, 206 A.2d 216. We held that at least in serious cases it is incumbent upon a trial justice before accepting such a plea to ascertain from an accused, even if represented by counsel, whether he is aware of the nature and consequences of such a plea, and to advise or admonish him as to those consequences if it appears that he is not otherwise knowledgeable thereof.
Even though no statute or rule of court in this state mandates the inquiry, a proper consideration for the rights of an accused dictates that it be made prior to the reception of the plea. In order to vacate the plea, however, a petitioner has a twofold obligation. First, he must point to a record which fails to disclose that the trial justice performed his duty, and second, he is required to negative a waiver of his right to a jury trial, and this burden he can meet only by establishing by a preponderance of the evidence that he was not otherwise aware and appreciative of the consequences of the plea.
It is clear beyond question, and respondent by implication in his return so concedes, that the stenographic record of the proceedings at which petitioner's plea of nolo contendere was received is barren even of suggestion that the required inquiry was made. Moreover, that record is likewise devoid of any indication that petitioner either through advice from counsel or otherwise was aware of the significance of the plea or its effect upon his right to a trial by jury, and in his petition he alleges in substance that he was not in fact so advised and that he had not become acquainted therewith from other sources. In short, the petitioner claims he was totally unaware of the nature and effect of the plea. His allegations, if true, would entitle him to relief. The respondent, however, in his verified return denies such of petitioner's allegations as relate to the absence of a waiver and he avers on information and belief that the petitioner was fully aware and informed both by counsel and the assistant attorney general of the nature and effect of the plea of nolo contendere and its consequences, that he was advised and knew that he was abandoning his right to a jury trial, and that his relinquishment was voluntary and intelligent.
Because some of the essentials upon which petitioner's entitlement to relief depend are in dispute, a resolution of those factual differences at an evidentiary hearing becomes a necessary precedent to a determination of the ultimate question of whether his constitutional rights have been violated. At any such hearing which, as *717 we pointed out in Lonardo, should be held in the superior court to which tribunal petitioner is referred, both parties should be afforded full opportunity to present relevant testimonial and other documentary evidene. If petitioner is there able to meet his burden by establishing that he did not voluntarily, intelligently, and intentionally waive his right to a jury trial, his plea of nolo contendere will be vacated. If the decision of that court be adverse to him, he will not be foreclosed from again applying to this court for relief, and if that be the eventuality, the petitioner will following any such evidentiary hearing be enabled to present to us a record sufficiently complete to permit a resolution of all factual disputes, differences which on the record now before us cannot be resolved other than by speculation.
For the reasons stated, the petition for habeas corpus is denied and dismissed, the writ heretofore issued is quashed, and the petitioner is remanded to the custody of the respondent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1494151/ | 101 F.2d 739 (1939)
C. E. CARNES & CO., Inc., et al.
v.
EMPLOYERS' LIABILITY ASSUR. CORPORATION, LIMITED, OF LONDON, ENGLAND.
No. 8934.
Circuit Court of Appeals, Fifth Circuit.
February 13, 1939.
*740 J. W. Hawthorn, of Alexandria, La., Charles A. McCoy, Alvin O. King, Sam H. Jones, and Richard A. Anderson, all of Lake Charles, La., and N. Curtiss Petitjean, of Rayne, La., for appellants.
Ed Rightor and W. H. Sellers, both of New Orleans, La., for appellee.
Before FOSTER, HUTCHESON, and McCORD, Circuit Judges.
McCORD, Circuit Judge.
On August 18, 1935, Employers' Liability Assurance Corporation, Ltd., of London, England, issued its policy of automobile liability insurance covering a motor truck owned by C. E. Carnes & Company, Inc., a Louisiana corporation. The limit of liability in the policy was $20,000 for bodily injuries and $5,000 for property damage. The policy was renewed in identical form on August 18, 1936, and the renewal policy was in force and effect on October 21, 1936, when the accident occurred out of which this litigation arises.
Item one of the insurance policy in question states that the occupation or business of the assured is "Handling Farm Machinery, Crane Fixtures & Paints." Item six states the purpose for which the automobile is to be used as "Commercial." Further the policy states, "2. Purpose of Use Defined. * * * (b) the term `commercial' is defined as the transportation or delivery of goods, merchandise or other materials, and uses incidental thereto, in direct connection with the named Assured's business occupation as expressed in Item 1. (c) Use of the automobile for the purposes stated includes the loading and unloading thereof."
On October 21, 1936, Carnes & Company placed on its truck a removable metal tank containing five hundred gallons of liquid butane gas. The assured's employees, in unloading the tank from the truck, broke off the valve cock. The liquid escaped, vaporized quickly and formed a gas heavier than air. The gas sought the ground and spread through the town of Crowley, Louisiana. It became ignited and killed and injured a number of people and destroyed and damaged much property.
Claims for personal injuries and property damage were made against C. E. Carnes & Company, Inc. This company in turn called upon the Insurance Company to compensate for damage done by the gas. The Insurance Company declined to assume liability, contending that the insurance of the truck did not extend to and cover the hauling and unloading of butane gas.
Plaintiff, Insurance Company, brought this suit (Judicial Code, § 274d, 28 U.S.C. A. § 400) for a declaratory judgment against its assured, C. E. Carnes & Company, Inc., and against the other defendants who were injured or whose property had been damaged by the explosion of the butane gas. It alleged that a controversy had arisen as to its duty to defend claims against the assured resulting from the explosion and prayed for a judgment declaring its "rights, obligations and other legal relations * * * under its policy."
The case was heard on its merits and the court below found that the insurance policy in question did not cover damage and loss which emanated from the hauling and unloading of butane gas. A judgment was there entered which decreed that no obligation rested upon the Insurance Company to compensate the defendants under the policy, and the court enjoined them from "asserting any rights against the plaintiff herein under said policy arising out of said accident." From this judgment C. E. Carnes & Company, Inc., and others, have appealed to this court.
Appellants challenge the right of the insurance company to have a declaratory judgment. They contend that there is a lack of diversity of citizenship, and they seek to set this case apart from such other cases of like import for the reason that by *741 Louisiana Law, Act 253 of 1918, amended by Act 55, of 1930, the insurance company would not be a necessary party defendant in a suit for damages.
For this insurance company to have a declaratory judgment against the defendants these elements of federal jurisdiction must exist and coexist: First, there must be a diversity of citizenship. Second, there must be, between the parties litigant, an actual controversy. Third, the amount involved must exceed the sum of $3,000.
The insurance company being a foreign corporation and each of the defendants citizens of Louisiana, there is a diversity of citizenship. By Louisiana law each of the defendants have an interest in this insurance policy and in the outcome of this suit. The amount involved is not, as appellants contend, what individual defendants claim by way of damages. This is not a tort action at all and the question of negligence vel non is not before us. The amount in controversy is the value of that which is sought to have declared free from doubt the policy for $25,000. The Louisiana Statutes providing that one bringing a suit for damages may sue the tort-feasor separately, or bring his suit against the tort-feasor and the insurance company, or against the insurer alone, have no argumentative force here.
Within the meaning of the Declaratory Judgment statute there is here a real, actual controversy admitting of relief. All the elements of federal jurisdiction were clearly shown and the court below had jurisdiction. Ætna Life Ins. Co. v. Haworth, 300 U.S. 227, 57 S. Ct. 461, 81 L. Ed. 617, 108 A.L.R. 1000; Central Surety & Ins. Corp. v. Caswell et al., 5 Cir., 91 F.2d 607; Farm Bureau Mut. Auto. Ins. Co. v. Daniel et al., 4 Cir., 92 F.2d 838; Carpenter et al. v. Edmonson, 5 Cir., 92 F.2d 895; Ætna Casualty & Surety Co. v. Yeatts et al., 4 Cir., 99 F.2d 665; Davis v. American Foundry Equipment Co., 7 Cir., 94 F.2d 441, 115 A.L.R. 1486; Stephenson v. Equitable Life Assurance Society, 4 Cir., 92 F.2d 406; Travelers Ins. Co. v. Young, D.C., 18 F. Supp. 450.
On the merits of the case the appellants bring to the fore and stress two contentions: First, that the insurance policy is sufficient on its face to cover the insured truck while transporting butane gas. Second, that appellee, as insurer, is estopped to deny coverage for the reason that its agents knew the truck was hauling butane gas.
When the first policy of insurance was issued on August 18, 1935, the assured was engaged in the business of "Handling Farm Machinery, Crane Fixtures & Paints." Crane Fixtures consisted of "plumbing, fixtures and pipe and general hardware line of the Crane type." At that time butane gas was not handled by Carnes & Company. It was not in the minds of the parties when this contract of insurance was entered into. The transportation of butane gas began four or five months after the contract of insurance. Such adventure was an afterthought. It was an undertaking that found life long after this first contract of insurance. This insurance policy was renewed in identical form on August 18, 1936. Nowhere in the contract is it suggested or remotely intimated that the coverage was to include butane gas. It is not hidden away; it is not in the writing; the evidence does not set it between the lines. Plain and unambiguous is the coverage: "Handling Farm Machinery, Crane Fixtures & Paints," and the loading and unloading of the same. The coverage of butane gas is not there.
Liquid butane gas when not under pressure vaporizes rapidly. At the low temperature of one degree above zero it will boil and vaporize. The liquid becomes gas as soon as pressure is released and it comes in contact with the atmosphere. The gas formed by vaporization is heavier than air and has a tendency to cling to the ground. It is highly inflammable and dangerous when ignited. The dangerous properties of this substance were known to Carnes & Company for its truck carried a bold-lettered sign reading "Butane Gas, Explosives."
If we can bring ourselves to read into this insurance contract a coverage of butane gas, we can just as readily read into it a coverage for the transportation of gasoline, poisons, and dynamite. To do this we must banish the parties, permit our imagination to hold sway, and write into the policy terms never contemplated by them. The effect would be the creation of a new contract.
It is contended by appellants that Dall Thomas, special agent of the Insurance Company, who inspected risks and was in the office of the company, knew that Carnes & Company were transporting butane gas on the truck. The weight of the evidence *742 does not bear out this contention and the trial court so found. There was no error in this ruling.
It is without dispute that Guy L. White, the Crowley agent of the Insurance Company, knew when the policy of insurance was renewed that Carnes & Company, Inc., was engaged in hauling butane gas on the truck. His knowledge would not, under our view of the case, bind his principal.
The appellants seek to bind the Insurance Company by the doctrine of waiver and estoppel. They cite a long line of cases establishing this rule. Gitz Sash Factory v. Union Insurance Society, 160 La. 381, 107 So. 232; Beene v. Southern Casualty Co., 168 La. 307, 121 So. 876; Michael v. Mutual Insurance Company, 10 La.Ann. 737; Union National Bank v. Manhattan Life Insurance Co., 52 La.Ann. 36, 26 So. 800; Demary v. Royal Indemnity Company, La.App., 182 So. 389. We are not unmindful of the rule laid down by these cases, and they speak the law as to the doctrine of waiver and estoppel by the conduct and declarations of insurance companies. These cases shed no light on the issue here. They point out waiver and estoppel and appellants would have them apply where coverage is sought to be extended to the hauling of butane gas, a thing the policy did not originally cover. This cannot be done.
It is well settled that conditions going to the coverage or scope of a policy of insurance, as distinguished from those furnishing a ground for forfeiture, may not be waived by implication from conduct or action. The rule is that while an insurer may be estopped by its conduct or its knowledge from insisting upon a forfeiture of a policy, the coverage or restrictions on the coverage cannot be extended by the doctrine of waiver or estoppel. The substance of the doctrine of waiver as applied in the law of insurance is that if the insurer with knowledge of facts which would bar an existing primary liability, recognizes such primary liability by treating the policy as in force, he will not thereafter be allowed to plead such facts to avoid his primary liability.
This is a case where the coverage is sought to be extended. The doctrine of waiver cannot be invoked to create a primary liability, and bring within the coverage of the policy risks not included or contemplated by its terms. Estoppel through the knowledge of Guy L. White, the agent of the Insurance Company, could operate in favor of the insured, Carnes & Company, only to relieve as against the consequences of violation of the terms of the policy and not to extend coverage. H. D. Foote Lumber Co., Inc., et al. v. Svea Fire & Life Ins. Co., 179 La. 779, 155 So. 22; Annotation, 113 A.L.R. 857-871.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1807860/ | 491 So. 2d 363 (1986)
The LOUISIANA LAND AND EXPLORATION COMPANY
v.
TEXACO, INC.
No. 86-C-0131.
Supreme Court of Louisiana.
June 23, 1986.
Rehearing Denied September 4, 1986.
*364 Gene Lafitte, George Domas, Anne Tate, Liskow & Lewis, Frederick Veters, Larry Port, Robert E. Plumb, Jr., Patrick J. Butler, James D. Hurley, New Orleans, for applicant.
Charles Marshall, Jr., David Schell, Jr., Milling, Benson, Woodward, Hillyer, Pierson & Miller, P.L.C., New Orleans, for respondent.
WATSON, Justice.
The Louisiana Land and Exploration Company (LL & E), a Maryland corporation, seeks damages from Texaco, Inc., a Delaware corporation, for Texaco's alleged failure to pay proper natural gas royalties from the production on land leased from LL & E.[1]
*365 Texaco moved for partial summary judgment as to gas being sold under contract on the effective date of the Natural Gas Policy Act of 1978.[2] Texaco argued that those royalties were controlled by Section 105 of the NGPA[3] and it was legally precluded from collecting a higher sales price which would reflect actual value. Section 105 applies to intrastate gas "sold under any existing contract." The term "existing contract" is defined as "any contract for the first sale of natural gas in effect on November 8, 1978."[4]
LL & E opposed Texaco's motion for partial summary judgment denying that the NGPA precluded Texaco from paying royalties on the true value of the gas and arguing that Texaco elected to deliver its gas to contract purchasers in lieu of other purchasers.
On cross motion, LL & E received a partial summary judgment against Texaco decreeing Texaco liable for royalties under the LL & E leases on the basis of the prices established under Section 109 of the NGPA.[5] The trial court rejected Texaco's argument that the gas was sold under contracts existing when the NGPA was adopted, because the gas was not dedicated to any particular contracts. Since Texaco chose to meet its contractual obligations with LL & E's gas, the trial court held that Section 109 controlled the price.
*366 Texaco appealed and the trial court judgment was affirmed. The Louisiana Land & Exploration v. Texaco, Inc., 478 So. 2d 926 (La.App. 4 Cir., 1985). Deciding that Texaco had improperly paid royalties calculated upon the value of the gas under NPGA Section 105 rather than Section 109, the court of appeal remanded for a determination of damages. A writ was granted to consider the court of appeal judgment. 484 So. 2d 130 (La., 1986).
In 1978, NGPA extended price controls over intrastate gas sales. Pennzoil Company v. Federal Energy Regulation Commission, 645 F.2d 360 (5 Cir., 1981), cert. den. 454 U.S. 1142, 102 S. Ct. 1000, 71 L. Ed. 2d 293 (1982); Energy Reserves Group, Inc. v. Kansas Power & Light Company, 459 U.S. 400, 103 S. Ct. 697, 74 L. Ed. 2d 569 (1983).[6] The two-fold purpose of the statute was: (1) protecting consumers by fixing the price of old or flowing gas; while (2) encouraging production by allowing higher prices for new gas. Pennzoil, supra. The regulatory scheme of the NGPA imposed price ceilings on all intrastate gas flowing and being sold under contract when the statute was enacted.[7]
Under Section 105, the maximum lawful price for first sales of natural gas under an existing intrastate contract or any successor to an existing intrastate contract depends upon the contract price in effect on the day before enactment of the NGPA. In 1978 U.S.Cong. & Ad.News 8800, 8999, Section 105 of the NGPA is discussed as follows:
"The conference agreement establishes a maximum lawful price for first sales of natural gas under an existing intrastate contract or any successor to an existing intrastate contract. The maximum lawful price depends upon the contract price in effect on the date of enactment of this Act. * * *"
There is no question that these were first sales;[8] that Texaco's were "existing" contracts; [9] and that the gas was intrastate rather than interstate.
Texaco's contracts were warranty rather than dedication contracts. However, Amoco Production Company v. Hodel, 627 F. Supp. 1375 (W.D.La., 1986) holds that Congress clearly did not intend to distinguish between warranty and dedication contracts in establishing the price ceilings of Section 105. Hodel's interpretation is in accord with the statutory purposes of the NGPA.
ECEE, Inc. v. Federal Energy Regulatory Commission, 645 F.2d 339 (5 Cir., 1981) notes that Section 109 is: "a catchall categorygas that somehow falls between the cracks of the elaborate pricing scheme in sections 102 through 108 will receive some price. It is thus a pricing provision of last resort." Section 109 states that it only applies to gas "which is not covered by any maximum lawful price under any other section of this part."[10] Thus, Section 109 is only applicable when no other section of the NGPA applies. Section 105 has precedence over Section 109. ECEE, supra.
LL & E's gas was "sold under" existing contracts.[11] The "Application" of Section 105 is governed by that term. Section 105(b) speaks of "the existing contract, to which such natural gas was subject", but, the term is used solely with respect to the "maximum lawful price" of old natural gas as distinguished from new natural gas. The statute indicates that all old gas in production would be the subject of a contract. Being "sold under" existing contracts, *367 LL & E's gas is governed by the maximum lawful price in Section 105.[12]
The apparent inequity of calculating LL & E's royalties under the contract prices negotiated by Texaco does not result from any unreasonable action by Texaco. See Henry v. Ballard & Cordell Corporation, 418 So. 2d 1334 (La.1982). "[T]he parties are operating in a heavily regulated industry." Energy Reserves Group, Inc. v. Kansas Power & Light Company, 459 U.S. 400 at 413, 103 S. Ct. 697 at 705, 74 L. Ed. 2d 569 at 582 (1983). See Shell Oil Company v. Williams, Inc., 428 So. 2d 798 (La.1983).
The lower courts erred in granting LL & E's motion for partial summary judgment.[13] Texaco is entitled to partial summary judgment decreeing that its royalty payments to LL & E on gas flowing and sold under contract as of November 8, 1978, are controlled by Section 105 of the NGPA.[14] Whether Texaco has correctly paid the royalties due under Section 105 of the NGPA, "has improperly deducted ... processing fees and other charges", and has properly paid any other royalties, remain as factual issues to be resolved at trial on the merits.
IT IS ORDERED, ADJUDGED, AND DECREED that Texaco, Inc.'s royalty obligations under the subject leases to The Louisiana Land & Exploration Company on gas flowing and sold under contract as of November 8, 1978, are controlled by Section 105 of the Natural Gas Policy Act of 1978.[15]
The judgment of the court of appeal is reversed, and the matter is remanded for trial on the merits.
REVERSED AND REMANDED.
LEMMON, J., dissents.
DENNIS, J., dissents with reasons.
CALOGERO, J., dissents and assigns reasons.
CALOGERO, Justice, dissenting.
I would affirm the judgments of the district court and the court of appeal in this case. Those courts were correct in concluding that Section 109 rather than Section 105 of the National Gas Policy Act applies.
Section 105 provides that the maximum lawful price, computed under subsection B of Section 105, shall apply, pertinently, to natural gas sold under any existing contract. The "existing contract[s]" to which the statutory language in this case applies are the contracts Texaco entered into with its industrial customers ("first sale" is defined, pertinent to this case, in 15 U.S.C. § 3301(21)(A), as "any sale of any volume of natural gas(iii) to any person for use by such person."). Those are the contracts for which Section 105's maximum lawful price are applicable. Section 105, by its terms, does not apply to Texaco's contracts, or leases, with LL & E, nor to such gas as Texaco has at its disposal by virtue of those independent leases with LL & E.
*368 The only provision of Section 105 which might be read to tie the Texaco-LL & E leases to the Section 105 price limitation is Section 105(b)(1)(A), regarding the Section 105 maximum lawful price, wherein that maximum lawful price is stated to be, with a minor qualification, "the price under the terms of the existing contract [reference here is to the `first sale' contracts Texaco has with its industrial customers] to which such natural gas was subject on November 9, 1978 ..." Were Texaco's LL & E gas subject to the contract entered into between Texaco and its industrial customers, then the Section 105 price limitation would be applicable to the sale by Texaco to its industrial customers, and correspondingly the value of LL & E's gas would be, at most, the price Texaco would be permitted by Federal regulation to receive in the sales to its industrial customers. LL & E's gas, however, was not subject to the contracts which Texaco entered into years earlier with its industrial customers, because that gas was not "dedicated" to the Texaco contracts with its industrial customers. The latter contracts simply committed Texaco to provide unidentified but stated quantities of natural gas. These were warranty contracts, not dedication contracts.
The construction of the pertinent provisions of the Natural Gas Policy Act of 1978 by both the Civil District Court for the Parish of Orleans and the Louisiana Fourth Circuit Court of Appeal, which essentially comports with that contained in the preceding paragraph, surely came as no surprise to Texaco, for that construction is consistent with the opinion expressed by general counsel for the Federal Energy Regulatory Commission, the federal agency charged with administering the Natural Gas Policy Act. In a letter to Tipperary Corporation dated April 18, 1982, (Paragraph 4972, 1982 Federal Program Advisory Service), general counsel for FERC expressed the opinion that Section 105 is applicable to "the price under the terms of the existing contract to which such natural gas was subject on the date of enactment of this Act...." He expressed the view that Congress intended Section 105 to apply only to gas that was subject to an existing intrastate contract on the date of enactment. He went on to recite that "an existing contract cannot be amended to include gas that was not subject to the contract on date of enactment, otherwise producers could rearrange their contractual obligations in an area to funnel all gas production through the most beneficial contract in the area. Such a process would violate the congressional policy expressed in Section 105 to hold intrastate sellers of flowing gas to bargains reached before the date of enactment."
The majority relies heavily upon Amoco Production Co. v. Hodel, 627 F. Supp. 1375 (W.D.La.1986). That United States District Court decision, is, under its holding, not dispositive of the issue before us, for in that case ongoing production from uncommitted gas reserves was not involved, as it is here. Rather, what was involved was a prior two year period (1977-79) of delivered gas. And the United States District Court judge's determination that the price ceilings of Section 105 apply to Amoco's gas under contest in that case was not dispositive of the controversy, for the judge went on to rule in favor of Amoco's opponent, the United States government, concluding that the initial royalty evaluation by the United States Department of the Interior was proper, and was not invalidated by the later imposition of NGPA price ceilings. Furthermore, and most significantly, Amoco Production Co. v. Hodell is currently pending on appeal in the United States Fifth Circuit Court of Appeal, No. 86-4168.
In my view, Texaco, which made nonbeneficial long term gas supply contracts with intrastate industrial users, is not entitled to saddle LL & E with Federal statutory price limits, having contracted to pay LL & E the "value" of its gas. Surely they may not do so by their simply determining to continue supplying their industrial customers with LL & E gas, and without a valid argument that Section 105 of the Natural Gas Policy Act is applicable here.
*369 DENNIS, Justice, dissenting.
Although I agree basically with the statutory construction, I cannot agree that summany judgment should be granted solely on an abstract legal question.
NOTES
[1] LL & E's petition stated four causes of action:
I. First Cause of Action:
A 1928 contract between LL & E, mineral lessor, and Texaco, lessee, obligated Texaco to pay LL & E as royalties on property in Terrebonne, LaFourche, St. Charles and Jefferson Parishes: "a fair and reasonable price at the wells on ¼ of the gas so used or sold, with due regard to the character of the gas and the purpose for which it is used and the prevailing economic conditions." Under subsequent agreements, LL & E accepted Texaco's procedures for computation of the royalties pending contrary notice to Texaco. On October 15, 1981, LL & E gave written notice to Texaco demanding that the royalties be paid in accordance with the contract. On November 25, 1981, LL & E made demand for proper payment of royalties under LSA-R.S. 31:137.
II. Second Cause of Action:
As to the "WK & L Lease" from LL & E to Texaco on property in St. Mary Parish, the petition alleges that the gas produced under this lease is processed by Texaco and used to supply its intrastate industrial gas system and is not committed or dedicated by Texaco to any outside purchaser. Texaco is obliged to pay as royalty under this lease one-eighth of the "market price" at the well. As modified by the unitization agreement, Texaco is required to pay a one-eighth royalty of "reasonable value at the point of delivery in the field, which in no event shall be less than the market value at the point of delivery in the field." Texaco has allegedly failed to pay the required royalties and has improperly deducted processing fees and other charges.
III. Third Cause of Action:
The "Paragraph 26 Leases" from LL & E to Texaco on property in the Parishes of Terrebonne, LaFourche, St. John, St. Charles and Jefferson are the subject of this claim. The royalties under these leases are based on "value" which is defined "`the fair and reasonable value' at the place where used or sold, but in no event less than the highest selling price of gas then currently sold by producers under a contract of sale having a term of three (3) years or more, from any field located in: (i) a five parish area surrounding the leased premises under the Paragraph 26 Leases...."
IV. Fourth Cause of Action:
This involves the "Paragraph 38 Leases" from LL & E to Texaco on property in Terrebonne Parish. The royalties claimed under this cause of action are "a fraction of the `value' at the well of all gas produced and saved or utilized under the lease identified as item (a) of Paragraph 38 above, and a fraction of the `market value' at the well of gas used or sold under the leases...."
LL & E asked for the royalties which Texaco allegedly failed to pay, plus damages under LSA-R.S. 31:137, et seq. for double the amount of the royalties, together with interest, costs, and attorney's fees.
By supplemental petition, LL & E amended its first cause of action by adding the following paragraph:
"8-A
"The 1928 Contract also obligates Texaco to pay as royalty to LL & E `an additional 81/3% of the net profits realized at the mouth of the well' from the total production of gas from each dome described in the 1928 Contact, which net profits are to be based upon the price of gas as determined under subdivision (b) of the Eleventh Article, Paragraph (b) page nine of the 1928 Contract. * * *"
[2] 92 Stat. 3352; 15 U.S.C., § 3301, et seq.
[3] Section 105, 15 U.S.C., § 3315, provides in pertinent part:
"(a) Application.The maximum lawful price computed under subsection (b) of this section shall apply to any first sale of natural gas delivered during any month in the case of natural gas, sold under any existing contract or any successor to an existing contract, which was not committed or dedicated to interstate commerce on November 8, 1978.
"(b) Maximum lawful price
"(1) General rule.Subject to paragraphs (2) and (3), the maximum lawful price under this section shall be the lower of
"(A) the price under the terms of the existing contract, to which such natural gas was subject on November 9, 1978, as such contract was in effect on such date; or
"(B) the maximum lawful price, per million Btu's, computed for such month under section 3312 of this title (relating to new natural gas).
* * * * * *
"(c) Definition of contract price.For purposes of this section, the term `contract price', when used with respect to any specific date, means
"(1) the price paid, per million Btu's, under a contract for deliveries of natural gas occurring on such date; or
"(2) if no deliveries of natural gas occurred under such contract on such date, the price, per million Btu's, that would have been paid had such deliveries occurred on such date."
[4] 15 U.S.C., § 3301(13).
[5] Section 109, 15 U.S.C., § 3319 provides in pertinent part:
"(a) Application.The maximum lawful price computed under subsection (b) of this section shall apply to any first sale of any natural gas delivered during any month, in the case of any natural gas which is not covered by any maximum lawful price under any other section of this part, including
* * * * * *
"(3) natural gas which was not committed or dedicated to interstate commerce on November 8, 1978, and which was not subject to an existing contract on such day; ..."
[6] In the 1970's, a dramatic disparity developed between the unregulated price of intrastate gas and the lower price of federally regulated interstate gas. Shell Oil Company v. Williams, Inc., 428 So. 2d 798 (La., 1983).
[7] However, Section 105 does allow contractual price escalation clauses to continue in operation until the contract price reaches the lawful ceiling. Energy Reserves Group, Inc., supra; Pennzoil, supra.
[8] See the definition in 15 U.S.C., § 3301(21).
[9] See the definition in 15 U.S.C., § 3301(13).
[10] 15 U.S.C. § 3319.
[11] Section 105(a), 15 U.S.C., § 3315(a).
[12] Even if the language of Section 105 were not controlling, the term "subject to" in Section 109 is not synonymous with "dedicated to".
[13] The initial contrary recommendation by Commissioner Holahan was correct. He noted that: "prior to the enactment of the NGPA Texaco remitted to L.L. & E. based upon the prices it received on its sale of the gas to its Mississippi corridor customers. This method of computation for payment was accepted by L.L. & E. when the NGPA was enacted. While L.L. & E's acceptance of such method was conditioned until such time as it might choose to challenge the method, i.e., the pipeline produced prices fix the market for `market rate' purposes, there is no question that such conditioned acceptance was in effect on the date of the applicability of the NGPA and, accordingly, that price on that day became the appropriately adopted Section 105 fixed price."
[14] This is not precisely the decree requested in Texaco's motion for partial summary judgment, but it is "just, legal and proper." LSA-C.C.P. art. 2164. It resolves the primary issue affecting Texaco's liability. LSA-C.C.P. art. 966 C. The parties agree that the substantive legal issue in the case is whether Texaco's liability is governed by Section 105 or Section 109 of the NGPA.
[15] 15 U.S.C. § 3315. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2012595/ | 419 B.R. 737 (2009)
ASARCO LLC, Southern Peru Holdings, LLC, Plaintiffs,
v.
AMERICAS MINING CORPORATION, Defendant.
Civil No. 1:07-CV-00018.
United States District Court, S.D. Texas, Brownsville Division.
June 2, 2009.
*738 George Irvin Terrell, Michael C. Massengale, Rebeca Aizpuru Huddle, Samuel Wollin. Cooper, Baker Botts, L.L.P., Garland Doty Murphy, IV, Smyser, Kaplan & Veselka, L.L.P., Houston, TX, James R. Prince, Eric A. Soderlund, Fernando Rodriguez, Jr., Jack L. Kinzie, Thomas Edward O'Brien, Baker Botts, L.L.P., Dallas, TX, Kevin M. Sadler, Baker Botts, L.L.P., Austin, TX, Shelby A. Jordan, Jordan Hyden, et al., Corpus Christi, TX, Michael J, Urbis, Jordan Hyden, et al., Brownsville, TX, for Plaintiffs, Asarco LLC and Southern Peru Holdings, LLC.
Charles A. Beckham, Jr., Brian F. Antweil, Elizabeth Brooks Hamilton, Kirk L. Worley, Mark Ryan Trachtenberg, Haynes & Boone, LLP, Houston, TX, David R. Gelfand, Luc A. Despins, Stacey J. Rappaport, Alan J. Stone, Melanie Westover, Milbank, Tweed, Hadley & McCloy, LLP, New York, NY, David S. Cohen, Milbank Tweed, et al., Washington, DC, for Defendant Americas Mining Corporation.
J.A. Tony Canales, Canales & Simonson, PC, Corpus Christi, TX, for Movant Daniel Tellechea.
*739 Evelyn H. Biery, Zack A. Clement, Mark Allan Worden, Sharon Marie Beausoleil-Mayer, Fulbright Jaworski LLP, Houston, TX, Louis Raymond Strubeck, Jr., John N. Schwartz, Fulbright & Jaworski, Dallas, TX, for Intervenor Official Committee "of Unsecured Creditors of Asarco LLC.
Jacob Lee Newton, Robert T. Brousseau, Sander L. Esserman, Steven A. Felsenthal, Jo E. Hartwick, Stutzman Bromberg, et al., Dallas, TX, for Intervenor Official Committee of Unsecured Creditors of the Subsidiary Debtors.
Debra L. Innocenti, John H. Tate, II, Raymond W. Battaglia, Oppenheimer, Blend, Harrison & Tate, San Antonio, TX, for Future Claims Representative Robert C. Pate.
MEMORANDUM OPINION AND ORDER
ANDREW S. HANEN, District Judge.
On April 15, 2009, this Court entered its final judgment in the above-styled case, awarding ASARCO LLC ("ASARCO") the return of 260,093,694 shares of Common Stock ("SCC shares") of Southern Copper Corporation ("SCC") and $1,382,307,216.75 in money damages and prejudgment interest. (Doc. No. 508). On April 29, 2009, Americas Mining Corporation ("AMC") filed a Motion for Stay of Execution of Judgment Pending Appeal, asking this Court to stay the execution of both the nonmonetary and monetary portions of its final judgment through the conclusion of AMC's appeal to the Fifth Circuit. (Doc. No. 515). ASARCO filed its Response on May 18, 2009, urging the Court to refuse a stay of the nonmonetary portion altogether and to grant a stay of the monetary portion only upon provision by AMC of a full supersedeas bond. (Doc. No. 520). AMC filed a Reply on May 22, 2009 (Doc. No. 523), and a Supplemental brief on May 29, 2009. (Doc. No. 528). This Court held a hearing on May 27, 2009, to consider oral argument and testimony concerning, inter alia, AMC's Motion to Stay and now issues the following ruling.
Having considered AMC's Motion for Stay of Execution of Judgment Pending Appeal, ASARCO's Response, AMC's Reply and Supplemental brief, the argument and testimony of the hearing held May 27, 2009, as well as all relevant facts and law, AMC's Motion for Stay (Doc. No. 515) is hereby PARTIALLY GRANTED AND PARTIALLY DENIED.
Discussion
AMC requests stay of execution of this Court's judgment pursuant to Rule 62 of the Federal Rules of Civil Procedure. (Doc. 515 at 1). Rule 62 outlines various conditions for staying proceedings to enforce a judgment. AMC's request for a stay implicates sections (c) and (d) of Rule 62.[1] Rule 62(c) applies by its terms to orders involving injunctive relief. See FED.R.CIV.P. 62(C) ("Injunction Pending an Appeal. . . ."). Courts generally hold that Rule 62(d) applies only to monetary judgments. See Halliburton Energy Servs., Inc. v. NL Indus., Nos. H-05-4160, H-06-3504, 2008 WL 2787247, at *4 (S.D.Tex. July 16, 2008); United States v. Goltz, No. SA-06-CA-503-XR 2007 WL 295558, at *1 (W.D.Tex. Jan. 25, 2007) ("The applicability of Rule 62(d) turns on whether the judgment involved is monetary or nonmonetary.. . ."). Thus, Rule 62(d) applies only to the monetary portion of the Court's judgment, i.e., the $1,382,307,216.75 in money damages and prejudgment interest.
The portion of the judgment awarding the SCC shares is not a monetary judgment, *740 nor does it have all the indicia of injunctive relief. See, e.g., Donovan v. Fall River Foundry Co., 696 F.2d 524 (7th Cir.1982). In circumstances such as these, courts explain that Rule 62(c) should be "applied to an order to do, rather than an order to pay, whether or not the order to do is a conventional injunction." (Id. at 526). Return of shares of stock better approximates an order to do, rather than an order to pay, since the shares do not represent a discrete monetary value, but rather fluctuate in price on a daily basis. Further, the judgment in this respect orders the return of the shares themselves, not their equivalent value. Accordingly, for the purposes of this Order, the Court shall characterize the portion of the judgment awarding the SCC shares as an "order to do," and so apply Rule 62(c).
I. The Nonmonetary Portion of the Judgment (the SCC Shares)
Rule 62(c) provides in relevant part:
(c) Injunction Pending an Appeal
While an appeal is pending from an interlocutory order or final judgment that grants, dissolves, or denies an injunction, the court may suspend, modify, restore, or grant an injunction on terms for bond or other terms that secure the opposing party's rights.
. . .
FED.R.CIV.P. 62(c). A request for a stay pursuant to Rule 62(c) is evaluated in light of four factors: (1) whether AMC's appeal is likely to succeed on the merits; (2) whether AMC would suffer irreparable injury if the stay were denied; (3) whether granting the stay would substantially harm the other parties; and (4) whether granting the stay would serve the public interest. United States v. State of Louisiana, 815 F. Supp. 947, 949 (E.D.La.1993); see Arnold v. Garlock, Inc., 278 F.3d 426, 439-42 (5th Cir.2001); Ruiz v. Estelle, 650 F.2d 555, 565 (5th Cir.1981). If the balance of the equities (i.e., factors 2-4) "heavily" favors AMC, then it need only present (1) a substantial case on the merits (2) when a serious legal question is involved. United States v. Baylor Univ. Med. Ctr., 711 F.2d 38, 39 (5th Cir.1983).
The Court finds that the balance of equities in this particular situation heavily favors AMC. First, testimony at the hearing indicated that were this Court to deny AMC's motion and require it to immediately transfer the SCC shares to ASARCO, AMC could suffer significant adverse tax consequences, causing AMC irreparable harm. Second, granting a stay under the conditions imposed by this Order would not substantially harm any of the other parties to this suit, since the Court hereby orders that AMC deposit the SCC shares at issue in an escrow account with a neutral third party, or the Registry of the Court, during the pendency of AMC's appeal. (See infra).
ASARCO contends that a stay, by preventing ASARCO from taking possession of the stock, would deprive ASARCO of the shares' voting rights, which ASARCO maintains constitutes irreparable harm. (See Doc. No. 520 at 6). This argument fails for three reasons. First, the cases ASARCO cites for this proposition are from the Second Circuit and so do not control. Second, assuming that denial of voting rights does constitute an irreparable harm, denying the stay, and so allowing ASARCO to deprive AMC of possession of the shares during the appeal, would cause the very same "irreparable harm" to AMC precisely to the extent that AMC would be denied voting rights. Thus, if we accept ASARCO's argument, ASARCO will lose whatever it gains on the third factor (harm to ASARCO) to consideration of the second factor (harm to AMC). *741 Third, this Order provides a method for either party to obtain court approval to vote the shares upon presentation, and subsequent granting, of the appropriate motion.
The fourth factor, whether a stay would serve the public interest, also favors AMC. First, case law in this circuit indicates that this factor can be met simply by a showing that granting a stay would not disserve or interfere with the public interest. See Southerland v. Thigpen, 784 F.2d 713, 715 n. 1 (5th Cir.1986); Brown v. Braddick, 595 F.2d 961, 965 (5th Cir.1979). The Court can perceive no harm to the public interest consequent to granting a stay of the stock transfer under the terms described herein. Second, the Court finds that granting a stay in this case would in fact serve the public interest. Although argument at the hearing indicated that the various groups of creditors are split on their support of AMC's Motion for Stay, hundreds, if not thousands, of asbestos plaintiffs and those suffering from environmental damage stand to gain from this stay, while any other creditors may also gain from competition among three separate plans for confirmation in the bankruptcy proceeding. Thus, the Court finds that the balance of the equities heavily favors AMC.
If the balance of the equities heavily favors AMC, then it need only present (1) a substantial case on the merits (2) when a serious legal question is involved. A serious legal question is one "of substantial import to others." Nat'l Treasury Employees Union v. Von Raab, 808 F.2d 1057, 1059 (5th Cir.1987). The Court finds that to the extent that all three of the causes of action on which ASARCO prevailed turn on matters of law heretofore undecided by the Fifth Circuitmatters that implicate a wide range of important corporate-governance, fiduciary, and bankruptcy issues this case on the merits involves serious legal questions, i.e. questions of substantial import to others, the resolution of which could have "far-reaching effects." See Wildmon v. Berwick Universal Pictures, 983 F.2d 21, 24 (5th Cir.1992). Finally, while the case law does not necessarily take into consideration the size of the judgment in determining whether a case is "substantial", the sheer size of this judgment, which by some estimates exceeds $5 billion, certainly raises the appearance of a substantial case, and the probability of irreparable harm, thereby increasing the import of appellate review. For all these reasons, the Court finds that AMC has met its burden and grants a stay of the nonmonetary portion of the judgment under the conditions described infra.
II. The Monetary Portion of the Judgment ($1,382,307,216.75 in Money Damages and Prejudgment Interest)
Federal Rule 62(d) "establishes a general rule that losing parties in the district court can obtain a stay pending appeal only by giving a supersedeas bond." Enserch Corp. v. Shand Morahan & Co., Inc., 918 F.2d 462, 463-64 (5th Cir.1990). Rule 62(d) provides in relevant part:
(d) Stay with Bond on Appeal
If an appeal is taken, the appellant may obtain a stay by supersedeas bond.... The bond may be given upon or after filing the notice of appeal or after obtaining the order allowing the appeal. The stay takes effect when the court approves the bond.
FED.R.CIV.P. 62(d). The leading Fifth Circuit case on application of Rule 62(d) is Poplar Grove Planting and Refining Co., Inc. v. Bache Halsey Stuart, Inc. 600 F.2d 1189 (5th Cir.1979). "The purpose of a supersedeas bond is to preserve the status quo while protecting the non-appealing *742 party's rights pending appeal." Id. at 1190-91. The bond is intended to secure the non-appealing party "against any loss sustained as a result of being forced to forgo execution on a judgment during the course of an ineffectual [appeal]." Id. at 1191. Put another way, "the rationale for requiring a bond pending appeal is to secure the judgment throughout the appeal process against the possibility of the judgment debtor's insolvency." Grubb v. FDIC, 833 F.2d 222, 226 (10th Cir.1987) (citing, inter alia, Poplar Grove).
Under Poplar Grove, the general rule is that the appealing party must post a bond for the full amount of the judgment, plus costs of appeal, interest, and any estimated damages attributed to the delay. 600 F.2d at 1191 (reciting the terms of the predecessor of Federal Rule 62(d), Civil Rule 73(d), which the court holds as providing the general rule in applying 62(d)). To invoke an exception to this general rule, AMC has the burden to either: (1) demonstrate objectively a "present financial ability to facilely respond to a money judgment" and present a "financially secure plan for maintaining that same degree of solvency during the period of the appeal" or (2) demonstrate that AMC's "present financial condition is such that the posting of a full bond would impose an undue financial burden." Id. If AMC meets the first test, the Court "may then exercise a discretion to substitute some form of guaranty of judgment responsibility for the usual supersedeas bond." If AMC meets the second test, "the court similarly is free to exercise a discretion to fashion some, other arrangement for substitute security through an appropriate restraint on the judgment debtor's financial dealings...." Id. Ultimately, this precedent "instructs [that] courts possess considerable discretion to devise an alternative to posting a supersedeas bond." In re Decker Oaks Dev. II, Ltd., No. 07-35557-H4-11, 2008 WL 2812172, at *5 (Bankr.S.D.Tex. July 21, 2008).
The Court finds that AMC has demonstrated that its present financial condition is such that the posting of a full cash bond would impose an undue financial burden and that ASARCO's need for security can be satisfied by alternative means. The Court heard testimony that it would be extremely difficult, if not impossible, for AMC to provide the collateral necessary to both post a full supersedeas bond and finance its reorganization plan in the bankruptcy proceeding. Thus, if this Court were to require AMC to post a full bond, ASARCO's creditors would be denied the benefit of competition among three, rather than two, plans for creditor support. On many previous occasions in this case, this Court has noted that on a number of issues, ASARCO was standing in the shoes of its creditors and was acting for their benefit. The Court cannot now take an inconsistent view. In this sense, the burden placed on AMC by requiring a full bond would be undue to the extent that ASARCO's creditors, the ultimate judgment debtors in this case, would be harmed by losing the benefit of having a third reorganization plan on which to leverage their interests.
At least one sister court has held that several additional factors are relevant in determining whether to waive or modify the bond requirement, including: (1) the complexity of the collection process; (2) the amount of time required to obtain a judgment after it is affirmed on appeal; (3) the degree of confidence the district court has in the availability of funds to pay the judgment; (4) whether the defendant's ability to pay the bond is so plain that the cost of a bond would be a waste of money; (5) whether the defendant is in such a precarious financial position that the requirement *743 to post a bond would place other creditors of the defendant in an insecure position. Halliburton Energy Servs., Inc. v. NL Indus., Nos. H-05-4160, H-06-3504, 2008 WL 2787247, at *2 (S.D.Tex. July 16, 2008).
Two of these factors particularly favor modifying the bond requirements in this case. First, if there are other assets in addition to the SCC stock that could satisfy this judgment, the actual location of those assets is probably outside the United States, and so collection of the monetary portion of the judgment could be especially complex. Second, the Court is satisfied that the bonding arrangements described herein will secure the assets necessary to pay any ultimate judgment debtors in this case, i.e., ASARCO's creditors, in the event of an unsuccessful appeal. Moreover, by preserving AMC's ability to obtain the financing necessary to submit its reorganization plan in the bankruptcy proceeding, the Court's bonding terms will facilitate extra competition among bidders for ASARCO's assets, the benefit of which will likely redound to ASARCO's creditors.
Finally, and perhaps most importantly, it has been held that "only extraordinary circumstances will support the provision of security other than a supersedeas bond." United States v. Kurtz, 528 F. Supp. 1113, 1115 (E.D.Pa.1981) (citing, inter alia, Poplar Grove) (internal quotations omitted). The Court finds that the circumstances of this particular case are indeed extraordinary in several ways. First, as testified to at the hearing, the current global credit crisis makes securing a supersedeas bond in an amount approaching $1.4 billion even more difficult and expensive than under more normal credit conditions. Second, the relationship between the plaintiff and the defendant in this case is exceedingly unusual in that Defendant AMC still owns 100% of Plaintiff ASARCO. Third, AMC, through the parallel bankruptcy proceeding, is in a position to receive any assets in excess of allowed creditor claims, including whatever remains of the judgment against AMC in the instant case. Thus, the Court could be requiring AMC to post a bond to secure a judgment of which AMC may ultimately receive part of the proceeds. In these circumstances, requiring a full bond creates a unique possibility that the money used to acquire the bond will be wasted since AMC could possibly end up owning the very judgment it is now appealing. Third, the crux of this case has always concerned the SCC shares themselves. The monetary portion of the judgment represents dividends paid on those shares, plus accumulated interest, and while important, it has always been a secondary concern. Further, the Court heard uncontroverted testimony that AMC's principal assets consist entirely of SCC shares.[2] Thus, were ASARCO to execute on the judgment right now, it would only have access to these shares to satisfy the monetary portion of the judgment. This Court's security arrangement effectively pledges an amount of SCC shares equal to twice the value of the monetary judgment, thereby securing the judgment with precisely the collateral upon which ASARCO would have had to execute.[3]
*744 For all of these reasons, this Court is of the view that the circumstances of this case are sufficiently extraordinary to warrant a modification of the terms necessary to secure the monetary portion of the judgment. Further, the Court finds that requiring a full supersedeas bond would constitute an undue burden on AMC that would likely deprive ASARCO's creditors of the benefit of entertaining a competing reorganization plan in the bankruptcy proceeding. Accordingly, the Court has exercised its "discretion to fashion some other arrangement for substitute security through an appropriate restraint on the judgment debtor's financial dealings" in the manner set out herein and in so doing, effectively "preserve[s] the status quo while protecting the non-appealing party's rights pending appeal." Poplar Grove, 600 F.2d at 1191; id. at 1190-91.
III. Rule 62(f)
AMC urges alternatively that under Federal Rule of Civil Procedure 62(f) and applicable Texas law, AMC is entitled to supersede the monetary portion of the judgment by posting a $25 million bond. (Doc. No. 515 at 15). Rule 62(f) provides: "If a judgment is a lien on the judgment debtor's property under the law of the state where the court is located, the judgment debtor is entitled to the same stay of execution the state court would give." Fed.R.Civ.P. 62(f). Under Texas law, a judgment debtor is entitled to a stay of a money judgment pending appeal upon posting security in conformity with the following provisions:
(a) Subject to Subsection (b), when a judgment is for money, the amount of security must equal the sum of: (1) the amount of compensatory damages awarded in the judgment; (2) interest for the estimated duration of the appeal; and (3) costs awarded in the judgment. (b) Notwithstanding any other law or rule of court, when a judgment is for money, the amount of security must not exceed the lesser of: (1) 50 percent of the judgment debtor's net worth; or (2) $25 million.
TEX. CIV. PRAC. & REM.CODE § 52.006. Thus, under Rule 62(f), the required supersedeas bond for the monetary portion of the judgment cannot exceed $25 million, so long as the judgment "is a lien on [AMC's] property" under Texas law.
AMC acknowledges that "a judgment by itself is not automatically a lien under Texas law." (Doc. No. 515 at 16 (citing White v. FDIC, 19 F.3d 249, 251 n. 5 (5th Cir. 1994))). Nonetheless, AMC cites two federal district-court cases for the proposition that the extra step necessary under Texas law to turn a judgment into a lien, i.e., the recording of an abstract of judgment, is merely a "ministerial act", and so, for purposes of Rule 62(f), a judgment in Texas is effectively a lien. (Id. (citing Umbrella Bank, FSB v. Jamison, 341 B.R. 835, 842-43 (W.D.Tex.2006); Euromed, Inc. v. Gaylor, No. CIV.A. 3-97-CV-0322, 1999 WL 46224 (N.D.Tex. Jan. 22, 1999))). AMC also acknowledges, however, that a more recent case out of the Western District of Texas "parts ways with this authority," holding that preparing an abstract of judgment is not a ministerial act, and so a judgment is not a lien for purposes of Rule 62(f). (Id. (citing El Paso Indep. Sch. Dist. v. Richard R., 599 F. Supp. 2d 759 (W.D.Tex.2008))).
Given that the Fifth Circuit has yet to consider this issue, and given the particular circumstances of this caseincluding a monetary judgment roughly 52 times the maximum bond under Texas lawand the rationale underlying Rule 62(d) as explained in Poplar Grove and other cases, the Court declines to follow this unblazed trail.
*745 Bonding Requirements
1. AMC shall place 260,093,694 shares of Common Stock of Southern Copper Corporation ("SCC") (i.e., the nonmonetary portion of the judgment) in an escrow account with a neutral third party agreed to by Plaintiffs and Defendant (or if no agreement can be reached, in the Registry of the Court) subject to the terms of a mutually agreed upon escrow agreement;
2. In addition to the shares covered in paragraph 1, AMC shall place additional SCC shares in an amount equaling twice the value of $1,382,307,216.75 (the monetary portion of the judgment) in the same escrow account, again subject to the terms of a mutually agreed upon escrow agreement. In the event that the monetary value of these shares, as determined by a 20-day trailing-average share price, falls below an amount equaling 1.75 times $1,382,307,216.75, AMC shall add more SCC stock to the escrow account in the amount of such shares necessary to return the total value to double the value of $1,382,307,216.75;
3. Absent a further order of this Court, neither of the categories of shares described in paragraphs 1 and 2 (nor those shares described infra in paragraph 4) may be pledged as security, or in any other way encumbered, for any purpose other than to secure this Court's judgment in the manner described herein;
4. With respect to any dividends generated by the shares described in paragraphs 1 and 2, or by shares previously escrowed under this paragraph, between April 15, 2009, and the conclusion of AMC's appeal, AMC shall, at its discretion, either deposit such dividends into the escrow account as cash or cash equivalents or, alternatively, place an amount of unencumbered shares of Common Stock of SCC equaling twice the monetary value of such dividends into the escrow account, under the same terms and conditions described herein. AMC shall give ASARCO 10-days' notice of any impending dividend payment;
5. AMC shall immediately take all necessary steps to achieve the registration of the SCC shares;
6. The voting and non-transferability restrictions contained in this Court's Agreed Order dated April 15, 2009 (Doc. No. 509), shall apply to the shares described in paragraphs 1, 2, and 4. Either party may petition the Court at any time regarding the issue of voting or not being able to vote the shares of stock subject to this Order;
7. Any further terms and conditions regarding the bonding arrangements described herein shall be negotiated by the parties to this suit, with this Court available to resolve any disputes;
8. At the earlier of November 5, 2009, or 60 days after the date any plan, other than the plan proposed by Grupo/AMC, is confirmed by the Bankruptcy Court, AMC shall replace the security for the monetary portion of the judgment described in paragraph 2 with a supersedeas bond of $1,382,307,216.75, and the security for any dividends deposited pursuant to paragraph 4 shall be replaced with a supersedeas bond equal to the amount of the dividends. Once replaced with a bond, the amount of stock deposited by AMC pursuant to paragraphs 2 and 4 shall be returned to AMC;
9. If the Bankruptcy Court is unable to confirm a plan by November 5, 2009, or for other good cause, this Court will consider an appropriate motion for an extension of the deadline described in *746 paragraph 8, although the movant will bear the burden to show cause;
10. This Court retains jurisdiction over this Order and/or the bonding requirements involved in this case unless superseded by an order of the Fifth Circuit.
11. This Court's Order dated April 15, 2009, shall remain in effect beyond June 5, 2009, and shall remain in effect unless and until superseded by a specific provision herein, or by another order of this Court or the Fifth Circuit.[4]
12. Once the stock, cash, or cash equivalent described herein is deposited in escrow, neither party shall remove such stock, cash, or cash equivalent absent an order from this Court or the Fifth Circuit specifically authorizing withdrawal.
13. All other relief sought by either party and not contained in this Order is hereby DENIED.
NOTES
[1] AMC's request also potentially implicates section (f), as discussed infra.
[2] AMC does in theory possess one other asset, i.e. Plaintiff ASARCO, but to the extent that ASARCO is in bankruptcy, these assets would not be available to satisfy the judgment. Nor would it make sense to do so, in any case, since ASARCO would then be taking from Peter to pay Peter.
[3] The Court notes that both it and the Bankruptcy Court are in somewhat of a "chicken and egg" situation. If the bankruptcy had a plan in place, it would make this Court's analysis here easier; on the other Rand, the Bankruptcy Court would no doubt be in a better position to weigh the proposed plans were this judgment finally decided.
[4] This Court contemplates entering such a superseding order by early July 2009, once it becomes clear that the above security arrangement has been instituted or, alternatively, it becomes clear that, for whatever reason, the parties have not accomplished the security arrangements contemplated by the instant Order. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2385079/ | 877 S.W.2d 489 (1994)
Barbara SASSEN, Appellant,
v.
The TANGLEGROVE TOWNHOUSE CONDOMINIUM ASSOCIATION and KRJ Management, Inc., Appellees.
No. 06-93-00089-CV.
Court of Appeals of Texas, Texarkana.
Submitted March 17, 1994.
Decided May 31, 1994.
Rehearing Denied May 31, 1994.
*490 Sharon L. Michaels, Houston, for appellant.
Michael W. Cooper, Lueders & Boanerges, Rick S. Butler, Butler, Ewalt & Hailey, Houston, for appellees.
Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.
OPINION
CORNELIUS, Chief Justice.
Barbara Sassen appeals from the trial court's judgment notwithstanding the verdict in her suit against the Tanglegrove Townhouse Condominium Association and KRJ Management, Inc.
On December 22, 1989, a fire damaged Sassen's condominium. The condominium was located in the Tanglegrove Townhouses in Houston, Texas, and was owned and operated by the Tanglegrove Condominium Association and KRJ Management, Inc. ("the Association"). Sassen was in Florida when the fire occurred, but she returned home on December 23. She testified that a fire restoration company, Blackman Mooring, was on the scene. She went back to Florida the same day, returning to Houston on December 27. On entering her condominium, which had apparently been boarded up by Blackman Mooring, she discovered that the water pipes had frozen and the condominium had flooded. She testified that she and a friend located the water main and turned the water off. She then made arrangements to live elsewhere in Houston while repairs were made.
On January 16, 1990, the Association and its management company, KRJ Management, Inc., employed Texas General Contractors to repair the damaged units. During the weeks following, Sassen became unhappy with the manner and quality of the contractor's work. Among her complaints: some of her personal belongings had been removed from her condominium by the contractor, who left them exposed in her driveway; she wanted the smoke-blackened rafters in her attic replaced, rather than scraped and painted as the contractor intended to do; she had difficulty in getting the contractor to communicate with her; she was unhappy that the contractor was installing a "generic" air conditioner compressor instead of one similar to the brand she had had before the fire; and the condominium was not being restored to the same condition as before the fire.
In the early part of March, Sassen met with Colin Oakley of the Association, Rick Butler, the Association's attorney, and Mike Hickey of Texas General Contractors. She expressed her complaints and asked that the work be stopped and that she be allowed to employ another contractor. She said that Oakley told her that the Association had a contract with Texas General Contractors and the work would continue. After the meeting, *491 Sassen purchased a no trespassing sign and a padlock, both of which she put on her front door, denying the contractor further access to the condominium.
Sassen filed suit against the Association for breach of fiduciary duty and for wrongfully refusing to allow her to repair the condominium. She pleaded that the Association and the condominium owners are governed by a Condominium Declaration and attached a copy of the declaration to her petition. The Association answered with a general denial and filed a counterclaim for declaratory relief under the Uniform Declaratory Judgments Act, Tex.Civ.Prac. & Rem.Code Ann. §§ 37.001, et seq. (Vernon 1986 & Supp. 1994), arguing that the Condominium Declaration grants it the exclusive right to repair and reconstruct the property. The Association also subsequently specifically pleaded the Condominium Declaration as governing the rights and duties of the parties and alleged that Sassen was contributorily negligent, had failed to deal in good faith, and did not have standing as a consumer under the Deceptive Trade Practices Act.[1] Sassen added the DTPA claim and claims of breach of contract, fraud, negligence, breach of implied covenant, duty of good faith and fair dealing, and various affirmative defenses to the counterclaim, including waiver, estoppel, failure of consideration, laches, ambiguity, and subsequent oral modification of the Declaration.
The jury's verdict was generally in favor of Sassen. It found that the Association was sixty percent negligent and Sassen was forty percent negligent in causing delay in the condominium's repair; that the Association's conduct relating to the repair was arbitrary, capricious, or discriminatory; that the Association failed to comply with the provisions of the declaration of the Condominium Association; that the Association's failure to comply with the declaration was not excused by Sassen's failure to comply; that Sassen was damaged in the sum of $35,000.00 for costs of repair and $3,000.00 for time and expense; and that reasonable attorney's fees for Sassen were $16,500.00 and $8,000.00 for the Association.
The trial court disregarded the jury's answers finding that the Association failed to comply with the Condominium Declaration, that the failure was not excused, and that the cost to repair the condominium was $35,000.00. It also rendered declaratory judgment declaring that the Association has the exclusive authority to engage, contract with, direct, and control a contractor to complete the necessary repairs and restoration work resulting from the fire and ordering the Association to restore Sassen's property to substantially the same condition that existed before the fire. The trial court did not disregard the jury's finding that the Association acted arbitrarily, capriciously, or discriminatorily. In fact, it expressly provided in the judgment that such finding, among others, was incorporated in the judgment and made a part of it. The judgment further stated:
The Court has and does disregard the jury's responses to questions 6, 7 and 10(1). The Court in all other respects accepts the verdict and enters it as the verdict of the jury.
(Emphasis added.) Nevertheless, the court denied Sassen any recovery under the jury's verdict.
Sassen contends, among other things, that the trial court erred in granting judgment notwithstanding the jury's verdict. We agree and will reverse and render judgment for Sassen on the jury's verdict.
The trial court correctly declared that the Association had the exclusive authority to contract for and conduct the repairs to the condominium. The Association's declaration expressly so provides. In Section 28, it states:
28. This Declaration hereby makes mandatory the irrevocable appointment of an attorney-in-fact to deal with the property upon its destruction or obsolescence.
... All of the owners irrevocably constitute and appoint the TANGLEGROVE TOWNHOUSE CONDOMINIUM ASSOCIATION, a non-profit association, or its successor non-profit corporation, if same be hereafter organized, their true and lawful attorney in their name, place, and *492 stead, for the purpose of dealing with the property upon its destruction or obsolescence as is hereafter provided. As attorney-in-fact, the Association, by its president and secretary, shall have full and complete authorization, right and power to make, execute and deliver any contract, deed or any other instrument with respect to the interest of a condominium unit owner which are necessary and appropriate to exercise the powers herein granted. Repair and reconstruction of the improvement(s) as used in the succeeding subparagraphs means restoring the improvement(s) to substantially the same conditions in which it existed prior to the damage, with each unit and the general and limited common elements having the same vertical and horizontal boundaries as before.
The declaration also provided that the Association would be entitled to the insurance proceeds to use for repair and restoration. Sassen, however, alleged that, as her agent for such repairs, the Association violated the terms of its own agency and acted arbitrarily, capriciously, and discriminatorily, i.e., it breached its fiduciary duty.
The appointment of an attorney-in-fact creates an agency relationship. An agency creates a fiduciary relationship as a matter of law. Crim Truck & Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591 (Tex.1992); Locke v. Thigpen, 353 S.W.2d 249 (Tex.Civ.App.Houston 1961), rev'd on other grounds, 363 S.W.2d 247 (Tex.1963); Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509 (1942); RESTATEMENT (SECOND) OF AGENCY Ch. 13 (1958); 3 Tex.Jur.3d Agency § 113 (1980). A fiduciary owes its principal a high duty of good faith, fair dealing, honest performance, and strict accountability. Kinzbach Tool Co. v. Corbett-Wallace Corp., supra; Burdett v. Miller, 957 F.2d 1375 (7th Cir.1992); Crutcher-Rolfs-Cummings, Inc. v. Ballard, 540 S.W.2d 380 (Tex.Civ.App.Corpus Christi 1976, writ ref'd n.r.e.); Starr v. Ripley, 265 S.W.2d 225 (Tex.Civ.App.Austin 1954, no writ); Restatement (Second) of Agency Ch. 13 introductory note; 3 Tex.Jur.3d Agency § 113; 3 Am.Jur.2d Agency § 210 (1986). The trial court so instructed the jury.
An agent must fulfill its duties with reasonable care, diligence, good faith, and judgment, and if it fails to do so, it will be liable to its principal for the resulting damage. Restatement (Second) of Agency § 401 (1958); 3 Tex.Jur.3d Agency §§ 115, 127 (1980); 3 Am.Jur.2d Agency § 215 (1986). Even when the exercise of an agent's duties is placed in the agent's absolute discretion, the agent still must use good faith and act reasonably in the discharge of them, or it can be held liable to the principal for the resulting damages. Compare: Black Lake Pipe Line Co. v. Union Constr. Co., 538 S.W.2d 80 (Tex.1976); Cranetex, Inc. v. Precision Crane & Rigging, 760 S.W.2d 298 (Tex. App.Texarkana 1988, writ denied), involving contracts where performance is left to the absolute discretion or satisfaction of a party. It should go without saying, then, that if an agent's conduct is arbitrary, capricious, or discriminatory toward its principal, it is not in good faith, with fair dealing, and with reasonable care, skill, and diligence.
A trial court may only disregard a jury finding if there is no evidence to support the finding and may not do so merely because the great weight and preponderance of the evidence is to the contrary. Tex.R.Civ.P. 301; Alm v. Aluminum Co. of America, 717 S.W.2d 588, 594 (Tex.1986). In determining whether there was any evidence to support a jury finding, the appeals court views the evidence in the light most favorable to the verdict, considering only the evidence and inferences which support the finding and rejecting all that is contrary. Campbell v. Northwestern Nat'l Life Ins. Co., 573 S.W.2d 496, 497 (Tex.1978).
There is some evidence to support the jury's finding that the Association breached its fiduciary duty to Sassen. There is evidence that Sassen told the Association about the unsatisfactory work of the restoration contractor, its mistreatment of her personal belongings, and other matters that were concerning her, yet the Association repeatedly refused to secure another contractor, require the contractor to perform remedial actions or *493 to adequately perform the repairs. The Association repeatedly refused to allow Sassen to engage a satisfactory contractor, although it had allowed other condominium owners to do so on numerous occasions in the past. The Association refused to inspect the areas where Sassen said the work was deficient, and instead took the word of the contractor against Sassen's word. It never allowed Sassen to have any input as to how the repairs were being completed. The evidence and other evidence in the record is certainly some evidence that the Association, as Sassen's agent, breached its fiduciary duty to look after her interests with the high degree of loyalty, good faith, and reasonable care required of a fiduciary. The jury's finding that the Association acted in an arbitrary, capricious, or discriminatory manner toward its principal, Sassen, is the equivalent of a finding that it breached its fiduciary duty.
After answering that the acts of the Association were arbitrary, capricious, or discriminatory, the jury answered "no" to a following question asking, "Was such conduct a producing cause of damage" to Sassen. Yet, in Question 10 the jury answered that a total of $38,000.00 "would fairly and reasonably compensate Barbara Sassen for her damages, if any, that resulted from the conduct you have found in the questions above" (emphasis added). To the extent that the jury found that the Association's arbitrary conduct was not a producing cause of damage, the answer is against the undisputed evidence and should be disregarded. Sassen moved in the trial court to disregard that answer because the contrary was conclusively established. The answer to Question 10 is supported by evidence and should not have been disregarded.
An agent's breach of its fiduciary duty, especially when the duty arises out of a written contract of agency, is a breach of contract as well as a tort. See Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d 763 (1958), cert. denied, 358 U.S. 898, 79 S. Ct. 223, 3 L. Ed. 2d 148 (1958); InterFirst Bank Dallas, N.A. v. Risser, 739 S.W.2d 882 (Tex. App.Texarkana 1987, no writ); Crutcher-Rolfs-Cummings, Inc. v. Ballard, 540 S.W.2d 380; Restatement (Second) of Agency §§ 399, 400, 401 cmt. a (1958).
Damages for breach of contract should compensate the plaintiff by awarding the value of the expected performance. P.G. Lake, Inc. v. Sheffield, 438 S.W.2d 952 (Tex. Civ.App.Tyler 1969, writ ref'd n.r.e.); 28 TEX.JUR.3D Damages § 48 (1983). The jury here found that the delay in effecting the repairs was caused sixty percent by the Association and forty percent by Sassen, but reduction in damages under comparative negligence is applicable to negligence actions only and not to recoveries for breach of contract. Tex.Civ.Prac. & Rem.Code Ann. §§ 33.001, 33.002 (Vernon Supp.1994).
Damages suffered by Sassen resulting from the Association's negligent and arbitrary performance of its duties is the reasonable cost to her to place her condominium in the condition it was in before the fire. The jury found that amount to be $35,000.00. It also found consequential damages to her in the sum of $3,000.00 for her time spent attempting to correct the problems. Thus, Sassen should recover judgment under the jury's verdict for $38,000.00. Her recovery of this amount, however, eliminates the Association's obligation to conduct the restoration resulting from the fire in question and places that obligation on her at her own expense.
As Sassen is a prevailing party in this suit involving the breach of a contract, she is entitled to recover the attorney's fees the jury found in the amount of $16,500.00. TEX. CIV.PRAC. & REM.CODE ANN. § 38.001 (Vernon 1986); Bernal v. Garrison, 818 S.W.2d 79 (Tex.App.Corpus Christi 1991, writ denied).
Sassen also contends that the jury's failure to award attorney's fees on appeal is against the great weight and preponderance of the evidence. We do not find this to be against the great weight and preponderance of the evidence. It appears that the jury may have intended to include all reasonable attorney's fees in the award for preparation and trial, and not segregate the fees for work on appeal. If so, the award is reasonable and within the range of the evidence.
*494 It is not necessary that we rule on Sassen's other complaints. For the reasons stated, the judgment of the trial court is reversed and judgment is here rendered that Sassen recover from the Tanglegrove Townhouse Condominium Association $38,000.00 damages, together with attorney's fees of $16,500.00, with interest from date of judgment.
It is so ordered.
NOTES
[1] TEX.BUS. & COM.CODE ANN. §§ 17.41, et seq. (Vernon 1987 & Supp.1994). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2290146/ | 53 F. Supp. 2d 909 (1999)
AMERICAN AIRLINES, INC., 4333 Amon Carter Boulevard, Fort Worth, TX 76155 Plaintiff,
v.
ALLIED PILOTS ASSOCIATION, 14600 Trinity Blvd., Suite 500, Forth Worth, TX, XXXXX-XXXX
and
Richard T. LaVoy, 4100 Vista Creek Court, Arlington, TX 76016-6407 its President
and
Brian A. Mayhew, 132 Chesapeake Bay Drive, Stevensville, MD XXXXX-XXXX its Vice President
and
Robert P. Morgan, 3608 Cold Creek Drive, Valrico, FL XXXXX-XXXX its Secretary-Treasurer
and
David O. Aldrich, 221 Chasse Circle, Saint Charles, IL XXXXX-XXXX
and
Robert Ames, 17229 Balboa Point Way, Boca Raton, FL XXXXX-XXXX
and
Stanley C. Bissell, 28 Glengarry Road, Stratham, NH 03885
and
Denis M. Breslin, 894 Singing Trails Drive, Cajon, CA 92019-2756
and
Dennis DellaGreca, 456 Redding Road, West Redding, CT 06896
and
J.S. Ditty, 2809 200th Ave. E., Sumner, WA 98390
and
Ernest L. Dryer, 726 Holly Drive, Annapolis, MD XXXXX-XXXX
and
David P. Duquemin, 8 South 330 College Road, Naperville, *910 IL 60540
and
L.G. Foster, 13475 Lambert Lane West, Roanoke, TX 76262-6197
and
Daniel W. Hall, 727 Appleridge Drive, Encinitas, CA 92024
and
Charles T. Hepp, 10113 Community Lane, Fairfax Station, VA XXXXX-XXXX
and
Lloyd D. Hill, 2728 N.E. 12th Street, Pompano Beach, FL XXXXX-XXXX
and
Mark L. Hunnibell, 2611 Long Hill Road, Guilford, CT XXXXX-XXXX
and
Jeff Marchand, 49 Trask Mountain Road, P.O. Box 300, Wolfeboro, NH XXXXX-XXXX
and
Norman A. Patterson, Jr., 3406 Forestshire Court, Arlington, TX 76001-4848
and
Donald W. Pitts, 1119 Woodland Place, Sand Springs, OK XXXXX-XXXX
and
Steve Roach, 33 Prairie Falcon Drive, Novato, CA 94949-6636
and
S. Randy Trommer, 550 Edinburgh Circle, Danville, CA 94526
and
Michael R. Mellerski, 2521 Branch Oaks Lane, Lewisville, TX 75028-4696
and
John E. Darrah, 1332 Stonecrest Drive, Coppell, TX 75019-3724
and
L.P. Turcotte, 79 Beauty Hill Road, Barrington, NH XXXXX-XXXX
No. 7:99-CV-025-X.
United States District Court, N.D. Texas, Wichita Falls Division.
June 23, 1999.
*911 *912 *913 Dee J. Kelly, Donald E. Herrmann, Kelly, Hart & Hallman, P.C., Fort Worth, Texas, Harry A. Rissetto, Thomas E. Reinert, Jr., Morgan, Lewis, Bockius, L.L.P., Washington, DC, for plaintiff American Airlines, Inc.
Sanford R. Denison, Baab & Denison, Dallas, Texas, Edgar N. James, Steven K. Hoffman, James & Hoffman, P.C., Washington, DC, Robert H. Stropp, Mooney, Green, Baker, Gibson, & Saindon, P.C., Washington, DC, for the defendants.
MEMORANDUM OPINION (CONTAINING FINDINGS OF FACT AND CONCLUSIONS OF LAW) AND CONTEMPT AND DAMAGE ORDER
KENDALL, District Judge.
On February 13, 1999, the Court granted Plaintiff American Airlines, Inc.'s ("American") motion for civil contempt of court[1] against Defendants Allied Pilots Association ("APA"),[2] Union president Richard LaVoy ("LaVoy"), and Union vice-president Brian Mayhew ("Mayhew").[3] These Defendants were held in civil contempt of court, after an evidentiary hearing, for violating a Temporary Restraining Order entered on February 10, 1999 (the "TRO").[4]
As will be discussed more fully below, this Court has no choice but to hold Defendants APA, LaVoy, and Mayhew responsible for their contemptuous actions in violating this Court's TRO and to hold them accountable for the financial loss their actions caused. By their deliberate and contemptuous actions, these Defendants inflicted millions of dollars in financial losses on Plaintiff American and needlessly disrupted the lives of hundreds of thousands of travelers. Many of these persons suffered financial losses as well, and none had anything to do with this dispute. Furthermore, they had no notice of this action so that they could make realistic alternative travel arrangements.[5]
Under the facts and applicable law, this Court must award to American the compensatory damages which are attributable to these Defendants' contemptuous actions. This Court therefore awards American $45,507,280.00 in such compensatory damages, and Defendants APA, LaVoy, and Mayhew are held jointly and severally liable for these damages. Appropriate post-judgment interest is also awarded to American.
*914 A. BRIEF BACKGROUND
This drama began with the acquisition of Reno Air, Inc. ("Reno"), a relatively small air carrier, by American. On or about November 19, 1998, American announced its intention to purchase the stock of Reno through a tender offer initiated by American's wholly owned subsidiary, Bonanza Acquisitions.[6] On or about December 9, 1998, American received approval from the Department of Justice for the stock acquisition.[7] Thereafter, Bonanza Acquisitions acquired approximately 84.5% of the common stock and 99% of the preferred stock of Reno.[8] Following the Reno acquisition, American advised APA of its intent to operate Reno separately for a transition period because there were legal, operational, and business constraints that prevented integration instantaneously.[9] This proposed procedure was consistent with American's acquisition of Air Cal in 1987, which entailed American operating Air Cal as a separate carrier for a transitional period during which American and APA successfully negotiated an agreement providing for the integration of the pilot workforces.[10] However, despite the parties' prior course of dealing on this Air Cal acquisition, the APA did not agree with American's plan of action with respect to Reno. Rather, the APA took the position that American's operation of Reno with pilots not on American's Pilot Seniority List, albeit on a temporary basis, was in direct violation of the Recognition and Scope Clause of Section 1 (the "Scope Clause")[11] of the current collective bargaining agreement (the "CBA") in effect between American and the APA.[12] The APA took this position even though the language of the Scope Clause of Section 1 of the CBA in effect now is substantially identical to the Recognition and Scope language which bound American and APA at the time of the Air Cal acquisition.[13] Although the parties conducted discussions about the issues raised by the merger, those discussions were not successful in reaching a resolution regarding a number of important items.[14] Despite American's willingness to do so, the APA declined to adhere to their written agreement with regard to a remedy for an alleged violation of the Scope Clause and compel expedited binding arbitration under the CBA.[15] Section 1.L. of the current CBA contains a procedure for expediting the arbitration of grievances arising under the Scope Clause of Section 1.[16]
*915 Instead of engaging American in binding arbitration over the Scope Clause dispute before a neutral arbitrator with experience in airline industry disputes as they agreed to do in their contract, a large number of APA's pilot members began an unannounced sick-out of massive proportions.[17] Instigated by the APA and its current leadership, this sick-out entailed having pilots adding their names to the sick list in overwhelming numbers.[18] This illegal job action resulted in a tremendous number of flight cancellations due to lack of crew,[19] costing American millions of dollars in revenues,[20] and impacting hundreds of thousands of passengers throughout the country in the process.[21]
The sick-out began on February 6, 1999, and from February 6-9, 1999, over 1600 American flights had been canceled due to lack of crew.[22] On February 10, 1999, American came to this Court and sought a Temporary Restraining Order to end the sick-out.[23] After spending the better part of a day hearing from both American and the Defendants on the pertinent issues,[24] this Court signed the TRO at approximately 4:00 p.m. on February 10, 1999.[25] As with most such disputes, the action of signing the TRO should have brought an end to the transportation disruption, but sadly it was only the beginning.
It cannot be legitimately disputed that the sick-out actually increased in size after the signing of the TRO.[26] In fact, the largest number of American flight cancellations on a single day during the sick-out occurred on February 11, 1999 (the day after the TRO was signed), when almost 1200 flights were canceled that day alone.[27]*916 That same day, American filed a Motion which sought to hold Defendants in civil contempt of court for having violated the TRO,[28] and a hearing was scheduled for February 12, 1999 on the contempt motion.[29]
After hearing evidence on the contempt motion on February 12, 1999,[30] this Court issued its Order of Contempt[31] and Findings of Fact and Conclusions of Law[32] on February 13, 1999. In the Order of Contempt, Defendants APA, LaVoy, and Mayhew were adjudged to be in civil contempt of court.[33] Because the amount of actual damages suffered by American due to Defendants' contemptuous conduct was not clear on February 13, 1999, the Court required Defendant APA to place $10,000,000.00 into the Registry of the Court, Defendant LaVoy to place $10,000.00 into the Registry of the Court, and Defendant Mayhew to place $5,000.00 into the Registry of the Court pending resolution of the amount necessary to reimburse the aggrieved party (American) for the amount of money lost because of the Contemnors' conduct.[34] The Court reserved the right to remit monies to Defendants should the amount of damages ultimately awarded be less than the monies paid into the Registry of the Court.[35] A hearing was also set for February 17, 1999 on the issue of compensatory damages.[36]
On February 17, 1999, the parties again convened before this Court so that evidence could be taken on the amount of damages suffered by American due to Defendants' contemptuous conduct. American presented evidence at this February 17, 1999 hearing,[37] but Defendants did not present any evidence. Instead, Defendants requested a continuance so that they could have adequate opportunity to develop the pertinent facts bearing on damages.[38] This motion for continuance was granted, and the hearing on damages was continued until April 12, 1999.[39]
The hearing on damages reconvened on April 12, 1999 and was further continued on April 15, 1999, with Defendants presenting their case on damages and with American presenting rebuttal evidence on damages.[40] At the conclusion of the hearing on April 15, 1999, this Court announced its decision from the bench to award American $45,507,280.00 in compensatory *917 damages attributable to Defendants' contemptuous conduct.[41] The Court further instructed Defendant APA to deposit an additional $10,000,000.00 into the Registry of the Court,[42] and the Court requested briefing from the parties on the issue of whether Defendants APA, LaVoy, and Mayhew should be held jointly and severally liable for the damages awarded.[43] Since April 15, 1999, the parties have come to some agreements on various (but not all) of the issues involved in this proceeding. The Court will reference at least one of those agreements in this opinion, where appropriate. With this as a backdrop, after hearing and considering all of the evidence presented by the parties at the numerous hearings detailed above, after reviewing and considering the parties' documentary evidence and briefing, after reviewing and considering relevant case law, and after taking into account the record as a whole, the Court therefore makes the following findings of fact and conclusions of law, as set forth below.[44]
B. FINDINGS OF FACT
1. Any below-listed Conclusion of Law which should more properly be listed as a Finding of Fact is hereby incorporated by reference and adopted as a Finding of Fact.
STIPULATION OF "MINOR DISPUTE"
2. The parties have stipulated and agreed[45] (and the Court has so found[46]) that the dispute leading up to the issuance of the TRO was a "minor dispute" under the Railway Labor Act ("RLA"), 45 U.S.C. § 151 et seq. Because it was a "minor dispute," Defendants were prohibited by the RLA from engaging in the sick-out as they did.[47] The sick-out was thus an illegal job action.
*918 FINDINGS RELATED TO THE CONTEMPT PROCEEDINGS
3. All Findings of Fact herein are made by the Court, as the fact finder, by clear and convincing evidence where appropriate, after assessing the credibility of the witnesses called and the evidence adduced.
4. The Court finds that a TRO was signed by the Court on February 10, 1999 after both Plaintiff and Defendants had an opportunity to be heard in this Court on the issues presented therein.[48] The Defendants subject to the TRO were therefore aware of and knew of the TRO.[49] Counsel for the Defendants and Plaintiff conferred with the Court regarding the language and meaning of the TRO before its entry at 4:00 p.m. on February 10, 1999.[50] The Court found the underlying labor dispute to be a minor dispute.[51]
5. The Court finds that the APA (sometimes referred to herein as the "Union") was informed by the Court in open Court on February 10, 1999 and through the issuance of the TRO that American Airlines planes needed to start flying again immediately and that the unlawful sick-out of Union pilots must immediately cease.[52] Union president Richard LaVoy stated in open court that the Union would comply.[53]
6. The Court finds that the TRO contained the following provisions:
"that the Defendants, and each of them, their agents, successors, deputies, servants and employees, and all persons acting by, in concert with, through or under them, or by and through their orders, are hereby temporarily restrained pending a hearing on the preliminary injunction in this matter:
(a) From calling, permitting, instigating, authorizing, encouraging, participating in, approving or continuing any interference with American's airline operations, including but not limited to any strike, work stoppage, sick-out, slowdown or other concerted refusals to fly over a minor dispute or otherwise in violation of the RLA, 45 U.S.C., §§ 151-188 (1988).
AND IT IS FURTHER ORDERED:
(b) That the said Defendants and said other persons acting in concert with them shall take all reasonable steps within their power to prevent the aforesaid actions, and to refrain from continuing the aforesaid actions if commenced.
(c) That the said Defendants shall instruct all pilots to resume their normal working schedule, and provide Plaintiff a copy of all such instructions.
(d) That APA and the individually named Defendants notify, by the most expeditious means possible, all APArepresented *919 pilots employed by American of the issuance, contents and meaning of this Temporary Restraining Order, and produce a copy of all such messages to Plaintiff.
(e) That the notice described in (d) above include a directive from APA to those pilots who are engaging in a sick-out or other concerted refusals to fly to cease and desist all such activity and to cease and desist all exhortations or communications encouraging same.
(f) That APA and the individually named Defendants post the notice described in (d) above to APA's Internet web site, and provide a copy of the notice to the Plaintiff.
(g) That APA and the individually named Defendants include the contents of the ordering paragraphs of this Order on all recorded telephone hotlines under control of Defendants or any of them, until such time as the Court has acted on Plaintiff's Motion for a Preliminary Injunction, and provide a copy of all messages to the Plaintiff."[54]
7. The Court finds that at 7:30 p.m. Central Standard Time on February 10, 1999 (3 ½ hours after the Court's TRO), Richard LaVoy, president of the Union, sent out on the "APA Information Hotline"[55] and posted on the Internet[56] a message (collectively, the "February 10 communication") which was unreasonable under the circumstances and which was wholly inadequate and non-compliant with the TRO. This message was drafted, in part, by Union vice-president Brian Mayhew.[57]
8. The Court finds that the February 10 communication intentionally gave the impression and further conveyed to the Union membership that individual Union members did not have to comply with the TRO. As such, the Court finds that the February 10 communication violated Section (a) of the TRO in that it "permitted," "authorized," and "encouraged" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO. This was done by specifically stating that only the Union and the individual defendant Union leaders were "Defendants," thus sending the clear message that individual Union members were not covered.[58] Furthermore, *920 the Court further finds that by failing to instruct the approximate 2,300 pilots on the sick list on the evening of February 10[59] to clear the sick list on February 10, Defendants "permitted" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO, in violation of Section (a) of the TRO.
9. The Court finds that the February 10 communication violated Section (b) of the TRO in that it did not represent the taking of "all reasonable steps within [Defendants'] power to prevent" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO. Counsel argued that the Union had until 12:00 Noon on February 12 to comply. This is not true. By simply reading the TRO, it is clear that deadline was for a report to the Court of the Union's actions to get flight operations back to normal.[60] Furthermore, the Court finds that the failure on the part of Defendants on February 10 to instruct the approximate 2,300 pilots on the sick list on February 10[61] to clear the sick list after the issuance of the TRO is also an act of contempt[62] and a violation of Section (b) of the TRO. It would have been clearly reasonable (and obviously required under the TRO) to instruct the pilots on the sick list to clear the sick list so that American's operations could be restored to normal.
10. The Court finds that the February 10 communication violated Section (c) of the TRO in that it did not "instruct all pilots to resume their normal working schedule ..." This required language is simply not found anywhere in the February 10 communication.
11. The Court finds that the February 10 communication violated Section (d) of the TRO in that it did not "notify, by the most expeditious means possible, all APA-represented pilots employed by American of the ... contents and meaning" of the TRO. Again, it was made clear to the Union that the issuance of the TRO meant that American Airlines planes needed to start flying again immediately and that the unlawful sick-out of Union pilots must immediately cease.[63] The Court finds that the February 10 communication did not convey this meaning. To get the planes flying again immediately after the issuance of the TRO, it was necessary for Defendants to instruct the approximate 2,300 pilots on the sick list on February 10[64] to clear the sick list. That did not happen on February 10, which is also *921 an act of contempt.[65]
12. The Court finds that the February 10 communication violated Section (e) of the TRO in that it did not "include a directive from APA to those pilots who are engaging in a sick-out or other concerted refusals to fly to cease and desist all such activity and to cease and desist all exhortations or communications encouraging same." Again, this required language is simply not found anywhere in the February 10 communication. Section (e) of the TRO was also violated on February 10 by Defendants' failure to instruct the approximate 2,300 pilots on the sick list to clear the sick list. In order to cease and desist the illegal sick-out, it was necessary for the pilots on the sick list on February 10 to clear it. The pilots did not do so because they were not directed to do so by Defendants, which was a violation of Section (e) of the TRO.
13. The Court finds that the February 10 communication violated Section (f) of the TRO, as it is the Court's understanding that the message sent out on the "APA Information Hotline" on February 10 by Defendant LaVoy was also posted virtually verbatim on the APA's Internet web site. By posting the contemptuous and inadequate February 10 communication on the APA's Internet web page, Section (f) of the TRO was violated.
14. The Court finds that the February 10 communication violated Section (g) of the TRO, as all of the ordering paragraphs of the TRO were not contained in the February 10 communication. In fact, only one of the ordering paragraphs (Section (a)) was listed.
15. For the reasons set forth above, the Court finds that the steps taken by the Union (and Defendants LaVoy and Mayhew on behalf of the Union) to comply with the TRO on February 10, 1999 were foreseeably ineffective and would only give the impression and further convey to the Union membership that individual Union members did not have to comply with the TRO. As what should have been a surprise to no one, the sick-out actually increased.[66] The Court finds not only that this result was foreseeable, it was intended.
16. The Court finds that the unlawful sick-out of APA pilots subsequent to the issuance of the TRO continued and actually increased in numbers, all in direct violation of the TRO.[67]
17. The Court finds that the aforementioned violations of the TRO amount to a ratification of the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO. "Ratification occurs where the union's efforts to return strikers are so minimal that the union's approval or encouragement may be inferred." United States Steel Corp. v. United Mine Workers of America, Dist. 20, 598 F.2d 363, 365 (5th Cir.1979). The Court so finds ratification by the Union of the continued unlawful sick-out and charges the Union with responsibility for allowing the continued unlawful sick-out to continue in direct violation of this Court's TRO.
18. The Court believes language from United States Steel Corp. v. United Mine Workers of America, Dist. 20, 598 F.2d 363 (5th Cir.1979) is appropriately quoted here because of the language's applicability to this matter: The "return-to-work directives [are] `so lacking in authoritative forcefulness that they either were not heard *922 at all ... or were discounted as being merely stage lines parroted for the benefit of some later judicial review.'" United States Steel Corp., 598 F.2d at 366.
The Court finds that the February 10 communication was "so lacking in authoritative forcefulness that [it] either [was] not heard at all ... or [was] discounted as being merely stage lines parroted for the benefit of some later judicial review." Id.
19. The evidence demonstrates and the Court finds that the Union ran a phone bank[68] between February 7 and February 10 to call pilots and encourage them to call in sick when in fact they were not sick for the express purpose of economically damaging American Airlines "to get [American] off the dime." (Testimony of Defendant Larry Foster).[69] This amazingly candid, and damaging, testimony confirmed what common sense already compelled: that this illegal sick-out was instigated by the Union[70] and was not "spontaneous" as had been represented to the Court.[71] This illegal activity, as admitted by this Union leader, was Union orchestrated, instigated, and driven, and continued to be so as of the time of the contempt hearing on February 12, 1999. It is the Union who is responsible for the consequent damages. Logic would thus dictate that the Union could have stopped it if they chose to. At the time of the contempt hearing on February 12, 1999, they sadly had not.
20. The evidence further demonstrates that although a phone bank (in the form of a "phone tree") was operational to cause the sick-out,[72] at the time of the contempt hearing on February 12, 1999, one had not been established to call pilots to get them to stop. This is so even though from the operation of the "phone watch," they had both the lines and manpower to take this very reasonable action to end this illegal sick-out and comply with this Court's Order.[73] The Court finds it unreasonable for Contemnors to not take the same measures to end the work stoppage as they had employed to start it. The Court finds this to be a violation of Section (b) of the TRO, which requires the taking of "all reasonable steps within [Defendants'] power to prevent" the continued unlawful sick-out.
21. The majority (12) of the individual defendant union leaders were on sick status at the time of the contempt *923 hearing on February 12, 1999.[74] They were not present for the hearing.[75] The Court finds that this sent a loud and clear message to the rank and file members of the Union as to how seriously the membership should take the Court's TRO and how seriously they should take the Union's judicially ordered statements to return to work.
22. As to the individual defendants, the Court finds and believes from the evidence that Union president Richard LaVoy and vice-president Brian Mayhew could have immediately ended this sick-out and gotten American Airlines operational again if they had chosen to. The Court further finds that they were the individual defendants responsible for the February 10 communication,[76] the Union's subsequent actions and inactions,[77] and thus the APA's disobedience of the TRO.[78]
23. The Court finds that the flouting of this Court's TRO by the Union on February 10, 1999 by virtue of the February 10 communication led to the continued unlawful sick-out in increased numbers in direct violation of this Court's TRO.[79]
24. Defendants have argued that they purged their contempt as of February 11, 1999 at approximately 1:00 p.m.[80] It was then at that approximate time that the "APA Information Hotline for Thursday, February 11" went out (the "February 11 oral communication").[81] In addition, between 1:00 p.m. and 2:00 p.m. on February 11, 1999, Defendants also provided Exhibit A to Defendants' Exhibit 3 to the three APA National Officers, to the eighteen APA Board of Directors members, to the four APA Negotiating Committee members, and to numerous APA Committee Members by e-mail, fax, or hand-delivery.[82] Defendant LaVoy also convened a conference call that same day to discuss compliance with the TRO.[83] The APA also posted Exhibit A to Defendants' Exhibit 3 on the APA and domicile websites on February 11, 1999.[84] That same day, members of the APA *924 Board of Directors were instructed to post Exhibit A to Defendants' Exhibit 3 on every domicile bulletin board as soon as possible.[85] That same day, Defendant LaVoy instructed the APA print shop to prepare and mail a copy of Exhibit A to Defendants' Exhibit 3 to all members of the APA.[86] That same day, the APA sent a copy of the Court's TRO by e-mail to approximately 6,350 pilots who are listed with the APA.[87] Finally, on that same day of February 11, 1999, the APA posted a copy of the Court's TRO on its website.[88] (All of these efforts of February 11, 1999 will be collectively referred to as the "February 11 efforts"). However, as stated below, the Court finds that these February 11 efforts came too little too late and were still foreseeably inadequate to have the Union come into compliance with the TRO and end the sick-out.
25. The Court finds there is nothing said in the February 11 efforts that were not known to the Union, its leadership, and counsel that could not have been said in the February 10 communication. Nevertheless, even with the February 11 efforts, the Court rejects Contemnors' arguments to the contrary and finds that the Contemnors did not comply with the Court's TRO through their February 11 efforts.[89]
26. The Court finds that the February 11 efforts failed to comply with the TRO for at least the following reasons:[90]
a. The APA had forewarned its membership that American would probably seek court intervention and an injunction against the illegal sick out.[91]
b. The APA advised its membership through e-mail and other communications that if an injunction was granted against the sick out, then the APA's communications to its membership *925 would be censored or sanitized. For example, on the morning of February 10, 1999 (the day that the TRO was issued), APA Board Members D.D. DellaGreca and Mark Hunnibell (both named Defendants in this lawsuit) sent an e-mail that stated:
"In closing we would like to say that this could possibly be one of the last uncensored messages you receive from us. If the company obtains an injunction, your Representative's communications may be restricted. We feel that this would produce the reverse effect and further galvanize the pilot group. Remember, an injunction would apply to APA and its officers, NOT the individual pilot. You could expect hotline barrages and possibly calls from Chief Pilots or even Check Airmen asking you to fly your trips. The decision of your fitness to fly is yours, not theirs, and certainly not a judge's."[92] Jeff Marchand (also a named Defendant in this lawsuit) sent a similar message on the morning of February 10, 1999 when he stated: "It appears that American Airlines is preparing to seek an injunction against the APA. If they are successful the injunction will be against the institution and not individual pilots. Do not allow anybody to pressure you to fly if you are sick. If an injunction is ordered I may be forced to stop these updates."[93] The Court finds that these messages (and others like them) forewarned the members of the APA that they should ignore any court order ordering them to end their illegal sick-out and that they should ignore any return to work messages from the Union. In light of the fact that the APA sent out messages forewarning the members of the APA that they should ignore any court order ordering them to end their illegal sick-out and that they should ignore any return to work messages from the Union, the Court finds that the February 11 efforts violated Section (a) of the TRO in that they "permitted," "authorized," and "encouraged" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO. The Court finds that the APA could and should have instructed their members on February 11 that the prior messages to disregard any court order should themselves be disregarded. Of course, the February 11 efforts failed to do this and therefore "permitted," "authorized," and "encouraged" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO, in violation of Section (a) of the TRO. Furthermore, the Court further finds that by failing to instruct the approximate 2,400 pilots on the sick list on February 11[94] to clear the sick list on February 11, Defendants "permitted" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO, in violation of Section (a) of the TRO.
c. The Court finds that the February 11 efforts violated Section (b) of the TRO. The February 11 efforts did not represent the taking of all "reasonable steps within [Defendants'] power to prevent" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO because, in light of the fact that the APA sent out messages forewarning the members of the APA that they should ignore any court order ordering them to end their illegal sick-out and that they should ignore any return to work messages from the Union, the Court finds that the APA could and should have instructed their members on February 11 that the prior messages to disregard any court order should *926 themselves be disregarded. Of course, the February 11 efforts failed to do this and therefore did not represent the taking of all "reasonable steps within [Defendants'] power to prevent" the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO, in violation of Section (b) of the TRO. Furthermore, the Court finds that the failure on the part of Defendants on February 11 to instruct the approximate 2,400 pilots on the sick list on February 11[95] to clear the sick list after the issuance of the TRO is also an act of contempt[96] and a violation of Section (b) of the TRO. It would have been clearly reasonable (and obviously required under the TRO) to instruct the pilots on the sick list to clear the sick list so that American's operations could be restored to normal.
d. The Court finds that the February 11 efforts violated Section (d) of the TRO in that they did not "notify, by the most expeditious means possible, all APA-represented pilots employed by American of the ... contents and meaning" of the TRO. Again, it was made clear to the Union that the issuance of the TRO meant that American Airlines planes needed to start flying again immediately and that the unlawful sick-out of Union pilots must immediately cease.[97] The Court finds that the February 11 efforts did not convey this meaning. In addition, to get the planes flying again as late as February 11, it was necessary for Defendants to instruct the approximate 2,400 pilots on the sick list on February 11[98] to clear the sick list. That did not happen on February 11, which is also an act of contempt.[99]
e. The Court finds that the February 11 efforts violated Section (e) of the TRO in that they did not "include a directive from APA to those pilots who are engaging in a sick-out or other concerted refusals to fly to cease and desist all such activity and to cease and desist all exhortations or communications encouraging same." Nowhere do the February 11 efforts state that the APA is directing those pilots who are engaging in a sick-out or other concerted refusals to fly to cease and desist all such activity and to cease and desist all exhortations or communications encouraging same. In fact, because of this failure on the part of the APA on February 11, messages in violation of Section (e) of the TRO continued to be sent.[100] Section (e) of the TRO was also violated on February 11 by Defendants' failure to instruct the approximate 2,400 pilots on the sick list on February 11[101] to clear the sick list. In order to cease and desist the illegal sick-out, it was necessary for the pilots on the sick list *927 on February 11 to clear it. The pilots did not do so because they were not directed to do so by Defendants, which was a violation of Section (e) of the TRO.
f. The Court finds that the February 11 efforts violated Section (f) of the TRO. Again, it was made clear to the Union that the issuance of the TRO meant that American Airlines planes needed to start flying again immediately and that the unlawful sick-out of Union pilots must immediately cease.[102] The Court finds that the February 11 efforts (as posted on the APA's Internet web site) did not convey this meaning on the APA's Internet web site and therefore violated Section (f) of the TRO.
g. The Court finds that although the APA sponsored a passive "phone watch" commencing on February 11, 1999 at approximately 2:00 p.m.,[103] it did not effectively comply with the Temporary Restraining Order by affirmatively ordering the membership to halt the work stoppage by clearing the sick list. Instead, the script provided to the phone watch personnel only instructed pilots who happened to call in to resume their normal working schedule and "to otherwise comply" with the TRO.[104] While it is true that paragraph (c) of the TRO required an instruction for the pilots to resume their normal working schedule, the Union was informed by the Court in open Court on February 10, 1999 and through the issuance of the TRO that American Airlines planes needed to start flying again immediately and that the unlawful sick-out of Union pilots must immediately cease.[105] The Court finds that the script provided to the phone watch did not go far enough in making that point abundantly clear. The Court finds that to comply with Sections (b) and (d) of the TRO, this phone bank should have actively called pilots (in the form of a "phone tree") to instruct them to return to work. It was not enough to be in compliance for the phone bank personnel to merely sit there and wait for the phone to ring (in the form of a "phone watch").[106]
h. The Court finds that the February 11 oral communication[107] was very similar to the contemptuous February 10 communication. For example, the February 11 oral communication still contains the pejorative description of the Court's TRO as "legal maneuvering," as did the February 10 communication. Also, the February 11 oral communication also contains language stating that the TRO "does not constitute a judgment on the merits of the contractual dispute," as did the February 10 communication. The Court finds that these references to "legal maneuvering" and to the TRO not constituting "a judgment on the merits of the contractual dispute" on February 11, 1999 (and on February 10) *928 had the tendency to send a further signal to the APA's membership that they should stay off duty and not comply with the TRO. A significant difference between the February 11 oral communication and the February 10 communication is that the Contemnors deleted wording from the February 11 oral communication that implied that the pilots should stay on the sick list because the Court's Order applied only to the APA, its National Officers, its Board of Directors and its General Counsel.[108] Merely deleting that portion would not somehow now indicate to the members that the TRO now applied to them rather than the Union, its officers, its directors, and its General Counsel. The omission on the 11th did not undo the affirmative message of the 10th. It was not sufficient to comply with the TRO, especially in light of Contemnors' prior directives to the pilots to stay the course, notwithstanding any Court order. The damage had already been done and the February 11 efforts were inadequate to undo that damage, which Contemnors knew. Taking the successive messages as a whole, "sick" pilots would not know on the 11th that the TRO now really did apply to them and that they were to now clear the sick list. Again, as a surprise to no one, they didn't.[109]
i. The Court finds that the even after the February 11 oral communication was issued and the February 11 efforts were undertaken, the sick list of pilots still increased.[110] This fact further demonstrates that the February 11 efforts were not sufficient to comply with the TRO and end the illegal sick-out which the APA started.
j. The Court finds that, as an example of the "wink-and-a-nod" approach that was taken toward complying with this Court's TRO, Defendant Denis Breslin, a member of the APA Board of Directors, even went so far as to instruct the pilots based in his Domicile on February 11, 1999 at 3:54 p.m. (almost a full 24 hours after the TRO was entered) that "[a]lthough we are ordered to comply with the following TRO, it should not be construed as an order for sick pilots to return to work. If you are well, you should report for work. If you are sick you should put yourself on the sick list."[111] Again, this and other messages from Union leadership must be viewed in light of the pre-TRO battle plan that had been discussed as to how to respond to a TRO,[112] the Union's disingenuous definition of "sick" it gave to its members,[113] and the over all use of the code language implemented in communications. Advantage was attempted to be taken of the process of self reporting and self clearing by pilots who are really sick coupled with the universal agreement for the primacy of air safety. In short, the APA leadership believed that because of these facts (that is, that no Judge could determine fitness to fly) any TRO would be unenforceable and that they were thus bullet proof.
A factfinder is allowed to look at the record as a whole, make logical inferences, and generally not be required to check his or her common sense at the courtroom door.
27. For the reasons set forth above, the Court finds that the steps taken by the Union to comply with the TRO on February 11, 1999 were foreseeably ineffective and would only give *929 the impression and further convey to the Union membership that individual Union members did not have to comply with the TRO. As what should have been a surprise to no one again, the number of crew cancellations due to post TRO noncompliance actually increased.[114] The Court finds not only that this result was foreseeable, it was intended.
28. The Court finds that the aforementioned violations of the TRO by virtue of the February 11 efforts amount to a ratification of the continued unlawful sick-out of APA pilots subsequent to the issuance of the TRO. "Ratification occurs where the union's efforts to return strikers are so minimal that the union's approval or encouragement may be inferred." United States Steel Corp., 598 F.2d at 365. The Court so finds ratification by the Union of the continued unlawful sick-out and charges the Union with responsibility for allowing the continued unlawful sick-out to continue in direct violation of this Court's TRO.
29. The Court believes language from United States Steel Corp. v. United Mine Workers of America, Dist. 20, 598 F.2d 363 (5th Cir.1979) is again appropriately quoted here because of the language's applicability to this matter:
The "return-to-work directives [are] `so lacking in authoritative forcefulness that they either were not heard at all ... or were discounted as being merely stage lines parroted for the benefit of some later judicial review.'" United States Steel Corp., 598 F.2d at 366.
The Court finds that the February 11 efforts were "so lacking in authoritative forcefulness that [they] either [were] not heard at all ... or [were] discounted as being merely stage lines parroted for the benefit of some later judicial review." Id.
30. The court finds that the Contemnors knew the February 10 communication and the February 11 efforts were ineffective to end the work stoppage but did nothing to correct them. Not only was this gamesmanship outrageous, it was patently unwise to think that this transparent charade, much like the "spontaneous" sick-out, would not be seen for what it was. Although the truth of the "spontaneous" sick-out was finally admitted, there are now over 45 million reasons not to admit the truth concerning the efforts made, or lack thereof, to obey the Court and end the illegal job action as ordered.
31. The Court has already found Defendants APA, LaVoy, and Mayhew in civil contempt of court[115] and has already granted Plaintiff's motion for contempt. Plaintiff's Motion for Contempt was filed on February 11, 1999.
32. The Court finds that Contemnors were, at all times, capable of effectively communicating with the APA membership to end the work stoppage as evidenced by the fact that they did. At approximately 8:00 p.m.,[116] Central Time, on February 12, 1999, Richard LaVoy, president of the Union, after attending the Show Cause hearing on February 12, 1999 where it was readily apparent that the Court would hold at least some of the Defendants in *930 contempt,[117] recorded a new information hotline message[118] for the APA membership which stated the following:
"I want to make a personal plea to all of our pilots: the Association's leadership needs your help in complying with Judge Joe Kendall's Order. We need to get this airline back up and running at full capacity, and we need to do so quickly. Please clear the sick list immediately and resume your normal schedule. Again, APA is absolutely serious about doing all we can to comply with the judge's order, and APA's entire leadership is asking for your help in doing so." (emphasis added) (the "February 12 Hotline Message").[119]
The February 12 Hotline Message was also posted on the APA's Internet web site[120] and was sent by e-mail to approximately 6,410 members of the APA.[121] (The Court will collectively refer to all of these transmissions of the February 12 Hotline Message as the "First February 12 instruction to clear the sick list").
33. The Court finds that at approximately 8:45 p.m. on February 12, 1999, the APA National Officers and the APA Board of Directors posted the following message on the APA Internet web site:
"The APA National Officers and Board of Directors are making our best effort to comply with the Temporary Restraining Order issued by Judge Kendall on Wednesday afternoon. All of us in the APA leadership are making a personal plea to our fellow pilots to clear the sick list immediately and to resume your normal schedule. APA's leadership firmly believes it is in the best interest of the Allied Pilots to do our part to fully restore the American Airlines system. We need your help to do this and we need it now." (emphasis added) (the "Second February 12 instruction to clear the sick *931 list").[122]
The Court further finds that at approximately 8:53 p.m. on February 12, approximately 6,410 members of the APA were simultaneously sent the Second February 12 instruction to clear the sick list by e-mail.[123] The Court further finds that on the evening of February 12, Defendant LaVoy instructed that a recorded message be added to the APA phone watch line which would be heard after hours and during times that no line was open.[124] The message included the following statement: "APA's entire leadership requests our pilots clear the sick list immediately and return to their normal work schedule." (emphasis added) (the "Third February 12 instruction to clear the sick list").[125] The Court further finds that on the evening of February 12, 1999 (and into February 13), Defendant Foster and other volunteers undertook to affirmatively call fellow DFW pilots with the following message: "Fellow DFW Pilots. A message from Captain Larry Foster and Captain Norm Patterson. We are requesting that ALL pilots return to their normal work schedule immediately and clear the sick list as soon as possible. Please refer to the TRO that was issued February 10, 1999. Your professionalism is greatly appreciated." (emphasis added in bold) (the "Fourth February 12 instruction to clear the sick list").[126] The Court further finds that on the evening of February 12, Defendant LaVoy convened a conference call with the members of the APA Board of Directors and the APA Negotiating Committee in which he urged Board members to contact pilots in their domiciles and ask that they immediately clear the sick list and resume normal operations and to ask them to in turn contact their fellow pilots to request that they do the same. (emphasis added) (the "Fifth February 12 instruction to clear the sick list").[127]
34. The Court finds that after the First February 12 instruction to clear the sick list, the Second February 12 instruction to clear the sick list, the Third February 12 instruction to clear the sick list, the Fourth February 12 instruction to clear the sick list, and the Fifth February 12 instruction to clear the sick list[128] were made, the pilot sick list began to clear at a dramatic rate.[129] No longer was there any talk about to whom the TRO applied and to whom it did not apply. Gone were any coded instructions about sick pilots not returning to *932 work. This is because it was silly for anyone to believe that this Court, or that anyone in their right mind, would suggest, much less order, a pilot who is really sick to clear the sick list and go fly a jet across the country with hundreds of lives at stake.
35. Within 24 hours of the February 12 Hotline Message being issued, almost a thousand pilots came off the sick list.[130] The Court finds that this miraculous "mass healing" was directly caused by the Return to Work Directives.
36. The Court finds that prior to the Return to Work Directives, there had been no net decrease in the number of pilots on the sick list.[131] In fact, the number of pilots on the sick list actually increased from the time the Court entered its TRO on February 10, 1999 until the Return to Work Directives were made on the night of February 12, after the contempt hearing.[132]
37. The Court finds that the Return to Work Directives were the first good faith efforts by the Contemnors to comply with the terms of the TRO.
38. The Court finds that prior to the Return to Work Directives, the Contemnors had failed and refused to comply with the terms of the Court's TRO. As stated above, until the APA membership received the Return to Work Directives issued on February 12, 1999, the number of pilots on sick status had actually increased from the time this Court entered its TRO at 4:00 p.m. on February 10, 1999.[133] Based on the facts cited above, as well as the other evidence submitted and the Court's assessment of the credibility of the witnesses, the Court, as factfinder, can and does reject the Contemnors' arguments that the delay in restoring the airline was caused by collective bargaining agreement scheduling requirements or American's alleged intentional cancellation of flights where crews were available. The Court finds those arguments to simply not be supported by the credible evidence.
39. The Court finds that no prior communication from the Contemnors to the pilots contained a "personal plea" or an instruction to "clear the sick list immediately" as the Return to Work Directives did. Whether or not these words were a predetermined signal to end the sick-out, the Return to Work Directives were the Contemnors' first good faith efforts to comply with the terms of the TRO.
40. The Court finds that there was nothing that prevented the Contemnors from promptly complying with the TRO by sending the February 12 Return to Work Directives on February 10 and thus ending the sick-out other than the Contemnors' willful and deliberate refusal to obey the TRO.
41. The evidence before the Court shows that even after the Contemnors got serious about complying with the TRO (by issuing the Return to Work Directives), the APA membership was confused because the Contemnors' pre-TRO communications reasonably could be interpreted to mean that they could ignore such a communication. This confusion is evident from exhibits that include messages from individual APA members to the APA asking for clarification of the Return to Work Directives[134] and responsive communications from the APA that *933 the Union was indeed serious that the pilots should immediately clear the sick list and do everything the they could to return American to its normal flight schedule.[135] These communications substantiate that the APA's entire course of conduct had the effect of delaying and frustrating compliance with the TRO.
42. The Court finds that the Defendants ended their contempt of the Court's TRO at approximately 8:00 p.m., Central Time, on February 12, 1999 by complying with the Court's TRO. As the Court has found, that is when the February 12 Hotline Message was sent. The remainder of the Return to Work Directives were also sent near that same time.[136]
43. The Court finds that after the Contemnors issued the Return to Work Directives to the pilots, large numbers of pilots on the sick list contacted American, cleared the sick list, and generally made themselves available to fly as soon as possible by acting in ways in which they normally act in performing their jobs.[137] The vast majority of pilots did not wait to clear sick until 4:00 p.m. on the day before their next scheduled sequence as Contemnors' experts suggested would be their "normal work schedule."[138] Instead, once the APA gave the pilots the signal to end the sick out by issuing the Return to Work Directives in the evening on February 12, there was a mass clearing of the sick list.[139] Consequently, there was an immediate and mass return to actual flying under the company's normal operating procedures after the Return to Work Directives were issued on February 12.[140] The Court finds that this was accomplished because the pilots had the option to freely clear the sick list without waiting until 4:00 p.m. on the day before their next scheduled sequence to clear,[141] to volunteer to move or waive duty free periods,[142] and to fly on days off.[143] This is all counter to the Contemnors' damage theory and testimony and also shows that the Contemnors understood the Court's TRO directive to get the airline flying immediately.[144]
*934 44. The Court heard expert testimony from Geoffrey Heal and Robert Mann, Jr., expert witnesses for Defendants.[145] The Court hereby finds that the testimony of Robert Mann, Jr. and Geoffrey Heal was unbelievable, untrustworthy and unreliable under Fed. R.Evid. 702.[146]See, Kumho Tire Co., Ltd. v. Carmichael, ___ U.S. ___, 119 S. Ct. 1167, 1174-75, 143 L. Ed. 2d 238 (1999) (concluding that the gatekeeping principles of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993) apply to all expert testimony and not just testimony based on "scientific" knowledge).[147] The Court rejects Mann's and Heal's testimony for the following reasons:
a. The Court finds that the methodology employed by both Mann and Heal was unreliable. Mann's and Heal's attempts to calculate damages based solely on the number of pilots who called in sick after the February 10 communication are unreliable.[148] Their theory rests on the false premise that the contempt damages are not also affected by the Contemnors' failure to get the more than 2,200 other "sick" pilots to clear the sick list and take action to restore normal operations.[149] As one of American's experts stated at the hearing, it was going to take American approximately three days to rebuild its schedule, regardless of when the pilots returned to *935 work.[150] By waiting until the evening of February 12, 1999 to direct the pilots to clear the sick list, the Contemnors delayed that process of rebuilding the American Airlines schedule by two days by not effectively directing the pilots to clear the sick list and take action to assist in restoring normal flight operations.[151] It is these damages for which they are responsible. Also, the Court notes that one of Defendants' witnesses, a contracts administrator for the APA, testified that there was nothing in the parties' current CBA which prevented the same recovery that began after 8:00 p.m. on February 12 from starting two days earlier after 8:00 p.m. on February 10.[152] "A journey of a thousand miles must begin with a single step."[153]
b. The Court finds that Mann and Heal's testimony was inherently and irreconcilably contradictory. These two experts conflicted on their theory of the harm caused to American by a magnitude of six.[154] Offering damages theories where one expert's conclusion regarding the number of cancellations caused is six times larger than the other and where one expert's theory of damages is almost two times larger than the other leaves the Court to decide which, or if both, of Contemnors' experts is wrong. In this case, the Court has determined and so finds that both Mr. Mann and Dr. Heal are wrong.[155] Therefore, the Court finds their ultimate opinion on the damages inflicted on American unreliable.
c. The Court finds Robert Mann's testimony regarding the reasons the sick list did not begin to decline after the February 11 Communications particularly not credible and unreliable. Mann's reliance on "normal working schedule"[156] under the "Green Book"[157] flies in the face of reality. As the Court found above, when the Contemnors finally ordered the pilots back to work on February 12, the pilots began to clear sick, starting after 8:00 p.m.; the pilots did not wait until 4:00 p.m. on the day before their next scheduled sequence before calling in to clear the sick list.[158] The conduct of the pilots in moving their duty free periods, waiving duty free *936 periods, and flying on days off[159] is consistent with the immediate restoration of normal operations by getting the planes flying again immediately,[160] an objective the Court clearly communicated at the TRO hearing.[161] Mann's testimony and the assumptions that underlie his damages calculations are inconsistent with the objectives imposed on Contemnors by the TRO and the reality of the pilots' actions as evidenced by their conduct once they were directed to return to work on February 12.[162]
45. The Court bases its finding of damages upon the expert witness testimony of Timothy J. Ahern and Douglas G. Herring, both of American Airlines, Inc. Timothy Ahern is the Vice-President of Operations, Planning and Performance at American.[163] Douglas G. Herring is the Vice-President and Controller of American.[164]
46. The Court finds that the testimony of Mr. Ahern and Mr. Herring was credible, reasonable, reliable, and trustworthy under the provisions of Fed.R.Evid. 702 and 703 with the limitations noted below. See, Kumho Tire Co., Ltd., ___ U.S. at ___-___, 119 S.Ct. at 1174-75 (concluding that the gatekeeping principles of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993) apply to all expert testimony and not just testimony based on "scientific" knowledge).
a. The Court finds that the methodologies and conclusions of Timothy J. Ahern and Douglas G. Herring are credible, reasonable, reliable, and trustworthy under the provisions of FED.R.EVID. 702 and 703. See also Hudson Transit Lines, Inc. v. Freund, 509 F. Supp. 1172, 1178-79 (E.D.N.Y.1981) (awarding lost revenue contempt compensation); Long Island R.R. Co. v. Bhd. of R.R. Trainmen, 298 F. Supp. 1347, 1350 (E.D.N.Y.1969) (awarding lost revenue as contempt compensation in an RLA case).
b. The Court credits the evidence and believes that the overall damages that were caused by the ten day work stoppage were approximately $200 to 250 million, as American reported to the investment community.[165]
c. The Court accepts and finds as fact Mr. Herring's evidence that American suffered losses of $50.96 million from the two day extension of the sick-out caused by the contempt.[166] The compensatory contempt damages for the two day extension of the work stoppage are calculated as the difference between the revenue that American would have received had the Contemnors complied with the Temporary *937 Restraining Order when it was issued on February 10, 1999 at 4:00 p.m. and the revenue that American actually received during the period of contempt (with appropriate offsets for expenses incurred and expenses not incurred because the airline was not operating to capacity) ending at 8:00 p.m. on February 12, 1999.[167] The Court, however, makes the following deductions to American's damage figure to give the Contemnors the largest benefit of the doubt possible:
(i) The Court finds that it is appropriate in this matter to apply a 6% reduction to American's revenue losses based on Mr. Herring's testimony that 6% was the largest margin of error Mr. Herring had ever experienced in projecting American's revenue over the 13-14 month period prior to the April 15, 1999 hearing.[168] The Court finds that despite the fact that Mr. Herring testified that he was correct to 1-2% over the past 12 months prior to the April 15, 1999 hearing,[169] it is appropriate to give the Contemnors the benefit of this unusually large 6% error rate.[170]
(ii) The Court finds that is also appropriate, under these circumstances, to reduce the adjusted American loss figure by five percent (5%) for "booking away" revenue losses resulting from pre-TRO sick-out activity.[171]
(iii) The Court finds that, after an exhaustive review of the evidence before it, there exists no other valid deduction in the losses suffered by American.[172]
47. The Court finds that, after the deductions described above are taken, American has suffered Forty-five Million, Five Hundred Seven Thousand, Two Hundred Eighty Dollars ($45,507,280.00) in lost revenue, unnecessary costs and expenses attributable to the Allied Pilots Association's, Richard LaVoy's, and Brian Mayhew's contempt of this Court's Temporary Restraining Order of February 10, 1999.[173] These damages result from the cancellation of 2,279 flights caused by contempt of the Court's TRO[174] and associated revenue losses on flights that were not canceled but which had a lower load factor (which resulted, for example, because passengers' connecting flights were canceled).[175]
48. The Court finds that the Contemnors are jointly and severally liable for these damages ($45,507,280.00).
49. The Court finds that there is insufficient basis in the evidentiary record for apportioning liability among the Contemnors.
50. The Court finds that Contemnors acted in concert in violating the TRO in that the APA violated the TRO in overwhelming part by virtue of the actions (and/or the inactions) of Defendants LaVoy and Mayhew.
51. The Court finds that Defendants LaVoy and Mayhew failed to cause the APA to comply with the TRO and are therefore responsible for the APA's disobedience of the TRO. Accordingly, Defendants LaVoy and *938 Mayhew are as equally liable as the APA for the resulting contempt.
52. The Court finds that LaVoy and Mayhew aided, abetted, and conspired with the APA to evade compliance with this Court's TRO, thereby rendering LaVoy, Mayhew, and the APA in contempt of Court.
53. The Court finds that LaVoy, Mayhew, and the APA joined together to evade compliance with this Court's TRO, thereby rendering LaVoy, Mayhew, and the APA jointly and severally liable for the amount of damages resulting from their contumacious conduct.
54. The Court finds that American should be awarded appropriate post-judgment interest on the amount of damages awarded.[176]
C. CONCLUSIONS OF LAW
1. Any above-listed Finding of Fact which should more properly be listed as a Conclusion of Law is hereby incorporated by reference and adopted as a Conclusion of Law.
STIPULATION OF "MINOR DISPUTE"
2. The parties have stipulated and agreed[177] (and the Court has so found[178]) that the dispute leading up to the issuance of the TRO was a "minor dispute" under the Railway Labor Act ("RLA"), 45 U.S.C. § 151 et seq. Because it was a "minor dispute," Defendants were prohibited by the RLA from engaging in the sick-out as they did.[179] The sick-out was thus an illegal job action.
CONCLUSIONS OF LAW RELATED TO CONTEMPT PROCEEDINGS
3. "An order issued by the Court with jurisdiction over the subject matter and person must be obeyed until it is reversed." United States Steel Corp., 598 F.2d at 368.
4. "The party seeking the contempt adjudication bears the burden of establishing the defendant's violation by clear and convincing evidence." Black Diamond Coal Mining Co. v. Local Union # 8460, United Mine Workers of America, 597 F.2d 494, 496 (5th Cir.1979).
5. "A sanction imposed to compel obedience to a lawful court order or to provide compensation to a complaining party is civil." New York State National Organization for Women v. Terry, 886 F.2d 1339, 1351 (2nd Cir. 1989), cert. denied, 495 U.S. 947, 110 S. Ct. 2206, 109 L. Ed. 2d 532 (1990), citing United States v. United Mine Workers of America, 330 U.S. 258, 303-04, 67 S. Ct. 677, 91 L. Ed. 884 (1947). This is a civil contempt proceeding.
6. "The movant in a civil contempt proceeding bears the burden of establishing by clear and convincing evidence: (1) that a court order was in effect; (2) that the order required certain *939 conduct by the respondent; and (3) that the respondent failed to comply with the court's order. Wilfulness is not an element of civil contempt. After the movant has shown a prima facie case, the respondent can defend against it by showing a present inability to comply with the subpoena or order." Petroleos Mexicanos v. Crawford Enterprises, Inc., 826 F.2d 392, 401 (5th Cir.1987) (emphasis original) (citations omitted). The Plaintiff has met its burden in this matter by clear and convincing evidence.
7. A fine for civil contempt is a means to enforce a court order of injunctive relief, which in this case is the TRO. A fine for civil contempt may be compensatory in nature or may be designed to coerce behavior. See United Mine Workers of America, 330 U.S. at 303-304, 67 S. Ct. 677 ("Judicial sanctions in civil contempt proceedings may, in a proper case, be employed for either or both of two purposes: to coerce the defendant into compliance with the court's order, and to compensate the complainant for losses sustained"); see also Travelhost, Inc. v. Blandford, 68 F.3d 958, 961-62 (5th Cir.1995) ("Civil contempt can serve two purposes. It can be used to enforce compliance with a court's order through coercion, or it can be used to compensate a party who has suffered unnecessary injuries or costs because of contemptuous conduct"); Norman Bridge Drug Co. v. Banner, 529 F.2d 822, 827 (5th Cir. 1976) ("Compensatory civil contempt reimburses the injured party for the losses and expenses incurred because of the adversary's noncompliance"). To give a court the power to issue injunctive relief without the power to fine those individuals who disobey the court order is to give a court the power to grant a remedy without effective means to enforce it. When the gauntlet is thrown down to the authority of the Court and its lawful orders, the Court has no choice but to pick it up.
8. A court can issue fines to enforce injunctive relief, including a TRO.
9. "[O]nce the plaintiff has proved that he has suffered harm because of a violation of the terms of an injunction, compensatory damages are appropriate." Vuitton et Fils S.A. v. Carousel Handbags, 592 F.2d 126, 130 (2nd Cir.1979).
10. "The Court has broad discretion in the assessment of damages in a civil contempt proceeding. The purpose is to compensate for the damages sustained." The public rights that a court order seeks to protect are important measures of the remedy. See Long Island R.R. Co., 298 F.Supp. at 1350.
11. The Court concludes that "[w]here compensation is intended, a fine is imposed, payable to the complainant. Such fine must of course be based upon evidence of complainant's actual loss, and his right, as a civil litigant, to the compensatory fine is dependent upon the outcome of the basic controversy." United Mine Workers of America, 330 U.S. at 304, 67 S. Ct. 677. The "basic controversy" in the case before this Court (a suit for injunctive relief from an alleged illegal job action under the RLA) is not the dispute over the integration by American of Reno and the Scope Clause of the CBA. The basic controversy in this case is whether the APA was engaged in an illegal job action under the RLA and whether they should be ordered to stop via a TRO and Injunction after a hearing. This basic controversy was resolved in favor of American when the Court found and the APA later stipulated that this was a "minor dispute" under the RLA, thus making the APA instigated sick-out an illegal job action under the RLA. Furthermore, the parties have *940 now asked the Court to enter an agreed injunction. If the TRO had been obeyed, the APA would not owe a dime because damages are not available under the RLA. But the Defendants are liable for damages as compensation for losses suffered because of their contemptuous acts of not obeying and ending the illegal sick-out when ordered.
12. "[C]ompensatory civil contempt reimburses the injured party for the losses and expenses incurred because of his adversary's noncompliance ... There must be evidence showing the amount of the loss, since the court must have some basis for determining both the amount and the reasonableness of the costs claimed." Sebastian v. Texas Department of Corrections, 558 F. Supp. 507, 510 (S.D.Tex.1983). In this matter, there is ample evidence showing the amount of the loss to American caused by Contemnors' contumacious conduct. Similarly, the Court concludes that the evidence shows that the amount of the loss American claims to have suffered because of Contemnors' contumacious conduct to be more than reasonable.
13. "In awarding a compensatory fine in a civil contempt proceeding, the question of amount falls within the broad discretion of the trial court." Id., citing Mead Johnson & Co. v. Baby's Formula Service, Inc., 402 F.2d 23 (5th Cir.1968). "Accordingly, it is the Court's duty to determine the amount which is reasonable in view of the circumstances." Sebastian, 558 F.Supp. at 510.
14. A union can be held in contempt "if the strike was conducted or encouraged by its members functioning as a union, by its agents acting within their apparent authority, or by those whose acts the Union can be held to have ratified by its inaction." Black Diamond Coal Mining Co., 597 F.2d at 495. The same reasoning applies, as here, in an illegal sick-out job action.
15. "Ratification occurs where the union's efforts to return strikers are so minimal that the union's approval or encouragement may be inferred." United States Steel Corp., 598 F.2d at 365. The "circumstances surrounding the strike may create an inference that the Union condones or ratifies the illegal activity and the Union will be held responsible by its failure to take measures to end the strike." Black Diamond Coal Mining Co., 597 F.2d at 495. In this case, the Court finds ratification of the continued unlawful sick-out by the APA and, accordingly, the APA was in contempt of the TRO as set forth herein.
16. The TRO in this case applied on its face and was directed to Defendants APA, LaVoy, and Mayhew, among others. The TRO states in pertinent part: "IT IS ORDERED, that the Defendants, and each of them, their agents, successors, deputies, servants and employees, and all persons acting by, in concert with, through or under them, or by and through their orders, are hereby temporarily restrained ..."[180] There is no doubt that Defendants APA, LaVoy, and Mayhew were all equally bound by the terms of the TRO. Defendants APA, LaVoy, and Mayhew all received notice of the TRO, failed to comply with the TRO, and are consequently all guilty of contempt. Defendants APA, LaVoy, and Mayhew are responsible for the damages suffered and for disobedience to this Court's lawful Order, the TRO. "So long as the defendants knew the court was enjoining them and were cognizant of the terms of the injunction, they are responsible *941 for the consequences." Carousel Handbags, 592 F.2d at 129 n. 5.
17. A business entity's officers can be held in contempt for their failure to cause their corporation (or an unincorporated association in this case[181]) to comply with a court's order. Wilson v. United States, 221 U.S. 361, 376-77, 31 S. Ct. 538, 55 L. Ed. 771 (1911); Connolly v. J.T. Ventures, 851 F.2d 930, 935 (7th Cir.1988) ("a command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs. If they, apprised of the writ directed to the corporation, prevent compliance or fail to take appropriate action within their power for the performance of the corporate duty, they, no less than the corporation itself, are guilty of disobedience, and may be punished for contempt"); See also N.L.R.B. v. Maine Caterers, Inc., 732 F.2d 689, 691 (1st Cir.1984) ("[A]n officer, responsible for the corporation's affairs and for its disobedience, may be held liable for contempt.") As evidenced by the contumacious conduct set forth in the Findings of Fact above, Defendants LaVoy and Mayhew failed to cause the APA to comply with the TRO and are therefore responsible for the APA's disobedience of the TRO. Accordingly, Defendants LaVoy and Mayhew are as equally liable as the APA for the resulting contempt.
18. "[A]ny party who knowingly aids, abets, or conspires with another to evade an injunction or order of a court is also in contempt of that court." N.L.R.B. v. Laborers' International Union of North America, AFL CIO, 882 F.2d 949, 954 (5th Cir.1989). As evidenced by the contumacious conduct set forth in the Findings of Fact above, the Court finds that LaVoy and Mayhew aided, abetted, and conspired with the APA to evade compliance with this Court's TRO, thereby rendering LaVoy, Mayhew, and the APA in contempt of Court.
19. The Court concludes that in determining the loss to American because of the Contemnors' actions, the Court should "determine whether a reasonable person could find the [revenue losses] were established with reasonable certainty." DSC Communications Corp. v. Next Level Communications, 107 F.3d 322, 329 (5th Cir.1997); see also Thompson and Wallace of Memphis, Inc. v. Falconwood Corp., 100 F.3d 429, 435 (5th Cir.1996) (same).
20. The Court concludes that "it is not necessary that recovery for future [revenue losses] should be established by exact calculation, as it is enough to have data from which these [revenue losses] may be ascertained with a reasonable degree of certainty and exactness." Fiberlok, Inc. v. LMS Enterprises, Inc., 976 F.2d 958, 962 (5th Cir.1992).
21. The Findings of Fact regarding the amount of compensatory damages American has suffered as a result of the contempt ($45,507,280.00) are made with reasonable certainty based upon the evidence submitted.
22. The Court finds that the Contemnors are jointly and severally liable for the amount of compensatory damages American has suffered as a result of the contempt ($45,507,280.00).[182]
*942 23. Where parties "join together to evade a judgment, they become jointly and severally liable for the amount of damages resulting from the contumacious conduct." Laborers' International Union of North America, AFL CIO, 882 F.2d at 955. The Court finds that LaVoy, Mayhew, and the APA joined together to evade compliance with this Court's TRO, thereby rendering LaVoy, Mayhew, and the APA jointly and severally liable for the amount of damages resulting from their contumacious conduct. Moreover, since the TRO in this case applied on its face to Defendants APA, LaVoy, and Mayhew, and since the APA, LaVoy, and Mayhew all had actual knowledge of the TRO and failed to comply with it as set forth above, LaVoy, Mayhew, and the APA are jointly and severally liable for the amount of damages resulting from their contumacious conduct.
24. The Court concludes that the Contemnors are not entitled to mitigate the damage they have inflicted on American by arguing that they intended to comply with the TRO because "the mental state of the violator should not determine the level of compensation due." Cook v. Ochsner Foundation Hosp., 559 F.2d 270, 272 (5th Cir.1977). The law requires the Contemnors to pay for what they have broken.[183]Jim Walter Resources, Inc. v. International Union, United Mine Workers of America, 609 F.2d 165, 169 (5th Cir.1980) ("What they did *943 as a group, they are responsible for as a group" assessing civil contempt fine against union for violating TRO).
25. "[A] civil contempt fine may not exceed the actual loss to the complainant caused by the actions of respondent, lest the contempt fine become punitive in nature, which is not appropriate in a civil contempt proceeding." Laborers' International Union of North America, AFL CIO, 882 F.2d at 955. The Court has taken great pains to make sure that the compensatory damages awarded to American do not exceed the actual loss to American caused by Defendants' contumacious conduct. This is because this is a civil contempt proceeding and not a criminal contempt proceeding. No one is going to jail and not one dime is being paid to the government as a fine because of the contumacious conduct of the Defendants.
26. 28 U.S.C. § 1961(a) states in pertinent part that "[i]nterest shall be allow on any money judgment in a civil case recovered in a district court." Under this statute, post-judgment interest must be awarded to American. Reeves v. International Tel. & Tel. Corp., 705 F.2d 750, 752 (5th Cir.1983) (per curiam) (post-judgment "interest was allowable of right, not as a matter of discretion"); See Sebastian, 558 F.Supp. at 513 (awarding post-judgment interest on a compensatory award of damages for civil contempt).
These Findings of Fact and Conclusions of Law are hereby adopted and made the Findings of Fact and Conclusions of Law of this Court.
D. CONCLUSION
After taking the entire record into account and after making the Findings of Fact and Conclusions of Law set forth above, Defendants APA, LaVoy, and Mayhew are accordingly held responsible for their contemptuous actions in violating this Court's TRO. This Court therefore awards to American the compensatory damages which are attributable to these Defendants' contemptuous actions. This Court awards American $45,507,280.00 in such compensatory damages, and Defendants APA, LaVoy, and Mayhew are held jointly and severally liable for these damages. Post-judgment interest at the rate of 4.879% is also awarded to American until the Judgment is paid. A Judgment Awarding Compensatory Damages For Civil Contempt is being entered by the Court concurrently herewith.
NOTES
[1] See Plaintiff's Motion for Contempt, filed February 11, 1999.
[2] The APA Union has been the collective bargaining representative of American pilots since 1963. Declaration of Susan Oliver, attached as Exhibit 1 to American's Memorandum in Support of Plaintiff's Motion for a Temporary Restraining Order and Injunctive Relief (hereinafter "Oliver Declaration"), ¶ 2.
[3] Defendants APA, LaVoy, and Mayhew are collectively referred to herein as "Defendants" and/or "Contemnors."
[4] The TRO was signed and filed by the Court on February 10, 1999. The TRO is incorporated herein by reference.
[5] In modern air warfare, collateral damage to innocent civilian non-combatants always seems to be a concern, both for humane and political reasons. It was not a concern, humane or political, in this operation.
[6] Oliver Declaration, ¶ 11.
[7] Id.
[8] Id.
[9] Oliver Declaration, ¶ 15.
[10] Oliver Declaration, ¶ 7. Defendant LaVoy testified that even the APA recognized that some sort of integration period was necessary with respect to the Reno acquisition. Defendant LaVoy testified: "I think we're down to an 18-month time frame and they are sitting at 22 months. That piece of the issue is essentially resolved." Transcript of Proceedings Motion for Temporary Restraining Order and Injunctive Relief, taken on February 10, 1999 (hereinafter the "February 10 Transcript"), page 43.
[11] Section 1 of the current CBA is titled "Recognition and Scope." Section 1(C) is titled "Scope" and states as follows: "(1) General. All flying performed by or on behalf of the Company or an Affiliate shall be performed by pilots on the American Airlines Pilots Seniority List in accordance with the terms and conditions of this Agreement ..."
[12] Oliver Declaration, ¶ 16.
[13] Oliver Declaration, ¶¶ 5, 7.
[14] Oliver Declaration, ¶¶ 13, 14.
[15] Oliver Declaration, ¶¶ 10, 17, 27.
[16] Oliver Declaration, ¶ 9. Section 1.L. of the CBA, titled "REMEDIES" provides, verbatim: "(1) The Company and the Association agree to arbitrate any grievance filed by the other party alleging a violation of this Section 1 on an expedited basis directly before the System Board of Adjustment sitting with a neutral arbitrator. The arbitrator shall be a member of the National Academy of Arbitrators and experienced in airline industry disputes. The burden of proof will be determined by the arbitrator. The provisions of the Railway Labor Act shall apply to the resolution of any dispute regarding this Section 1."
[17] By choosing to engage in a sick-out instead of compelling arbitration as they had agreed to do, this causes one to immediately ask the rhetorical question that if the Union was so sure of the righteousness of their cause on the issue of "Scope," why did they not arbitrate the Scope Clause dispute on an expedited basis before a neutral arbitrator experienced in airline industry disputes that they would get to help select?
[18] Plaintiff's Exhibit 43. Transcript of Proceedings Hearing on the Issue of Compensatory Damages for Violation of Temporary Restraining Order, taken on April 15, 1999 (hereinafter the "April 15 Transcript"), pages 133-135. Plaintiff's Exhibit 1. Transcript of Contempt Hearing, Volume I of II, taken on February 12, 1999 (hereinafter the "February 12 Transcript"), pages 14-16.
[19] Plaintiff's Exhibit 2. February 12 Transcript, pages 17-19. Plaintiff's Exhibit 45. April 15 Transcript, pages 143-144.
[20] February 12 Transcript, pages 19-20. Plaintiff's Exhibits 47 and 48. April 15 Transcript, pages 185-187.
[21] February 12 Transcript, page 19.
[22] Plaintiff's Exhibit 2. February 12 Transcript, pages 17-18. Plaintiff's Exhibit 45.
[23] In his opening statement, American's counsel gave notice that American would seek contempt sanctions with respect to any violation of a TRO entered in this case when he stated: "And we ask for a restraining order ... We ask for one that's strong enough that the pilots and their union will not simply ignore it without being subject to the contempt action of this Court." February 10 Transcript, page 13.
[24] See, generally, February 10 Transcript.
[25] TRO, page 4.
[26] Plaintiff's Exhibit 43. April 15 Transcript, pages 133-135. Plaintiff's Exhibit 1. February 12 Transcript, pages 14-16. See also the Supplemental Declaration of Timothy J. Ahern, attached as Exhibit 1 to Plaintiff's Motion for Contempt, filed on February 11, 1999.
[27] Plaintiff's Exhibit 2. February 12 Transcript, page 18. Plaintiff's Exhibit 45. The fact that the sick-out increased in size after the TRO was signed is even more disturbing in light of Defendant LaVoy's comments at the February 10, 1999 hearing. At that hearing, Defendant LaVoy stated "Well, Your Honor, we're going to do whatever you tell us to do." February 10 Transcript, page 52. The Court even recalled Defendant LaVoy's comments later that same day: "... I am trusting as a man of honor Captain LaVoy's representation to me that his pilots are going to do whatever I order." February 10 Transcript, page 86.
[28] Plaintiff's Motion for Contempt, filed on February 11, 1999, requested that Defendants be adjudged in civil contempt of court and requested the Court impose appropriate fines against Defendants and award Plaintiff appropriate compensatory damages as a result of Defendants' contempt.
[29] See Order to Show Cause, filed February 11, 1999.
[30] See, generally, February 12 Transcript.
[31] See Order of Contempt, filed February 13, 1999.
[32] See Findings of Fact and Conclusions of Law, filed February 13, 1999.
[33] Order of Contempt, filed February 13, 1999, page 4.
[34] Order of Contempt, filed February 13, 1999, pages 4-5.
[35] Order of Contempt, filed February 13, 1999, page 5.
[36] Id.
[37] American adduced sworn testimony from Timothy J. Ahern and Douglas G. Herring at this February 17, 1999 hearing. See, generally, Transcript of Proceedings Hearing on the Issue of Compensatory Damages for Violation of Temporary Restraining Order, taken on February 17, 1999 (hereinafter the "February 17 Transcript").
[38] See, generally, February 17 Transcript, pages 4-12. See Defendants' Motion to Continue Hearing, filed February 16, 1999 and Defendants' Memorandum in Support of Motion to Continue Hearing, filed February 16, 1999.
[39] See Order filed February 23, 1999.
[40] See, generally, Transcript of Proceedings Hearing on the Issue of Compensatory Damages for Violation of Temporary Restraining Order, taken on April 12, 1999 (hereinafter the "April 12 Transcript") and April 15 Transcript.
[41] April 15 Transcript, pages 269-273.
[42] April 15 Transcript, page 273. This additional $10,000,000.00 deposit was made by Defendant APA on May 4, 1999. See Defendants' Notice of Deposit into Registry of the Court, filed May 5, 1999.
[43] April 15 Transcript, page 273.
[44] Although substantially set out again in this opinion for the convenience of the parties and any reviewing court, the Court adopts and incorporates by reference the Findings of Fact and Conclusions of Law entered by this Court on February 13, 1999 as part of these Findings of Fact and Conclusions of Law. The Court further adopts and incorporates by reference the findings of fact and conclusions of law incorporated in the TRO as part of these Findings of Fact and Conclusions of Law. The Court further adopts and incorporates by reference any findings of fact or conclusions of law that the Court has made from the bench during these proceedings as part of these Findings of Fact and Conclusions of Law. The Court further adopts and incorporates by reference the Order of Contempt entered by this Court on February 13, 1999. The Defendants' documents that were produced in discovery and admitted into evidence as Plaintiff's Exhibits 9-42 have been and are incorporated into the record. The Court does not believe that any conflict exists between this Memorandum Opinion (Containing Findings of Fact and Conclusions of Law) and Contempt and Damage Order, on the one side, and any prior Order or Findings of Fact or Conclusions of Law made by the Court in this case, on the other side. However, to the extent that any conflict does exist, this Memorandum Opinion (Containing Findings of Fact and Conclusions of Law) and Contempt and Damage Order controls.
[45] See Stipulation filed by the parties on April 28, 1999.
[46] Findings of Fact and Conclusions of Law of the Court, filed on February 13, 1999, page 1. Order of Contempt, filed on February 13, 1999, page 3. February 10 Transcript, page 51. Order Adopting Stipulation, filed May 7, 1999, page 1.
[47] See Bhd. of R.R. Trainmen v. Chicago River & Ind. R. Co., 353 U.S. 30, 77 S. Ct. 635, 1 L. Ed. 2d 622 (1957); Burlington Northern R.R. Co. v. Bhd. Of Maintenance of Way Employees, 961 F.2d 86 (5th Cir.1992), cert. denied, 506 U.S. 1071, 113 S. Ct. 1028, 122 L. Ed. 2d 173 (1993).
[48] See, generally, February 10 Transcript.
[49] Defendant Mayhew affirmatively testified that the APA knew of the issuance of the TRO on the day of its issuance: "And precisely when the copy of the order came in, I can't tell you, but we were aware we were restrained. No doubt about it." February 12 Transcript, page 77.
[50] Page 5 of the TRO contains signatures of counsel for both Plaintiff and Defendants and states that the TRO is "Approved As to Form."
[51] Findings of Fact and Conclusions of Law of the Court, filed on February 13, 1999, page 1. Order of Contempt, filed on February 13, 1999, page 3. February 10 Transcript, page 51. Order Adopting Stipulation, filed May 7, 1999, page 1.
[52] See, generally, the TRO, and particularly Sections (a) (i) of the TRO. Also, this Court made the following statement in open court on February 10, 1999 at the conclusion of the TRO hearing: "But we're going to grant the temporary restraining order. Ya'll need to get those airplanes flying quickly. Okay? We'll be in recess." February 10 Transcript, page 89.
[53] February 10 Transcript, page 52.
[54] The above-quoted language from the TRO is found on pages 2-4 of the TRO.
[55] Exhibit 2 to Plaintiff's Motion for Contempt, filed on February 11, 1999, is the Declaration of Roger C. Diseker (the "Diseker Declaration"). Attached to the Diseker Declaration is a transcription of a voice-mail message that was available from the Allied Pilots Association by calling 1-800-323-1470 x. 3225. This voice mail message was recorded and transcribed on the morning of February 11, 1999. Diseker Declaration, ¶ 2. This voice-mail message is the "APA Information Hotline" sent out by Defendant LaVoy at approximately 7:40 p.m. on February 10, 1999.
[56] Also attached to the Diseker Declaration is a copy of the APA's Internet web page APA Information Hotline. This page was printed at approximately 12:10 p.m. on February 11, 1999. Diseker Declaration, ¶ 3. This document was also admitted as Plaintiff's Exhibit 3 in the contempt proceedings. This message which was posted on the APA's Internet web page is the message posted on the Internet by the APA in the evening of February 10, 1999. This February 10, 1999 message which was posted on the APA's Internet web page is virtually identical to the voice-mail message referenced in the preceding footnote. Since they are virtually identical, this February 10, 1999 message which was posted on the APA's Internet web page and the voice-mail message referenced in the preceding footnote will be collectively referred to as the "February 10 communication."
[57] February 12 Transcript, pages 46-49; pages 82-84; pages 103-104.
[58] The February 10 communication states in pertinent part that: "Also, please be aware that where the courts order refers to `defendants,' it is referring to APA's National Officers, Board of Directors, Negotiating Committee and General Counsel." By implying in the February 10 communication that the TRO applied only to the APA, its National Officers, its Board of Directors and its General Counsel, many of the individual members of the APA clearly understood that the TRO did not apply to them. For example, on the evening of February 10, 1999, one pilot stated in an e-mail: "I gather from the APA info hotline that the Judges injunction doesn't apply to the masses anyway.... hahahaha...." See Plaintiff's Exhibit 15. Another stated that same night: "You're not listening ... the TRO says the UNION and its OFFICERS are restrained from encouraging a sick out, slowdown, work stoppage etc etc ... He HAS to tell us ... DON'T DO IT!!" See Plaintiff's Exhibit 16. Yet another stated that same night: "As earlier posted, the judge ordered the union LEADERSHIP to not encourage illegal activity ... Call all media, tell them the only thing the union told us is that the union leadership may not condone illegal activity. The judge's order did not affect the pilots." See Plaintiff's Exhibit 21.
[59] See Plaintiff's Exhibit 1.
[60] Page 4 of the TRO states: "That APA and the individually named Defendants report by 12:00 noon on February 12, 1999, by sworn affidavit, the methods used to effect the notice described in (d) above to all APA-represented pilots."
[61] See Plaintiff's Exhibit 1.
[62] April 12 Transcript, page 74; pages 79-80.
[63] See the TRO and particularly Sections (a) (i) of the TRO. February 10 Transcript, page 89.
[64] Plaintiff's Exhibit 1.
[65] April 12 Transcript, page 74; pages 79-80.
[66] Plaintiff's Exhibit 43. April 15 Transcript, pages 133-135. Plaintiff's Exhibit 1. February 12 Transcript, pages 14-16. See also the Supplemental Declaration of Timothy J. Ahern, attached as Exhibit 1 to Plaintiff's Motion for Contempt, filed on February 11, 1999.
[67] Id.
[68] Defendant Larry Foster referred to this as a "phone tree" and stated that "a phone tree is when you're making calls." February 12 Transcript, page 139. Conversely, "a `phone watch' is when your people are calling in and you're answering them." February 12 Transcript, page 139.
[69] February 12 Transcript, pages 140-144.
[70] Id. Captain Norman Patterson, another Defendant in this cause, also confirmed the existence of an organized sick-out prior to the issuance of the TRO and confirmed that he, too, was personally involved in the organization of the sick-out. February 12 Transcript, pages 173-174.
[71] In the February 10, 1999 TRO hearing, one of Defendants' counsel made several references to his understanding of the alleged fact that the APA had not authorized the exercise of self-help through a sick-out (February 10 Transcript, pages 31-32) and that the sick-out was a "spontaneous eruption." February 10 Transcript, page 67. Defendant LaVoy also referred to the situation as being "spontaneous." February 10 Transcript, page 45. Of course, as is now clear from the record, including the sworn testimony of Defendants Foster and Patterson, these representations were not true. At the April 12, 1999 hearing, another of Defendants' counsel candidly admitted that there seemed to be an orchestrated, organized effort to have pilots call in sick (April 12 Transcript, page 31), a complete 180 degree turn from what had earlier been stated to the Court on the record in open court by LaVoy and Defendants' counsel. This apparent lack of honesty is troubling.
[72] February 12 Transcript, pages 140-144.
[73] Id.
[74] February 12 Transcript, pages 68-70.
[75] February 12 Transcript, page 7.
[76] February 12 Transcript, pages 46-49; pages 82-84; pages 103-104.
[77] Defendants' Exhibit 3, the Declaration of Richard T. LaVoy, filed on February 12, 1999, contains an acknowledgment by Defendant LaVoy of his important role in making policy in the APA when Defendant LaVoy states: "I am the principal executive officer of APA responsible for administering the affairs of the Association."
[78] Defendant Mayhew testified that the APA's legal department did not "like" the February 10 communication and that "they wanted it changed." February 12 Transcript, page 110. Defendant Mayhew further testified that "legal was upset about the [February 10 communication], they wanted it changed immediately and they were drafting it at that time." Id. While this testimony certainly could be construed to mean that the APA legal department recognized that the February 10 communication was inadequate under the terms of the TRO, Defendant Mayhew did not testify with any more particularity about what it was that caused legal to be upset with regard to the February 10 communication. However, Defendant LaVoy testified that the APA's legal counsel "had no problem with the contents of the [February 10 communication]" but that "it wasn't sufficient to fulfill the judge's order." February 12 Transcript, page 189.
[79] Plaintiff's Exhibit 43. April 15 Transcript, pages 133-135. Plaintiff's Exhibit 1. February 12 Transcript, pages 14-16. See also the Supplemental Declaration of Timothy J. Ahern, attached as Exhibit 1 to Plaintiff's Motion for Contempt, filed on February 11, 1999.
[80] April 12 Transcript, pages 9-10; page 42.
[81] The February 11 oral communication is attached as Exhibit B to Defendants' Exhibit 3 in the contempt proceedings. February 12 Transcript, page 209.
[82] February 12 Transcript, pages 194-201. Defendants' Exhibit 3, page 1.
[83] Defendants' Exhibit 3, page 1.
[84] Defendants' Exhibit 3, page 2.
[85] Id.
[86] Id.
[87] Id.
[88] Id.
[89] To be clear, the Findings of Fact and Conclusions of Law of this Court, which were filed on February 13, 1999, do NOT find that the contempt had ended with the February 11 efforts of the Union. If the Findings of Fact and Conclusions of Law are read as a whole, it is clear that the Court was not finding that the contempt had ended with the February 11 efforts of the Union. For example, in finding of fact number 18, it states that the efforts "came too little, too late." It is clear that the Court is finding the efforts of February 11 to still be too little (which means not enough). That same finding refers to "the continued unlawful sick-out in increased numbers." These words, which were filed and signed on February 13, speak in the present tense a CONTINUED unlawful sick-out. These words would not have been in the present tense on February 13 had the February 11 efforts purged the contempt. As another example, in finding of fact number 20, the illegal activity of the sick-out is found to be Union orchestrated, instigated, and driven, and "continues to be so." Again, those words CONTINUES TO BE SO which were filed and signed on February 13, speak in the present tense. Again, these words would not have been in the present tense on February 13 had the February 11 efforts purged the contempt. That same finding states that "[l]ogic would thus dictate the Union could stop it if they chose to. At this point [FEBRUARY 13], they sadly have not." See Findings of Fact and Conclusions of Law, filed February 13, 1999. See also April 12 Transcript, pages 75-78. More examples of why the February 13, 1999 Findings of Fact and Conclusions of Law did not find that the contempt had ended on February 11 can be found at pages 74-78 of the April 12 Transcript. At the time of the delivery of the Court's ruling on the morning of the 13th, the Court was unaware of the activities of the APA in the evening of the 12th, which, as discussed later, were reasonable and adequate and ended not only the period of contempt, but ended the illegal sick-out.
[90] Points a., b., and c. from paragraph 26 also further support the Court's findings of contempt with regard to the February 10 communication.
[91] See, e.g., Plaintiff's Exhibit 9 and Plaintiff's Exhibit 13.
[92] Plaintiff's Exhibit 9.
[93] Plaintiff's Exhibit 13.
[94] Plaintiff's Exhibit 1.
[95] Id.
[96] April 12 Transcript, page 74; pages 79-80.
[97] See the TRO and particularly Sections (a) -(i) of the TRO. February 10 Transcript, page 89.
[98] Plaintiff's Exhibit 1.
[99] April 12 Transcript, page 74; pages 79-80.
[100] See, e.g., Plaintiff's Exhibit 25, wherein Denis Breslin (a named Defendant in this lawsuit) instructed the pilots based in his Domicile on February 11, 1999 at 3:54 p.m. (almost a full 24 hours after the TRO was entered) that "[a]lthough we are ordered to comply with the following TRO, it should not be construed as an order for sick pilots to return to work. If you are well, you should report for work. If you are sick you should put yourself on the sick list." This message must be viewed against the backdrop of how the Union was defining "sick" during the sick-out instigation stage, e.g. "feeling stress over contract disputes," etc. See Plaintiff's Exhibit 17: "The message we have been putting out for the past several days is if you are sick you need to call in sick and stay on the sick list until you are 100% fit to fly. In addition, if you [sic] under stress, you are sick."
[101] Plaintiff's Exhibit 1.
[102] See the TRO and particularly Sections (a) -(i) of the TRO. February 10 Transcript, page 89.
[103] Declaration of Richard T. LaVoy, filed February 16, 1999, page 2 and Exhibit A thereto. Defendants' Exhibit 1.
[104] Exhibit A to Declaration of Richard T. LaVoy, filed February 16, 1999. Defendants' Exhibit 1.
[105] See the TRO and particularly Sections (a)-(i) of the TRO. February 10 Transcript, page 89.
[106] Defendant Mayhew testified on February 12 that he helped prepare this February 11 phone watch script, which this Court has found to be inadequate and in violation of the TRO: "We have done that and we have done a phone watch. I help [sic] prepare yesterday and reviewed a script that we're having our people on the phone watch read. These are phone banks that pilots call in to talk to other pilots. And it says flat out we are instructing you to resume your normal schedule." February 12 Transcript, page 99.
[107] Exhibit B to Defendants' Exhibit 3.
[108] February 12 Transcript, page 213.
[109] Plaintiff's Exhibits 1 and 43.
[110] April 15 Transcript, pages 136-137. Plaintiff's Exhibit 43.
[111] Plaintiff's Exhibit 25.
[112] See, e.g., Plaintiff's Exhibit 17.
[113] Id.
[114] Plaintiff's Exhibit 45.
[115] See Order of Contempt, filed February 13, 1999, page 4.
[116] The Court notes that there seems to be a discrepancy in the record over whether this message was sent at 8:00 p.m. or 9:00 p.m., Central Time, on February 12. Exhibit "E" to the February 16, 1999 Declaration of Richard T. LaVoy indicates that the message was sent at 9:00 p.m. However, Exhibit "F" to the February 16, 1999 Declaration of Richard T. LaVoy indicates that the message was sent at 8:00 p.m. The Court will resolve this conflict to give Contemnors' the benefit of the doubt and finds that this message was sent at 8:00 p.m., Central Time, on February 12, 1999.
[117] People tend to see the light when they feel the heat.
[118] Defendant Mayhew testified that hotline messages are typically recorded by Defendant LaVoy after both Mayhew and LaVoy review, revise, and approve of the hotline message: "The process that we use normally is that the Director of Communications, Gregg Overman, does a first draft. Frequently a member or members of the communications committee are also working with him on the draft. They bring back a rough draft. Typically President LaVoy and myself look at it at that point, and if he was not there at that time and I believe he was, but if he was not, then I would have looked at it also and would have been asked to make input. Then the they take my input and the Director of Communications and whoever else is working with him come up with the final draft. That goes back to the president [LaVoy], who makes any changes he has. Then he puts it on the tape." February 12 Transcript, pages 82-83. Defendant Mayhew also affirmatively testified that Defendant LaVoy must approve of any hotline message before it goes out to the membership of the APA: "The president [LaVoy] would approve that. Always he has the last cut." February 12 Transcript, page 92. Defendant LaVoy offered substantially similar testimony to Defendant Mayhew on this typical procedure. February 12 Transcript, pages 46-48. This testimony from Defendants Mayhew and LaVoy further supports the findings of civil contempt made by this Court against Defendants LaVoy and Mayhew. As the individuals (president and vice-president) ultimately responsible for the hotline messages to the APA membership, the Court finds that these individuals could have immediately ended the sick-out by instructing compliance with the terms of the TRO. However, as demonstrated herein, they did not do so until the evening of February 12, 1999 even though they could have done so on the evening of February 10, 1999.
[119] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 3 and Exhibits "E" and "F" thereto.
[120] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 3 and Exhibit "E" thereto.
[121] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 4 and Exhibit "F" thereto.
[122] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 3 and Exhibit "D" thereto.
[123] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 3 and Exhibits "B" and "C" thereto.
[124] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 4.
[125] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 4 and Exhibit "G" thereto.
[126] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 6 and Exhibit L thereto. The Court notes that this "phone tree" on the evening of February 12, which finally put in place the same efforts to have pilots end the illegal sick-out as were put in place to begin it (that is outgoing calls to the pilots), contained a personal plea from Defendants Foster and Patterson, both of whom admitted their involvement in organizing the illegal sick-out.
[127] Declaration of Richard T. LaVoy, filed on February 16, 1999, page 2.
[128] The First February 12 instruction to clear the sick list, the Second February 12 instruction to clear the sick list, the Third February 12 instruction to clear the sick list, the Fourth February 12 instruction to clear the sick list, and the Fifth February 12 instruction to clear the sick list are collectively referred to herein as the "Return to Work Directives."
[129] Plaintiff's Exhibit 43.
[130] Plaintiff's Exhibit 43. April 15 Transcript, pages 137-138.
[131] Plaintiff's Exhibit 43.
[132] Id.; April 15 Transcript, page 135.
[133] Id.
[134] See, e.g., Plaintiff's Exhibit 33, an e-mail sent at 9:41 p.m. on February 12: "How about sending us a non-domicile rep (hint) message if you guys really mean this."
[135] See, e.g., Plaintiff's Exhibit 34, an e-mail sent on February 13 by Defendant Breslin: "Fellow Pilots, I have received a plethora of email from pilots who question the sincerity of my order to clear the sick list. I will reiterate in no uncertain terms: CALL AND CLEAR FROM THE SICK LIST! Judge Kendall has found APA in contempt of court and levied a $10 million dollar fine against the APA ..." (emphasis original).
[136] Thus, the contempt period ran from 7:30 p.m., Central Time, on February 10 until 8:00 p.m., Central Time, on February 12.
[137] Plaintiff's Exhibit 43. Plaintiff's Exhibit 51.
[138] Plaintiff's Exhibit 51. April 15 Transcript, pages 152-153.
[139] April 15 Transcript, page 149; pages 152-153. Plaintiff's Exhibit 51.
[140] April 15 Transcript, page 148.
[141] Plaintiff's Exhibit 51. April 15 Transcript, page 149; pages 152-153.
[142] April 15 Transcript, pages 146-147.
[143] April 15 Transcript, page 147. April 15 Transcript, page 166. April 15 Transcript, pages 53-54. See also Plaintiff's Exhibit 46, which demonstrates the number of pilots who would have been available to fly during the period from 12:01 a.m. on February 11 through February 15 if they had cleared the sick list immediately on February 10 after the TRO was issued. April 15 Transcript, pages 153-156. Plaintiff's Exhibit 46 takes into account the options the pilots had available to them to become available to fly on those dates listed on the exhibit: reserve availability, people on days off, people who had movable duty free periods, people who were available to fly their own scheduled sequence, and people who were on duty free periods who would have been asked to move them. April 15 Transcript, page 156.
[144] It is preposterous for Defendants to claim that they did not understand the Court's TRO directive to be that American's airplanes must start flying again without delay. In open court on February 10, 1999, the Court made the following statement as its final words for the day after announcing that it was granting the TRO: "But we're going to grant the temporary restraining order. Y'all need to get those airplanes flying quickly. Okay? We'll be in recess." February 10 Transcript, page 89. Whether you use the term "immediately," "quickly," or some other synonym, certainly no one with a straight face could argue that 48 hours and a couple of thousand canceled flights later was what was ordered.
[145] Mr. Heal's testimony is found at pages 45-86 of the April 12 Transcript. Mr. Mann's testimony is found at pages 88-134 of the April 12 Transcript and at pages 3-82 and pages 216-226 of the April 15 Transcript.
[146] The Court finds the testimony of Robert Mann, Jr. to be particularly untrustworthy. For example, with respect to Defendants' Exhibit 11, Mr. Mann affirmatively testified that he put Exhibit 11 together between April 12 and April 15, 1999. April 15 Transcript, page 3. His intent was to leave the Court with the impression that the work product was his. However, the Court later discovered that a contracts administrator for the APA, and not Mr. Mann, generated Defendants' Exhibit 11. April 15 Transcript, pages 24-26. This was only discovered by the Court because the witness could not explain the exhibit to the Court which he represented he generated. April 15 Transcript, pages 8-24. Similarly, Mr. Mann also testified that it was publicized to the public in January of 1999 that a potential disruption to American's operations might occur due to the Reno acquisition issue. April 15 Transcript, pages 74-75. Yet, Defendant Norman Patterson, who admitted that he helped orchestrate the sick-out, testified that he gave the flying public no notice of the planned sick-out. February 12 Transcript, pages 173-174. American's Vice-President of Operations, Planning and Performance, Timothy J. Ahern, testified that he did not know about the sick-out in advance. April 15 Transcript, page 168. He further testified that he did not think the public knew of the sick-out in advance either. Id. The Court notes that it is likely that probably several hundred thousand travelers could be located who could and would testify that they did not know about the sick-out in advance.
[147] If this were a jury trial, the Court would not allow these witnesses' testimony under Daubert and its progeny. Furthermore, in this case, as factfinder, the Court finds them not credible in any event.
[148] April 12 Transcript, pages 50-52; pages 72-73; pages 79-81; pages 101-103. April 15 Transcript, page 63.
[149] April 12 Transcript, page 74; pages 79-80. Moreover, Mr. Mann's opinions assumed that the Court's TRO meant that the pilots would take their normal time in returning to work under the "normal interpretation" of the parties' collective bargaining agreement. April 15 Transcript, pages 39-40. Incredibly, Mr. Mann made this assumption even though he recognized that the Court had ordered the sick-out to immediately cease and the planes to start flying again immediately. April 15 Transcript, pages 39-40.
[150] April 15 Transcript, page 163.
[151] Plaintiff's Exhibit 44. Plaintiff's Exhibit 45. April 15 Transcript, pages 142-144. Plaintiff's Exhibit 44 demonstrates that had the pilots cleared the sick list and otherwise resumed flying for American on February 10 as they did on February 12, the airline would have recovered operations two days earlier and 2279 flights would not have been canceled. April 15 Transcript, page 138.
[152] April 15 Transcript, page 127.
[153] Lao-tzu (circa 575 B.C.)
[154] Mr. Mann testified that under his methodology, he determined that there were approximately 680 cancellations as a consequence of 233 new sick calls, which translates roughly into about three cancellations per new caller to the sick list. April 15 Transcript, page 70. He further testified that Dr. Heal determined that there was only one flight cancellation for every two calls. Id. Thus, Mr. Mann's determined cancellation rate was six times greater than Dr. Heal's cancellation rate. April 15 Transcript, Transcript, pages 70-71. In other words, Mr. Mann determined that the number of cancellations caused by the 233 new pilots who called in sick after the February 10 communication was six times greater than Dr. Heal determined. Also, Mr. Mann's damage calculation was almost twice that to Dr. Heal's damage calculation. April 15 Transcript, page 222. Defendants' Exhibits 5, 8, and 9.
[155] April 15 Transcript, pages 222-226.
[156] Mr. Mann made this assumption even though he recognized that the Court had ordered the sick-out to immediately cease and the planes to start flying again immediately. April 15 Transcript, pages 39-40.
[157] The "Green Book" is the current CBA between American and the APA.
[158] Plaintiff's Exhibit 51. April 15 Transcript, pages 152-153.
[159] April 15 Transcript, page 166. Mr. Mann even recognized that when pilots began clearing the sick list after the contempt proceeding of February 12, many of those pilots likely as made themselves available to fly on duty free periods and on days off. April 15 Transcript, pages 53-54.
[160] April 15 Transcript, page 166.
[161] By communicating at the TRO hearing that the planes needed to start flying again quickly (February 10 Transcript, page 89), the Court was, of course, telling Defendants that the American system needed to be restored to its normal operations in quick and immediate fashion. Given the context of coming to Federal court for extraordinary relief, it was clear to everyone in the courtroom that immediate system restoration to end the bleeding was what was contemplated and indeed ordered. The written TRO is equally clear. To suggest otherwise, like suggesting the sick-out was "spontaneous," is disingenuous.
[162] Plaintiff's Exhibit 44. April 15 Transcript, pages 148-149.
[163] February 12 Transcript, page 12.
[164] February 17 Transcript, page 37.
[165] See Exhibit 2 to Defendants' Exhibit 5 (the report of one of Defendants' expert witnesses, Geoffrey Heal).
[166] April 15 Transcript, pages 185-189. Plaintiff's Exhibit 48.
[167] April 15 Transcript, pages 185-194; page 213. Plaintiff's Exhibits 47-50. February 17 Transcript, pages 40-41; pages 47-49.
[168] April 15 Transcript, page 210.
[169] April 15 Transcript, page 209.
[170] April 15 Transcript, page 271.
[171] April 15 Transcript, pages 271-272.
[172] April 15 Transcript, page 272. The Court, as factfinder, therefore rejects any other arguments made by Defendants and their experts in support of lowering American's damage award.
[173] April 15 Transcript, pages 272-273.
[174] Plaintiff's Exhibit 44. April 15 Transcript, page 138; pages 142-144.
[175] April 15 Transcript, pages 189-193.
[176] The parties were asked by the Court to brief the issue of whether post-judgment interest should be awarded in this case with regard to the contempt compensatory damages. Plaintiff American filed a brief on June 21, 1999 arguing in favor of the awarding of post-judgment interest. Defendants did not file a brief. Defendants' counsel orally notified the Court on June 21, 1999 that no such brief would be forthcoming from Defendants.
[177] See Stipulation filed by the parties on April 28, 1999.
[178] Findings of Fact and Conclusions of Law of the Court, filed on February 13, 1999, page 1. Order of Contempt, filed on February 13, 1999, page 3. February 10 Transcript, page 51. Order Adopting Stipulation, filed May 7, 1999, page 1.
[179] See Bhd. of R.R. Trainmen v. Chicago River & Ind. R. Co., 353 U.S. 30, 77 S. Ct. 635, 1 L. Ed. 2d 622 (1957); Burlington Northern R.R. Co. v. Bhd. Of Maintenance of Way Employees, 961 F.2d 86 (5th Cir.1992), cert. denied, 506 U.S. 1071, 113 S. Ct. 1028, 122 L. Ed. 2d 173 (1993).
[180] TRO, pages 2-3.
[181] The Court notes that in Terry, the leader of an entity not organized in corporate or partnership form named as a defendant in that case (Operation Rescue) was held in contempt and was held jointly and severally liable with the entity for the sanctions imposed. Terry, 886 F.2d at 1351-52.
[182] Defendants have repeatedly made various arguments to this Court which they allege preclude the awarding of compensatory damages to American as a result of Defendants' contempt in this case. For example, Defendants have argued that American cannot recover compensation from the APA in a civil proceeding, including a civil contempt proceeding, because of the "RLA's proscription against monetary recoveries by employers against unions." Defendants' Memorandum in Support of their Motion to Dismiss Compensatory Civil Contempt Claims and to Remit or Vacate Fines already Assessed, filed April 6, 1999, page 12. This Court flatly rejects this argument. To begin with, if this Court were awarding "damages" for violating the RLA, the number would be in the neighborhood of $200-250 million for the total time the illegal sick-out was conducted. Furthermore, other courts have rejected similar types of arguments: "A plaintiff's right to a compensatory fine is contingent upon the outcome of the main cause. (citations omitted). However, this does not mean that since damages are not recoverable in a Title VII action, a compensatory fine may not be levied for noncompliance with an injunction in a Title VII case." Sebastian, 558 F.Supp. at 509, citing Hutto v. Finney, 437 U.S. 678, 98 S. Ct. 2565, 57 L. Ed. 2d 522 (1978). In fact, at least one other court has awarded compensatory damages as a sanction in a civil contempt proceeding in which the underlying proceeding involved the RLA. See Long Island R.R. Co., 298 F.Supp. at 1350. This Court may of course award compensatory damages to American which result from Defendants' contumacious conduct. Were it otherwise, this Court, and other courts, would be faced with only being able to issue toothless injunctions without a means to enforce them. The Defendants cited no authority, and the Court could find none, in the 70 plus years of RLA jurisprudence that even remotely suggests that in a RLA case a transportation industry union is granted "King's X" for disobedience of a court order and consequent damages. Thus, this Court similarly rejects Defendants' argument (as set forth in Defendants' Memorandum of Law in Opposition to Imposition of Joint and Several Liability on Defendants' LaVoy and Mayhew, filed April 28, 1999) that holding Defendants LaVoy and Mayhew jointly and severally liable for the compensatory damages awarded in this case would conflict with federal statutes and policy barring individual liability and damages against union officials and members for unlawful work stoppages. Defendants' reliance upon Complete Auto Transit v. Reis, 451 U.S. 401, 101 S. Ct. 1836, 68 L. Ed. 2d 248 (1981), Atkinson v. Sinclair Refining Co., 370 U.S. 238, 82 S. Ct. 1318, 8 L. Ed. 2d 462 (1962), and the Norris-LaGuardia Act is therefore misplaced, inapplicable, and inappropriate in the context of a civil contempt proceeding. The money is not being ordered paid because of the illegal work stoppage, but for the damages caused by not ending it when ordered to do so by a federal court.
[183] Defendant LaVoy also acknowledged to the Court that the concept of "we should all pay for what we break" is "a fair statement." February 12 Transcript, page 67. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2301691/ | 79 Cal. Rptr. 2d 126 (1998)
67 Cal. App. 4th 575
ACAPULCO RESTAURANTS, INC., Petitioner,
v.
ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent
No. B123929.
Court of Appeal, Second District, Division One.
October 28, 1998.
Solomon, Saltsman & Jamieson, Ralph Barat Saltsman and Stephen Warren Solomon, Playa Del Rey, for Petitioner.
Hinman & Carmichael, John A. Hinman, Richard D. Warren, Beth Aboulafia, San Francisco, Nielsen, Merksamer, Parrinello, Mueller & Naylor, James R. Parrinello, and John E. Mueller, Mill Valley, as Amici Curiae on behalf of Petitioner.
Daniel E. Lungren, Attorney General, Martin H. Milas, Senior Assistant Attorney General, Silvia M. Diaz, Supervising Deputy Attorney General, and Laura Lee Gold, Deputy Attorney General, for Respondent.
MIRIAM A. VOGEL, Associate Justice.
The Department of Alcoholic Beverage Control regulates the use of underage decoys to enforce the constitutional and statutory prohibitions against the sale of alcoholic beverages to minors. In this case, we address the requirement that, after a completed sale and no later than the time at which a citation is issued, "the peace officer directing the decoy shall make a reasonable attempt to enter the licensed premises and have the minor decoy who purchased alcoholic beverages *127 make a face to face identification of the alleged seller of the alcoholic beverages." (Cal.Code Regs., tit. 4, § 141, subd. (b)(5), italics added.)[1] "Failure to comply with this rule shall be a defense to any action brought pursuant to Business and Professions Code [s]ection 25658."[2] (Rule 141(c), italics added.)
In the case now before us, a 19-year-old decoy working with the Los Angeles Police Department entered the Acapulco restaurant, sat down at the bar, and ordered a beer. Without first requesting identification, the bartender served the decoy. The decoy paid for the beer. A police officer seated at a nearby table observed the transaction. The restaurant's owner (Acapulco Restaurants, Inc.), the holder of an on-sale general (public eating place) liquor license, was cited by the Department for selling an alcoholic beverage to a minor in violation of section 25658, subdivision (a). Acapulco denied the accusation and a hearing was held. The police officer and the decoy testified about the sale, and the officer testified that, upon completion of the transaction, he had informed the bartender that she had sold beer to a minor, and identified the decoy as the minor. It is undisputed that the police officer did not have the decoy make the required face-to-face identification of the bartender.[3] An administrative law judge sustained the charge and ordered a 15-day suspension of Acapulco's liquor license.
Acapulco appealed to the Alcoholic Beverage Control Appeals Board, contending the decoy's failure to make a face-to-face identification of the bartender was a complete defense to the Department's charge. (Rule 141(c) [a failure to comply with the provisions of rule 141 "shall be a defense to any action" alleging a violation of section 25658].) The Board refused to give rule 141(c) a "rigid and literal interpretation" because the police officer had been sitting only a few feet away at the time of the sale. According to the Board, the rule must "take[] into account reality," and the "reality of this case" is that "there is no need for the requirement of identification when the peace officer is already within the premises and is an eyewitness to the transaction." The Board affirmed the 15-day suspension.
At Acapulco's request, we issued a writ of review, ordered the Board to provide us with a record of the proceedings, and set the matter for oral argument. For the reasons explained below, we now command the Board to reverse its decision.
DISCUSSION
When alcoholic beverages are sold to a minor, the seller and purchaser are both subject to criminal prosecution. (Cal. Const., art. XX, § 22; § 25658, subds. (a), (b).) In Provigo Corp. v. Alcoholic Beverage Control Appeals Bd. (1994) 7 Cal. 4th 561, 28 Cal. Rptr. 2d 638, 869 P.2d 1163, our Supreme Court upheld the use of underage decoys, finding that, in a criminal prosecution of a licensee based on a sale to a decoy, the licensee could not claim entrapment or otherwise object to the use of an underage decoy. (Id. at pp. 567-571, 28 Cal. Rptr. 2d 638, 869 P.2d 1163.) In passing, the court noted the absence of an "express immunity" protecting the underage decoy from prosecution and the existence of "the general ban on purchases by minors," and noted that the "Legislature may well have assumed that providing such immunity was unnecessary."(Id. at p. 568, 28 Cal. Rptr. 2d 638, 869 P.2d 1163.)
In response to Provigo, the Legislature enacted subdivision (e) of section 25658 to confirm the right of the Department and law enforcement to use "[p]ersons under the age of 21 ... to apprehend licensees, or employees or agents of licensees, who sell alcoholic beverages to minors," and to provide that, notwithstanding the provision (in subdivision (b)) making the minor's purchase a misdemeanor, "any person under the age of *128 21 years who purchases or attempts to purchase any alcoholic beverage while under the direction of a peace officer is immune from prosecution for that purchase or attempt to purchase an alcoholic beverage. Guidelines with respect to the use of persons under the age of 21 years as decoys shall be adopted and published...." (Italics added.)
As directed by subdivision (e) of section 25658, the required guidelines were adopted and published by the Department in accordance with the rulemaking provisions of the Administrative Procedure Act, Government Code section 11340 et seq. These are the Guidelines set out in rule 141, including the requirement of a face-to-face identification by the decoy and the defense triggered by law enforcement's failure to obtain the decoy's identification.[4]
Since it is undisputed that the required face-to-face identification by the decoy was not made in this case, it follows ineluctably that Acapulco's defense was established as a matter of law. As Acapulco puts it, when a rule requires certain affirmative acts by law enforcement, law enforcement must comply. To avoid this result, the Board urges upon us a "common-sense interpretation" of rule 141 and asks us to reject the plain language of the rule. The way the Board sees it, rule 141, subd. (b)(5) applies only when it is necessary to prevent a mistake in the description of the seller, and the defense created by rule 141, subd. (c) is unavailable in a case where, as here, the officer was present at the time of the sale.
We reject the Department's contention that its refusal to apply rule 141, subd. (b)(5) and (c) is no more than an exercise of its right to "interpret" a rule governing its enforcement obligations.[5] To ignore a rule and the defense that arises from law enforcement's failure to comply with that rule is not a matter of "interpretation." What the Department has done is to unilaterally decide that rule 141, subd. (b)(5) applies in some situations but not others, a decision that exceeds the Department's power. By its refusal to apply rule 141, subd. (b)(5) when a police officer is present at the time of the sale, the Department has crossed the line separating the interpretation of a word or phrase on one side to the legislation *129 of a different rule on the other, thereby substituting its judgment for that of the rulemaking authority. It might as well have said that rule 141, subd. (b)(5) applies on Mondays but not Thursdays. The Board offers no authority for its right to do this and we know of none.
Without legal or factual authority, the Department myopically suggests that rule 141 may make sense "in some communities [where] the peace officers necessarily may remain outside because their identities are known to the licensees. In those circumstances, their entry into the premises in advance of the minor would doom the decoy operation to failure at the outset."[6] At the request of the California Retailers Association, a trade association representing major California chain grocery, drug and convenience stores, and The Southland Corporation, the owner of the 7-Eleven trademark and name (both appearing as amici curiae), we have judicially noticed the Department's own statisticswhich disclose 18,577 reported attempts by underage decoys to buy alcoholic beverages between mid-1994 and September 1998, and which also disclose that the use of minor decoy programs has increased substantially since 1995. Forty-eight percent of all violations over the past three years have been based on decoy sales. The Department's increasing reliance on decoys demands strict adherence to the rules adopted for the protection of the licensees, the public and the decoys themselves. If the rules are inadequate, the Department has the right and the ability to seek changes. It does not have the right to ignore a duly adopted rule.[7]
We hold that rule 141, subd. (b)(5) means what it says and that, "[f]ollowing any completed sale, but not later than the time a citation, if any, is issued, the peace officer directing the decoy shall make a reasonable attempt to enter the licensed premises and have the minor decoy who purchased alcoholic beverages make a face to face identification of the alleged seller of the alcoholic beverages." A "[f]ailure to comply with [rule 141(b)(5)] shall be a defense to any action brought pursuant to ... [s]ection 25658." (Rule 141, subd. (c).)
Since it is undisputed that no attempt (reasonable or otherwise) was made to reenter *130 Acapulco's premises (or remain on those premises) so that the decoy who purchased the beer could make a face-to-face identification of the bartender, and since it is undisputed that subdivision (c) of rule 141 provides a defense when there is a failure to comply with the requirements of rule 141, it follows that Acapulco's suspension cannot stand.[8]
DISPOSITION
The Board's decision affirming the Department's order and the Department's order are both reversed, and the Department is directed to enter a new order withdrawing the accusation. Acapulco is entitled to its costs of these writ proceedings.
ORTEGA, Acting P.J., and MASTERSON, J., concur.
NOTES
[1] Undesignated rule references and references to "Guidelines" are to Title 4 of the California Code of Regulations.
[2] Undesignated section references are to the Business and Professions Code.
[3] It appears from the record that the police officer was unaware of the rule requiring a face-to-face identification by the decoy, and that he learned about rule 141(b)(5) only after this incident.
[4] In its entirety, rule 141 provides:
"(a) A law enforcement agency may only use a person under the age of 21 years to attempt to purchase alcoholic beverages to apprehend licensees, or employees or agents of licensees who sell alcoholic beverages to minors (persons under the age of 21) and to reduce sales of alcoholic beverages to minors in a fashion that promotes fairness.
"(b) The following minimum standards shall apply to actions filed pursuant to Business and Professions Code Section 25658 in which it is alleged that a minor decoy has purchased an alcoholic beverage: [¶] (1) At the time of the operation, the decoy shall be less than 20 years of age; [¶] (2) The decoy shall display the appearance which could generally be expected of a person under 21 years of age, under the actual circumstances presented to the seller of alcoholic beverages at the time of the alleged offense; [¶] (3) A decoy shall either carry his or her own identification showing the decoy's correct date of birth or shall carry no identification; a decoy who carries identification shall present it upon request to any seller of alcoholic beverages; [¶] (4) A decoy shall answer truthfully any questions about his or her age; [¶] (5) Following any completed sale, but not later than the time a citation, if any, is issued, the peace officer directing the decoy shall make a reasonable attempt to enter the licensed premises and have the minor decoy who purchased alcoholic beverages make a face to face identification of the alleged seller of the alcoholic beverages.
"(c) Failure to comply with this rule shall be a defense to any action brought pursuant to Business and Professions Code Section 25658." (Italics added.)
[5] The general rules of statutory interpretation are not disputed: Although an administrative agency's interpretation of its own rules is generally given great weight (Judson Steel Corp. v. Workers' Comp. Appeals Bd. (1978) 22 Cal. 3d 658, 668-669, 150 Cal. Rptr. 250, 586 P.2d 564), the ultimate interpretation of an administrative regulation is by the courts, not the enforcing agency. (Department of Health Services v. Civil Service Com. (1993) 17 Cal. App. 4th 487, 494-495, 21 Cal. Rptr. 2d 428; Delta Air Lines, Inc. v. State Bd. of Equalization (1989) 214 Cal. App. 3d 518, 525, 262 Cal. Rptr. 803.) The fundamental rules of statutory construction apply to administrative regulations, and a dispute about the meaning of a word or phrase will be resolved by reference to the legislative intent so that we can effectuate the purpose of the law. (Hogoboom v. Superior Court (1996) 51 Cal. App. 4th 653, 659, 59 Cal. Rptr. 2d 254; Cal. Drive-In Restaurant Assn. v. Clark (1943) 22 Cal. 2d 287, 292, 140 P.2d 657; People ex rel. Younger v. Superior Court (1976) 16 Cal. 3d 30, 40, 127 Cal. Rptr. 122, 544 P.2d 1322; In re Bandmann (1958) 51 Cal. 2d 388, 393, 333 P.2d 339.)
[6] The Department's ignorance about these rules is self-imposed. As a matter of "policy," the Department does not use or employ decoys to conduct enforcement activities involving the sales of alcoholic beverages to minors. But in 1996, the Department adopted a set of "Decoy Program Guidelines" (separate and distinct from the rules adopted under the mandate of section 25658) to allow "the local law enforcement community to use persons under 20 years of age as decoys to purchase alcoholic beverages from licensed premises."These "Guidelines" (submitted by amicus curiae, not the Department) blur the line between the Department's avowed avoidance of decoys and its declared support for law enforcement's use of decoys by offering up a "Decoy Program training video" and detailed recommendations about the things that law enforcement ought to be doinge.g., who to notify about the use of a decoy program, how to select a decoy, instructions to be given to the decoy, surveillance, and so on. We find it significant that these Department-prepared Guidelines state, in no uncertain terms, that law enforcement "must make a reasonable attempt to re-enter the premises and have the decoy identify the seller, face to face. The face-to-face identification must be done after the sale, but no later than at the time a citation, if any, is issued." (Italics added.) The Department's Guidelines do not suggest that a face-to-face identification is superfluous when an officer is present.
[7] Licensees who sell alcoholic beverages to minors are subject to criminal prosecution, fines, and temporary and permanent loss of their licenses. (§§ 25658, 25658.1; Provigo Corp. v. Alcoholic Beverage Control Appeals Bd., supra, 7 Cal.4th at p. 570, 28 Cal. Rptr. 2d 638, 869 P.2d 1163; Walsh v. Dept. of Alcoholic Bev. Control (1963) 59 Cal. 2d 757, 764-765, 31 Cal. Rptr. 297, 382 P.2d 337 [without regard to whether a particular action arises out of an administrative proceeding, a penal statute shall not be enlarged by the courts].)The Department nevertheless says the decoy's face-to-face identification is superfluous where, as here, a police officer who was present throughout the transaction has identified the seller. Acapulco and its amici curiae say the decoy's face-to-face identification is required to give the seller a fair opportunity to see the decoy's appearance in order to decide whether to defend on the ground that the decoy does not display the appearance which could be generally expected of a person under the age of 21 (as required by rule 141(b)(2)). From the seller's perspective, the police officer's identification of the decoy does not serve this purpose. It is neither our role nor the Department's role to resolve this dispute. That right belongs to the Legislature or the appropriate rulemaking body.
[8] The concession in this case that no attempt was made to comply with rule 141(b)(5) makes it unnecessary to decide what would constitute a sufficient effort to reenter or what would constitute a face-to-face identification by the decoy. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2398445/ | 86 F. Supp. 2d 678 (2000)
UNITED STATES of America,
v.
William Douglas ROBERTS, Defendant.
No. H-99-471.
United States District Court, S.D. Texas, Houston Division.
February 24, 2000.
*679 Kent A. Schaffer, Bires and Schaffer, Houston, TX, Steven J. Lieberman, Attorney at Law, Houston, TX, William D. Roberts, Natchitoches, La, for William Douglas Roberts, defendant.
Daniel Rodriguez, U.S. Atty's Office, Houston, TX, for U.S.
MEMORANDUM AND OPINION
ROSENTHAL, District Judge.
Defendant, William Douglas Roberts, is charged with two counts of possession of *680 child pornography, in violation of 18 U.S.C. §§ 2252 and 2256. Pending before this court is defendant's motion to suppress evidence seized and statements made during an August 25, 1998 search of his person and personal effects. (Docket Entry No. 15). Based on the motion, the evidence, the briefs and arguments of counsel, and the applicable law, this court DENIES the motion to suppress. The reasons for this decision are stated below.
I. BACKGROUND
On July 7, 1998, Customs Senior Special Agent Steve Coffman "received information from the [United States Customs Service] Resident Agent in Charge, Lake Charles, that a man by the name of William Roberts would be traveling, leaving the country from Houston [Intercontinental Airport that day] ... on a non-stop flight to Paris." (Tr. 67).[1] The Resident Agent in Charge, Lake Charles ("RAC Lake Charles") told Agent Coffman that Roberts usually carried his computer and diskettes containing child pornography with him when he traveled, and typically packed the diskettes inside his shaving kit. (Tr. 88, 97). Agent Coffman told Customs Special Agent Hernan Rios the information about Roberts. (Tr. 67). Agents Coffman and Rios went to the Houston Intercontinental Airport ("IAH"), but a computer check of the passenger list showed that Roberts was not on a flight from Louisiana to Houston, as expected. (Tr. 68). The agents stayed at IAH to make sure that Roberts did not board a flight from Houston to Paris; he did not. (Id.). Agent Rios told the RACLake Charles that Roberts had not traveled from Houston to Paris as scheduled. (Id.).
On August 24, 1998, Agent Rios received information from Agent Gene Steech with the RACLake Charles that on the following day, Roberts would be traveling from Louisiana to Houston and then continuing from Houston to a point outside the country. (Tr. 69). The RACLake Charles also provided a photograph of Roberts. (Tr. 73). On August 25, 1998, Lawni Shivers, an officer with the Nachitoches Parish Sheriff's Office in Louisiana, told Agent Rios that Roberts "was suspected of traveling with child pornography, would be in possession of child pornography." Shivers told Agent Rios that the "child pornography would be contained in diskettes, and the diskettes would be in a shaving kit bag." (Tr. 70-72).[2] After receiving this information, Agent Rios and Special Agent Harry Stewart went to IAH to meet with Agent Coffman.
Agent Rios told Agent Coffman that Roberts "was going to be leaving the country and they suspected that he had child pornography." (Tr. 30). The agents checked their computer database, verifying that Roberts was scheduled to depart that day on Air France Flight 33, a nonstop flight from IAH to Paris, France. (Tr. 72). Agent Rios showed Agent Coffman the photograph of Roberts and told him that Roberts would be arriving in Houston on a flight from Louisiana at 12:18 p.m. (Tr. 31). Agent Coffman went to watch the passengers disembarking that flight. Using the photograph provided by Agent Rios, Agent Coffman identified Roberts and noted the clothing he was wearing. (Tr. 31).
At about 2:30 p.m. on August 25, 1998, Agent Coffman went to the Customs area to organize an outbound inspection for Air France Flight 33. Agent Coffman told the inspectors on the outbound enforcement inspection team that "an individual would be passing through Houston on his way outbound on Air France Flight 33 to Paris, France" who "would be in possession of a shaving kit containing zip disks which had *681 child pornography on them." (Tr. 7-8, 10). Agent Coffman gave the inspectors a description of the clothing Roberts was wearing. (Tr. 32).
At about 3:20 p.m., the agents planned and set up an outbound enforcement inspection area in the jetway to Air France Flight 33. Agent Coffman identified Roberts when he came through the jetway and referred him to the search table. (Tr. 9).[3] Agent Coffman signaled the agents conducting the search that this was the individual they were awaiting. (Tr. 10). When Roberts arrived at the search table, Customs Inspector Keith Hanson asked him if he possessed more than $10,000 in currency that he wanted to declare and asked him to open his bags. (Tr. 10). Roberts opened his luggage. Inspector Hanson found a shaving kit inside and opened it. The contents fit the agents' information; the shaving kit contained six Zip computer diskettes. (Tr. 11). Agent Hanson asked Roberts what the diskettes contained. Roberts gave no specific response. Agent Coffman then identified himself and took over the interview. (Tr. 34). Agent Coffman told Roberts he was with United States Customs and explained that they were "looking for currency" and "looking for the exportation of high technology or other data that was prohibited by law." (Tr. 34). Agent Coffman asked Roberts if he had anything that did not belong to him. Roberts "indicated it was all his property" (Tr. 34).
Agent Coffman told Roberts that the agents would have to search the diskettes to determine whether they could legally be taken out of the country. Agent Coffman told Roberts that he could either continue on his scheduled flight, leaving the diskettes with the agents to be searched and mailed back to him later, or that he could stay with the diskettes and fly to Paris on a later flight, at no additional charge. (Tr. 35-36). Roberts "indicated he wanted to wait." (Tr. 36).
Agents Coffman, Hanson, Rios, and Stewart escorted Roberts to a secondary inspection area. (Tr. 12). Agent Coffman opened Roberts' laptop computer. Agent Coffman told Roberts he "needed to scan the material on it" and asked if there was "anything [Roberts] could tell [him] about what was on the different diskettes, like a list of what's on it, any passwords or anything like that." (Tr. 39). Roberts said that he wished to cooperate, but wanted to talk to Agent Coffman privately. Agent Coffman escorted Roberts into an interview room.
In the interview room, Roberts told Agent Coffman that "he was embarrassed that there was some child pornography on the diskettes and he didn't want everybody to see it." (Tr. 39). Agent Coffman said, "What do you mean child pornography, like the teen stuff on the Internet ...?" (Tr. 39). Roberts responded, "No, young kids," indicating that the images on the diskettes depicted six-year-old children. (Tr. 39).
Agent Coffman then left the interview room and told Agent Rios that Roberts had said that the diskettes contained child pornography. (Tr. 79). Agents Coffman and Rios decided to advise Roberts of his Miranda rights and to attempt to interview him about the diskettes. (Tr. 79). They presented Roberts with a waiver form setting out the Miranda rights. (Tr. 40). Roberts placed his initials after the statement of each right and signed the waiver portion of the form. (G.Ex. 11; Tr. 40). An entry on the form shows Roberts signed it at 4:58 p.m. (G.Ex. 11; Tr. 46). After Roberts signed the waiver form, Agent Coffman told him it was illegal "to have child pornography and take it out of the country." (Tr. 41). Agent Coffman asked Roberts where he had obtained the pornography; Roberts responded that he had downloaded it from "various Internet *682 sites, chat rooms, that sort of thing." (Tr. 41). Roberts said that he did not pay for the pornography and that it was for his personal use, not for resale. (Tr. 42).
Sometime after 5:00 p.m., Agent Coffman presented Roberts with a Consent to Search form, which he signed. (G.Ex. 12; Tr. 43, 46). The form authorized a complete search of Roberts' luggage, computer, and diskettes. (Tr. 43). The form also provided: "[Customs] Agents are authorized by me to take any letters, papers, materials, or other property which they may desire to examine." (G.Ex.12). The agents signed a "Custody Receipt for Retained or Seized Property," containing a list of the articles seized from Roberts. (G.Ex.13). Roberts signed the portion of the form headed "Notice of Abandonment and Assent to Forfeiture," which stated that he "hereby abandon[ed] all claim to the above described articles." (Id.).
Following routine Customs procedure, Agent Coffman presented Roberts with a blank form and told him he could record a written statement on the form if he wished to do so. (Tr. 44, 80). The agents left Roberts alone to decide whether to provide a statement. (Tr. 44). Roberts provided a four-page handwritten statement. (G.Ex.14, Tr. 43).
Agent Coffman then let Agent Rios and a coworker finish the interview. (Tr. 45). Agent Coffman testified that the agents seized the disks and took an inventory of them. After the interview ended, Roberts left without "his diskettes and stuff." (Tr. 47). Agent Coffman testified that he believed that another agent turned on Roberts' laptop computer that same day and confirmed that there were "pornographic-type photographs" on it. (Tr. 46).
The diskettes were not searched that day. (Tr. 45). Agent Rios testified that the computer and diskettes were sent to a computer forensics agent. (Tr. 101-02). The forensic examination of the diskettes began in September 1998. (Tr. 107). The forensic examination produced over 5,000 graphic images, "the majority of which depicted teen or pre-teen children engaged in sexually explicit conduct." (Docket Entry No. 1, Attachment A).
The agents executed an arrest warrant at IAH in the afternoon on June 20, 1999. (Tr. 19, 84-85). Agent Rios advised Roberts of his Miranda rights, and Roberts signed a Waiver of Rights form. (G.Ex. 15; Tr. 84-85). Roberts told Agents Rios that he knew the diskettes seized from him on August 25, 1998 contained child pornography. (Tr. 86). Roberts stated that he had obtained the child pornography on the Internet, where it was readily available. Roberts denied taking pictures of children himself and denied ever molesting children. (Tr. 87).
Roberts moves to suppress the evidence seized during the August 25, 1998 search, arguing that the search violated his Fourth Amendments rights. (Docket Entry No. 15). He has also moved to suppress the statements he made on that date as "the fruit of the poisonous tree." (Id.).
II. The Legal Status of Border Searches
Customs officials conducted the search of the defendant's luggage and computer diskettes without a warrant. "[W]arrantless searches and seizures are unreasonable per se unless they fall within a few narrowly defined exceptions." United States v. Rivas, 157 F.3d 364, 367 (5th Cir.1998) (quoting United States v. Cardenas, 9 F.3d 1139, 1147 (5th Cir.1993)) (alteration in original). The border search doctrine is one of the exceptions to the warrant requirement. See Rivas, 157 F.3d at 367. Under the border search doctrine, government officials may conduct a "routine" searcha search that does not "seriously invade a traveler's privacy"at an international border or its functional equivalent without a warrant, probable cause, or even a particularized suspicion of wrongdoing. See id. A more invasive "nonroutine" stop and search is constitutional if based on a reasonable suspicion of wrongdoing. See id.
The threshold issue presented by the motion to suppress is whether the border *683 search exception applies under the circumstances of this case. The defendant concedes that the jetway search occurred at the functional equivalent of an international border. He argues, however, that the border search exception does not apply when law enforcement officers attempt to use their border search authority to evade the warrant and probable cause requirements otherwise imposed by the Fourth Amendment.
The Customs agents decided to set up an outbound inspection in the jetway to Air France Flight 33 because they had received information that Roberts possessed child pornography and would leave the country on that flight. Defendant argues that law enforcement officials should not be permitted to conduct a warrantless search unrelated to the special law enforcement needs that provide the doctrinal justification for the border search exception. The government argues that the Customs agents' motives for the search are irrelevant to the Fourth Amendment analysis, provided they did not select individuals to be searched on the basis of a criterion prohibited from consideration by the equal protection principles embodied in the Due Process Clause of the Fifth Amendment.
The border search exception has been most frequently applied to searches of people and effects entering the United States. Its application in the export search context has been more recent and more limited. In United States v. Berisha, 925 F.2d 791 (5th Cir.1991), the Fifth Circuit held that Customs officials did not violate the Fourth Amendment by searchingwithout a warrant, probable cause, or even particularized suspicionair passengers leaving the country. In that case, the search had the specific purpose to monitor compliance with federal currency reporting laws. In Berisha, a Customs inspector asked the defendant, who was preparing to board an international flight, whether he was carrying more than $10,000. The defendant said he had only $8,000. The inspector, noticing a bulge in the defendant's pants, escorted him to a secondary search area. The defendant tried to hand a roll of currency to a traveling companion. The inspector interceded, finding that the defendant was carrying more than $17,000 in United States currency. The Fifth Circuit affirmed the district court's denial of the defendant's motion to suppress, holding that the border search exception, although originally developed in the context of searches of persons and effects entering the country, applied as well to export searches for currency. The court reasoned as follows:
We note that both incoming and outgoing border searches have several features in common; for example, the government is interested in protecting some interest of United States citizens, there is a likelihood of smuggling attempts at the border, and the individual is on notice that his privacy may be invaded when he crosses the border. We also note that the underlying purpose for the foreign transaction reporting requirements was to regulate the export of monetary instruments in order to prevent the use of international currency transactions to evade domestic criminal, tax, and regulatory laws.
Given the substantial national interest in regulating the exportation of domestic currency at the border and the similar features of incoming and outgoing border-crossing searches for fourth amendment purposes, we hold that in the context of a routine stop and search for currency, the rationale applied to border searches under the fourth amendment encompasses persons exiting as well as persons entering our borders. We find, therefore, that the detention and inquiry in this case was permissible under the fourth amendment.
Id. at 795. The court emphasized the narrowness of its holding, stating: "We express no opinion, however, on the fourth amendment implications of routine, suspicionless searches for exportation of articles other than monetary instruments." Id. at 795 n. 8. No case after Berisha has tested *684 the limits of the border search doctrine in the export search context. This case requires an answer to the question left open in Berisha, the scope of the border search doctrine applied to searches for exportation of articles other than currency.
Other circuits provide little guidance on this issue. Every circuit court that has addressed the issue has held that the border search exception applies to export searches. However, many of the cases involve export searches for currency. See United States v. Ezeiruaku, 936 F.2d 136, 140-43 (3d Cir.1991); United States v. Hernandez-Salazar, 813 F.2d 1126, 1136-39 (11th Cir.1987); United States v. Duncan, 693 F.2d 971, 977 (9th Cir.1982); cf. United States v. Oriakhi, 57 F.3d 1290, 1296-97 (4th Cir.1995) (applying border search exception to search for currency reporting violation that resulted in the seizure of both firearms and currency); but see United States v. Udofot, 711 F.2d 831, 839-40 (8th Cir.1983) (holding that border search exception applied to export search resulting in seizure of firearm); United States v. Ajlouny, 629 F.2d 830, 833-35 (2d Cir.1980) (holding that border search exception applied to export search resulting in seizure of stolen telecommunications equipment). Several of these courts have, like the Fifth Circuit in Berisha, emphasized the narrowness of their holdings. No case has explicitly held that the border search exception applies identically to searches of persons or property entering and exiting the country, and without regard to the purpose of the search.
A. The Pretext Argument
Roberts argues that Customs officials may not use the border search exception as a pretext to conduct a warrantless export search seeking evidence of criminal activity unrelated to any export control law. The record supports Roberts' argument that Customs officials decided to set up an outbound inspection in the jetway to Air France Flight 33 in order to search the defendant, based on information that he was leaving the country with computer diskettes containing child pornography. Defendant claims that Customs officials improperly attempted to use the border search exception to circumvent the usual warrant and probable cause requirements of the Fourth Amendment. The government argues that the border search exception applies regardless of Customs officials' motives for conducting the export search.
The Supreme Court has consistently rejected the argument that Fourth Amendment analysis requires an examination of a law enforcement officer's subjective motives in conducting a search, focusing instead on whether objective circumstances justified the search. In Whren v. United States, 517 U.S. 806, 116 S. Ct. 1769, 135 L. Ed. 2d 89 (1996), the Court held that "the temporary detention of a motorist who the police ha[d] probable cause to believe ha[d] committed a civil traffic violation" was valid under the Fourth Amendment, even if the officers involved were not "motivated to stop the car by a desire to enforce the traffic laws." Id. at 808, 116 S. Ct. 1769. In United States v. Robinson, 414 U.S. 218, 94 S. Ct. 467, 38 L. Ed. 2d 427 (1973), the Court held that a search incident to a lawful traffic violation arrest would not be "rendered invalid by the fact that it was `a mere pretext for a narcotics search'" for which officers had no warrant or probable cause. Whren, 517 U.S. at 813, 116 S. Ct. 1769 (quoting Robinson, 414 U.S. at 221, n. 1, 94 S. Ct. 467). Similarly, in Gustafson v. Florida, 414 U.S. 260, 94 S. Ct. 488, 38 L. Ed. 2d 456 (1973), the Court held that a search incident to an arrest did not violate the Fourth Amendment merely because the searching officer "was not motivated by the officer-safety concern that justifies such searches." Whren, 517 U.S. at 813, 116 S. Ct. 1769 (construing Gustafson, 414 U.S. at 266). As the Court stated in Gustafson: "[s]ince it is the fact of custodial arrest which gives rise to the authority to search, it is of no moment that [the searching officer] did not indicate any subjective fear of the petitioner or that he did not himself suspect that the petitioner was *685 armed." Gustafson, 414 U.S. at 266, 94 S. Ct. 488.
In Scott v. United States, 436 U.S. 128, 98 S. Ct. 1717, 56 L. Ed. 2d 168 (1978), the Court rejected the contention that wiretap evidence should be excluded because the agents conducting the tap did not make a good faith effort to comply with the statutory requirement to minimize the interception of unauthorized communications. The Court stated: "[T]he fact that the officer does not have the state of mind which is hypothecated by the reasons which provide the legal justification for the officer's action does not invalidate the action taken as long as the circumstances, viewed objectively, justify the action." Scott, 436 U.S. at 138, 98 S. Ct. 1717. The Court agreed with the government's position that "the existence vel non of [a Fourth Amendment violation] turns on an objective assessment of the officer's actions in light of the facts and circumstances confronting him at the time." Id. at 136, 98 S. Ct. 1717.
In United States v. Villamonte-Marquez, 462 U.S. 579, 103 S. Ct. 2573, 77 L. Ed. 2d 22 (1983), the Court "held that an otherwise valid warrantless boarding of a vessel by Customs officials was not rendered invalid `because the [C]ustoms officers were accompanied by a Louisiana state policeman, and were following an informant's tip that a vessel in the ship channel was thought to be carrying marihuana.'" Whren, 517 U.S. at 812, 116 S. Ct. 1769 (quoting Villamonte-Marquez, 462 U.S. at 584, n. 3, 103 S. Ct. 2573). The Customs officials had boarded the vessel under 19 U.S.C. § 1581(a), which authorized Customs officers "at any time ... [to] go on board of any vessel ... at any place in the United States or within the Customs waters" for inspection of the vessel's registration documents. The Court held that the statute and the Customs officials' actions under it were reasonable for the purpose of the Fourth Amendment and "flatly dismissed the idea that an ulterior motive might serve to strip the agents of their legal justification." Whren, 517 U.S. at 812, 116 S. Ct. 1769 (construing Villamonte-Marquez, 462 U.S. at 584, n. 3, 103 S. Ct. 2573).
There are two narrow contexts in which the Court has disapproved "police attempts to use valid bases of action against citizens as pretexts for pursuing other investigatory agendas." Whren, 517 U.S. at 811, 116 S. Ct. 1769. The first is the inventory search doctrine, which permits law enforcement officers to search seized property, without a warrant or probable cause, in order to take an inventory of the property, provided the inventory search is conducted pursuant to reasonable, standardized police procedures. See Illinois v. Lafayette, 462 U.S. 640, 103 S. Ct. 2605, 77 L. Ed. 2d 65 (1983); South Dakota v. Opperman, 428 U.S. 364, 96 S. Ct. 3092, 49 L. Ed. 2d 1000 (1976). Adherence to standardized police procedures ensures that an inventory search is not merely "a ruse for a general rummaging in order to discover incriminating evidence." Florida v. Wells, 495 U.S. 1, 4, 110 S. Ct. 1632, 109 L. Ed. 2d 1 (1990). In a case approving an inventory search, the Court noted that "there was no showing that the police, who were following standardized procedures, acted in bad faith or for the sole purpose of investigation." Colorado v. Bertine, 479 U.S. 367, 372, 107 S. Ct. 738, 93 L. Ed. 2d 739 (1987).
The "special needs" administrative inspection is the second context in which the Supreme Court limits pretextual searches. Under the administrative search doctrine, officials may search commercial premises to monitor regulatory compliance in a "closely regulated" industry, without a warrant or probable cause. However, such warrantless inspections are constitutional only if three criteria are met: (1) "there must be a `substantial' government interest that informs the regulatory scheme pursuant to which the inspection is made," New York v. Burger, 482 U.S. 691, 702, 107 S. Ct. 2636, 96 L. Ed. 2d 601 (1987) (citing Donovan v. Dewey, 452 U.S. 594, 602, 101 S. Ct. 2534, 69 L. Ed. 2d 262 (1981)); (2) "the warrantless *686 inspections must be `necessary to further [the] regulatory scheme,'" Burger, 482 U.S. at 702, 107 S. Ct. 2636 (quoting Donovan, 452 U.S. at 600, 101 S. Ct. 2534) (alterations in original); and (3) "the statute's inspection program, in terms of the certainty and regularity of its application, [must] provid[e] a constitutionally adequate substitute for a warrant," Burger, 482 U.S. at 702, 107 S. Ct. 2636 (quoting Donovan, 452 U.S. at 603, 101 S. Ct. 2534). In Burger, the Court upheld an inspection of a vehicle-dismantling business under a state's administrative regulations in part because there was "no reason to believe that the ... inspection was actually a `pretext' for obtaining evidence of [a] violation of the penal laws." Id. at 716, n. 27, 107 S. Ct. 2636.
To ensure that the latitude afforded government officials under the inventory search and administrative inspection exceptions is not used systematically to evade constitutional limits on searches conducted to gather evidence of criminal wrongdoing, the Supreme Court has built into both doctrines limits on the discretion of law enforcement officers. The Court's "decisions have always adhered to the requirement that [inventory searches] be conducted according to standardized criteria." Bertine, 479 U.S. at 374 n. 6, 107 S. Ct. 738 (citing Lafayette, 462 U.S. at 648, 103 S. Ct. 2605; Opperman, 428 U.S. at 374-75, 96 S. Ct. 3092). Under the administrative search exception, the Court requires that the regulatory scheme include an inspection program that informs the business operator that he will be regularly searched and limits the time, place, and scope of the inspections "to place appropriate restraints on the discretion of the inspecting officers." Burger, 482 U.S. at 711; see also Donovan, 452 U.S. at 603-05, 101 S. Ct. 2534; United States v. Biswell, 406 U.S. 311, 315, 92 S. Ct. 1593, 32 L. Ed. 2d 87 (1972).
In contrast to an inventory search and an administrative inspection, a border search is more directly related to the discovery of criminal wrongdoing. The courts do not require that border searches be conducted according to a standardized policy or that strict limits be placed on the discretion of the officers conducting the search. A border search more closely resembles the law enforcement activity addressed in Whren, Robertson, Gustafson, Scott, and Villamonte-Marquez, in which the Court held that the searching officer's state of mind is not relevant as long as objective circumstances justify the search, than it does the inventory search or administrative inspection, in which the Court has suggested that the searching officer's motives are relevant. As the Court stated in Whren, it has "never held, outside the context of inventory search or administrative inspection ..., that an officer's motive invalidates objectively justifiable behavior under the Fourth Amendment." Whren, 517 U.S. at 812, 116 S. Ct. 1769. This court does not reach such a holding in this case.
Even assuming that the searching officers in this case were motivated by the desire to uncover violations of laws other than currency reporting and export control laws, this fact does not make the export search, if otherwise valid, unconstitutional.
B. The Scope of the Border Search Exception
Courts have not expressly determined whether the border search doctrine applies in the same way to export searches as it does to searches of persons and effects entering the country. If it does, and if the scope of a routine search is the same in both contexts, then routine export searches may be conducted with no particularized suspicion, and nonroutine export searches may be conducted if agents have a "reasonable suspicion of wrongdoing."
However, the government's interests differ across the two contexts. The government has a strong interest in preventing contraband from entering the country; it does not necessarily have an identical interest in preventing all types of contraband from leaving the country. It is not surprising that courts have usually upheld the routine search of persons crossing the *687 border to leave the country in cases involving suspected violations of currency reporting laws. Those courts stress the government's interest in monitoring the outflow of currency. Courts have not addressed whether the constitutionality of border searches of persons leaving the country should depend not only on the extent and routine nature of the intrusion on the traveler's privacy, but also on whether the search is reasonably related to the discovery of a violation of an export control law. Courts have also not addressed whether a nonroutine search must be justified by a reasonable suspicion of an export control violation, not merely by a reasonable suspicion of criminal wrongdoing.
With this background of the law on the scope of the border search exception in mind, this court reviews the actions of the Customs agents on August 25, 1998.
III. Analysis
The actions of Customs agents in detaining Roberts to question him and to search his luggage at the primary search table clearly fell within a "routine" border search. By searching Roberts' luggage at the functional equivalent of the border and asking whether Roberts was carrying over $10,000 in currency or technology that could not legally be exported, the agents' actions were routine and reasonably related to laws regulating exports. In escorting Roberts to the secondary search area, the agents remained within the scope of a routine and constitutional border search.
In the secondary search area, Agent Coffman told Roberts that agents needed to search his computer and diskettes to determine whether they contained technology or other data that could not legally be exported. Roberts then admitted that the diskettes contained child pornography. Roberts signed a waiver of his Miranda rights and signed a Consent to Search form authorizing a complete search of his luggage, including his computer and the diskettes.
The government argues that the subsequent searches of Roberts' computer and diskettes could not have violated the Fourth Amendment because Roberts consented to those searches. Roberts argues that the government induced his consent by first telling him that they would proceed to search his computer and diskettes even without consent. Roberts argues that they could not lawfully have conducted such a search and therefore that his consent was not voluntarily given.
After he waived his Miranda rights, Roberts signed a Consent to Search form, agreeing to allow Customs agents "to conduct a complete search of [his] luggage, computer, [and] diskettes." (G.Ex.12). The Consent to Search authorized Customs agents "to take any letters, papers, materials, or other property which they may desire to examine." (Id.). The agents filled out and signed a "Custody Receipt for Retained or Seized Property." (G.Ex.13). Roberts signed the portion of that form headed "Notice of Abandonment and Assent to Forfeiture," stating that he "hereby abandon[ed] all claim to the above described articles." (Id.).
Generally, "consent operates as a waiver of Fourth Amendment rights if, by a preponderance of the evidence, it is found to have been given voluntarily under the totality of the circumstances." United States v. Webster, 162 F.3d 308, 333 (5th Cir.1998); see also United States v. Cooper, 43 F.3d 140, 144 (5th Cir.1995); Schneckloth v. Bustamonte, 412 U.S. 218, 227, 93 S. Ct. 2041, 36 L. Ed. 2d 854 (1973).
Roberts argues that the Customs agents' statements that they intended to search his computer and Zip diskettes even absent his consent vitiated his consent to that search. The facts of this case are similar to cases in which officers tell an individual that they will obtain a search warrant if that individual does not consent to the search. In such circumstances, the courts hold that well-founded threats to obtain a warrant do not vitiate consent, but that empty threats might. See United *688 States v. Duran, 957 F.2d 499, 502 (7th Cir.1992); see also United States v. Loving, 41 M.J. 213, 244-45 (U.S.C.A.A.F. 1994); United States v. Twomey, 884 F.2d 46, 51-52 (1st Cir.1989); United States v. Tolley, 173 F.3d 431, 1999 WL 137620, *8 (6th Cir.1999) (unpublished disposition). If an officer says that he will obtain a search warrant if consent to search is not given, but probable cause to support a warrant application is lacking, then a consent to that search may be invalid.
The courts have not clearly stated whether it is critical that the searching officer had a reasonable, good-faith belief that a warrant would properly issue, or that the warrant could in fact have issued consistent with the Fourth Amendment. See Twomey, 884 F.2d at 52. However, that distinction does not make a difference in this case. The Customs agents clearly could have searched Roberts' computer and Zip diskettes on August 25, 1998, even if Roberts had not consented. The agents' statements that they intended to conduct the search was a "well-founded threat" that did not vitiate Roberts' consent.
The search of the defendant's computer and diskettes would have been a routine export search, valid under the Fourth Amendment.[4] "`Routine searches' are generally classified as those which do not `seriously invade a traveler's privacy.'" United States v. Rivas, 157 F.3d at 367 (quoting Cardenas, 9 F.3d at 1148 n. 3). The First Circuit has set forth the following factors for determining the degree of invasiveness involved in a search: (1) whether the search results in the exposure of intimate body parts or requires the suspect to disrobe; (2) whether physical contact between Customs officials and the suspect occurs during the search; (3) whether force is used to effect the search; (4) whether the type of search exposes the suspect to pain or danger; (5) the overall manner in which the search is conducted; and (6) whether the suspect's reasonable expectations of privacy, if any, are abrogated by the search. United States v. Braks, 842 F.2d 509, 512 (1st Cir.1988). Courts consistently treat two categories of search as nonroutine: strip-searches and body-cavity searches. See Braks, 842 F.2d at 512-13. The Fifth Circuit has held that Customs agents who drilled into the body of an automobile at a border checkpoint conducted a nonroutine search. See Rivas, 157 F.3d at 367; see also United States v. Robles, 45 F.3d 1, 5 (1st Cir.1995) (holding that drilling into a metal cylinder during an airport search was nonroutine because it involved the use of force and destroyed property).
A search of Roberts' computer and diskettes would not have been destructive or so personally invasive as to be nonroutine. Several courts have analogized the Fourth Amendment protection appropriately afforded an individual's computer files and computer hard drive to the protection given an individual's closed containers and closed personal effects. United States v. Barth, 26 F.Supp.2d. 929, 936-37 (W.D.Tex.1998); United States v. David, 756 F. Supp. 1385, 1390 (holding that a computer notebook "is indistinguishable from any other closed container" for the purpose of Fourth Amendment analysis); cf. also United States v. O'Razvi, 1998 WL 405048, *6 (S.D.N.Y.1998) (suggesting that personal computers might be analogized to closed containers in their degree of Fourth Amendment protection); United States v. *689 Blas, 1990 WL 265179, *21 (E.D.Wis.1990) (holding that "an individual has the same expectation of privacy in a pager, computer, or other electronic storage device as in a closed container").
The opening of luggage, itself a closed container, is the paradigmatic routine border search. See United States v. Cardenas, 9 F.3d 1139, 1148 n. 3 (5th Cir.1993) (collecting cases); United States v. Ezeiruaku, 936 F.2d 136, 140-41 (3d Cir.1995) (same). There is no reason to conclude that a nondestructive search of Roberts' computer and diskettes, also closed containers, would have been nonroutine. Under a more restrictive approach to the export search doctrine that would require a reasonable relationship between the search and the export control laws, the search of Roberts' computer and diskettes would be still permissible because it would have been reasonably related to enforcing laws prohibiting the export of certain technological or other data. The Customs agents' statements that they intended to search Roberts' computer and diskettes were not threats to conduct a search that they could not lawfully have made without consent. Roberts' consent to search is not vitiated on this ground.
Nor is Roberts' consent to search invalid on other grounds. In evaluating the voluntariness of consent, a court considers six factors: (1) the defendant's custodial status; (2) the presence of coercive law enforcement procedures; (3) the extent and level of the defendant's cooperation with law enforcement; (4) the defendant's awareness of his right to refuse to consent; (5) the defendant's education and intelligence; and (6) the defendant's belief that no incriminating evidence will be found. Cooper, 43 F.3d at 144; see also Webster, 162 F.3d at 333. No single factor is dispositive in this analysis. See Cooper, 43 F.3d at 144; United States v. Gonzales, 842 F.2d 748, 754-55 (5th Cir.1988). The government bears the burden of proving, by a preponderance of the evidence, that the consent to search was voluntary. See Cooper, 43 F.3d at 144.
Before escorting Roberts to the secondary search area, Customs agents told Roberts that he either could continue his travel and leave his diskettes behind to be searched, or could miss his plane and wait until his diskettes were searched. After Roberts admitted that the diskettes contained child pornography and before he signed the consent to search form, Agents Coffman and Rios read Roberts his Miranda rights. The record does not disclose any coercive police tactics. Roberts generally cooperated with the investigation. Roberts knew of his right to refuse to consent. The consent to search form that he signed included the statement, "I have been informed by [Agent Coffman] of my right to refuse to consent to a search of my property." (G.Ex.12). The record discloses that Roberts worked for an oil company in a professional capacity. Nothing suggests that any lack of education or intelligence made his consent involuntary. Roberts' admission makes it clear that he knew that incriminating evidence would be found if agents searched the diskettes. Based on the totality of the circumstances, this court finds that Roberts voluntarily gave his consent. The later searches of Roberts' computer, diskettes, or other effects were constitutional in light of this consent.
Roberts also moves to suppress the statements he made during the course of the border search. Because this court finds no Fourth Amendment violations, there is no basis to suppress the statements as "the fruit of the poisonous tree." See Wong Sun v. United States, 371 U.S. 471, 83 S. Ct. 407, 9 L. Ed. 2d 441 (1963). The record discloses no coercive conduct by Customs agents that would render Roberts' statements involuntary under the Fifth Amendment privilege against self-incrimination. See Colorado v. Connelly, 479 U.S. 157, 107 S. Ct. 515, 93 L. Ed. 2d 473 (1986). Neither are Roberts' statements subject to suppression under Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966). Roberts waived his Miranda rights during his August 25, 1998 *690 detention. His statements before the waiver were made in connection with a routine export border search. The Fifth Circuit has held that "Miranda warnings are unnecessary during routine questioning and searches by Customs agents." Berisha, 925 F.2d at 797. Roberts statements are admissible at trial.
III. CONCLUSION
There is no basis for the suppression of the evidence seized as a result of the August 25, 1998 search of Roberts or for suppression of the statements Roberts made on that date. Roberts' motion to suppress is DENIED.
NOTES
[1] "Tr. ____" refers to the transcript of the November 1, 1999 suppression hearing, found at Docket Entry No. 23. "G.Ex. ____" refers to the government's exhibits at that hearing.
[2] Agent Rios testified that he did not know the original source of the information he received from RACLC, Louisiana law enforcement officials, or Agent Coffman, and did not know whether the information was reliable. (Tr. 91-92).
[3] Roberts was not the only person searched in the jetway. (Tr. 8). Inspector Hanson testified that Customs agents "are trained to look for certain characteristics or behaviorisms in individuals that would lead us to believe they should be inspected." (Id.). Sometimes, agents "will even choose people [to be searched] at random." (Id.).
[4] If the border search exception applies to export searches in the same way it applies to searches of persons and property entering the country, then the agents had the authority to search the defendant's computer and diskettes even if that search would be "nonroutine." The agents needed only a "reasonable suspicion of wrongdoing" to conduct a nonroutine search. They had a reasonable suspicion based on the information they had previously received about the defendant and their corroboration of that information in their preliminary observations and during the routine detention and search in the jetway. See United States v. Gonzalez, 190 F.3d 668, 672 (5th Cir.1999); United States v. Lopez-Gonzalez, 916 F.2d 1011, 1013-14 (5th Cir.1990); see also Alabama v. White, 496 U.S. 325, 110 S. Ct. 2412, 110 L. Ed. 2d 301 (1990). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1862385/ | 603 So. 2d 166 (1992)
Frederick J. FREY, et al.
v.
AMOCO PRODUCTION COMPANY.
No. 92-CQ-0091.
Supreme Court of Louisiana.
June 26, 1992.
Rehearing Denied September 3, 1992.
*168 Gilbert F. Ganucheau, Clerk, U.S. Fifth Circuit, Court of Appeal, Slidell, for applicant.
Frederick W. Ellis, Thomas C. McKowen, IV, Strain, Dennis, Ellis, Mayhall & Bates, David McQuown, Ellison, Jr., Esq., Ellison & Smith, Baton Rouge, Frank J. Peragine, Thomas Robert Blum, Charles C. Coffee, Christina Anne Harris Belew, Simon, Peragine, Smith & Redfearn, New Orleans, Jackson M. Cooley, Houston, Tex., for respondents.
George Julien Domas, Deborah Bahn Price, Jonathan Andrew Hunter, Cheryl Mollere Kornick, Jane J. Boleware, Liskow & Lewis, New Orleans, for Anadarko Petroleum Corp., Atlantic Richfield Co., Chevron U.S.A., Inc., Conoco, Inc., Enron Oil & Gas Co., Exxon Corp., Fina Oil & Chemical Co., Marathon Oil Co., Mobil Oil Expl. & Prod. SE Inc., Mobil Expl. & Prod. Co., OXY USA, Inc., Pennzoil Expl. & Prod. Co., Shell Western E & P, Inc., Texas Expl. Corp., UNOCAL Expl. Corp., and Union Pacific Resources Co. (amicus curiae)
John Allen Bernard, Edward C. Abell, Jr., Kevin Roy Rees, John William Kolwe, Onebane, Donohoe, Bernard, Torian, Diaz, McNamara & Abell, Lafayette, for Tennessee Gas Pipeline Co. (amicus curiae).
John M. McCollam, Bobbie Joseph Duplantis, Philip Nicholas Asprodites, Paul Edward Bullington, James Louis Weiss, Gordon, Arata, McCollam & Duplantis, New Orleans, for Preston Oil Co. and BHP Petroleum (Americas) (amicus curiae).
John R. Martzell, Scott R. Bickford, Thomas Wade Noland, Regina O. Matthews, Martzell, Thomas & Bickford, New Orleans, for Martha Miller Stoute, Thomas Mounger, Betty Duplantis Brown, Argyle Land Co. (amicus curiae).
Donald Burnham Ensenat, Larry S. Bankston, Daniel Kent Rester, Stephen Thomas Perkins, Hoffman, Sutterfield, Ensenat & Bankston, New Orleans, for Dennis Bickham, III and Renee Bickham Priest (amicus curiae).
John H. Cheatham, III, Washington, D.C., for Interstate Natural Gas Ass'n of America (amicus curiae).
*169 Newman Trowbridge, Jr., Darnall, Biggs, Trowbridge, Supple & Cremaldi, Franklin, for Louisiana Landowners Ass'n, Inc. (amicus curiae).
Richard Phillip Ieyoub, Atty. Gen., Frederick Coller Whitrock, Asst. Atty. Gen., Harold Louis Lee, Staff Atty., James Joseph Devitt, III, Ernest R. Eldred, Eldred & Clauer, Baton Rouge, for State of Louisiana, Richard P. Ieyoub, State Mineral Bd. and Dept. of Natural Resources ("State") (amicus curiae).
COLE, Justice.
Frederick J. Frey and other owners of gas royalty interests ("Frey") under a mineral lease ("Lease") commenced suit against their mineral lessee, Amoco Production Company,[1] in the United States District Court for the Eastern District of Louisiana to recover a royalty share of the proceeds received by Amoco in settlement of the take-or-pay litigation ("Settlement Agreement") arising under the "Gas Purchase and Sales Agreement" ("Morganza Contract") between Amoco and its pipeline purchaser, Columbia Gas Transmission Corporation.[2] The Lease's royalty clause provides Frey a "royalty on gas sold by the Lessee [of] one-fifth (1/5) of the amount realized at the well from such sales."[3]
The take-or-pay royalty claim was tried on undisputed facts pursuant to opposing motions for partial summary judgment. After trial, the district judge granted partial summary judgment in favor of Amoco, closely following the reasoning of Diamond Shamrock Exploration Co. v. Hodel, 853 F.2d 1159 (5th Cir.1988).[4]Frey v. Amoco Production Co., 708 F. Supp. 783, 787 (E.D.La.1989). The district court determined the sale of gas cannot occur absent physical production and severance of the gas, and therefore, under Louisiana law, take-or-pay payments do not constitute part of the sale price of natural gas. Id. at 786. The court also declined to extend Article 122 of the Louisiana Mineral Code, the so-called "mutual benefits article", so as to require the lessee to pay royalties on take-or-pay proceeds, citing Diamond Shamrock's conclusion that take-or-pay payments are intended to compensate the lessee, rather than the mineral owner, for the costs associated with development and production. *170 Id. (quoting Diamond Shamrock, 853 F.2d at 1167). Frey appealed to the United States Court of Appeals for the Fifth Circuit. A three judge panel of that court reversed. Frey v. Amoco Production Co., 943 F.2d 578 (5th Cir.1991). The Court of Appeals decided, inter alia, take-or-pay payments are part of the "amount realized" from the sale of gas under the Lease, and thus such payments, received by the lessee in settlement of the take-or-pay dispute with its pipeline purchaser for gas not taken, are subject to the lessor's royalty. Id. at 580-84. The court, relying on Louisiana law, reasoned the payments "constitute economic benefits that Amoco received from granting Columbia the right to take gas from the leased premises, a right Amoco got through the Lease." Id. at 584 (footnote omitted). The court thus determined "it would be contrary to the nature of the Lease as a cooperative venture to allow a benefit by any name that is attributable to the gas under the leased premises to inure exclusively to the lessee." Id. (footnote omitted). Diamond Shamrock was distinguished. Id. at 581. On Petition for Rehearing, however, the Court of Appeals withdrew that portion of its opinion regarding Frey's entitlement to a royalty interest on the proceeds of the take-or-pay settlement and certified to us the following question:
QUESTION CERTIFIED
"Whether under Louisiana law and the facts concerning the Lease executed by Amoco and Frey, the Lease's clause that provides Frey a `royalty on gas sold by the Lessee of one-fifth (1/5) of the amount realized at the well from such sales' requires Amoco to pay Frey a royalty share of the take-or-pay payments that Amoco earns as a result of having executed the Lease and under the terms of a gas sales contract with a pipeline-purchaser." Frey v. Amoco Production Co., 943 F.2d at 578, op. withdrawn, in part, on reh'g, ques. certified, 951 F.2d 67 (5th Cir.1992) (per curiam).
In exercising the certification privilege granted by Rule XII of the Rules of the Supreme Court of Louisiana, the Court of Appeals maintained it continued to believe in the propriety of its ruling but felt compelled to defer to the Louisiana Supreme Court on this critical point of Louisiana law. Id. at 67. As noted by the federal court, this issue is res nova in Louisiana and, as evidenced by the filing of numerous amici curiae briefs, the extent of the interests affected by its resolution considerable. Id. The controversy centers around Frey's alleged entitlement to a royalty share of the $66.5 million in take-or-pay amounts paid by Columbia to Amoco under the Settlement Agreement. The parties characterize $45.6 million of the total as a "recoupable take-or-pay payment"[5] and the remaining $20.9 million as a "non-recoupable take-or-pay payment."[6] Not at issue is a $280.2 million payment made to Amoco under the Settlement Agreement for past and future price deficiencies in natural gas as Frey has already received royalty on that entire amount.
RESPONSE TO CERTIFIED QUESTION
Having granted certification, Frey v. Amoco Production Co., 592 So. 2d 1308 (La.1992), we respond by i) examining the legal precepts which govern the issues raised by the certified question, and ii) applying the legal precepts to the precise language of the royalty clause to determine whether the proceeds received by Amoco in settlement of the take-or-pay litigation with Columbia constitute part of the "amount realized" from gas sold by Amoco to Columbia. Although the Fifth Circuit disclaimed *171 any intention that we confine our reply to the precise form or scope of the question certified, Frey, 951 F.2d at 68, we do not deem prudent an excursion far beyond the bounds of the precise question certified.
For the reasons hereinafter assigned, we find the take-or-pay payments under the facts of this case and the royalty clause at issue are subject to the lessor's royalty in favor of Frey.
I. THE LEGAL PRECEPTS
A. Louisiana Mineral Law
Ownership of land does not include ownership of oil or gas.[7] LA.REV. STAT. ง 31:6; Succession of Doll v. Doll, 593 So. 2d 1239 (La.1992); Frost-Johnson Lumber Co. v. Salling's Heirs, 150 La. 756, 91 So. 207 (1920). The vesting of title to fugitive minerals, such as oil or gas, occurs when the minerals are reduced to possession at the wellhead. See LA.REV. STAT. ง 31:7 and the comment thereto; Texas Co. v. Fontenot, 200 La. 753, 8 So. 2d 689 (1942); Wall v. United Gas Public Service Co., 178 La. 908, 152 So. 561 (1934); Frost-Johnson, supra. Thus, with respect to oil and gas, possession marks both the vesting of title and mobilization. LA.REV. STAT. ง 31:7, comment. See generally, Steele v. Denning, 445 So. 2d 94 (La.App. 2d Cir.), aff'd, 456 So. 2d 992 (La.1984); Succession of Rugg, 339 So. 2d 519 (La. App. 2d Cir.1976), writ denied, 341 So. 2d 897 (La.1977).
Although the right to explore and develop one's property for the production of minerals, and to reduce minerals to possession and ownership, belongs exclusively to the landowner, LA.REV.STAT. ง 31:6, the landowner may convey, reserve or lease this privilege. LA.REV.STAT. ง 31:15; Succession of Doll, supra. See also Allies Oil Co. v. Ayers, 152 La. 19, 92 So. 720 (1922). In this manner, rights in minerals may be considered "separable component parts of the ownership of land." A.N. Yiannopoulos, Property ง 118, in 2 Louisiana Civil Law Treatise (3d ed. 1991) (footnote omitted). A mineral lease, one of the manners in which mineral rights are segregated from ownership, id., is a contract by which the lessee is granted the right to explore for and produce minerals. LA.REV.STAT. ง 31:114; Succession of Doll, supra. Mineral leases are construed as leases generally and, wherever pertinent, codal provisions applicable to ordinary leases are applied to mineral leases. Succession of Doll, supra; Melancon v. Texas Co., 230 La. 593, 89 So. 2d 135 (1956). See also LA.REV.STAT. ง 31:2; McCollam, A Primer for the Practice of Mineral Law Under the New Louisiana Mineral Code, 50 Tul.L.Rev. 729, 733 (1976); L. McDougall, Louisiana Oil and Gas Law ง 3.1 (1991) and the authority cited therein. Accordingly, where the Louisiana Mineral Code, see LA.REV.STAT. ง 31:1-ง 31:215, neither expressly nor impliedly provides for a particular situation, resort is made to the Louisiana Civil Code or other laws, either directly or by analogy. LA.REV.STAT. ง 31:2 and the comment thereto. See, e.g., McCollam, 50 Tul.L.Rev. at 862 (The Mineral Code does not address gas purchase contracts). However, where there is conflict between the provisions of the Civil Code or other laws, the Mineral Code prevails. LA.REV.STAT. ง 31:2. See, e.g., Producers Oil & Gas Co. v. Nix, 488 So. 2d 1099 (La.App. 2d Cir.), writ denied, 493 So. 2d 641 (La.1986). We begin with the Mineral Code.
Article 213(5) of the Mineral Code defines royalty, as used in conjunction with mineral leases,[8] as:
any interest in production, or its value, from or attributable to land subject to mineral lease, that is deliverable or payable to the lessor or others entitled to *172 share therein. Such interests in production or its value are `royalty,' whether created by the lease or by separate instrument, if they comprise a part of the negotiated agreement resulting in execution of the lease. `Royalty' also includes sums payable to the lessor that are classified by the lease as constructive production.
Although Article 213(5) provides a standard for interpretation of the mineral lease, the rather expansive definition of royalty is not dispositive of the lessor's right to a royalty share of take-or-pay payments. See LA.REV.STAT. ง 31:122, comment, La. Civ.Code art. 2047. The principle of freedom of contract is expressly recognized by the Mineral Code, see LA.REV.STAT. ง 31:3, and therefore, the accessorial right of royalty may not be defined absent reference to the oil and gas lease in which it appears. See Vincent v. Bullock, 192 La. 1, 187 So. 35 (1939) (citing La.Civ.Code art. 1945 (1870)); H. Daggett, Mineral Rights in Louisiana ง 61 (1949); L. McDougall at ง 3.1. Accordingly, this Court must give consideration to the fundamental principle that the lease contract is the law between the parties, defining their respective legal rights and obligations,[9]see La.Civ.Code art. 1983; Odom v. Union Producing Co., 243 La. 48, 68, 141 So. 2d 649, 656 (1961); Mallett v. Union Oil & Gas Corp. of Louisiana, 232 La. 157, 161, 94 So. 2d 16, 17 (1957), as well as the rules for interpretation of contracts as laid down in the Civil Code, Title IV at Chpt. 13, art. 2045 et seq. Disinclined to rewrite a mineral lease in pursuit of equity, we are nonetheless cognizant the terms of a mineral lease are neither intended to, nor capable of, accommodating every eventuality. See Martin, A Modern Look at Implied Covenants To Explore, Develop, and Market Under Mineral Leases, 27 Inst. on Oil & Gas L. & Tax'n 177,194 (1976).
The purpose of interpretation is to determine the common intent of the parties. See La.Civ.Code art. 2045. Words of art and technical terms must be given their technical meaning when the contract involves a technical matter, see La.Civ.Code art. 2047, and words susceptible of different meanings are to be interpreted as having the meaning that best conforms to the object of the contract. See La.Civ.Code art. 2048. A doubtful provision must be interpreted in light of the nature of the contract, equity, usages, the conduct of the parties before and after the formation of the contract, and other contracts of a like nature between the same parties. La.Civ. Code art. 2053. When the parties made no provision for a particular situation, it must be assumed that they intended to bind themselves not only to the express provisions of the contract, but also to whatever the law, equity, or usage regards as implied in a contract of that kind or necessary for the contract to achieve its purpose. La.Civ.Code art. 2054. To these basic concepts, we add one other. In Louisiana, a mineral lease is interpreted so as to give effect to the covenants implied in every such lease. See LA.REV.STAT. ง 31:122.
Under the facts before us, a search for the parties' specific intent relative to the obligation to pay royalty on the take-or-pay proceeds would prove fruitless. Surely neither Amoco nor Frey contemplated at the time the Lease was executed in 1975 the demand for gas would fall and pipelines would be financially unable to comply with their obligations under long-term gas purchase and sales contracts. It is even more unlikely the parties contemplated producers would receive take-or-pay payments in settlement of gas contract litigation. Accordingly, we look not at the parties' intent to provide expressly for take-or-pay payments, but rather at the parties general intent in entering an oil and gas lease, viz., *173 the lessor supplies the land and the lessee the capital and expertise necessary to develop the land for the mutual benefit of both parties. In this manner, the royalty clause is given an expansive reading, reflecting the mutuality of objectives and sharing of benefits inherent in the lessee-lessor relationship. See, e.g., Wemple v. Producers' Oil Co., 145 La. 1031, 83 So. 232 (1919). Consequently, we endeavor to ascertain the meaning of the royalty clause in a manner consistent with the nature and purpose of an oil and gas lease, La.Civ. Code art. 2054, having due regard for: 1) the function of a royalty clause; and 2) the lessee's implied obligation under Mineral Code Article 122 to market diligently the gas produced.
1. The Attributes of Royalty
As stated, the royalty clause is construed not in the abstract but in reference to the economic and practical considerations underlying the royalty interest and with due regard to the relationship between a lessor and lessee. The lessor-lessee relationship ensues from a synallagmatic contract in which the obligation of each party is the cause of the other. See LA.REV.STAT. ง 31:122; La.Civ.Code arts. 1908, 1967, 2669; Wier v. Grubb, 228 La 254, 268, 82 So. 2d 1, 6 (1955) (oil and gas leases require mutuality of rights and interest). Where royalty is conferred by the lease, royalty is the reason or cause for the lessor to obligate himself thereto. See La. Civ.Code art. 1967. Stated differently, royalty is the compensation or "consideration" the lessee pays to the lessor to secure the privilege of exercising the right to explore and develop the property for production of oil and gas. See Caddo Oil & Mining Co. v. Producers' Oil Co., 134 La. 701, 64 So. 684 (1914); H. Daggett at ง 60; R. Hemingway, The Law of Oil and Gas ง 8.1 (3d ed. 1991).
By virtue of the beneficial relationship between lessee and lessor, the former avoids having to pay up front for the privilege of exploration, and the latter, assuming a passive role, is guaranteed participation in any eventual yield accruing from the lessee's entrepreneurial efforts, unconstrained by financial and operational responsibilities. See Martin, 27 Inst. on Oil & Gas L. & Tax'n at 194 n. 62. Inherent in the concept of lease as a bargained-for exchange is the recognition a lessor would not relinquish a valuable right arising from the leased premises without receiving something in return. Wemple, supra. In Wemple, lessor sued lessee to recover a one-eighth royalty on natural gasoline the lessee extracted from casinghead gas by the use of a separator. At the time the Lease was executed in 1909, the parties were unaware of this procedure. We determined the casinghead gas fell under the oil clause of the Lease, reasoning the parties would not have contemplated a lease where the lessee could extract a valuable substance and "give nothing in return." Wemple, 145 La. at 1045, 83 So. at 237.
This Court also had occasion to discuss the nature of a royalty interest in the context of ascertaining the meaning of "market value" of gas under a mineral lease. See Henry v. Ballard & Cordell Corp., 418 So. 2d 1334, 1339 (La.1982). There, we reasoned the ambiguity in the royalty provision could not be resolved without consideration of the practical and economic realities of the oil and gas industry at the time the leases were negotiated and the obligations of the lessee to market the gas at the best possible price at the time the leases were made. Id. at 1337, 1338. Adopting the reasoning of Professor Thomas Harrell, we announced the rule that a lease arrangement is in the nature of a cooperative venture in which the lessor contributes the land and the lessee the capital and expertise necessary to develop the minerals for the mutual benefit of both parties. Id. at 1338 (citing Harrell, Developments in Non-Regulatory Oil & Gas Law, 30 Inst. on Oil & Gas L. & Tax'n 311, 334 (1979)). We also concluded the ultimate objective of the royalty provision of the lease is to fix the division between the lessor and lessee of the economic benefits anticipated from the development of the minerals. Id. We then quoted with approval Professor Harrell's contention:
*174 [A]ny determination of the market value of gas which admits the lessee's arrangements to market were prudently arrived at consistent with the lessee's obligation, but which at the same time permits either the lessor or lessee to receive a part of the gross revenues from the property greater than the fractional division contemplated by the lease, should be considered inherently contrary to the basic nature of the lease and be sustained only in the clearest of cases.
Id. at 1338 n. 10 (quoting Harrell, 30 Inst. on Oil & Gas L. & Tax'n at 336).
In light of Henry, we conclude an oil and gas lease, and the royalty clause therein, is rendered meaningless where the lessee receives a higher percentage of the gross revenues generated by the leased property than contemplated by the lease. The lease represents a bargained-for exchange, with the benefits flowing directly from the leased premises to the lessee and the lessor, the latter via royalty. An economic benefit accruing from the leased land, generated solely by virtue of the lease, and which is not expressly negated, see LA.REV.STAT. ง 31:3, is to be shared between the lessor and lessee in the fractional division contemplated by the lease. See Henry, supra; Wemple, supra.
2. Implied Covenant To Market
Despite the purely contractual relationship between the lessor and lessee, the respective parties' obligations can not be determined absent reference to the covenants implied in every oil and gas lease. See Pearson & Watt, To Share or Not To Share: Royalty Obligations Arising out of Take-or-Pay or Similar Gas Contract Litigation, 42 Inst. on Oil & Gas L. & Tax'n 14-1, at ง 14.04[1] (1991). These covenants address matters not expressly covered by the lease, including protection of the lessor's interest, R. Hemingway at ง 8.1; 5 E. Kuntz, Law of Oil & Gas ง 54.2 (1991), and assist the court in ascertaining the duties incident to the relationship of lessor and lessee. Martin, 27 Inst. on Oil & Gas L. & Tax'n 177,195. At the heart of the implied obligations in Louisiana is the notion the parties consent to perform these obligations in order "to effectuate the basic objectives of an oil and gas lease." L. McDougall at ง 4.1 (footnote omitted). See, e.g., Carter v. Arkansas-Louisiana Gas Co., 213 La. 1028, 36 So. 2d 26 (1948).
In Louisiana, the implied covenants originate not in the general principle of cooperation found in the law of contracts, see 5 Williams and Meyers, Oil and Gas Law ง 802.1 (1991), but rather as particularized expressions of Civil Code Article 2710's mandate that the lessee enjoy the thing leased as "a good administrator." LA.REV.STAT. ง 31:122, comment; La.Civ.Code art. 2710.[10] The duty to act as a "reasonably prudent operator," imposed on the mineral lessee by Article 122 of the Mineral Code, is thus an adaptation of the obligation of other lessees to act as "good administrators." LA.REV.STAT. ง 31:122, comment. See, e.g., Waseco Chemical & Supply Co. v. Bayou State Oil Corp., 371 So. 2d 305 (La.App. 2d Cir.), writ denied, 374 So. 2d 656 (La.1979); Williams v. Humble Oil & Refinery Co., 290 F. Supp. 408 (E.D.La. 1968), aff'd, 432 F.2d 165 (5th Cir.1970).
Article 122 of the Mineral Code provides:
A mineral lessee is not under a fiduciary obligation to his lessor, but he is bound to perform the contract in good faith and to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and his lessor. Parties may stipulate what shall constitute reasonably prudent conduct on the part of the lessee.
The legislature intended to incorporate within Article 122 the existing jurisprudence on the subject, and accordingly, the mineral lessee's obligation to act as a "good administrator" or "reasonably prudent operator" is clearly specified in four *175 situations. See LA.REV.STAT. ง 31:122, comment; McCollam, 50 Tul L.Rev. at 803. Relevant for our purposes is the implied obligation to market diligently the minerals discovered and capable of production in paying quantities in the manner of a reasonable, prudent operator.[11] LA.REV.STAT. ง 31:122, comment. See generally Shell Oil Co. v. Williams, Inc., 428 So. 2d 798, 803 (La.1983); Risinger v. Arkansas-Louisiana Gas Co., 198 La. 101, 3 So. 2d 289 (1941); Wall, supra; Hutchinson v. Atlas Oil Co., 148 La. 540, 87 So. 265 (1921); Wemple, supra; Merritt v. Southwestern Elec. Power Co., 499 So. 2d 210, 214 (La. App. 2d Cir.1986); Lelong v. Richardson, 126 So. 2d 819 (La.App. 2d Cir.1961); Pierce v. Goldking Properties, Inc., 396 So. 2d 528 (La.App. 3d Cir.), writ denied, 400 So. 2d 904 (La.1981). Encompassed within the lessee's duty to market diligently is the obligation to obtain the best price reasonably possible. See, e.g., Tyson v. Surf Oil Co., 195 La. 248, 196 So. 336 (1940). See also LA.REV.STAT. ง 31:122, comment; Martin, 27 Inst. on Oil & Gas L. & Tax'n at 191; L. McDougall at ง 4.5; Pearson & Watt, 42 Inst. on Oil & Gas L. & Tax'n at ง 14.04[1].
Regarding the fulfillment of the implied covenants, including the duty to market diligently, the lessee's conduct must conform to, and be governed by, what is expected of ordinary persons of ordinary prudence under similar circumstances and conditions, having due regard for the interest of both contracting parties. LA.REV. STAT. ง 31:122 and the comments thereto. See generally Carter, supra; Gennuso v. Magnolia Petroleum Co., 203 La. 559, 14 So. 2d 445 (1943); Coyle v. North American Oil Consolidated, 201 La. 99, 9 So. 2d 473 (1942); Caddo Oil & Mining Co. v. Producers' Oil Co., 134 La. 701, 64 So. 684 (1914). Our analysis is complicated by the paucity of litigation dealing with the implied obligation to market diligently, as well as the recognition that the lessee's conduct must be evaluated with due regard for the facts known at the time the Morganza Contract was executed. See 5 E. Kuntz at ง 60.3; L. McDougall at ง 4.5. Consequently, an examination of the take-or-pay provision, a clause found in nearly all gas purchase contracts, including the contract between Amoco and Columbia, is essential to resolving the issue before us.
Under a take-or-pay provision, the pipeline-purchaser commits to take or, failing to take, to pay for a minimum annual contract volume of natural gas which the producer has available for delivery. Williams & Meyers, Manual of Oil & Gas Terms 1233 (1991). Where gas is paid for but not taken, the contract normally permits the purchaser to "make-up" the deficiency by taking an excess amount of gas ("make-up gas") over a specific term and, in turn, to receive a refund or credit. See id.
At the time of execution of the Morganza Contract, long-term gas contracts containing take-or-pay provisions were standard in the industry, as are take-or-pay clauses. See Henry, 418 So.2d at 1336; Kramer, Royalty Obligations Under the GunโThe Effect of Take-or-Pay Clauses on the Duty To Make Royalty Payments, 39 Inst. Oil & Gas L. & Tax'n 5-1, at ง 5.02 (1988). In the past, long-term contracts were universally insisted upon by pipeline purchasers to enable acquisition of financing for the construction of capital intensive pipeline facilities. Henry, 418 So.2d at 1336. Additionally, take-or-pay provisions allow the pipeline flexibility in the amount of gas taken, assuaging the difficulties caused by the cyclical nature of demand and the absence of an open market for natural gas. See Johnson, Natural Gas Sales Contracts, 34 Inst. on Oil & Gas L. & Tax'n 83, 111 (1983). Indeed, because gas ordinarily can not be stored upon production, the only economic means of transporting gas is via pipeline. See Merritt, supra (production is futile without distribution of the product); *176 1 B. Kramer & P. Martin, The Law of Pooling and Unitization ง 5.01[3] (3d ed. 1991) ("A producer without a contract with a nearby pipeline is unable to sell its gas whatever the price.").
The producer also benefitted from a guaranteed minimal annual cash flow and was protected from decline in demand, minimizing the likelihood it would be unable to recoup the substantial costs associated with operation and maintenance. See Medina, McKenzie, & Daniel, Take or Litigate: Enforcing the Plain Meaning of the Take-or-Pay Clause in Natural Gas Contracts, 40 Ark.L.Rev. 185, 191 n. 16 (1986) and the authority cited therein; Comment, The Lessor's Royalty and Take-or-Pay Payments and Settlements Under Gas Sales Contracts in Louisiana, 47 La. L.Rev. 589, 591 (1987). Further, because take-or-pay clauses made it more likely the purchaser would take at a more consistent level, drainage to the reservoir was minimized while the ultimate recovery, and the resultant economic benefits to the lessor and lessee, were maximized. White, The Right to Recover Royalties on Natural Gas Take-or-Pay Settlements, 41 Okla. L.Rev. 663, 680 n. 96 (citing Masten & Crocker, Efficient Adaptation in Long-Term Contracts: Take-Or-Pay Provisions for Natural Gas, 75 Am.Econ.Rev. 1083 (1985); Comment, 47 La.L.Rev. at 591.
At the time the Morganza Contract was executed, a lessee who failed to execute with a pipeline purchaser a long-term gas sales contract containing a take-or-pay clause would likely be deemed to have acted imprudently. See Henry, supra; Miller v. Nordan-Lawton Oil & Gas Corp., 403 F.2d 946, 948-49 (5th Cir.1968); 5 E. Kuntz at ง 60.3; Pearson & Watt, 42 Inst. on Oil & Gas L. & Tax'n at ง 14.04[1]. By the same token, the producer who failed to renegotiate a long term gas contract in the face of the pipeline's financial inability to perform fully under a long-term gas purchase contract, given the market conditions caused by the decline in demand and the rise in producer-pipeline litigation, would also likely be deemed to have acted imprudently.[12]See infra. Part II, ง B.
B. Louisiana Sales Law
Louisiana law determines if and when a sale of minerals occurs. See, e.g., Henry, supra (Gas is "sold" for purposes of determining "market value" at the time the gas sales contract is executed). As stated, oil and gas in place are insusceptible of ownership apart from the soil of which they form a part. Equally well-settled is the principle ownership of gas vests at possession, i.e., at the wellhead. These precepts, however, do not in any manner strike discord with the Civil Code's express recognition that future things may be the object of a contract. See La.Civ.Code art. 1976; Plaquemines Equip. & Mach. Co., Inc. v. Ford Motor Co., 245 La. 201, 157 So. 2d 884 (1963); Keahey v. Osborne Ford-Lincoln-Mercury, Inc., 485 So. 2d 182 (La.App. 2d Cir.1986). Indeed, the sale of a future thing is specifically provided for in Article 2450 of the Civil Code, which article states, "A sale is sometimes made of a thing to come: as of what shall accrue from an estate, of animals yet unborn, or such like other things, although not yet existing." La.Civ.Code art. 2450. See H. Daggett at ง 60 (the sale of a royalty interest is the conveyance of a future thing). See also La.Civ.Code arts. 2439[13] and 2456.[14] Such a contract is not aleatory, but certain, since the price is to be paid for a *177 specific future object. Plaquemines Equip., 245 La. at 206, 157 So.2d at 885. Compare La.Civ.Code art. 2450 (sale of a future thing) with art. 2451 (sale of a hope).
Because the sale of a future thing is subject to the suspensive condition the object of the contract actually materialize, the sale is an exception to the general rule that ownership, and risk, are immediately transferred to the vendee upon agreement as to the object and the price thereof. See La.Civ.Code arts. 1767[15], 2456, 2457[16] and 2471.[17]See also Plaquemines Equipment, 245 La. at 207, 157 So.2d at 886 ("For the transfer of title to be operative under [Article 2456], the object of the contract must exist in a deliverable state."); S. Litvinoff, Obligations งง 32, 33, in 7 Louisiana Civil Law Treatise (1975); 1 M. Planiol, Trait้ El้mentaire De Droit Civil Nos. 2596, 2597 (11th ed. La.St.L.Inst. trans. 1959); 2 M. Planiol at Nos. 1008 and 1368. Rather, the contract is executory, and ownership and risk remain with the vendor, until if and when the thing which is the object of the contract actually materializes. Should the thing fail to come into existence, there is a failure of cause and the parties are relieved of their respective obligations. If, however, the condition is fulfilled by the materialization of the object of the contract, the effects are retroactive to the inception of the obligation, and therefore, the transfer of ownership deemed to have taken place at the time of the contract. See La.Civ.Code art. 1775 (fulfillment of a condition has effects that are retroactive to the inception of the obligation); 4 Aubry & Rau, Droit Civil Francais ง 302 (La.St.L.Inst. trans. 1971); S. Litvinoff, Obligations ง 62.
We also note one need not own a thing in order to perfect a sale. The sale of a thing belonging to another is not absolutely null, but only relatively so, and such nullity is in the interest of the purchaser. See La.Civ.Code art. 2452; Wright v. Barnes, 541 So. 2d 977 (La.App. 2d Cir. 1989); S. Litvinoff, Obligations ง 36.
II. APPLICATION OF PRECEPTS
Frey maintains the take-or-pay payments received from Columbia under the Settlement Agreement constitute part of the price, or total revenues, received by Amoco in return for Columbia's purchase of gas under the contract. Additionally, Frey contends the payments constitute economic benefits flowing from the Lease, to which Frey is entitled a royalty share under Mineral Code Article 122 and Henry, supra.
On the other hand, Amoco contends the clear language of the Lease requires a "sale" before the royalty obligation is triggered, and no sale of gas is possible unless and until gas is produced, i.e., reduced to possession at the wellhead. See LA.REV. STAT. งง 31:7 and 31:213(5). Characterizing a take-or-pay payment as a payment for volumes of gas not produced or sold, Amoco reasons the payment can not be deemed consideration for prior gas production, and therefore, the gas royalty clause remains untriggered. See Diamond Shamrock, 853 F.2d at 1167. Amoco further contends as it assumed all the risk and bore entirely the expense of development, the take-or-pay proceeds received in settlement of its dispute with Columbia should inure solely to its benefit, and royalties are due only on the gas if and when it is eventually produced.[18] Finally, Amoco points out Frey has received a royalty on all amounts received *178 by Amoco from Columbia in payment of the gas produced and sold from the leased premises, including gas taken by Columbia in recoupment of its recoupable take-or-pay settlement payment to Amoco.
While at first blush Amoco's argument may appear the better of the two, recourse to fundamental principles dictates a different conclusion. Applying Louisiana law to the royalty clause, we conclude, as did our brothers on the federal bench, the take-or-pay payments made to Amoco by Columbia in settlement of the take-or-pay litigation form part of the "amount realized" by Amoco from the sale of gas to Columbia and are therefore subject to the lessor's royalty clause in favor of Frey. The take-or-pay payments are a portion of the price paid to Amoco by Columbia for the gas actually delivered to Columbia under the Morganza Contract. More important, the proceeds constitute economic benefits which are derivative of Amoco's right to develop and explore the leased property, a right conferred by and dependent upon the Lease between Amoco and Frey. Our interpretation of the royalty clause is consonant with the intention of the parties in entering an oil and gas lease.
At the outset, we make three significant observations. First, Amoco does not dispute there was, at all relevant times since 1982, continuous production from the leased property. The take-or-pay litigation arose from Columbia's failure to take or pay for the full quantities of gas specified in the contract, not from Columbia's failure to take any gas. Secondly, our decision does not turn on whether a "sale" of gas occurred between Amoco and Columbia for purposes of the gas purchase contract, but whether a "sale" occurred between Columbia and Amoco so as to trigger the royalty clause of the Lease. Lastly, we decline to accept Amoco's cramped characterization of the take-or-pay payment, i.e., the payment was for gas not produced or sold. See, e.g., Diamond Shamrock, supra. This description refused, Amoco's argument collapses in upon itself like a house of cards.
We find Amoco's reliance on Diamond Shamrock misplaced. In that case, the federal court applied federal law to a federal offshore lease expressing the lessee's royalty obligation as a fraction of the "amount or value of production saved, removed, or sold." Diamond Shamrock, 853 F.2d at 1163 (emphasis supplied).
Next, Amoco's characterization of the take-or-pay payment as a payment in lieu of production disregards the fact the right not to take gas is merely a corollary of the right to take gas. See Frey, 943 F.2d at 584 n. 5 for a similar argument. Stated differently, Columbia would not have bargained for the right not to take gas although paying as if it had, without having the right to take gas. The obligation to take, or to pay if not taken, is alternative, and thus Columbia's primary obligation under the gas purchase contract could be satisfied in one of two ways. See La.Civ. Code art. 1808; Hanover Petroleum Corp. v. Tenneco, 521 So. 2d 1234, 1241 (La. App.3d Cir.), writ denied, 526 So. 2d 800 (La.1988).
Finally, it is a myopic eye which perceives the lessor as sharing none of the risks associated with bringing the gas to the ground, i.e., pre-production. See, e.g., White, 41 Okla.L.Rev. at 669 (If the lessor is denied a share in take-or-pay on the basis he shares none of the costs and risks of development and marketing, one may assume all royalties are unfair.) One obvious pre-production risk shared by both lessee and lessor is the risk of drainage from the reservoir. See LA.REV.STAT. งง 31:8 (rule of capture), 31:122 and the comment thereto; Coyle, supra; Breaux v. Pan American Petroleum Corp., 163 So. 2d 406 (La. App. 3d Cir.), writ denied, 246 La. 581, 165 So. 2d 481 (1964); Williams v. Humble Oil & Refining Co., 290 F. Supp. 408 (E.D.La. 1968), aff'd, 432 F.2d 165 (5th Cir.1970). The take-or-pay clause, assuring the production of a relatively constant amount of gas, acts to protect the reservoir from drainage. See also Johnson, 34 Inst. on Oil & Gas L. & Tax'n at 109 (The take-or-pay provision influences the rapidity and extent of development of the gas reservoir); White, 41 Okla.L.Rev. at 680; Comment, 47 *179 La.L.Rev. at 610 (take-or-pay provisions help assure the most efficient and complete depletion of the reservoir while minimizing the potential loss of hydrocarbons). Furthermore, both the lessee and lessor share the risk of an erroneous market forecast by the lessee, the lessor's royalty being dependent on the producer-pipeline contract.
A. Gas Purchase Contract As the Sale of Gas
The Frey-Amoco Lease explicitly predicates Amoco's obligation to pay royalty on the sale of gas. In contrast, royalty on oil and miscellaneous minerals is triggered by production. The discrepancy in "triggering" events is indicative of the physical and economic dissimilarity between oil and gas, the latter incapable of being stored or transported by the lessor. See Henry, 418 So.2d at 1336 n. 3 (citing Holliman, Exxon Corp. v. Middleton: Some Answers But Additional Confusion in the Volatile Area of Market Value Gas Royalty Litigation, 13 St. Mary's L.J. 1 (1981)); L. McDougall at ง 5.1. Moreover, the variance of language supports Frey's contention production is not a prerequisite to a sale. See La.Civ.Code art. 2050. Had the parties desired to condition the payment of royalties on production of gas, the Lease could easily have so provided. See LA.REV. STAT. ง 31:3.
We determine the gas purchase and sales contract between Amoco and Columbia was a sale of a specified future thing, viz., natural gas. See La.Civ.Code art. 2450. Columbia secured the right to take and pay for a minimum quantity of gas over a specified term or to pay as if it had accepted delivery of the required minimum volume. Prior to reducing the gas to possession at the wellhead, Amoco possessed only an exclusive right to explore and develop the property for the production of minerals and to reduce them to possession and ownership. See LA.REV.STAT. งง 31:6, 31:15, 31:114; Wall, supra. When the gas reached the surface of the ground, and the suspensive condition thus materialized, the executory sale of a future thing, taking place between Amoco and Columbia by virtue of the execution of the Morganza Contract, was perfected retroactive to the execution of the contract. See La.Civ.Code arts. 1767, 1775, 2450, 2471. See also Henry, supra (market value of gas is determined at the time the gas sales contract is executed although gas has not yet been delivered); Miller v. Nordan-Lawton Oil & Gas Corp. of Texas, 403 F.2d 946 (5th Cir.1968) (for purposes of shut-in royalty clause, market is obtained when the lessee executes a gas purchase contract); Callery Properties, Inc. v. Federal Power Comm'n, 335 F.2d 1004, 1021 (5th Cir. 1964), rev'd on other grounds sub. nom., United Gas Improvement Co. v. Callery Properties, Inc., 382 U.S. 223, 230, 86 S. Ct. 360, 364, 15 L. Ed. 2d 284 (1965) (take-or-pay payments constitute a sale sufficient to establish FPC jurisdiction over the transaction). Consequently, the sale of gas occurred at the time the gas was committed to the pipeline, i.e., at the execution of the Morganza Contract. Despite Amoco's lack of ownership of the gas at the time the Morganza Contract was executed, LA.REV. STAT. งง 31:6, 31:7, 31:15, 31:114, the sale was nonetheless valid. See La.Civ.Code art. 2452; Wright, supra; S. Litvinoff, Obligations ง 36.[19]
1. Take-or-pay payment: "price" for gas delivered
Having determined the event triggering the obligation to pay royalty on gas occurred, viz. the sale of gas, we address our conclusion that the take-or-pay payments are part of the "amount realized" by Amoco from the sale of gas to Columbia. We *180 interpret the "amount realized" by Amoco from the sale of gas to Columbia to encompass both: 1) the total price paid by Columbia for the natural gas delivered, and 2) the "economic benefits" derived from the lessee's right to develop and explore, a right conferred by the lease. See Henry, supra.
Total revenue under a gas purchase contract is a function of quantity and price. See Comment, 47 La.L.Rev. at 590. Because the producer is willing to negotiate a lower price in exchange for the guarantee the pipeline will either take or pay for a specific minimum quantity of natural gas, the take-or-pay provision effectively lowers the price the producer charges the pipeline per unit of gas. See 4 Will. & Meyers at ง 724.5. Consequently, absent the take-or-pay provision, the price of gas, and thus the royalty owed thereon, would be higher. White, 41 Okla.L.Rev. at 671. This conclusion is also supported by the affidavit of Dr. David Johnson, Professor of Economics at Louisiana State University, submitted in evidence in conjunction with Frey's Motion for Partial Summary Judgment. Application of this theory to the case before us leads to the conclusion that the price of gas taken under the contract includes not only the contract price paid per unit of gas delivered, but also the sums paid in the form of take-or-pay payments made in settlement of the Morganza Contract litigation. To simplify the equation, the actual price paid by the pipeline per unit of gas is determined by dividing the total quantity of gas delivered by the total amount paid to the producer, the latter including take-or-pay payments. See, e.g., Comment, 47 La. L.Rev. at 600 n. 35; Comment, Take or Pay Provisions: Major Problems for the Natural Gas Industry, 18 St. Mary's L.J. 251, 274-275 (1986); Note, Production, Production: What Is Production?, 1989 B.Y.U.L.Rev. 1333, 1347 n. 102 (1989). Viewed in this light, take-or-pay payments effectively increase the price of gas actually delivered to the pipeline. Failure to characterize these payments as part of the total price paid for gas sold under the contract is to disregard the obvious economic considerations underlying the take-or-pay clause. See also Lessard v. Lessard Acres, Inc., 349 So. 2d 293 (La.1977) (vendor's privilege secures additional sums payable in event of non-performance).
2. Economic benefits constituting part of the "amount realized"
Although we find the take-or-pay payments in this case constitute part of the price paid by Columbia for the gas taken, we choose not to rest our decision on this conclusion alone, anticipating the theoretical difficulties inherent in classification of take-or-pay settlement proceeds as part of the price paid for gas delivered where, for instance, no gas is taken by the pipeline-purchaser. Moreover, the term "amount realized" connotes the sum total, the whole, or the final effect of the economic benefits obtained by Amoco in the exercise of the rights granted by the synallagmatic contract of Lease, and, is composed, in part, of the advantages flowing to Amoco by virtue of the sale of natural gas under the Morganza Contract.
The parties enter into a mineral lease in expectation of making a profit, and toward that end, incur reciprocal obligations. In exchange for a royalty interest, Amoco receives the exclusive right to explore and develop the leased premises. See LA.REV. STAT. ง 31:114. Indeed, all of the rights of Amoco, in and to the Frey property and the minerals thereunder, derive from the lease executed between Frey and Amoco. By virtue of rights granted by Frey to Amoco, Amoco negotiated, and eventually renegotiated, the Morganza Contract with Columbia, allowing Amoco to sell the gas produced from Frey's property.
The benefits which accrue to Amoco under the Morganza Contract are derivative of the rights transferred to Amoco by Frey. Clearly, but for the Lease there would be no Morganza Contract, no Settlement Agreement, and ultimately no take-or-pay payments made to Amoco. Henry, supra, is authority for this determination. Therefore, even if we failed to find the take-or-pay proceeds constitute part of the price received by Amoco for the sale of natural gas, the payments nonetheless are economic benefits which accrue to the lessor *181 under the rationale of Henry, See also Wemple, supra.
As we have stated, the duty before us is not to divine the intent of the royalty clause in the abstract. Rather, the process reflects our appreciation of the cooperative nature of the lease arrangement as well as an understanding of the economic and practical considerations underlying the royalty clause. Retention by Amoco of the entire take-or-pay payment would permit Amoco to receive a part of the gross revenues from the property greater than the fractional division contemplated by the Lease. See Henry at 1338 n. 10 (citing Harrell, 30 Inst. on Oil & Gas L. & Tax'n at 336). Such a result can not be countenanced by this Court.
B. Right to Take-or-Pay Proceeds Derived from Lease
Further support is found in Article 122 of the Mineral Code. See LA.REV.STAT. ง 31:122. Amoco is bound to market diligently minerals discovered and capable of producing in paying quantities with due regard for Frey's interests. See id.; Shell Oil Co. v. Williams, Inc. 428 So. 2d 798, 803 (La.1983); Harrell, 30 Inst. on Oil & Gas L. & Tax'n at 334. Upon segregation and conveyance of his right of ownership in the minerals to Amoco, Frey assumed a passive role, and presently possesses merely an accessorial right dependent upon the continued existence of the lease. In contrast, Amoco's superior position accords it exclusive control over the development and management of the property for the production of minerals.
Cognizant the majority of commentators urge the courts to defer to lessee marketing decisions, we do not take lightly our duty to scrutinize the lessee's implied covenant to market diligently in light of the practical, economic, and environmental concerns. See Martin, 27th Oil and Gas Inst. at 177; McCollam, 50 Tul.L.Rev. at 810; 5 Williams and Meyers at ง 856.3. After careful consideration, we find Article 122 of the Mineral Code, which governed and sanctioned Amoco's decision to secure a market for natural gas via a long-term gas contract under the then-existing conditions, likewise governs Amoco's royalty obligations regarding take-or-pay payments made in settlement of the gas contract litigation. See Henry, supra. In so doing, we recognize the virtually perfect alignment of interests existing among the lessee, lessors, and society regarding certain limited aspects of the lease, including resolution of the pipeline-purchaser's financial inability to comply with the take-or-pay provisions in the long term gas contract. See, e.g., Pierce, Lessor/Lessee Relations in a Turbulent Gas Market, Oil and Gas Law and Taxation, ง 8.02[1] (1987) (regarding the decision to produce or defer). But see Donohoe, Implied Covenants in Oil & Gas Leases & Conservation Practice, 33 Inst. on Oil & Gas L. & Tax'n 97, 98 (1982) (lessor/lessee relationship is "complex one of mutual interest mingled with antagonism.")
More specifically, were a producer to force a pipeline-purchaser to comply with the long-term gas contract, despite the decline in price and market, it is not unlikely the pipeline would be faced with insurmountable financial problems and, eventually, forced into insolvency. See, e.g., Comment, 47 La.L.Rev. at 615. The producer who forces compliance with the contract in the face of the pipeline's financial ruin, would ultimately frustrate its own primary objective of assuring a market for the gas. A financially insolvent pipeline will not purchase any gas, and a royalty interest is worthless if no gas is sold. See id. Confronted with the potential loss of its market for gas, the prudent producer consents to settlement and is thus assured an uninterrupted market for gas.
Indeed, in brief to this Court, Amoco acknowledges the failure to renegotiate the gas purchase contract would have resulted in a "fire-sale" disposition of the Morganza gas on the spot market. Because the duty to market is a continuing one, Amoco should not be able to enjoy the benefits of the settlement while refusing to share the benefits with Frey. Assuming Amoco acted reasonably in settling the Morganza Contract litigation, and there is no evidence to suggest otherwise, the take-or-pay payments *182 received by Amoco as a result of the settlement inure to the mutual benefit of Amoco and Frey.
The practical considerations sustain our position. For example, "if lessors did not share in take-or-pay payments, lessees would have an incentive to compromise volume gas prices under their contracts or settlements with pipelines in exchange for favorable take-or-pay terms." Frey, 943 F.2d at 585 (citations omitted). See Pierce, 38 Inst. on Oil & Gas L. & Tax'n at ง 803[2] ("If producers are allowed to retain all of one part of the settlement (the lump sum payment), but must share with royalty owners another part of the settlement (proceeds from future sales under the contract), producers have an artificial incentive to maximize the lump sum settlement and minimize the future price."). See also Mineral Code art. 109, comment, for an analogous situation involving the owner of the executive right's exercise of his rights vis a vis the royalty, or non-executive holder. Accordingly, we find justice best served by the decision we reach today.
C. Conflicting Jurisprudence
We are aware of the federal and state court jurisprudence holding contrary to the position we assert herein. See, e.g., Gerard J. W. Bos & Co., Inc. v. Harkins & Co., 883 F.2d 379 (5th Cir.1989) (payments under a settlement for cancellation of a take or pay gas contract are not subject to royalty); Diamond Shamrock, supra (no royalty due on take-or-pay payments received in ordinary course of business); Piney Woods Country Life School v. Shell Oil Co., 726 F.2d 225, 234 (5th Cir.1984), cert. denied, 471 U.S. 1005, 105 S. Ct. 1868, 85 L. Ed. 2d 161 (1985) ("a gas sale contract is executory and ... no particular gas is sold until it is identifiedโi.e., brought to the surface."); Killam Oil Co. v. Bruni, 806 S.W.2d 264, 267 (Tex.App.-San Antonio 1991), writ denied (no royalty is due on settlement proceeds resulting from breach of take-or-pay provision in gas purchase contract); Wyoming v. Pennzoil Co., 752 P.2d 975, 980 (Wyo.1988) (royalties are due "only upon physical extraction of the gas from the leased tract"). See also ANR Pipeline Co. v. Wagner & Brown, 44 FERC ถ 61,057 (1988) (take-or-pay payments do not violate maximum lawful price (MLP) provisions of the NGPA); Kramer, 39 Oil & Gas L. & Tax'n at ง 5.01 n. 1 (commentators split evenly over whether royalty obligations are owed upon receipt of take-or-pay monies). We need hardly state that such law is only persuasive in our jurisdiction. Nor does this mark the first time we decline to follow a majority view. See, e.g., Henry, supra. Most important, the mineral law of Louisiana evolved not from the common law, but from the Civil Code, richly steeped in our civilian heritage. See La.R.S. 31:2, comment.
Finally, in responding to the question certified, we have deliberately refrained from distinguishing recoupable payment from nonrecoupable payment. We note in passing, however, Columbia has recouped in cash the entire $45.6 million recoupable take-or-pay settlement payment made to Amoco. Clearly, Frey is entitled to a royalty payment for the gas actually taken, and has, in fact, received such a payment. However, it may be in cases such as this the lessor is also entitled to compensation for the lost time value of money. We leave to the federal courts the intricacies of the accounting, unpersuaded the complexity of the task should in some manner influence our decision. See Brasher v. Alexandria, 215 La. 887, 41 So. 2d 819 (1949) (encounter of unforeseen difficulties does not excuse party's performance under the contract). In this case, the settlement agreement establishes the price per unit of gas recouped during the make-up period, and thus we pretermit discussion of the issues raised should the original contract price be higher or lower than the price of the gas at the time of recoupment. See Diamond Shamrock, supra. We do note, however, courts are free to provide for such contingencies in their judgments and thus to protect the producer and royalty owner from overpayment or underpayment of royalty, respectively.
CONCLUSION
Accordingly, our answer to the question certified to us is in the affirmative. Pursuant *183 to Rule XII, Supreme Court of Louisiana, the judgment rendered by this court upon the question certified shall be sent by the clerk of this court under its seal to the United States Court of Appeals for the Fifth Circuit and to the parties.
CERTIFIED QUESTION ANSWERED.
NOTES
[1] The Lease, covering part of the Morganza natural gas field in Pointe Coupee Parish, Louisiana, was executed in 1975 with Frey's ancestors in title, F & L Planters. The Lease was prepared by Amoco from a Bath South Louisiana Six Pooling form.
[2] In 1981, Amoco and Columbia entered into an exclusive long-term gas purchase and sales contract. The contract required Columbia to take delivery of a specified minimum of gas based upon the deliverability of the wells drilled by Amoco over each contract year or to pay for the minimum quantities even if it did not take delivery of the gas. In 1983, Columbia's failure to abide by the "take-or-pay" provision engendered litigation between Amoco and Columbia regarding the latter's alleged $265 million take-or-pay liabilities. The litigation was compromised by a Settlement Agreement effective July 1, 1985, and the gas purchase contract continued in effect as amended.
[3] The Lease's royalty clause provides:
7. Subject to the provisions of Paragraphs 2 and 10 hereof the royalties to be paid by Lessee are: (a) on oil (which includes condensate and other liquid hydrocarbons when separated by lease separator units), one-fifth (1/5) of that produced and saved from the land and not used for fuel in conducting operations on the property (or on acreage pooled therewith or with any apart thereof), or in treating such liquids to make them marketable; (b) on gas, one-fifth (1/5) of the market value at the well of the gas used by Lessee in operations not connected with the land leased or any pooled unit containing all or part of said land; the royalty on gas sold by the Lessee to be one-fifth (1/5) of the amount realized at the well from such sales; (c) one-fifth (1/5) of the market value at the mouth of the well of gas used by Lessee in manufacturing gasoline or other byproducts, except that in computing such value, there shall be excluded all gas or components thereof used in lease or unit operations, or injected into subsurface strata as hereinafter provided; (d) One Dollar ($1.00) for each ton of 2240 pounds of sulphur, payable when marketed; and (e) one-fifth (1/5) of the market value at the well or mine of all other minerals produced and saved or mined and marketed. (emphasis added).
[4] The Lease at issue in Diamond Shamrock required "production," before the Lessee's obligation to pay royalty was triggered. Defining production as the actual physical severance of minerals from the ground, the Fifth Circuit reasoned that because take-or-pay payments were made in lieu of production, the royalty clause was not triggered. Diamond Shamrock, 853 F.2d at 1168.
[5] Under the Settlement Agreement, Columbia retained the right to recoup the entire $45.6 million payment by taking "make-up" gas above the minimum quantity required under the amended gas purchase contract over each of the ensuing five recoupment years. Since the Settlement Agreement was executed, Columbia has taken and paid for make-up gas in a quantity so as to have recouped the entire recoupable take-or-pay payment of $45.6 million. Frey received royalty on the make-up gas as the gas was produced over the recoupment period.
[6] The nonrecoupable take-or-pay payments did not grant Columbia the right to recoup the payment by later taking gas in excess of the contractually required take-or-pay quantities.
[7] The nonownership theory erroneously assumes oil and gas are extremely migratory in nature. L. McDougall, Louisiana Oil & Gas Law ง 1.3 n. 32 (1991).
[8] The lessor's royalty is distinguished from the mineral royalty and the overriding royalty. The former is the right to participate in the production of mineral from land or a servitude belonging to another, LA.REV.STAT. ง 31:80, while the latter is carved out of the lessee's working interest in the lease.
[9] Of course, there is no privity of contract between the pipeline and the landowner regarding the gas purchase contract, and thus the lessor's right to royalty depends on the lease between the parties. We have found no reported case in Louisiana which directly addresses whether a take-or-pay clause creates a stipulation pour autrui in favor of the lessor. See, e.g., Amoco Production Co. v. Columbia Gas Transmission Corp., 455 So. 2d 1260 (La.App. 4th Cir.), writ denied, 459 So. 2d 543 (La.1984) (royalty owner has sufficient justiciable interest related to enforcement of gas contract to allow intervention).
[10] Article 2710 states:
The lessee is bound:
1. To enjoy the thing leased as a good administrator, according to the use for which it was intended by the lease.
2. To pay the rent at the terms agreed on.
[11] The remaining three situations are: 1) the obligation to develop known mineral producing formations in the manner of a reasonable, prudent operator; 2) the obligation to explore and test all portions of the leased premises after discovery of the minerals in paying quantities in the manner of a reasonable, prudent operator; 3) the obligation to protect the leased property against drainage by wells located on neighboring property in the manner of a reasonable, prudent operator. LA.REV.STAT. ง 31:122.
[12] For an excellent discussion of the events leading to the proliferation of litigation between producers and pipelines, see Pearson & Watt, 42 Inst. on Oil & Gas L. & Tax'n at ง 14.02.
[13] La.Civ.Code. art. 2439 provides:
The contract of sale is an agreement by which one gives a thing for a price in current money, and the other gives the price in order to have the thing itself. Three circumstances concur to the perfection of the contract, to wit: the thing sold, the price and the consent.
[14] La.Civ.Code. art. 2456 provides:
The sale is considered to be perfect between the parties, and the property is of right acquired to the purchaser with regard to the seller, as soon as there exists an agreement for the object and the price thereof, although the object has not yet been delivered, nor the price paid. (emphasis added).
[15] Article 1767 provides, in pertinent part, "A conditional obligation is one dependent on an uncertain event.
If the obligation may not be enforced until the uncertain event occurs, the condition is suspensive."
[16] Under article 2457, a "sale may be made purely and simply, or under a condition either suspensive or resolutive...."
[17] La.Civ.Code art, 2471 states, in pertinent part, "A sale, made with a suspensive condition, does not transfer the property to the buyer, until the fulfillment of the condition."
[18] Amoco relies also on Diamond Shamrock's contention take-or-pay payments are "intended to compensate primarily the producer, not the owner of the minerals, for the risks associated with development production." Diamond Shamrock, 853 F.2d at 1167.
[19] Moreover, because there was production at all relevant times, and because we find the Morganza Contract constituted the sale of a future thing for purposes of the Lease, we need not address Amoco's contention that "production" only occurs when the minerals are actually physically severed from the ground. See, e.g., Union Oil & Gas Corp. of Louisiana v. Broussard, 237 La. 660, 671, 112 So. 2d 96, 99 (1958) (royalty owner's right to share in the minerals accrues if and when they are produced); Union Oil Co. of California v. Touchet, 229 La. 316, 325, 86 So. 2d 50, 53 (1956) ("It is well settled that the right of the owner of a royalty interest is restricted to a share in production if and when it is obtained."). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1872239/ | 594 So. 2d 1153 (1992)
NORTH RIVER HOMES, INC.
v.
Elmer L. BOSARGE and Martha C. Bosarge.
No. 89-CA-0255.
Supreme Court of Mississippi.
February 12, 1992.
*1154 David R. Sparks, Sparks Wicker & Colburn, Tupelo, for appellant.
*1155 D. Neil Harris, Sr., Pascagoula, Brent M. Bickham, Bickham & Magee, Biloxi, for appellee.
Before HAWKINS, P.J., and PRATHER and ROBERTSON, JJ.
PRATHER, Justice, for the Court:
I. INTRODUCTION[1]
On August 20, 1983, Elmer and Martha Bosarge purchased from J & J Mobile Home Sales in Pascagoula a furnished mobile home manufactured by North River Homes, an Alabama corporation. The Bosarges were extremely proud of their new home described by a J & J salesman as the "Cadillac of mobile homes." This "Cadillac," which cost the Bosarges a whopping $23,900,[2] turned out to be a jalopy. That is, upon moving into their new home, the Bosarges immediately discovered defect after defect after defect.
A. The Defects
The first defect which the Bosarges noticed was "the molding in the trailer popping loose." The second defect they noticed involved a bad water leak; "the water was running all over the trailer and ran into the insulation." This leak caused the trailer's underside to "balloon downward." Elmer Bosarge described other defects:
The [kitchen] counter ... was defective. The dishwasher door was warped in it. There was a big bow over the door, and this was after the setup. We didn't know this until after the trailer was on our property and setup that these defects showed up. We couldn't see them on the lot J & J because there was no light on in the trailer... . And there was a leak come under the trailer and it was a stench.
... .
... There was numerous things that I oh, in the bathroom the the little thing that goes around the sink, little edging, I guess you call it, fell off. A gentleman came out and repaired that. And it fell off a week later.
... .
[The bathroom door was] warped [and] couldn't [be] straighten[ed] ... . because the structure wasn't straight... . And the water would leak out when you would take a shower. This was in the shower... . And the shower door was warped. It wasn't sealed properly. The water would run out into the into the bathroom floor.
... .
[The heating and cooling system in the trailer did not work properly. That is, t]he heating proposition was, it was cold. I mean it it just got freezing cold. And my son came in there and said, Daddy, said, there's ice on my floor. I said, what did you do, spill water? He said, no sir. It's all around the base of the wall. And I went in there and looked and the [ice at the] base of the wall was at least an inch and a half thick around the base of that wall where the wind had come in through the trailer and sheeting on the windows. You could put your hand at the sockets and wind would come through the sockets [throughout the house].
... .
The trailer was not easy to cool. The air conditioner worked fine, but as far as keeping it cool, the ventilation in it, it took all the coolness out because if the cold can come in, the cold can come out... .
... .
*1156 The hot water backed up into the cold water. You would take and turn the cold water on and you would get hot water. Turn the hot water on [and] you would get hot water.
... .
[T]he sink from the stove to the wall longways to where the sink is, double sink that is, it bubbled up. I don't know what they call it, but the stuff on top of your sink, it had bubbles in it where it was just put together, just pieced together this way and water would run down in it. And then when you were washing dishes ... you are going to get water on it, and eventually that started popping up. It wasn't sealed properly. And that was from one end of it to the other... .
... .
[W]hen the wind would blow it would sound like a freight train running... . That top would just rumble. Instead, of being stationary it would, the roof would rumble.
... .
The doors were not fitted properly [with the stripping and you could] see[] daylight [when the doors were closed].
Rec. Vol. IV, at 107-13. Martha Bosarge's testimony picked up where Elmer's left off. She described walls which "buckled," cabinets with "chips and holes" in them, furniture "falling apart," a bedroom closet which leaked rainwater, and rooms which "stayed molded and mildewed."
B. The Repairs
The Bosarges immediately and repeatedly notified the manufacturer, North River Homes, of the defects. North River failed to repair the defects. In November 1983, the Bosarges informed North River of its decision to revoke their acceptance of the defective home. North River, however, assured the Bosarges that the defects would be repaired. The patient Bosarges relied to their detriment on North River's assurances. On numerous occasions, North River sent its repairmen to the Bosarges' home.[3] But on each occasion, the repairmen did not attempt to repair or failed to adequately repair or simply were unable to repair the defects.
For example, on several occasions, North River repairmen visited the Bosarges' home and failed to even attempt a repair of the cited defect. Elmer described one such occasion concerning a defective kitchen sink:
QUESTION: Was that problem ever discussed with North River?
ELMER: Yes.
QUESTION: And what was done about it?
ELMER: They sent a man out?
QUESTION: Who sent a man out?
ELMER: North River.
QUESTION: Okay.
ELMER: North River sent a man out. And he expected me to help him, but I had been sick. I had a heart attack open surgery ... [a]nd I couldn't do any lifting... . And there was no way he could put that sink in himself.
QUESTION: Did he put it in?
ELMER: No.
QUESTION: Did he attempt to put it in?
ELMER: No.
QUESTION: Did he come back?
ELMER: No.
Id. at 110; see also id. at 108 (where Elmer testified that the repairmen who visited on another occasion did "nothing, not a thing" to repair the "air coming in around the [wall] sockets"); id. at 109 (where Elmer testified that repairmen visited but did not repair the hot-water problem); id. at 123 (where Elmer testified that "each and every time" repairmen would visit, they would tell him that they would be back to finish the repair work; but they never would return not until the Bosarges telephoned North River to inquire of the repairmen's whereabouts).
On other occasions, repairmen's attempts to repair defects were made halfheartedly. For example, during one visit, a repairman visited the Bosarges in response to their complaint that the dishwasher door was *1157 warped. The repairman had taken with him a replacement door, but he did not install it. The repairman simply left the door with the Bosarges and told Elmer: (1) that he did not have time to install it, and (2) that he [Elmer] could install it himself. The repairman also left without installing a countertop to replace the defective one.
On some occasions, repairmen actually made attempts to repair various defects; however, their attempted repairs fizzled over a period of days. For example, repairmen "cut the under part of the trailer all up looking for" a water leak. "[W]hen they repaired the under part of the trailer they put it together with this gray masking tape." Not surprisingly, the tape failed to hold the "under part" in place; that is, after a matter of days, the "under part" bowed out and required further repair (which never occurred). The leaking continued and a "stench" developed. The "stench" was caused by a buildup of mold and mildew as well as by a punctured septic tank line (a repairman had inadvertently driven a nail through the line and did not properly repair puncture).
Finally, on another occasion, the Bosarges complained that "edging ... that goes around the sink" had fallen off. "A gentleman come out and [ineptly] repaired [it a]nd it fell off a week later."
Elmer testified that each repairman with whom he had spoken advised him that his home was so defective that it "ought to be pulled off and another one put on."
C. The Ultimatum
The Bosarges finally decided to provide North River with an exhaustive "list of problems [that] ha[d] not been corrected on [their] trailer, as of June 4, 1984":
Kitchen:
Molding loose
Back window and door door needs to be replaced new framework for the door
Air comes in around the floor and thru the light sockets
Window pulling totally away from the seal
Refrigerator door squeeks when opened
Table will sit only in one spot, not level when moved
Stove not level
Parts missing in floor vents
Kitchen drawer broken
Counter top chipped unfair top [sic]
Master Bedroom:
Paint peeling on the dresser
Braces for the mirror gone
Shower door not hung right
Enamel on both lids of the camode [sic] cracking top does not fit properly
Wall boards behind vanity's loose molding on vanity's not right
Caulking around tub pulling loose Tub not bolted down
Air comes in thru the light sockets and around the floors
Breakers keep throwing
Faded spots on carpet in the bath
Molding around the window off
Small Bedroom:
Wall board has scratch
Door has gap at top
Closet door scrapes when opened or closed
Closet floor gets wet when it rains
Bathroom door warped
Enamel on camode [sic] cracking
Air comes in around the floor and thru the light sockets
Dew forms on walls and carpet in the cold months
Living Room:
Carpet pulling away from the wall
White spots on the carpet by the bar
Storm door has gap when closed paint peeling on the door
Vents have parts missing
Air comes in thru the sockets and around the floors
Couch cushions are deformed
Outside of the trailer:
The trailer needs to be insulated
New bottom has to be put on Servicemen cut big holes looking for a leak
Hot water tank needs to be replaced
Hot water comes thru both faucets
Screws on outside rusting.
*1158 Plaintiff's Exh. 1. But North River "didn't do anything"; that is, North River seems to have thrown in the towel. Frustrated with North River's breach of its repeated assurances to repair the defects, the Bosarges wrote a letter to North River on October 4, 1984:
We are putting each of you on notice. The enclosed payments will be all we will send, until our home is replaced or repaired to our satisfaction.[4] We have contacted our attorney and fully intend to sue, for damages and total indebtness on our home. One year is long enough to wait for repairs to be made.
See Plaintiff's Exh. 2. The Bosarges did as promised; they withheld future payments on their loan.
D. The Response
The Bosarges' refusal to make future payments led Troy & Nichols, the lender/lienholder, to file a replevin action on April 11, 1985, in the Jackson County Circuit Court. This action was later dismissed for lack of prosecution.
On March 13, 1986, the Bosarges' attorney wrote North River:
Since the date of purchase of the mobile home it has been nothing more than trouble, it is of unmerchantable quality and is substantially impaired to Mr. and Mrs. Bosarge.
Mr. and Mrs. Bosarge at this time are revoking acceptance of their mobile home due to the substantially impaired value of the mobile home. Mr. and Mrs. Bosarge are tendering the mobile home back to you. It may be picked up by you at your earliest convenience upon notification to this office so that you may enter the premises so that you may pick up same.
Mr. and Mrs. Bosarge are revoking acceptance due to substantially impaired quality because of the breach of merchantability of the mobile home and the breach of warranty express and implied. I regret that the mobile home has been of such unmerchantable quality.
Mr. and Mrs. Bosarge are requesting their purchase price and incidental and consequential damages and attorney's fees. Please contact me and we will discuss these amounts.
Vol. I, at 81-82.
Subsequent to the repossession of their home, the Bosarges filed a complaint in the Jackson County Circuit Court against North River and Troy & Nichols.[5]
E. The Complaint and the Trial
In their complaint, the Bosarges alleged that the defendants breached various warranties express, implied, and fitness:
[T]he Defendants either failed, refused or were unable to repair said mobile home and after further refusal and/or failure to repair the plaintiffs advised the Defendants they were revoking acceptance of the mobile home due to the fact that the mobile home was substantially impaired to them.
Vol. I, at 6. The Bosarges added that "they have revoked acceptance by allowing the mobile home to be repossessed by the defendants" and requested $25,000 in actual damages plus attorney's fees. See Anderson, Buyer's Damages for Breach in Regard to Accepted Goods, 57 MISS.L.J. 317 (1987).
Prior to trial, Troy & Nichols paid the Bosarges $1,000 in an out-of-court settlement. Thus, North River remained as the sole defendant when trial commenced on June 24, 1988. During the trial, North River twice moved for a directed verdict each time to no avail. Upon conclusion of trial, the jury found for the Bosarges and awarded them $9,126.61. The trial judge also awarded $7,083.84 in attorney's fees. North River subsequently filed motions for j.n.o.v., remittitur, and new trial all of which the judge denied.
*1159 F. The Issues
North River appealed and presented eight issues for this Court's disposition. For brevity's sake, these issues are consolidated accordingly:
1. Whether a Proper Revocation of Acceptance Occurred?
2. Whether the Mobile Home Was Substantially Impaired?
3. Whether North River Was Entitled to a Set-Off?
II. ANALYSIS
As noted, North River's issues derive, for the most part, from denials of various motions (directed verdict, j.n.o.v., new trial). This analysis, therefore, proceeds from an examination of the evidence in a light most favorable to the Bosarges the nonmovants. For an elaboration of the applicable standards of review, see cases cited in footnote 1, supra.
A. Issue: Whether a Proper Revocation of Acceptance Occurred?
1. Parties' Contentions
North River contends that the statutorily-delineated "elements of a proper revocation of acceptance" are not evidenced in this case. Restated, "if, after rejection, there is an exercise of ownership by the buyer, ... buyer is considered to have accepted goods if he does any act inconsistent with seller's ownership."
The Bosarges counter that they "met their burden of proof of showing effective revocation of acceptance." The Bosarges contend that they produced at trial both testimonial and documentary evidence of a proper revocation. And the fact that they continued to occupy the mobile home for nineteen months after mailing to North River the October 4 notification letter (see Section I(C), supra) does not mean that they waived any right to revoke acceptance.
2. The Law
As discussed, the Bosarges' complaint was based on various theories of recovery. The judge instructed on the theories of breach of implied warranty of merchantability[6] and fitness[7] as well as revocation of acceptance. Thus, the jury presumably concluded
from a preponderance of the evidence ... that [North River] breached its implied warranty of merchantability [and fitness] in connection with the mobile home [and that the Bosarges] afforded [North River] a reasonable opportunity to adjust or correct the defects in the mobile home ... prior to their [proper] revocation of acceptance.
See Vol. III, at 452, 454 & 458 (quoting jury instructions P-3A, P-9A & D-1).
When a consumer has accepted goods and subsequently discovers defects or a breach of implied merchantability, the consumer may invoke statutory and case law which conditions revocation of acceptance on:
(1) a nonconformity [or defect] which substantially impairs the value of the "lot or commercial unit";
(2) an acceptance[8]
*1160 (a) (with discovery of the defect) on the reasonable assumption that the nonconformity [or defect] would be cured or
(b) (without discovery) reasonably induced by the difficulty of the discovery or by the seller's assurances;
(3) revocation within a reasonable time after the nonconformity [or defect] was discovered or should have been discovered; and
(4) revocation before a substantial change occurs in the condition of the goods not caused by their own defects.
Beck Enterprises v. Hester, 512 So. 2d 672, 676 (Miss. 1987) (citing MISS. CODE ANN. § 75-2-608 (1972); WHITE & SUMMERS, UNIFORM COMMERCIAL CODE § 8-3, at 303 (2d ed. 1980); Rester v. Morrow, 491 So. 2d 204, 210 (Miss. 1986)); see also Gast v. Rogers-Dingus Chevrolet, 585 So. 2d 725, 728 (Miss. 1991).
Once the consumer has properly notified[9] the seller of his or her intent to revoke acceptance, the seller has a right to attempt to cure the alleged defect. Guerdon Industries, Inc. v. Gentry, 531 So. 2d 1202, 1207 (Miss. 1988); Rester, 491 So.2d at 210 (citing MISS. CODE ANN. § 75-2-508 (1972)); see also Fitzner Pontiac-Buick-Cadillac v. Smith, 523 So. 2d 324, 328 (Miss. 1988) (holding that a car buyer's attempt to revoke acceptance without providing seller a reasonable opportunity to cure defects cannot succeed i.e., "[s]uch opportunity for cure was a legal requisite of [buyer's] right to recovery"). This right is not unlimited; that is, Mississippi law does not permit a seller "to postpone revocation in perpetuity by fixing everything that goes wrong" with the good. "There comes a time when enough is enough" when a consumer no longer must tolerate or endure a seller's repeated (though good faith) attempts to cure the defect. Gentry, 531 So.2d at 1208; Rester, 491 So.2d at 210. As aptly stated by a Florida Court of Appeals:
The buyer ... is not bound to permit the seller to tinker with the article, indefinitely in the hope it may ultimately be made to comply with the warranty. At some point in time, if major problems continue . .., it must become obvious to all people that a particular [article] simply cannot be repaired or parts replaced so that the same is made free of defect.
Orange Motors of Coral Gables v. Dade County Dairies, 258 So. 2d 319, 321 (Fla. App. 1972) (citations omitted); see also Rester, 491 So.2d at 210 (citing several extra-jurisdictional cases). When the "time has come," the consumer may revoke once and for all. Rester, 491 So.2d at 210.
3. Application of Law
To recap, the Bosarges purchased their home in August 1983. After discovering numerous and serious defects, they notified North River; North River then assured them that the defects would be repaired. But the defects weren't repaired. The Bosarges consequently decided to inform North River in November 1983 that they "didn't want th[e] mobile home anymore." North River responded *1161 by reassuring them that the defects would be repaired. Repairmen repeatedly attempted, but failed, to repair the defects. So in June 1984, the Bosarges provided North River with an exhaustive written list of defects and demanded their repair. North River again assured the Bosarges that the defects would be repaired. And again, repairmen repeatedly attempted, but failed, to repair the defects. In October 1984, the Bosarges wrote a letter in which they notified North River of their consultation with an attorney, their frustration with a year's worth of repeatedly-breached assurances, and their decision to withhold future payments until the mobile home was repaired or replaced. North River's assurances, and the Bosarges' detrimental reliance, persisted until the home was repossessed in May 1986.
North River contends that the Bosarges' failure to move out of their mobile home after "rejecting it" constituted an exercise of ownership (or dominion) and waiver of their right to revoke acceptance. North River's contention is unpersuasive. The Bosarges did not move out of their home in November 1983 and in October 1984 the dates when they notified North River of their intention to revoke acceptance because they were repeatedly assured that the defects would be repaired. Their mistaken belief that North River would fulfill its assurances to repair the defects is but one reason why the Bosarges did not move out of their home. Another reason is simple and understandable:
When you tie up all your savings into purchasing a home, you cannot take it and park it somewhere[. Y]ou have got to live in it until you can get the people to clear your lot so you can put another one on it. It's just not like a car you can drive it on the lot and hand them the keys and say, it's yours.
Vol. IV, at 136 (testimony of Martha Bosarge).
North River's contention that the Bosarges should have moved out reflects ignorance of case law which requires a consumer, who expresses an intention to revoke acceptance, to provide a seller with a reasonable opportunity to attempt to cure the defect. Rester, 491 So.2d at 210 (citing MISS. CODE ANN. § 75-2-508 (1972)). The evidence unequivocally shows that the Bosarges complied with this law; indeed, one could arguably contend that they complied to an unnecessary extent. But the Bosarges' great patience is not surprising in view of their financial inability to move elsewhere.
The facts in this case are similar to another case which involved an automobile. Royal Lincoln-Mercury v. Wallace, 415 So. 2d 1024 (Miss. 1982). In Wallace, Justice Patterson wrote:
[The facts] reveal[] an intention to revoke by Wallace [the consumer] when he stated to Fargason [the seller] that he was dissatisfied with the car and offered to trade for a new one. When this effort failed, Wallace advised Fargason that he would contact his lawyer. Fargason replied that he would meet Wallace in court. Although the issue is clouded by subsequent use of the automobile and additional efforts to have the defects corrected, Wallace's prior intention of revocation was revitalized when he parked the automobile within the 12 months and 12,000 mile warranty period and filed suit. Again, the issue was factual and was resolved by the jury on conflicting evidence against [the seller]. We think, therefore, that the [consumer] effectively revoked acceptance of that automobile.
415 So.2d at 1028-29. Unlike Wallace, the Bosarges could not "park" their home. As aptly noted by the Bosarges, "failure to surrender the [home] did not per se render ineffective [their] revocation." Appellee's Br. at 11 (quoting J.L. Teel Co. v. Houston United Sales, 491 So. 2d 851, 860 (Miss. 1986) (J.L. Teel Co. involved revocation of acceptance of a photocopier)); accord Pavesi v. Ford Motor Co., 155 N.J. Super. 373, 382 A.2d 954, 956 (1978), rev'd on other grounds, 88 N.J. 277, 440 A.2d 1345 (1982); Lawrence v. Modern Mobile Homes, Inc., 562 S.W.2d 729, 732 (Mo. App. 1978). The record is simply devoid of any evidence of the Bosarges' intention to exercise wrongful ownership or dominion over the home once they declared that "enough is *1162 enough" and that their revocation of acceptance would be final.[12]
Any excessive or unreasonable use of the home by the Bosarges may be remedied through quantum meruit recovery not through ineffectuation of revocation. J.L. Teel Co., 491 So.2d at 860-61 ("We find several cases from our sister states suggesting without an explicit statutory basis a seller's entitlement to the reasonable value of the [consumer's] use after revocation of acceptance.") (emphasis in original) (citing extra-jurisdictional cases and WHITE & SUMMERS, UNIFORM COMMERCIAL CODE § 8-3 (2d ed. 1980)).
The Bosarges alternatively contend that, because North River was not prejudiced, their "alleged delay" in vacating the home did not constitute a waiver of their revocation. According to the Bosarges, North River was not prejudiced because: (1) it "did not have the legal right to repossess the [home]," and (2) because Troy & Nichols (the lender/lienholder who settled prior to trial) "advanced the total cost of the [home], [North River] did not have the right to any of the sale proceeds." Research revealed no published opinion in which this Court has explicitly held that revocation cannot be waived where no prejudice is evidenced. However, this Court did cite with approval the case of Lawrence v. Modern Mobile Homes, in which the Missouri Court of Appeals held that the consumer "had not waived the right to revoke his acceptance by continued use of the mobile home" because the seller failed to prove resultant prejudice.[13] 562 S.W.2d at 730, cited in J.L. Teel Co., 491 So.2d at 860. The court of appeals added that a seller may, nonetheless, be entitled to "a set-off for the reasonable value of [a consumer's] continued use." Id. at 733. Whether proof of prejudice is necessary before revocation may be waived is an issue which need not be reached and, therefore, this Court declines to address it at this time.
In sum, the Bosarges' continued use of the home did not constitute a waiver of their right to revoke acceptance. At most, their continued use would mean that North River may have a right to a set-off, which is an issue addressed in Section II(C), infra.
B. Whether the Mobile Home Was Substantially Impaired?
1. Parties' Contentions
North River contends that the Bosarges "failed to prove that the mobile home in question was substantially impaired." The Bosarges counter that "the evidence clearly showed that the[ir] North River trailer was literally falling apart."
2. The Law
Mississippi law dictates that revocation of acceptance may succeed "only if there is substantial impairment of the value" of the good to the consumer. MISS. CODE ANN. § 75-2-608(1) (1972); see also J.L. Teel Co., Inc. v. Houston United Sales, Inc., 491 So. 2d 851, 860 (Miss. 1986); Rester, 491 So.2d at 211; Volkswagen of America v. Novak, 418 So. 2d 801, 804 (Miss. 1982). That is, substantial impairment "is determined by reference to the particular needs of the [consumer], even though the seller may have no advance knowledge of those needs and even though those needs may change after [an] acceptance." *1163 Rester, 491 So.2d at 211 (citing WHITE & SUMMERS, UNIFORM COMMERCIAL CODE § 8-3, at 308 (2d ed. 1980)).
The question of whether substantial impairment of the value to the consumer is evidenced is one for the factfinder to resolve. Gentry, 531 So.2d at 1208 (citing Bergenstock v. LeMay's G.M.C. Inc., 372 A.2d 69 (1977)). The factfinder's resolution of this issue should entail a subjective and objective review of the evidence. The subjective component of the factfinder's review involves consideration of the "unique circumstances" of the consumer. The objective component involves consideration of whether the defect would substantially impair the value of the good to a reasonable person whose unique circumstances are similar to the consumer's. Rester, 491 So.2d at 211 & n. 4 (citing numerous extra-jurisdictional cases); see also Gentry, 531 So.2d at 120. In short, "[e]very case must be carefully examined [by factfinder and appellate court alike] on its own merits to determine whether a nonconformity [or defect] is substantial." Bergenstock, 372 A.2d at 73 (emphasis omitted), quoted in Gentry, 531 So.2d at 1208.
3. Application of Law
Viewing the evidence in a light most favorable to the Bosarges (the non-movants), the jury's finding that a substantial impairment existed is supported by the evidence and should remain undisturbed. In Gentry, which involved revocation of acceptance of a mobile home, this Court affirmed the jury's finding of substantial impairment. 531 So.2d at 1210. The significance of this Court's affirmance in Gentry is that the home's defects were, comparatively speaking, far less serious than the defects evidenced in the case sub judice. Moreover, the Bosarges' testimony which the jury was entitled to believe revealed that each North River repairman who visited their home admitted to the Bosarges that their home was so defective that it "ought to be [replaced]." Notably, Ronnie Wilson, a HUD Mobile Home inspector, provided testimony which is also supportive of the jury's finding:
QUESTION: [M]y question is: would you live okay? Heating, cooling, leaking roof, mildew, ice, would you live in that kind of home?
WILSON: No, sir, my wife wouldn't let me, sir.
Vol. V, at 182.
In sum, the record is replete with evidence to support the jury's finding that the Bosarges' home was substantially impaired. This Court therefore affirms on this issue.
C. Whether North River Was Entitled to a Set-Off?
In their complaint, the Bosarges requested $25,000 in actual damages.[14] The jury awarded damages in the amount of $9,126.61.[15] North River subsequently requested a set-off via its "MOTION FOR JUDGMENT NON OBSTANTE VEREDICTO, A REMITTITUR OR IN THE ALTERNATIVE A NEW TRIAL." In denying the request, the judge explained that the jury resolved the issue against North River and that he was "not inclined to disturb that verdict." North River included this issue on appeal and contends that the judge "fail[ed] to properly instruct the jury as to the element of damages allowing remittitur for the [Bosarges'] use" and that he "should have ... granted the remittitur" because this Court has held that a seller is entitled "to the reasonable value of the [consumer's] use after revocation of acceptance." North River's contention is a curious one. The record reveals that North River conceded during the post-trial hearing: *1164 "I think the jury was properly instructed." Vol. V, at 234. Forgetting for a moment North River's concession, the record reveals absolutely no objection to the instructions given by the judge; moreover, none of the instructions submitted by North River was refused. Thus, North River cannot now take issue with the sufficiency of the instructions. See Miss. R.Civ.P. 51(b)(3) ("No party may assign as error the granting or the denying of an instruction unless he objects ... before the instructions are presented to the jury ... ."); see also Roundtree v. State, 568 So. 2d 1173, 1177 (Miss. 1990).
In sum, North River's failure to question the propriety of the instructions at the trial level constitutes a waiver of the right to raise the issue on appeal. This Court therefore affirms on this issue.
III. CONCLUSION
On the basis of the foregoing, the jury verdict shall remain undisturbed.
AFFIRMED.
ROY NOBLE LEE, C.J., HAWKINS and DAN M. LEE, P.JJ., and ROBERTSON, SULLIVAN, PITTMAN, BANKS and McRAE, JJ., concur.
NOTES
[1] Because the appellant, North River, takes issue with the trial judge's denial of various motions (directed verdict, j.n.o.v., and new trial), the facts recited in Section I of this memo are based upon an examination of the record in a light most favorable to the appellees (or nonmovants), the Bosarges. For a more detailed discussion of the applicable standards of review, see generally Gast v. Rogers-Dingis Chevrolet, 585 So. 2d 725, 728 (Miss. 1991); Andrew Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172, 1177 (Miss. 1990); Guerdon Industries, Inc. v. Gentry, 531 So. 2d 1202, 1205 (Miss. 1988); Rester v. Morrow, 491 So. 2d 204, 211 (Miss. 1986); Paymaster Oil Mill Co. v. Mitchell, 319 So. 2d 652, 657 (Miss. 1975).
[2] Troy & Nichols, Inc. financed the purchase of the mobile home.
[3] Elmer testified that repairmen visited his home at least five times. These visits are documented in the record. See, e.g., Vol. I, at 83-88.
[4] At the time when they refused to make future payments, the Bosarges had made thirteen monthly payments of $340.45 each.
[5] The Bosarges did not sue the seller, J & J Mobile Homes. The record indicates that J & J had become insolvent and had closed down its business.
[6] Statutory law on implied warranty of merchantability provides in part:
(1) A warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind....
(2) Goods to be merchantable must be at least ...
(c) ... fit for the ordinary purposes for which such goods are used... .
MISS. CODE ANN. § 75-2-314 (1990 Supp.). An implied warranty of merchantability may not be waived or disclaimed. Gast v. Rogers-Dingus Chevrolet, 585 So. 2d 725, 728 (Miss. 1991) (citing MISS. CODE ANN. §§ 11-7-18 & 75-2-719(4) (1990 Supp.)).
[7] Statutory law on implied warranty of fitness provides in part:
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skills and judgment to select or furnish suitable goods, there is an implied warranty that the goods shall be fit for such purpose... .
MISS. CODE ANN. § 75-2-315 (1990 Supp.).
[8] Pursuant to statutory law:
(1) Acceptance of goods occurs when the buyer
(a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity; or
(b) fails to make an effective rejection (subsection (1) of Section 2-602) [§ 75-2-602(1)], but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
(c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him.
(2) Acceptance of a part of any commercial unit is acceptance of the entire unit.
MISS. CODE ANN. § 75-2-606 (1972).
No one disputes that the Bosarges had "accepted" the mobile home. See Gentry, 531 So.2d at 1206 (citing statutory and case law).
[9] See MISS. CODE ANN. § 75-2-608 (1972) for proper forms of notice of revocation. The consumer's failure to provide the seller with notice of his intention to revoke acceptance of an automobile led this Court to affirm in favor of the seller in the recent case of Gast, 585 So.2d at 729. The consumer had notified the lender/lienholder but not the seller. The consumer erroneously believed that his notification of the lender would be imputed to the seller in view of the lender's "close working relationship and contractual ties" with the seller. Id. at 728.
The specific "notice issue" involved in Gast is not involved in the case sub judice.
[12] North River additionally contends that the Bosarges' wrongful exercise of control (or dominion) is reflected in their "resistance" in "a replevin action [which] was filed to recover the home." Appellant's Br. at 2-3. Close scrutiny of the record, however, reveals not a scintilla of evidence to support North River's contention that the Bosarges "resisted the replevin." See Defendant's Exh. 1 (documents relating to the replevin action contain no evidence of "resistance"). Indeed, North River's contention totally ignores the contents of a letter written by the Bosarges' attorney after the replevin action was filed. In this letter, the attorney informs North River that "Mr. and Mrs. Bosarge are tendering the mobile home back to you [and i]t may be picked up by you at your earliest convenience." At most, the Bosarges simply sought the advice of their attorney upon being served with the summons in the replevin action. The home was eventually repossessed.
[13] The Missouri court additionally noted that, under pre-U.C.C. case law, continued use did constitute a waiver of the right to revoke acceptance. Lawrence, 562 S.W.2d at 731 (citing cases).
[14] For an extensive discussion regarding the appropriate measure of damages in cases like the one sub judice, see generally Gast, 585 So.2d at 728-30.
[15] The trial judge also awarded attorney's fees in the amount of $7,083.84. Vol. III, at 464. Section 2310(d)(2) of the Magnuson-Moss Warranty Act provides a judge with the discretionary power to award attorney's fees. See also Gentry, 531 So.2d at 1209 (discussing the Act in detail).
The award of attorney's fees is not an issue in this appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2364790/ | 409 F. Supp. 1380 (1976)
SOUTH BOSTON GENERAL HOSPITAL
v.
BLUE CROSS OF VIRGINIA and Secretary of Health, Education and Welfare.
Civ. A. No. 74-C-68-D.
United States District Court, W. D. Virginia, Danville Division.
March 18, 1976.
*1381 Harold M. Bates, Bates, Cruey & Lee, Roanoke, Va., and Greenebaum, Doll, Matthews & Boone, Louisville, Ky., for plaintiff.
Carr L. Kinder, Asst. U. S. Atty., Roanoke, Va., for defendants.
OPINION AND JUDGMENT
DALTON, District Judge.
Petitioner, South Boston General Hospital (hereinafter South Boston), has brought this action seeking review of a final determination by the Secretary of Health, Education and Welfare (hereinafter the Secretary). Jurisdiction was noted in an opinion by this Court on April 24, 1975. South Boston General Hospital v. Weinberger, 397 F. Supp. 360 (D.C.Va.)
The facts of the case are not in dispute. South Boston is a non-profit provider of Medicare benefits under the Medicare Act, 42 U.S.C. § 1395 et seq., (hereinafter the Act) and is seeking a review of a determination by Blue Cross as agent for the Secretary which (1) reduced the depreciation expenses incurred by South Boston in a sale to a related organization and (2) denied the interest expense paid to the related organization. South Boston has exhausted its administrative remedies. Both sides have moved for Summary Judgment.
FACTS
Plaintiff seeks reimbursement for costs of services incurred in the efficient delivery of needed health services.[1] This *1382 issue arose when South Boston General Hospital, petitioner herein, purchased the facilities of South Boston General Hospital, Inc., in June, 1968. The acquisition *1383 by petitioner was in exchange for notes totaling $650,010.00, payable in fifteen annual installments and included interest at four per cent (4%). The purchase was effective July 1, 1968. Since both the proprietary hospital and petitioner were and are qualified as providers of Medicare services under Title 42 U.S.C. § 1395 et seq., they were and are entitled to the reimbursal benefits of direct and indirect costs incurred by them in connection with the delivery of health care services. 42 U.S.C. § 1395x(v)(1)(A). When petitioner filed its 1969, 1970 and 1971 Medicare Costs Reports with Blue Cross of Virginia (the disbursal agent of the Secretary as authorized by 42 U.S.C. § 1395h), it claimed as allowable costs the interest expense paid to the prior owner of the facility and depreciation computed on the basis of the cost of the facility to Petitioner. Respondents denied reimbursement on the basis of the related parties doctrine, as expressed in 20 C.F.R. §§ 405.415, 405.419 and 405.427. This denial has resulted in an alleged loss of $174,000.00 to petitioner.
Petitioner makes the following allegations:
1) The classification of South Boston and the proprietary hospital as related parties was unwarranted and erroneous.
2) Application of 20 C.F.R. § 405.427 to this controversy was erroneous and constitutes reversible error.
3) The regulations applicable to this controversy do not further the purposes for which the Act was enacted, and in this case hinder those purposes.
4) The regulations applicable to this controversy deny petitioner both due process of law and equal protection of the law.
The first allegation is clearly erroneous. The entire administration and staff were carried over to the new hospital, and the management remained essentially the same. The proprietary hospital and petitioner are clearly related parties within the meaning of the regulations. The remaining allegations, however, raise important questions and will be dealt with more fully.
APPLICABILITY OF 20 C.F.R. § 405.427
As indicated by its language the thrust of section 405.427 is to avoid self-dealing between related parties in an ongoing relationship in which one of the parties is supplying services, facilities or supplies to the other. The present tense is used throughout the section, indicating the continuing viability of both organizations. Examples of this intent can be found in sub-section (b)(1) where it is stated that the "provider . . . is associated . . . with or has control of or is controlled by the organization furnishing the services, facilities, or supplies." Subsection (b)(2) reads: "when . . . individuals possess significant ownership or equity in the provider and the institution or organization serving the provider."
The Secretary contends that inclusion of the term "facilities" clearly encompasses an outright purchase of an entire facility, as in the case at bar. However, sub-section (c)(2) illustrates the proper interpretation to be given the term "facilities." There the example of a leasing arrangement between related parties of an entire facility is set forth.[2] The distinction *1384 between such a continuing transaction and a single transaction involving the sale of an on-going hospital facility is highlighted by the specific reference to the latter transaction in 20 C.F.R. § 405.415(g). The title of sub-section (g) of section 405.415 (Establishment of cost basis on purchase of facility as an ongoing operation.) mandates a finding that, in determining cost basis for depreciation, section 405.415(g) controls. Likewise, treatment of interest is specifically covered in section 405.419, and that section must be deemed controlling when questions regarding reimbursement of interest arise.
The court finds that 20 C.F.R. § 405.427 is not applicable to this controversy. Plaintiff contends that a determination based on this regulation is reversible error. The court expresses no opinion as to that contention because even if true, denial of reimbursement could be based on the related parties doctrine expressed in sections 405.415(g) and 405.419, if those sections are valid. Therefore, the court will address the validity of those sections, which form the statutory basis for denying reimbursement, regardless of the provisions of section 405.427.
DO THE REGULATIONS FURTHER THE PURPOSES OF SECTION 1395x(v)(1)(A) OF THE ACT?
Title 42 U.S.C. § 1395x(v)(1)(A) constitutes the statutory guide for the Secretary in the furtherance of his duty to promulgate regulations governing the items which are reimbursable and the amounts of such reimbursements to providers of needed health services. The overriding consideration is the reimbursement of actual costs, found to be not unnecessary in the efficient delivery of needed health services. The Secretary is directed to assure reimbursement of incurred costs to those providing services to those covered by the insurance program.
Plaintiff admittedly provides services to those covered by the insurance program. Plaintiff is a "provider" under the Act. Furthermore, capital indebtedness is an allowable cost for which reimbursement is available under 20 C.F.R. § 405.419(a); as is depreciation on buildings and equipment pursuant to 20 C.F.R. § 405.415(a). Further, the cost basis on the purchase of a facility as an ongoing operation is the price paid by the purchaser when the purchaser can demonstrate that the sale was a bona fide sale and the price did not exceed the fair market of the facility at the time of the sale. 20 C.F.R. § 405.415(g). These provisions indicate a recognition by the Secretary that interest on capital indebtedness and depreciation, based on the purchase price of a facility, constitute necessary costs incurred in the efficient delivery of needed health services by a qualified provider under the Act.
Because these items of otherwise reimbursable costs were incurred by plaintiff in a transaction with a related party, the Secretary prohibits reimbursement absolutely. Section 405.415(g) requires proof that the purchase of the facility was a bona fide sale in order to use the purchase price as the cost basis for depreciation purposes, but because the transaction was between related parties, such proof is rendered impossible, notwithstanding the fact that the transaction may be identical to or more advantageous than one between unrelated parties. Section 405.419(c) properly notes the potential dangers inherent in a transaction between related parties, but then assumes that those dangers cannot be avoided and thus prohibits reimbursement of any capital indebtedness between related parties. The Secretary, in effect, refuses to scrutinize transactions between related parties, assuming that all such transactions would result in excess *1385 claims for reimbursement of incurred costs as a result of this imagined self-dealing. The end result is an inequitable denial of reimbursement for costs incurred, although the entire transaction may have been above-board, for a reasonable purchase price, with reasonable interest, with resulting benefits to the recipients of the services of the provider.
The failure to scrutinize a related parties transaction indicates a serious misplacement of priorities on the part of the Secretary. The Act urges reimbursement of incurred expenses necessary for the efficient delivery of needed health services. This is the prime consideration. If a transaction between related parties can help attain that end, the Secretary must not frustrate that transaction. The court is not unmindful of the potential dangers of such a transaction, and would urge the Secretary to closely scrutinize it, but scrutinize it he must. If any of the possible dangers of such a transaction are indeed present then denial of reimbursement for costs incurred as a result of such a transaction would be appropriate.
The court realizes that proper advice prior to the closing of the transaction in question might have enabled petitioner to avoid the confrontation evidenced by this law suit. A financing arrangement through a commercial lender might have been just as satisfactory as the transaction which occurred. Such an arrangement would have avoided consideration of the related parties doctrine by respondents. However, such an argument avoids the issue: Does the related parties doctrine, expressed in the regulations, further the purposes of the Act, or does it erect a roadblock to those who miss a turn and engage in a related parties transaction, albeit in good faith, for a below market value purchase price with entirely reasonable interest rates? The court feels that the roadblock is there; and that it may work, and in this case probably has worked a severe injustice upon petitioner. (See Appendix). The court feels the roadblock must come down.
Elimination of the regulations prohibiting reimbursement of the incurred costs at issue in this case will not result in widespread abuse of the reimbursement provisions of the Act. All claims for reimbursement of costs are reviewed according to standards already set forth in the regulations. The wording of 20 C.F.R. § 405.415(g) is still viable. In order to claim the purchase price of a facility as an ongoing operation, a provider still has to prove a bona fide sale and a purchase price not in excess of the fair market value at the time of sale. This decision only prohibits an arbitrary determination that a related parties transaction cannot be a bona fide sale, regardless of the circumstances. The court does not say that a related parties transaction is automatically a bona fide sale. The elements of proof that any purchaser/provider must make are applicable to a provider purchasing from a related seller. Such a transaction may require closer scrutiny than a non-related parties transaction, but it must be scrutinized.
Similarly, with regard to interest, 20 C.F.R. § 405.419 still retains standards to enable the Secretary to assess whether interest is both "necessary and proper." The standards set forth in sub-section 405.419(b)(2) defining "necessary" are viable in their entirety. The normally accepted definition of "proper" interest set forth in sub-section 405.419(b)(3)(i) retains its vitality and will now apply equally to a provider borrowing from a related party. The potential dangers of related party transactions set forth in sub-section 405.419(c) are important and should continue to be recognized, but the conclusion expressed there, that all such transactions indicate an agreement on higher interest rates or unnecessary loans, must be expunged as without basis in fact, particularly in the case before this court. (See Appendix) It should again be emphasized that a related parties transaction should be closely scrutinized because of its very nature, but *1386 such transactions should not be conclusively characterized as diabolical.
CONSTITUTIONALITY OF 20 C.F.R. §§ 405.415(g) AND 405.419(c)
Since the court has found the above regulations repugnant to purposes for which 42 U.S.C. § 1395x(v)(1)(A) was enacted, it will express no opinion on the constitutional arguments submitted by petitioner, although they are not without merit.
CONCLUSION
For the reasons discussed above this case is remanded to the Secretary for reconsideration of petitioner's claims for reimbursement without regard to the related parties doctrine as it has been historically applied.
The clerk is directed to send copies of this opinion and judgment to counsel of record.
APPENDIX
MEDICARE PROVIDER APPEAL COMMITTEE DECISION
Committee's Decision
The Committee unanimously decides to uphold the Plan's decision with regard to the reduction of the depreciation expense and the denial of interest associated with the conversion of the provider from a proprietary to not-for-profit institution. The Committee finds these two organizations related as defined in Regulation Section 405.427 and Chapter 10 of HIM-15. The old hospital's administration and staff were carried over to the new hospital, and the management remained the same. Five of the nine board members of the new hospital were members of the five man board of the old hospital.
The Committee reaches this decision reluctantly. The circumstances of this case are such that application of the related parties rule has a particularly harsh effect on the provider. The evidence indicates no intention on the part of the owners of the old hospital to make an unconscionable profit as a result of this transaction. In fact the transaction appears to have been motivated by the desire to provide better service to the community. However, on the basis of its understanding of the applicable Law, Regulations and General Instructions, the Committee sees no supportable alternative to upholding the Plan's position.
Provider at the hearing and in its post hearing brief argued that if it is not entitled to interest expense and depreciation, it should be entitled to an amount at least equal to a return on equity capital.
Unfortunately, this alternative is not available to provider because it is a nonprofit institution. The Regulations cited in provider's post hearing brief are meant to apply to proprietary, not to nonprofit providers. In this case, provider was denied interest expense and depreciation on the basis of the related organization principle. By returning to the provider's historical cost when it was proprietary institution the Committee is not converting the provider back into a proprietary institution.
It must be remembered that, although nonprofit corporations are not allowed a return on equity, they enjoy many privileges not afforded proprietary institutions; i. e., an exemption from income taxes and other state and local taxes. In fact, the provider had argued that the *1387 main consideration for the sales transaction was to take advantage of the tax benefits available to nonprofit facilities to generate working capital for further expansion. The decision of the Committee was unanimous.
December 27, 1973
Mr. Jesse Lynn
Regional Representative
Bureau of Health Insurance
Social Security Administration
Department of Health Education, and Welfare
Post Office Box 8788
Philadelphia, Pennsylvania 19101
Dear Mr. Lynn:
Re: Mr. Merritt W. Jacoby's Letter Dated August
3, 1973 to Mr. Thomas M. Tierney
As the local Medicare intermediary, it was our responsibility to uphold the regulations regarding the disallowance of depreciation and interest expense due to a transaction between related parties at South Boston General Hospital. Consequently, the provider made an appeal to the Blue Cross Medicare Appeals Committee. The committee upheld our decision; however, it was with reluctance. Likewise, we reluctantly upheld the regulations based on the knowledge that the provider had acted in good faith to make the transaction bona fide. This is evident through the following:
1. The sale price of the facility was $650,010 which was above historical cost. This was to be paid over 15 years at an interest rate of 4% per annum. This interest rate appears to be reasonable.
2. The Internal Revenue Service gave the provider 501(c)(3) tax status and deemed the sale to be bona fide.
3. Because of the rural nature of the locale, the only persons with the requisite management experience were the former owners, and they became trustees of the new provider.
4. The provider's conversion from profit to non-profit was undertaken for the benefit of the community. Likewise, the facility became accredited on August 31, 1973 by the Joint Commission on Accreditation of Hospitals.
Blue Cross of Virginia
Blue Shield of Virginia
EXHIBIT C
5. As a result of the sale, the facility's costs have not increased unreasonably. A review of the average cost per Medicare patient *1388 is reasonable as compared with similar facilities in the local geographical area.
6. In addition, the Internal Revenue Service audited the facility and determined that the facility continued to maintain their tax-exempt status.
During our preliminary negotiations with the provider concerning this appeal, it was our intention to support the provider's position. We did so in our first position paper (Exhibit A). An additional review of this paper was made before it was forwarded to Blue Cross Association, and some modifications were made to adequately reflect the facts and the regulations. (See Exhibit B.) This position paper was forwarded to Blue Cross Association on January 22, 1973. Subsequently we were instructed by Blue Cross Association to further modify the paper to support the regulations. (See Exhibit C.) We revised the final paper showing little, if any, support to the provider's case although we felt that the regulations were inequitable in this case.
We are in full agreement with Mr. Jacoby's letter dated August 3, 1973 requesting an exception be made in order to grant relief to this provider. The effects of the disallowance of depreciation and interest expense are far-reaching in scope as they will effect twelve (12) additional reports not including the ones the provider appealed.
We respectfully request that you reconsider Intermediary Letter No. 72-10's effect on the related organization principle as applied to the facts in this case and grant whatever relief possible to the provider. This is essential to prevent inequities resulting from the Medicare program not reimbursing the facility for their reasonable costs for Medicare beneficiaries and passing on any resulting losses to private pay patients.
Please let me know if you have additional questions. We look forward to receiving a favorable decision in this case from the Bureau of Health Insurance.
Sincerely,
/s/ Conway H. Spiers
Conway H. Spiers
Controller
CHS/jm
Enclosures
cc: Mr. Bobby Childers, BHI
Mr. Ripley P. Owen, South Boston General Hospital
NOTES
[1] The basis for the amounts claimed is found in 42 U.S.C. § 1395x(v)(1)(A), which states:
The reasonable cost of any services shall be the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included, in determining such costs for various types or classes of institutions, agencies, and services . . .. In prescribing the regulations referred to in the preceding sentence, the Secretary shall consider, among other things, the principles generally applied by national organizations or established prepayment organizations (which have developed such principles) in computing the amount of payment, to be made by persons other than the recipients of services, to providers of services on account of services furnished to such recipients by such providers. . . . Such regulations shall (i) take into account both direct and indirect costs of providers of services (excluding therefrom any such costs, including standby costs, which are determined in accordance with regulations to be unnecessary in the efficient delivery of services covered by the insurance programs established under this subchapter) in order that, under the methods of determining costs the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this subchapter will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance programs . . ..
The applicable sections of regulations pertaining to this controversy are the following:
20 C.F.R. § 405.415(g): Establishment of cost basis on purchase of facility as an ongoing operation. In establishing the costs basis for a facility purchased as an ongoing operation after July 1, 1966, the price paid by the purchaser shall be the cost basis where the purchaser can demonstrate that the sale was a bona fide sale and the price did not exceed the fair market value of the facility at the time of the sale. The cost basis for depreciable assets shall not exceed the fair market value of those assets at the time of the sale. If the purchaser cannot demonstrate that the sale was bona fide, the purchaser's costs basis shall not exceed the seller's cost basis, less accumulated depreciation. . . .
20 C.F.R. § 405.419: Interest expense.
(a) Principle. Necessary and proper interest on both current and capital indebtedness is an allowable cost.
(b) Definitions(3) Proper. Proper requires that interest:
(i) Be incurred at a rate not in excess of what a prudent borrower would have had to pay in the money market existing at the time the loan was made.
(ii) Be paid to a lender not related through control or ownership, or personal relationship to the borrowing organization. . . .
(c) Borrower-lender relationship. (1) To be allowable, interest expense must be incurred on indebtedness established with lenders or lending organizations not related through control, ownership, or personal relationship to the borrower. Presence of any of these factors could affect the "bargaining" process that usually accompanies the making of a loan, and could thus be suggestive of an agreement on higher rates of interest or of unnecessary loans. Loans should be made under terms and conditions that a prudent borrower would make in arms-length transactions with lending institutions. The intent of this provision is to assure that loans are legitimate and needed, and that the interest rate is reasonable. Thus, interest paid by the provider to partners, stockholders, or related organizations of the provider would not be allowable. . . .
20 C.F.R. § 405.427 Cost to related organizations.
(a) Principle. Costs applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control are includable in the allowable cost of the provider at the cost to the related organization. However, such cost must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere.
(b) Definitions(1) Related to provider. Related to the provider means that the provider to a significant extent is associated or affiliated with or has control of or is controlled by the organization furnishing the services, facilities, or supplies.
(2) Common ownership. Common ownership exists when an individual or individuals possess significant ownership or equity in the provider and the institution or organization serving the provider.
(3) Control. Control exists where an individual or an organization has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution.
(c) Application. (1) Individuals and organizations associate with others for various reasons and by various means. Some deem it appropriate to do so to assure a steady flow of supplies or services, to reduce competition, to gain a tax advantage, to extend influence, and for other reasons. These goals may be accomplished by means of ownership or control, by financial assistance, by management assistance, and other ways.
(2) Where provider obtains items of services, facilities, or supplies from an organization, even though it is a separate legal entity, and the organization is owned or controlled by the owners(s) of the provider, in effect the items are obtained from itself. An example would be a corporation building a hospital or a nursing home and then leasing it to another corporation controlled by the owner. Therefore, reimbursable cost should include the costs for these items at the cost to the supplying organization. However, if the price in the open market for comparable services, facilities, or supplies is lower than the cost to the supplier, the allowable cost to the provider shall not exceed the market price.
[2] 20 C.F.R. § 405.427 was addressed and construed in Schroeder Nursing Care, Inc. v. Mutual of Omaha Ins. Co., 311 F. Supp. 405, 410-1 (E.D.Wis., 1970). That case involved a provider leasing a nursing home from a related supplier or services. A continuing relationship was clearly evident, which fell precisely within the provisions of section 405.427(c)(2) of the regulations. The court found a rational basis for the regulation, based in large part on the exception [stated in section 405.427(d)] to the related parties doctrine. The exception distinguishes section 405.427 from sections 405.415(g) and 405.419(c), which leave no room for exceptions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2421460/ | 145 F. Supp. 2d 829 (2000)
Crisoforo CASTRO and Yolanda Castro, Individually and as Next Friends of Lorena Castro, Magnolia Castro, Christian Castro, Jose Armando Castro, Minors, Plaintiffs,
v.
Matias SERRATA, Pedro Saucedo, and J. Rick Day, Defendants.
No. Civ.A. L-98-103.
United States District Court, S.D. Texas, Laredo Division.
September 18, 2000.
*830 Luciano Adrian Rodriguez, Laredo, TX, mediator pro se.
Rolando Luis Leon, Baker Leon et al, Corpus Christi, TX, David Lee McGee, Corpus Christi, TX, for Crisoforo Castro, Yolanda Castro, Lorena Minor, Christian Castro, Jose Armando Castro.
Matias Serrato, Tilden, TX, defendant pro se.
Robert Narvell Carnahan, Attorney at Law, Corpus Christi, TX, Humberto G Garcia, Curney Garcia, San Antonio, TX, for J Rick Day, defendant.
MEMORANDUM AND ORDER
KAZEN, Chief Judge.
Pending is a Motion for Summary Judgment by Defendant J. Rick Day (Docket No. 55). The basic facts of the case are as follows. On August 4, 1998, Plaintiff Cristoforo Castro was injured when his shoelace was caught in an auger being used to dig holes in the ground for fence posts. Castro's injury was so severe that his leg was later amputated at the knee. At the time of the incident, he was employed by Matias Serrata, who in turn had been hired by J. Rick Day to build a fence on property that Day was leasing for grazing.[1] Although Plaintiffs' Complaint refers to Matias Serrata as "foreman," there appears to be no serious dispute that Serrata was an independent contractor overseeing his own employees. For example, Plaintiffs acknowledge that Defendant Day's foreman Xavier Gonzales administered the bidding process that resulted in hiring Serrata (Docket No. 58). Rather, the central issue appears to be whether Day exercised sufficient supervisory power over the building of the fence to incur liability for Castro's injury. Plaintiffs also claim that Day is liable due to his "negligent hiring/retention of a contractor and peculiar risk based upon § 411 and § 413 of the Restatement Second of Torts."
SUMMARY JUDGMENT STANDARD
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers *831 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). The party moving for summary judgment must initially demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). This showing can be made by relying on discovery material or the pleadings or by "pointing out to the district court [ ] that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325, 106 S. Ct. at 2554. If the movant meets his burden, the nonmovant cannot simply rest on its pleadings but must identify specific facts which show a genuine issue for trial. Id. at 324, 106 S. Ct. at 2553. "This burden is not satisfied with some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated allegations, or by only a scintilla of evidence." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc) (per curiam) (citations and internal quotation marks omitted).
NEGLIGENT SUPERVISION CLAIM
Under Plaintiffs' negligent supervision theory, they must prove that Day exercised some control over Serrata's work, did not exercise reasonable care in supervising Serrata's activities, and that Plaintiff's injuries were proximately caused by Day's negligence. Clayton W. Williams Jr., Inc. v. Olivo, 952 S.W.2d 523, 528 (Tex.1997); Redinger v. Living, Inc., 689 S.W.2d 415, 418 (Tex.1985) (adopting the rule enunciated in the Restatement (Second) of Torts § 414 (1977)). As a general rule, an owner or occupier does not have a duty to see that an independent contractor performs work in a safe manner. Redinger, 689 S.W.2d at 418. However, the owner/occupier may be subject to liability if he retains some control over the manner in which the independent contractor's work is performed. Id. Plaintiffs allege that Day exercised supervisory control through visits to the work-site by his foreman, Xavier Gonzales, or at a minimum retained the right to exercise such control so as to subject himself to liability in this matter.
To be liable for negligent supervision, the employer's role must be more than a general right to order the work to start or stop, to inspect progress, or receive reports. Redinger, 689 S.W.2d at 418. "For the general contractor to be liable for negligence, its supervisory control must relate to the condition or activity that caused the injury." Williams, 952 S.W.2d at 528. Furthermore, the Supreme Court of Texas recently held that merely placing a "safety employee" on the worksite to observe and make recommendations is insufficient to hold the owner/operator liable for an injury to an employee of the independent contractor. Koch Refining Company v. Chapa, 11 S.W.3d 153, 156 (Tex.1999). The Koch decision gives owner/operators "some latitude to tell its independent contractors what to do, in general terms" without being subject to liability. Id. at 156. The Koch court added that "[a]n employee's `willingness to follow a premises owner's instructions, though no such instructions were given,' does not constitute legally sufficient evidence of the premises owner's right to control such that a duty arises." Id. citing Coastal Marine Serv. of Tex., Inc. v. Lawrence, 988 S.W.2d 223, 226 (Tex.1999). Here, the evidence shows that while the independent contractor's employees may have believed that Day or his representative, Xavier Gonzales, was exerting authority or control, Gonzales' visits to the worksite were merely to inspect the progress of *832 the work and determine what supplies were needed. Both Gonzales and Serrata so testified in their depositions.[2]
Furthermore, absent some clear actual exercise of control, the Plaintiffs must rely on the contractual retention of control by the Defendant to create the duty of care adopted in Redinger. Pollard v. Missouri Pacific Railroad, Co., 759 S.W.2d 670 (Tex.1988) (per curiam). There is no evidence that Day had the contractual right to control the specific activities of fence building, nor is there evidence that he actually exercised control himself or through Gonzales. The only individuals who testified that Gonzales acted like a supervisor were Castro and Remigio Moreno Moreno, who were not party to any of the conversations between Gonzales and Serrata. They testified in their depositions that they did not even overhear any of those conversations, but that they believed Gonzales to be in control based on his visits to observe the worksite.[3] Such subjective belief, without more, is insufficient. It is undisputed that Gonzales assisted in the procurement of building materials, but Serrata provided his own men *833 and his own equipment used on the job, including the auger. Gonzalez told Serrata where the fence was to be built, but never how the fence was to be built. Summary judgment for the Defendant Day on the negligent supervision theory is proper.
NEGLIGENT HIRING AND PECULIAR RISK CLAIM
In response to Defendant's motion (Docket No. 58), Plaintiffs filed and the Court granted a Motion for Leave to Amend the Complaint (Docket No. 64). Plaintiffs' Fifth Amended Complaint (Docket No. 65) was then filed, adding the new claims of negligent hiring/retention and invoking the doctrine of "peculiar risk."
A. Negligent Hiring/Retention
Texas recognizes a cause of action for the negligent hiring of an independent contractor. Duran v. Furr's Supermarkets, Inc., 921 S.W.2d 778, 789 (Tex. App. El Paso 1996, writ denied); King v. Associates Commercial Corp., 744 S.W.2d 209, 213 (Tex.App. Texarkana 1987, writ denied); Jones v. Southwestern Newspapers Corp., 694 S.W.2d 455, 457-58 (Tex. App. Amarillo 1985, no writ); Texas American Bank v. Boggess, 673 S.W.2d 398, 400-01 (Tex.App. Fort Worth 1984, writ dism'd by agr.). "One hiring an independent contractor may be held responsible for the contractor's negligent acts if the employer knew or should have known that the contractor was incompetent and a third person was injured because of the contractors's incompetency." King, 744 S.W.2d at 213; citing (Boggess, 673 S.W.2d at 400). However, in all these cases, the employer of an independent contractor is held liable to a "third person," not the independent contractor's own employees.
It is unclear under Texas law whether an independent contractor's employee can be a "third person" under this doctrine. Plaintiffs point to the case of Bowles, et al v. White Oak, Inc., et al, 1988 WL 97901 (Del.Super.Ct.). That court concluded that the drafters of § 411 of the Restatement (Second) of Torts (Negligence in Selection of Contractor) left the meaning of "third persons" and "others" undefined in order for each state to interpret the exceptions themselves. Id. at *2. The Bowers Court further concluded that the "employer's duty to act reasonably in selecting an independent contractor runs to the employees of the independent contractor." Id. at *3. The court opined that "such a rule would not be unduly burdensome, since it requires no additional effort of the employer who is already duty bound to act reasonably in the selection process to protect other third parties from harm." Id.
On the contrary, at least one Texas appellate court case reached the opposite result. In Simonton v. Perry, et al., 62 S.W. 1090, 1090 (Tex.Civ.App. Houston 1901, no writ), the Plaintiffs brought a negligence suit against an employer of an independent contractor for damages for a minor's personal injuries. Plaintiffs alleged that there was evidence that the employer knew of the independent contractor's propensity for hiring young boys to assist him in his construction work. Id. at 1091. The Simonton Court held that "[i]t may be true that if a person employs a negligent or reckless contractor, knowing his character, and in the performance of his contract he negligently or recklessly injures a third person, a cause of action might arise against the owner; but this rule cannot be applied as between the owner and the servants of the contractor." Id.
More recently, however, the Supreme Court of Texas at least implied in Pollard *834 that such a cause of action by an employee of the independent contractor against the general contractor might be available. Pollard, 759 S.W.2d at 670. There the injured employee had alleged that "MOPAC was negligent for employing an inexperienced contractor without inquiring into his experience and safety record." Id. Because these allegations were not addressed by MOPAC in its motion for summary judgment nor by the court of appeals, the Supreme Court found that a genuine issue of material fact remained. The Court finds the law on this point to be unclear. Because the Defendant, as movant, has not fully briefed this point nor adequately discussed the factual bases which might defeat such a claim, summary judgment is premature.
B. Peculiar Risk
It appears clear that Texas law does not recognize the "peculiar risk" exception identified in § 413 of the Restatement (Second) of Torts. In Plaintiffs' Response to Defendant's Motion for Summary Judgment (Docket No. 58), Plaintiffs contend that Texas has adopted that exception and cites Scott Fetzer Co. v. Read, 945 S.W.2d 854 (Tex.App. Austin 1997) aff'd, 990 S.W.2d 732 (Tex.1998). "The peculiar-risk exception establishes liability for an employer who hires an independent contractor to do work that the employer knows is likely to create `a peculiar risk of physical harm to others' absent special precautions." Read, 945 S.W.2d at 860. However, the Read Court states that "[w]e need not formally adopt section 413, however, because we believe a balancing of the factors present in this case under traditional Texas notions of duty is sufficient to impose" a duty in this case. Id. at 862. In fact, on appeal, the Supreme Court of Texas, using the Redinger control analysis, found a duty because the defendant "retained control" over that aspect of work that specifically related to the alleged injury. 990 S.W.2d at 735-36. Again, the Read case imposed on the employer of an independent contractor liability to a "third person," not to the independent contractor's employee. More recently, another Texas court of appeals has declined to adopt the "peculiar risk" exception in § 413. Arlen v. The Hearst Corp., 4 S.W.3d 326, 328 (Tex. App. Houston [1st Dist.] 1999, writ denied). The Court finds no other Texas case applying the "peculiar risk" doctrine, nor do Plaintiffs cite any. While Texas does recognize the "inherently dangerous" exception to the rule of employer nonliability, another Texas appeals court has expressed the view that the employee of an independent contractor could not recover even in that context. Humble Oil & Refining Co. v. Bell et al., 180 S.W.2d 970, 975-76 (Tex.Civ.App. El Paso 1943), rev'd on other grounds, 142 Tex. 645, 181 S.W.2d 569 (1944). In sum, the Court finds no authority in Texas for a "peculiar risk" exception.
CONCLUSION
For the reasons stated above, it is ORDERED that Defendant Day's Motion for Summary Judgment (Docket No. 55) be GRANTED in part and DENIED in part. It is GRANTED as to Plaintiffs claim of negligent supervision and also as to a claim under the "peculiar risk" exception. It is DENIED, without prejudice, on the negligent hiring claim. The Court seeks more input as to what is current Texas law in view of authorities cited herein. Further, assuming an employee of an independent contractor can invoke this theory, what constitutes "negligent hiring" in the context of this case? Specifically, what is it about Serrata's background in the context of fence building that would make Day "negligent" in hiring him? That is, what *835 did Day know or should have known about Serrata that would make him "negligent" in retaining him?
If Defendant is inclined to file a second summary judgment motion on this point, he should do so no later than October 16, 2000.
NOTES
[1] In his deposition, Serrata denies that he ever employed Castro, who is apparently an undocumented alien. For the purposes of this summary judgment motion, the Court will assume that Castro was in fact hired by Serrata to work on the fence building project for Day.
[2] "Q. [by McGee] And you periodically checked on them to see that they were building the fence in the proper manner?
A. No, just to where it was at. I mean, just build the fence and if they needed supplies and I'm on my way back and forth through the ranch." Deposition of Xavier Gonzales, p. 86
"Q. [by McGee] Did did Gonzales did Gonzales change anything once you started on the fence that did he change anything, like he decided that he wanted the posts set different spacing or anything along that line?
A. No." Deposition of Matias Serrata, p. 33-34.
[3] "Q. [by McGee] Did [Xavier Gonzales] ever talk to Matias about the building of the fence or anything about the fence, to the best of your knowledge?
A. I never really saw him up close, and since we were working most of the time where they told us to work." Deposition of Remigio Moreno Moreno, p. 11
"Q. [by McGee] Okay. But do you recall this gentleman's name that came out to talk to Mr. Serrato?
A. No., I don't even know what his name was because I never asked. All I know is that I would see him and I was told that he was working with him." Deposition of Remigio Moreno Moreno, p. 13.
"Q. [by McGee] .... The other individual that would come out to where you were building the fence, who are you talking about?
A. This other man that came over he would always talk with Mr. Matias, but we would never listen to what they would talk about." Deposition of Cristoforo Castro, p. 32
"Q. [by McGee] Okay. Well, when he would come by or whenever he would point to the work that you were doing, would you-all occasionally change the way you were doing the work or go back and correct something else?
A. No, we would just go on with your job, and on some occasions we would change place to where he would point out." Deposition of Cristoforo Castro, p. 33.
"Q. [by Carnahan] When Mr. Gonzalez came, did he say did he tell anybody that they should get up on this?
A. No. Mr. Gonzalez never had anything to say to us.
Q. Did he ever talk to you five guys at all?
A. No.
Q. Did you ever meet him or shake hands?
A. No.
Q. You just saw him come out sometimes?
A. I would see him when he would talk with Mr. Matias, but that was not it was not right where we were working, just a bit far away from where we were.
Q. And Mr. Gonzalez had to tell Mr. Matias where to put the fence?
A. Yes.
Q. And he would tell him that and check and make sure he was going the right direction?
A. Mr. Gonzalez, no. It was really Mr. Matias that would tell us where everything should go." Deposition of Crisoforo Castro, p. 78. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1872646/ | 971 F. Supp. 997 (1997)
Kevin DeWayne CARDWELL, Petitioner,
v.
J.D. NETHERLAND, Warden, Respondent.
Civil Action No. 96-1516-AM.
United States District Court, E.D. Virginia, Alexandria Division.
August 1, 1997.
*998 *999 *1000 Dennis W. Dohnal, Brenner, Dohnal, Evans & Yoffy, P.C., Richmond, VA, Pleasant S. Brodnax, III, Bullock & Brodnax, Alexandria, VA, Robert L. Jenkins, Jr., Robert L. Jenkins, Jr., P.C., Alexandria, VA, for Petitioner.
Robert Q. Harris, Asst. Atty. Gen., Office of the Attorney General, Richmond, VA, for Respondent.
POST-CONVICTION PROCEEDING
MEMORANDUM OPINION
ELLIS, District Judge.
The matter comes before the Court on a petition by Kevin DeWayne Cardwell ("Cardwell") for relief from the sentence of death imposed on him by the Commonwealth of Virginia, pursuant to 28 U.S.C. 2254. For the reasons that follow, Cardwell's petition must be dismissed.
I.[1]
Kevin DeWayne Cardwell robbed and murdered Anthony Brown on November 20, *1001 1991. Brown, a fifteen year-old boy from New York City, had traveled by bus from New York to Richmond on November 20 carrying drugs strapped to the inside of his thigh. Tina Poindexter was to meet Brown when he arrived at the Richmond bus station. Before meeting Brown, Poindexter informed Cardwell that Brown was traveling from New York to Richmond with a shipment of drugs, information that Cardwell shared with his friends, Jermaine Jones, Richard Claiborne, and Craig Coles. Poindexter drove her car to the bus station and met Brown as planned. Claiborne had also driven to the bus station in Coles' car with Cardwell, Coles, and Jones aboard as passengers. After meeting Brown, Poindexter led him to her car. As soon as Poindexter and Brown entered Poindexter's car, Cardwell, Coles, and Jones jumped into the back seat for the purpose of taking the drugs from Brown. To this end, Coles held Brown, while Cardwell, armed with both his inoperable .25 caliber pistol and Claiborne's operable .380 caliber automatic pistol, stole Brown's duffle bag and his shoes. The robbers then fled to Cardwell's and Jones' apartment to survey their spoils.
The robbery's yield disappointed the robbers. It consisted of Brown's boots, some clothes in the duffle bag, and about twelve to fifteen dollars, but no drugs. The conspirators' disappointment was allayed somewhat when Poindexter, betraying Brown a second time, called Cardwell to disclose that Brown still possessed the drugs, as he had concealed them by strapping them to his inner thigh. Cardwell instructed Poindexter to lure Brown to Cardwell's apartment under the ruse that she had some friends who could help Brown retrieve his belongings. This time Cardwell had more in mind than robbery. He announced to his confederates that after acquiring the drugs, he would kill Brown or knock Brown out, so that Brown could not implicate them. Jones and Coles, apparently uninterested in this new plan involving escalating violence, left the apartment claiming concern that Brown would recognize their clothes or voices. Cardwell, who had changed clothes, and Claiborne, who had stayed in Coles' car during the first robbery, were apparently unconcerned about identification and remained in the apartment.
When Poindexter and Brown arrived at the apartment, Cardwell feigned sympathy over Brown's plight, provided Brown with a pair of shoes and promised assistance in recovering Brown's belongings. The four left the apartment heading for Poindexter's car, when suddenly, Cardwell turned on Brown and held him at gunpoint, pulled down his pants and removed the drugs from Brown's inner thigh. Thereafter, Cardwell forced Brown to lie down on the floor of the back seat of Poindexter's car. Poindexter and Claiborne got into the front seat and, with Poindexter driving, the four headed for Goochland County where Cardwell had planned to dispose of Brown. Brown, begging that his life be spared, never made it to Goochland County. Poindexter soon realized that she did not have enough gasoline to drive to the intended site in Goochland County. Moreover, the conspirators were concerned with the prospect of going to a filling station with Brown lying face down on the floor of the car at gunpoint. Thus, Cardwell directed Poindexter to drive behind a shopping center at the intersection of Patterson Avenue and Pump Road in Henrico County. There, in the woods behind the shopping center, Cardwell murdered Brown. The particular sequence of events is relevant.
On arriving behind the shopping center, Cardwell demanded Claiborne's working .380 caliber automatic pistol. Claiborne testified that he believed that Cardwell wanted this larger pistol, as opposed to the inoperable .25, because the larger pistol would be a more effective tool with which to knock Brown unconscious. Cardwell then led Brown into the woods behind the shopping center. Claiborne, who waited for a moment *1002 before following Cardwell into the woods, testified that as he walked up to Cardwell and Brown, he heard Brown begging for his life. From a distance of ten feet, Claiborne heard a "gurgling" sound which he recognized "from the movies" as the cutting of Brown's throat. Cardwell then noticed Claiborne, telling him "I'm going to shoot him and he's going to die". Claiborne testified that at this point he said "No", and turned to walk back to the car. Two shots were fired. Thereafter, Cardwell returned to the car, gave Claiborne back the .380, and Poindexter, Claiborne and Cardwell returned to the apartment. Brown's body was left in the woods.
After Brown's murder, Cardwell disposed of the murder weapons, a six-inch steak knife and Claiborne's pistol, by placing them in a bag that, in turn, was thrown into a dumpster at the apartment complex. Yet, despite his care in seeking to eliminate physical evidence, Cardwell was less cautious with respect to recounting his murderous deeds. Thus, Cardwell boasted to friends and associates of cutting Brown's wrists, giving Brown a "Cuban necktie" (cutting his throat), and shooting him when he did not die from the wounds. On one occasion, Cardwell, observing birds circling in the distance, suggested to a girlfriend that those birds were flying above Brown's body. Indeed, Cardwell made little effort to hide his murderous acts from friends and acquaintances.
Meanwhile, Brown's body was not discovered in the woods behind the shopping center until January 26, 1992, over two months after his death. A family on an afternoon walk in the woods behind their subdivision came across Brown's decomposed body on the spot where he had been killed by Cardwell. Medical examiners were able to identify Brown using dental records. They concluded from the autopsy that Brown had been murdered in November 1991 and that rapid decomposition of the wrists and neck suggested that knife-inflicted entry wounds on those areas had occurred prior to the decomposition process. Also identified were two gunshot wounds to the back of Brown's head, either of which would have resulted in immediate unconsciousness and death. Further, the medical examiner concluded that there were no marks on Brown's body suggesting that he had struggled or defended himself from the fatal attack.
The investigation that ensued led police to the conspirators who had robbed Brown and ultimately to Cardwell, who was indicted in the Circuit Court for Henrico County on May 10, 1993 for (i) capital murder committed during the commission of an abduction with the intent to obtain money or other benefit, (ii) capital murder committed during armed robbery, (iii) robbery, (iv) abduction with intent to obtain money or other benefit, (v) use of a firearm during the commission of a murder, (vi) use of a firearm during the commission of a robbery, and (vii) use of a firearm during the commission of an abduction. On May 20, 1993, attorney Robert Geary was appointed to represent Cardwell, and trial was set for July 19, 1993. Thereafter, on June 22, 1993, Geary requested a continuance of the trial so that he and his newly appointed co-counsel, John McGarvey, could prepare more adequately for Cardwell's defense. This motion was granted, and trial was set for September 7-10, 1993. But in granting the continuance, the trial judge admonished the parties to bring matters that might delay proceedings promptly to his attention, making clear that further continuances would be disfavored.[2]
On August 2, 1993, Cardwell moved for the appointment of experts to assist in the preparation of information concerning Cardwell's history, character and mental condition for use in the jury's consideration of the appropriate sentence should Cardwell be convicted of one of the capital offenses. The next day, August 3, the trial judge appointed Dr. Randy Thomas, an expert selected by Cardwell's trial counsel. On this date, trial counsel discovered that Thomas would be on vacation *1003 until August 25, and trial counsel subsequently learned that Thomas would be unable to complete an adequate evaluation in time for trial. Yet, Cardwell's trial counsel inexplicably waited until August 23 to ask for a continuance of the September 7 trial date. This tardy request was summarily denied by the trial judge in an order dated August 24, and trial commenced on September 7, 1993.
The guilt phase of Cardwell's trial consumed only two days, September 7 and 8. Cardwell pled not guilty to each charge of the indictment, and after a jury was empaneled, the Commonwealth adduced its evidence. Specifically, the Commonwealth adduced testimony from Henrico County officials involved in the investigation of the Brown homicide, including Officer Robert L. Bates, the police officer who first secured the crime scene, Investigator James D. Jamison, a forensics specialist who performed an initial investigation of the evidence at the scene, and Dr. Marcella F. Fierro, a forensic pathologist who performed the autopsy on Brown and testified as to the cause of death, the time of death, and the efforts to identify Brown from his decomposed remains. Further testimony was adduced from Ms. Annie MacMillan, Anthony Brown's mother, and Philip Nicely, the individual who found Brown's body during a walk in the woods.
But the most compelling testimony in the trial came from Cardwell's friends, both those who had participated in the robbery and those to whom Cardwell had boasted of his murderous deeds. Michelle Chapman, the friend of a woman Cardwell dated after the murder of Brown, testified that she overheard Cardwell on the phone discussing plans to implicate others in the Brown killing.[3] Tonya Perotte, a former girlfriend of Cardwell's,[4] testified in detail about facts of the murder as related to her by Cardwell. Jones and Coles testified regarding their involvement in the bus station robbery, and to the details of Brown's murder as recounted to them by Cardwell. But even more damning was the testimony of Claiborne, Cardwell's companion and accomplice in the second robbery. Claiborne's testimony recounted the abduction, the trip to the woods behind the shopping center, Brown's pleas for his life, the slashing and shooting of Brown by Cardwell, and the subsequent efforts to dispose of the murder weapons. In the final analysis, the testimony of Cardwell's friends and associates filled any gaps left open by the physical evidence.
Cardwell presented only one witness in the guilt phase of his trial. Yolanda Turner, a friend of Cardwell's, was called apparently to testify concerning a conversation she overheard that, in Cardwell's view, suggested that someone other than Cardwell, presumably Claiborne, was the triggerman in the Brown murder. After some preliminary questions, counsel for Cardwell attempted to adduce the relevant testimony and the Commonwealth objected on the basis of hearsay. After voir dire of Turner, and argument from counsel, the trial judge allowed the disputed testimony in part. Yet, trial counsel McGarvey, at the direction of Cardwell, did not pursue that line of testimony with Turner. The trial judge repeated the permissible scope of Turner's testimony, but Cardwell himself confirmed that he did not wish Turner to be examined further. Thereafter, the defense rested without presenting any evidence beyond the preliminary examination of Turner and the cross-examination of prosecution witnesses. Cardwell did not testify and no rebuttal case was offered.
Cardwell's motions for judgment of acquittal were denied, and the jury was instructed as to the law concerning each count of the indictment. In its closing argument, the government relied on the testimony of Cardwell's friends. In response, Cardwell's counsel argued that Claiborne had killed Brown, and that upon Claiborne's arrest, he and his friends conspired to frame Cardwell. After arguments of counsel and the trial judge's *1004 final instructions, the case was submitted to the jury. The jury deliberated less than a day, returning a verdict of guilty of all of the charges in the indictment. Punishment was fixed by the jury on the five non-capital offenses ranging from two years, for use of a firearm while committing a robbery, to life in prison, for abduction.[5] The jury was directed to return the following day to hear evidence and arguments relevant to the two capital murder convictions.
When the capital sentencing phase of Cardwell's trial began on September 9, Cardwell's counsel renewed his request for a continuance to permit Dr. Thomas, a mental health expert, to complete an evaluation of Cardwell. For the purposes of the motion for a continuance, trial counsel presented a preliminary report prepared by Thomas on September 1 in which Thomas concluded that several areas with respect to Cardwell's mental health warranted further inquiry. The preliminary report made clear that Thomas had not reached any opinion "to a reasonable degree of professional certainty." And specific tests were identified as necessary for Thomas to arrive at a meaningful opinion. Thus, trial counsel represented that he was not prepared for the sentencing phase and that a continuance was therefore appropriate. The trial judge received Thomas' report into the record, but refused to grant a continuance. The capital sentencing phase of Cardwell's trial proceeded as scheduled.
In this phase, the Commonwealth sought to prove the existence of one or both of two aggravating factors, namely, (i) the vileness of the crime, and (ii) Cardwell's future dangerousness.[6] On the question of future dangerousness, the Commonwealth introduced Cardwell's seven previous convictions and testimony concerning those convictions. Specifically, Lynchburg Police Officer Patrick K. Morris testified to the circumstances surrounding Cardwell's arrest for possession with intent to distribute marijuana, and Officer Mark Williams of the Richmond Police Department testified to the circumstances surrounding Cardwell's arrest for drunk-in-public. Pam Lavier, a Virginia Probation and Parole Officer, testified concerning interviews she had conducted with Cardwell in which he (i) indicated his use of aliases such as Xavier Brown, and (ii) related that he was raised in a happy environment. Diana Lipscomb, a Cardwell acquaintance, testified that Cardwell dealt drugs, and had become angered once and carelessly shot a pistol in her house. Cardwell's former girlfriend, Tonya Perotte, testified that Cardwell had boasted about murdering Brown, and had never shown remorse. She testified further to other examples of Cardwell's violent tendencies including (i) attempted assault with a baseball bat on Perotte and her child, (ii) shooting a man in the foot, and (iii) beating a man with a broken bottle. Finally, the Commonwealth adduced evidence from Michelle Chapman concerning Cardwell's violent nature. Chapman testified to (i) a violent attack on a man named Jules in Lynchburg, (ii) the firing of a gun in a house occupied by Chapman and Lipscomb, and (iii) a burglary of a grocery store in which the window was shattered and products were stolen.
For his part, Cardwell adduced no evidence to rebut the aggravating factors pursued by the Commonwealth, calling only one witness, his grandmother, Donzell Cardwell, to provide evidence in mitigation of the offense. Specifically, Ms. Cardwell testified that she raised Cardwell because her daughter, Cardwell's mother, was not interested in Cardwell, and because Cardwell's father, who was in and out of prison, also did not take an active interest in Cardwell's life. Ms. Cardwell testified that Cardwell had been neglected *1005 by his parents as a child and that this neglect had led to Cardwell's having nightmares when he was a boy. Nevertheless, Ms. Cardwell testified that Cardwell had never been in any trouble as a boy, and that she had been unaware of any criminal conduct before Cardwell's capital trial.
At closing argument in the sentencing phase, the Commonwealth relied on evidence adduced regarding other criminal acts and violent episodes from Cardwell's past to demonstrate Cardwell's future dangerousness and recapped the details of the Brown murder, focusing on Brown's pleas for his life, the execution style murder, and the gruesome nature of the killing to demonstrate the vileness of Cardwell's crimes. Cardwell's trial counsel argued that Cardwell was a young man in search of acceptance, feeling alienated from his father's Jamaican family and neglected by a mother who did not want anything to do with him. The sought after acceptance, by Cardwell's lights, was realized in the form of a violent lifestyle of drug dealing, a lifestyle that led ultimately to Brown's death. Thus, trial counsel urged the jury to find that Cardwell's environment and background mitigated the culpability and vileness of his act and rebutted the propriety of the death sentence.
After the closing argument and instructions from the trial judge, the jury began their deliberations concerning the imposition of a death sentence. During their deliberations, the jury requested that the trial judge inform them whether parole would be allowed if life imprisonment was imposed. The trial judge convened the jury, advising them that the Supreme Court of Virginia did not allow him to answer that question and that they must resolve the sentencing issue without the benefit of this information. Thereafter, on September 9, the jury returned a verdict of death, finding that the offense was outrageously and wantonly vile and that death was therefore warranted notwithstanding consideration of the evidence in mitigation.
After a jury recommends a sentence of death, Virginia law requires the trial judge to direct an investigation of the defendant and all other factors relevant to whether a death sentence is appropriate. See Va. Code Ann. 19.2-264.5. For good cause shown, a trial judge may set aside a death sentence and impose a sentence of life in prison. Id. Accordingly, the trial judge ordered preparation of an investigative report and, thereafter, conducted a hearing on November 10, 1993 concerning whether the jury's recommended death sentence should be confirmed or set aside. At this hearing, the trial judge noted that the investigative report had been completed by the probation office. The trial judge further noted that counsel had requested a trial continuance to complete an expert mental evaluation, yet, even now, no completed mental evaluation had been submitted. On November 10, 1993, the trial judge affirmed the jury's sentence of death on the basis of the vileness of the offense conduct, notwithstanding evidence in mitigation.
Cardwell appealed his convictions and the sentence of death to the Supreme Court of Virginia on several grounds. With respect to pre-trial rulings by the trial judge, Cardwell appealed (i) the denial of his constitutional challenge to the Virginia death penalty statutes, (ii) the denial of a continuance both on August 24 and on September 9, and (iii) the denial of a request to require the Commonwealth to proceed on only one of the capital murder charges. And, with respect to the trial judge's rulings during the guilt phase of the trial, Cardwell appealed (i) the refusal to strike evidence relating to the abduction charge, and (ii) the rejection of a jury instruction concerning uncorroborated accomplice testimony. Finally, with respect to the trial judge's rulings during the capital sentencing phase of the trial, Cardwell appealed (i) a jury instruction regarding the imposition of the death penalty, (ii) the failure to advise the jury that Cardwell would be ineligible for parole for 25 years if sentenced to life imprisonment, and (iii) the admission of evidence in the penalty phase involving unadjudicated criminal conduct. In an opinion dated November 4, 1994, the Supreme Court of Virginia rejected the grounds for appeal and upheld the convictions. See Cardwell v. Com., 248 Va. 501, 450 S.E.2d 146, 150-155 (1994), cert. denied, 514 U.S. 1097, 115 S. Ct. 1826, *1006 131 L. Ed. 2d 747 (1995). Moreover, as required by statute, the Supreme Court of Virginia reviewed Cardwell's death sentence to determine (i) whether the death sentence was imposed under the influence of passion, prejudice or any other arbitrary factor, and (ii) whether the death sentence is excessive or disproportionate to the penalty imposed in similar cases. See Va. Code Ann. 17-110.1. In this regard, the Supreme Court of Virginia concluded that the jury's finding was supported by the evidence and did not suggest the influence of any arbitrary factor. Cardwell, 450 S.E.2d at 155. Further, the Supreme Court of Virginia reviewed the sentence in light of a compilation of capital murder cases in Virginia, concluding that Cardwell's death sentence was not excessive or disproportionate compared to other sentences imposed in similar circumstances. Id. at 156. Thus, all of Cardwell's convictions and his death sentence were upheld on direct appeal. His petition for a writ of certiorari to the United States Supreme Court was denied on May 1, 1995. Cardwell v. Virginia, 514 U.S. 1097, 115 S. Ct. 1826, 131 L. Ed. 2d 747 (1995).
In May 1995, Cardwell wrote to the trial judge requesting the appointment of counsel to represent him in habeas corpus proceedings, pursuant to Va. Code Ann. 19.2-163.7. Gerald Zerkin, an experienced criminal defense lawyer, was appointed for this purpose in July 1995. In August 1995, Cardwell filed a motion for the appointment of experts and an "Incomplete Original Petition." Thereafter, Cardwell filed several motions in the Supreme Court of Virginia and the Circuit Court for Henrico County requesting the appointment of experts to assist in the preparation and presentation of Cardwell's petition, including investigators and mental health professionals. Moreover, Zerkin moved on Cardwell's behalf for the disclosure of exculpatory evidence. The motions filed in the Circuit Court for Henrico County were dismissed by order dated December 8, 1995 because the trial judge concluded that he had no jurisdiction to consider these motions. The motions filed in the Supreme Court of Virginia were decided by order dated December 15, 1995. In this order, Cardwell was granted thirty days to amend the "Incomplete Petition" filed previously in an effort to preserve Cardwell's rights, but his remaining motions were denied, the Supreme Court of Virginia stating:
[o]n further consideration of other motions and replies filed herein, the Court denies petitioner's motions for appointment of an expert, motion for appointment of an investigator and motion for disclosure of exculpatory evidence.
Cardwell v. Angelone, Record No. 951593 (Order of Supreme Court of Virginia Order dated December 15, 1995).
Thereafter, on January 23, 1996, Cardwell, by counsel, filed his amended petition for habeas corpus urging three general bases for relief. First, Cardwell claimed that he was denied effective assistance of counsel both at trial and on appeal. Specifically, Cardwell challenged (i) trial counsel's voir dire with respect to jurors' attitudes toward capital punishment, (ii) trial counsel's performance at the guilt phase of trial, including the efforts to cross-examine and impeach Claiborne, (iii) trial counsel's performance at the sentencing phase, including the failure to present evidence of Cardwell's background and mental health, and (iv) trial counsel's failure to develop the expert testimony concerning Cardwell's mental health between the trial and the final sentencing hearing in November.
Second, Cardwell claimed that the Commonwealth's conduct during trial violated due process. Specifically, Cardwell contended (i) that the Commonwealth failed to provide him with exculpatory evidence, and (ii) that the Commonwealth allowed Cardwell's friends and associates to give false testimony against Cardwell.
Third, Cardwell claimed that he was denied a meaningful and rational review of his death sentence as mandated by Va. Code 17-110.1. Specifically, Cardwell contended that the Supreme Court of Virginia invariably fails to discuss mitigating evidence in reviewing sentences of death, and has never found that a death sentence was inappropriate. Accordingly, by Cardwell's lights, the Supreme Court of Virginia's allegedly pro *1007 forma review of his death sentence is constitutionally inadequate.
Cardwell's petition requested an evidentiary hearing on his request for state habeas relief, and prayed that his conviction and sentence of death be set aside. Thereafter, the Supreme Court of Virginia received a motion by the Commonwealth to dismiss the petition and a response to this motion by Cardwell. No evidentiary hearing was held. And on May 3, 1996, the Supreme Court of Virginia dismissed Cardwell's petition. Presumably, the Supreme Court of Virginia considered and rejected each of Cardwell's asserted bases for relief, yet the order tersely stated only that:
Applying the rule in Slayton v. Parrigan, 215 Va. 27, 205 S.E.2d 680 (1974), to petitioner's allegation III, and finding no merit in other complaints raised by petitioner, the Court is of opinion that the writ of habeas corpus should not issue as prayed for. It is therefore ordered that the said petition be dismissed.
Following dismissal of his state habeas petition, Cardwell now seeks federal habeas relief, pursuant to 28 U.S.C. 2254. By Order dated October 23, 1996, three attorneys were appointed to represent Cardwell in the preparation and presentation of his petition for federal habeas corpus relief. Thereafter, Cardwell moved for the appointment of mental health experts to assist him in preparing his federal habeas petition, pursuant to 21 U.S.C. 848(q). Specifically, Cardwell requested the appointment of a neuropsychiatrist, Dr. Robert Hart, and a clinical psychologist, Dr. Leigh Hagan, for the purpose of evaluation and analysis. This request was granted by Order dated February 24, 1997. Thereafter, on March 17, 1997, Cardwell filed the instant petition for federal habeas corpus relief, requesting an evidentiary hearing to develop facts and testimony in support of his petition. This petition included reports from Drs. Hart and Hagan evaluating Cardwell's mental health. In response, the Commonwealth opposed an evidentiary hearing, and moved to dismiss Cardwell's petition.
Accordingly, this opinion addresses:
(1) the propriety of the appointment of mental health experts to assist Cardwell in the preparation and presentation of his federal habeas petition;
(2) Cardwell's request for an evidentiary hearing on issues relevant to his petition; and
(3) the consideration and disposition of Cardwell's petition for 2254 relief.
II.
The analysis of the propriety of the appointment of experts properly begins with the language of 848(q), which authorizes courts to appoint expert or investigative services for indigent defendants seeking habeas relief in capital cases, provided that such services are "reasonably necessary for the representation of defendant, whether in connection with issues relating to guilt or sentence." 21 U.S.C. 848(q)(4)(B), (q)(9). Thus, the question presented reduces to whether the appointment of Drs. Hart and Hagan is "reasonably necessary" to Cardwell's petition for 2254 relief.
A.
Cardwell contends, in part, that he was denied effective assistance of counsel because of trial counsel's failure to prepare expert evidence for the sentencing phase of trial, namely, possible mitigation evidence concerning Cardwell's background and mental health. This contention was rejected by the Supreme Court of Virginia in Cardwell's state habeas proceeding. Thus, federal habeas relief is available if the state court's denial of Cardwell's ineffective assistance of counsel claims was an unreasonable application of clearly established law. See 28 U.S.C. 2254(d)(1).
Ineffective assistance claims are analyzed under the two-part test articulated by the Supreme Court in Strickland v. Washington, 466 U.S. 668, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984). This test requires a petitioner to show that "(1) his counsel's performance fell below an objective standard of reasonableness in light of the prevailing professional norms, and (2) `there is a reasonable probability that, but for counsel's unprofessional *1008 errors, the result of the proceedings would have been different.'" Bell v. Evatt, 72 F.3d 421, 427 (4th Cir.1995), cert. denied sub nom., Bell v. Moore, ___ U.S. ____, 116 S. Ct. 2533, 135 L. Ed. 2d 1056 (1996) (citing Strickland, 466 U.S. at 688, 694, 104 S.Ct. at 2064-65, 2068). The record is complete on trial counsel's conduct in both the guilt and sentencing phases of Cardwell's trial. It is undisputed that trial counsel failed to develop or prepare expert evidence on Cardwell's mental health in time for trial. This failure resulted from (i) counsel's delay in locating an expert to prepare the necessary information, and (ii) counsel's failure to move for a continuance in a timely fashion when it appeared that the expert evidence would not be ready in time for trial. At the threshold stage, this evidence provides Cardwell with a reasonable basis for asserting that trial counsel's behavior fell below an objective standard of reasonableness in light of the prevailing professional norms. See Bell, 72 F.3d at 427.
Ineffective assistance of counsel, however, also requires a reasonable probability that, but for counsel's unprofessional errors, the result of the proceedings would have been different. Id. Thus, to prevail on an ineffective assistance claim, Cardwell must show prejudice from the failure to present expert testimony related to his mental health at the sentencing phase. On this prejudice prong of the Strickland test, the record evidence was not developed in the state proceeding. And for the purposes of the prejudice inquiry, a complete expert report is clearly relevant, for it is impossible to evaluate whether Cardwell was prejudiced by a failure to present certain expert testimony until the substance of that testimony is known. Thus, the evidence Cardwell seeks from experts is manifestly relevant to resolution of the instant petition.[7] Yet, relevance is not enough; the experts' testimony or reports must be "reasonably necessary" to this 2254 proceeding. Thus, if Cardwell cannot introduce the results of expert evaluations for the purposes of the instant 2254 petition, then those examinations are not "reasonably necessary" for the petition. Accordingly, this analysis must turn to whether expert reports on Cardwell's mental health can be introduced at this proceeding.
B.
Ordinarily, a 2254 petition is limited to the factual record developed in state court proceedings. This sensible principle follows from the statute's command that deference be accorded to state court decisions. See, e.g., 28 U.S.C. 2254(b), (e)(1). In other words, if state court is the primary forum for collateral review of a state conviction and sentence, then it would generally be inappropriate to permit a federal court to review state decisions on the basis of a factual record not considered by the state court. Embodying this principle, the amended[8] 2254(e)(2) limits a petitioner's ability to present evidence in a federal habeas proceeding that was not considered by the state court.[9] If 2254(e)(2) prohibits Cardwell's *1009 introduction of evidence in this proceeding, notwithstanding the results of an expert evaluation, then the appointment of experts is not "reasonably necessary" to Cardwell's preparation of a petition. The question thus reduces to whether (e)(2) applies here to bar Cardwell's effort to develop a factual record in this federal habeas proceeding.
Section 2254(e)(2), where triggered, first requires an applicant to demonstrate an excuse for any failure to develop the factual record. The only acceptable excuses are (i) a new rule of constitutional law that was previously unavailable and that was made retroactive to cases on collateral review by the Supreme Court, and (ii) a factual predicate that could not have been previously discovered through due diligence. See 28 U.S.C. 2254(e)(2)(A). But an excuse alone is insufficient, for even where an acceptable excuse is demonstrated, an applicant for federal habeas relief is eligible for an evidentiary hearing only where he further demonstrates by clear and convincing evidence that he is not guilty of the underlying offense. See 28 U.S.C. 2254(e)(2)(B).[10]
Cardwell contends that the bar to evidentiary hearings articulated in subsection (e)(2) does not apply to his case because he did not "fail" to develop the factual basis of his ineffective assistance claim in state court. Thus, Cardwell contends that 2254(e)(2) only applies where a failure to develop the record is attributable to a petitioner and not where, as here, a petitioner is denied the opportunity to develop the factual record by a state court. While no courts in this circuit have addressed the meaning of 2254(e)(2), courts elsewhere have addressed this issue reaching conflicting results. Some courts have concluded that evidentiary hearings are only limited by (e)(2) if the failure to develop facts is fairly attributable to the applicant,[11] while others have concluded that evidentiary hearings are limited by (e)(2) for any failure to develop a factual record, regardless of the cause.[12] An analysis of 2254(e)'s plain meaning, however, points persuasively to the conclusion that neither of these interpretations accurately define the proper scope of the subsection.
The plain meaning of 2254(e)(2) rebuts a "strict liability" interpretation of that subsection, i.e., an interpretation that triggers the subsection's limitations whenever, for any reason, the factual record is undeveloped. Section 2254(e)(2) provides that the subsection applies where "the applicant has failed to develop the factual basis of a claim...." Congress could have easily provided that (e)(2) applies whenever an evidentiary hearing is sought, or wherever the state record is undeveloped. Yet, Congress choose to limit (e)(2) to circumstances where *1010 "the applicant has failed." A "strict liability" interpretation of (e)(2) would render the reference to "the applicant" meaningless. A construction of (e)(2) that leads to this result should be avoided because "a statute must, if possible, be construed in such fashion that every word has some operative effect." United States v. Nordic Village, Inc., 503 U.S. 30, 36, 112 S. Ct. 1011, 1015, 117 L. Ed. 2d 181 (1992). The reference to "the applicant" is given operative effect by interpreting (e)(2) in such a manner that this subsection is not triggered by every undeveloped record, whatever the cause. Thus, the plain meaning of 2254(e)(2) is inconsistent with an interpretation that would apply this subsection whenever a factual record, for whatever reason, is not developed in the state courts. See also Burris, 116 F.3d at 258; Jones v. Wood, 114 F.3d 1002, 1013 (9th Cir.1997); Love, 112 F.3d at 136.
Some courts rejecting a "strict liability" application of 2254(e)(2) have limited the application of this section to circumstances in which the failure to adduce evidence is "fairly attributable to the applicant." See Love, 112 F.3d at 136; Mazurkiewicz, 1997 WL 83771.[13] Yet, this interpretation, like the "strict liability" interpretation of (e)(2), is unpersuasive. Subsection (e)(2)(A) limits an evidentiary hearing to claims that rely on (i) a retroactive new rule of constitutional law, or (ii) a factual predicate that could not have been previously discovered through the exercise of due diligence. The failure to develop a factual predicate that could not have, through due diligence, been discovered, is a failure "not fairly attributable to the applicant." Thus, if (e)(2) does not apply to circumstances where the failure is not "fairly attributable to the applicant" then (e)(2)(A)(ii) is superfluous. In other words, (e)(2)(A)(ii) would be unnecessary because where new facts arise that could not have been discovered by a diligent petitioner, subsection (e)(2) would be inapplicable. This construction of (e)(2) is to be avoided for it is well-established that courts should be "reluctant to interpret statutory provisions so as to render superfluous other provisions within the same enactment." See United States v. Ivester, 75 F.3d 182, 185 (4th Cir.), cert. denied, ___ U.S. ____, 116 S. Ct. 2537, 135 L. Ed. 2d 1060 (1996). Thus, the plain meaning of 2254(e)(2) requires that it (i) be inapplicable in a subset of circumstances where an applicant seeks to introduce new evidence, and (ii) be applicable in a subset of circumstances where a failure to develop the state court record is "not fairly attributable to an applicant." Section 2254(e)(2) meets these requirements when construed not to apply, as here, to an applicant who attempts to develop a record in the state proceeding but is denied that opportunity by the state court.
This conclusion also follows from the plain meaning of the pivotal term "failure." Webster's defines "failure", in relevant part, as the "omission of performance of an action or task; ... neglect of an assigned, expected, or appropriate action." See Webster's Third International Dictionary, at 815 (1993).[14] This definition provides a useful distinction between subsets of failures not "fairly attributable to an applicant." Where facts are unknown to an applicant, then that applicant will omit to perform the action or task of developing those facts in the state court, i.e., the applicant will "fail" to develop those facts.[15] Yet, where, as here, an applicant *1011 attempts to develop a factual basis for his claim in a state proceeding and is denied the opportunity to do so, then the applicant has not neglected or omitted the development of facts in state court. In this event, the limitations of subsection (e)(2) do not apply.[16]
In sum, 2254(e)(2) is designed to restrict the development of facts in federal habeas proceedings that were not known to or considered by a state court. Yet, (e)(2) cannot apply to the entire universe of undeveloped state records, for were it to do so, its express limitation to circumstances where "the applicant has failed" would have no meaning. Thus, (e)(2) must only apply to a subset of applicants seeking to introduce new facts in federal court. But this subset must include some applicants who, through no fault of their own, have failed to develop a record. Otherwise, (e)(2)(A)(ii) would serve no purpose. These interpretive guideposts lead to the conclusion that an applicant "fails" when he does not take or seek the opportunity to develop evidence in a state court proceeding. This is where (e)(2) applies. And this is where (e)(2)(A) may forgive the failure if new facts or a retroactive change in constitutional law form the basis of a claim. In contrast, an applicant does not "fail" where he seeks, but is denied, the opportunity to develop facts in state court. In this event, the rigorous standard of 2254(e)(2) will not apply.[17]
These principles, applied here, point persuasively to the conclusion that (e)(2) is inapplicable to Cardwell's effort to introduce mental health reports and testimony. It is undisputed that Cardwell did not submit expert mental health reports or testimony in state court, either at trial, on direct appeal, or in the state habeas proceeding. Of course, given that trial counsel's failure to procure a complete mental health evaluation is the basis of Cardwell's ineffective assistance claim, it would be circular to require him to have developed at trial or on direct appeal, the very record, the absence of which is the basis of his claim. In the state habeas proceeding, Cardwell attempted to develop the factual basis of his ineffective assistance claim, filing motions in the Supreme Court of Virginia for the appointment of experts to complete his mental evaluation and for an evidentiary hearing. These motions were dismissed summarily.[18] Thus, Cardwell did not neglect the opportunity to develop factual basis for his ineffective assistance claim in the state court. To the contrary, he was denied the opportunity to develop the facts by the state court. Accordingly, the limitations of 2254(e)(2) do not apply.
Given that 2254(e)(2) does not apply, Cardwell's right to expand the record and obtain an evidentiary hearing will be governed by the Rules Governing 2254 *1012 Cases in the Federal Courts ("Rules Governing 2254 Cases"). These rules allow discovery, an expansion of the record, and an evidentiary hearing, for good cause shown, at the discretion of the district judge. See Rules 6, 7, 8, Rules Governing 2254 Cases. Thus, should expert mental health reports provide facts relevant to Cardwell's ineffective assistance claim, they may be accepted into the record for purposes of this 2254 petition. Given this, it follows that these reports are "reasonably necessary" for Cardwell's federal habeas representation and the appointment of Drs. Hart and Hagan, pursuant to 21 U.S.C. 848(q), is appropriate.
III.
Cardwell filed his 2254 petition on March 17, 1997 together with the reports of Drs. Hart and Hagan, and requested an evidentiary hearing to "present witnesses and testimony as well as argument of counsel in support of the allegations contained in his petition." The Commonwealth opposes both the request for an evidentiary hearing, and any expansion of the record to include the expert reports prepared by Drs. Hart and Hagan. Given that 2254(e)(2) does not apply to the expert reports or testimony on Cardwell's mental health, see Part II. B., supra, Cardwell's request to expand the record and conduct an evidentiary hearing is controlled by the Rules Governing 2254 Cases.
Where a 2254 petition is not dismissed summarily, the reviewing court may permit an expansion of the record to include additional materials, such as expert reports, relevant to the determination of the merits of the petition. See Rule 7, Rules Governing 2254 Cases.[19] Having determined that the reports of mental health experts are relevant to the determination of the merits of Cardwell's ineffective assistance claim, the record considered on this federal habeas petition is expanded to include these reports.
A reviewing court must further "determine whether an evidentiary hearing is required," in light of the petition, the answer, the transcript and record of state court proceedings, and any expanded record evidence. See Rule 8, Rules Governing 2254 Cases. If a hearing is not required, "the judge shall make such disposition of the petition as justice shall require." The facts presented in the record and transcripts of the state court proceedings, the reports of Drs. Hart and Hagan, and the arguments presented in the pleadings and at oral argument point persuasively to the conclusion that an evidentiary hearing is not required to address the claims raised by Cardwell in his petition. Accordingly, Cardwell's request for an evidentiary hearing is denied.
IV.
Cardwell's petition seeks federal habeas corpus relief from his conviction and sentence of death, both of which Cardwell contends are unconstitutional. Before considering the merits of this petition, threshold questions are presented with respect to both exhaustion and the appropriate standard of review.
A.
The first threshold question is exhaustion. Section 2254 provides that, except in limited circumstances not applicable here,[20] federal habeas relief may not be granted unless an applicant has exhausted *1013 the remedies available in state courts[21] Exhaustion under 2254 requires a petitioner to avail himself of all avenues of state relief such that he has no right remaining "under the law of the State to raise, by any available procedure, the question presented." See 28 U.S.C. 2254(c).
Cardwell contends that every claim in the instant petition has been fully exhausted by having been presented to the state courts either at trial, on appeal, or in the state habeas proceeding. The Commonwealth disagrees in part, disputing whether each of the claims in the petition were presented to the state courts on appeal or in the state habeas petition. Yet, this dispute does not affect the exhaustion inquiry. Cardwell's direct appeal and his state habeas petition were denied and Cardwell has no further state habeas opportunities available. See Va. Code 8.01-654.1.[22] Thus, even assuming that Cardwell has failed to present a claim to the state courts on appeal or in the state habeas petition, this claim is now procedurally barred from further consideration in state court. See Bassette v. Thompson, 915 F.2d 932, 936-37 (4th Cir.1990), cert. denied, 499 U.S. 982, 111 S. Ct. 1639, 113 L. Ed. 2d 734 (1991)(concluding that Virginia law bars courts from considering claims that could have been raised in earlier proceeding). Indeed, the Commonwealth agrees that all of Cardwell's viable claims are exhausted. Thus, notwithstanding any dispute whether claims raised in the instant petition were raised in Cardwell's state proceedings, it is true, as the parties agree, that the exhaustion requirement of 2254(b) is satisfied.
B.
The appropriate standard of review is the second threshold question presented. Section 2254(d) establishes the standard of review to be applied by a federal court considering a state prisoner's petition for federal habeas relief. This section mandates deference to state court decisions on claims adjudicated on the merits in the state court, and allows a federal court to grant habeas relief only where the state court's resolution of a claim (i) is contrary to, or an unreasonable application of, clearly established federal law; or (ii) is based on an unreasonable determination of the facts in light of the evidence presented in the state court proceeding.[23] For the purposes of the instant petition, Cardwell contends that the Supreme Court of Virginia's denial of his ineffective assistance claims constitutes an unreasonable application of Strickland to the facts of his case. Thus, the applicable standard of review here is established in 2254(d)(1), which permits federal habeas corpus relief where a state court decision is "an unreasonable application of ... clearly established *1014 Federal law, as determined by the Supreme Court of the United States."[24]
Courts have adopted two different interpretations of the standard of review required by the "unreasonable application" clause of (d)(1), namely, de novo review[25] or a more deferential "reasonableness" review.[26] The latter interpretation of the standard of review is persuasive given the plain meaning and purpose of the statute. Section 2254(d)(1) authorizes federal habeas relief where a state court's application of facts to clearly established federal law is "unreasonable." Thus, it is pellucidly clear that the relevant question under the "unreasonable application" clause is whether a state court's application of law to facts was "reasonable." Moreover, this interpretation is consistent with 2254(d)(1)'s underlying purpose, namely, to ensure that "the grave remedy of upsetting a judgment entered by another judicial system after full litigation is reserved for grave occasions." Lindh v. Murphy, 96 F.3d 856, 867-74 (7th Cir.1996) (en banc), rev'd on other grounds, ___ U.S. ____, 117 S. Ct. 2059, 138 L. Ed. 2d 481 (1997). Accordingly, the Supreme Court of Virginia's denial of Cardwell's ineffective assistance claims must not be disturbed unless this decision is unreasonable.[27]
Indeed, Cardwell does not dispute that the "reasonableness" standard of review is appropriate pursuant to 2254(d)(1). Rather, Cardwell contends that 2254(d) does not apply to any of his claims given that there was no adjudication on the merits of these claims in the Supreme Court of Virginia.[28] In support, Cardwell relies on the facts (i) that there was no oral argument or evidentiary hearing with respect to his state habeas petition, and (ii) that his state habeas petition was denied in a two sentence order.[29] Thus, by Cardwell's lights, a review of the state habeas decision for "reasonableness" would require the reviewing court to engage in rank speculation with respect to the basis of that decision. Accordingly, Cardwell contends that the review of his claims denied in the state court proceeding must be de novo.[30]
This contention is unpersuasive. Section (d)(1) applies to any claim adjudicated on the merits in state court. The summary order of the Supreme Court of Virginia articulates *1015 that one claim, claim III, was rejected as procedurally defaulted,[31] and that the court found "no merit in other complaints raised by petitioner." The "other complaints" raised in Cardwell's state habeas petition included several ineffective assistance claims, including the claims raised in the instant petition, and a prosecutorial misconduct claim. These claims were fully briefed by Cardwell and the Commonwealth, and the Supreme Court of Virginia specifically stated in its summary order that the remaining claims had "no merit." Thus, the order, while brief, compels the conclusion that the Supreme Court of Virginia analyzed Cardwell's ineffective assistance claims under Strickland and found that these claims failed Strickland's two-part test.[32] Accordingly, Cardwell's Strickland claims were adjudicated on the merits in state court, and (d)(1) applies.
Of course, where, as here, there was no opinion disclosing the Supreme Court of Virginia's application of federal law to the facts of the case, the practical significance of (d)(1)'s deferential standard of review is lessened. A federal district court is required to review a state court's application of federal law for "reasonableness." But where, as here, that application is not explicated in argument or opinion, such a review is not possible. It would be mere speculation to assume that the state court adopted all or any of the Commonwealth's arguments in denying the claims in Cardwell's petition. For example, the Supreme Court of Virginia could have determined that Cardwell's ineffective assistance claims failed either because trial counsel's performance was reasonable, or because no prejudice resulted from any errors. Where, as here, there is no indication of how the state court applied federal law to the facts of a case, a federal court must necessarily perform its own review of the record. Should the federal court conclude that the applicant has stated a viable claim under clearly established United States Supreme Court precedent, then this conclusion is strong evidence that the state court's summary decision was "unreasonable."[33] Thus, on the facts of this case, the distinction between de novo review and "reasonableness" review becomes less significant.
V.
Cardwell asserts that his conviction and sentence is fatally infected with five constitutional infirmities falling into two categories. Specifically, Cardwell asserts (i) ineffective assistance of counsel, alleging three instances of unreasonable failures by trial counsel, and (ii) denial of due process, alleging two constitutional errors in his sentencing. The Commonwealth moves to dismiss the 2254 petition, contending that none of Cardwell's claims are an appropriate basis for relief.
A. Ineffective Assistance of Counsel
Cardwell contends that he was denied the effective assistance of counsel guaranteed by the Constitution because (i) trial counsel's performance fell below an objective standard of reasonableness, and because (ii) there is a reasonable probability that, but for trial counsel's unreasonable performance, he would not have been convicted or, in the alternative, would not have received the death penalty. See Bell, 72 F.3d at 427 (citing Strickland, 466 U.S. at 688, 694, 104 *1016 S.Ct. at 2064-65, 2068). Specifically, Cardwell asserts three errors of trial counsel that meet this standard. Each is separately addressed.
1. Trial Counsel's Failure to Present Mental Health Evidence
Cardwell's first claim regarding the performance of his counsel concerns trial counsel's failure to present mental health evidence in mitigation of punishment at the sentencing phase of the trial.
Trial counsel Geary was appointed on May 20, 1993, and co-counsel McGarvey was appointed in June 1993. While mental health experts were apparently contacted as early as mid-June 1993, it is undisputed that trial counsel did not locate an expert willing to evaluate Cardwell until August, approximately one month before the September 7 trial date. Moreover, on August 3, when Dr. Thomas, the mental health expert selected by Cardwell's counsel was appointed, trial counsel failed to ascertain that Dr. Thomas would be unable to complete his evaluation in time for the trial because of a planned vacation. These errors led to trial counsel's failure to develop mental health evidence for the purposes of mitigation at the sentencing phase. Moreover, trial counsel learned on August 3 that Thomas would be on vacation until August 25 and subsequently learned that Thomas would require one to one and one-half months to prepare an evaluation upon his return, thereby pushing the expected completion of the evaluation well beyond the September 7 trial date. Yet, trial counsel filed no motion for a continuance until August 23. And this notwithstanding the fact that the trial judge, at the granting of a prior continuance, had put counsel on notice that further motions and possible delays should be brought "promptly to the Court's attention."
Trial counsel's performance fell below the objective standard of reasonableness in light of prevailing professional norms when trial counsel (i) failed to secure the services of a mental health expert in a timely fashion, and (ii) failed to move for a continuance in a timely fashion when counsel's delay jeopardized the ability of the appointed expert to prepare an evaluation in time for trial. An attorney has a duty, in a capital case, to investigate all possible avenues for a defense to or mitigation of an offense.[34] Cardwell's trial counsel, whether through the delay in securing expert assistance or the delay in seeking a continuance, failed to prepare evidence of Cardwell's mental health background, a factor explicitly recognized as a possible mitigating factor in the Virginia death penalty statute.[35] This failure is not absolved by the strong presumption of correctness afforded tactical decisions. See Baxter, 45 F.3d at 1513. It is not the product of any tactical decisions. Had counsel developed Cardwell's background and history and chosen not to present such testimony, then this decision would be entitled to some deference. But that is not this case. Trial counsel clearly thought that Cardwell's mental health and history was relevant to his sentencing, hence counsel's efforts, albeit tardy, to obtain a report and a continuance. The failure to acquire such a report in time *1017 for trial is, on the facts of this case, below an objective standard of reasonableness in light of prevailing professional norms. See Bell, 72 F.3d at 427.
But the Strickland analysis does not end with this conclusion. Yet to be determined is the issue of prejudice, namely, whether there is a "reasonable probability that, but for counsel's unprofessional errors, the result of the proceedings would have been different." Strickland, 466 U.S. at 694, 104 S.Ct. at 2068. In this context, the question is whether there is a reasonable probability that Cardwell would have not received the death penalty[36] had trial counsel presented mental health evidence in mitigation of the offense at the sentencing phase of trial.
The Commonwealth sought to prove the existence of two aggravating factors at the capital sentencing phase of trial, namely, (i) the vileness of the crime, and (ii) Cardwell's future dangerousness. The jury's sentence of death was based on its finding that the offense was outrageously and wantonly vile and that death was therefore warranted notwithstanding consideration of the evidence in mitigation. The jury's sentence of death was not based on "future dangerousness." Accordingly, to satisfy the prejudice prong of Strickland, Cardwell must show a "reasonable probability" that the presentation of mental health evidence at the sentencing phase of trial would have either (i) rebutted the vileness of the murder of Brown, or (ii) mitigated the capital offenses sufficient to convince the jury that the death sentence was inappropriate notwithstanding the vileness of Cardwell's crimes.
Cardwell has now had the opportunity to expand the record by introducing expert mental health reports from Drs. Hagan and Hart that forecast the evidence that would have been presented to the jury in the sentencing phase of Cardwell's trial, had trial counsel investigated Cardwell's mental health and background in a timely fashion. In light of the proffers and conclusions in these expert reports, there is no reasonable probability that the jury would have spared Cardwell from the death penalty on the "vileness" factor had this evidence been presented at trial. The report by Dr. Hagan, a clinical psychologist, concludes that the absence of mental health testimony "may have ... deprived [the jury] of the contextual framework of the offense," impairing the jury's exercise of its sentencing discretion. Yet, Hagan concedes that his report "draws heavily upon future dangerousness and, more importantly, future non dangerousness." (emphasis in original). In essence, Hagan contends that mental health evidence would have provided a context for the jury to assess the risk of Cardwell's future dangerousness in the prison environment. Even assuming, arguendo, that Hagan's conclusion is correct concerning the importance of mental health evidence to the jury's assessment of future dangerousness, there is no "reasonable probability" that Cardwell's sentence would have been different had such information been presented because the jury recommended a sentence of death on the vileness of the crime, not future dangerousness. Thus, the "context" that Hagan concludes was absent from the jury's deliberation was irrelevant to the jury's sentence of death. Accordingly, trial counsel's failure to present such "context" did not prejudice Cardwell, and cannot form the basis for a Strickland claim.
The report by Dr. Hart, a neuropsychologist, concludes that an evaluation of Cardwell indicates brain dysfunction and an undiagnosed nonverbal learning disability, possibly resulting from a childhood concussion combined with years of drug and alcohol abuse. As a result of such dysfunction and disability, Hart concludes that Cardwell would likely have experienced:
(1) negative feedback from others as a result of his learning disability;
(2) poor self-esteem and a lowered sense of competence; and
*1018 (3) "difficulty accommodating to novel events, adapting to complex situations, and appreciating incongruities and nonverbal cues in social situations."
Hart's testimony, at most, might have influenced the jury's determination of whether Cardwell would be dangerous in the future.[37] For example, Hart seems to suggest that with diagnosis and treatment for substance abuse and the learning disability, the risk of Cardwell's future dangerousness would be reduced. The jury's sentence of death, however, was based on the vile and outrageous manner in which Cardwell murdered Brown. "Vileness" factor is defined as "torture, depravity of mind or aggravated battery to the victim." Va. Code Ann. 19.2-264.4(c). Cardwell's capital crimes fit squarely within this definition. Brown was robbed, kidnapped, and held at gunpoint while he pled for his life. Deaf to these pleas, Cardwell cut Brown's throat and wrists, and when Brown did not die as a result of these wounds, Cardwell shot Brown twice in the back of the head execution style. Then Cardwell left the body in the woods. Cardwell's behavior clearly amounts to "torture" and "aggravated battery" and his crimes reflect "depravity of mind." Hart's report does not rebut this conclusion. Indeed, there is no logical connection between the unrebutted "vileness" of Cardwell's crimes and the mental health evidence presented by Dr. Hart. Thus, there is no "reasonable probability" that the presentation of mental health evidence such as the report of Dr. Hart would have rebutted the "vileness" of the crime, thereby convincing the jury that Cardwell's conduct "was not at the core of the statute's contemplation." Fitzgerald, 943 F.2d at 470.
To demonstrate prejudice, then, Cardwell must show that there is a "reasonable probability" that the presentation of Dr. Hart's conclusions would have provided evidence in mitigation of Cardwell's offense sufficient to convince a jury that the death sentence was inappropriate, notwithstanding the "vileness" of Brown's murder. Cardwell cites no circuit authority in which a failure to present mental health testimony at a sentencing phase of trial has been found prejudicial. Indeed, the failure to present such evidence has consistently been held to fall short on the second prong of the Strickland.[38] Here, too, failure to present the expert mental health evidence in mitigation did not prejudice the sentencing phase of Cardwell's trial.
The jury in this case was aware of Cardwell's drug history and aware, through the testimony of his grandmother, that Cardwell had suffered parental neglect as a child. Nonetheless, the jury found that Brown's murder was wanton and vile in a manner which outweighed the circumstances in mitigation, and sentenced Cardwell to death. There is no "reasonable probability" that this conclusion would have changed had trial counsel presented the jury with the evidence proffered by Dr. Hart. Hart does not address Cardwell's state of mind at the time of Brown's murder, nor does Hart offer any evidence of a lessened culpability in that offense. While Cardwell may well have had a learning disability and difficulty adapting to novel situations, this "mitigating" evidence falls far short of creating a "reasonable *1019 probability" that the jury would not have sentenced Cardwell to death based on the "vileness" of Brown's murder had counsel presented mental health testimony at trial.
Accordingly, Cardwell cannot meet the prejudice prong of Strickland, and trial counsel's failure to present mental health evidence at trial does not provide a basis for federal habeas relief.
2. Trial Counsel's Efforts to Impeach the Testimony of Richard Claiborne
Cardwell's second claim regarding the effectiveness of trial counsel concerns the cross-examination and impeachment of Richard Claiborne.
Claiborne, Cardwell's companion throughout events leading to Anthony Brown's murder, provided damaging testimony at trial of the details of Brown's murder. Cardwell contends that Claiborne's testimony was self-serving, given that only the "triggerman" can be convicted of capital murder in Virginia. See, e.g., Johnson v. Commonwealth, 220 Va. 146, 255 S.E.2d 525 (1979), cert. denied, 454 U.S. 920, 102 S. Ct. 422, 70 L. Ed. 2d 231 (1981). Accordingly, Cardwell contends that the impeachment of Claiborne was integral to an effective defense. By Cardwell's lights, trial counsel's cross-examination of Claiborne constitutes ineffective assistance of counsel because trial counsel (i) failed to cross-examine Claiborne sufficiently on the question whether promises were made in exchange for testimony; (ii) failed to impeach Claiborne with a prior statement made to police; and (iii) failed to impeach Claiborne with documentary evidence concerning gun purchases.
The Supreme Court, in Strickland, articulated a highly deferential standard for reviewing the reasonableness of a counsel's performance, recognizing the inherent difficulties in evaluating a performance through the "distorting effects" of hindsight. Strickland, 466 U.S. at 689, 104 S.Ct. at 2065. Specifically, the Supreme Court instructed courts to "indulge a strong presumption that counsel's conduct falls within the wide range of professional assistance." Id. This is especially true with respect to tactical decisions made by counsel at trial,[39] such as the handling of witnesses,[40] which are especially vulnerable to criticism when removed from the context of a hotly contested litigation.
These principles, applied here, compel the conclusion that trial counsel's handling of Claiborne was not below an objective standard of reasonableness in light of prevailing professional norms. Trial counsel thoroughly cross-examined Claiborne with respect to both his credibility and his motivation for testifying in Cardwell's trial. Claiborne was asked about ways in which he might benefit from testifying against Cardwell, inconsistencies in his statement, his prior record, lies he originally told police, and contradictions in Claiborne's account of gun purchases. While the record clearly reflects that trial counsel touched on each of the issues raised here by Cardwell, Cardwell contends that trial counsel was unreasonable in failing to "follow through" on these lines of questioning using specific documents for more effective impeachment. While Cardwell's federal habeas counsel may well have taken a different approach in the cross-examination of Claiborne, trial counsel's handling of Claiborne is not objectively unreasonable. Where, as here, trial counsel conducts a thorough and meaningful cross-examination of a witness, counsel's failure to employ a trial strategy that, in hindsight, might have been more effective, does not constitute unreasonable performance for the purposes of Strickland. See Strickland, 466 U.S. at 689, 104 S.Ct. at 2065.
In the alternative, assuming, arguendo, that the cross-examination of Claiborne was objectively unreasonable, Cardwell cannot show prejudice from this error. While Claiborne was the only witness present *1020 when Brown was murdered, his testimony was corroborated by Cardwell's own admissions, as related in the testimony of Jones, Coles, and Perotte. Specifically, Jones and Coles testified that Cardwell admitted that he had cut Brown's throat and shot him in the head with Claiborne's gun. Perotte, Cardwell's girlfriend at the time, also testified that Cardwell had admitted on the night of the murder that he, not Claiborne, had killed Brown. Thus, Claiborne's testimony was supported by Cardwell's admissions to friends and associates. Accordingly, assuming that the cross-examination of Claiborne was unreasonable, there is no "reasonable probability" that Cardwell would have been acquitted had trial counsel cross-examined Claiborne as Cardwell, in hind-sight, now suggests.
In sum, trial counsel's cross-examination of Claiborne did not fall below an objective standard of reasonableness, nor did this examination prejudice Cardwell. Accordingly, this claim fails to provide a basis for federal habeas relief.
3. Trial Counsel's Failure to Present Expert Mental Health or Forensic Evidence at the Time of the Final Sentencing
Cardwell's third and final claim regarding ineffective assistance of counsel concerns trial counsel's failure to develop the evidence of Cardwell's mental health history and background for the purposes of the trial judge's mandatory review of a jury's recommendation of a sentence of death. See Va. Code Ann. 19.2-264.5.[41]
Counsel had two months between the September 9 sentencing phase at trial and the November 10 post-sentencing review of the sentence of death by the trial judge. Yet, trial counsel did not prepare and present Cardwell's mental health evaluation for the purposes of that review. Indeed, the trial judge noted the absence of mental health history that had been the basis for Cardwell's motion for a continuance, stating
[w]e are now two months since the trial date, and apparently there's still no evidence from this doctor from MCV. I think we just want to note for the record that he's had an additional two months and we still don't have any evidence.
Trial counsel contends that the failure to submit evidence from Dr. Thomas in the sentence review proceeding was a tactical decision, intended to preserve an issue for appeal with respect to the trial judge's denial of a continuance.[42]
Assuming, arguendo, that trial counsel was unreasonable is failing to prepare and present expert mental health evidence at the trial court's sentencing review, this error was not prejudicial for the purposes of Strickland. As discussed, supra, the mental health evidence now proffered by Cardwell, does not create a "reasonable probability" that a jury would have sentenced Cardwell to life imprisonment on the capital convictions had the mental health evidence been presented. For the same reasons previously elaborated, this evidence also does not create a "reasonable probability" that the trial judge would have set aside the jury's recommended sentence, for good cause shown, had the mental health evidence been presented.
In sum, Cardwell's three contentions regarding ineffective assistance of counsel fail to meet the two-prong test articulated by Strickland for ineffective assistance claims. Thus, the conclusion reached by the Supreme Court of Virginia that Cardwell's ineffective assistance claims had no merit was reasonable.[43]*1021 Accordingly, Cardwell's ineffective assistance claims provide no basis for federal habeas relief.
B. Violations of Due Process and the Protection Against Cruel and Unusual Punishment[44]
1. The "Vileness" Aggravating Factor
Cardwell claims that the Virginia statutory scheme for imposing the death penalty denies his constitutional right to due process and to be free from cruel and unusual punishment. Specifically, Cardwell contends (i) that the inclusion of "vileness" as an aggravating factor renders the Virginia statutory scheme unconstitutionally vague, and (ii) that the standard jury instruction for "vileness" does not guide the jury's discretion.
As a threshold issue, the Commonwealth contends that Cardwell cannot raise this claim in his federal habeas proceeding because it was never presented to the Supreme Court of Virginia. And with respect to this threshold procedural issue, Cardwell's two challenges to the "vileness" prong of the statutory scheme stand on different footings.
Cardwell's second assignment of error on direct appeal stated:
The trial court erred in denying defendant's Motion that the Virginia Death Penalty statutory scheme is unconstitutional in that it fails to guide the jury's discretion.
He contends that this assignment effectively appealed his constitutional "vagueness" challenges to both the Virginia statutory scheme and the jury instruction used in his case.
With respect to his due process challenge to Virginia's statutory scheme on the basis of the "vagueness" of the "vileness" factor, Cardwell has properly preserved this issue for federal habeas review. Cardwell's assignment of error on direct appeal challenged the failure of Virginia's statutory scheme to "guide the jury's discretion" with respect to the sentence of death. In its decision on Cardwell's appeal, the Supreme Court of Virginia rejected this challenge in a portion of the Supreme Court of Virginia's opinion titled "pretrial matters." See Cardwell, 450 S.E.2d at 150 (citing authority). And before trial, Cardwell had raised an objection to the Virginia statutory scheme for imposing the death penalty, in part, on the basis of the vague nature of the "vileness" factor. Given that this claim was raised and rejected on direct appeal, it is preserved for consideration in the federal habeas petition.
In contrast, Cardwell has not properly preserved his claim for federal habeas review with respect to the challenge to the jury instruction on "vileness". On direct appeal, Cardwell challenged a jury instruction from the penalty phase of his trial on the basis that the instruction did not inform the jury that it could impose life in prison even where an aggravating factor is found. See Cardwell, 450 S.E.2d at 154. Cardwell did not raise a specific objection to the "vileness" instruction on direct appeal and, thus, cannot raise this issue here. See Duncan v. Henry, 513 U.S. 364, 115 S. Ct. 887, 130 L. Ed. 2d 865 (1995); Gray v. Netherland, 99 F.3d 158, 162 (4th Cir.1996), cert. denied, ___ U.S. ____, 117 S. Ct. 1102, 137 L. Ed. 2d 234 (1997).
Turning to the merits of Cardwell's claims, Cardwell's challenge to the Virginia statutory scheme concerning the vague nature of the "vileness" factor provides no basis for habeas relief. The Fourth Circuit has consistently sustained the validity of the "vileness" factor in Virginia against vagueness challenges. See, e.g., Barnes v. Jabe, 71 F.3d 495, 496 (4th Cir.1995) (citing authority). Accordingly, the "vileness" factor is not unconstitutionally vague and its application in Cardwell's case does not amount to a constitutional violation. Moreover, even were Cardwell's objection to the jury instruction preserved, it would not form the basis *1022 for federal habeas relief. The jury instruction tracked the precise statutory language with respect to the "vileness" aggravating factor, language that uniformly has been sustained against constitutional "vagueness" challenges. See Barnes, 71 F.3d at 496. Thus, to the degree that Cardwell's challenge to the "vileness" factor in capital cases is preserved, it is foreclosed by controlling authority in this circuit.
2. Meaningful and Rational Review of the Sentence of Death on Direct Appeal, Pursuant to Va. Code Ann. 17-110.1.
Cardwell's final contention challenges the Virginia statutory death penalty scheme, contending that the scheme does not provide meaningful and rational review of a sentence of death. Specifically, Cardwell contends that, in reviewing a sentence of death, the Supreme Court of Virginia (i) does not consider mitigating circumstances, (ii) invariably concludes that the jury was entitled to find that the sentence of death is appropriate, and (iii) never concludes that a finding of an aggravating factor is erroneous.
This claim was raised in Cardwell's state habeas proceeding as "allegation III" and was explicitly denied as barred by the rule in Slayton v. Parrigan, 215 Va. 27, 205 S.E.2d 680 (1974). In Slayton, the Supreme Court of Virginia concluded that a petitioner has no standing to raise claims in state habeas proceedings that could have been, but were not, raised and adjudicated at trial and direct appeal. Id. 205 S.E.2d at 682. Thus, the Supreme Court of Virginia concluded that Cardwell's challenge to the review of his death sentence was procedurally barred. Where a habeas petitioner defaults a federal claim in state court pursuant to a state procedural rule, federal review of the defaulted claim is barred. Spencer v. Murray, 18 F.3d 229, 232 (4th Cir.1994).[45] Accordingly, Cardwell's challenge to the Virginia statutory scheme on the grounds that the scheme provides no meaningful review cannot form the basis for federal habeas relief.
In the alternative, even were Cardwell's claim not procedurally barred, it none-theless provides no basis for federal habeas relief. The Supreme Court of Virginia conducted a separate review of Cardwell's death sentence, as required by Va. Code Ann. 17.110.1. See Cardwell, 450 S.E.2d at 155. As a result, the Supreme Court of Virginia concluded that Cardwell's sentence of death was (i) not excessive, and (ii) not disproportionate to penalties imposed by other sentencing bodies in Virginia. Id. at 156. Accordingly, Cardwell received a review of his sentence as mandated by the Virginia statutory scheme. Controlling authority in this circuit has sustained the constitutionality of Virginia's statutory scheme for review of a death sentence. See, e.g. Buchanan v. Angelone, 103 F.3d 344, 351 (4th Cir.1996), cert. granted in part, ___ U.S. ____, 117 S. Ct. 1551, 137 L. Ed. 2d 700 (1997). Accordingly, even if Cardwell were not procedurally barred from challenging the constitutionality of the review of his sentence of death, this challenge would provide no basis for federal habeas relief.
VI.
Cardwell's petition provides no basis for federal habeas relief. Thus, the Commonwealth's motion to dismiss the petition is granted and Cardwell's petition is dismissed. Accordingly, the stay of execution entered by Order dated October 23, 1996 is vacated.
An appropriate order will enter.
NOTES
[1] The facts of this case are derived, in part, from the findings of the Supreme Court of Virginia in its review of Cardwell's trial on appeal, Cardwell v. Commonwealth, 248 Va. 501, 450 S.E.2d 146, 149-50 (1994), cert. denied, 514 U.S. 1097, 115 S. Ct. 1826, 131 L. Ed. 2d 747 (1995). See 28 U.S.C. 2254(e)(1) (state court findings of fact are presumed correct for the purposes of federal habeas review, and a petitioner may overcome this presumption only with "clear and convincing" evidence). Additional background facts, including the procedural history of this matter, are derived from the file and transcript of the state court trial and direct appeal, and the file of the state habeas proceeding.
[2] Specifically, the trial judge stated that:
I want to reemphasize that the Court fully expects to try the case commencing on September 7, therefore that any additional motions or if the defense ... is not satisfied with the discovery, then I expect either party to bring those matters promptly to the Court's attention. I'm not going to be waiting until the last minute to rule on motions of this nature.
[3] Specifically, Chapman testified that she overheard Cardwell stating to an unknown third person "something to the effect that `you have to get it off on Tina [Poindexter] and Richard [Claiborne]'."
[4] Perotte and other friends of Cardwell also refer to the defendant as Xavier Brown and Dominique Marshall, other names by which Cardwell was known.
[5] Specifically, the jury fixed Cardwell's punishment at (i) life imprisonment for abduction; (ii) 20 years in prison for robbery; (iii) 10 years for the firearms offenses; and (iv) a $100,000 fine for the abduction.
[6] Virginia Code 19.2-264.2 provides that the death penalty
shall not be imposed unless the court or jury shall (1) ... find that there is a probability that the defendant would commit criminal acts of violence that would constitute a continuing serious threat to society or that his conduct in committing the offense for which he stands charged was outrageously or wantonly vile, horrible or inhuman in that it involved torture, depravity of mind or an aggravated battery to the victim; and (2) recommend that the penalty of death be imposed.
(emphasis added).
[7] Indeed, on direct appeal, the Supreme Court of Virginia considered whether the trial judge erred in denying a continuance for Cardwell to acquire Dr. Thomas' evaluation. The Supreme Court of Virginia stated that,
[h]ad the examination been performed, we might be in a position to say whether Cardwell's rights were prejudiced. As the record stands, however, we are left to mere speculation. Under the circumstances, therefore, we cannot say that the trial court abused its discretion in denying the second continuance.
Cardwell, 450 S.E.2d at 152. Thus, the court recognized the importance of a complete mental evaluation to the determination of the question whether Cardwell was prejudiced by the failure to present such an evaluation.
[8] See The Antiterrorism and Effective Death Penalty Act of 1996, Pub.L. No. 104-132, 110 Stat. 1214 (1996) ("AEDPA").
[9] Section 2254(e)(2) provides that:
[i]f an applicant has failed to develop the factual basis of a claim in State court proceedings, the court shall not hold an evidentiary hearing on the claim unless the applicant shows that ÔÇö
(a) the claim relies on ÔÇö
(i) a new rule of constitutional law, made retroactive to cases on collateral review by the Supreme Court, that was previously unavailable; or
(ii) a factual predicate that could not have been previously discovered through the exercise of due diligence; and
(B) the facts underlying the claim would be sufficient to establish by clear and convincing evidence that but for constitutional error, no reasonable fact finder would have found the applicant guilty of the underlying offense.
[10] It is unresolved in this circuit whether the "innocence" requirement of 2254(e)(2)(B) requires a petitioner facing the death penalty to demonstrate innocence of the crime of which he was convicted or merely "innocence of the death penalty." See, e.g., Sawyer v. Whitley, 505 U.S. 333, 112 S. Ct. 2514, 120 L. Ed. 2d 269 (1992)(pre-AEDPA habeas case holding that relief is warranted where there is reasonable probability that, but for constitutional errors, petitioner would not have been sentenced to death). The clear language of subsection (e)(2)(B) commands that a petition demonstrate by clear and convincing evidence that he is "not guilty of the underlying offense." This language strongly suggests that the "innocence" requirement is not satisfied where a petitioner can show only "innocence of the death penalty." See Kornahrens v. Moore, No. 96-582 (4th Cir. July 18, 1996) (Hamilton, J. concurring); cf. Hope v. United States, 108 F.3d 119, 120 (7th Cir.1997)(holding that identical language in 2254(b)(2)(B)(ii) refers only to the offense of conviction and does not permit attack on a sentence); Burris v. Parke, 116 F.3d 256, 258-59 (7th Cir.1997) (reserving question whether the interpretation adopted in Hope applies for purposes of 2254(e)(2)). Given the conclusion that 2254(e)(2) does not apply here, the question whether demonstrating "innocence of the death penalty" satisfies (e)(2)(B) is not addressed.
[11] See Love v. Morton, 112 F.3d 131, 136 (3rd Cir.1997); Washington v. Mazurkiewicz, 1997 WL 83771 (E.D.Pa. Feb. 25, 1997).
[12] See Burris v. Parke, 948 F. Supp. 1310, 1324-27 (N.D.Ind.1996)(citing Bean v. Calderon, No. CIV S-90-0648 WBS/GGH, at 8 (N.D.Cal. May 15, 1996)), aff'd on other grounds, 116 F.3d 256 (7th Cir.1997). Although the Seventh Circuit panel affirmed the district court conclusion, in Burris, that an evidentiary hearing was not required, the panel ruled that 2254(e)(2) did not apply in that case, thus rejecting the district court's "failure for any reason" interpretation of 2254(e)(2). See Burris, 116 F.3d at 258-59.
[13] This interpretation is evidently shared by President Clinton, who, at the occasion of signing the amendments that added 2254(e)(2) to the federal habeas statute, stated that
If [ 2254(e)(2)] were read to deny litigants a meaningful opportunity to prove the facts necessary to vindicate Federal rights, it would raise serious constitutional questions. I do not read it that way. The provision applies to situations in which "the applicant has failed to develop the factual basis" of his or her claim. Therefore, section 104(4) is not triggered when some factor that is not fairly attributable to the applicant prevented evidence from being developed in State court.
(emphasis in original). Statement of President William J. Clinton on Signing the Antiterrorism and Effective Death Penalty Act of 1996 (April 24, 1996).
[14] See also Burris, 116 F.3d at 258-59 ("`Failure' implies omission ÔÇö a decision not to introduce evidence when there was an opportunity or a decision not to seek an opportunity.").
[15] In those circumstances, (e)(2) applies, but (e)(2)(A) can provide an excuse for this failure such that an evidentiary hearing may be available. See 28 U.S.C. 2254(e)(2).
[16] See Burris, 116 F.3d at 258-59 ("To be a `failure' under [ 2254(e)(2)] the deficiency must reflect something the petitioner did or omitted."); Jones, 114 F.3d at 1013 ("It is clear that Jones did not `fail[] to develop' the factual basis of either of his claims; rather, the state courts denied him the opportunity to develop the facts by failing to hold an evidentiary hearing.").
[17] As a practical matter, this result is necessary to permit adequate review of state court applications of federal law under 28 U.S.C. 2254(d)(1). Otherwise, "a state could insulate its decision from collateral attack by refusing to grant evidentiary hearings in its own courts." See Burris, 116 F.3d at 258-59. While 2254, as amended, reflects considerable deference to state court decisions, the statute does not reflect Congressional intention to allow state courts to insulate their decisions on federal law from federal review.
[18] It appears from the record that Dr. Hart had prepared mental health evidence on Cardwell during the state habeas proceeding, presumably in hopes that he would be appointed as an expert in that proceeding. This evidence was never presented in the state habeas proceeding. Thus, the Commonwealth contends that the failure to present Hart's evidence during the state habeas is an omission by Cardwell that triggers (e)(2) notwithstanding the interpretation of that section adopted here. This is unpersuasive. Cardwell's motions in the state habeas proceeding for the appointment of experts and for an evidentiary hearing were summarily denied. At this point, it was clear that the Supreme Court of Virginia would not accept Cardwell's expert testimony. Cardwell is not subject to (e)(2) by reason of his failure to provide the state court with evidence that the court had expressly declined to accept or consider.
[19] Specifically, Rule 7 provides, in relevant part, that
(a) ... the judge may direct that the record be expanded by the parties by the inclusion of additional materials relevant to the determination of the merits of the petition.
(b) ... The expanded record may include, without limitation, letters predating the filing of the petition in the district court, documents, exhibits, and answers under oath ... to written interrogatories propounded by the judge.
[20] Specifically, 2254(b)(1) provides that:
[a]n application for a writ of habeas corpus ... shall not be granted unless it appears that ÔÇö
(A) the applicant has exhausted the remedies available in the courts of the State; or
(B)(i) there is an absence of available State corrective process; or
(ii) circumstances exists that render such process ineffective to protect the rights of the applicant.
While an application cannot be granted where a petitioner fails to exhaust state remedies, an application can be denied notwithstanding such a failure. See 28 U.S.C. 2254(b)(2).
[21] While chapter 154 of title 28 includes a special exhaustion provision for habeas petitions brought by prisoners in state custody subject to a capital sentence, see 28 U.S.C. 2264; see generally 28 U.S.C. 2261, et seq., this chapter is inapplicable given that Virginia is not an "opt-in" state, pursuant to 2261. See Cardwell v. Netherland, No: 1:96cv1516 (Order dated October 23, 1996); see also Satcher v. Netherland, 944 F. Supp. 1222 (E.D.Va.(Richmond)1996). Accordingly, 2254 provides the exhaustion requirements that govern the instant petition.
[22] Virginia Code 8.01-654.1 provides, in relevant part, that
[n]o petition for a writ of habeas corpus filed by a prisoner held under a sentence of death shall be considered unless it is filed within sixty days after the earliest of: (i) a denial by the United States Supreme Court of a petition for a writ of certiorari to the judgment of the Supreme Court of Virginia on direct appeal....
(emphasis added). The United States Supreme Court denied Cardwell's petition for certiorari on his direct appeal by Order dated May 1, 1995. See 514 U.S. 1097, 115 S. Ct. 1826, 131 L. Ed. 2d 747 (1995). Thus, Cardwell is time barred from filing future habeas petitions in state courts.
[23] Specifically, that section provides that
An application for a writ of habeas corpus on behalf of a person in custody pursuant to the judgment of a State court shall not be granted with respect to any claim that was adjudicated on the merits in State court proceedings unless the adjudication of the claim ÔÇö
(1) resulted in a decision that was contrary to, or involved an unreasonable application of, clearly established Federal law, as determined by the Supreme Court of the United States; or
(2) resulted in a decision that was based on an unreasonable determination of the facts in light of the evidence presented in the State court proceeding.
See 28 U.S.C. 2254(d).
[24] Section 2254(d)(1) also permits federal habeas relief where a state court adjudication of a claim is "contrary to ... clearly established Federal law...." Cardwell does not contend that the Supreme Court of Virginia did not apply Strickland, but rather that the Supreme Court of Virginia's application of Strickland to the facts of his case was erroneous.
[25] See Buehl v. Vaughn, 1996 WL 752959, at *7 (E.D.Pa. Dec. 31, 1996); see generally, Note, Rewriting the Great Writ: Standards of Review for Habeas Corpus Under the New 28 U.S.C. 2254, 110 Harv. L. Rev. 1868, 1973-74 (1997) (discussing different interpretations of 2254(d), as amended).
[26] See Lindh v. Murphy, 96 F.3d 856, 867-874 (7th Cir.1996)(en banc), rev'd on other grounds, ___ U.S. ____, 117 S. Ct. 2059, 138 L. Ed. 2d 481 (1997); see also Perez v. Marshall, 946 F. Supp. 1521, 1533 (S.D.Cal.1996). In Lindh, the Seventh Circuit sitting en banc concluded that (d)(1) established two standards of review, namely a "respectful" de novo review of legal issues, addressed by the "contrary to" clause of (d)(1), and a "reasonableness" review of mixed issues of law and fact, addressed by the "unreasonable application" clause of (d)(1). Lindh, 96 F.3d at 868-69. Given that Cardwell's petition relies on an "unreasonable application" of Strickland, the appropriate standard of review under Lindh would be a "reasonableness" review. Id. at 870-71.
[27] In Lindh, the Seventh Circuit defines a "reasonable" decision as "a responsible, thoughtful answer reached after a full opportunity to litigate." Id. at 871.
[28] Section 2254(d) provides that its standard of review applies to decisions of a state court on "any claim that was adjudicated on the merits in State court proceedings...."
[29] The Order denying Cardwell's state habeas petition stated only:
Applying the rule in Slayton v. Parrigan, 215 Va. 27, 205 S.E.2d 680 (1974), to petitioner's allegation III, and finding no merit in other complaints raised by petitioner, the Court is of opinion that the writ of habeas corpus should not issue as prayed for. It is therefore ordered that the said petition be dismissed.
[30] See generally Hall v. Washington, 106 F.3d 742, 748-50 (7th Cir.1997)(dismissing summary conclusion of state court and reviewing record de novo); United States ex rel. Gooch v. McVicar, 953 F. Supp. 1001 (N.D.Ill.1997)(relying on state court's explanation of its application of federal law for determination that the state court's application was wrong).
[31] The Supreme Court of Virginia referred to Slayton v. Parrigan, 215 Va. 27, 205 S.E.2d 680 (1974), cert. denied, 419 U.S. 1108, 95 S. Ct. 780, 42 L. Ed. 2d 804 (1975). In this case, the Supreme Court of Virginia concluded that petitioners have no standing to raise claims in state habeas proceedings that could have been, but were not, raised and adjudicated at trial and direct appeal. Id. 205 S.E.2d at 682.
[32] See Wainwright v. Witt, 469 U.S. 412, 421, 105 S. Ct. 844, 850-51, 83 L. Ed. 2d 841 (1985) (federal courts should presume that state court applied correct legal standard unless affirmative evidence to the contrary); Hennon v. Cooper, 109 F.3d 330, 335 (7th Cir.1997) (holding that "perfunctory" state court rulings are nonetheless evaluated pursuant to 2254(d) for "reasonableness").
[33] See generally Lindh, 96 F.3d at 871 ("By posing the question whether the state court's treatment was `unreasonable,' 2254(d)(1) requires federal courts to take into account the care with which the state court considered the subject."). But see Hennon, 109 F.3d at 335 (describing Lindh as "realism", but holding that a state court decision is reasonable where it is "minimally consistent with the facts and circumstances" notwithstanding a state court's "deficient" discussion of its reasoning).
[34] See, e.g., Baxter v. Thomas, 45 F.3d 1501, 1513 (11th Cir.1995), cert. denied, ___ U.S. ____, 116 S. Ct. 385, 133 L. Ed. 2d 307 (1995); Coleman v. Brown, 802 F.2d 1227, 1233 (10th Cir.1986), cert. denied, 482 U.S. 909, 107 S. Ct. 2491, 96 L. Ed. 2d 383 (1987).
[35] For example, Va. Code Ann. 19.2-264.4 states, in relevant part, that
B. In a case of trial by jury, evidence may be presented as to any matter which the court deems relevant to sentence.... Evidence which may be admissible ... may include the circumstances surrounding the offense, the history and background of defendant, and other facts in mitigation of the offense....
(emphasis added). Moreover, Va. Code Ann. 19.2-264.3:1 provides for the appointment of mental health experts in death penalty cases for the preparation and presentation of
information concerning the defendant's history, character, or mental condition, including (i) whether the defendant acted under extreme mental or emotional disturbance at the time of the offense; (ii) whether the capacity of the defendant to appreciate the criminality of his conduct or to conform his conduct to the requirements of the law was significantly impaired at the time of the offense; and (iii) whether there are any other factors in mitigation relating to the history or character of the defendant or the defendant's mental condition at the time of the offense.
[36] Cardwell does not and cannot contend there is a reasonable probability that he would not have been convicted of the murder had the mental health evidence been presented. Even so, the Strickland prejudice analysis properly applies to a capital sentencing phase of a trial. See, e.g., Strickland, 466 U.S. at 694, 104 S.Ct. at 2068 (prejudice requires reasonable probability that result of proceeding would have been different).
[37] Indeed, even this assumption may be assuming too much. In Barnes v. Thompson, 58 F.3d 971 (4th Cir.1995), the petitioner was sentenced to death under the "vileness" prong of Virginia's death penalty statute, and complained of trial counsel's failure to adduce evidence of petitioner's mental impairment in mitigation of the vile nature of his conduct. Id. at 980-81. The panel concluded that even had such evidence mitigated the "vileness" of the offense conduct, it might have increased the likelihood that a sentencing body would have found future dangerousness. Id. at 981. Accordingly, the panel found no "reasonable probability" that the failure to introduce mitigating evidence of petitioner's mental condition was prejudicial for the purposes of Strickland. Id.
[38] See, e.g., Poyner v. Murray, 964 F.2d 1404, 1421 (4th Cir.), cert. denied, 506 U.S. 958, 113 S. Ct. 419, 121 L. Ed. 2d 342 (1992) (failure to present evidence of low intelligence did not prejudice sentencing phase); Fitzgerald v. Thompson, 943 F.2d 463, 470 (4th Cir.1991), cert. denied, 502 U.S. 1112, 112 S. Ct. 1219, 117 L. Ed. 2d 456 (1992)(testimony from mental health expert and probation officer would not have affected capital sentence based on vileness); see also Barnes v. Thompson, 58 F.3d 971, 980-81 (4th Cir.), cert. denied, ___ U.S. ____, 116 S. Ct. 435, 133 L. Ed. 2d 350 (1995)(failure to present evidence of abuse and dysfunction unlikely to satisfy Strickland second prong).
[39] See, e.g., Hutchins v. Garrison, 724 F.2d 1425, 1436 (4th Cir.1983), cert. denied, 464 U.S. 1065, 104 S. Ct. 750, 79 L. Ed. 2d 207 (1984).
[40] See, e.g., Sallie v. North Carolina, 587 F.2d 636, 640 (4th Cir.1978), cert. denied, 441 U.S. 911, 99 S. Ct. 2009, 60 L. Ed. 2d 383 (1979) ("[reasonableness] standard not intended to promote judicial second-guessing on questions of strategy as basic as the handling of a witness").
[41] In Virginia, after a jury recommends a sentence of death, a trial judge is required to direct an investigation of the defendant to determine if the death sentence is appropriate. See Va. Code Ann. 19.2-264.5. For good cause shown, a trial judge may set aside the sentence of death and impose a sentence of life in prison. Id.
[42] Specifically, trial counsel McGarvey, by affidavit, states that
[a]fter the trial court denied my repeated motions for a continuance, I made a strategic decision not to continue with the evaluation by Dr. Thomas. Based on my experience, I did not believe that the trial judge would have overturned the jury's sentencing decision on Dr. Thomas's findings. Had I continued with the evaluations, and submitted the information to the court at the final sentencing, I ran the real risk that the trial court would have found that the information would not have made a difference, thereby undercutting my claim when I took the issue up on appeal.
[43] Indeed, were de novo review of Cardwell's ineffective assistance claims appropriate, the state court decision would be correct.
[44] Cardwell concedes, with respect to both of his due process and Eighth Amendment claims that he is not entitled to federal habeas relief on the basis of these claims under controlling case law. See Initial Petition for a Writ of Habeas Corpus, at 24-25, n. 22, 23 (March 17, 1997). Cardwell raises these claims to "preserve each claim for possible future reference and relief if controlling law should change and be deemed applicable to the Petitioner's case." Id.
[45] The two exceptions to this bar, prior to the recent federal habeas amendments, were for cases of (i) cause for the default and actual prejudice to the rights of a petitioner, or (ii) where a fundamental miscarriage of justice would occur under the "actual innocence" test. See Spencer, 18 F.3d at 232 (citations omitted). Cardwell does not assert that these exceptions are applicable to his claim. Accordingly, the question whether the exceptions noted in Spencer are still applicable subsequent to the recent federal habeas amendments is immaterial and is not considered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1115553/ | 410 So.2d 355 (1982)
TIDEWATER, INC. and Lexington Insurance Company
v.
BALDWIN-LIMA HAMILTON CORPORATION, Lima Division, XYZ Insurance Company, Clark Equipment Company, ABC Insurance Company and Boyce Machinery Corporation.
No. 12482.
Court of Appeal of Louisiana, Fourth Circuit.
February 9, 1982.
Edward D. Markle and S. Reed Morgan of Adams & Reese, New Orleans, for plaintiffs-appellants.
Robert E. Kerrigan, Jr. and Jerry T. Sewell, Deutsch, Kerrigan & Stiles, New Orleans, for defendant-appellee.
Before REDMANN, SCHOTT and CIACCIO, JJ.
CIACCIO, Judge.
Plaintiffs, Tidewater, Inc. and Lexington Insurance Company, appeal the judgment sustaining the peremptory exception of prescription and dismissing their tort, redhibition, and contract claims against defendant, Boyce Machinery Corporation. We affirm.
On or about September 11, 1969 a 2000-C "Lima" crane was sold to Tidewater Marine Services, Inc. by Baldwin-Lima Hamilton Corporation, Lima Division, the manufacturer of the crane, through its local distributor, *356 Boyce Machinery Corporation ("Boyce"). The crane was shipped directly to American Marine Shipyards where it was installed on the LIFT TIDE, a ship being built by American Marine Shipyards for plaintiff, Tidewater.
In December, 1974, the crane was removed from the LIFT TIDE and attached to a dock on the Atchafalaya River. While attached to that dock, the crane failed on or about October 14, 1978, causing damage to the crane. Plaintiffs allege that the failure was due to manufacturing and/or design defects, causing damage to the crane itself and financial losses due to "down time" and "loss of use". Tidewater's insurer, Lexington Insurance Company, claims the sum of $27,922.35 under its subrogation rights for the costs of repairs to the crane, and Tidewater claims its insurance deductible of $10,000.00 together with $30,000.00 for alleged loss of use, down time and loss of profits.
On August 21, 1980 Tidewater and its insurer filed suit against Baldwin-Lima, the manufacturer of the deck crane, Boyce Machinery Corporation, the distributor of the deck crane, and their insurers alleging negligence, a redhibitory vice, and breach of contract. Defendant, Boyce Machinery Corporation, filed a peremptory exception of prescription to all claims and the District Court, after a hearing, rendered judgment maintaining the exception of prescription and dismissing, with prejudice, plaintiff's petition insofar as it applied to defendant, Boyce Machinery Corporation, from which judgment plaintiffs appealed.
On appeal appellant contends that its claim against Boyce is not prescribed under a contract theory of recovery nor is its cause of action prescribed under admiralty jurisdiction. Although appellants acknowledge that the subject crane was sold by Boyce to Tidewater for the sum of $196,454.22, with payment to be made upon delivery or approximately fifteen days after shipment and that other additional pieces of equipment were sold by Boyce to Tidewater as accessories to be used in connection with the operation of the crane, appellants contend that the transaction was not a contract of sale, subject to the usual redhibitory prescriptive period, but was a contract involving an obligation to inspect the crane after its installation, which would convert the transaction from a sale to a contract which must be controlled by a ten year prescriptive period under Article 3544 of the Louisiana Civil Code.
The record discloses that the crane and the accessory parts were shipped directly from the manufacturer's plant in Lima, Ohio to The American Marine Shipbuilding facility in New Orleans, that the crane was not shipped in one piece but had to be assembled on the ship which was then under construction, that the installation was made by the shipbuilder for the account of plaintiff and that Boyce inspected the equipment on September 29, 1970 to make certain the crane was in proper operating order and that plaintiff's employees were instructed in the proper operation and care of the crane that they had purchased. No claim is made in connection with the operation of the crane while it was attached to the vessel LIFT TIDE nor is any claim asserted that defendant Boyce had anything to do with removing the crane from LIFT TIDE in December of 1974 and attaching it to a dock on the Atchafalaya River on a facility operated by plaintiff although the record indicates that the manufacturer, Baldwin-Lima, was advised of the failure that took place on October 16, 1978 and that the manufacturer assisted in advising plaintiff how to proceed with the necessary repairs. Plaintiffs' Exhibit A introduced in the trial proceedings discloses that the manufacturer denied responsibility for the repairs and, on November 10, 1978, advised plaintiffs that the manufacturer would not accept any responsibility for the repairs even though the contention was made that the failure was caused by faulty welding that occurred when the crane was originally manufactured.
On appeal it appears that plaintiffs have abandoned their claim in redhibition under Article 2534 of the Louisiana Civil Code as this matter is not addressed in their *357 brief. Since the redhibition claim was asserted in the brief filed by appellant in the lower court we hold that the one year prescriptive period set forth in Article 2534 applies in this case since the original petition was filed some twenty-two months after the crane failed and approximately twenty-one months after plaintiffs were informed by the manufacturer that it would assume no responsibility for the repairs, and denied liability for same.
Redhibitory actions prescribe one year after the sale if the seller is in good faith. LSA-C.C. Article 2534. Redhibitory actions prescribe one year after the discovery of the vice if the seller was in bad faith. LSA-C.C. Article 2546. Under these articles suit must be brought within one year, at the latest, from the date of the discovery of the defects. Thus, any redhibitory action plaintiffs may have had against Boyce was prescribed prior to the filing of the suit.
The prescriptive period for tort actions is one year. LSA-C.C. Art. 3536. Since plaintiff had knowledge of the failure of the crane some twenty-two months prior to the filing of the suit any action in tort is void by the one year prescriptive period.
Plaintiffs' argument that their cause of action is governed by the ten year prescriptive period for an action based on a breach of contract is not supported by the record. Plaintiffs allude to a contract between Boyce and Tidewater, but no such contract is found in any of the documents included in the record. Appellants have attached exhibits to their brief which are not part of the trial court record and which cannot be considered by this Court. Blouin v. Loyola University, 325 So.2d 848 (La.App. 4th Cir. 1976). The only documentary evidence introduced on the trial of the pleas of prescription in the lower court involving defendant Boyce were various purchase orders and invoices between Tidewater and Boyce and the inspection certificate executed by one of Boyce's employees in connection with the inspection of the fully installed crane on September 29, 1970. We find that the only contract that existed between plaintiff and Boyce was a contract of sale between plaintiff as purchaser and Boyce as the local distributor in the sale of the crane to Tidewater. Although appellants cite cases in support of its contention that this sale should not be governed by the redhibition articles but was a furnish and install contract as in the cases cited by appellants, an examination of those cases indicates that they in no way support appellant's claim.
Although the subject crane may have been manufactured and assembled after the sale's transaction the documents indicate that Tidewater ordered a Lima 2000-C crane and certain accessories for which it was to pay Boyce upon delivery and there are no references to installation and assembly by Boyce or to any other contractual obligations. Although the manufacturer and distributor may have consulted with plaintiff and jointly participated in the drawing up of specifications for the crane ultimately sold by the distributor to plaintiff these actions do not change this transaction from a sales contract to an obligation to do or not to do. The mere fact that an obligor may be involved in the installation and delivery of the equipment will not change the characterization of the obligation from that of a sales contract and therefore the rules governing a sale will control. FMC Corp. v. Continental Grain Co., 355 So.2d 953 (La.App. 4th Cir. 1977). Thus, this case must be governed by the redhibition articles of the Civil Code and do not come under a contract theory of recovery.
Although appellants suggest that the case of Weathermasters Parts & Service, Inc. v. McCay, 242 So.2d 306 (La.App. 4th Cir. 1971), should be controlling, that case involved a suit based on a warranty given by the manufacturer, Trane, with the failure of the equipment taking place during the contractual warranty period. Judgment was rendered against the manufacturer-warrantor, under the specific terms of the warranty agreement. The only written obligation *358 presented by plaintiff is Baldwin-Lima's six month warranty that the crane was merchantable and free from defects in material and workmanship. This was not a contract between Boyce and Tidewater nor did the failure occur during the warranty period. Any obligations which existed between the manufacturer and appellants cannot be imposed upon defendant, Boyce. Finally, plaintiffs allege that the defect and damage to the crane resulted from negligence on the part of the seller and manufacturer for improper inspection which was part of the original contract between Tidewater and Boyce. If Boyce had an obligation to inspect the equipment after its installation upon the LIFT TIDE that inspection was incidental to the sale of the crane and does not change the nature of the transaction from one of sale to one of contract.
Tidewater, on appeal, argues that general maritime jurisdiction applies in this case and, under Federal Maritime Law or admiralty jurisdiction, that this court must apply Federal procedure and substantive law. Further, that the "doctrine of laches" will control the time in which an aggrieved party has to bring its claims before a tribunal and that the prescriptive period for maritime torts will be governed by the Federal doctrine of laches and not by the one year prescriptive period mandated by State law.
Boyce argues that there is no basis in law for plaintiffs' assertion of the applicability of maritime law. Plaintiff contends that the crane was originally designed for maritime activities and was actually performing traditional maritime work on the Atchafalaya River at the time of the accident as the crane was in the process of lifting a barge from the Atchafalaya River when the boom failed, causing the barge and boom to fall into the navigable waters. It is not disputed that the crane was originally supplied to Tidewater to become part of a ship being built for Tidewater by American Marine Shipyards, and further, that at the time of the accident, the crane was permanently affixed to a dock located on the Atchafalaya River.
On the issue of maritime jurisdiction this Court finds persuasive a decision by the United States District Court for the Southern District of Texas, in a case involving the identical parties litigant and the identical facts as are the subject of this suit.[1]
After a full evidentiary hearing on the issue of maritime jurisdiction, that court concluded that maritime jurisdiction did not exist and granted Boyce's motion to dismiss for lack of subject matter jurisdiction.
We adhere to and adopt as our own the reasoning of that court on the issue of maritime jurisdiction. The reasoning of the court is:
"Plaintiffs assert that this Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1333 because the crane which has occasioned this lawsuit was intended for use in navigable waters and was being used in the maritime trade. However, the crane in question originally was sold to Tidewater as a part for a ship being built for Tidewater by American Marine, Inc. A contract to construct a ship or to supply materials therefor is nonmaritime. Thames Towboat Co. v. The Schooner Francis McDonald, 254 U.S. 242 [41 S.Ct. 65, 65 L.Ed. 245] (1920); Walter v. Marine Office of America, 537 F.2d 89 (5th Cir. 1976); Hollister v. Luke Construction Co., 517 F.2d 920 (5th Cir. 1975).
"With regard to plaintiffs' tort claim, the Court also lacks jurisdiction under 28 U.S.C. § 1333. The failure of the crane in 1978 occurred approximately four years after the crane had been removed from the vessel *359 into which it had been installed, and reinstalled on a dock located on the Atchafalaya River in Morgan City, Louisiana. `As historically construed by the Supreme Court, maritime jurisdiction does not embrace accidents on land, or injuries inflicted to or on extensions of land such as docks and piers.' Parker v. South Louisiana Contractors, Inc., 537 F.2d 113 (5th Cir. 1976), reh. denied, 539 F.2d 710 (5th Cir. 1976), cert. denied, 430 U.S. 906 [97 S.Ct. 1175, 51 L.Ed.2d 582] (1977), citing Victory Carriers, Inc. v. Law, 404 U.S. 202 [92 S.Ct. 418, 30 L.Ed.2d 383] (1971) and Nacirema Operating Co. v. Johnson, 396 U.S. 212 [90 S.Ct. 347, 24 L.Ed.2d 371] (1969).
"The plaintiffs have failed to state a cause of action in either maritime contract or maritime tort."
We therefore conclude that plaintiffs' claim is governed by the prescriptive periods governing tort actions or redhibitory actions under Louisiana Law. Since the suit against Boyce was filed more than one year after the crane suffered damages, and more than one year after plaintiffs discovered the defect in the crane, and more than one year after plaintiff was advised by the manufacturer that it would assume no responsibility for repairs, any claim against Boyce for damages based upon a liability in tort or redhibition has prescribed.
For the reasons assigned, the decision of the trial court is affirmed. All costs to be borne by the appellant.
AFFIRMED.
NOTES
[1] Tidewater, Inc. and Lexington Insurance Company v. Baldwin-Lima Hamilton Corporation, Lima Division, XYZ Insurance Company, correct name unknown, Clark Equipment Company, ABC Insurance Company, correct name unknown, and Boyce Machinery Corporation, Civil Action No. H-80-1910. Motion to dismiss for lack of jurisdiction, granted Dec. 30, 1981. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1921903/ | 258 Minn. 447 (1960)
104 N.W.(2d) 895
McCARTHY'S ST. LOUIS PARK CAFE, INC.
v.
MINNEAPOLIS BASEBALL & ATHLETIC ASSOCIATION.
No. 37,896.
Supreme Court of Minnesota.
July 22, 1960.
*448 Clarence O. Holten and James S. Eriksson, for appellant.
Thompson, Hessian, Fletcher & McKasy, for respondent.
DELL, CHIEF JUSTICE.
Appeal from the judgment of the district court.
This proceeding arose out of an action: (a) To rescind an agreement and cancel a deed of conveyance executed pursuant thereto and *449 to require defendant to execute appropriate instruments so as to revest in plaintiff title to the real estate involved herein; or, in the alternative, (b) to reform said deed so as to restrict the use of said real estate.
It appears from the record that plaintiff was engaged in the operation of a restaurant and an on- and off-sale liquor establishment on Wayzata Boulevard, west of Highway No. 100. Defendant was the owner of a professional baseball team and was engaged in the business of exhibiting baseball games.
Defendant desired a site for the erection of a new baseball stadium. On December 10, 1948, plaintiff and defendant entered into a written agreement under which, among other things, plaintiff promised to sell and defendant promised to purchase for $35,000 approximately 15 acres of land lying directly south of plaintiff's restaurant, across Wayzata Boulevard. The agreement further provided for a restrictive covenant in the warranty deed to be executed precluding defendant from operating a restaurant or liquor establishment and from selling food or liquor, except such as might ordinarily be sold at baseball games and other sport events. Subsequent to the signing of the agreement, defendant paid the balance of the purchase price and plaintiff executed a warranty deed containing the restrictive covenant mentioned.
Defendant has not erected a stadium on the premises; the land remains vacant and unimproved.
The district court found, as is pertinent to this appeal, the following:
"4. During the Fall of 1948, to and including December 10 of that year, plaintiff and defendant carried on negotiations with each other for the sale by the former to the latter of the land described in Paragraph 1 hereinabove.
"5. During the course of the negotiations referred to in Paragraph 4 hereinabove,
"a. Defendant represented to plaintiff that defendant's state of mind was that defendant intended to use said land for the construction and operation of an athletic stadium. There was no representation by defendant that its state of mind was otherwise or more specific, nor was there a representation by defendant that its intent to build was *450 subject to no contingencies except the acquisition of certain land and the obtaining of certain municipal authority.
"b. Defendant's representation was true in that its state of mind was in fact as represented.
"c. Plaintiff did not reasonably believe that defendant's state of mind was other than as set forth hereinabove.
"6. During the course of said negotiations, defendant did not orally promise to plaintiff that defendant would erect and operate an athletic stadium on said land.
"7. At the conclusion of said negotiations, on December 10, 1948, plaintiff and defendant entered into a written contract, under which, among other things, plaintiff promised to convey said land to defendant for the purchase price of $35,000. A copy of said agreement is attached hereto as Exhibit A and by this reference thereto made a part hereof. This written instrument was an integration of all of the oral agreements theretofore made between the parties. There was no agreed consideration for the conveyance of said land other than the payment of $35,000.
"8. There was no unilateral mistake by plaintiff nor any mutual mistake by the parties as to any material fact in connection with the execution of said written contract.
"9. The parties hereto did not enter into any agreement or contract, oral or otherwise, other than the written contract referred to in Paragraph 7 hereinabove.
"10. On April 22, 1949, plaintiff executed and delivered to defendant a warranty deed to said land. A copy of said deed is attached hereto as Exhibit B and by this reference thereto made a part hereof.
"11. Defendant paid to plaintiff the full purchase price of $35,000 for said land.
"12. Defendant obtained municipal authorization to use said land for the construction and operation of a baseball and athletic stadium and made preparations therefor, in the course of which it spent sums of money for drawings and specifications.
"13. In 1955 defendant abandoned its intention to construct and operate an athletic stadium on said land. Defendant has not constructed an athletic stadium thereon, and said land has remained vacant."
*451 1. This case was tried to the court without a jury. When an action is thus tried, the court's findings of fact are entitled to the same weight as the verdict of a jury and will not be reversed on appeal unless they are manifestly and palpably contrary to the evidence. 1 Dunnell, Dig. (3 ed.) §§ 410, 411, and cases cited.
The trial court concluded:
"1. There was no failure of consideration on the part of defendant in connection with the transaction described hereinabove.
"2. There was no fraud on the part of defendant toward plaintiff in inducing the execution of the written contract and deed described hereinabove.
"3. There was no unilateral or mutual mistake as to any material fact with respect to said written contract.
"4. Plaintiff is entitled to neither rescission nor any other relief as against defendant.
"5. Defendant is entitled to judgment in its favor with respect to plaintiff's claim, together with judgment against plaintiff for its costs and disbursements herein."
Upon a thorough review of the record here, and under the principle in L'Evesque v. Rognrud, 254 Minn. 55, 93 N.W. (2d) 672, and St. Nicholas Church v. Kropp, 135 Minn. 115, 160 N.W. 500, we believe the evidence reasonably supports the findings and conclusions of the trial court.
2. Plaintiff also urges a reversal on the grounds that numerous rulings of the court on the introduction of evidence limited the testimony to such an extent as to deprive the court of testimony of surrounding circumstances and objectives; also, that it deprived the court of direct evidence demonstrating what plaintiff's beliefs were, its reliance upon defendant's representations, and that such beliefs and reliance were reasonable. Upon the review of the exclusions we believe that such testimony was merely cumulative. It is within the discretion of the trial court to limit the undue introduction of cumulative evidence. Mitton v. Cargill Elev. Co. 124 Minn. 65, 144 N.W. 434; Johnson v. Crookston Lbr. Co. 92 Minn. 393, 100 N.W. 225. The fact that the agents, stockholders, and officers of the plaintiff were *452 permitted to testify directly as to their beliefs and facts they considered in selling the property certainly negates any proposition that the court was deprived of evidence on the issue. Under the record here, we find no abuse of discretion.
3. Although not urged in plaintiff's brief as a ground for a reversal, the subject embodied in the first conclusion of law and the sixth finding of fact of the trial court was discussed on oral argument and merits attention here.
With respect to its first conclusion, the trial court determined that there was no failure of consideration on the part of the defendant. It appears from the memorandum of the trial court that this conclusion is based primarily upon the inability of the plaintiff to prove an oral promise on the part of the defendant to build an athletic stadium inasmuch as the parol-evidence rule renders any such evidence inadmissible.
Where a writing is unambiguous and is an integration of the oral agreements of the parties, parol evidence of a prior or contemporaneous oral agreement is inadmissible to vary or contradict the written terms thereof. 7 Dunnell, Dig. (3 ed.) § 3368.
4. At first glance it may be thought that the covenants in the deed and the provisions in the earnest money contract render the documents ambiguous and therefore constitute an exception to the parol-evidence rule. 7 Dunnell, Dig. (3 ed.) § 3397. However, the exception to the parol-evidence rule does not allow the introduction of parol evidence to vary the language employed, but merely to explain the sense in which the writer understood it. It may be received as an aid in interpreting, but not to modify or add to, the provision of a contract. 7 Dunnell, Dig. (3 ed.) § 3400.
These covenants precluded the grantee, defendant, from keeping or permitting "intoxicating liquors or foods for commercial sale other than is usually incident to the operation of ball parks, athletic contests of all kinds, circuses and exhibitions, nor shall any on-or-off sale liquor establishment of any kind or description be operated, permitted or kept on said premises, nor shall any restaurant where food is served to the public be maintained or operated on said premises, or in any building erected thereon, provided, however, nothing herein contained *453 shall prohibit the use of said premises for the preparation, serving and sale of beer, food and refreshments of all kinds incident to and usually prepared, served and sold in connection with the operation or conduct of ball parks, athletic contests of all kinds, circuses and other exhibitions of any kind or description. The sale of all of the foregoing is hereby expressly permitted." (Italics supplied.)
We do not believe that the exception to the parol-evidence rule which involves ambiguous provisions would allow proof of a promise that a baseball stadium would be erected or that a covenant should be included restricting the use of the property to the erection and maintenance of a baseball stadium. We do not believe that there is any ambiguity here which requires a construction that part of the consideration was the erection of a baseball stadium.
Upon a careful reading of the covenants it is apparent that in no event "shall any on-or-off sale liquor establishment of any kind or description be operated, permitted or kept on said premises, nor shall any restaurant where food is served to the public be maintained or operated on said premises, or in any building erected thereon, * * *." However, refreshments could be sold if "usually prepared, served and sold in connection with the operation or conduct of ball parks, athletic contests of all kinds, circuses and other exhibitions of any kind or description." This protects plaintiff from the competition of a similar business, which is the main reason it had previously retained this property.
The exception to the parol-evidence rule would allow, however, under the circumstances here, parol evidence to show the status of the parties in order to give insight into what they meant by the term "other than is usually incident to the operation of ball parks * * *," or "incident to and usually prepared, served and sold in connection with the operation or conduct of ball parks, athletic contests of all kinds, circuses and other exhibitions of any kind or description." The fact that plaintiff was concerned about competition for its existing business would certainly lend insight in construing what activity the covenants did preclude or allow.
5. Under certain circumstances the recitation of the consideration in a deed does not exclude proof by parol evidence of another or *454 different consideration. This is on the theory that it is a mere acknowledgment of receipt. Such proof is excluded, however, where the consideration is of a contractual nature. See, Roske v. Ilykanyics, 232 Minn. 383, 45 N.W. (2d) 769; In re Estate of Delva, 195 Minn. 192, 262 N.W. 209; Thiem v. Eckert, 165 Minn. 379, 206 N.W. 721.
6. Where a writing embraces both a receipt and a contract, the contract cannot be varied by parol evidence any more than if it were in a separate instrument. Tarbell v. Farmers' Mutual Elev. Co. 44 Minn. 471, 47 N.W. 152. Under the circumstances here the consideration recited in both the earnest money contract and the deed consisted of the payment of a sum of money plus a covenant restricting the use of the property. See, 21 C.J.S., Covenants, § 1, defining the nature of a covenant as contractual.
Clearly, then, under this principle the covenants cannot be varied by parol proof. Thiem v. Eckert, supra. However, does the fact that part of the consideration is in the nature of a receipt allow parol proof of another and different contractual consideration? We do not believe so. Such an interpretation would allow contracting parties to vary and add to the consideration of a contract by parol by merely inserting as a part of the consideration a receipt of a sum of money. Bakke v. Keller, 220 Minn. 383, 19 N.W. (2d) 803; Jimmerson v. Troy Seed Co. 236 Minn. 395, 53 N.W. (2d) 273; 9 Wigmore, Evidence (3 ed.) § 2433; 6 Thompson, Real Property (Perm. ed.) §§ 3231, 3235; 32 C.J.S., Evidence, § 950, note 44.
7. Here we do not even believe it is proper to resort to the earnest money contract to ascertain the contractual consideration where the deed itself contains contractual obligations, since in the absence of fraud or mistake a merger occurs when a deed is executed and accepted in performance of an executory contract to convey, and thereafter the rights of the parties depend exclusively on the deed. 20 Dunnell, Dig. (3 ed.) § 10019. We recognize that it has been held that the merger rule does not apply to consideration. Devine v. Lewis, 38 Minn. 24, 35 N.W. 711. However, an analysis of the Devine case discloses there that the deed did not include any contractual consideration. The reasoning for excepting consideration from the merger rule was based upon the principle that (38 Minn. 26, 35 N.W. 712):
*455 "* * * the receipt or acknowledgment therein [in deed], reciting the consideration, is open to explanation as much as an independent receipt, which may be explained or contradicted, because it is simply evidence of the fact of payment."
The exception to the merger rule should not be extended beyond the Devine case to include contractual consideration as well in the absence of fraud or mistake.
8. Another theory under which parol proof of a promise to erect a stadium would be excluded involves the concept that the written contract or deed constituted a written integration of the oral stipulations of the parties. Jimmerson v. Troy Seed Co. supra. The evidence here indicates that there was some discussion of the erection of a baseball stadium under a proposed provision that the land be improved by the erection of a stadium with a right in the seller to repurchase if the land were not so improved. However, such a provision was not embodied in either document. This provision, we believe, would ordinarily be expected to be included in the writing. Consequently, parol evidence to prove such a provision would be inadmissible under this theory alone. Taylor v. More, 195 Minn. 448, 263 N.W. 537; see, also, 9 Wigmore, Evidence (3 ed.) § 2430.
It is significant to note that we are not involved here with the usual case where a deed is delivered absolute on its face or property acquired and placed in joint tenancy in exchange for a promise to support. See, Dietz v. Dietz, 244 Minn. 330, 70 N.W. (2d) 281. Rather we are involved here with a situation where the parties were experienced in business and considerable negotiation preceded the execution of the earnest money contract and the deed. According to the plaintiff's real estate agent, a commitment to build a stadium as part of the consideration was even included in a memorandum preliminary to the earnest money contract at an early stage of the negotiations.
Although the plaintiff here may suffer hardship as a result of the finality of this conveyance, to allow parol evidence to be introduced under the circumstances here would be in direct violation of the very function of the parol-evidence rule. Since no mistake or fraud was *456 found here, if parol evidence were admissible here to vary or add to the contractual consideration recited, then it would be admissible pursuant to any conveyance where the party's intentions were disclosed prior to the transfer, contractual provisions were stated in the deed, and due to a failure to carry out that intention possible benefits could not be received. Such an interpretation would jeopardize and abrogate the long-settled rule respecting the sanctity and finality of a deed which "is and should be one of the most sacred and binding agreements made between men." Bond v. Hewitt, 111 Fla. 180, 187, 149 So. 606, 608.
Affirmed.
MR. JUSTICE LOEVINGER, not having been a member of the court at the time of the argument and submission, took no part in the consideration or decision of this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1909004/ | 42 B.R. 395 (1984)
In re Betty Jean EARNEST, Debtor.
In re Gary Kent STOOKEY, dba Trident Heater Works, fdba G.S. Mfg., Debtor.
Bankruptcy Nos. 682-07587, 682-07304.
United States Bankruptcy Court, D. Oregon.
July 23, 1984.
*396 Helmut Kah, Eugene, Or., for debtor/movant, No. 682-07587.
Thomas Huntsberger, Springfield, Or., trustee, No. 682-07587.
Daniel D. Phillips, Grants Pass, Or., for debtor/movant, No. 682-07304.
J.F. Fliegel, Jr., Medford, Or., trustee, No. 682-07304.
MEMORANDUM OPINION
POLLY S. WILHARDT, Bankruptcy Judge.
Two cases before the court require an interpretation of Oregon's homestead exemption statute, O.R.S. 23.240(2), within the context of debtors' exemptions claimed after the filing of chapter 7 petitions in bankruptcy.
Betty Jean Earnest (hereinafter Earnest) and Gary Kent Stookey (hereinafter Stookey) each had sold their homes prior to filing bankruptcy and received buyers' promissory notes as consideration. The promissory notes have due dates beyond one year of the sale of the respective homes. Within a year of receipt of the proceeds, each filed a chapter 7 bankruptcy petition. Under O.R.S. 23.305, in effect at the time of the filing of both petitions, *397 Oregon had "opted out" of the use, by Oregon residents, of federal exemptions otherwise available under 11 U.S.C. § 522(d). On bankruptcy schedule B-4 each claimed an amount not exceeding $15,000.00 of such proceeds as exempt property pursuant to O.R.S. 23.240(2).
Although the trustees in both cases shortly after the filings notified the debtors of their continuing interest in the sales proceeds, neither filed a formal objection to the debtors' claimed exemptions at that time. Neither Earnest nor Stookey reinvested funds from the promissory notes in another home within one year of the sale of their respective homes.
After a period of one year from Stookey's receipt of the proceeds, the trustee filed a formal objection to his claimed exemption. In the Earnest proceeding the trustee had obtained orders extending time for entry of the debtor's discharge until resolution of this legal issue. Earnest requested of the court a determination on the exemption issue and an entry of an order of discharge. No party has questioned the status of the promissory notes as "proceeds" within the meaning of O.R.S. 23.240(2). This court will assume the notes are proceeds.
The issues before the court are:
1. Outside the bankruptcy context what conditions must any debtor meet to enable him to use the protection of O.R.S. 23.240(2) for proceeds from the sale of a homestead?
2. What effect, if any, does the filing of a bankruptcy petition within a year of receipt of sales proceeds have on the use, by a debtor, of O.R.S. 23.240(2) as a claimed bankruptcy exemption?
3. If Stookey and Earnest fail to meet the legal requirements for the use of O.R.S. 23.240(2) as a bankruptcy exemption, are their sales proceeds nevertheless exempt because each trustee failed to follow the established procedure for objecting to claimed exemptions?
O.R.S. 23.240(1) grants an exemption to a homestead. O.R.S. 23.240(2) extends that exemption to the proceeds from its sale with the following language:
"(2) The exemption shall extend to the proceeds derived from such sale to an amount not exceeding $15,000 . . . if the proceeds are held for a period not exceeding one year and held with the intention to procure another homestead therewith."
There is no Oregon case law addressing the first issue raised by this court. Earnest's attorney cited Blackford v. Boak, 73 Or. 61, 143 P. 1136 (1914) to support his position that O.R.S. 23.240(2) does not require the debtor to reinvest the proceeds in another homestead within a year of their receipt to retain the exemption granted by that subsection. This case does recognize that a debtor may have an exemption for proceeds from the sale of exempt personal property. In dicta it seems to recognize that the exemption in proceeds will continue for a reasonable time. Blackford v. Boak is not a precedent for an interpretation of the statute before this court. There the court was interpreting statutory exemption language which differs greatly from O.R.S. 23.240(2). A key distinction is that the old statute contained no language whatsoever referring to a time period.
In two recent bankruptcy cases out of Oregon, In re Monks, No. 382-01595 (Bankr.D.Or. Dec. 13, 1982) and Winchester v. Watson (In re Winchester) (Bankr.9th Cir.1984), the statute has been interpreted to require the debtor to have a bona fide present intent to invest the proceeds in another homestead and in fact to reinvest those proceeds in a new homestead within a year of their receipt. In Monks, Judge Johnson specifically rejected the broader interpretation that, where a note is taken as part of a sale it does not lose its exempt status, even though payable over several years, if the debtors intend to put the cash into a home when received. Monks at 4.
This court agrees. Although exemption statutes are to be liberally construed, In re Stewart, No. 383-03855 (Bankr.D.Or. February 16, 1984), *398 to interpret the language of O.R.S. 23.240(2) to allow an indefinite period for reinvestment is simply to ignore the plain meaning of the statute. The word "if" is interpreted in contract law to create a condition precedent to the related duty or right following thereafter. 5 S. Williston, A Treatise on the Law of Contracts, 671, n. 1 (3rd ed.1961), Restatement (Second) of Contracts, 224 illustrations 4-7 (1981).
By affidavit Earnest mentioned the extreme difficulty in the present poor economy, for a seller to sell a home without being willing to accept the buyer's promissory note as at least partial consideration for the sale. The court recognizes this as a very serious, legitimate, problem. There will be many sellers in Oregon who cannot liquidate notes which they hold in time to keep the protection afforded by O.R.S. 23.240(2). This court believes it is the legislature's responsibility to address this problem, not the court's.
Both Stookey and Earnest argue that their exemptions, within the context of a bankruptcy, are valid as, at the time of filing their bankruptcy petitions, the proceeds were exempt from levy and execution, a year from their receipt not having lapsed. They state the status of a debtor's exemptions are to be determined as of the date the bankruptcy petition is filed. To support their argument they cite White v. Stump, 266 U.S. 310, 45 S.Ct. 103, 69 L.Ed. 301 (1924), In re Harlan, 32 B.R. 91 (Bankr.W.D.Tex.1983), In re Velez-Velez, 6 B.R. 373 (Bankr.S.D.Fla.1980), and In re Rivera, 5 B.R. 313 (Bankr.M.D.Fla.1980). White holds the date the bankruptcy petition is filed is the point of time used to determine the debtor's right to exemptions. White 45 S.Ct. at 104. In White at the time his petition was filed, a bankrupt had not filed with the county recorder a declaration that land was occupied and claimed as a homestead as required by state law. On filing he did not request a homestead exemption of the bankruptcy court. Shortly thereafter the local declaration was filed and the bankrupt petitioned the bankruptcy court that his land be set aside as exempt. Idaho law was clear that if one filed the declaration in proper form the exemption arose; otherwise, no exemption existed. The court denied his petition because at the time the bankruptcy commenced the bankrupt had not filed the declaration as the law required.
Judge Paskay in Rivera cites White. In Rivera the debtor was found not to qualify for state exemptions as he was simply not within the Florida definition of "head of the household" at the time of the bankruptcy filing.
In Velez-Velez the debtor, upon filing a bankruptcy petition in Florida as a Florida resident, claimed two homestead exemptions, one each in Florida and Puerto Rico. He could not receive an exemption for the Puerto Rico home as, by his own declaration, he was a Florida resident when he filed.
In Matter of Thompson, 4 B.R. 18 (Bankr.D.Me.1979), White was cited to uphold the debtor's right to a worker's compensation award which he received just after a well-timed bankruptcy filing. Maine's Worker's Compensation Act exempted "claims for compensation." There was no question the debtor held a claim for compensation when he filed his bankruptcy petition.
In all these cases the courts granted or denied exemptions after examining whether the debtor, as of the date of bankruptcy filing, met the requirements of the relevant state exemption law. Each applicable exemption law established a set of circumstances with which compliance could be determined unequivocally at the moment of the bankruptcy filing. None contained, as an integral part of the law itself, a condition whose nature required an initial view from the future before a decision could be made on the allowance of the exemption.
This court believes the distinction to be vital. 11 U.S.C. § 522(b)(2)(A) states an individual debtor may exempt "any property that is exempt under federal law or state or local law that is applicable on the date of the filing of the petition." [emphasis added] The Oregon exemption law for *399 homestead proceeds contains two conditions. The language of these conditions was as much a part of the applicable law on the date both Earnest and Stookey filed their bankruptcy petitions as is the language actually granting the exemption. These conditions can be labeled either conditions precedent or conditions subsequent. Under either approach the court cannot avoid, after a year's passage, a judicial inquiry to determine if the debtor either receives or keeps, as the case may be, the exemption. Earnest and Stookey would like the court to treat the conditions as subsequent, to grant them the exemption, and then to deny itself, because of the bankruptcy filing, the power to later inquire if the conditions were met. This court finds nothing in the Bankruptcy Code that requires or allows it to fragment the state law in this manner to grant a benefit to the debtors they would not have received if they had not filed bankruptcy.
In In re Harlan, 32 B.R. 91 (Bankr.W.D. Tex.1983), the bankruptcy court, citing White v. Stump, upheld the exemption the debtor requested for home sales proceeds where the debtor had filed his bankruptcy petition within six months of the receipt of the proceeds. The applicable Texas exemption law reads:
"The proceeds of the voluntary sale of the homestead shall not be subject to garnishment or forced sale within six months after such sale."
Tex.Rev.Civ.Stat.Ann. art. 3834, quoted in Harlan at 91. This court distinguishes In re Harlan. The Texas exemption law before the bankruptcy court did not contain, as does the Oregon exemption law, clear language conditioning the allowance of the exemption on a requirement to be met over a period of time.
Additionally, this court must respectfully disagree with Harlan's analysis in support of its position. The three cases the court cites in support of its position, White v. Stump, In re Thompson, 4 B.R. 18 (Bankr. D.Me.1979), and In re Blue, 5 B.R. 723 (Bankr.S.D.Ohio 1980), all involved laws containing no conditions requiring the court to look to a future event to determine the allowance of an exemption.
The Harlan court recognizes its holding could lead to the injustice of allowing the debtor an exemption for proceeds not then used for a homestead. It justifies its position by pointing out a debtor may invest in many types of property and time his bankruptcy to take advantage of the exemption laws. This court concedes that as long as the legislature determines as a social policy that certain debtor's property should be exempt from creditors, the exemption system will be subject to unilateral manipulation by the debtor; however, that manipulation occurs because exemptions are allowed at all. Where the law itself establishes conditions to the exemption's grant and a court is asked to review the exemption, manipulation will occur only with the court's blessing.
Because the applicable state law in White contained no conditions involving a period of time subsequent to the bankruptcy filing and because this court is in fact applying the law applicable on the date of bankruptcy filing to determine the debtor's exemptions as required by both White v. Stump and 11 U.S.C. § 522(b)(2)(A), this court does not believe its holding is contrary to White v. Stump.
Applying these principles to the Oregon statute and facts before this court, this court holds the filing of a bankruptcy petition within a year of the debtor's receipt of homestead proceeds has no legal effect on the debtor's potential use of the exemption granted by O.R.S. 23.240(2). The court must apply the law applicable as of the date the bankruptcy petition is filed at a time during the bankruptcy proceedings when it is able to make a determination whether the law's requirements have been met.
There was no direct testimony from either debtor regarding their intent for the use of the sales proceeds. By affidavit Earnest stated it was her intent to invest the cash from eventual liquidation of her promissory note in a new homestead. As damaging as this failure of evidence is to *400 the debtor's cases, a more significant fact is that neither debtor in fact invested their sales proceeds in another homestead within a year of receiving them. Thus, neither debtor will qualify for the use of O.R.S. 23.240(2) within their respective bankruptcy proceeding unless the court finds the exemptions are to be allowed as filed due to the failure of each trustee to file a timely objection to the exemptions.
At the time Stookey and Earnest filed their bankruptcy petitions, the applicable bankruptcy law in Oregon was the Bankruptcy Code, Interim Bankruptcy Rules drafted by the Advisory Committee on Bankruptcy Rules of the Judicial Conference of the United States and adopted by the Oregon Bankruptcy Court by Local Bankruptcy Rule 1, other local rules adopted by the Oregon Bankruptcy Court, and, to the extent not inconsistent with the new Bankruptcy Code, the Rules of Bankruptcy Procedure promulgated under the Bankruptcy Act.
The Bankruptcy Code requires the debtor to file a list of his exempt property with the court. 11 U.S.C. § 522(1) further states: "Unless a party in interest objects, the property claimed as exempt on such list is exempt."
The Interim Bankruptcy Rules did not contain a rule establishing the trustee's duty, if any, to address the claimed exemptions within the design of the new Bankruptcy Code. The Oregon Bankruptcy Court recognized this gap and promulgated Local Bankruptcy Rule 2 which states:
"Objections by a party in interest to the list of property that the debtor claims as exempt under 11 U.S.C. 522 shall be filed within 15 days after such list has been filed or within 15 days after the first date set for the meeting of creditors, whichever is later."
Simultaneously, Rule of Bankruptcy Procedure 403 required the trustee to review the debtor's claimed exemptions and file a report with the court stating his belief as to the allowability of each exemption. Further, the rule required the debtor to file a timely objection to the trustee's report. The debtor had the burden of proof with regard to the issue of the allowability of claimed exemptions so raised.
Section 522(l) creates a presumption in favor of the debtor's exemptions as he has filed them. The objecting trustee would have the burden of disproving the debtor's otherwise recognized right to the exemption. This procedure is contrary to that established by Bankruptcy Rule of Procedure 403. The Oregon Bankruptcy Court recognized the contradiction and established a new procedure in Local Rule 2 for trustee's objections to exemptions which procedure supercedes Rule of Bankruptcy Procedure 403.
The trustees in these two proceedings failed to follow the requirements of Local Bankruptcy Rule 2. Both have stated they believed they were not in a position to formally object to their debtor's claimed exemption within the time limits established by that rule as, at that time, they could not have proved the debtors did not qualify for the exemption.
New Rule of Bankruptcy Procedure 4003, effective August 1, 1983, preempted Local Bankruptcy Rule 2. Although Rule 4003 does not apply to the proceedings before this court, the language of that rule does shed some light on the purpose and flexibility of the rule establishing the trustee's obligation in this area.
Rule 4003(b) states:
"The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a) or the filing of any amendment to the list unless, within such period, further time is granted by the court. Copies of the objections shall be delivered or mailed to the trustee and to the person filing the list and his attorney."
The rule allows the trustee, with court approval, additional time to object. It recognizes there might be circumstances which do not allow the trustee to object within the initial time established by the *401 rule. The rule also recognizes that the trustee must have time to object to any amendments to exemptions filed by the debtor. Rule 1009 allows the debtor to amend his schedules, including his B-4 list of exemptions, at any time before the case is closed. Thus, the trustee may find himself objecting to exemptions some time after the proceeding is commenced.
Clearly the purpose of the time limits under both Bankruptcy Rule 2 and Bankruptcy Rule 4003 is to encourage early determination of exemption questions so all parties may then freely pursue their rights with regard to the exempt property. The rule also establishes a notice procedure to alert the debtors that the property claimed exempt cannot be so treated until the controversy surrounding its status is resolved.
Stookey and Earnest received actual notice from their trustees very early in their proceedings that the trustees questioned the status of the allegedly exempt promissory notes. Because of this notice and because the promissory notes, at the time of the hearing, had not been paid off, the debtors cannot, and did not, argue that the trustees' failure to abide by Local Bankruptcy Rule 2 adversely affected them. This court believes that, as Local Bankruptcy Rule 2 did not establish a procedure for the trustees to follow to obtain court approval of a delay in filing a formal objection and, as they could not support an objection timely filed due to the unique applicable statutory language, the steps the trustees did take were sufficient to bring the issue before the court in a timely manner with sufficient notice to interested parties and met the intent of the rule.
This court holds that each trustee's objection to the exemption claimed by their respective debtors shall be allowed. The court further holds that Earnest's and Stookey's sales proceeds from their homesteads are not exempt under O.R.S. 23.240(2).
The court further holds that Earnest's discharge from indebtedness should be granted and an order to that effect shall be entered immediately.
This Memorandum Opinion contains the court's findings of fact and conclusions of law and pursuant to Bankruptcy Rule 9014, which incorporates Rule 7052, they will not be separately stated.
A consistent order herewith will be entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2511152/ | 107 F.Supp.2d 715 (2000)
JESCO CONSTRUCTION CORP.
v.
NATIONSBANK CORP., et al.
No. Civ.A. 98-1657.
United States District Court, E.D. Louisiana.
July 18, 2000.
*716 Edward F. Downing, III, Gauthier & Murphy, Metairie, LA, Wendell H. Gauthier, Gauthier, Downing, LaBarre, Beiser & Dean Metairie, LA, Jon A. Gegenheimer, Edward D. Markle, Markle & Associates, APLC, New Orleans, LA, for Jesco Const. Corp.
Gerald F. Slattery, Jr., David Ronald Dyer, Schully, Roberts, Slattery, Jaubert & Marino, New Orleans, LA, Kyle D. Schonekas, Schonekas, Winsberg, Evans & McGoey, LLC, New Orleans, LA, for NationsBank Corp., NationsCredit, NationsCredit Commercial Corp., Bank of America and Bank of America Commercial Finance Corp.
Michael Joseph Juneau, Karen T. Bordelon, Juneau Firm, Lafayette, LA, for American Intern. Specialty Lines Ins. Co.
Peter Joseph Wanek, Campbell, McCranie, Sistrunk, Anzelmo & Hardy, Metairie, LA, Alexis J. Rogoski, Peterson & Ross, New York City, for Continental Cas. Co.
Mickey Stephens deLaup, Allison Cornelius Alleva, LeBlanc, Miranda, Warnick & Milazzo, Metairie, LA, for Royal Ins. Co of America.
George B. Hall, Jr., Jay Russell Sever, Phelps Dunbar, LLP, New Orleans, LA, for Agricultural Ins. Co. and American Alliance Ins. Co.
Joseph Maselli, Jr., Plauche, Maselli, Landry & Parkerson, LLP, New Orleans, LA, for Federal Ins. Co.
C. Michael Pfister, Duplass, Zwain & Bourgeois, Metairie, LA, Anthony S. Cox, Caron, McCormick, Constants & Wilson, Dallas, TX, for Fireman's Fund Ins. Companies and National Surety Corp.
James R. Carter, Joel Nathan Terrebonne, Porteous, Hainkel, Johnson & Sarpy, New Orleans, LA, for Indemnity Ins. Co. of North America.
Mishthi Grace Ratnesar, Thomas P. Anzelmo, Campbell, McCranie, Sistrunk, Anzelmo & Hardy, Metairie, LA, Lee Berger, Kaufman, Borgeest & Ryan, New York City, for Underwriters at Lloyd's of London.
Jon A. Gegenheimer, Edward D. Markle, Markle & Associates, APLC, New Orleans, LA, for John Shavers, movant.
Edward F. Downing, III, Gauthier & Murphy, Metairie, LA, Wendell H. Gauthier, Gauthier, Downing, LaBarre, Beiser & Dean, Metairie, LA, Jon A. Gegenheimer, Edward D. Markle, Markle & Associates, APLC, New Orleans, LA, for Ann Shavers, movant.
PORTEOUS, District Judge.
This cause came for hearing on a previous date upon the Motion of the Defendant, Banc of America Commercial *717 Finance Corporation, for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Having heard the arguments of counsel, and having studied the legal memoranda and exhibits submitted by the parties, the record, and the applicable law, the Court is fully advised on the premises and ready to rule.
ORDER AND REASONS
I. Background
The above-captioned matter was initially instituted in the State of Louisiana's Civil District Court for the Parish of Orleans by Jesco Construction Corporation ("Jesco") against three Defendants: NationsBank Corporation, NationsCredit, and NationsCredit Commercial Corporation. As a result of a merger on September 30, 1998, Banc of America Commercial Finance Corporation ("BACF" or "the bank") became the successor corporation to NationsCredit Commercial Corporation.[1] Shortly after Jesco brought suit, BACF removed the case to this Court.
In May 1997, the President of Jesco, John E. Shavers, began negotiations with the Directors and Officers of King Fisher Marine Service, Inc. ("King Fisher"), a Texas based corporation which specializes in marine services, dredging, marine construction, and marine warehousing, for the purchase of all of its stock.[2] In July 1997, Jesco entered into a letter of intent with King Fisher whereby Jesco agreed to purchase all of the stock of King Fisher for a price of $17.7 million. After entering into the letter of intent, Jesco opened loan discussions with BACF in August 1997.
The initial loan discussions began with Kellee Cappas, a vice-president of the bank. After several weeks of negotiations between Shavers and Cappas, Jesco and BACF agreed upon and executed a letter of interest.[3] That document set forth the terms of the proposed financing that BACF was considering, and in it Jesco promised, upon delivery of a deposit, to provide sufficient information to allow BACF to perform a due diligence investigation.
Much dispute exists between the parties concerning the events which took place on September 30, 1997. Without elaborating on the respective contentions of the parties, it suffices for the Court to note that at some point during that day, a letter was faxed by Cappas to Shavers. The first paragraph of that letter contains the following language:
Based upon our preliminary review of the information you have submitted to us, we are pleased to submit this proposal along the parameters outlined below. Please understand that after completion of our due diligence, [BACF] may require alternative parameters, or may decline to offer you financing. The following is not a commitment but only an expression of our interest.
(BACF's Memorandum in Support of its Motion for Summary Judgment, Exhibit 1, p. 1). The signatures of both Cappas and Shavers appear at the end of that document. See id. at p. 5.
*718 Another document also was sent by Cappas to Shavers on that date. Said document is a facsimile cover sheet containing the following four handwritten sentences:
We can close this deal in 3 wks if we receive a total check of $35,000 tomorrow. The additional $15,000 will commence the legal documentation process. Call me or Kim Metzner with any questions. Thank you!
(BACF's Memorandum in Support of its Motion for Summary Judgment, Exhibit 10). This document bears no signatures.
During the weeks that followed, both Jesco and King Fisher supplied financial information, personal data, and other information requested by BACF in order to complete the loan application process. In accordance with the policies and procedures of the bank, a field examination of King Fisher was conducted by a BACF employee for the purposes of inspecting the marine operation and reviewing the company's financial data and accounting records.
The Plaintiff alleges that BACF agreed to close the loan on or before October 29, 1997. For reasons yet unknown, the loan application process stalled and was eventually terminated by Shavers. In February 1998, King Fisher was sold to another entity for $20 million.
On April 27, 1998, Jesco filed suit against BACF asserting a variety of legal theories, including: 1) breach of contract; 2) negligent misrepresentation; 3) breach of the duty of good faith and fair dealing; 4) breach of fiduciary duty; 5) detrimental reliance; and 6) unfair trade practices. BACF moved this Court for entry of Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on all of the claims raised by Jesco.[4] Jesco, of course, opposes each of BACF's arguments in favor of granting summary judgment.
II. Legal Analysis
A. Law on Summary Judgment
The Federal Rules of Civil Procedure provide that summary judgment should be granted only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). The party moving for 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. Stults v. Conoco, Inc., 76 F.3d 651, 655-56 (5th Cir.1996) (citing Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912-13 (5th Cir.) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)), cert. denied, 506 U.S. 832, 113 S.Ct. 98, 121 L.Ed.2d 59 (1992)). When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical *719 doubt as to the material facts. The nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (emphasis supplied); Tubacex, Inc. v. M/V RISAN, 45 F.3d 951, 954 (5th Cir.1995).
Thus, where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no "genuine issue for trial." Matsushita Elec. Indus. Co., 475 U.S. at 588, 106 S.Ct. 1348. Finally, the Court notes that substantive law determines the materiality of facts and only "facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
B. BACFs Arguments in Support of Granting Summary Judgment
As stated above, BACF removed the instant action to this Court from the Louisiana Civil District Court for the Parish of Orleans. Such removal was based upon the Court's subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Therefore, the laws of the State of Louisiana shall apply to the case at hand. The Court now turns to each of the various legal theories espoused by Jesco in its "Petition for Damages and Breach of Contract."
1. Breach of Contract
Louisiana law clearly provides that "[a] debtor shall not maintain an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor." LA.REV.STAT. § 6:1122 (emphasis added). This statute has been referred to as the "Louisiana Credit Agreement Statute." The term "credit agreement" is defined as "an agreement to lend or forbear repayment of money or goods or to otherwise extend credit, or make any other financial accommodation." LA.REV.STAT. § 6:1121(1) (emphasis added).
As noted by the Louisiana Supreme Court, the statute above "does not address, one way or the other, any protection of unsophisticated borrowers or any exemption based on fraud, misrepresentation, promissory estoppel or other equitable theory." Whitney Nat'l Bank v. Rockwell, 661 So.2d 1325, 1331 (La.1995). A Louisiana Court of Appeal previously came to that same conclusion and held that the Louisiana Credit Agreement Statute "preclude[s] all actions for damages (as distinguished from affirmative defenses) arising from oral promises to lend money, even when predicated on different theories of recovery." Fleming Irrigation, Inc. v. Pioneer Bank & Trust Co., 661 So.2d 1035, 1039 (La.Ct.App.1995) (emphasis added). There, the court held that to accept otherwise "would emasculate the credit agreement statute and leave a mere shell of the enactment." Id. at 1038-39. The court concluded that affording recovery on any ground other than breach of contract would "simply provide[ ] an easy avenue for resourceful attorneys to circumvent the statute, thus defeating the legislative intent to prohibit claims stemming from hard-to-defend oral representations" to lend money or extend credit. Id. at 1039.
However, an analysis of the statute in question cannot end here since the Louisiana Supreme Court "declined ... to adopt a blanket rule, as the Second Circuit recently did in [Fleming Irrigation by] holding that the credit agreement statute precludes all actions for damages arising from oral credit agreements, regardless of the theory of recovery asserted." Rockwell, 661 So.2d at 1332, n. 6. Therefore, the Louisiana Supreme Court did not decide the question of "whether there are any exceptions to the credit agreement statute, such as fraud, misrepresentation, promissory estoppel or particularly vulnerable parties." Id. at 1332.
*720 In the case at hand, regardless of which version of the events which took place on September 30, 1997 is accepted as true, Jesco's claim for damages as a result of BACF's purported breach of contract cannot stand. Even if the facsimile cover sheet was sent separate from the letter of interest which was faxed by Cappas to Shavers,[5] neither document satisfies the requirements of the Louisiana Credit Agreement Statute. See LA.REV.STAT. § 6:1122.
The "cover sheet" fails to satisfy said requirements, among other reasons, because it bears no signatures. The letter of interest is not a valid credit agreement because it fails to set forth the relevant terms and conditions of any agreement to lend money or extend credit. As quoted above, said letter clearly provides that BACF "may require alternative parameters, or may decline to offer [Jesco] financing," (BACF's Memorandum in Support of its Motion for Summary Judgment, Exhibit 1, p. 1). The letter "is not a commitment but only an expression of [BACF's] interest." Id. Even taken together, as Jesco (paradoxically) argues that they must, the letter and cover sheet do not satisfy the requirements of the Louisiana Credit Agreement Statute.
Finally, Jesco's argument that the Louisiana Credit Agreement Statute does not apply to the case at hand because BACF is not a "financial institution" is entirely without merit. Jesco directs the Court's attention to the statute itself which defines a "financial institution" as "a bank, savings and loan association, savings bank[ ], or credit union authorized to transact business in this state." LA.REV.STAT. § 6:1121(4). While Jesco is correct in that assertion, the Court, simply directs Jesco's attention to that same statute; it applies to each and every "financial institution or any other type of creditor that extends credit or extends a financial accommodation under a credit agreement with a debtor." LA.REV.STAT. § 6:1121(2) (emphasis added). See also Westside-Marrero Jeep Eagle, Inc. v. Chrysler Corp., 56 F.Supp.2d 694, 703 (E.D.La.1999) (Louisiana Credit Agreement Statute "extends not only to banks but [also] to institutions [that] perform banking functions, such as borrowing and lending"). Jesco's arguments to the contrary are preposterous.
Accordingly, Jesco's claim for damages under the legal theory of breech of contract must be DISMISSED. However, as mentioned above, the analysis cannot end here, and the Court now turns to the other claims brought by Jesco.
2. Negligent Misrepresentation
Under Louisiana law, in order to recover for negligent misrepresentation a plaintiff must establish the following essential elements: 1) a legal duty on the part of the defendant to supply correct information to the plaintiff; 2) a breach of that duty; and 3) damages to the plaintiff as a result of his justifiable reliance upon the misrepresentation. See Brown v. Forest Oil Corp., 29 F.3d 966, 969 (5th Cir. 1994) (citing Busby v. Parish Nat'l Bank, 464 So.2d 374, 377 (La.Ct.App.1985)).
For the sake of brevity, the Court simply will assert that BACF had a legal duty "to supply correct information" to Jesco. Any breach of that duty is what the Defendant hopes to prove. The third, somewhat elusive, element of Jesco's claim for negligent misrepresentation turns on the issue *721 of "justifiable" or "reasonable" reliance, which shall be discussed below.[6]
3. Breach of the Duty of Good Faith and Fair Dealing
"Contracts must be performed in good faith." LA.CIV.CODE art.1983. In broader terms, "[g]ood faith shall govern the conduct of the obligor and the obligee in whatever pertains to the obligation." LA. CIV.CODE art. 1759 (emphasis added).
In support of its Motion for Summary Judgment, BACF directs this Court's attention to the fact that the United States Court of Appeals for the Fifth Circuit has held that "[t]he implied obligation to execute a contract in good faith usually modifies the express terms of the contract [but] should not be used to override or contradict them." Clark v. America's Favorite Chicken Co., 110 F.3d 295, 297 (5th Cir. 1997) (citing Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 485 (5th Cir.1984)). BACF then argues that
[a]gain and again, [BACF] warned Jesco in the letter of interest that it had not committed to provide the loan, and that it reserved the right to modify the terms set forth in the letter of interest or to refuse to lend Jesco any money at all.... [BACF's] implied covenant of good faith and fair dealing did not require it to waive rights it had reserved in the letter of interest.
(BACF's Memorandum in Support of its Motion for Summary Judgment, p. 39). While this Court agrees that BACF certainly had the right to modify the terms contained in the letter of interest (and although Jesco chose not to specifically address this portion of BACF's Motion for Summary Judgment in any manner whatsoever), BACF has somewhat misconstrued Jesco's claim of breach of the duty of good faith and fair dealing.
From the face of the petition it can be determined that Jesco will argue that such a breach occurred when BACF: allegedly failed "to properly notify Jesco of the loan status during negotiations with King Fisher;" allegedly failed "to properly investigate the loan;" allegedly failed "to properly follow its own policies and procedures in [the] loan process;" allegedly failed "to timely warn of [its] intention not to fund the loan;" allegedly failed "to timely administrat[e] the loan process;" and allegedly failed "to properly investigate the terms and conditions of the stock purchase transaction." (Jesco's "Petition for Damages and Breach of Contract," para. XXVI).
While the above allegations remain largely unsupported at the present time, as they may, Jesco claims that disputed issues of material fact exist regarding BACF's due diligence examination. See Plaintiff's Statement of Contested Material Facts, pp. 12-19. The Court holds that these issues preclude summary judgment on Jesco's claim of breach of the duty of good faith and fair dealing. A rational trier of fact could find in favor of Jesco. Accordingly, this portion of BACF's Motion for Summary Judgment must be DENIED.
4. Breach of Fiduciary Duty
With regard to the claim that BACF breached a fiduciary duty it allegedly owed to Jesco, the Court simply will quote the following Louisiana Revised Statute.
No financial institution or officer or employee thereof shall be deemed or implied to be acting as a fiduciary, or have a fiduciary obligation or responsibility to its customers or to third parties other than shareholders of the institution, unless there is a written agency or trust agreement under which the financial institution specifically agrees to act and perform in the capacity of a fiduciary. The fiduciary responsibility and liability of a financial institution or any officer or employee thereof shall be limited solely to performance under such a contract and shall not extend beyond the *722 scope thereof.... This Section is not limited to credit agreements and shall apply to all types of relationships to which a financial institution may be a party.
LA.REV.STAT. § 6:1124 (emphasis added).
No written agency agreement exists under which BACF specifically agrees to act and perform in the capacity of a fiduciary for Jesco. However, as noted above, BACF does not qualify as a "financial institution."[7] Using the legal maxim inclusio unius est exclusio alterius, this Court holds that in situations where the Louisiana Credit Agreement Statute applies, as in the case at hand,[8] any type of creditor other than a financial institution may be held liable for a breach of fiduciary duty even absent a written agency or trust agreement specifically providing for such a duty. Accordingly, this portion of BACF's Motion for Summary Judgment also must be DENIED.
5. Detrimental Reliance
The Louisiana Civil Code provides that "[a] party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying." LA. CIV.CODE art.1967.
The burden of proof for a claim of detrimental reliance is essentially the same as that for a claim of negligent misrepresentation. "In order to recover on a claim of detrimental reliance, plaintiffs must prove: `(1) a representation by conduct or word; (2) justifiable reliance thereon; and (3) a change of position to one's detriment because of the reliance.'" Clark v. America's Favorite Chicken Co., 916 F.Supp. 586, 591 (E.D.La.1996), aff'd, 110 F.3d 295 (5th Cir.1997) (quoting Breaux v. Schlumberger Offshore Servs., 817 F.2d 1226, 1230 (5th Cir.1987)). Such a claim "must be analyzed in the factual context from which it arose." Id. (emphasis added).
BACF noted as much. See BACF's Memorandum in Support of its Motion for Summary Judgment, pp. 37-38. Therefore, this Court agrees with Jesco's assertion that an issue concerning whether a person acted reasonably under given circumstances cannot be judged by summary proceedings. "Reasonableness is a very subjective term, and the Court would have to weigh evidence and the credibility of the witnesses in order to rule on the issues. Summary judgment is not the proper vehicle for this type of evaluation." (Jesco's Memorandum in Opposition to BACF's Motion for Summary Judgment, p. 37).
The members of the jury, who will be the finders fact, must decide whether Shavers, acting on behalf of Jesco, reasonably or justifiably relied on BACF's alleged promise to lend money. Underlying facts regarding Jesco's claims of detrimental reliance and negligent misrepresentation are in dispute. Accordingly, these portions of BACF's Motion for Summary Judgment must be DENIED.
6. Unfair Trade Practices
Under the Louisiana Unfair Trade Practices and Consumer Protection Law ("UTPL"), "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce" are prohibited. LA.REV.STAT. § 51:1405(A) (emphasis added). However, the provisions of the Louisiana UTPL "shall not apply to ... [a]ctions or transactions subject to the jurisdiction of ... the commissioner of financial institutions ..., and any bank chartered by or under the authority of the United States, acting under statutory authority of this state or the United States to regulate unfair or deceptive trade practices." LA.REV.STAT. § 51:1406. Although the statute listing the exemptions is not as clear as it could *723 be, there are two basic ways by which the UTPL would not apply to BACF; one, if BACF were subject to the jurisdiction of the Louisiana commissioner of financial institutions, or two, if it were subject to the jurisdiction of the Federal Trade Commission ("FTC") acting under statutory authority of the United States to regulate unfair or deceptive trade practices. The Court briefly will discuss both.
Under the Louisiana Banking Law, a "commercial lender" is "any person not otherwise subject to regulation or required to be licensed under the laws of this state who takes assignment of or defers payment of any obligation for any domestic corporation, foreign corporation, ... or any other person entering into obligations for commercial or business purposes." LA. REV.STAT. § 6:2(3) (emphasis added). As used in the Louisiana Banking Law, a "person" is "any natural or juristic person," unless the context of a specific statute within the law requires limiting the use of the term to only natural persons. LA. REV.STAT. § 6:2(12) (emphasis added).
The Louisiana commissioner of financial institutions has "supervisory and regulatory jurisdiction over all financial institutions." LA.REV.STAT. § 6:101(A) (emphasis added). A financial institution is "any person organized to engage in the business of banking pursuant to the laws of the United States or any person organized to engage in the business of banking" pursuant to the Louisiana Banking Law. LA.REV. STAT. § 6:2(8) (emphasis added). "`Business of banking' means lending money, and either receiving deposits, or paying checks anywhere within this state." LA. REV.STAT. § 6:2(3) (emphasis added).
BACF qualifies as a "commercial lender" under the Louisiana Banking Law. However, since it does not receive deposits or pay checks within this state, it is not subject to the jurisdiction of the Louisiana commissioner of financial institutions.[9] While several courts have noted that the Louisiana UTPL does not apply to banks and savings and loan institutions, this Court has found only one which extended the exemption to commercial lenders. See Preferred Inv. Corp. v. Neucere, 592 So.2d 889 (La.Ct.App.1991). However, the trial court decided that case during the period when commercial lenders were subject to the jurisdiction of the Louisiana commissioner of financial institutions.
Therefore, the provisions of the Louisiana UTPL will apply to BACF unless it is subject to the FTC's jurisdiction in its regulation of unfair or deceptive trade practices. Generally, only banks, savings and loan institutions, and "commercial lending companies owned or controlled by foreign banks" are subject to such regulation. See 15 U.S.C. § 57a(f). The Louisiana Legislature recognized as much.[10]
Unfortunately for BACF, this Court cannot use the legal maxim inclusio *724 unius est exclusio alterius to dismiss Jesco's claim under the Louisiana UTPL. This Court is not interpreting a statute; it is applying a holding of the Louisiana Supreme Court. That court refused to rule "on whether there are any exceptions to the credit agreement statute, such as fraud, misrepresentation, promissory estoppel or particularly vulnerable parties." Rockwell, 661 So.2d at 1332. The omission of the Louisiana UTPL cannot be construed to be determinative of the court's intent. It specifically stated that it "decline[d] ... to adopt a blanket rule ... that the credit agreement statute precludes all actions for damages arising from oral credit agreements, regardless of the theory of recovery asserted." Id. at 1332 n. 2. Therefore, the Louisiana Credit Agreement Statute and the Louisiana UTPL are not mutually exclusive.
In arguing that the Louisiana UTPL does not apply to the case at hand, BACF claims that Jesco is not a "consumer," and that the loan in question is not a "consumer transaction." While BACF is correct on the latter point,[11] its argument is of no moment. The Louisiana UTPL provides that "[a]ny person who suffers any ascertainable loss of money ... as a result of the use or employment by another person of an unfair or deceptive method, act or practice ... may bring an action individually but not in a representative capacity to recover actual damages." LA.REV.STAT. § 51:1409 (emphasis added). As used above, the term "person" means "a natural person, corporation, ... [or] any other legal entity." LA.REV.STAT. § 51:1402(8).
The Louisiana UTPL does apply to the case at hand. Accordingly, this portion of BACF's Motion for Summary Judgment also must be DENIED.[12]
7. Mitigation of Damages
Finally, BACF argues that Jesco's claims are precluded by its failure to mitigate the damages it allegedly suffered. The Louisiana Civil Code provides that "[a]n obligee must make reasonable efforts to mitigate the damage caused by the obligor's failure to perform. When an obligee fails to make these efforts, the obligor may demand that the damages be accordingly reduced." LA.CIV.CODE art.2002.
However, the above-quoted article is contained within Title IV of Book III of the Louisiana Civil Code, entitled "Conventional Obligations or Contracts." Since Jesco's claim for breach of contract has been dismissed,[13] this portion of BACF's Motion for Summary Judgment has been rendered MOOT.
*725 C. Underwriters' Additional Argument in Support of Granting Summary Judgment
Underwriters argue that they "are entitled to an adverse inference because plaintiff has spoliated the evidence." (Underwriters' Memorandum in Support of Their Motion for Summary Judgment, p. 2). Underwriters then cite cases standing for the basic proposition that an adverse presumption may be drawn against a party who has "lost" or "spoliated" evidence that such evidence would have been unfavorable to his, her, or its case.[14] In reply Jesco argues that the Fifth Circuit has held that an adverse inference drawn from the destruction of records or documents is predicated upon a showing of bad conduct or bad faith.
Each of these determinations shall be made by the members of the jury. This Court will instruct the jury as to the applicable law at the conclusion of trial. Underwriters' claim that Jesco has spoiled the evidence is not sufficient to warrant the granting of Summary Judgment. Accordingly, Underwriters' Motion for Summary Judgment must be DENIED.
III. Conclusion
Having addressed all of the relevant issues presented by the various motions for summary judgment presently pending before the Court,
IT IS ORDERED that BACF's Motion for Summary Judgment (Doc. 123) be, and the same hereby is GRANTED IN PART and DENIED IN PART pursuant to Rule 56 of the Federal Rules of Civil Procedure.
IT IS FURTHER ORDERED that Jesco's claim relating to the alleged breach of contract on the part of BACF be, and the same hereby is DISMISSED WITH PREJUDICE. In all other respects, BACF's Motion for Summary Judgment hereby is DENIED. The Motions for Summary Judgment filed on behalf of Continental and AISLIC (Docs. 248 and 258, respectively) therefore have been rendered MOOT.
IT IS FURTHER ORDERED that the Motion for Summary Judgment filed on behalf of Underwriters (Doc. 255) be, and the same hereby is DENIED.
NOTES
[1] Pursuant to this Court's Order of April 23, 1999, (Doc. 37) certain Defendants were dismissed from this lawsuit for lack of personal jurisdiction. Although not entirely accurate, the Court will refer to the entity or entities with which Jesco conducted the business involved in the instant litigation simply as BACF, since BACF is the successor to the only remaining Defendant originally sued by Jesco.
[2] The Court's recitation of the facts involved in this lawsuit is somewhat simplified, but nonetheless sufficient for purposes of resolving the motion at hand.
[3] A letter of interest is a document customarily used by asset-based lenders, such as BACF, to formalize the commencement of negotiations for a proposed loan and to commence the analysis of the proposed loan. Jesco claims that there were multiple letters of interest involved in the negotiation between itself and BACF.
[4] Three other Defendants also have filed motions for summary judgment: Continental Casualty Company ("Continental"); Those Interested Underwriters at Lloyd's of London and Other Companies Participating on Certificates Numbered QA475697, QA475697A, QA475897, and QA475897A ("Underwriters"); and American International Specialty Lines Insurance Company ("AISLIC").
On May 31, 2000, it was ordered "that the parties obtain the approval of this Court before any further pleadings will be allowed into the record in this matter." (Doc. 236). Each of the three above-mentioned motions was filed after that date, however, neither Continental nor AISLIC requested leave of Court to file their respective motions. The only reason those two motions have not been stricken from the record is that Continental and AISLIC simply adopt the arguments raised in BACF's motion which is presently under consideration.
Underwriters, like Continental and AISLIC, adopt the arguments presented by BACF in its motion for summary judgment and raise an additional claim relating to spoliation of evidence. Said claim will be briefly addressed after BACF's arguments are analyzed by the Court.
[5] As an aside, this Court finds it extremely difficult to accept Jesco's proposition that the facsimile cover sheet was sent to Shavers separate from the above-mentioned letter of interest. The Court's belief is bolstered not only by the fact that the number appearing in the blank provided to the immediate left of the phrase "PAGES (INCLUDING COVER SHEET)" appears to have been altered, but also by the fact that no time/date stamp is present at the top of those documents. (Other faxed documents that Jesco has submitted to this Court do contain such markings. See, e.g., Jesco's Memorandum in Opposition to BACF's Motion for Summary Judgment, Exhibits 9, 18, 29, and 42.) Be that as it may, as will be discussed below, such a determination is left to the finders of fact.
[6] See infra pp. 721-722.
[7] See supra p. 720.
[8] Id.
[9] The Court notes that as "limited function financial institutions," commercial lenders became subject to the jurisdiction of the Louisiana commissioner of financial institutions on January 1, 1985. See LA.REV.STAT.ANN. § 6:451 (West 1992). However, the statute providing such jurisdiction was repealed effective July 2, 1991.
[10] When the Louisiana Legislature enacted the statute subjecting commercial lenders to the jurisdiction of the commissioner of financial institutions, the following comment accompanied the revision.
This section is new and responds to changes occurring within the banking industry. Deregulation at the federal level has resulted in the emergence of "non-bank" banks or "near" banks. Recognizing that the performance of banking functions by persons other than financial institutions raises same policy concerns that have resulted in the unique status of financial institutions as regulated entities, this law imposes licensure requirements on certain limited function financial institutions. Licensure permits the continued development of such institutions without the imposition of onerous regulatory burdens; this is consistent with the thrust of deregulation.
LA.REV.STAT.ANN. § 6:451 cmt. (West 1992). However, as noted above, that statute was repealed by the legislature in 1991. See supra note 9.
[11] For purposes of the Louisiana UTPL, a consumer transaction is "any transaction involving trade or commerce to a natural person, the subject of which transaction is primarily intended for personal, family, or household use." LA.REV.STAT. § 51:1402(3) (emphasis added).
[12] However, the Court briefly will address an issue raised in a Motion to Continue Trial filed only recently on behalf of Underwriters. In said motion Underwriters stated that "because of the claims under the Louisiana Unfair Trade Practices Act and based upon notification of the Attorney General, it is anticipated [that] the plaintiff will seek to treble the[ ] damages" sought. (Doc. 341). The Court hereby dispels that notion.
In relevant part, the Louisiana UTPL provides that
[i]f the court finds the unfair or deceptive method, act or practice was knowingly used, after being put on notice by the director or attorney general, the court shall award three times the actual damages sustained. In the event that damages are awarded under this Section, the court shall award to the person bringing such action reasonable attorney's fees and costs.
LA.REV.STAT. § 51:1409(A) (emphasis added).
In the case at hand, BACF was put on notice that a claim under the Louisiana UTPL had been filed against it on June 29, 1999. See Jesco's Memorandum in Opposition to BACF's Motion for Summary Judgment, Exhibit 34. Since any alleged violation of UTPL occurred before that time, while an award of reasonable attorney fees is possible, an award of treble damages is not.
[13] See supra pp. 719-721.
[14] Underwriters also argue that under the doctrine of spoliation, the Court is left "with no other conclusion but that there was no commitment letter" issued by BACF to Jesco. (Underwriters' Memorandum in Support of Their Motion for Summary Judgment, pp. 2-3). To the extent that this Court already has dismissed Jesco's claim for breach of contract, Underwriters' claim has been rendered moot. The jury must evaluate the credibility of the witnesses and draw inferences from the evidence presented in order to decide Jesco's other claims. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2720248/ | J-A15039-14
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
WILLIAM KATES AND BEVERLY KATES, IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellees
v.
DOYLESTOWN HOSPITAL, ET AL.,
Appellant No. 2718 EDA 2013
Appeal from the Order Entered August 15, 2013
In the Court of Common Pleas of Bucks County
Civil Division at No(s): 2011-02516
BEFORE: PANELLA, LAZARUS AND JENKINS, JJ.
MEMORANDUM BY JENKINS, J. FILED AUGUST 22, 2014
August 15, 2013 directing the Hospital to provide various records to
eges
that the documents are privileged under the Peer Review Protection Act
affirm.
The Kates allege in this action that various medical defendants,
including the Hospital, failed to
During discovery, the Kates demanded that the Hospital produce documents
Benner, reviewed in preparation for her
ee,
1
J-A15039-14
compliance with accreditation by the Joint Commission on Accreditation of
On April 11, 2013, the Kates filed a motion to compel the Hospital to
produce the documents in dispute. In response, the Hospital submitted the
following documents under seal to the court for in camera review:
spital personnel had
completed the American Stroke Association's NI1-1 Stroke Scale
program.
made to the night hawk program (which deals with off hours x-ray
review).
nda of the Critical Care Quality Sub-
Committee of the Patient Safety Committee.
Stroke Committee's Minutes, which deal with the procedures to be
used for the operation of the stroke program.
-mail chains between
Stroke Committee members concerning practices and procedures the
hospital will use in the operation of its stroke program.
deals with
stroke and disabled patients at the hospital.
-mail chains between Stroke Committee
members and a Jefferson University administrator exchanging the
transfer agreement (which cannot be seen) between the two hospitals.
Documents 24-26 are email chains regarding the procedures used
requests by one doctor to another asking for their input on the
treatment of a patient).
etting forth the topics (procedures and
practices) the Stroke Committee will need to be prepared to discuss in
an upcoming phone call.
-2-
J-A15039-14
Trial Court Opinion, pp. 3-41.
compel. On August 15, 2013, the court ordered the Hospital to produce the
above list of documents. The Hospital filed a timely appeal from the portions
the portions of the order that permitted the Hospital to withhold several
documents from production.
The Hospital has the right to take an interlocutory appeal of this
discovery order pursuant to the collateral order doctrine embodied in
Pa.R.A.P. 313. Gillard v. AIG Ins. Co., 15 A.3d 44, 56 (Pa.2011)
(collateral order doctrine permits appeal from discovery order requiring
disclosure over assertion of privilege). Our standard of review over appeals
from orders interpreting the PRPA is plenary. Dodson v. DeLeo, 872 A.2d
1237, 1241 (Pa.Super.2005).
The lone issue on appeal is whether PRPA shields from production the
documents that the trial court ordered the Hospital to produce.
quality of care, reduce mortality and keep healthcare costs within reasonable
____________________________________________
1
To eliminate confusion, we do not list the documents that the court found
were not subject to production.
-3-
J-A15039-14
bounds. Trial Court Opinion, p. 6. To achieve these goals, there must be
honest and sometimes critical internal review of medical providers by their
peers. Id. The PRPA deems many internal review documents privileged to
facilitate accurate and comprehensive internal evaluations of medical
providers.
The trial court observed, however, that the PRPA has two important
limitations. The first limitation is that
review committee
committee engaged in peer review, including...gather[ing] and review[ing]
any hospital board, committee or individual reviewing the
professional qualifications or activities of its medical staff or applicants for
admission thereto Id. Peer review, in turn, is defined in pertinent part as
the procedure for evaluation by professional health
care providers of the quality and efficiency of
services ordered or performed by other professional
health care providers,... and the compliance of a
hospital, nursing home or convalescent home or
other health care facility operated by a professional
health care provider with the standards set by an
association of health care providers and with
applicable laws, rules and regulations.
63 P.S
under 63 P.S. § 425.4, which provides:
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J-A15039-14
Provided, however, that information, documents or
records otherwise available from original sources are
not to be construed as immune from discovery or
use in any such civil action merely because they
were presented during proceedings of such
committee, nor should any person who testifies
before such committee or who is a member of such
committee be prevented from testifying as to
matters within his knowledge, but the said witness
cannot be asked about his testimony before such a
committee or opinions formed by him as a result of
said committee hearings.
Id. (emphasis added). Under this limitation, a hospital may not shield a
document from production merely by giving it to a peer review committee.
A document not derived from nor part of an evaluation or review by a peer
review committee is not privileged. Dodson, supra, 872 A.2d at 1244.
Read together, the trial court reasoned, the two limitations provide
Court Opinion, p. 8.
The trial court held that the documents that it ordered the Hospital to
produce do not relate to peer review. Instead, the court said, the Hospital
simply labeled them privileged without good reason:
Peer review necessarily involves evaluating the
quality of care provided by medical professionals or
evaluating the qualifications of medical care
providers. Except for those portions that we held
could be redacted, the documents/communications
at issue were not used or made for the
determination of staff privileges or for credentialing
-5-
J-A15039-14
purposes. These documents/communications were
not used exclusively for quality assurance purposes
by the Stroke Committee and are not incorporated
exclusively within a physician's credentialing file.
See Dodson, supra. Furthermore, Doylestown
Hospital cannot point to a definitive action initiating
the peer review process prior to the time these
documents were created. See Mazzucca [v.
Methodist Hospital], 47 D. & C. 3d [55,] 60
[(Phila. Cty. 1985)]. Quite simply, the emails,
agenda and minutes we ordered discoverable are
non-peer review business records and
communications that are neither used, nor generated
by the Stroke Committee for peer review purposes.
Id., pp. 8-
procedures for the operations of its stroke program or monitoring changes
with the Joint Commission's standards [does not] constitute[] a peer review
process. . . especially if those procedures relate to discussing the Joint
Id., pp. 9,
11.
The court continued:
[T]he Kates' Motion for Production of Documents
does not request any reports, documents or
recommendations produced by the Joint Commission
or exchanged between the Joint Commission and
Doylestown Hospital: (1) The Motion requests
minutes of the Stroke Committee in 2009 (2) The
motion requests documents reviewed by Benner
prior to the deposition, and (3) The Motion requests
emails between Benner and the Stroke Committee.
Furthermore, our Order explicitly exempts any
documents, communications or evaluations produced
by the Joint Commission or exchanged between the
Joint Commission and Doylestown Hospital.
-6-
J-A15039-14
Id., p. 10.
The court concluded:
peer review procedures may overlap with the Stroke
rate or related peer review
procedures. For instance, our in camera review of
the disputed documents helped us identify and
protect from discovery certain portions of the Stroke
Committee minutes that involved actual peer review.
Document 8, item 2.a, and Document 10, item 2,
both are minutes that detail the Stroke Committee's
report and discussions on problems regarding the
efficiency and quality of care provided by medical
personnel. We allowed those portions to be redacted.
We are reluctant, however, to extend this same
exemption to other information relating to the Stroke
Committee's function of setting up the Stroke
Program's policies and procedures[,] especially if
those procedures relate to discussing the Joint
Commission's publically published standards of
accreditation.
[The] Hospital would like the PRPA's confidentiality
provision to extend to all communications of the
Stroke Committee as well as every document derived
by the Stroke Committee. Permitting such a broad
request would be a clear misuse of the PRPA's
confidentiality provision because it would allow
hospitals to insulate their policy making decisions
under the guise of peer review. It is beyond the
PRPA's plain meaning.
Therefore, [the] Hospital did not meet its burden of
establishing t
confidentiality provision extends to the documents
and communications our order requires it to disclose.
Id., p. 11.
-7-
J-A15039-14
We have carefully reviewed the record, the briefs of both parties, and
the documents that are the subject of this appeal. We agree with Judge
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/22/2014
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https://www.courtlistener.com/api/rest/v3/opinions/2720249/ | J.S43031/14
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN THE INTEREST OF: T.W., A MINOR IN THE SUPERIOR COURT OF
PENNSYLVANIA
APPEAL OF: D.W., MOTHER No. 792 EDA 2014
Appeal from the Order Entered February 4, 2014
In the Court of Common Pleas of Monroe County
Domestic Relations at No(s): CP-45-DP-0000064-2012
64 DP 2012, FID: 45-FN-41-2012
BEFORE: GANTMAN, P.J., ALLEN, and FITZGERALD,* JJ.
MEMORANDUM BY FITZGERALD, J.: FILED AUGUST 22, 2014
Monroe County
Court of Common Pleas changing the permanency goal of her child, T.W.
with a concurrent goal of reunification. We affirm.
We adopt the facts and procedural history as set forth by the trial
court. See Trial Ct. Op., 4/11/14, at 1-15. For ease of review, we
marked by numerous claims of domestic violence by each
parent, criminal charges flying back-and-forth, multiple
outright lies told by Mother about Father, instability,
periods of separation, and significantly, a rare level of
pathological co-dependence that has continually brought
*
Former Justice specially assigned to the Superior Court.
J. S43031/14
Mother and Father back together despite the volatility of
their union. Acts of violence occur when Mother and
Father are together and when they are separated.
Id. at 1-2 (citations to notes
monitoring. Id. at 3.
Child came to the attention of Monroe County Children and Youth
that during a
Id. at 4.1
record, includin
warrant in Georgia for forgery charges. Id. at 6. On July 1, 2012, CYS was
granted emergency protective custody of Child, and Child was placed in
foster care. After a hearing on August 2nd, the court adjudicated Child
dependent and set an initial permanency goal of reunification. Id. at 8.
The most recent review hearings were held on December 20, 2013 and
January 24, 2014. On February 4, 2014, the court issued the underlying
order changing the priority of the goals for Child, to a primary goal of
adoption and secondary goal of reunification with Mother. Mother took this
timely appeal and filed a contemporaneous statement of matters complained
1
Father was arrested and charged with aggravated assault and related
offenses for this incident. Trial Ct. Op. at 6.
-2-
J. S43031/14
of on appeal.2
Mother raises the following issues for our review:
1. Whether a dependence goal should be changed where:
(A) The circumstances necessitating the original
placement have been alleviated;
(B) Mother has completed the requirements of the
family service plan; and
(C) [CYS] failed to make reasonable efforts to
accomplish reunification?
Mother contends the trial court abused its discretion in changing the
goal from reunification to adoption. First, she argues that the trial court
failed to give due consideration to her evidence that showed the
Id.
at 15. In support, Mother claims the following: (1) she recanted her
owing Child from a
vehicle; (2) the Georgia arrest warrant was no longer active and she was not
in prison;3
2
See Pa.R.A.P. 1925(a)(2).
3
Mother was arrested on the warrant, the same day that CYS gained
emergency protective custody of Child, but authorities in Georgia declined to
extradite Mother. Trial Ct. Op. at 6, 7. However, Mother was subsequently
Id.
at 8. Mother also later pleaded guilty to false reports to law enforcement
and was sentenced to probation. Id. at 11.
-3-
J. S43031/14
were not caused by the roadside incident but instead occurred during her
premature delivery.
Second, Mother maintains she completed her child permanency plan
goals, including completing anger management and parenting courses, and
undergoing psychological evaluations and domestic abuse counselling.
Mother also contends the court diminish
Id.
at 19-20.
Finally, Mother alleges CYS failed to make reasonable efforts to
accomplish reunification. She avers that CYS failed to conduct a home visit
before it concluded her home was inappropriate for Child, and that her visits
Id. at 21.
Mother further asserts the court erred in finding a seven-month lapse
between review hearings, in violation of 42 Pa.C.S. § 6531(e)(3), did not
prejudice her. She also claims CYS failed to identify or recruit a qualified
family to adopt Child. Id. at 22.
We first note the relevant standard of review:
placement goal for a dependent child to adoption, our
standard is abuse of discretion. In order to conclude that
the trial court abused its discretion, we must determine
-4-
J. S43031/14
action was a result of partiality, prejudice, bias or ill will,
as shown by the r
findings of fact that have support in the record. The trial
court, not the appellate court, is charged with the
responsibilities of evaluating credibility of the witnesses
and resolving any conflicts in the testimony. In carrying
out these responsibilities, the trial court is free to believe
findings are supported by competent evidence of record,
we will affirm even if the record could also support an
opposite result.
In re A.K., 936 A.2d 528, 532-33 (Pa. Super. 2007) (citation omitted).
At each review hearing for a dependent child who has been
removed from the parental home, the court must consider
the following, statutorily-mandated factors:
the continuing necessity for and appropriateness of
the placement; the extent of compliance with the
service plan developed for the child; the extent of
progress made towards alleviating the circumstances
which necessitated the original placement; the
appropriateness and feasibility of the current
placement goal for the child; and, a likely date by
which the goal for the child might be achieved. [42
Pa.C.S.A. § 6351(f)].
* * *
When the child welfare agency has made reasonable
efforts to return a foster child to his or her biological
parent, but those efforts have failed, then the agency must
redirect its efforts towards placing the child in an adoptive
home. This Court has held that the placement process
should be completed within 18 months.
Id. at 533 (some citations omitted).
Additionally, Section 6351(f.1) of the Juvenile Act requires the trial
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J. S43031/14
(f.1) Additional determination. Based upon the
determinations made under subsection (f) and all relevant
evidence presented at the hearing, the court shall
determine one of the following:
* * *
(2) If and when the child will be placed for adoption,
and the county agency will file for termination of
parental rights in cases where return
parent, guardian or custodian is not best suited to the
safety, protection and physical, mental and moral
welfare of the child.
42 Pa.C.S. § 6351(f.1)(2).
On the issue of a placement goal change, this Court has stated:
When a child is adjud
interest, not on what the parent wants or which goals the
parent has achieved. Moreover, although preserving the
unity of the family is a purpose of the [Juvenile] Act,
an
safety, and wholesome mental and physical development
42 Pa.C.S. § 6301(b)(1.1). . . .
In re K.C., 903 A.2d 12, 14-15 (Pa. Super. 2006) (some citations omitted).
-track system
under which child welfare agencies provide services to parents to enable
their reunification with their children, while also planning for alternative
permanent In re Adoption of S.E.G.,
901 A.2d 1017, 1019 (Pa. Super. 2006).
Instantly, after careful review of the record, including the notes of
testimony of the December 20, 2013 and January 24, 2014 review hearings,
-6-
J. S43031/14
the parti -reasoned decision of the Honorable Jonathan
See Trial. Ct. Op.,
at 18-21, 28 (finding, inter alia: (1) underlying problem of roadside tug-of-
-documented, deep-seated history
of violence between Mother and Father that . . . presents a danger to others,
nt and abusive
counseling from a clinician, minister, and pregnancy crisis group; (3)
suitable for Child because it was located
in a high crime, drug-
there, now stands charged with felonies related to selling drugs in the home;
(5) Mother has failed to support her claims of having a job and going to
nursing school with formal documentation; and (6) Child had been in care
for more than eighteen months). We discern no abuse of discretion by the
trial court. See In re A.K., 936 A.2d at 532-33. Accordingly, we affirm the
concurrent goal of reunification.
Order affirmed.
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J. S43031/14
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/22/2014
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https://www.courtlistener.com/api/rest/v3/opinions/2720250/ | J-S30017-14
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN THE INTEREST OF: S.K.P., A MINOR IN THE SUPERIOR COURT OF
PENNSYLVANIA
APPEAL OF: C.P., MOTHER
No. 2295 MDA 2013
Appeal from the Order Entered December 10, 2013
In the Court of Common Pleas of Centre County
Juvenile Division at No(s): CP-14-DP-2-2011
IN THE INTEREST OF: E.J.P., A MINOR IN THE SUPERIOR COURT OF
PENNSYLVANIA
APPEAL OF: C.P., MOTHER
No. 2296 MDA 2013
Appeal from the Order Entered December 10, 2013
In the Court of Common Pleas of Centre County
Juvenile Division at No(s): CP-14-DP-3-2011
IN THE INTEREST OF: T.M.P., A MINOR IN THE SUPERIOR COURT OF
PENNSYLVANIA
APPEAL OF: C.P., MOTHER
No. 2297 MDA 2013
Appeal from the Order Entered November 25, 2013
In the Court of Common Pleas of Centre County
Juvenile Division at No(s): CP-14-DP-4-2011
J-S30017-14
BEFORE: BENDER, P.J.E., MUNDY, J., and JENKINS, J.
MEMORANDUM BY MUNDY, J.: FILED AUGUST 22, 2014
Appellant, C.P. (Mother), appeals from the November 25 and
December 10, 2013 orders terminating the dependency of her biological
sons, S.K.P., T.M.P., and E.J.P., and transferring their legal and physical
custody to Foster Mother, K.P., as their subsidized permanent legal
custodian (SPLC). After careful review, we affirm.
We summarized the relevant factual and procedural history of this
case within a prior memorandum filed on June 6, 2014. See In re S.K.P., -
-- A.3d ---, 2295 MDA 2013, (Pa. Super. 2014) (unpublished memorandum
at 2-10). Our June 6, 2014 memorandum granted Mother relief on her first
issue raised on appeal, i.e.
findings required by statute to support the appointment of a permanent legal
see also In re S.K.P., supra at 20.
Pennsylvania Rule of Appellate Procedure 1925(a) opinion did not sufficiently
address the factors set forth in Section 6351(f) of the Juvenile Act, 42
Pa.C.S.A. §§ 6301-6375, concerning matters to be determined at
permanency hearings. In re S.K.P., supra. Therefore, we remanded this
matter to the trial court and directed it to file a supplemental Rule 1925(a)
opinion in accordance with Section 6351(f). Id. The trial court issued its
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supplemental opinion complied with our prior memorandum and addressed
the matters outlined in Section 6351(f). We now proceed to address
errors complained of on appeal.
On appeal, Mother presents the following issues for our review.
[I.] Has [Mother] been unconstitutionally deprived
of her right to make decisions concerning the
care, custody, and control of her children?
[II.] Does the li
her sons to three hours per month of tightly
constitutional right to access to her children?
We review an order granting SPLC for an abuse of discretion.1 In re
K.J. reviewing such a decision,
____________________________________________
1
follows.
In 2001, Pennsylvania created a subsidy program,
SPLC, which provides financial support for families
willing to become permanent legal custodians
pursuant to [S]ection 6351(f.1)(3). SPLC transfers
legal custodian without requiring the termination of
parental rights. When deemed appropriate, the trial
court has the power to permit continued visitation by
for SPLC, the legal custodian must meet all of the
requirements for foster parenthood, submit to an
annual eligibility evaluation, and have the ability to
provide for the child without court supervision.
In re H.V., 37 A.3d 588, 589 n.1 (Pa. Super. 2012) (brackets omitted),
citing In re B.S., 861 A.2d 974, 977 (Pa. Super. 2004).
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we are bound by the facts as found by the trial court unless they are not
observe and rule on the c Id., citing
In re A.K., 906 A.2d 596, 599 (Pa. Super. 2006). Although bound by the
deductions, and conclusions therefrom; we must exercise our independent
Id.
the record represents a comprehensive inquiry and that the hearing judge
Id.
unconstitutionally deprived of her right to make decisions concerning the
Id. Yet, the argument Mother
develops within her appellate brief is one of sufficiency. Id. at 20-21.
Specifically, Mother asserts Centre County Children and Youth Services
(CYS) failed to present clear and convincing evidence to support the SPLC
orders because the bulk of its testimony consisted of inadmissible hearsay.
Id.
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This Court recently articulated the differences between the evidentiary
burdens of proof applicable in SPLC and termination of parental rights
matters. In re S.H., 71 A.3d 973, 979-980 (Pa. Super. 2013), appeal
denied, 80 A.3d 778 (Pa. 2013). In S.H., we addressed whether an order
custody. Id. at 975. Concluding the legislature could not have intended for
such a prohibition, we reasoned as follows.
A trial court must utilize the highest civil
when addressing a petition to terminate parental
rights. When a trial court considers and grants a
[SPLC] order, it does not engage in this heightened
review process. Upon filing a SPLC petition, [CYS] is
required merely to prove that [neither] reunification
safety, protection and physical, mental and moral
welfare. Clearly, the procedural and substantive
safeguards utilized to protect the rights of parents in
termination cases are not applicable in [S]PLC cases.
Id. at 979-980 (citation and footnote omitted).
In the case sub judice
SPLC, not petitions
evidence. See id. Rather, CYS only needed to establish that neither
ited to [S.K.P., T.M.P.,
Id.
at 980.
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Herein, the trial court found CYS presented sufficient evidence to
al
Court Opinion, 7/3/14, at 10.
placement. [T]he children made their own strides, mentally, emotionally,
educationally, and socially, and have developed a very close relationship
Id.
occur until after th[e trial c]ourt ended reunification services and changed
i.e.
Id.
historically complied
Id.
ulfill their needs
for permanency and stability. Id. at 11. The trial court also noted that
SPLC would encourage S.K.P, T.M.P., and E.J.P. to visit with Mother and
their twin sisters. Id.
Upon review, we conclude the trial court did not abuse its discretion
when it entered the contested SPLC orders because sufficient evidence exists
to support such orders. The trial court held a two-
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J-S30017-14
SPLC petitions, at which time the following individuals testified: the director
of the family-based mental health program, Keystone Human Services; a
CYS caseworker; a graduate assistant and staff therapist at the Penn State
Additionally, ad litem (GAL) spoke to
the trial court. N.T., 11/22/13, at 58-61. As the trial court based its SPLC
orders on this testimony and the record supports its factual findings, we
conclude no abuse of discretion occurred. See K.P., supra.
Moreover, we note the alleged inadmissible hearsay testimony
citing N.T., 1/14/11
that testimony and/or the initial dependency finding of the trial court to be
waived since she failed to appeal that initial dependency decision to this
Court. See generally In re J.J., 69 A.3d 724 (Pa. Super. 2013)
adjudicating his four children
dependent); In re F.B., 927 A.2d 268, 272 (Pa. Super. 2007) (concluding
that the dismissal of a dependency petition is a final, appealable order
pursuant to Pa.R.A.P. 341(b)), appeal denied, 954 A.2d 577 (Pa. 2008).
Accordingly,
visitation schedule violates her constitutionally protected right to access her
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citing In re C.J., 729 A.2d 89, 94 (Pa. Super.
1999). Specifically, Mother argues that the trial court may not limit her
visitation to three hours a month unless these visits pose a grave threat to
her children and that CYS failed to present evidence establishing such a
threat. Id.
vi See C.J., supra at 94-95, citing Santosky v. Kramer, 455
U.S. 745 (1982), Green v. Sneeringer, 635 A.2d 1074 (Pa. Super. 1993).
clearly shows that parents are unfit to associate with their children should
Id. at 95, quoting Commonwealth
ex rel. Turner v. Strange, 115 A.2d 885, 886 (Pa. Super. 1955) (brackets
and internal quotation marks omitted).
[Yet, t]he standard against which visitation is
remains the goal of the family service plan, visitation
will not be denied or reduced unless it poses a grave
reunification of the
family, then visitation may be limited or denied if it
is in the best interests of the child or children.
In re C.B., 861 A.2d 287, 294 (Pa. Super. 2004) (citations omitted), appeal
denied ts standard, in this
-8-
J-S30017-14
C.J., supra (internal quotation marks omitted).
the underlying matter because, at the time of the SPLC hearing, S.K.P.,
See id.
from reunification to planned permanent living arrangement/long-term foster
care on March 27, 2012. Trial Court Permanency Review Orders, 3/27/12.
court did not need to apply the grave interest standard when it limited
itation. See C.B., supra. Rather, the trial court appropriately
considered the best interests of the children when awarding Mother three
hours of visits per month. See id.; Trial Court Opinion, 1/14/14, at 6
interests are met by visiting
2013 orders terminating the dependency of her biological sons, S.K.P.,
T.M.P., and E.J.P., and transferring their legal and physical custody to a
SPLC.
Orders affirmed.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/22/2014
- 10 - | 01-03-2023 | 08-22-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/2139076/ | 965 F. Supp. 919 (1997)
Michael V. RIOS
v.
INDIANA BAYER CORPORATION.
Civil Action No. G-96-89.
United States District Court, S.D. Texas, Galveston Division.
June 3, 1997.
Syd Phillips, Houston, TX, for Plaintiff.
Jack Edward Urquhart, Holtzman & Urquhart, Houston, TX, Andrea Marie Johnson, Houston, TX, for Defendant.
ORDER
KENT, District Judge.
In this employment discrimination case, Plaintiff brings claims under the Texas Commission on Human Rights Act ("TCHRA"), *920 alleging that Defendant discriminated against him on the basis of a disability when it denied him a position as a production technician at its Baytown, Texas chemical plant. Now before the Court are Plaintiff's Motion for Partial Summary Judgment of April 4, 1997 and Defendant's Motion for Summary Judgment of April 18, 1997. For the reasons set forth below, Plaintiff's Motion is DENIED, and Defendant's Motion is GRANTED.
I. FACTUAL BACKGROUND
Plaintiff began working for Defendant, then known as Mobay Corporation, in 1981 as a production technician in Defendant's Baytown, Texas chemical plant. In October, 1982, Plaintiff was involved in a motorcycle accident in which he suffered severe injuries consisting of a traumatic, nearly complete amputation of his lower left leg, an open knee disarticulation, and a fracture dislocation of the left hip. Plaintiff's left leg was ultimately surgically amputated above the knee. After his surgery, Plaintiff was fitted with a prosthetic device, which enabled him to walk. The prosthesis is a full-length one that extends to his pelvis and provides him with an artificial knee, ankle, and foot.
Plaintiff returned to work at the plant approximately nine months after the accident and worked as a laboratory technician in the Makrolon area of the plant. While at this position, Plaintiff experienced some problems with his prosthesis irritating his leg and was instructed by his doctor to avoid standing for long periods of time. Plaintiff's problems with his prosthesis continued, and on May 1, 1984, Plaintiff's doctor sent a letter to Defendant's Medical Department restricting Plaintiff's work schedule and activities. In this letter, Plaintiff's doctor instructed the Medical Department that Plaintiff should not work more than an eight hour day, should not stand for more than four hours, should not lift anything heavier than fifty pounds, should not climb more than one flight of stairs, and should not climb ladders. At the end of May, 1984, Plaintiff was transferred from the laboratory technician position to a clerical position, in which he would be seated most of the time. During mid-1984, Plaintiff missed approximately two months of work due to surgery he had to remove the flap of skin that had been irritating his leg. Plaintiff returned to his clerical position after this surgery and has since that time received satisfactory job reviews and pay increases.
In 1994, Plaintiff applied for a position as a production technician in the coatings area of the plant. Under Defendant's policy, an employee submits a bid for an open position and Defendant reviews the employee's qualifications, medical restrictions, and disciplinary history and either accepts or rejects the bid. On June 14, 1994, Plaintiff received a memorandum from R.L. Swanagan stating that Plaintiff's bid for the production technician position had been rejected on the grounds that Plaintiff was not permitted to work in the unit because of physical limitations. Plaintiff contacted Mr. Swanagan to ask why he was denied the position, and Mr. Swanagan responded that after consulting with the company doctor, Dr. Holsomback, it was determined that Plaintiff was physically limited in climbing stairs and ladders. At this time, the May 1, 1984 letter from Plaintiff's doctor restricting his work activity was still in Plaintiff's company medical file and had not been nullified or modified. A month after Plaintiff's bid was rejected, he, Dr. Holsomback, and Mr. Robbins, a Human Resources employee, met to discuss why his bid was rejected. At this meeting, Dr. Holsomback informed Plaintiff that he would have to provide medical documentation from his own doctor to clear the medical restrictions in his file. Mr. Robbins provided Plaintiff with a job description form for the production technician position for Plaintiff to present to his doctor to assist him in evaluating Plaintiff's ability to fulfill the job requirements. Plaintiff claims that the form was useless to the doctor because it did not reflect the physical requirements of the job. Plaintiff never did clear the medical restrictions in his file.
In August, 1994, Plaintiff filed an EEOC charge claiming that he was denied a promotion to the position of production technician on the basis of his having a disability. Plaintiff filed suit against Defendant in state court in January, 1996, alleging that Defendant violated the TCHRA, Tex. Labor Code *921 Ann. § 21.001 et seq. (Vernon 1996), by denying him the production technician position. Defendant removed the case to this Court on February 8, 1996 on diversity grounds. Now before the Court are Motions for Summary Judgment by both parties. In his Motion, Plaintiff seeks a finding of liability on the part of Defendant. In its Motion, Defendant seeks a dismissal of Plaintiff's entire cause of action on the grounds that he cannot establish a prima facie case of unlawful discrimination.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Issues of material fact are genuine only if they require resolution by a trier of fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). In other words, the Court must accept the evidence of the nonmoving party and draw all justifiable inferences in favor of that party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87, 106 S. Ct. 1348, 1355-56, 89 L. Ed. 2d 538 (1986). Determining credibility, weighing evidence, and drawing reasonable inferences are left to the trier of fact. Anderson, 477 U.S. at 255, 106 S. Ct. at 2513.
The party moving for summary judgment bears the initial burden 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 Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986); see also Fed.R.Civ.P. 56(c). The burden then shifts to the nonmoving party to establish the existence of a genuine issue for trial. Matsushita, 475 U.S. at 585-87, 106 S. Ct. at 1355-56; Wise v. E.I. DuPont De Nemours & Co., 58 F.3d 193, 195 (5th Cir.1995). To meet this burden, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts" by "com[ing] forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1355-56 (quoting Fed.R.Civ.P. 56(e)). Summary judgment should be granted only if the evidence indicates that a reasonable fact-finder could not find in favor of the nonmoving party. Anderson, 477 U.S. at 248, 106 S. Ct. at 2510; see also Matsushita, 475 U.S. at 587, 106 S. Ct. at 1356.
III. DISCUSSION
Plaintiff seeks to impose liability on Defendant for unlawful discrimination in employment pursuant to section 21.051 of the TCHRA. Section 21.051 provides:
An employer commits an unlawful employment practice if because of race, color, disability, religion, sex, national origin, or age the employer:
(1) fails or refuses to hire an individual, discharges an individual, or discriminates in any other manner against an individual in connection with compensation or the terms, conditions, or privileges of employment.
TEX. LAB.CODE ANN. § 21.051 (Vernon 1996). The TCHRA seeks to promote the policies of federal civil rights laws, specifically Title VII, 42 U.S.C. § 2000e et seq., and the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12101 et seq. See id. § 21.001. For this reason, and because Texas has little case law interpreting the TCHRA, courts must look to analogous federal law when resolving disputes brought under the Act. Austin State Hosp. v. Kitchen, 903 S.W.2d 83, 87-88 (Tex. App. Austin, 1995, no writ). Federal law regarding disability discrimination by private employers is found in the ADA, and the Court looks to the analogous provisions of that act in interpreting the TCHRA in this case. See id. at 88.
To prevail on a discrimination claim under the ADA, a plaintiff must prove 1) that he has a "disability"; 2) that he is "qualified" for the job; and 3) that an adverse employment decision was made solely because of his disability. Turco v. Hoechst Celanese Corp., 101 F.3d 1090, 1092 (5th Cir.1996) (citing Tyndall v. National Educ. Centers, Inc., 31 F.3d 209, 212-13 (4th Cir.1994)). The regulations enacted pursuant to the ADA define "disability" as a "physical or mental impairment *922 that substantially limits one or more of the major life activities of such individual," a "record of such an impairment," or "[b]eing regarded as having such an impairment." 29 C.F.R. § 1630.2(g) (1996). The definition of a "disability" under the TCHRA is virtually identical. See TEX. LAB.CODE ANN. § 21.002(6). A person with a disability is "qualified" for a job if that person "satisfies the requisite skill, experience, education and other job-related requirements of the employment position such individual holds or desires" and "with or without reasonable accommodation, can perform the essential functions of such position." 29 C.F.R. § 1630.2(m) (1996). In determining whether a plaintiff is a "qualified individual" with a disability, the Court must first determine whether the plaintiff can perform the essential functions of the job she holds. Chandler v. City of Dallas, 2 F.3d 1385, 1393 (5th Cir.1993), cert. denied, 511 U.S. 1011, 114 S. Ct. 1386, 128 L. Ed. 2d 61 (1994); see also Daugherty v. City of El Paso, 56 F.3d 695, 696 (5th Cir.1995), cert. denied, ___ U.S., ___, 116 S. Ct. 1263, 134 L. Ed. 2d 211 (1996). If the Court concludes that the plaintiff is not able to perform the essential functions of the job, the Court must then determine whether any reasonable accommodation by the employer would enable the plaintiff to perform those functions. Chandler, 2 F.3d at 1394-94. If no reasonable accommodation would enable the plaintiff to perform the essential functions of her position, then she is not a "qualified individual" with a disability and is not subject to the protection afforded by the ADA. Tyndall v. National Educ. Centers, Inc., 31 F.3d 209, 212-13 (4th Cir.1994).
"Essential functions" are those functions that bear more than a marginal relationship to the job at issue. Chandler, 2 F.3d at 1393. Physical criteria, such as the ability to lift heavy loads, must be necessary and substantially related to a person's ability to perform the essential functions of the job. Evidence of whether a particular function is essential includes, but is not limited to: (1) the employer's judgment as to which functions are essential; (2) written job descriptions prepared before advertising or interviewing applicants for the job; (3) the amount of time spent on the job performing the function; (4) the consequences of not requiring the incumbent to perform the function; (5) the terms of a collective bargaining agreement; (6) the work experience or past incumbents on the job; and/or (7) the current work experience of incumbents in similar jobs. 29 C.F.R. § 1630.2(n)(3) (1996).
Defendant argues that Plaintiff cannot establish a prima facie case of discrimination under the TCHRA, or ADA, because he cannot establish the first two elements of the claim, that he has a disability and that he was qualified for the production technician position. Defendant claims that Plaintiff is not "disabled" within the meaning of the ADA because his physical impairment does not substantially limit any of his major life activities. Specifically, Defendant argues that Plaintiff, with the use of his prosthesis, can walk, speak, hear, see, breathe, learn, work, and take care of himself. Plaintiff, on the other hand, argues that his ability to perform these major life activities should be evaluated without the use of his prosthesis and that without it, he cannot perform the major life activity of walking. The Court need not decide this issue[1] because even assuming arguendo that Plaintiff has a disability under the ADA, he cannot meet the second element of his claim, that he was qualified for the position.
The Court finds that Plaintiff was not qualified for the production technician position *923 for which he applied because he could not perform the essential functions of the position, nor could reasonable accommodations be made in the position so that he could perform them. The production technician position at a chemical plant is a physically demanding job, which is performed in rotating twelve-hour shifts. According to Defendant's "Occupational Demands/Physical Requirements Checklist" and the affidavit of Carl Davis, the Operating Supervisor of the HDI II/DES-W area, approximately sixty-seven percent of a coatings area production technician's job is performed outside. This outside work takes place in the HDI II/DES-W units, which are two, five-story metal buildings. Thirty to sixty percent of the duties in these units involve sitting, standing, walking, ascending and descending stairs, turning wrenches and valve handles, and bending. In these outdoor units, a technician must adjust plant equipment, climb over large piping and scaffolding, and move over raised walls and between tanks or vessels. Once a week, a technician must climb the caged ladder of an eighty-four-foot tank to monitor a gauge. Two or three times a month, a technician must climb the caged ladder of a forty-foot tank to adjust a valve. Technicians are also often required to lift or carry heavy equipment or to sometimes wear heavy protective gear including a slicker, rubber boots, and a breathing apparatus. This gear is especially required when there is an operational error, equipment malfunction, or a "shut-down." During these times, a technician must be able to move quickly between floors and perform his duties while wearing the protective gear. Moreover, during an emergency situation, a technician must be able to move quickly throughout the unit to fix the problem while wearing the protective gear and be able to rescue other personnel.
As noted above, at the time Plaintiff applied for the position, his company medical file contained a letter from his doctor significantly restricting his work activities. He was forbidden to climb ladders and was limited to climbing only one flight of stairs. His doctor instructed the company that he should stand no more than four hours and sit whenever necessary. He was also forbidden from lifting anything heavier than fifty pounds. Moreover, he was instructed to work only eight-hour shifts and not to work overtime. At the time of Plaintiff's application, these restrictions had not been removed or modified. Plaintiff argues that Defendant's reliance on this 1984 letter was improper because his file contained two subsequent medical documents in which he was released to "regular duty" without restrictions. The Court is unpersuaded by Plaintiff's argument because at the time of the issuance of these later releases, Plaintiff's "regular duty" was that required by his nonphysically-demanding, seated clerical position and no restrictions were placed on his ability to perform that job. These documents were not intended to release him to do any kind of job he wanted within the plant.
The Court notes that Defendant gave Plaintiff an opportunity to clear these medical restrictions by giving him a job description so that his doctor could evaluate his abilities. Plaintiff asserts that the form was "useless" to his doctor. What Plaintiff fails to mention, however, is that he did present the form to his doctor, who expressed disapproval at Plaintiff's desire to transfer to the production technician position. Specifically, Plaintiff's doctor stated: "He [Plaintiff] wants to go from a desk job to an outside technician's job. I told him that I didn't think that made much sense if he was still having significant problems with his prosthesis. I think that working outside will only aggravate this." (8/17/94 Progress Note of Dr. McGarey, MacGregor Medical Association). According to Plaintiff's own doctor, Plaintiff was experiencing "significant problems" with his prosthesis near the time he applied for the technician position and was advised that an outdoor position was not suitable for him. This information is significant evidence that Plaintiff was not qualified for the production technician position.
More than this, however, the Court finds dispositive the fact that at the time he applied for the position, Plaintiff had in effect significant medical restrictions on his work activities. Plaintiff was restricted in stair climbing, ladder climbing, and heavy lifting, all essential functions of the production technician position. Moreover, Plaintiff was restricted *924 to eight-hour shifts and no overtime, and the technician position required twelve-hour shifts and overtime one day a week. Plaintiff's medical restrictions clearly prohibited him from working these hours and performing the above-listed functions of the job. Defendant did not base its denial of the position on myths or stereotypes, as Plaintiff claims, but rather relied on the medical restrictions imposed by Plaintiff's own doctor. The Court has no choice but to find that this reliance was proper and that because of these medical restrictions, Plaintiff could not perform the essential functions of the production technician position. Moreover, the Court notes that Plaintiff could pose a safety threat to himself or others in the event of an emergency if Plaintiff was not able to quickly evacuate the unit or if he was unable to assist another worker by dragging or carrying him to safety. For this reason and those discussed above, the Court finds that Plaintiff was not qualified for the production technician position because he could not perform the essential functions of the job.
As the Court has concluded that the Plaintiff is unable to perform the essential functions of the production technician job, the Court now turns to the question of whether any reasonable accommodation by Defendant would enable Plaintiff to perform those essential functions. Chandler, 2 F.3d at 1393-94. The ADA does not require an employer to eliminate or reallocate essential functions of a position in order to provide accommodation. Bradley v. University of Tex. M.D. Anderson Cancer Center, 3 F.3d 922, 925 (5th Cir.1993), cert. denied, 510 U.S. 1119, 114 S. Ct. 1071, 127 L. Ed. 2d 389 (1994); see also 29 C.F.R. § 1630.2(o) (1996). "Such redefinition exceeds reasonable accommodation." Bradley, 3 F.3d at 925. It is important to note that Plaintiff in this case seeks no accommodation but rather believes that he can perform the production technician job without any accommodation. The Court admires Plaintiff's determination and desire to return to a physically challenging job. As discussed above, however, the Court is of the opinion that Plaintiff cannot perform the essential functions of the production technician job without reasonable accommodation. The Court further finds that no reasonable accommodation exists for Plaintiff that would enable him to perform those functions. Climbing stairs, climbing ladders, standing, and lifting heavy equipment are essential functions of the job, and in order to accommodate Plaintiff, Defendant would have to eliminate or reallocate these essential functions. These functions cannot be eliminated, and it would place an onerous burden on other production technicians to reallocate these functions to them. If Plaintiff did not perform these functions, he would essentially not be a production technician. The ADA does not require the elimination or reallocation of essential functions and neither will this Court. For this reason, the Court finds that no reasonable accommodation exists that would enable Plaintiff to perform the essential functions of the position he sought and that he was therefore not qualified for the position.
For the reasons set forth above, Plaintiff's Motion for Partial Summary Judgment is DENIED, and Defendant's Motion for Summary Judgment is GRANTED. Each and every claim asserted by Plaintiff is DISMISSED WITH PREJUDICE. The parties are ORDERED to bear their own taxable costs and expenses incurred herein to date. The parties are also ORDERED to file nothing further on these issues in this Court, including motions to reconsider and the like. Instead, the parties are instructed to seek any further relief to which they feel themselves entitled in the United States Court of Appeals for the Fifth Circuit, as may be appropriate in due course.
IT IS SO ORDERED.
FINAL JUDGMENT
For the reasons set forth in the Order issued by the Court this date, Plaintiff's Motion for Partial Summary Judgment is DENIED, and Defendant's Motion for Summary Judgment is GRANTED. Each and every claim asserted by Plaintiff is DISMISSED WITH PREJUDICE. The parties are ORDERED to bear their own taxable costs and expenses incurred herein to date.
THIS IS A FINAL JUDGMENT.
NOTES
[1] The Appendix to the regulations implementing the ADA discusses whether a disabled person's ability to perform major life activities should be determined with or without regard to mitigating devices such as prostheses. The Appendix is not part of the regulations themselves but is the EEOC's interpretation of those regulations. The Court notes that under the EEOC's interpretation, "[t]he determination of whether an individual is substantially limited in a major life activity must be made on a case by case basis, without regard to mitigating measures such as medicines, or assistive or prosthetic devices." 29 C.F.R. Pt. 1630, App. § 1630.2(j). The Appendix specifically states that "[a]n individual who uses artificial legs would likewise be substantially limited in the major life activity of walking because the individual is unable to walk without the aid of prosthetic devices." Id. It is interesting to note that while both parties frequently cited the Appendix, neither party referred to this specifically applicable example. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2167474/ | 891 A.2d 1066 (2005)
STATE of Delaware
v.
Jose CABRERA, Defendant.
Criminal Action Nos. IN-03-08-1214, IN-03-08-1215, IN-03-08-1216, IN-03-08-2292.
Superior Court of Delaware, New Castle County.
Submitted: August 10, 2005.
Decided: October 19, 2005.
Mark B. Chernev, Esquire, Deputy Attorney General, Wilmington, Delaware, attorney for State of Delaware.
Michael C. Heyden, Esquire, Wilmington, Delaware, attorney for defendant.
*1068 HERLIHY, Judge.
Defendant Jose Cabrera has moved to withdraw his guilty pleas. He pled guilty on February 12, 2004 to four counts of unlawful sexual conduct second degree. Several weeks later, and before sentencing, he moved to withdraw his pleas. The primary basis is that he claims he was sleepwalking at the time of the incidents for which he was charged and would, therefore, lack the requisite mental state to perform an intentional act.
There are no known or reported Delaware cases involving sleepwalking, or somnambulism as it is technically known, as a defense. If properly presented to and accepted by a jury it could rebut the elements of knowingly and/or intentionally. The discussion, therefore, in this opinion of this potential defense is one of first impression.
The Court is not saying Cabrera has established this defense but is only holding he has shown a fair and just reason to enable him to withdraw his pleas. His motion to withdraw his guilty pleas is, therefore, GRANTED.
Facts
Cabrera, age 53, is a legal resident of the United States and a citizen of the Dominican Republic. The police arrested him on August 7, 2003. He was later indicted on fourteen charges of unlawful sexual conduct second degree.[1] The complaining witness is under 16. Counsel represented Cabrera starting no later than October 3, 2003.
Trial was set for February 12, 2004. On that date, instead of proceeding to trial Cabrera accepted the State's plea offer. Under the agreement, he agreed to pled guilty to four counts of unlawful sexual contact second degree. He signed two TIS Guilty Plea Agreement forms. One form was in Spanish, the other in English. A presentence investigation was to be completed prior to the imposition of a sentence. Cabrera speaks Spanish, his first language, and broken English. A translator was present at the time Cabrera completed the plea agreement forms and assisted during the colloquy with the Court.
The presentence investigation interview was conducted on February 17, 2004. Again, an interpreter was present. During the interview Cabrera indicated that he was sick and was receiving treatment for the condition. He described the condition as being in a sleep state during the incidents and thus was not aware of what he was doing at the time of the alleged crimes. Prior to the February 12 hearing and the February 17 interview, Cabrera says he told counsel twice about the possible defense. However, counsel did not discuss that possible defense with Cabrera.
Cabrera filed his motion to withdraw his guilty plea on March 11, 2004. The Court appointed substitute counsel to represent Cabrera on April 4, 2004. After several office conferences and delays, new counsel delivered a report on the possible sleepwalking, somnambulism[2], defense on June 3, 2005. The report is from Dr. Pedro M. Ferreira, a psychologist. A pertinent portion of the report states:
*1069 The possibility of some form of somnambulism (parasomnia) as a central phenomenon in this case appears plausible, especially if your client has had a prior history of said condition. Somnambulism occurs in the latter stages of sleep, but not in the Rapid Eye Movement (REM sleep), there are copious example in the clinical literature concerning this phenomenon. It is also more prevalent in males than in females. The time framework presented by your client, about three hours or so, is in line with clinically known parameters for this type of phenomenon.
* * *
In summary, the narratives presented to me, particularly by your client, lend sufficient credibility to the defense strategy being considered. Specific cultural elements need to be noted also, along with the perspective of young Ms. Cabrera. Furthermore, I could not find any evidence of intentional efforts on the part of Mr. Cabrera to abuse his daughter or any other female who was at the family home on the date in question. There is not history, no sense of instability in the marriage, no psychological crisis (chronic or emerging) at the time noted with the exception of the admonitions concerning Ms. Cabrera's peer group, as described to me by your client.[3]
Cabrera's Claims
Three bases exist to Cabrera's contention that the Court should permit him to withdraw his guilty plea. First, he contends that he did not knowingly plead guilty as he did not intend to commit the offenses. Next, he asserts that he did not knowingly plead guilty as he was not aware that somnambulism is a possible defense to the charges entered against him. Lastly, Cabrera claims that he received ineffective assistance of counsel as counsel was aware of his somnambulism but did not pursue that defense.
Standard
Superior Court Criminal Rule 32(d) governs a motion to withdraw a guilty plea prior to sentencing, rather than the more stringent Rule 61 standard.[4] Under Rule 32(d), the Court may permit the withdrawal of a guilty plea prior to sentencing when the defendant shows any fair and just reason for the granting of the motion. Cabrera bears the burden to articulate to the Court that there is fair and just reason for the withdrawal of the guilty plea.[5] Superior Court Criminal Rule 11 governs the Court's discretion to permit the withdrawal of the guilty plea.[6]
Discussion
The question before the Court is whether Cabrera has made a showing of any fair and just reason to permit the withdrawal of Cabrera's plea. In answering that question, the Court will consider and address five factors:
1) Was there a procedural defect in taking the plea;
*1070 2) Did [Cabrera] knowingly and voluntarily consent to the plea agreement;
3) Does [Cabrera] presently have a basis to assert legal innocence;
4) Did [Cabrera] have adequate legal counsel throughout the proceedings; and
5) Does granting the motion prejudice the State or unduly inconvenience the Court.[7]
The factors provide a useful framework to determine whether a fair and just reason is shown, but these factors are not to be balanced.[8] Each factor will be considered separately.
A.
Procedural Defect
Upon careful review of the record, the Court is assured that the Superior Court Criminal Rule 11 procedural requirements were met. No defects appear in the record as it presently exists. The Court discussed, in open court, the plea and its ramifications with Cabrera as required by Rule 11(c). It ascertained the voluntariness of the plea and the accuracy of the guilty plea. The record also included a completed and executed plea agreement and TIS Guilty Plea form indicating a waiver of rights, both in Spanish and English. After reviewing the Truth-in-Sentencing guilty plea form which Cabrera signed, the Court has determined that the guilty plea form correctly sets forth the potential maximum statutory penalty the crime charged (8 years for four counts). As a result, the Court finds no procedural defects surrounding the plea.
B.
Knowing and Voluntary Consent
Cabrera claims that his entry of the guilty plea was not knowing as he is not guilty and did not know of a possible defense. On his Truth-in-Sentencing form, Cabrera indicated that he freely and voluntarily decided to plead guilty. He also indicated that he understood that, by signing the form, he waived his right to be presumed innocent and to present evidence in his defense. He so acknowledged during his colloquy. Cabrera signed copies of the form in English and in Spanish. He is otherwise bound by these statements and answers absent clear and convincing evidence to the contrary.[9] As the ensuing Discussion indicates, Cabrera has met that standard in this instance.
Legal Innocence
There are two separate but interrelated sub-issues to this issue of legal innocence since it revolves around the defense now being argued. The first is whether somnambulism is a valid defense under Delaware law. The other is whether, in this case, has Cabrera, through Dr. Ferreira's report, met the threshold requirement for either legal innocence to enable the plea to be withdrawn or for ultimately admissibility at trial?
Whether somnambulism is a valid defense under Delaware law appears to be one of first impression.[10] The State concedes *1071 as a general matter that it is. But it argues in this case that Dr. Ferreira's opinion as he expressed it does not meet either threshold, allowing Cabrera to withdraw his plea or for admissibility at trial. Primarily, the State's argument is that Dr. Ferreira only uses the word possibility of somnambulism but does not say within "reasonable medical certainty."
But the State's concession recognizing the defense of somnambulism in large part causes it to present an incorrect argument about the second sub-issue. To understand why, it is necessary to overlook the State's concession and to independently demonstrate that somnambulism can be recognized as a defense to most criminal acts.
The crime of unlawful sexual contact is defined as follows:
A person is guilty of unlawful sexual contact in the second degree when the person intentionally has sexual contact with another person who is less than 16 years of age or causes the victim to have sexual contact with the person or a third person.[11]
Intentionally is defined by statute to mean:
(1) If the element involves the nature of the person's conduct or a result thereof, it is the person's conscious object to engage in conduct of that nature or to cause that result; and
(2) If the element involves the attendant circumstances, the person is aware of the existence of such circumstances or believes or hopes that they exist.[12]
Some states have analogized automatism to insanity while other states have classified sleepwalking as an unconscious defense.[13] Sleepwalking has been defined as "behavior performed in a state of mental unconsciousness."[14] A Texas court has reviewed somnambulism, citing other authorities as follows:
"Not only is the power of locomotion enjoyed, as the etymology of the term signifies, but the voluntary muscles are capable of executing motions of the most delicate kind. Thus, the somnambulist will walk securely on the edge of a precipice, saddle his horse, and ride off at a gallop; walk on stilts over a swollen torrent; practice airs on a musical instrument, in short, he may read, write, run, **149 leap, climb, and swim, as well as, and sometimes even better than when fully awake.' Ray's Med. Jr. § 495; Wharton & Stille, Taylor, and *45 Brown announce similar views; Wharton & Stille on Med. Jur. § 149 et se.; Taylor's Med. Jr., p. 176; Med. Jur. of Insanity, § 328 et. Seq.
"Under the general head of mental unsoundness connected with sleep, Wharton & Stille group somnolentia, somnambulism, and nightmare. They define somnolentia `to be the lapping over of a profound sleep into the domain of apparent wakefulness,' and say that it produces a state of involuntary intoxication, which for the time destroys moral agency. Med. Jur. § 151. The writings of medical and medico-legal authors contain accounts of many well-authenticated cases in which homicides have been committed while the perpetrator *1072 was either asleep or just being aroused from sleep, and in commenting on these cases, Brown, in his Medical Jurisprudence of Insanity, uses this language (section 338): `Indeed, there are very many cases in which the confused thoughts of awakening consciousness have led to disastrous consequences. And this is to be accounted by the fact that there is a state between sleeping and waking when the thoughts of the dreamer have as much reality as the facts he is assured of by his senses.'" Fain v. Commonwealth, 78 Ky., pages 186-187, 39 Am. Rep. 213.[15]
As such, it does not rise to the level of mental illness or mental defect.[16] Under Delaware law, therefore, sleepwalking would not be treated as insanity.
The Criminal Code recognizes a number of defenses. Some are designated as affirmative defenses.[17] Others are designated as defenses.[18] But under Delaware law a defense to a criminal charge, however, does not have to be confined to those listed by statute.[19]
To put it another way, even though somnambulism (parasomnia) is not listed as a statutory defense it can, nevertheless, be a defense. Under the Criminal Code, a defendant may produce as a defense whatever tends to negate the existence of any element of the offense.[20] In this case, the somnambulism defense goes to the essential element of intentionally in the offense of unlawful sexual contact second degree. Based on this analysis, the State's concession, while welcome, is unnecessary or redundant.
But where the State's concession led it astray is that somnambulism is a defense. That is a crucial and dispositive distinction to the second threshold issue. As noted, the Criminal Code designates some statutory defenses as affirmative and others as defenses. Where a defendant interposes an affirmative defense, that defense must be proven by a preponderance of the evidence.[21] To meet that burden the defendant must persuade the fact finder "that the evidence makes it more likely than not that each element of the affirmative defense existed at the required time".[22] In short, a probability.
A defense, on the other hand, has no equivalent burden:
(a) When a defense declared by this Criminal Code or by another statute to be an affirmative is raised at trial, the defendant has the burden of establishing it by a preponderance of the evidence.[23]
*1073 As stated, the Court has to be satisfied there is some credible evidence in order for the defense to go to the jury. This is a much lower threshold. It means, in another way, that there is a possibility such a defense exists. Reasonable doubt's own terms speak in terms of possibilities, not probabilities.[24]
Earlier the Court noted that, because somnambulism was a defense and not an affirmative defense, it was dispositive of the second and primary prong of the State's argument in this case. The State argues that Dr. Ferreira had to state his opinion within "reasonable medical probability." He does not have to. He has to opine is that it was possible the defendant was in a state of somnambulism at the time of the offenses. The State would be correct about the reasonable probability argument if this defense were an affirmative defense. That is why its concession led it astray.
The result is that Dr. Ferreira's opinion, as expressed in his letter of June 3, 2005, creates the potential of "legal innocence" to the degree that Cabrera must be allowed to withdraw his guilty pleas.
The inquiry does not stop there, however. The Court has been presented with a letter opinion from Dr. Ferreira. There is no curriculum vitae attached and nothing about him, beyond this letter. The letter is a matter of record in this case. While the Court finds his letter is sufficient to establish "legal innocence" to enable Cabrera to withdraw his guilty pleas, the Court will not presume the State will concede, for trial purposes, Dr. Ferreira's qualifications or the basis for his opinion.
That opinion, of course, is an expert opinion. The decision to admit expert testimony at trial is within this Court's discretion.[25] Up until now, the Court has assumed for purposes of the "legal innocence" analysis that Dr. Ferreira's opinion would be admissible at trial.
The opinion is clearly one outside normal experience and knowledge of lay people.[26] As such, it falls within the evidentiary rules on experts and expert opinions.[27] This Court acts as a gatekeeper to ensure all expert testimony on a scientific, technical, and other special topics is relevant and reliable.[28] The Court has already determined Dr. Ferreira's opinion is relevant.[29]
There are a series of tests or standards implicated when expert testimony is proffered: is the opinion based on sufficient facts, is it the product of reliable principles and methods, and have the principles and methods been applied reliability to the facts in this case.[30] There is a five factor test to be applied in the determination *1074 of whether expert testimony is to be admitted at trial:
1) That the expert witness be qualified;
2) That the evidence offered was otherwise admissible, relevant and reliable;
3) That the basis for the opinion are those "reasonably relied upon by the experts in the field";
4) That the specialized knowledge being offered will assist the trier of fact to under the evidence or determine a fact in issue; and
5) Whether such evidence would create unfair prejudice, confuse the issues or mislead the jury.[31]
As gatekeeper, the Court has broad latitude to determine whether the Daubert[32] factors are or are not reasonable measures of reliability in a case.[33] These factors, however, are merely meant to be helpful as they do not constitute a "definite checklist or test" but are "tied to the facts" of a particular "case."[34] The Daubert test is whether any particular opinion is based on valid reasoning and reliable methodology, not whether the expert opinion has the best foundation.[35]
Dr. Ferreira would appear qualified because of his knowledge, experience, training and education. The proffered testimony concerns evidence that potentially negates an element of the offense. His letter indicates he consulted another expert as well as available sources which tends to indicate that the basis for his opinion are reasonably relied upon by experts in the field. Knowledge about sleepwalking will enable the finder of fact to understand Cabrera's defense of sleepwalking and to determine whether or not he was sleepwalking at the time of the offenses. There is no indication that the testimony would create unfair prejudice, confuse the issue or mislead the finder of fact, the jury
Considering, however, that the defense of somnambulism is recognized in this opinion for the time as defense to many criminal offenses, the Court, if the State desires, will allow it to take the pre-trial deposition of Dr. Ferreira.[36] If it does depose him and in good faith believes there is an evidentiary basis to challenge either Dr. Ferreira or his opinion (but not on "reasonable certainty"), it can file a motion to exclude. His qualifications and the basis of his opinion are issues to be decided pre-trial. The State may, of course, choose not to depose Dr. Ferreira. That step will operate in this case as a presumption of a waiver of any challenge to his qualifications or basis for his opinion other than any reliance on what Cabrera told him. If it chooses to depose him, arrangements are to made to have the deposition within 45 days of today's opinion.
Summary
The defense of somnambulism goes to whether Cabrera intentionally committed the offenses charged. A jury is not required to accept this explanation, but he should be able to make it to the jury. Credibility and weight of the expert testimony *1075 is to be determined by a jury where there is a logical basis for that testimony.[37] Therefore, the Court finds that there is a fair and just reason to permit Cabrera to withdraw his guilty plea.
The Court finds that the Daubert factors are a reasonable measure of reliability and are tied to the facts currently before the Court. Cabrera can present his sleepwalking defense at trial. However, the Court is not ruling that Cabrera actually was sleepwalking at the time of the offenses charged. He can call competent expert witnesses and otherwise present evidence of this defense at trial. The State may call its own experts and challenge any evidence and/or witnesses presented by Cabrera. It is for the jury to accept or reject this defense.
Conclusion
For the reasons stated herein, the motion of Jose Cabrera to withdraw his guilty pleas is GRANTED. The matter is to be set for trial.
NOTES
[1] 11 Del.C. § 768 states:
A person is guilty of unlawful sexual contact in the second degree when the person intentionally has sexual contact with another person who is less than 16 years of age or causes the victim to have sexual contact with the person or a third person.
[2] Other terms used to describe the sleepwalking state are somnambulism and parasomnia. The term automatism includes sleepwalking as well as other states of unconsciousness. Black's Law Dictionary 134 (6th ed.1990).
[3] Dr. Ferreira 6/3/05 report, p. 3.
[4] Superior Court Criminal Rule 32(d) states:
If a motion for withdrawal of a plea of guilty or nolo contendere is made before imposition or suspension of sentence or disposition without entry of a judge of conviction, the court may permit withdrawal of the plea upon a showing by the defendant of any fair and just reason. At any later time, a plea may be set aside only by Motion under Rule 61.
[5] Brown v. State, 250 A.2d 503, 504 (Del. 1969).
[6] Wells v. State, 396 A.2d 161, 162 (Del.1978).
[7] State v. Friend, 1994 WL 234120 (Del.Super.), at *2.
[8] Patterson v. State, 684 A.2d 1234, 1238 (Del. 1996).
[9] Somerville v. State, 703 A.2d 629, 632 (Del. 1997).
[10] Only one Delaware decision mentions a potential sleepwalking defense, Motion for Postconviction Relief, 1997 WL 716906 (Del.Super.). However the case is not on point as the motion was procedurally barred by the time bar of Superior Court Rule 61(I)(1) and the merits of the potential defense were not discussed. There are no other known Delaware decisions mentioning, much less discussing, sleepwalking, automatism, somnambulism or parasomnia.
[11] 11 Del.C. § 768.
[12] 11 Del.C. § 231
[13] Minnesota v. Cox, 2004 WL 2796190 (Minn.App.), at 3.
[14] BLACK's LAW DICTIONARY 134 (6th ed.1990).
[15] Bradley v. State, 102 Tex. Crim. 41, 277 S.W. 147, 148-149 (App.1929).
[16] 11 Del.C. § 401.
[17] See, e.g. 11 Del.C. § 401mental illness; § 431duress; and 11 Del.C. 636extreme emotional distress.
[18] See, e.g. 11 Del.C. § 423involuntary intoxication; 11 Del.C. § 464use of force in self-protection.
[19] Hall v. State, 431 A.2d 1258 (Del.1981) which recognized "accident" as a defense.
[20] 11 Del.C. § 302(b).
[21] 11 Del.C. § 304(a).
[22] 11 Del.C. § 304(c). See subsection (b) which states:
Unless the Court determines that no reasonable juror could find an affirmative defense established by a preponderance of the evidence presented by the defendant, the defendant is entitled to a jury instruction that the jury must acquit the defendant if they find the affirmative defense established by a preponderance of the evidence.
[23] 11 Del.C. § 304(a).
[24] Proof beyond a reasonable doubt is proof that leaves you firmly convinced of the defendant's guilt. Therefore, based upon your conscientious consideration of the evidence, if you are firmly convinced that the defendant is guilty of the crime charged, you should find the defendant guilty. If, on the other hand, you think there is a real possibility or, in other words, a reasonable doubt, that the defendant is not guilty, you must give the defendant the benefit of that doubt by finding the defendant not guilty.
[25] Moorhead v. State, 638 A.2d 52, 56 (Del. 1994).
[26] Floray v. State, 720 A.2d 1132, 1135 (Del. 1998).
[27] D.R.E. 702, 703.
[28] Flamer v. State, 585 A.2d 736, 754 (Del. 1990).
[29] See also, State v. Magner, 732 A.2d 234 (Del.Super.1997).
[30] D.R.E 702; Ward v. Shoney's, Inc., 817 A.2d 799, 802 (Del.2003).
[31] Nelson v. State, 628 A.2d 69, 74 (Del.1993).
[32] Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993).
[33] M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 521 (Del.1999).
[34] Kumho Tire Co. v. Carmichael, 526 U.S. 137, 149, 119 S. Ct. 1167, 1175, 143 L. Ed. 2d 238 (1999), quoting Daubert, 509 U.S. at 593, 113 S. Ct. at 2796, 125 L. Ed. 2d 469 (1993).
[35] Pfizer v. Advanced Monobloc Corp., 1999 WL 743927 (Del.Super.), at *3.
[36] Superior Court Criminal Rule 15.
[37] Hart v. Resort Investigations & Patrol, 2004 WL 2050511 (Del.Super.), at *4. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2293210/ | 133 F. Supp. 2d 931 (2001)
Tony Neyshea CHAMBERS, Petitioner,
v.
Gary L. JOHNSON, Director, Texas Department of Criminal Justice, Institutional Division, Respondent.
No. CIV. A. 4:98cv097.
United States District Court, E.D. Texas, Sherman Division.
March 8, 2001.
*932 Helen J. Beardsley, Austin, TX, Mandy Welch, Burr & Welch, Houston, TX, for Plaintiffs.
Delane Taylor Hendrix, Office of Atty. Gen., Habeas Corpus Div., Austin, TX, for Defendant.
MEMORANDUM OPINION AND ORDER
PAUL N. BROWN, District Judge.
This matter comes before the Court on Petitioner's attorney Helen J. Beardsley's Unopposed Motion to Reconsider Denial of Request for Compensation and Reimbursement of Expenses in Connection with Representation in State Executive Clemency Proceedings, filed on January 30, 2001. The Court, having considered the motion and the applicable law, finds that it is well-taken in part; however, on reconsideration, the Court again denies her claim.
Petitioner was convicted of capital murder and sentenced to death. After exhausting his direct appeals and state post conviction claims, he requested this Court to appoint counsel to represent him in federal habeas corpus proceedings. The Court granted his request on April 14, 1998. Beardsley, along with Mandy Welch, represented Petitioner throughout his federal habeas corpus proceedings. The petition was denied by the Court on June 29, 1999, and on August 10, 1999, the Court denied his request for a certificate of appealability. Petitioner appealed this decision. On July 27, 2000 the United States Court of Appeals for the Fifth Circuit denied his appeal.
Petitioner then sought clemency from the Texas Board of Pardons and Paroles and the Governor. His petition was denied, and on November 15, 2000, he was executed.
Beardsley sought and received payment of $24,925.30 for representing Petitioner throughout his federal habeas corpus proceedings. On November 27, 2000, she filed a voucher seeking $4,209.88 for her fees and costs in representing Petitioner in the state clemency proceedings. On January 22, 2001, the Court denied her request. Finding that the Fifth Circuit had not yet addressed whether 21 U.S.C. § 848 provided for compensating and reimbursing counsel for representing condemned inmates in state clemency proceedings, the Court followed the analysis of the Eighth Circuit in Hill v. Lockhart, 992 F.2d 801, 803 (8th Cir.1993). In Lockhart, the Eighth Circuit interpreted 21 U.S.C. § 848 as authorizing the federal courts to compensate and reimburse attorneys for representing condemned inmates in state clemency proceedings when three conditions are met:
1. The federal habeas corpus petition is not frivolous;
2. The State does not compensate attorneys for representing condemned inmates in state clemency proceedings; and,
3. The attorney seeks approval from the federal court prior to filing the state clemency petition.
Id. The Court found that Beardsley met the first two conditions, but not the third, and denied her claim. Her current motion to reconsider this denial relies on Strickler v. Greene, 57 F. Supp. 2d 313, 317 (E.D.Va. 1999). In Strickler, the Eastern District of Virginia adopted the three elements set forth in Lockhart, but with the following caveat:
[Although] in most cases, the request for compensation should be made before the *933 services are rendered ... it would not be appropriate to apply that rule before announcing an intent to do so. Hence the Court will entertain the application for fees on this occasion, notwithstanding the absence of previous approval. Any future services in pursuit of clemency will be uncompensated unless previous approval is secured.
Id. Beardsley correctly pointed out that neither the Fifth Circuit nor the Eastern District of Texas has announced an intent to require counsel to seek advance authorization for compensation for representing a condemned inmate in state clemency proceedings. She therefore requested the Court to reconsider its denial of her claim.
While the Federal Rules of Civil Procedure do not explicitly provide for "motions for reconsideration," Lavespere v. Niagara Machine and Tool Works, Inc., 910 F.2d 167, 173 (5th Cir.1990), cert. denied, 510 U.S. 859, 114 S. Ct. 171, 126 L. Ed. 2d 131 (1993), motions to alter or amend orders relating to attorney fees have been analyzed under Fed.R.Civ.P. 59(e). See, e.g., Jones v. Central Bank, 161 F.3d 311, 312 (5th Cir.1998). To be granted, rule 59(e) motions "must clearly establish either a manifest error of law or fact or must present newly discovered evidence ..." Simon v. United States, 891 F.2d 1154, 1159 (5th Cir.1990).
Beardsley's argument in support of her motion for reconsideration is that the Court's adoption of Lockhart's requirement of the prior request for authorization, without adopting Strickler's caveat that the requirement be imposed only prospectively, constitutes a manifest error of law.
The Court has undertaken a thorough review of this issue. Having analyzed the language of 21 U.S.C. § 848, and having considered interpretations of that statute by the Eighth, Eleventh and, most importantly, the Fifth Circuit, as well as interpretations by the Eastern District of Virginia and the Eastern District of California, the Court determines that the reasoning in Lockhart, upon which the Court relied in its earlier opinion, is inconsistent with Fifth Circuit precedent. The Court thus finds that its earlier order was based upon a manifest error of law and, upon reconsideration, issues this opinion and order.
The outcome in this case depends upon how the Court interprets 21 U.S.C. § 848, the applicable statute. In interpreting a statute, the first rule a court must follow is when the language of a statute is clear and unambiguous, it must be applied as written. This is known as the "plain meaning" rule. Only if the statute is found to be ambiguous should a court consider whether congress intended words to have other than their usual familiar meanings. See generally James v. United States, 760 F.2d 590, 593 (5th Cir. 1985), rev'd on other grounds, 478 U.S. 597, 106 S. Ct. 3116, 92 L. Ed. 2d 483 (1986).
Beardsley's argument assumes the Court will apply the plain meaning rule. 21 U.S.C. § 848(q)(4)(B) provides:
In any post conviction proceeding under section 2254 or 2255 of Title 28, seeking to set vacate or set aside a death sentence, any defendant who is or becomes financially unable to obtain adequate representation or investigative, expert or other reasonably necessary services shall be entitled to the appointment of one or more attorneys and the furnishing of such other services in accordance with paragraphs (5), (6), (7), (8), and (9).
In the present case, Petitioner was proceeding under section 2254 of Title 28, seeking to vacate or set aside a death sentence, and he was financially unable to obtain adequate representation or investigative, expert or other reasonably necessary services. Accordingly, he was entitled under the statute to have Beardsley appointed to represent him.
Paragraph 848 (q)(8) provides:
Unless replaced by similarly qualified counsel upon the attorney's own motion or upon motion of the defendant, each *934 attorney so appointed shall represent the defendant through every subsequent stage of available judicial proceedings, trial, sentencing, motions for new trial, appeals, applications for writ of certiorari to the Supreme Court of the United States, and all available post conviction process, together with applications for stays of execution and other appropriate motions and procedures, and shall also represent the defendant in such competency proceedings and proceedings for executive or other clemency as may be available to the defendant.
In the present case, the proceedings for executive clemency available to Chambers were from the State of Texas Board of Pardons and Paroles. Accordingly, Beardsley was required to represent Chambers in those proceedings.
Finally, paragraph 848(q)(10)(A) provides in relevant part: "Compensation shall be paid to attorneys appointed under this subsection ...," while paragraph 848(q)(9) provides for reimbursement for expenses for reasonably necessary services related to representation. Beardsley claims that because the plain meaning of the terms "such competency and clemency proceedings as may be available to the defendant" includes both state and federal clemency proceedings, she is entitled to compensation and reimbursement for representing Petitioner in his state clemency proceedings.
At least two courts have analyzed the statute in the way Beardsley suggests. In Gordon v. Vasquez, 859 F. Supp. 413, 418 (E.D.Cal.1994), the court held:
If the meaning of the statute is clear, no further construction is required.... The statute at issue plainly commands federal appointment of attorneys for indigents seeking federal habeas corpus to review a state proceeding resulting in imposition of a sentence of death. It also commands that appointed counsel represent the defendant in all post-petition proceedings without regard to forum.... The statute's plain meaning concerning the payment of fees without reference to forum is made clear by the congressional directive that federally appointed counsel represent the defendant in competency and clemency matters, see 21 U.S.C. § 848(q)(8). Those proceedings ordinarily occur in state forums after the conclusion of the federal case....
Similarly, in Strickler v. Greene, 57 F. Supp. 2d 313, 315 (E.D.Va.1999) the court stated:
[T]he statute does not textually confine compensation to federal clemency proceedings. Instead, the statutory text authorizes compensation for representation in "proceedings for executive or other clemency as may be available to the defendant." (Emphasis added). The only clemency proceedings available to petitioners under 28 U.S.C. § 2254 are those offered by the state. Thus, by entitling petitioners under 28 U.S.C. § 2254 to attorneys and such other services as are available under subsection (8), Congress created in Petitioner an entitlement to paid counsel in connection with the proceedings for which Congress provided compensation when it enacted Section 848(q)(4)(B).
The Fifth Circuit, however, rejected a "plain meaning" analysis of 21 U.S.C. § 848. See Sterling v. Scott, 57 F.3d 451, 456-58 (5th Cir.1995), cert. denied, 516 U.S. 1050, 116 S. Ct. 715, 133 L. Ed. 2d 669 (1996). Although the court did not explicitly mention the plain meaning rule, it performed the standard statutory interpretation analysis. First, it determined that the statute was ambiguous as to whether the available proceedings for which counsel were required to represent petitioners were only federal judicial proceedings, or were both state and federal judicial proceedings.
We must acknowledge that a colorable argument can be made that this subsection is broad enough to admit an interpretation that once an attorney is appointed for any purpose, the right to *935 counsel so appointed does not terminate until either the petitioner is executed or the death sentence is not only set aside to be retried, but is in fact resolved by revocation. On the other hand, considered in context of § 848(q) as a whole, we find more persuasive the argument that § 848(q)(8) must be read in light of § 848(q)(4)(B), which provides that the right to counsel applies only in connection with federal proceedings....
Id. at 457. Having determined that the statute was ambiguous, the Fifth Circuit considered the intent of the statute's drafters, determining that Congress intended to authorize appointment of counsel only for federal judicial proceedings:
[W]e are reluctant to say that § 848(q)(8) should be read to express congressional intent for so sweeping an idea that the federal government will pay for attorneys for a state defendant to pursue state remedies in state courts.
Id.
The Fifth Circuit then stated that its analysis was "in line" with In re Lindsey, 875 F.2d 1502, 1505-06 (11th Cir.1989). Id. at 457-58. In Lindsey, the Eleventh Circuit also held that 21 U.S.C. § 848(q) did not authorize appointing counsel to represent petitioner in state post conviction proceedings. However, the court in Lindsey went further, reaching the precise issue of the present case, and holding that 21 U.S.C. § 848 did not authorize appointing counsel to represent a condemned inmate in state competency or clemency proceedings:
[W]e cannot agree that the terms "subsequent stage[s] of available judicial proceedings" and "competency proceedings and proceedings for executive or other clemency, [as may be available to the defendant]" as used in subsection 848(q)(8), encompass within their meanings any proceedings convened under the authority of a state....
Id. The Fifth Circuit's statement that its analysis of 21 U.S.C. § 848(q)(8) is in line with Lindsey suggests that, were it presented with the issue in the present case, it would adopt the Eleventh Circuit's holding that as to judicial proceedings, competency hearings and clemency proceedings, the terms "available proceedings" mean only federal proceedings, not both state and federal proceedings.
This prediction is not clear-cut, however, because immediately after stating that its opinion was in line with Lindsey, the court added: "see Hill v. Lockhart, 992 F.2d 801, 803 (8th Cir.1993) (agreeing with analysis of In re Lindsey)." The problem with this statement is that, as to the issue of state court competency and clemency proceedings, the court in Lockhart explicitly disagreed with Lindsey, stating:
We agree with Lindsey's analysis in cases of unexhausted claims, where comity mandates that state judicial proceedings precede the seeking of federal habeas relief. The issue is far less clear, however, in cases involving state competency and clemency proceedings, which frequently are not commenced until state and federal postconviction relief have been denied and an execution date has been set. The plain language of § 848(q) evidences a congressional intent to insure that indigent state prisoners receive "reasonably necessary" competency and clemency services from appointed, compensated counsel.
Because the Fifth Circuit in Sterling was not presented with the issue of state clemency proceedings, it did not have occasion to choose between Lindsey's and Lockhart's contrary interpretations of the statute. In the present case that choice must be made. The Court believes Lindsey is the better reasoned decision, and will accordingly follow the Eleventh Circuit's holding.
The main problem[1] with the above passage in Lockhart is that, in stating that *936 it agreed with Lindsey's analysis that 21 U.S.C. § 848(q)(8) does not authorize attorneys appointed to represent a petitioner in a 28 U.S.C. § 2254 habeas corpus proceeding to go back to state court to exhaust federal post conviction claims, the Eighth Circuit adopted the Eleventh Circuit's view that the terms "available proceedings," in the context of the phrase "each attorney so represented shall represent the defendant through all subsequent stage of available judicial proceedings" mean only federal judicial proceedings, not both state and federal judicial proceedings. In then disagreeing with Lindsey and finding that the "plain language" of 21 U.S.C. 848(q) evidences a congressional intent that attorneys represent condemned inmates in both state and federal competency and clemency proceedings, the Eighth Circuit held, in essence, that Congress intended the same words, "available proceedings," in the context of the phrase "shall also represent the defendant in all competency and clemency proceedings as may be available," to include both state and federal competency and clemency proceedings. This interpretation is impermissible, as "under settled canons of statutory construction, we presume that identical terms in the same statute have the same meaning." United States v. Richards, 87 F.3d 1152, 1157 (10th Cir.1996), cert. dism'd, 519 U.S. 1003, 117 S. Ct. 540, 136 L. Ed. 2d 396 (1996), citing Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 479, 112 S. Ct. 2589, 120 L. Ed. 2d 379 (1992).
Because the Court is bound by the Fifth Circuit's determination that Congress intended the terms "available proceedings" to mean, in the context of judicial proceedings, only federal judicial proceedings, and because under settled canons of statutory construction a court must presume that Congress intended that identical terms in a statute have the same meaning, the Court holds that the terms "available proceedings," in the context of clemency proceedings, means only federal clemency proceedings. Thus, as the Eleventh Circuit in Lindsey held, the correct interpretation 21 U.S.C. § 848(q) is that it neither requires that attorneys appointed to represent condemned inmates in 28 U.S.C. § 2254 habeas corpus proceedings represent those inmates in state clemency proceedings, nor authorizes compensation if they do. Accordingly, the Court must deny Beardsley's request for compensation and reimbursement for representing Petitioner in his State clemency proceedings.
In summary, to the extent that Beardsley contended in her motion for reconsideration that this Court erred in following the Eighth Circuit's interpretation of 21 U.S.C. § 848(q) in Lockhart, she was correct. On reconsideration, however, the Court will not accept her invitation to follow the Eastern District of Virginia's analysis in Strickler, because that court's analysis suffers from the same problem as the analysis in Lockhart. Instead, the Court will follow the Fifth Circuit's analysis of the statute in Sterling, and the Eleventh Circuit's analysis in Lindsey, which compels the Court to deny her claim for compensation and reimbursement for representing Petitioner in his State clemency proceedings.
IT IS THEREFORE ORDERED that Beardsley's motion for reconsideration (docket entry # 42) is granted in part, but her request for compensation and reimbursement for representing Petitioner in his State clemency proceedings is again DENIED.
NOTES
[1] A full analysis of the other problems with the passage is unnecessary to resolving this issue, but for the sake of precision the Court is obliged to point out that in justifying its result, the Eighth Circuit also erred in its interpretation of the terms "reasonably necessary services" by equating the term "services" with "representation." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1948991/ | 836 F. Supp. 398 (1993)
TEXAS EMPLOYERS INSURANCE ASSOCIATION, Plaintiff,
v.
The UNDERWRITING MEMBERS OF LLOYDS, Bermuda Fire & Marine Insurance Company Limited, U.S. Fire Insurance Company, La Belgique Industrielle, S.A., Lexington Insurance Company, Limited, Walbrook Insurance Company Limited and Coinsuring Companies, Bryanston Insurance Company Limited, St. Katherine Insurance Company Limited, Winterthur Swiss Insurance Company Limited, Compagnie Europeene D'Assurances Industrielles, S.A., Folksam International Insurance Company (U.K.) Limited, CNA Reinsurance of London Limited, Bellefonte Insurance Company (U.K.) Branch, Yasuda Fire & Marine Insurance Company (U.K.) Limited, Stronghold Insurance Company Limited, Pacific and General Insurance Company Limited, Turegum Insurance Company Limited, North Atlantic Insurance Company Limited, Insco Limited, Allianz Versicherungs Aktiengesellschaft, Eisen Und Stahl Ruckversicherungs Aktiengesellschaft, Le Assicurazioni D'Italia Societe Per Aziona, Reaseguradora Nacional De Venezuela Compania Anonima, Chemical Insurance Company, Walbrook Insurance Company Limited, Kingscroft Insurance Company Limited, El Paso Insurance Company Limited, Lime Street Insurance Company Limited, and Mutual Reinsurance Company Limited, Defendants.
Civ. A. No. H-91-357.
United States District Court, S.D. Texas, Houston Division.
August 26, 1993.
*399 *400 Mike Phillips, Phillips & Akers, Houston, TX, for plaintiff.
Thomas A. Brusstar and Thomas W. Engelhardt, McCullough, Campbell & Lane, Chicago, IL, Jack G. Carnegie, Holtzman & Urquhart, David Wayne Prasifka, Lorance & Thompson, Houston, TX, Margaret V.W. Foster, Pepper Hamilton & Scheetz, New York City, Warren Royal Taylor, Floyd, Taylor & Riley, Houston, TX, for defendants.
MEMORANDUM AND ORDER
WERLEIN, District Judge.
This case is one of over 450 civil cases that were transferred last year to this judge in an equalization of the docket. Among the motions pending in this case are a motion to dismiss or in the alternative for summary judgment filed by Defendants, The Underwriting Members of Lloyds, et al[1]. (Document *401 No. 32), and motions for partial summary judgment filed by Defendants (Document No. 47), and by Plaintiff, Texas Employers' Insurance Association ("TEIA"), (Document No. 40). After reviewing these motions and the applicable law, the Court concludes that Defendants' motions for summary judgment and partial summary judgment[2] should be GRANTED.
FACTUAL BACKGROUND
The surviving family of Wilbur Jack Skeen sued Monsanto in 1982, alleging that the chronic myelogenous leukemia which killed Skeen resulted from his exposure to benzene during his employment at Monsanto. TEIA, Monsanto's primary insurer, assumed Monsanto's defense in that case.
Monsanto had both primary and excess liability insurance. TEIA provided the primary layer of insurance under a policy with $1 million per-occurrence loss limits. The TEIA policy expressly provided that TEIA also would defend any applicable proceeding against the insured. The section entitled "Defense, Settlement, Supplementary Payments" set forth TEIA's defense obligations to Monsanto:
As respects the insurance afforded by the other terms of this policy the company [TEIA] shall:
(a) defend any proceeding against the insured seeking such benefits and any suit against the insured alleging such injury and seeking damages on account thereof, even if such proceeding or suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient;
....
(c) pay all expenses incurred by the company, all costs taxed against the insured in any such proceeding or suit and all interest accruing after entry of judgment until the company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability thereon;
(d) reimburse the insured for all reasonable expenses, other than loss of earnings, incurred at the company's request.
The amounts incurred under this insuring agreement, except settlements of claims or suits, are payable by the company in addition *402 to the amounts payable under coverage A [Workmen's Compensation] or the applicable limit of liability under coverage B [Employers' Liability].
Defendants, The Underwriting Members of Lloyds, et al., provided two layers of excess liability coverage. The first layer of excess or umbrella coverage provided an additional $5 million in coverage beyond Plaintiff's $1,000,000 indemnity limits, and the second excess layer provided an additional $10 million in coverage for Monsanto. The limits of Defendants' liability were set forth as follows:
Underwriters hereon shall be only liable for the ultimate net loss the excess of either:
(a) the limits of the underlying insurance as set out in the attached schedule in respect of each occurrence covered by said underlying insurances,
or
(b) $100,000 ultimate net loss in respect of each occurrence not covered by said underlying insurances,
(hereinafter called the "underlying limits");
and then only up to a further sum as stated in Item 2(a) of the Declarations in all respect of each occurrence subject to a limit as stated in Item 2(b) of the Declarations [$5 million for the first layer of coverage and $15 million for the second layer] in the aggregate for each annual period during the currency of this Policy, separately in respect of Products Liability and in respect of Personal injury (fatal or non-fatal) by Occupational Disease sustained by any employees of the Assured.
In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurance by reason of losses paid thereunder, this Policy subject to all the terms, conditions and definitions hereof shall:
(1) in the event of reduction pay the excess of the reduced underlying limit,
(2) in the event of exhaustion continue in force as underlying insurance.
The inclusion or addition hereunder of more than one Assured shall not operate to increase Underwriters' limits of liability beyond those set forth in the Declarations.
"Ultimate Net Loss" was defined to include:
... the total sum which the Assured, or his Underlying Insurers as scheduled, or both, become obligated to pay by reason of personal injuries, property damage or advertising liability claims, either through adjudication or compromise, and shall also include hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder, excluding only the salaries of the Assured's or of any underlying insurers permanent employees.
The second paragraph of this definition, however, added the following caveat:
The Underwriters shall not be liable for expenses aforesaid when such expenses are included in other valid and collectible insurance.
The section entitled "Assistance and Co-operation" further provided that:
The Underwriters shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the Assured but Underwriters shall have the right and shall be given the opportunity to associate with the Assured or the Assured's underlying insurers or both in the defense and control of any claim, suit or proceeding relative to an occurrence where the claim or suit involves, or appears reasonably likely to involve Underwriters, in which event the Assured and Underwriters shall co-operate in all things in the defense of such claim, suit or proceeding.
The "Loss Payable" provision described when Defendants' liability attached:
Liability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurers, shall have paid the amount *403 of the underlying limits on account of such occurrences....
Plaintiffs in the underlying Skeen lawsuit against Monsanto won a $108 million verdict, which the trial court later vacated with its Order for a New Trial. The second trial started in January, 1989, and before the case reached judgment, it was settled for $7,250,000. Settlement costs were borne by TEIA, which paid its full $1 million indemnity limits, and by Defendants, who paid the remaining $6.25 million. The first layer of excess coverage paid $5,000,000; the second layer paid $1,250,000.
TEIA subsequently demanded reimbursement from the excess carriers for $4,057,245 in attorneys' fees and costs spent by TEIA in Monsanto's defense. The demand was rejected, and TEIA filed this lawsuit against the excess carriers. TEIA alleges that Defendants are responsible for defense costs expended in the underlying Skeen litigation, and that Defendants' refusal to reimburse TEIA is a breach of Defendants' duty of good faith and fair dealing.
Defendants have moved for dismissal or, alternatively, for summary judgment that TEIA take nothing on its contribution and indemnity claims, arguing that there is no right of contribution owed to the primary insurer by the excess insurers, and that TEIA's indemnity claim fails as a matter of law. Defendants have also moved for partial summary judgment on Plaintiff's claim for breach of the duty of good faith and fair dealing.
Plaintiff's motion for partial summary judgment[3] argues that: (1) TEIA tendered its $1 million limit of liability on October 2, 1987; (2) this alleged tender of the primary limits terminated its obligations and thereby triggered the excess carriers' defense obligations; (3) case law imposes an equitable duty on excess carriers to pay defense costs incurred before the payment of the underlying limits of liability; and (4) the excess policies are ambiguous.[4]
DISCUSSION
Summary Judgment is authorized if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The United States Supreme Court has interpreted this rule to mandate the entry of summary judgment after an adequate time for discovery against a party who fails to make a sufficient showing to establish the existence of an element essential to that party's case, and on which that party would bear the burden of proof at trial. 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).
The present case involves construction of insurance policies. It is well-settled that interpretation of an unambiguous contract is a question of law for the court. Southern Natural Gas Co. v. Pursue Energy, 781 F.2d 1079, 1081 (5th Cir.1986). The present case can therefore be resolved by summary judgment if the insurance agreements are unambiguous.
A. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
1. Contribution
TEIA argues that it is entitled to contribution from Defendants under a theory of equitable subrogation. Subrogation is said to be of two types: conventional (or contractual), and legal. Interfirst Bank Dallas v. U.S. Fidelity & Guaranty Co., 774 S.W.2d 391, 397 (Tex.App. Dallas 1989, writ denied). The latter is often referred to as equitable subrogation, i.e., subrogation not *404 dependent upon contract but arising by operation of law or by implication in equity to prevent injustice. Id. It has been defined as "`a legal fiction by force of which an obligation, extinguished by payment made to a third person, is treated as still subsisting for his benefit'" or "`the procedure by which the equitable rights of one person are worked out through the legal rights of another.'" Texas Co. v. Miller, 165 F.2d 111, 115 (5th Cir.1947).
Defendants argue that since TEIA was not a party to either of the umbrella policies, it lacks standing to pursue such a claim. The Court disagrees. Equitable subrogation does not depend upon a contract but arises by implication in equity to prevent injustice. Interfirst Bank Dallas, 774 S.W.2d at 397. Texas courts have upheld an insurer's right to equitable subrogation even without privity between the insurers. See Liberty Ins. Co. v. General Ins., 517 S.W.2d 791, 797 (Tex.Civ.App. Tyler, 1974, writ ref'd. n.r.e.)[5]; see also Employers Casualty Co. v. Transport Insurance Co., 444 S.W.2d 606, 610 (Tex.1969)[6].
No Texas court, however, appears to have considered whether a primary carrier is entitled to equitable contribution from an excess insurer for defense costs incurred before the entry of a judgment or the making of a settlement which exceeds the limits of the primary insurance policy. An encyclopedia provides some initial guidance: "Where the insured maintains both primary and excess policies, the general rule is that an excess liability insurer is not obligated to participate in the defense until the primary policy limits are exhausted." 14 Couch on Insurance 2d § 51:36, at 446. This rule is followed by most jurisdictions which have considered the question. See, e.g., Signal Companies v. Harbor Ins. Co., 27 Cal. 3d 359, 165 Cal. Rptr. 799, 804, 612 P.2d 889, 894 (1980) (en banc); Nabisco, Inc. v. Transport Indemnity Co., 143 Cal. App. 3d 831, 192 Cal. Rptr. 207, 209 (1983); Colorado Farm Bureau Mutual Ins. Co. v. North American Reinsurance Corp., 802 P.2d 1196, 1198 (Colo.Ct.App.1990); Occidental Fire & Casualty Co. v. Underwriters at Lloyd's, London, 19 Ill.App.3d 265, 311 N.E.2d 330, 334 (1974); Fireman's Fund Ins. Co. v. Rairigh, 59 Md. App. 305, 475 A.2d 509, 517 (1984); United States Fire Ins. Co. v. Roberts and Schaefer Co., 37 Wash.App. 683, 683 P.2d 600, 603 (1984); see also Hartford & Indemnity Co. v. Continental National American Ins. Companies, 861 F.2d 1184, 1185 (9th Cir.1988) (citing Signal Companies v. Harbor Ins. Co.); Ins. Co. of North America v. Medical Protective Co., 768 F.2d 315, 323 (10th Cir.1985) (citing Signal); Molina v. United States Fire Ins. Co., 574 F.2d 1176, 1178 (4th Cir. 1978); Allstate Insurance Co. v. St. Paul *405 Fire and Marine Ins. Co., 1984 WL 1969, 1 (S.D.N.Y.1984) (citing Signal); Continental Casualty Co. v. Synalloy Corp., 667 F. Supp. 1523, 1540 (S.D.Ga.1983) (citing Signal); Federated Mutual Ins. Co. v. Pennsylvania National Mutual Ins. Co., 480 F. Supp. 599, 600 (E.D.Tenn.1979), affirmed, 659 F.2d 1080 (6th Cir.1981); Canal Ins. Co. v. Occidental Fire and Casualty Co. of North America, 462 F. Supp. 512, 513 (W.D.Okla.1978).
A minority, however, hold that "the excess carrier must participate in the defense and share in the cost of defense when it is clear that the potential judgment against the insured may be substantially greater than the amount of the primary policy limits." 14 Couch on Insurance 2d, § 51:36, at 446 (and authorities cited therein); see also Celina Mutual Ins. Co. v. Citizens Ins. Co., 133 Mich.App. 655, 349 N.W.2d 547, 550 (1984); American Excess Ins. Co. v. MGM Grand Hotels, Inc., 102 Nev. 601, 729 P.2d 1352, 1354 (1986).
As suggested previously, neither the Texas Supreme Court nor any Texas court of appeals has addressed this issue, and none of the authorities cited by the parties are close-in-point. Defendants, for example, refer to cases involving disputes between primary carriers with policies containing identical "pro-rata" or "other insurance" clauses[7]. See Employers Casualty Co. v. Transport Insurance Co., 444 S.W.2d 606, 607-08 (Tex. 1969); see also United States Fire Insurance Co. v. Stricklin, 556 S.W.2d 575, 578 (Tex. Civ.App. Dallas 1977, writ ref'd. n.r.e.); Ins. Co. of North America v. Fire Insurance Exchange, 525 S.W.2d 44, 46 (Tex.Civ.App. Waco 1975, writ ref'd. n.r.e.). These "pro-rata" clauses are construed to confer on none of the insurers any right of contribution from the other carriers because the contracts are several, rather than joint. Except for this latter principle, this line of authority offers little guidance in the present case in which a primary carrier is seeking recovery of defense costs from umbrella carriers rather than from another primary carrier.
Nor is the Court persuaded by Plaintiff's reliance on Coastal Iron Works, Inc. v. Petty Ray Geophysical, 783 F.2d 577 (5th Cir. 1986). In Coastal, a shipyard owner sought a declaratory judgment to limit its liability to $300,000 (as provided in the ship repair contract) for a fire incident causing $1.6 million in damages to a ship in the shipyard. The shipyard owner also sued its primary insurer, which provided insurance up to $300,000, after the insurer refused to defend or indemnify against the ship owner's claims. The Fifth Circuit affirmed liability of the carrier for the $300,000 of insurance and held that it was also liable to the shipyard owner for all of the insured's attorneys' fees and costs incurred in prosecuting its suit against its own carrier. The Court approved the trial court's 50-50 division, however, between the insured's primary carrier (with policy limits of $300,000) and its excess carrier, of the insured's attorneys' fees and costs incurred in defending against the claims of the owner of the damaged ship.[8] The court wrote, without any quotation from the policies, that both carriers had obligations to defend the insured: the primary carrier for claims under the $300,000 cap, and the excess carrier for claims above that amount. Id. The holding here where it appears uncontroverted that "[b]oth companies had obligations to defend [the shipyard owner]" cannot be viewed as one based on a doctrine of equitable subrogation. Moreover, the case relied *406 upon for authority by the Fifth Circuit, Hardware Dealers Mutual Fire Ins. Co. v. Farmers Ins. Exchange, 444 S.W.2d 583, 590 (Tex.1969), involved a fact situation completely dissimilar to the instant case.[9] I conclude that the Fifth Circuit did not consider, much less adopt for Texas, a doctrine of equitable subrogation that must be applied against excess carriers in a case such as the one at bar.
Without a Texas case resolving the issue of equitable proration of defense costs among primary and excess carriers, the Court is required to follow the rule which it believes the Texas Supreme Court would adopt. Balliache v. Fru-Con Construction Corp., 866 F.2d 798, 799 (5th Cir.1989); Green v. Ameranda-Hess Corp., 612 F.2d 212, 214 (5th Cir.), cert. denied, 449 U.S. 952, 101 S. Ct. 356, 66 L. Ed. 2d 216 (1980). In making this Erie "guess," the Court may consider all available legal sources, including Restatements of Law, treatises, law review commentaries, decisions from other jurisdictions whose doctrinal approach is substantially the same, and the "majority rule." Jackson v. Johns-Mansville Sales Corp., 781 F.2d 394, 398 (5th Cir.1986) (citing Wright, Miller and Cooper, Federal Practice and Procedure § 4507, at 100-03).
The relationship between the excess and primary carriers in this case turns on several provisions of the primary and umbrella policies. The section of the TEIA policy entitled "Defense, Settlement, Supplementary Payments," for example, expressly provides that TEIA shall provide a defense to the insured. It requires TEIA to "defend any proceeding against the insured seeking such benefits and any such suit against the insured alleging such injury and seeking damages on account thereof, even if such proceeding or suit is groundless, false or fraudulent; ..." TEIA is also required to "pay all expenses incurred by the company, all costs taxed against the insured ... until the company has paid or tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability...." This section also provides that "[t]he amounts incurred under this insuring agreement, except settlements of claims and suits, are payable by the company in addition to the amounts payable under coverage A [Workmen's Compensation] or the applicable limit of coverage B [Employers' Liability]."
The umbrella policies for both the first and second layers, by contrast, provide that "[t]he Underwriters shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the Assured. ..." The excess carriers are responsible only for "the ultimate net loss the excess of either ... the limits of the underlying insurances" or $100,000 for each occurrence not covered by the underlying insurance. While "ultimate net loss" is defined to include all of the insured's legal fees, investigation fees, loss payments and defense costs, such costs or expenses are excluded when they are "included in other valid and collectible insurance." Finally, Condition J of the umbrella policy, entitled "Loss Payable," further provides that "[l]iability under this policy with respect to any occurrence shall not attach unless and until the Assured, or the Assured's underlying insurers, shall have paid the amount of the underlying limits on account of such occurrence."
Plaintiff argues that the second paragraph of the definition of "ultimate net loss" and its use of the phrase "other valid and collectible insurance" creates an ambiguity, thus preventing summary judgment. Looking to the plain language of the policy, however, the court finds no ambiguity or inconsistency in the provision. Under Texas law, courts construing an insurance policy must look to the plain language of the contract, and such language must be given effect *407 if the parties' intent can be discerned from that language. Blaylock v. American Guarantee Bank Liability Ins. Co., 632 S.W.2d 719, 721 (Tex.1982) (citing Glover v. National Ins. Underwriters, 545 S.W.2d 755 (Tex. 1977)). An ambiguity in an insurance contract exists if the contract's terms are subject to more than one reasonable construction. Ranger Ins. Co. v. Bowie, 574 S.W.2d 540, 542 (Tex.1978). This, however, is not such a case. Read in conjunction with the "Loss Payable" section, the first paragraph of the "ultimate net loss" definition simply describes the types of costs and expenses which are included within the definition. The second paragraph describes the point or level at which Defendants' obligations to the insured attach, i.e., after the primary insurer pays its full indemnity limits of $1 million. Far from being inconsistent, such distinctions illustrate the principal feature of an excess liability policy: coverage for certain types of costs above a particular level, below which other insurance applies.
The majority of courts which have considered insurance policies similar to those in the present case have concluded that excess or umbrella carriers are responsible for defense costs only after exhaustion of the primary policy limits. See citations, supra. Moreover,
[m]ost courts have held that an excess insurer that has a duty to defend is not obligated to provide a defense if the primary insurer is so obligated. Since the primary insurer's duty, once activated, encompasses the claims that have been made against the insured regardless of whether they are in excess of the primary insurer's policy limits, the excess insurer's duty to defend does not come into existence.
United States Fire Ins. Co. v. Roberts and Schaefer Co., 37 Wash.App. 683, 683 P.2d 600, 603-04 (1984) (quoting A. Windt, Insurance Claims and Disputes § 4.11 (1982)).
TEIA argues that proration of defense costs is more equitable and that Defendants would be unjustly enriched if they were not required to contribute to TEIA's defense of the Skeen litigation. This argument is without merit. The Court finds no equitable principles that justify departing from the express obligations embodied in the primary and umbrella policies. In effect, TEIA contends that while the policies in this case stand in the relationship of primary/excess as to the insured's liabilities, they stand as coinsurers for the insured's legal expenses. Yet,
[t]he perceived risk to an excess insurer is altogether different from the risk to the primary. The primary is involved in all claims large and small. The excess is not even threatened with liability except by claims in excess of primary limits and ultimately bears liability only to the extent that those claims are established beyond the limits of the primary. This risk is evaluated far differently from the risk of primary liability.
Allstate Insurance Co. v. St. Paul Fire and Marine Ins. Co., 1984 WL 1969, *2 (S.D.N.Y. 1984). Where, as in this case, an insured purchases one policy specifically as primary coverage and another as excess coverage, to require the excess insurer to reimburse a primary carrier for amounts that were paid before exhaustion of the underlying policy limits would overturn the reasonable expectations of the parties. See Hartford Accident and Indemnity Co. v. Continental National American Ins. Co., 861 F.2d 1184, 1187 (9th Cir.1989) ("an excess insurer predicates the premiums it charges upon the obligations that it and the primary insurer assume, including the primary insurer's obligation to defend all suits until exhaustion of its liability limits."); see also Guaranty National Ins. Co. v. American Motorists Ins. Co., 981 F.2d 1108, 1109 (9th Cir.1992) ("a true excess policy is one which is specifically intended to only come into play when the limits of the underlying coverage are exhausted. It is issued in anticipation of the existence of the underlying policy and is priced in the belief that the excess carrier will not have to provide a defense.").
In the present case, of course, the exhaustion of the primary policy limits and the settlement of claims in the underlying litigation occurred simultaneously. Even so, courts construing insurance policies under similar circumstances have found no equitable considerations that justify departing from *408 the express contractual obligations contained in primary and umbrella policies. See, e.g., Signal Companies v. Harbor Insurance Co., 27 Cal. 3d 359, 165 Cal. Rptr. 799, 612 P.2d 889 (1980) (en banc); Colorado Farm Bureau Mutual Ins. Co. v. North American Reinsurance Corp., 802 P.2d 1196, 1198 (Colo.Ct.App. 1990). In Signal, for example, a primary insurer sought contribution for defense costs from an excess carrier when settlement of the underlying claim exceeded the primary insurance coverage. As in this case, the court was faced with a carrier that was expressly designated as an excess carrier. Considering such obligations, the court concluded that:
[t]o impose an obligation on Harbor [the excess insurer] to reimburse Pacific [the primary insurer] in contravention of the provisions of its policy could only be justified ... by some compelling equitable consideration. We find no such consideration here. Before seeking Harbor's [the excess carrier's] contribution to the settlement, Pacific acted in all respects for its own benefit. The defense costs at issue were incurred by Pacific in the performance of its contractual obligation to its insured to afford a defense. The expenses were incurred almost entirely prior both to settlement of the litigation and exhaustion of Pacific's policy coverage.
Id. 27 Cal.3d at 369, 165 Cal. Rptr. at 805, 612 P.2d at 895. Rejecting the argument that an excess insurer should be required to participate in the defense if a potential claim threatened to invade the excess coverage, the court noted that acceptance of such an idea "essentially would make Harbor [excess] a coinsurer with Pacific [primary] with a coextensive duty to defend Signal." Id. at 365, 165 Cal. Rptr. at 803, 612 P.2d at 893. Thus, there was no reasonable basis for assuming that either the insured or the primary carrier reasonably expected that the excess carrier would participate in defense costs beyond the express terms of the policy. Id. at 369, 165 Cal. Rptr. at 805, 612 P.2d at 895.
The cases principally relied upon by Plaintiff to support its argument that excess or umbrella carriers have an equitable duty to contribute to costs of defense are not persuasive. In Millers' Mutual Ins. Ass'n. v. Iowa National Mutual Ins. Co., 618 F. Supp. 301 (D.C.Colo.1985), for example, unlike the present case, the defense costs at issue were incurred after the exhaustion of the primary policy limits. In Guaranty National Ins. v. American Motorists Ins., 758 F. Supp. 1394, 1398 (D.Mont.1991), clarified, 981 F.2d 1108 (9th Cir.1992), the district court held that equity favors proration of defense costs among several insurers based upon amounts contributed to an ultimate settlement claim. Although it affirmed the district court's decision, the Ninth Circuit noted that the dispute involved two carriers which had each issued primary insurance policies. The case therefore "involved the duty to contribute to defense costs of an insurance company which had issued an insurance policy which was excess by coincidence," and "[i]n a case involving a true excess insurance policy, the equitable factors favoring proration of costs of defense would not, or may not, be present." Id. at 1109.
To apportion equitably defense costs between the primary and umbrella carriers in this case would fly in the face of unambiguous policy language and established case law. Defendants' policies for both the first and second layers of insurance were true excess insurance policies. The policies contain phrases such as "Liability ... shall not attach," "shall be only liable" or "ultimate net loss" which are only consistent with a true excess or umbrella policy. As excess policies, their coverage begins only where the responsibility of the primary policy ends. It was TEIA's responsibility, as the primary carrier, to defend Monsanto. This duty included coverage for $1 million in liability as well as costs of defense, which were to be paid "in addition to the amounts payable under ... the applicable limit of liability." The excess carriers, by contrast, had no primary duty to assume Monsanto's defense; and their contractual duty to contribute to costs of defense could only be triggered by exhaustion of the underlying limits of the TEIA policy. Neither the policy language nor the summary judgment evidence suggests that the insurers or the insured reasonably expected that the excess carriers would *409 participate in defense costs beyond the express terms of their policies.[10]
Moreover, the policies make no reference as to how legal fees or costs should be prorated. Assuming arguendo that TEIA is correct and that the policies somehow call for proration of costs incurred before the exhaustion of the underlying policy limits, neither the primary nor the excess policies provides any guidance as to how such costs should be apportioned. The absence of any such provisions further suggests that such apportionment was never contemplated.
Given the absence of any contractual basis from which to infer any obligation on the part of the excess carrier, the Court concludes that under these facts Texas would follow the majority rule and hold that an excess insurer is not obligated to participate in the costs of defense until the primary policy limits are exhausted. The defense costs at issue were incurred before settlement of the underlying litigation and before exhaustion of TEIA's policy limits. Moreover, there is no summary judgment evidence that TEIA made any demands for reimbursement before the settlement was achieved, or that the excess carriers agreed to such. Accordingly, the Court concludes as a matter of law that TEIA is solely responsible for the costs of defense pursuant to the terms of its policy, and that Defendants are not liable to TEIA for any portion thereof.
2. Indemnity
TEIA also argues that it has a cause of action against Defendants for indemnity. Plaintiff asserts that it "tendered" its policy limits to Monsanto on October 2, 1987, following the first trial and the $108,000,000 verdict in the Skeen litigation. In making this assertion, Plaintiff relies on the affidavit of Mike Hocutt, a home office coordinator and workers' compensation director for TEIA. Hocutt states that the day the verdict came in he telephoned a Monsanto official and made "available" TEIA's $1,000,000 policy limits. Because the excess policies would become underlying insurance upon exhaustion of the primary limits, and because the verdict clearly exceeded the policy limits, TEIA argues that this alleged tender effectively "exhausted" its primary coverage, thereby eliminating its liability for further defense costs and obligating Defendants to assume the remaining cost of Monsanto's defense.
The Court disagrees. TEIA's purported tender of its policy limits is inadequate both under Texas law and the terms of the primary policy. Under Texas law, a "tender" is an unconditional offer by a debtor to pay a sum of money not less than the amount due on the obligation. Baucum v. Great American Ins. Co. of New York, 370 S.W.2d 863, 866 (Tex.1963); Collision Center Paint & Body v. Campbell, 773 S.W.2d 354, 357 (Tex.App. Dallas 1989, no writ). A valid and legal tender of money must be accompanied by the actual production of the funds and offer to pay the debt involved. Baucum, 370 S.W.2d at 866. As a general rule, a tender of payment must include everything to which the creditor is entitled; any lesser sum is ineffectual. Collision Center, 773 S.W.2d at 357 (citing French v. May, 484 S.W.2d 420, 426 (Tex.Civ.App. Corpus Christi 1972, writ ref'd n.r.e.)). The tenderer must relinquish possession of the funds for a sufficient time and under such circumstances as to enable the person to whom it is tendered, without special effort on his part, to acquire its possession. Baucum, 370 S.W.2d at 866.
A reading of the primary and umbrella policies in this case reveals that any obligation by the excess carriers to pay defense costs could only have been triggered when the $1 million indemnity limits under the policy were paid into court, i.e., when the Skeen claim was settled by payment in 1989, and no earlier. For example, the primary policy requires TEIA to "pay all expenses incurred by the company, all costs taxed against the insured ... until the company has paid or tendered or deposited in court such part of such judgment as does not exceed *410 the limit of the company's liability ..." The "Limit of Liability" section of the excess policies similarly provides:
In the event of reduction or exhaustion of the aggregate limits of liability under said underlying insurance by reason of losses paid thereunder, this Policy subject to all the terms, conditions and definition hereof shall:
... continue in force as underlying insurance.
As the primary insurer, TEIA was responsible for all defense costs incurred prior to the exhaustion of the primary policy limits. Defendants were not obligated to contribute to defense costs before exhaustion of the primary limits, and, as the Court has already noted, Plaintiff's primary obligations were not exhausted until the underlying litigation was settled. Although TEIA makes much of the first $108 million jury verdict, there is no summary judgment evidence that TEIA paid anything based upon this verdict, which the trial court later set aside. Under such circumstances, a mere declaration of tender, unaccompanied by actual payment of settlement or judgment or production of the $1 million policy proceeds cannot, in and of itself, constitute a valid tender of the policy limits. See Baucum, 370 S.W.2d at 866; 15 S. Williston, Williston on Contracts § 1808, at 421-22 (1972)[11]. Because TEIA's purported tender of the policy limits was not valid under Texas law, Defendants are entitled to summary judgment on Plaintiff's indemnity claim.
B. THE MOTIONS FOR PARTIAL SUMMARY JUDGMENT
Defendants have also moved for partial summary judgment on Plaintiff's claim for breach of the duty of good faith and fair dealing. In its original petition, Plaintiff alleges that the Defendants' refusal to contribute to TEIA's defense costs constitutes a breach of the duty of good faith and fair dealing that, in Plaintiff's estimation, runs from the excess carriers to the primary carrier.
Although Texas law imposes a duty of good faith and fair dealing on primary carriers as to excess carriers, so that a primary carrier may not refuse to settle a case within its policy limits when a reasonable primary carrier would do so, American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480 (Tex.1992), Plaintiff has not cited a single Texas case imposing a reciprocal duty from excess carriers to primary carriers, and the Court's own research has not found one. Moreover, since the court has already concluded as a matter of law that the defense costs at issue here were incurred before the exhaustion of the primary policy limits, and that Defendants had neither an express nor implied duty to share in such costs before exhaustion of the underlying policy limits, it follows that where there is no duty, no duty of good faith and fair dealing could arise. Defendants' motion for partial summary judgment is therefore GRANTED[12].
As for Plaintiff's motion for partial summary judgment, the court has already addressed at some length the issues raised in Plaintiff's motion. Because the Court is persuaded that Plaintiff has no cause of action against Defendants for indemnity, and that neither the primary and umbrella policies nor the case law support the equitable duty *411 Plaintiff seeks to impose on Defendants, Plaintiff's motion is therefore DENIED.
CONCLUSION AND ORDER
Accordingly, it is therefore ORDERED that:
(1) Defendants' Motion for Summary Judgment (Document No. 32) is GRANTED;
(2) Defendants' Motion for Partial Summary Judgment (Document No. 47) is GRANTED;
(3) Plaintiff's Motion for Leave to File Motion for Partial Summary Judgment (Document No. 39) is GRANTED;
(4) Plaintiff's Motion for Partial Summary Judgment (Document No. 40) is DENIED; and
(5) All other motions are DENIED AS MOOT.
(6) Pursuant to Rule 54(b), Fed.R.Civ.P. the Court expressly determines that there is no reason to delay the entry of a Final Judgment as to all defendants except for defendants in bankruptcy (Walbrook Insurance Company Limited, Kingscroft Insurance Company Limited, El Paso Insurance Company Limited, Lime Street Insurance Company Limited, and Mutual Reinsurance Company Limited) as to which the automatic stay applies. Accordingly, a Final Judgment will be entered in favor of all except the bankrupt defendants. The claims of the bankrupt defendants will be administratively closed pursuant to a separate order signed this day.
ORDER OF DISMISSAL WITHOUT PREJUDICE
A petition filed under 11 U.S.C. §§ 301, et seq. operates as a stay of a judicial proceeding against the debtor that was commenced before the bankruptcy proceeding. 11 U.S.C. § 362(a)(1). Accordingly,
For the reasons set forth in the separate Memorandum and Order signed by the Court this day it is:
ORDERED AND ADJUDGED that this case is DISMISSED without prejudice as to defendants Walbrook Insurance Company Limited, Kingscroft Insurance Company Limited, El Paso Insurance Company Limited, Lime Street Insurance Company Limited, and Mutual Reinsurance Company Limited. Plaintiff may reinstate this case upon notice to this Court of the discontinuance of the stay with regard to each bankrupt defendant pursuant to 11 U.S.C. § 362(c)(2), provided such notice is filed within 30 days after the bankruptcy stay is discontinued.
SIGNED at Houston, Texas, this 24th day of August, 1993.
NOTES
[1] Defendants' motions for summary judgment and for partial summary judgment were filed by the following parties: The Underwriting Members of Lloyds, Bermuda Fire and Marine Insurance Company, Limited, U.S. Fire Insurance Company, La Belgique Industrielle, S.A., Lexington Insurance Company, Walbrook Insurance Company Limited and Coinsuring Companies, Walbrook Insurance Company Limited, Bryanston Insurance Company Limited, St. Katherine Insurance Company Limited, Winterthur Swiss Insurance Company Limited, Compagnic Europeene D'Assurances Industrielles, S.A., Folksam International Insurance Company (U.K.) Limited, CNA Reinsurance of London Limited, Bellefonte Insurance Company (U.K.) Branch, Yasuda Fire & Marine Insurance Company (U.K.) Limited, Stronghold Insurance Company Limited, Pacific & General Insurance Company Limited, Turegum Insurance Company Limited, The Dominion Insurance Company Limited, North Atlantic Insurance Company Limited, Insco Limited, Allianz Versicherungs Aktiengesellschaft, Eisen Und Stahl Ruckversicherungs Aktiengesellschaft, Le Assicurazioni D'Italia Societe Per Aziona, Reaseguradora Nacional De Venezuela Compania Anonima, and Chemical Insurance Company.
Defendants Folksam International Insurance Company, Bellefonte Insurance Company, and CNA Reinsurance of London, not only are movants in the motions described above, but also have separately moved for summary judgment based upon their having participated only in the first layer of excess coverage (Document No. 74). They therefore additionally contend that their obligations were discharged in full by their payment of the $5 million policy limits in settlement of the Skeen claim. Because of my rulings on the principal motions, I find it unnecessary separately to consider this motion.
Defendants British National Insurance Company Limited and Dominion Insurance Company Limited also separately moved for summary judgment (Document No. 34). These two defendants were later dismissed on motion of Plaintiff and their motion for summary judgment is therefore denied as moot.
Notices of bankruptcy have been filed as to defendants Walbrook Insurance Company Limited, Kingscroft Insurance Company Limited (formerly known as Dart Insurance Company Limited), El Paso Insurance Company Limited, Lime Street Insurance Company Limited (formerly known as Louisville Insurance Company Limited), and Mutual Reinsurance Company Limited. Because of the automatic bankruptcy stay applicable to these parties, the Court takes no action in this Order as to them.
[2] Defendants' motion for partial summary judgment is "partial" because it deals only with Plaintiff's claims for breach of good faith and fair dealing. No issues remain to be tried after both of Defendants' motions are granted.
[3] Plaintiff's motion for partial summary judgment and Defendants' motion for partial summary judgment were both filed a few days late, and objections have been lodged on timeliness. Full responses on the merits have been made by the opposing parties, however, and the Court concludes that justice is served by granting leave for late filings and considering all motions on the merits.
[4] Alleged ambiguity of the policies cannot be a basis to grant summary judgment to Plaintiff. Plaintiff also opposes Defendants' motions based in part on this same argument. The Court finds the policies are not ambiguous and may be construed as a matter of law.
[5] In Liberty, Continental Insurance Company, an excess carrier, sought to recover from Liberty Mutual, a primary carrier, a pro-rata share of the costs of settling a lawsuit arising from an accident involving a common insured. Continental argued that since it discharged Liberty's obligation, it was therefore subrogated to the rights of the insured, who was never a party to Continental's lawsuit. Id. at 793. The court held that since the excess carrier was secondarily liable, it was entitled to legal or equitable subrogation against Liberty. Id. at 797. The court concluded that: "[t]he doctrine of subrogation is given a liberal application, and is broad enough to include every instance in which one person, not acting voluntarily, has paid a debt for which another was primarily liable and which in equity and good conscience should have been discharged by the latter." Id.
(citations omitted).
[6] Employers Casualty involved a dispute between two primary carriers, one of which defended and indemnified a mutual insured and then sought contribution from the other carrier under the "pro rata" or "other insurance" clauses of the policies for a pro-rata sum paid in settlement. The court held that plaintiff was not entitled to summary judgment on that policy language, and approved the rule that:
Where there are two insurers and the policies of each contain a pro rata or coinsurer clause, each insurer is liable to the insured to its proportion of the loss, and payment by one of a larger amount in no way affects the liability of the others, and gives the one so paying no right to recover the excess paid from the other insurers.
Id. at 608 (quoting 16 Couch on Insurance 2d § 62:157). The court also noted, however, that the plaintiff was not without a remedy:
[I]f the subrogation provision in its policy does not authorize recovery by Employers Casualty from Transport of a pro rata part of the sum paid as an attorney's fee in defense of the [underlying] Siegel suit, equitable subrogation does.
Id. at 610.
[7] An "other insurance" clause addresses a situation where the claimant may be entitled to indemnification from more than one insurance policy. Such clauses take several forms: (1) that the insurer shall have no liability if there is other insurance (this type of provision is usually referred to as an "escape" clause); (2) that the insurer's liability shall be limited to a proportional share of the loss (such clauses are typically referred to as "pro-rata" clauses); and (3) that the policy shall apply only as excess insurance over any other insurance (this type of clause is usually referred to as an "excess" clause). R.E. Keeton and A.I. Widiss, Insurance Law: A Guide to Fundamental Principles, Legal Doctrines, and Commercial Practices § 3.11(a), at 253 (1988).
[8] The excess carrier does not appear to have been a party to the case, and no issue seems to have been joined between the primary carrier and excess carrier on this point. In fact, it was the insured shipyard owner (not the excess carrier) that successfully persuaded the Fifth Circuit to adjudge 100% liability against its primary carrier for fees and costs incurred in suing the carrier.
[9] Hardware Dealers involved a "double coverage" dispute between two primary carriers with overlapping and conflicting policies. The insured's daughter was test driving a new car and was involved in a collision with another automobile. The policy covering the dealership provided coverage only if no other valid and collectible liability insurance either primary or excess was available, and the policy covering the insured stated that coverage for a nonowned automobile was excess over any other valid and collectible insurance. Finding these provisions in conflict, the court held that liability should be equally prorated between the two insurers and that each had a duty to defend the daughter of the insured. Id. at 589-90.
[10] It is at least noteworthy that TEIA made no demand upon the excess carriers for any reimbursement of defense costs until after the underlying litigation was settled and TEIA had paid all of the $4 million in defense costs. This suggests that even TEIA did not adopt its current interpretation of the excess insurers' liabilities until it became an afterthought.
[11] Professor Williston has defined tender as an offer to perform an obligation, coupled with the present ability to perform, so that absent the refusal to cooperate by the party to whom the tender is made, the obligation would be immediately satisfied. 15 S. Williston, Williston on Contracts § 1808, at 418 (1972). He defines the essential elements of tender as follows: (1) an unconditional offer to perform, coupled with a manifested ability to carry out the offer; (2) a production of the subject matter of the contract; (3) the property tendered must not be less than what is due; and (4) if greater, there must be no demand for a return of the excess. Id. at § 1810, at 421-22.
[12] All remaining Defendants except Folksam International Insurance Company (U.K.) Limited, Bellefonte Insurance Company (U.K.) Branch, and CNA Reinsurance of London Limited have moved for partial summary judgment on Plaintiff's good faith and fair dealing claim. Because the Court is persuaded that no genuine issue of material fact exists as to Plaintiff's good faith and fair dealing claim against these defendants, the Court will grant summary judgment sua sponte and dismiss Plaintiff's good faith and fair dealing claim against Folksam, Bellefonte and CNA. Arkwright-Boston Mfrs. Mutual Ins. Co. v. Aries Marine Corp., 932 F.2d 442, 444 (5th Cir.1991). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2335922/ | 55 S.W.3d 172 (2001)
FIRST VALLEY BANK OF LOS FRESNOS, Norwest Bank Texas, N.A., and Wells Fargo Bank (Texas), N.A., Appellants,
v.
Sam MARTIN, Appellee.
No. 13-99-769-CV.
Court of Appeals of Texas, Corpus Christi.
August 9, 2001.
*178 Charles W. Rhodes, Raul A. Gonzalez, Locke, Liddell & Sapp, Austin, Tom Fleming, Fleming & Olvera, P.C., Brownsville, Attorneys for Appellants.
Ernesto Gamez, Jr., Law Offices of Ernesto Gamez, Jr., Brownsville, Larry Zinn, San Antonio, Thomas G. Sharpe, Jr., Brownsville, Attorneys for Appellee.
Before Chief Justice VALDEZ and Justices HINOJOSA and RODRIGUEZ.
OPINION
RODRIGUEZ, Justice.
First Valley Bank of Los Fresnos, Northwest Bank of Texas, N.A., and Wells Fargo Bank (Texas), N.A., appellants, appeal from a money judgment in the amount of $18,089,095.00, in favor of Sam Martin based on a jury's findings of malicious prosecution and fraud. We reverse and render in part, modify in part, and affirm as modified.
*179 In February of 1992, Martin borrowed approximately $20,000.00 from First Valley Bank of Los Fresnos (the bank) to help fund his campaign for sheriff of Cameron County. The bank took a security interest in cattle owned by Martin in Loma Alta, a large area of land between Brownsville and Port Isabel.
The parties dispute the number of cattle in which the bank held a security interest. A document titled, "Notice of Security Interest" describes the security interest as "75 Head of Cross-Bred Cattle." The note lists the security as "[a]ll livestock now owned or hereafter acquired by debtor including but not limited to 75 head of crossbred cattle." Martin testified that at the time he obtained the loan, he had more than 200 head of cattle.
The security agreement contained a provision prohibiting Martin from selling or transferring the collateral without obtaining the written consent of the bank. The provision also required Martin to provide a detailed notice before selling any farm products constituting a portion of the collateral in the ordinary course of business.
Martin renewed the note several times between 1992 and 1994. In September of 1994, he combined the loan with a car loan for the aggregate amount of $31,209.99. The note was secured by an automobile and "All livestock now owned and hereafter acquired by debtor, wherever located including but not limited to seventy-five (75) head of crossbred cattle." The security agreement for this loan also provided that Martin could not sell or transfer the collateral without written consent of the bank.
Martin continued to renew the note periodically. In 1995, Martin sold fifty-eight head of cattle to Dr. Lynn Anderson. Martin testified that Gus Barrera, chairman of the board with the bank, helped him with the sale of the cattle. Martin did not notify the bank before selling the cattle nor did he obtain its written consent for the sale. Martin testified he was not aware he needed to notify anyone of the sale and that Barrera was with him at the sale, knew of the loan, and never questioned him about the sale. Moreover, at the time of the sale, Martin had approximately two hundred twenty head of cattle, leaving more than enough cattle for what he believed the security interest covered, namely, seventy-five head of cattle.
In 1996, Martin left Texas to manage several cattle ranches in New Mexico, Colorado, Florida, and Utah for a corporation. Martin's son, Gus Martin, stayed in Texas to take care of the cattle operation.
The note became due on September 5, 1996, but Martin failed to pay the note or renew the note as he had previously. In October of 1996, Gus Martin met with Markus Villanueva, Martin's loan officer, at the bank and paid the accrued interest on the loan pursuant to Martin's directions. Gus Martin testified Villanueva wanted to speak with Martin. Gus Martin informed Villanueva that his father could not make it, but would be back around the first of the year to renew the note.
Villanueva told Gus Martin that he was going to accelerate the note. However, Villanueva also told him that when his father came in to renew the note, the bank would return the interest rate to the level in the note. Martin told his son that he would return during the Christmas holidays to renew the note, and had his son pay $500 in principal in December before he returned to Texas.
As the note was in default, the bank transferred the loan to its special assets department. Martin returned to Texas in December of 1996 and deposited $1,451.41 into his checking account at the bank. When he went to withdraw funds from this *180 account, he learned that the money had been seized and applied toward the loan. Martin testified that he met with bank officials, who told him they had foreclosed on the loan. When Martin asked them why they did not attempt to fax him paperwork to renew the note, they did not want to talk about it. Martin told the bank officials that if they did not put the money back and renegotiate the loan, they would not hear from him again.
Martin returned to his job in Colorado. There is some dispute as to whether the bank knew of Martin's location at this time. The parties agree Martin's attorney, Donald Gilpin, of Albuquerque, New Mexico, contacted the bank. Shortly thereafter, Villanueva sent Gilpin a letter outlining the terms for Martin to renew his loan. Gilpin replied, indicating, among other things, that Martin would mail the bank a payment. Martin did not, however, do so.
On May 30, 1997, the bank sold twenty of Martin's cattle to Ruben Barrera, Gus Barrera's brother, for $4,000.00. Villanueva testified he did not send Martin a letter notifying him of the sale because he could not locate him.
In June of 1997, Villanueva called Gilpin. Gilpin sent the bank a letter stating he had terminated representation of Martin and that he had been unsuccessful in contacting him since January of 1997.
Jimmy Vasquez, an investigator with the Cameron County sheriff's office testified that Villanueva called him in June or July of 1997 and told him he could not find cattle Martin had put up for collateral. Vasquez testified Villanueva asked him to make a criminal complaint, and that Villanueva told him Martin did not have the cattle. Vasquez went to the bank where he took a statement from Villanueva. Vasquez also testified that when he went to the bank, he told Villanueva there had been some complaints of criminal trespass in the Loma Alta area.
Vasquez filed an investigative report dated July 3, 1997. According to the report, Vasquez met with Villanueva, who told him about the loan and stated that Martin had "put up 75 head of cross bred cattle as collateral to cover the loan. This loan was to be paid with the sale of the cattle or their offspring." The report stated that "[t]he bank attempted to pick up the cattle for the note that was past due and upon doing so the cattle could not be found to collect on the note." After completing his investigation, Vasquez turned his report in to the district attorney's office.
The bank gave Credit Management Services (CMS) the task of collecting the debt owed by Martin. CMS drafted a proposed agreement, which Villanueva signed. CMS contacted Gus Martin, who obtained a power of attorney to act on his father's behalf. Martin told Gus not to sign the proposed agreement, however, and no agreement was reached.
In January 1998, Martin was indicted for the offense of hindering a secured creditor. The indictment was ultimately dismissed. Thereafter, Martin brought suit against appellants, alleging they provided false and incomplete information, which was turned over to the district attorney's office, and led to Martin's indictment. After a trial on the merits, the jury found appellants maliciously prosecuted Martin and awarded $500,000 in mental anguish damages, $2,000,000 for damages to reputation, $50,000 for damages to credit reputation, and $360,000 for loss of earning capacity. The jury further found appellants committed fraud and awarded Martin $40,000 damages for loss of the benefit of the bargain. The jury also awarded Martin $15,000,000 in exemplary damages.
*181 Appellants filed a motion for new trial, which was ostensibly overruled,[1] and filed a timely notice of appeal. Martin filed a request for the trial court to make conclusions of law. Appellants responded, arguing that the trial court was unauthorized to make conclusions of law in a jury trial. The trial court found it had authority to so act and entered conclusions of law. This appeal ensued.
By their first and third issues, appellants contend there is legally insufficient evidence to support the finding of liability for malicious prosecution.
We review a legal sufficiency challenge by considering all the evidence in the light most favorable to the prevailing party, indulging every reasonable inference in that party's favor. Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex.1998); Edwards v. Pena, 38 S.W.3d 191, 196 (Tex.App.-Corpus Christi 2001, no pet.); Alvarez v. Anesthesiology Assocs., 967 S.W.2d 871, 875 (Tex.App.-Corpus Christi 1998, no pet.).
To maintain a cause of action for malicious prosecution, a plaintiff must prove: (1) the commencement of a criminal prosecution against the plaintiff; (2) initiated or procured by the defendant; (3) which terminated in the plaintiff's favor; (4) the plaintiff was innocent; (5) there was an absence of probable cause for the proceedings; (6) the defendant acted with malice; and (7) damages. Richey v. Brookshire Grocery Co., 952 S.W.2d 515, 517 (Tex.1997); Alvarez, 967 S.W.2d at 875.
Appellants contend there is no evidence that they initiated or procured the criminal prosecution.
The causation element requires the plaintiff to show the prosecution was initiated or procured by the defendant. Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 290-93 (Tex.1994). "Initiation" of a criminal prosecution occurs when the defendant is the entity that actually files the charges. Alvarez, 967 S.W.2d at 875. The Texas Supreme Court has defined "procurement" as follows:
A person procures a criminal prosecution if his actions were enough to cause the prosecution, and but for his actions the prosecution would not have occurred.... Thus, a person cannot procure a criminal prosecution when the decision whether to prosecute is left to the discretion of another person, a law enforcement official or the grand jury. An exception ... occurs when a person provides information which he knows is false to another to cause a criminal prosecution.
Lieck, 881 S.W.2d at 293 (emphasis added).
Martin concedes appellants did not initiate the prosecution. He further concedes that the decisions to prosecute and indict him were in the sole discretion of the district attorney and grand jury, respectively. Thus, evidence that appellants procured the prosecution by providing information which they knew was false will support Martin's malicious prosecution cause of action. Id.
According to Vasquez, Villanueva told him Martin had had two hundred head *182 of cattle at the Loma Alta ranch, and that Villanueva was worried about seventy-five head of cattle for purposes of collateral.[2] Vasquez testified he was called because the bank "could not locate any livestock they had put up as collateral." Villanueva told him he was looking for seventy-five head of cattle, and Martin did not have the cattle. However, Vasquez testified the bank never gave him any information that was false, they just failed to give him all the information.
If Villanueva believed the security interest to be seventy-five head of cattle, which the jury could have reasonably inferred from the evidence,[3] including Vasquez's testimony and report, Villanueva's statements that the bank was looking for seventy-five head of cattle and that it could not locate any of the cattle, which were made when the bank had already sold twenty head of cattle as collateral, were knowingly false. That is, there is some evidence the bank knew where some of the collateral was when Villanueva told Vasquez it could not locate any of the cattle. Moreover, if Villanueva believed the security interest was limited to seventy-five head of cattle, his statement that the bank was looking for seventy-five head was false considering the bank had already sold twenty head of cattle. Viewing the evidence in a light most favorable to the verdict, there is more than a scintilla of evidence that Villanueva made knowingly false representations to Vasquez that Martin did not have the cattle and that the bank could not locate any of the livestock that had been used as collateral. In fact, the bank had already located at least twenty and sold them to apply funds to the loan.
Appellants also urge that there is no evidence to show they lacked probable cause. In the context of malicious prosecution, probable cause is "the existence of such facts and circumstances as would excite belief in the mind of a reasonable person, acting on facts within his knowledge, that the person charged was guilty of the crime for which he was prosecuted." Richey, 952 S.W.2d at 517. The probable cause determination asks whether a reasonable person would believe that a crime had been committed given the facts as the complainant honestly and reasonably believed them to be before the criminal proceedings were instituted. Id. at 523 (citations omitted).
Whether probable cause is a question of law or a mixed question of law and fact depends on whether the parties dispute the underlying facts. Id. When the facts underlying the defendant's decision to prosecute are disputed, the trier of fact must weigh evidence and resolve conflicts to determine if probable cause exists, *183 as a mixed question of law and fact. Id.; Villegas v. Griffin Indus., 975 S.W.2d 745, 752 (Tex.App.-Corpus Christi 1998, pet. denied).
We must determine whether there is more than a scintilla of evidence showing that the bank could not have reasonably believed Martin had committed the crime of hindering a secured creditor. A person commits the offense of hindering a secured creditor if he signs a security agreement creating a security interest in property and, "with intent to hinder enforcement of that interest or lien, he destroys, removes, conceals, encumbers, or otherwise harms or reduces the value of the property." Tex. Pen.Code Ann. § 32.33 (Vernon 1994).
Appellants contend they had probable cause to make a report because it reasonably appeared that Martin committed the crime of hindering a secured creditor. Under the security agreement, Martin was required to obtain the bank's written consent to sell or transfer the collateral. According to the bank, its security interest extended to all of Martin's cattle. Martin sold fifty-eight cattle without giving notice to the bank or obtaining written consent; consequently, the bank maintains it had probable cause to make its report.
Martin counters that the bank waived any interest it had in the fifty-eight cattle by authorizing the sale, through its chairman of the board of directors, Gus Barrera. Martin testified that Barrera was not only present at the sale of the cattle, but participated in gathering and hauling the cattle to the buyer's pasture. Gus Martin testified that Martin used the money to renew the note and pay some of the principal.
A party holding a secured claim in collateral waives his security interest and may neither foreclose nor bring an action for conversion if he consents to a transfer of collateral. Conoco, Inc. v. Amarillo Nat. Bank, 950 S.W.2d 790, 795 (Tex. App.Amarillo 1997, pet. denied). Thus, if the bank authorized the sale of the cattle, it waived its security interest in the fifty-eight cattle and could not have reasonably believed Martin committed the offense of hindering a secured creditor.
An "agent" is one who is authorized by a person or entity to transact business or manage some affair for that person or entity. Neeley v. Intercity Mgmt. Corp., 732 S.W.2d 644, 646 (Tex. App.Corpus Christi 1987, no writ); Jorgensen v. Stuart Place Water Supply Corp., 676 S.W.2d 191, 194 (Tex.App.-Corpus Christi 1984, no writ). A director of a corporation is not, as such, an agent of the corporation. See Restatement (second) of Agency § 14C (1958). Nonetheless, an agency relationship may be found from underlying facts or direct and circumstantial evidence showing the relationship of the parties. Elite Towing, Inc. v. LSI Fin. Group, 985 S.W.2d 635, 643 (Tex. App.Austin 1999, no pet.); Stanford v. Dairy Queen Prods., 623 S.W.2d 797, 800-801 (Tex.App.-Austin 1981, writ ref'd n.r.e.).
Absent actual or apparent authority, an agent may not bind a principal. Suarez v. Jordan, 35 S.W.3d 268, 272-73 (Tex.App.-Houston [14th Dist.] 2000, no pet.). Both actual and apparent authority are created through conduct of the principal directed either to the agent (actual authority) or to a third person (apparent authority). Id. at 273. For there to be an agency relationship, there must be some act constituting an appointment of a person as an agent; it is a consensual relationship. Carr v. Hunt, 651 S.W.2d 875, 879 (Tex.App.-Dallas 1983, writ ref'd n.r.e.). Consent may be implied rather than express. Id. Indeed, "[a]n agency *184 relationship does not depend upon express appointment or assent by the principal; rather, it may be implied from the conduct of parties under the circumstances." Orozco v. Sander, 824 S.W.2d 555, 556 (Tex. 1992). An agency may be implied from acquiescence. Wink v. Wink, 169 S.W.2d 721, 723 (Tex.Civ.App.-Galveston 1943); Gunn v. Schaeffer, 567 S.W.2d 30, 32 (Tex. Civ.App.El Paso 1978, no writ).
Apparent authority is based upon the doctrine of estoppel, and one seeking to charge the principal through apparent authority of the agent must establish conduct by the principal which would lead a reasonable prudent person to believe the agent has the authority he purports to exercise. Biggs v. United States Fire Ins. Co., 611 S.W.2d 624, 629 (Tex.1981); Coker v. Cramer Fin. Group, Inc., 992 S.W.2d 586 (Tex.App.-Texarkana 1999, no pet.) Only the conduct of the principal, leading one to suppose that the agent has the authority he purports to exercise, may charge the principal through the apparent authority of an agent. Southwest Title Ins. Co. v. Northland Bldg. Corp., 552 S.W.2d 425, 428 (Tex. 1977); Suarez, 35 S.W.3d at 273.
In this case, there was testimony from Martin that the bank had the board of directors approve major loans and that Barrera approved Martin's loan. When asked why he believed Barrera knew about his loan, Martin responded that "Barrera approved the loan, and I'm sure he told Markus Villanueva I had at least 220 head out there or he wouldn't have approved the loan." Martin further testified:
This is why [Villanueva] never had to go out really and inspect the cattle, because [Barrera] worked with us. We had all the ranches together, and we all knew more or less how many cattle we all had. And he was, I'm sure, consulted when they.... When the loan is made, it has to go before the board of directors, unless it's a real small loan, and they have to approve it.
We conclude Martin could have reasonably believed, from the bank's conduct, including its ostensible acquiescence to Barrera's involvement with Martin's loan, that Barrera was authorized by the bank to assist Martin in selling his cattle. Accordingly, Martin provided evidence that the bank waived its interest in the fifty-eight head of cattle; thus, there is some evidence that the bank could not have reasonably believed Martin committed the crime of hindering a secured creditor. Appellants' first and third issues are overruled.
In their second issue, appellants assert the trial court erred by submitting an improper question in the jury charge. According to appellants, the trial court's question, which allowed the jury to find liability for malicious prosecution if appellants failed to make a full and fair disclosure, presented an invalid legal theory to the jury. See Lieck, 881 S.W.2d at 293 (plaintiff may prove procurement by showing defendant provided false information which he knows is false). Appellee contends appellants waived any error by failing to object to the question as submitted to the jury and that the question was substantially correct.
Appellants requested the following question and instruction with respect to procurement:
Do you find that First Valley Bank procured the criminal prosecution of Sam Martin?
You are instructed that a person procures a criminal prosecution if his actions were enough to cause the prosecution and, but for his actions, the prosecution would not have occurred. A person does not procure a criminal *185 prosecution when the decision whether to prosecute is left to the discretion of another, including a law enforcement official or the grand jury, unless the person provides information which he knows is false. A criminal prosecution may be procured by more than one person. Browning-Ferris Industries, Inc. v. Lieck, 881 S.W.2d 288 (Tex. 1994).
Refused: ___
Modified as follows: ___
The trial court placed a check mark next to "modified as follows", placed brackets around the entire second paragraph, and signed the document. The charge actually submitted, unlike the one requested by appellants, permitted the jury to find they procured the prosecution if they failed to fully and fairly provide material information. However, appellants did not object to the charge on the ground that it allowed the jury to enter a verdict based on an invalid legal theory.
Rule 276 of the Texas Rules of Civil Procedure provides, in part:
When an instruction, question, or definition is requested and the provisions of the law have been complied with and the trial judge .... modifies the same the judge shall endorse thereon "Modified as follows: (stating in what particular the judge has modified the same) and given, and exception allowed" and sign the name officially. Such ... modified instruction, question, or definition, when so endorsed shall constitute a bill of exceptions, and it shall be conclusively presumed that the party asking the same presented it at the proper time, excepted to its ... modification, and that all the requirements of law have been observed, and such procedure shall entitle the party requesting the same to have the action of the trial judge thereon reviewed without preparing a formal bill of exceptions.
Tex.R. Civ. P. 276. We conclude the trial court's endorsement of the proposed jury question "modified as follows" constitutes a bill of exception, and we therefore conclusively presume appellants preserved error. See Tex.R. Civ. P. 276. The court indicated with brackets the general language it was to modify. Though the court did not include the language "and given, and exception allowed" in its endorsement, we conclude the trial court's endorsement "modified as follows" adequately preserved error given the facts of this case.
We must next determine if the trial court erred in submitting a malicious prosecution question which allowed the jury to find procurement if the defendant failed to fully and fairly disclose all material information known to him.
In Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 289 (Tex.1994), the supreme court considered whether a trial court erred in submitting an instruction that allowed the jury to find liability for malicious prosecution if the defendant caused, aided or cooperated in causing the criminal prosecution to be commenced. Id. at 291. The court concluded that "the jury should be asked, not whether the defendant `caused' criminal proceedings, but whether he either initiated or `procured' them...." Id. at 293. The terms initiated and procured, taken from the Restatement (Second) of Torts, do "not subject a person to liability for merely aiding or cooperating in causing a criminal prosecution." Id. at 292. "Were it otherwise, persons only incidentally involved in a criminal investigation might find themselves facing allegations in a civil suit." Id. Accordingly, the supreme court found that the trial court's instruction, which allowed a finding of malicious prosecution *186 for mere assistance or cooperation, was improper.
In addition, the supreme court expressly stated that procurement should be defined such that "[a] person does not procure a criminal prosecution when the decision whether to prosecute is left to the discretion of another, including a law enforcement official or the grand jury, unless the person provides information which he knows is false." Id.
The supreme court also addressed the issue of whether a trial court erred in refusing to instruct the jury that a defendant could not be liable for malicious prosecution unless he gave knowingly false information to investigators. Id. at 294. Because there are instances in which a defendant can be held liable for making statements to law enforcement officials which he did not actually know were false, the supreme court upheld the trial court's refusal to so instruct. Id. The evidence showed a defendant withheld information from law enforcement officials which might have been important in determining whether to prosecute the plaintiff. Id. at 290. As the court observed, comment g of section 623 of the Restatement indicates that where the prosecutor does not exercise his own discretion, "the provider of information has procured a criminal prosecution whether he knew the information to be false or not." Id. Accordingly, the supreme court held the trial court did not err in refusing to submit an instruction that the defendant could not be liable unless he knew the statements made were false because the instruction excluded the possibility of liability if the prosecutor did not exercise his own discretion and the defendant did not know his statements were false. Id. at 294.
On its face, the supreme court's definition of procurement would not appear to authorize a finding of liability based on a defendant's failure to fully and fairly disclose all material information known to him. However, a closer examination of section 653 of the Restatement, upon which the supreme court relied throughout Lieck and in crafting its definition of procurement, reveals that a defendant's failure to disclose material information may satisfy the procurement element of a malicious prosecution claim.
As the court noted, comment g of section 653 states that merely giving information or making an accusation of criminal misconduct does not amount to a procurement of the proceedings initiated by the officer if it is left entirely to his discretion whether to initiate the proceedings. Id. at 293. Instead, "in order to charge a private person with responsibility for the initiation of proceedings by a public official, it must ... appear that his desire to have the proceedings initiated, expressed by direction, request or pressure of any kind, was the determining factor in the official's decision to commence the prosecution, or that the information furnished by him upon which the official acted was known to be false." Id. at 294 (citing Restatement (Second) of Torts § 653, cmt. g (1977)). Thus, when the decision whether to prosecute is left to the discretion of another, "a person may be liable, not only when he gives information he knows is false to a prosecutor, but also when his conduct is the determining factor in the prosecutor's decision to prosecute." Lieck, 881 S.W.2d at 294.
Considering Lieck and section 653 of the Restatement, we are not convinced that procurement, when the decision whether to prosecute is left to the discretion of another, can only occur if the person provides information which he knows is false. When a defendant provides information to a prosecutor regarding criminal misconduct, but fails to fully and fairly *187 disclose all material information, and his failure to disclose such information ultimately leads the prosecutor to initiate the prosecution, his conduct can be said to have been the determining factor in the prosecutor's decision to prosecute. Such conduct would satisfy the Restatement's requirements for procurement.
Recognition of liability for a defendant's failure to fully and fairly disclose all material information pertinent to criminal misconduct is not inconsistent with general tort principles, which allow for liability for nonfeasance under some circumstances. Generally, liability for "nonfeasance" requires "some definite relation between the parties, of such a character that social policy justifies the imposition of a duty to act." W. Page Keeton Et Al., Prosser & Keeton On the Law of Torts § 56, at 374 (5th ed.1984). For example, a carrier may be required to aid a passenger in peril, and an innkeeper to aid his guest. Id. at 376. Moreover, if the defendant's own acts, whether tortious or innocent, are responsible for the plaintiff's situation, "a relation has arisen which imposes a duty to make a reasonable effort to give assistance, and avoid any further harm." Id. at 377. Section 321 of the Restatement (Second) of Torts recognizes a duty to act when prior conduct is found to be dangerous. That section provides, in part, "(i)f the actor does an act, and subsequently realizes or should realize that it has created an unreasonable risk of causing physical harm to another, he is under a duty to exercise reasonable care to prevent the risk from taking effect." Restatement (Second) of Torts § 321 (1965).
Furthermore, in the context of a fraud action, Texas courts recognize a duty to speak under some circumstances. See e.g., Hoggett v. Brown, 971 S.W.2d 472, 487-88 (Tex.App.-Houston [14th Dist.] 1997, no writ); State Nat'l Bank v. Farah Mfg. Co., 678 S.W.2d 661, 681 (Tex.App.-El Paso 1984, writ dism'd by agr.). For example, when one makes a partial disclosure and conveys a false impression, he has a duty to reveal the whole truth. See Ralston Purina Co. v. McKendrick, 850 S.W.2d 629, 636 (Tex.App.-San Antonio 1993, writ denied); Intl. Sec. Life Ins. Co. v. Finck, 475 S.W.2d 363, 370 (Tex.Civ. App.Amarillo 1971), rev'd on other grounds, 496 S.W.2d 544 (Tex.1973).
Similarly, a defendant who takes the affirmative act of providing information to a law enforcement official regarding a third party's criminal misconduct, and knows of material information, which would likely affect the prosecutor's determination as to whether to prosecute, should have a duty to disclose all such information.
The trial court's submission of the malicious prosecution question, which defined procurement to include failure to disclose material information, was not erroneous.[4] Appellants' second issue is overruled.
*188 In issues six through nine, appellants challenge the legal and factual sufficiency of the evidence for the jury's award of damages based on the finding of malicious prosecution. Appellants challenge the sufficiency of the evidence to support the findings of mental anguish damages, loss of reputation damages, loss of credit reputation damages, and loss of earning capacity damages.
By issue six, appellants challenge the mental anguish damages on the bases that there is legally and factually insufficient evidence of compensable mental anguish and legally and factually insufficient evidence to uphold the amount of the award, $500,000. To support an award of mental anguish damages, a plaintiff must either present "direct evidence of the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiff's daily routine," or "evidence of `a high degree of mental pain and distress' that is `more than mere worry, anxiety, vexation, embarrassment, or anger.'" Latham v. Castillo, 972 S.W.2d 66, 70 (Tex.1998) (citing Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex.1995)). There must also be evidence that the amount of mental anguish damages awarded is fair and reasonable, and the appellate court must perform a "meaningful evidentiary review" of the amount found. Saenz v. Fidelity Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex.1996). Intentional or malicious conduct may be a significant factor in determining whether mental anguish damages are proper. See City of Tyler v. Likes, 962 S.W.2d 489, 495-96 (Tex.1997).
Martin testified after he was indicted, his friends, who knew he had been in law enforcement for years, made jokes about the sheriff finally getting caught. He tried to laugh, but it hurt and made him feel bad. He realized when he was charged with hindering a secured creditor that he could have gone to prison for fifteen to twenty years. During a period of eight months when he was under indictment he did not sleep very well and had no peace; he had never had such a difficult time sleeping before. On the inside he felt, "[n]ot real good." When asked if he would need help with it, Martin testified, "I'll deal with it." His arrest and indictment were covered on television and in the newspapers, and he felt everybody knew. He felt a stigma of being a felon when he dealt with people, and he always carries that inside him. He felt bad because the arrest, indictment, and news coverage traumatized his family and ruined his son's reputation. He was ashamed. Martin felt bad because he would probably never be able to work in law enforcement again because of the indictment. He also let his real estate license lapse and did not apply for a handgun license because he would have to reveal the indictment.
In Parkway v. Woodruff, 901 S.W.2d 434, 445 (Tex.1995), the supreme court held that a plaintiff who testified she was "hot" and that the flooding of her house *189 was "upsetting" and "not pleasant" failed to show compensable mental anguish. Her statements revealed mere emotions, such as anger, frustration, or vexation. Id. In this case, by contrast, Martin felt hurt and ashamed. He felt everyone knew of his arrest and indictment and felt the stigma of being considered a felon. He had difficulty sleeping for eight months.
In Gunn Infiniti, Inc. v. O'Byrne, 996 S.W.2d 854, 860-61 (Tex.1999), the supreme court held that grief, disappointment, public humiliation, and embarrassment over problems with an automobile did not rise to the level of compensable mental anguish. There, the plaintiff made conclusory statements of his emotional state and many of his feelings were unrelated to his cause of action against the automobile dealership. Id. In the present case, Martin explained the source of his anguishshame over having been arrested and indicted in the public eye and carrying the stigma of being an alleged felon for months. He explained he felt bad for the trauma to his family and for the damage to his son's reputation. He explained that during the time he was under indictment he had difficulty sleeping.
We conclude there is legally and factually sufficient direct evidence of the nature, duration, and severity of Martin's mental anguish, thus establishing a substantial disruption in his daily routine. Latham, 972 S.W.2d at 70.
Appellants note that Martin never testified he needed to seek counseling or medication as a result of his emotions, and that he failed to present any expert medical testimony. However, appellants fail to direct this Court to any authority that expert testimony must support an award of mental anguish, and we are unable to find any.
We next consider whether the amount of damages awarded was fair and reasonable. Saenz, 925 S.W.2d at 614. Damages for mental anguish are considered uniquely within the province of the fact finder because of the subjective nature of such injuries and the nature of the related testimony and evidence. Wal-Mart Stores, Inc. v. Itz, 21 S.W.3d 456, 480 (Tex.App.-Austin 2000, no pet.); Southwestern Bell Tel. Co. v. Wilson, 768 S.W.2d 755, 763 (Tex.App.-Corpus Christi 1988, writ denied).
Here, Martin suffered public humiliation, shame for himself and family, and spent months with difficulty sleeping. He knew he could spend a long time in prison if convicted. We conclude that the jury's award of $500,000 for mental anguish is fair and reasonable and not so contrary to the overwhelming weight of the evidence as to be clearly wrong or unjust. Appellants' sixth issue is overruled.
In issue seven, appellants contest the award of loss of reputation damages, arguing there is legally and factually insufficient evidence that Martin's reputation was damaged or that the amount awarded, $2,000,000, was fair and reasonable. Martin was a former law enforcement officer, a father, and had run for sheriff of Cameron County. He testified he lost a lot of respect in Cameron County. Martin testified his name is very important to him. He feels that he carries the stigma of having been indicted for a felony, and that everybody is aware of the indictment. His case was covered by the local media. Whenever he fills out an application that asks if he has ever been arrested and charged with a felony, he must answer affirmatively. He testified he will probably never be able to work in law enforcement again due to his indictment. We find there is legally and factually sufficient evidence to support the award of loss of reputation damages and that the award of *190 $2,000,000 is fair and reasonable considering Martin's relation with the community and the stigma associated with having a felony indictment on his record. Appellants' seventh issue is overruled.
Appellants, in their eighth issue, challenge the loss of credit reputation damages on the grounds that there is no evidence that he ever applied for a loan. The supreme court has held that for loss of credit reputation, "a plaintiff does not suffer actual damage merely from the inability to obtain a loan. There must be a showing that such inability resulted in injury and proof of the amount of that injury." St. Paul Surplus Lines v. Dal-Worth Tank Co., 974 S.W.2d 51, 53 (Tex.1998). In Dal-Worth, the plaintiff presented evidence of his credit before and after he filed bankruptcy, but there was no evidence that the plaintiff ever needed to use the credit or ever tried to do so. Id.
In this case, Martin testified his credit was excellent with the bank prior to the indictment. He had obtained and paid off several loans in the amounts of $20,000 or $30,000. He could walk into any bank in Texas and get a $20,000 loan. He testified his credit was ruined after the indictment. He lost his credit cards and testified he will not be able to get a loan for a long time. A few days before his indictment was dismissed, Martin went to the bank to attempt to renegotiate the terms of the loan. They did not want to make a new loan. He wanted some paperwork or a contract, but they refused and told him to pay as he could. Martin failed to provide testimony as to the amount of the injury, or the amount for which he sought to obtain a new loan or to renew the existing loan. The jury, in response to question eight, answered that $50,000 would pay all sums owed to appellants by Martin. Correspondingly, the jury awarded Martin $50,000 for loss of credit reputation. We are unable to find any evidence supporting this amount. Accordingly, there is legally insufficient evidence to support the award for loss of credit reputation. Appellants' eighth issue is sustained.
By their ninth issue, appellants attack the loss of earning capacity damages on the basis that a plaintiff can only recover such damages if he suffered a physical impairment or injury that impaired his ability to earn a living. Appellants direct us to Metro. Life Ins. Co. v. Haney, 987 S.W.2d 236, 244-45 (Tex.App.-Houston [14th Dist.] 1999, pet. denied), in which our sister court reversed an award of damages for loss of earning capacity because the plaintiff did not present sufficient evidence to prove diminished earning power as a result of physical impairment. The court stated, "[a] survey of Texas cases addressing claims for loss of earning capacity reveals that a plaintiff may recover where he has shown a physical impairment affecting his ability to earn a living." Id. at 245 (citations omitted).
The cases cited by Haney all involve negligence personal injury claims, and none purport to hold that damages for lost earning capacity may not be recovered for torts not involving personal injuries. See Hanna v. Lott, 888 S.W.2d 132, 139 (Tex.App.-Tyler 1994, no writ) (no recovery for loss of earning capacity in negligence action where damage to car caused lost earnings because of the "loss of use" rule); Border Apparel-East, Inc. v. Guadian, 868 S.W.2d 894, 898 (Tex.App.-El Paso 1993, no writ) (no recovery for lost earnings in a negligence case because insufficient evidence of future wage expectancies); Tri-State Motor Transit Co. v. Nicar, 765 S.W.2d 486, 492 (Tex.App.-Houston [14th Dist.] 1989, no writ) (upholding an award of lost earning capacity in a personal injury case); Ceiling Fan *191 Warehouse, Inc. No. 3 v. Morgan, 723 S.W.2d 195, 199 (Tex.App.-Houston [1st Dist.] 1986), aff'd as modified, 725 S.W.2d 715 (Tex.1987) (award of lost earning capacity damages in negligence case reversed because no evidence that injury was associated with inability to work); Goldston Corp. v. Hernandez, 714 S.W.2d 350, 352 (Tex.App.-Corpus Christi 1986, writ ref'd n.r.e) (upholding lost earning capacity damages in a personal injury case). We decline to hold that a plaintiff who does not suffer personal injury may not recover for loss of earning capacity. See Peshak v. Greer, 13 S.W.3d 421, (Tex.App.-Corpus Christi 2000, no pet.) (finding sufficient evidence to uphold damages for lost earning capacity in a libel suit); Borden, Inc. v. Guerra, 860 S.W.2d 515, 524-25 (Tex. App.Corpus Christi 1993, writ dism'd by agr.) (upholding an award of future lost wages and employment benefits). Thus, a plaintiff may recover for loss of earning capacity if he has shown an injury affecting his ability to earn a living. Certainly, as may be the case with physical impairments, acts such as malicious prosecution and libel may have a devastating effect on an individual's ability to earn a living.
We must still determine whether Martin produced legally and factually sufficient evidence that his injury affected his ability to earn a living. Loss of earning capacity is always uncertain and generally left to the discretion of the fact finder. Borden, 860 S.W.2d at 524. At the same time, the injured party is required to introduce sufficient evidence to allow the jury to reasonably measure earning capacity prior to the injury. Wal-Mart Stores, Inc. v. Cordova, 856 S.W.2d 768, 770 (Tex.App.-El Paso 1993, writ denied); City of Houston v. Howard, 786 S.W.2d 391, 395-96 (Tex.App.-Houston [14th Dist.] 1990, writ denied).
In the present case, Martin testified he quit his job in Colorado because of the indictment. He earned $2,000 a month in that job, and was given a place to reside, a truck, and all of his expenses were paid. He testified this job would be available when he returned if his employers did not hire someone else. Martin testified that he did not believe he could get a job in law enforcement due to the indictment. He made approximately $40,000 a year while he was in law enforcement. Martin was fifty-six years of age at the time of trial. The jury awarded Martin $360,000 for lost earning capacity. We conclude he produced legally and factually sufficient evidence to support this award. Appellants' ninth issue is overruled.
By their fourth, fifth, and tenth issues, appellants contend there is legally and factually insufficient evidence to support the jury's finding of fraud. Appellants first maintain there was no evidence or factually insufficient evidence that Villanueva made a false statement or promise without an intention of performing. Appellants further assert there is no evidence or factually insufficient evidence that Martin was damaged from any representations.
The elements of fraud are: (1) a material misrepresentation was made; (2) it was false; (3) when the representation was made, the speaker knew it was false or the statement was recklessly asserted without any knowledge of its truth; (4) the speaker made the false representation with the intent that it be acted on by the other party; (5) the other party acted in reliance on the misrepresentation; and (6) the party suffered injury as a result. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex.1990). A promise of future performance constitutes an actionable misrepresentation if the promise was made with no intention of performing at the time it was made. Formosa Plastics Corp. *192 USA v. Presidio Engrs. and Contractors, Inc., 960 S.W.2d 41, 48 (Tex.1998).
As evidence of a false representation, Martin directs this Court to representations made by Villanueva to Gus Martin when he went to the bank to make an interest payment for his father in October of 1996. Gus Martin testified that he informed Villanueva that his father would return around the first of the year to renew the note. In response, Villanueva told him he was going to accelerate the note. However, Gus Martin was told that when his father came in to renew the note at the first of the year, the interest rate would be retroactive upon renewal.
Gus Martin relayed to his father what Villanueva had told him regarding the note. Martin returned during the Christmas holidays to renew the note and visit his family. He deposited $1,451.41 in his checking account at the bank. According to Martin, he was going to use this money to renegotiate the loan. When he later went to withdraw funds from the account, he learned that the money had been seized. Martin then spoke with Villanueva, who told him that his note had been accelerated and that they were going to foreclose. Villanueva said the money was taken out of the account to pay interest on the loan. Martin told him, "if you do not put this money back into my checking account and renegotiate this loan, I'm going to leave the bank...." Martin then left and returned to Colorado.
In his brief, Martin contends that Villanueva's statement that he could renew the note when he returned was false and that he had no intention of performing when he made the representation. We are unable, however, to find any evidence that Villanueva's representation that Martin could renew the note when he returned was false because there is no evidence the bank refused to renew the note. Martin's statement that he was going to leave the bank if Villanueva did not return the money to his checking account and renegotiate the loan does not necessarily lead to the inference that the bank refused to renew the loan. In fact, it is equally plausible that Villanueva said nothing to Martin and Martin left the bank, or that Villanueva told Martin he would renew the note but not return the money to his checking account. "When circumstances are consistent with either of the two facts and nothing shows that one is more probable than the other, neither fact can be inferred." Litton Indus. Prods., Inc. v. Gammage, 668 S.W.2d 319, 324 (Tex.1984). Because there is no evidence the bank refused to renew the loan, there is legally insufficient evidence to support the jury's finding that appellants committed fraud. Appellants' fourth, fifth, and tenth issues are sustained.
In their eleventh issue, appellants contest the legal and factual sufficiency of the evidence that they acted with malice, a prerequisite for the award of exemplary damages, which in this case was $15,000,000.[5] To establish malice as a basis for an award of exemplary damages, Martin must have proven by clear and convincing evidence:
(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 the occurrence involves an extreme degree *193 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 Ann. § 41.001(7) (Vernon 1997).
When reviewing a fact finding made by clear and convincing evidence, we must determine, after considering all of the evidence, whether the trier of fact could reasonably conclude that the existence of the fact is highly probable. In re G.B.R., 953 S.W.2d 391, 396 (Tex.App.-El Paso, 1997, no writ); Ybarra v. Tex. Dept. of Human Servs., 869 S.W.2d 574, 579-80 (Tex.App.-Corpus Christi 1993, no writ). We will sustain a challenge to the sufficiency of the evidence under this standard "if the fact finder could not have reasonably found that the fact was established by clear and convincing evidence." Ybarra, 869 S.W.2d at 580; W. Wendell Hall, Standards of Review, 29 St. Mary's L.J. 351, 502-03 (1998). Thus, we will reverse the award of exemplary damages if the jury could not have reasonably concluded that it was highly probable that appellants acted with malice.
We have already concluded there is some evidence that the bank provided knowingly false information to Vasquez by telling him that they were looking for seventy-five head of cattle, and that they were unable to locate Martin's cattle. We further conclude the jury could have reasonably found that appellants acted with malice by clear and convincing evidence. Providing information which is likely to lead to the criminal prosecution of an individual, when one knows the information to be false, involves an extreme risk of harm to that individual. Appellants' eleventh issue is overruled.
By their twelfth issue, appellants contend the trial court erred in failing to apply a statutory cap to the exemplary damages awarded by the jury. Tex. Civ. Prac. & Rem.Code Ann. § 41.008 (Vernon 1997).
Martin asserts that the cap is inapplicable because the award falls under the Texas Debt Collection Act, and at the time Martin's cause of action accrued, chapter 41 of the civil practice and remedies code did not apply to actions under the Act. See Act of May 19, 1973, 63rd Leg., R.S., ch. 547, § 2, 1973 Tex. Gen. Laws 1513. Appellants respond that Martin did not submit a question to the jury for liability under the Texas Debt Collection Act (the Act). Accordingly, appellants maintain Martin waived any such question; and because there was no claim under the Act, the cap is applicable.
The plaintiff has the "burden to obtain affirmative answers to jury questions as to the necessary elements of his cause of action." Ramos v. Frito-Lay, Inc., 784 S.W.2d 667, 668 (Tex.1990). The failure to submit a question to a jury on a theory of liability waives any such claim. See Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex.1991).
Martin contends that by finding appellants liable for fraud and malicious prosecution, the jury made the necessary findings to support a claim under the Act. We disagree. The Act, which has been codified in the finance code, provided that "[n]o debt collector may collect or attempt to collect any debt alleged to be due and owing by any threats, coercion, or attempts to coerce which employ any of the following practices: * * * * (b) accusing falsely or threatening to accuse falsely any person of fraud or any other crime." Act of *194 May 19, 1973, 63rd Leg., R.S., ch. 547, § 2, 1973 Tex. Gen. Laws 1513. In this case, no question was presented to the jury as to whether appellants collected or attempted to collect any debt by threat, coercion, or attempts to coerce.[6] Because the jury was not presented with a theory of liability under the Act, Martin has waived the claim and cannot claim now that this case is governed by the Act. Accordingly, the Act does not preclude application of the exemplary damages cap found in section 41.008 of the civil practice and remedies code. We conclude the trial court erred in failing to apply section 41.008 of the civil practice and remedies code to the award of exemplary damages.
Section 41.008 of the Texas Civil Practice and Remedies Code limits exemplary damages to the greater of $200,000 or two times the amount of economic damages plus noneconomic damages not to exceed $750,000. Tex. Civ. Prac. & Rem.Code Ann. § 41.008 (Vernon 1997). In the present case, after eliminating the fraud damages and loss of credit reputation damages which we have reversed based on legally insufficient evidence, we are left with $500,000 in mental anguish damages, $2,000,000 for damages to reputation, and $360,000 for loss of earning capacity. The award of $360,000 for loss of earning capacity is an economic damage; that is, it is a compensatory damage for pecuniary loss. See Tex. Civ. Prac. & Rem.Code Ann. § 41.008 (Vernon 1997). Thus, two times the economic damages in this case is $720,000. The amount of noneconomic damages is $2,500,000. Section 41.008 permits an award of two times economic damages plus an amount equal to any noneconomic damages, not to exceed $750,000. Therefore, Martin was entitled to no more than $720,000 plus $750,000, or $1,470,000 in exemplary damages. Appellants' twelfth issue is sustained and the award of exemplary damages is reduced accordingly.
With respect to Martin's claim of fraud, the judgment of the trial court is REVERSED and RENDERED that Martin take nothing. Likewise, the award of damages in favor of Martin for loss of credit reputation is REVERSED and RENDERED that Martin take nothing. The award of exemplary damages is MODIFIED to reflect an award of $1,470,000. In all other respects, the judgment is AFFIRMED.
NOTES
[1] There is no order overruling the motion for new trial. At the end of the hearing on the motion for new trial, the trial judge informed the parties that he would take the matter under advisement and inform them of his decision. In any case, the motion for new trial was overruled by operation of law. See Tex.R. Civ. P. 329b; Cecil v. Smith, 804 S.W.2d 509, 511 (Tex.1991) ("[i]f an original or amended motion for new trial is not determined by written order signed within 75 days after the judgment was signed, it is overruled by operation of law").
[2] Appellants assert the parol evidence rule precludes this Court from considering extraneous documents and communications between Martin and the bank indicating that the collateral was seventy-five, rather than all of his cattle. However, in reviewing the sufficiency of the evidence of the jury's malicious prosecution finding, we are not limited to considering the terms of the note. Instead, we are concerned with the representations made to the law enforcement official, and whether those representations were knowingly false. See Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 293 (Tex.1994).
[3] Appellants dispute this inference because the notes unambiguously provided that the bank held a security interest in all of Martin's livestock, and the bank could have been looking for seventy-five head of cattle to cover the balance on the note, despite its recent sale of twenty cattle. In a no-evidence review, however, we make all inferences in favor of the verdict, disregarding all inferences to the contrary. Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex. 1998).
[4] Appellee directs this Court to Richey v. Brookshire Grocery Co., 952 S.W.2d 515, 519 (Tex.1997), for the proposition that the failure to fully disclose all material information can support the causation element of a malicious prosecution case. We do not read Richey, however, as expressly allowing the failure to disclose all relevant facts to suffice for causation in a malicious prosecution action.
In Richey, the supreme court concluded that the defendant's failure to fully and fairly disclose all relevant facts to police was not relevant to the probable cause element. Id. The court addressed the malice and causation elements in dictum, stating, "failing to fully and fairly disclose all material information and knowingly providing false information to the prosecutor are relevant to the malice and causation elements of a malicious prosecution claim but have no bearing on probable cause." Id. The court further explained that "the extent of the disclosure to the prosecutor is not probative of lack of probable cause, but rather indicates whether the complainant may have acted with malice or may have, by knowingly providing false information, caused the prosecution." Id.; see also Lonon v. Fiesta Mart, Inc., 999 S.W.2d 458, 461 (Tex.App.-Houston [14th Dist.] 1999, no pet.). A close reading of Richey indicates that failing to disclose material information is relevant to malice, while knowingly providing false information is relevant to causation. See Richey, 952 S.W.2d at 519 (citing Sebastian v. Cheney, 24 S.W. 970 (Tex.Civ.App.), rev'd, 86 Tex. 497, 25 S.W. 691 (1894); Lieck, 881 S.W.2d at 293-94) (citing Sebastian for the proposition that failing to make full disclosure is probative of malice, while citing Lieck for the proposition that knowingly making false disclosure is probative of causation).
[5] We note that appellants do not contend in issue eleven that the award of exemplary damages was excessive.
[6] We note that the court, in its conclusions of law, concluded that Martin committed various violations of the Act. It is generally improper for a trial court to make findings of fact and conclusions of law following a jury trial. See Tex.R. Civ. P. 296; John G. and Stella Kenedy Mem. Found. v. Dewhurst, 994 S.W.2d 285, 308 (Tex.App.-Austin 1999, no pet); Rathmell v. Morrison, 732 S.W.2d 6, 16 (Tex.App.Houston [14th Dist.] 1987, no writ). Here, the jury made no findings with respect to the Act and the court did not act as the fact-finder in this case. Whether appellants committed a violation of the Act in this case was a question of fact, and thus, properly left to the jury. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2375387/ | 67 F. Supp. 2d 631 (1999)
Keenan PORCHE et al.,
v.
ST. TAMMANY PARISH SHERIFF'S OFFICE.
No. Civ.A. 98-3536 S.
United States District Court, E.D. Louisiana.
October 5, 1999.
*632 John G. Discon, Thomas Massa Discon, Gregory T. Discon, Discon Law Firm, Mandeville, LA, for Keenan Porche, plaintiff.
Paul S. Hughes, Talley, Anthony, Hughes & Knight, LLC, Bogalusa, LA, Charles M. Hughes, Jr., Craig Joseph Robichaux, Talley, Anthony, Hughes & Knight, LLC, Mandeville, LA, for defendant.
ORDER AND REASONS
LEMMON, District Judge.
IT IS HEREBY ORDERED that Sheriff Rodney Strain's motion to dismiss for lack of subject matter jurisdiction, pursuant to Federal Rule Civil Procedure 12(b)(1) is DENIED. (Document # 18.)
I. BACKGROUND
Keenan and Dana Porche (the Porches), the natural parents and representatives of the estate of Keenan Porche, Jr. (Keenan), filed a complaint against Rodney Strain, in his capacity as Sheriff of St. Tammany Parish Office, alleging claims under the General Maritime Law pursuant to 28 U.S.C. § 1331 and Fed.R.Civ.P. 9(h). On November 30, 1997, a vessel owned and operated by Keenan's uncle, Bennie Mills, capsized in waters located in St. Tammany Parish. Keenan died on December 1, 1997. The Porches allege that the negligence of Sheriff Strain in his official capacity was the proximate cause of the accident because the Sheriff failed to follow appropriate search and rescue protocol and procedures, to contact other available search and rescue agencies, and to effectuate an appropriate search. The Porches seek damages for loss of love and affection of their son, pre-death pain and suffering, medical expenses, and funeral expenses; legal interest from the date of the accident; costs of the proceedings; and equitable relief.
II. DISCUSSION
Sheriff Strain filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). Sheriff Strain asserts that the suit against him in his official capacity is barred by the Eleventh Amendment and there is no admiralty or maritime jurisdiction
A. Eleventh Amendment Immunity
In evaluating a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, where the jurisdictional challenge does not implicate the merits of the cause of action, the jurisdictional basis must survive both facial and factual attacks before the district court can address the merits of the claim. Lewis v. Knutson, 699 F.2d 230, 237 (5th Cir.1983).
The Eleventh Amendment, which is a bar to the jurisdiction of the federal court, "is rooted in a recognition that the States, although a union, maintain certain attributes of sovereignty, including sovereign immunity." Hans v. Louisiana, 134 U.S. 1, 10 S. Ct. 504, 506, 33 L. Ed. 842 (1890). The Eleventh Amendment provides:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.
The Supreme Court "has consistently held that an unconsenting State is immune from suits brought in federal courts by her own citizens as well as by citizens of another State." Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 1355, 39 L. Ed. 2d 662 (1974). Even though a State is not a named party, "a suit by private parties seeking to impose a liability which must be paid from public funds in the state treasury is barred by the Eleventh Amendment." Id. at 1356.
"[Eleventh Amendment] immunity applies to state agencies that may be properly *633 characterized as arms of the State, as well as to state employees acting in their official capacity." Harter v. Vernon, 101 F.3d 334, 336 (4th Cir.1996) (internal quotation, brackets, and citations omitted). The Eleventh Amendment affords no protection to local government entities and employees. Id. Even though political subdivisions such as parishes, counties, and municipalities exist at the behest of their State, the Eleventh Amendment affords them no protection. See Port Authority Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 110 S. Ct. 1868, 1877, 109 L. Ed. 2d 264 (1990) (Brennan, J., concurring in part and concurring in judgment); Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391, 99 S. Ct. 1171, 1177, 59 L. Ed. 2d 401 (1979). "[F]or purposes of the Eleventh Amendment, [courts] do not generally distinguish between suits brought against an entity and suits brought against the entity's officers in their official capacity." Hudson v. City of New Orleans, 174 F.3d 677, 680 (5th Cir. 1999).
In Hess v. Port Authority Trans-Hudson, 513 U.S. 30, 115 S. Ct. 394, 400, 404, 130 L. Ed. 2d 245 (1994) (case involving a Compact Clause entity created by two states and the federal government), the Supreme Court announced that Eleventh Amendment inquiries should be guided by the Eleventh Amendment's twin reasons for being: preventing judgments from depleting state treasuries and maintaining the integrity retained by each state in the federal system. The vulnerability of the State's purse is the most salient factor in Eleventh Amendment determinations. Id. "The purpose of the immunity therefore largely disappears when a judgment against the entity does not entail a judgment against the state." Jacintoport Corp. v. Greater Baton Rouge Port Comm'n, 762 F.2d 435, 440 (5th Cir.1985).
The Court of Appeals for the Fifth Circuit has utilized six factors to identify when a suit against a governmental entity, or an official of the entity sued in his official capacity, is considered to be a suit against the state:
1. Whether the state statutes and case law view the agency as an arm of the state;
2. The source of the entity's funding;
3. The entity's degree of local autonomy;
4. Whether the entity is concerned primarily with local as opposed to statewide problems;
5. Whether the entity has the authority to sue and be sued in its own name; and
6. Whether the entity has the right to hold and use property.
Hudson, 174 F.3d at 681 (citing Clark v. Tarrant County, Texas, 798 F.2d 736, 744 (5th Cir.1986)). "A defendant need not possess each of the above attributes to benefit from the Eleventh Amendment." Id. The factors are not equal to one another, and the second is the most important. Id. The test is not a precise one; the factors help the court to balance the equities and determine whether the suit is against the state itself. Id. In the context of Eleventh Amendment analysis, unlike liability analysis in suits under 42 U.S.C. § 1983, the court does not look at the function of the officer being sued. Id. at 682, n. 1 (distinguishing McMillian v. Monroe County, 520 U.S. 781, 117 S. Ct. 1734, 138 L. Ed. 2d 1 (1997), which held that the Monroe County Sheriff was a state policymaker while acting in a law enforcement capacity, as opposed to a county policymaker, for purposes of county liability under 42 U.S.C. § 1983). The court looks to the state's view of the entity in question by looking at state law to see how the state perceives the entity; however, federal law controls the scope of the analysis. Id. at 685. A court may consider state statutes, regulations, and constitutional provisions which characterize the office of sheriff, and the holdings on state courts on the subject. See Harter, 101 F.3d at 342.
*634 This case calls upon the court to assess whether the sheriffs of Louisiana are arms of the state and thereby entitled to the protection of the Eleventh Amendment. Courts in several other states have resolved this issue with mixed results. Sheriffs in Florida, Hufford v. Rodgers, 912 F.2d 1338, 1341-42 (11th Cir.1990); Wisconsin, Soderbeck v. Burnett County, 821 F.2d 446, 451-52 (7th Cir.1987); and North Carolina, Harter, 101 F.3d at 342, do not enjoy Eleventh Amendment immunity. Sheriffs in Alabama, Free v. Granger, 887 F.2d 1552, 1557 (11th Cir.1989); South Carolina, Cromer v. Brown, 88 F.3d 1315 (4th Cir.1996); and Maryland, Levinson-Roth v. Parries, 872 F. Supp. 1439, 1447 (D.Md.1995) enjoy Eleventh Amendment immunity.
The first factor to consider in analyzing the issue of Eleventh Amendment immunity of sheriffs in Louisiana is how the state perceives the office of sheriff. Article 5, § 27 of the Louisiana Constitution discusses the sheriffs under the "Judicial Branch", a portion of the constitution reserved for state government:
In each parish a sheriff shall be elected for a term of four years. He shall be the chief law enforcement officer in the parish, except as otherwise provided by this constitution, and shall execute court orders and process. He shall be the collector of state and parish ad valorem taxes and such other taxes and license fees as provided by law.
Even though the office of sheriff is created by the constitution, the State of Louisiana does not view the sheriff as a "state agency." See La.Rev.Stat. § 13:5102(A).[1] The definition of a "state agency" does not include any political subdivision or any agency of a political subdivision. Id. Under Louisiana law, the definition of a "political subdivision" includes "sheriff." La. Rev.Stat. § 13:5102(B).[2] Because, under federal law, political subdivisions are not protected by the Eleventh Amendment, see Port Authority Trans-Hudson Corp., 110 S.Ct. at 1877, this factor weighs against conferring immunity.
The next factor to consider in resolving the issue of Eleventh Amendment immunity of sheriffs in Louisiana is the source of funding for the sheriffs to determine whether a judgment against the sheriff will be paid with state funds. Article 12, § 10(A) of the Louisiana Constitution states that "[n]either the state, a state agency, nor a political subdivision shall be immune from suit and liability in contract or for injury to person or property." A judgment against a political subdivision shall be paid from funds appropriated by the political subdivision against which the judgment is rendered. Id. at § 10(C); see Jones v. Traylor, 660 So. 2d 933, 934 (La. Ct.App.1995) ("[P]ublic funds cannot be seized for payment of a judgment against the sheriff and the funds must be appropriated for that purpose."); see also Baudoin v. Acadia Parish Police Jury, 702 So. 2d 715, 717 (La.Ct.App.1997) (citing La. Rev.Stat. § 13:5109(B)(2)) ("[a]ny judgment rendered in any suit filed against a political subdivision shall be exigible, payable, and paid only out of funds appropriated for that purpose by the named political subdivision."). Moreover, La.Rev.Stat. § 33:1441 provides:
A. The state of Louisiana shall not be liable for any damage caused by a district attorney, coroner, assessor, sheriff, clerk of court, or public officer of a political subdivision within the course and scope of his official duties, or damage caused by an employee of a district *635 attorney, coroner, assessor, sheriff, clerk of court, or public officer of a political subdivision.
B. The provisions of Subsection A hereof are not intended to and shall not construed to affect any personal liability which may arise from damage caused by any public officer of a political subdivision, or by a district attorney, coroner, assessor, sheriff, clerk of court, or the employee of any such public officer....
A sheriff shall pay, upon warrant drawn by him, final judgment obtained against his office for official acts from the sheriff's salary fund. La.Rev.Stat. 33:1422(c). Further, La.Rev.Stat. § 1450.1[3] provides that a sheriff is authorized to contract for insurance to cover losses from negligent acts, and the premiums are to be paid out of the sheriff's general fund.
Accordingly, the state is fiscally isolated from judgments against the sheriff. This factor weighs against Eleventh Amendment immunity.
The third factor to consider in resolving the issue of Eleventh Amendment immunity of sheriffs in Louisiana focuses on the degree of local autonomy enjoyed by the sheriff. An analysis of the extent of the sheriff's independent management authority determines the sheriff's autonomy. See Jacintoport Corp., 762 F.2d at 442. The court need not dwell on this factor because, under the Louisiana Constitution and its laws, a sheriff is virtually an autonomous local government official. See Burge v. Parish of St. Tammany, 187 F.3d 452, 468-70 (5th Cir.1999). This factor weighs against Eleventh Amendment immunity.
The next factor to consider in resolving the issue of Eleventh Amendment immunity of sheriffs in Louisiana explores whether the sheriff is concerned with primarily local, as opposed to state-wide problems. Pursuant to the Louisiana Constitution, the sheriff is the chief law enforcement officer of the parish in which he is elected. A sheriff is responsible to the people of the parish, and the functions are typically local. Although the sheriff enforces state laws and performs certain duties for the benefit of the state, these duties are generally performed only within a given parish. Thus, this factors weighs against Eleventh Amendment immunity.
The next factor to consider in resolving the issue of Eleventh Amendment immunity of sheriffs in Louisiana involves the sheriff's capacity to sue and be sued. "The law of Louisiana affords no legal status to the `Parish Sheriff's Department' wherein said department can sue or be sued, such status being reserved for the Sheriff, individually." Liberty Mut. Ins. Co. v. Grant Parish, 350 So. 2d 236, 238 (La.Ct.App.1977). The distinction between the Office of the Sheriff and the sheriff sued individually in his official capacity is irrelevant for purposes of Eleventh Amendment immunity. See Hudson, 174 F.3d at 691. Therefore, the local sheriff in his official capacity is the proper person to sue or bring suit in a cause of action involving a parish's sheriff department.
The final factor to consider in resolving the issue of Eleventh Amendment immunity of sheriffs in Louisiana concerns the sheriff's right to hold and use property. La.Rev.Stat. § 33:4713 requires the parish to provide and bear the expense of offices as may be needed by the sheriffs of the district and circuit courts. The parish council supplies the sheriff with furniture and other equipment required for conducting business, and conveyance used for service of process must be supplied by the sheriff at his own expense. "Notwithstanding the provisions of R.S. 33:4713, a sheriff and ex officio tax collector may *636 purchase and equip such real property as is necessary in the performance of his duties, including but not limited to an adequate and safe jail. The ownership of such real property shall be vested in the parish law enforcement district." La.Rev.Stat. § 33:1422(D).
An analysis of the Hudson factors leads to a determination that a sheriff in Louisiana may not be properly characterized as an arm of the state and, therefore, the Eleventh Amendment affords a sheriff in Louisiana no protection against being sued. Accordingly, Sheriff Strain is not entitled to Eleventh Amendment immunity from suit.
B. Jurisdiction under General Maritime Law
"Where the factual findings regarding subject matter jurisdiction are intertwined with the merits, ... the case should not be dismissed for lack of subject matter jurisdiction unless the alleged claim is immaterial or is wholly insubstantial and frivolous." Clark, 798 F.2d at 741-42. "The questions of subject matter jurisdiction and the merits will normally be considered intertwined where the statute provides both the basis of federal court subject matter jurisdiction and the cause of action." Id. at 742. "Where the challenge to the court's jurisdiction is also a challenge to the existence of a federal cause of action, and assuming that the plaintiff's federal claim is neither insubstantial, frivolous, nor made solely for the purpose of obtaining jurisdiction, the district court should find that it has jurisdiction over the case and deal with the defendant's challenge as an attack on the merits." Id.
The United States Constitution extends federal judicial power "to all Cases of admiralty and maritime Jurisdiction." U.S. Const., Art. III, § 2. Congress has embodied that power in 28 U.S.C. § 1331(a), which states in part that federal district courts have "original jurisdiction ... of ... [a]ny civil case of admiralty or maritime jurisdiction." The Extension of Admiralty Jurisdiction Act of 1948, 62 Stat. 496, invested "admiralty with jurisdiction over `all cases' where the injury was caused by a ship or other vessel on navigable water, even if such injury occurred on land." Grubart, Inc. v. Great Lakes Dredge & Dock, 513 U.S. 527, 115 S. Ct. 1043, 1048, 130 L. Ed. 2d 1024 (1995) (involving Rule 12(b)(1) motion to dismiss for lack of admiralty jurisdiction).
[A] party seeking to invoke federal admiralty jurisdiction pursuant to 28 U.S.C. §§ 1331(1) over a tort claim must satisfy conditions both of location and of connection with maritime activity. A court applying the location test must determine whether the tort occurred on navigable water or whether injury suffered on land was caused by a vessel on navigable water. 46 U.S.C.App. § 740. The connection test raised two issues. A court, first must "assess the general features of the type of incident involved," [Sisson v. Ruby, 497 U.S. 358, 110 S. Ct. 2892, 2896, 111 L. Ed. 2d 292 (1990) ], to determine whether the incident has "a potentially disruptive impact on maritime commerce," id. at 2896, n. 2. Second, a court must determine whether "the general character" of the "activity giving rise to the incident" shows a "substantial relationship to traditional maritime activity." Id. at 2897, 2896, and n. 2.
Grubart, Inc., 115 S.Ct. at 1048.
The parties dispute whether the alleged tort was committed while on navigable waters and whether the rescue activity giving rise to the alleged incident involved bears a substantial relationship to traditional maritime activity. Because these factual findings regarding jurisdiction are intertwined with the merits of the plaintiffs' claim under general maritime law that the sheriff was negligent in conducting the rescue operation, dismissal for lack of subject matter jurisdiction is not proper unless the alleged claim is wholly insubstantial or frivolous. The case is not wholly *637 insubstantial or frivolous because there is a genuine question whether the sheriff was engaged in traditional maritime activity. See Kelly v. United States, 531 F.2d 1144, 1147 (2nd Cir.1976) (rescue operations of the Coast Guard conducted on navigable waters bear a significant relationship to traditional maritime activities); Hiner v. Longstaff, 543 F. Supp. 1123, 1124 (W.D.Wash.1982) (emergency first aid rendered by paramedics was fortuitously and incidentally connected to navigable waters and bears no relationship to traditional maritime activity); Icelandic Coast Guard v. United Technologies Corp., 722 F. Supp. 942, 946 (D.Conn.1989) (flights by coast guard aircraft in preparation for marine rescue bears a significant relationship to traditional maritime activities). Therefore, the court finds that the case should not be dismissed for lack of subject matter jurisdiction.
III. CONCLUSION
The court concludes that sheriffs in Louisiana are not arms of the state and, therefore, are not entitled to Eleventh Amendment immunity. Moreover, the court does not dismiss for lack of subject matter jurisdiction because the factual findings regarding jurisdiction over the maritime claim are intertwined with the merits of the case, and the cause of action is neither insubstantial or frivolous. Accordingly, the Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction is denied.
NOTES
[1] R.S. 13:5102(A) provides in relevant part: "`State agency' does not include any political subdivision or any agency of a political subdivision."
[2] R.S. 13:5102(B) provides: "As the term is used in this Part, `political subdivision' means any parish, municipality, special district, school board, sheriff, public board, institution, department, commission, district, corporation, agency, authority, or an agency or subdivision of any of these, and other public or governmental body of any kind which is not a state agency."
[3] "Sheriffs of the parishes of the state of Louisiana are hereby authorized to contract for insurance with any insurance company authorized to do business under the laws of the state of Louisiana to cover loss or damage from any negligent acts of the sheriff or his deputies, in the performance of the duties of his office, the premiums on said insurance to be paid by the sheriff as an expense of his office out of the sheriff's general fund...." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1661546/ | 628 So. 2d 75 (1993)
CALCASIEU-CAMERON HOSPITAL SERVICE DISTRICT, Plaintiff-Appellant,
v.
James M. FONTENOT and Barbara Fontenot, Defendants-Appellees.
No. 93-148.
Court of Appeal of Louisiana, Third Circuit.
November 3, 1993.
Opinion Denying Rehearing December 16, 1993.
*76 John B. Scofield, John Richard Pohorelsky, Patrick Donavon Gallaugher, Jr., Pamela Viney Mathews, Lake Charles, for Calcasieu-Cameron Hosp. Service Dist.
Henry Eugene Yoes III, Blaine Andrew Doucet, Lake Charles, Richard Dale Moreno, Baton Rouge, for James M. and Barbara Fontenot.
Before STOKER, DOUCET and SAUNDERS, Judges.
STOKER, Judge.
This is an expropriation suit. The Calcasieu-Cameron Hospital Service District appeals a judgment dismissing its suit to expropriate *77 an unimproved tract of land which is owned by the Fontenots and is contiguous to the Calcasieu-Cameron Hospital. The main issue in this appeal is whether the Hospital District was arbitrary and capricious in deciding to expropriate the Fontenots' land for additional hospital parking. We reverse and remand.
FACTS
The Calcasieu-Cameron Hospital Service District (Hospital District) operates the West Calcasieu-Cameron Hospital (hospital) in Sulphur, Louisiana. In 1989, the State, Department of Transportation and Development began expropriation proceedings on part of the hospital's front parking lot in order to widen Cypress Street, which runs in front of the hospital. This resulted in the loss of fifty-two of the hospital's eighty-two parking places in its front parking lot, which is adjacent to the hospital's main entrance and admissions office. Even before the State, DOTD's taking of part of the hospital's front parking lot, the front parking lot was inadequate, forcing people to park in the rear of the hospital and walk up to the front.
Therefore, in mid-1990, the Hospital District began negotiating the purchase of the Fontenot's vacant lot, which is situated adjacent to the main entrance of the hospital on the west side. The hospital's main entrance is actually set at an angle in the northwest corner of the hospital. The Fontenots' land has an office building in the front (north) half, of which one-half is occupied by their dental offices and one-half is leased by the hospital. The south half of the lot is unimproved, and it is this land which the Hospital District is attempting to expropriate. The Fontenot's unimproved land is described as follows:
Beginning 500 ft. West of the Northeast (NE) Corner of the Southeast Quarter of the Southeast Quarter (SE ¼ of SE ¼) of Section Thirty-four (34), Township Nine (9) South, Range Ten (10) West, Calcasieu Parish, Louisiana, thence South 185.40 ft. to POINT OF COMMENCEMENT, thence continuing South 250.60 ft., thence West 100 ft., thence North 250.66 ft., thence East 100 ft. to POINT OF COMMENCEMENT.
The hospital owns the property to the south and to the east of the Fontenot's lot.
Negotiations with the Fontenots to acquire the property were carried on for over a year. Possibilities included a trade of property, the purchase of only the unimproved back half of the lot, or the purchase of both the unimproved back half and the front half with the office building. However, the parties were unable to agree on a price.
After failing to conventionally acquire the Fontenot's land, the Hospital District's Board of Commissioners decided to expropriate the unimproved back half of the lot in a closed executive session on January 22, 1992. This decision was ratified in an open meeting held immediately after the executive session, by a motion "to approve all actions taken in the executive session."
The Hospital District filed this suit to expropriate the land on May 27, 1992. In its reasons for the expropriation, set forth in its petition, the Hospital District stated both the need to replace the front parking taken by the State and its plans for future expansion of the hospital. The Fontenots answered with a denial, claiming the expropriation was not necessary because the Hospital District already owned unimproved land on the east and south sides of the hospital. In the alternative, the Fontenots claimed compensation due, including the fair market value of the lot taken and severance damages to the remainder.
A trial on the merits was held on September 1, 1992. At the close of the Hospital District's case, the trial judge granted the Fontenots' motion for an involuntary dismissal of the Hospital District's suit, finding the expropriation of the Fontenot's land was not necessary at that time. The trial judge also awarded $12,000 attorney fees to the Fontenots.
The Hospital District then filed this appeal, contending the trial judge erred in finding the expropriation was not necessary at this time, in substituting his own judgment for that of the Hospital District in choosing the location of the land needed, in finding the *78 Hospital District had been arbitrary and capricious, in failing to dismiss the Hospital District's suit "without prejudice", and in awarding attorney fees of $12,000 to the Fontenots. The Fontenots answered the appeal, seeking additional attorney fees for frivolous appeal.
OPINION
APPLICABLE LAW
A hospital service district is a political subdivision of the state. LSA-R.S. 46:1051; Bertrand v. Sandoz, 260 La. 239, 255 So. 2d 754 (1971). One of the primary purposes of a hospital service district is to own and operate hospitals for the care of persons suffering from illnesses or disabilities. Also, a hospital district is empowered to administer other activities relating to "rendering care to the sick and injured or in the promotion of health which may be justified by the facilities, personnel, funds and other requirements available."
LSA-R.S. 46:1060 provides for the creation of hospital service districts with all of the powers of a corporation, including the right and power of expropriating property for the purpose of acquiring land for any purpose that it may find necessary in the operation of a hospital service district. See also, Bertrand v. Sandoz, supra. An expropriation by a hospital service district, as a political subdivision of the state, is regulated by LSA-R.S. 19:1-15.
It is well settled that all property is held subject to the right of expropriation, when the public interest and necessity requires that it be surrendered by the owner. An expropriation beyond the public interest and necessity would obviously be unconstitutional. City of New Orleans v. Moeglich, 169 La. 1111, 126 So. 675 (1930); 1974 La. Const. art. 1, § 4.
The expediency or necessity of an expropriation is a matter for judicial determination. Greater Baton Rouge Port Comm'n. v. Watson, 224 La. 136, 68 So. 2d 901 (1953); City of Westwego v. Marrero Land & Imp. Ass'n., Ltd., 221 La. 564, 59 So. 2d 885 (1952); Southern Nat. Gas Co. v. Poland, 384 So. 2d 528 (La.App. 2d Cir.), writ ref.'d, 386 So. 2d 363 (La.1980); Southwest La. Elec. Mem. Corp. v. Simon, 207 So. 2d 546 (La.App. 3d Cir.1967), writ ref.'d, 252 La. 104, 209 So. 2d 37 (La.1968). In this context, the word "necessary" refers to the necessity of the purpose for the expropriation, not the necessity for a specific location. Claiborne Elec. Coop., Inc. v. Garrett, 357 So. 2d 1251 (La.App. 2d Cir.), writ ref.'d, 359 So. 2d 1306 (1978). The amount of land and the nature of the acreage taken must be reasonably necessary for the accomplishment of the proposed project. Evangeline Parish Police Jury v. Deville, 247 So. 2d 258 (La.App. 3d Cir.1971), and cases cited therein. It is not necessary, however, to show actual, immediate, and impending necessity for the expropriation. It is sufficient, in carrying out the general plan of improvements contemplated in the near future, to show that the defendant's land will be needed for the purposes set out in the petition. Parish of Iberia v. Cook, 238 La. 697, 116 So. 2d 491 at 494 (1959), quoting City of New Orleans v. Moeglich, 169 La. 1111, 126 So. 675 (1930). The trial court's factual determinations as to the necessity or expediency of the expropriation will not be reversed on appeal in the absence of manifest or clear error. City of Lafayette v. Delhomme Funeral Home, Inc., 413 So. 2d 348 (La.App. 3d Cir.1982).
However, the extent and location of the property to be expropriated are within the sound discretion of the body possessing the power of eminent domain, and these determinations will not be interfered with by the courts if made in good faith. Greater Baton Rouge Port Comm'n. v. Watson, supra; Board of Comm'rs. of Tensas Basin Levee Dist. v. Franklin, 219 La. 859, 54 So. 2d 125 (1951); Evangeline Parish Police Jury v. Deville, supra. Questions such as the location of the expropriation, the extent of the property taken, the nature of the title to be taken, and the wisdom of pursuing the particular improvement project relate to the necessity of the taking. The standard is whether the expropriator, in selecting the location and extent of the property to be expropriated, acted in bad faith or so capriciously or arbitrarily that its action was without an adequate determining principle or was *79 unreasoned. Criteria to be considered by the expropriator include the availability of an alternate route, costs, environmental factors, long-range area planning, and safety considerations. The expropriating agency may abuse its discretion by acting without considering and weighing the relevant factors, that is, by acting arbitrarily. Red River Waterway Comm'n. v. Fredericks, 566 So. 2d 79 (La.1990), and authorities cited therein. However, the mere availability of a feasible alternative location is not, by itself, an indication that the expropriator has acted arbitrarily or capriciously in making its selection. Faustina Pipe Line Co. v. Levert-St. John, Inc., 463 So. 2d 964 at 969 (La.App. 3d Cir.), writ denied, 466 So. 2d 1301 (La.1985), quoting Louisiana Resources Co. v. Stream, 351 So. 2d 517 (La.App. 3d Cir.1977).
Thus, the expropriating authority must show the public and necessary purpose for the expropriation and that, prior to filing the petition for expropriation, it offered to compensate the owner with an amount equal to at least the lowest appraisal or evaluation. LSA-R.S. 19:2.1, 2.2.
The burden is on the defendant owner to establish that the decision of the public body to expropriate the property is unreasonable and in bad faith. Red River Waterway Comm'n v. Fredericks, supra; Acadia Parish Police Jury v. Delahoussaye, 490 So. 2d 789 (La.App. 3d Cir.1986).
ARGUMENTS
The Hospital District argues that it needs the Fontenots' land to replace lost parking spaces and to accommodate the future expansion of the hospital.
The purposes of the proposed project, to replace and expand the public parking facilities at the hospital and to increase the size of the hospital's power plant for the future addition to the hospital, are clearly public purposes. The public nature of the purpose of the project is not really at issue. Also, the good faith of the Hospital District in its negotiations to conventionally acquire the land from the Fontenots was stipulated to by the Fontenots at trial. Therefore, the only serious issue on appeal is whether this expropriation is necessary.[1]
The trial judge found that the Hospital District failed to carry its burden of showing that the expropriation of the Fontenots' land is necessary. We disagree.
In his oral reasons for judgment, the trial judge stated that "a review of the testimony of witnesses and the evidence ... reveals that a taking of the Fontenots' property is not necessary, at least at this time." He found the evidence showed the primary source of parking is in the rear of the hospital and that there is sufficient (unimproved) acreage owned by the hospital to expand its existing parking area. The trial judge also noted that, although there was testimony about future expansion of the hospital, the plans were so tentative and subject to change that it would be premature to consider them in this expropriation suit.
At trial, the Hospital District introduced the testimony of Wayne Swiniarski, the CEO and administrator of the hospital and the secretary of the board of directors, and the testimony of E.J. Ellender, the architect hired by the Hospital District to develop the architectural plans for the expansion of the hospital.
Swiniarski testified that the hospital needed the Fontenots' land for parking spaces to replace those spaces expropriated by the State, to provide additional parking to accommodate the future expansion of the hospital, and to provide space for the planned expansion of the hospital's power plant. He stated that the Fontenots' lot, which is on the west side of the hospital, is better for hospital parking than the land already owned by the hospital on the east side and to the rear of the hospital because it is closer to the hospital's main entrance. He also testified that *80 the hospital had not yet developed a formal plan for expansion, but that it had hired an architect to develop one and had started arranging the financing of the expansion. Swiniarski admitted that a change in the location of the hospital's main entrance had been considered.
Ellender testified that the Fontenots' land is necessary for the expansion of the power plant because more space is not otherwise available next to the existing power plant, the Fontenots' land is next to the existing power plant, and it is more economical to acquire the Fontenots' land than to relocate the power plant. He also testified that the Hospital District needs the land to replace the front parking spaces lost to the State. Ellender stated that the rear parking lot is too far from the hospital's main entrance.
We find the trial judge impermissibly substituted his own judgment for that of the Hospital District in determining that the expropriation was not necessary because there are alternative locations available for parking. The evidence adduced by the Hospital District sufficiently addressed the relevant criteria as to the necessity for taking the Fontenots' property, i.e. the location, the extent of the property taken, the availability of alternative locations, costs and long-range area planning. Compare, Parish of Iberia, v. Cook, supra.
Therefore, the Fontenots did not carry their burden of proving the Hospital District was in bad faith. The trial judge manifestly erred in finding that the Hospital District acted unreasonably and arbitrarily. The judgment of the trial court is reversed.
Since the trial judge granted the Fontenots' motion for an involuntary dismissal at the close of the Hospital District's evidence, the Fontenots did not have an opportunity to introduce any evidence as to the value of their property. The case is remanded for the taking of evidence as to the value of the Fontenots' land and to render a judgment thereon.
In light of our holding, discussion of the other assignments of error is unnecessary.
DISPOSITION
For the reasons given, the judgment of the trial court is reversed. The case is remanded for further proceedings in accordance with the views expressed herein. Costs of this appeal are assessed to defendants-appellees.
REVERSED and REMANDED.
ON APPLICATION FOR REHEARING
PER CURIAM.
The successful party on appeal in this case, West Calcasieu-Cameron Hospital Service District, has applied for a rehearing. The Hospital District requests that we clarify our ruling on the original hearing to the extent of indicating whether we reversed the trial court's award of $12,000 in attorney fees in favor of the defendants as well as reversing the trial court's ruling on the merits of the case. The Hospital District suggests that clarification is necessary because the defendants maintain that this court did not reverse the award of attorney fees.
The Hospital District points out that the trial court's original judgment ordered that attorney fees be paid but ordered that the amount be set at a subsequent hearing. This was done with the result that the trial court rendered a separate judgment setting the fee at $12,000. The Hospital District appealed the judgment awarding attorney fees as well as the earlier judgment on the merits of the expropriation.
If clarification is needed, we hereby reverse the judgment of the trial court in this matter which ordered the payment of attorney fees and the judgment fixing the fee at $12,000, and those judgments are set aside and vacated.
The application for rehearing is denied.
NOTES
[1] The defendants have also raised the issue of whether the Hospital District violated the open meetings laws, LSA-R.S. 42:4.1-13, in making the decision to expropriate the Fontenot's property in a closed meeting. LSA-R.S. 46:1073(B) specifically authorizes a hospital service district commission to hold an executive, or closed, session for the discussion and development of strategic plans, which includes any plan, strategy or device developed or intended to construct, operate or maintain a health facility (LSA-R.S. 46:1072(4)). Therefore, this issue has no merit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1751939/ | 254 So. 2d 98 (1971)
SOUTHWESTERN ELECTRIC POWER CO., Plaintiff-Appellee,
v.
Lewis P. CONGER, Defendant-Appellant.
No. 11687.
Court of Appeal of Louisiana, Second Circuit.
October 12, 1971.
Rehearing Denied November 16, 1971.
Smith, Trichel, Malsch & Ballard, by John R. Ballard, Shreveport, for appellant.
Wilkinson, Woods, Carmody, & Peatross, by Arthur R. Carmody, Jr., Shreveport, Wallace, Bigby & Wallace, by Walter O. Bigby, Bossier City, for appellee.
Before BOLIN, PRICE, and HEARD, JJ.
Rehearing En Banc Denied November 16, 1971.
HEARD, Judge.
This is an expropriation proceeding whereby Southwestern Electric Power Company (hereafter referred to as SWEPCO) seeks to expropriate a 100 foot right of way for a distance of 15,781 feet over the property of Lewis P. Conger, encompassing 36.23 acres. SWEPCO seeks to construct a 69/138 KV electric transmission line from its primary supply point at Dixie, Caddo Parish, Louisiana, to its Red Point Substation near Haughton in Bossier *99 Parish, Louisiana, a distance of 25.37 miles. SWEPCO attempted to negotiate with Conger for the right of way, and failing this, filed suit for the expropriation of the right of way. Conger defended the suit, asserting that there was no need for the new line and in the alternative, there was a better route off of his property, and in the further alternative, there was a better route on his property. The trial judge found that there was a need for the line, that SWEPCO had not abused its discretion in exercising the privilege of expropriation, and that the market value of the land expropriated was $225 per acre. Further, the trial judge found that the right of way did not amount to a full taking, and awarded an allowance of 75% of the market value of the 36.23 acres of land expropriated, or $6,113.81. Defendant Conger appealed.
The need for the proposed transmission line does not seem to be seriously disputed. Conger called no witnesses to dispute this item, whereas, SWEPCO's employees testified convincingly as to the necessity. Robert F. Scott, Louisiana Division Manager of SWEPCO, testified that the proposed line will provide a grid loop system for the eastern part of Bossier Parish which presently is served by a radial line. Scott testified that the problem with a radial line is that a hazard, such as a traffic accident, will black out the entire area. Also, if the line needs servicing, the entire area needs to be blacked out to do so safely. With a loop system it can be serviced without blacking out the entire area. In addition to these safety reasons and black out problems, Scott testified that the grid loop system provides flexibility and the ability to move quantities of power. This is necessary due to the growth in the Bossier Parish area. Robert Watt, System Planning Engineer, testified that the line was needed because of the rapid rate of electrical load growth in the area. Further, he stated that there would be a necessity for a new line in 1974 and the loop would avoid prolonged discontinuance of service. C. H. McDonald, in charge of Design and Construction of Transmission facilities, pointed out that the location of the line with respect to subject property is the most practical and feasible to accomplish the purposes to be achieved and was in accordance with sound engineering practices. Thus, in light of this uncontradicted testimony, we believe the trial judge was correct in his decision that the new line was necessary.
It is the well settled jurisprudence in Louisiana that:
"* * * in the location of rights-of-way considerable discretion is vested in the expropriating authority and the courts will not disturb or interfere with the exercise thereof in the absence of fraud, bad faith or conduct or practices amounting to an abuse of the privilege. * * *" [Central Louisiana Electric Company v. Covington & St. Tammany Land & Improvement Company, La.App., 131 So. 2d 369, 375 1st Cir.1961].
Texas Eastern Transmission Corporation v. Bowie Lumber Co., La.App., 176 So. 2d 735 (1st Cir.1965), writ refused, 248 La. 385, 178 So. 2d 663 (1965); Gulf States Utilities Company v. Heck, La.App., 191 So. 2d 761 (1st Cir.1966), writ refused, 249 La. 1021, 192 So. 2d 370 (1966); Texas Gas Transmission Corporation v. Pierce, La.App., 192 So. 2d 561 (3d Cir.1966); Central Louisiana Electric Company v. Brooks, La.App., 201 So. 2d 679 (3d Cir. 1967), writ refused, 251 La. 229, 203 So. 2d 558 (1967). Quoting further from Central Louisiana Electric, supra, the court said:
"* * * that availability of other and alternate routes is of no concern to the property owner whose land is sought to be expropriated provided the location selected fulfills the needs and requirements of the expropriator, meets the standards prescribed by sound engineering and economic practices, is neither artibrarily nor capriciously chosen, and does not constitute *100 an abuse of the discretionary right of selection. * * *" [131 So. 2d 369, 375, 376]
Louisiana Power and Light Company v. Anderson, La.App., 188 So. 2d 733 (2d Cir. 1960); Gulf States Utilities Company v. Heck, supra.
Defendant Conger asserts that there is a better route for the line off of his property but testimony by employees of SWEPCO clearly shows that the line must cross Conger's land due to a proposed future substation in the Swan Lake area near the western part of Conger's land. Scott testified that when building a transmission line, a straight line would be ideal. However, he stated this was not possible in this case because the substation at Swan Lake was part of the proposed grid loop. He states that the "purpose of the Swan Lake substation will be to have a tie line in the future to our Brownlee substation. It's tying together a grid system where you have to fill in these interconnections." He further testified that the proposed point for the substation was chosen to avoid Swan Lake itself and to be approximately across from the Brownlee substation.
C. H. McDonald testified that it would be a waste of line to go south of the proposed substation at Swan Lake, and further that they chose the location of the substation because SWEPCO wanted it near a load center. Having decided that there is a need for the grid system, it would not be fair to force SWEPCO to abandon a link in the system.
Conger further asserts that there is a more feasible route along the northern boundary of his land, but, again, the testimony of SWEPCO's employees shows that they checked out this proposed alternate route and it was not feasible. McDonald testified that SWEPCO determined it was not feasible to traverse Conger's land to the north since they would have to span bayous to build the line. J. C. McLemore, a surveyor, testified that he saw no reason why SWEPCO could not span Willow Chute bayou to the north, but further examination determined that McLemore never surveyed Conger's land and, in fact, had never been on any of the land. It is not enough for Conger to simply point out alternate routes to the court, he must show that SWEPCO abused its discretion, not simply used it. SWEPCO's line comes directly to the proposed substation near Swan Lake and then directly to its ultimate destination. From the testimony it appears that this was certainly not an arbitrary choice and was the most feasible route to accomplish the purposes, present and future, of the line.
There remains the question of compensation to Conger for the 36.23 acres to be expropriated. It is settled law in Louisiana that the value to be placed on property to be expropriated is the market value of that property at the time it is taken. Louisiana Highway Commission v. Davis, 204 La. 624, 16 So. 2d 129 (1943); State Department of Highways v. Mouledous, La.App., 200 So. 2d 384 (3d Cir.1967), writ refused, 251 La. 36, 202 So. 2d 653 (1967). Market value has been defined by Louisiana courts to be what a willing buyer would pay a willing seller at a voluntary sale. Louisiana Power and Light Co. v. Greenwald, La.App., 188 So. 2d 618 (2d Cir.1966), writ refused, 249 La. 740, 190 So. 2d 243 (1966); Louisiana Power and Light Co., v. Dixon, 201 So. 2d 346 (La. App., 2d Cir.1967); Department of Highways v. Mouledous, supra. Of course, the worth of the property should be construed in light of the highest and best use to which the property is adaptable and to which it may reasonably be put in the not too distant future. Gulf States Utilities Company v. Norman, La.App., 183 So. 2d 421 (3d Cir.1966) writ refused, 249 La. 118, 185 So. 2d 529 (1966).
Walter L. Hunter, realtor, testified he believed the highest and best use of Conger's property was as it was being presently utilized, i.e., agricultural use of the highest elevations and the growing of hardwood timber in the lowland. He stated *101 that 53% of the land was subject to overflow. Conger made a more conservative estimate of 25% to 1/3 of the land being subject to overflow. Frank Grigsby, another realtor, who had been over the property twice, testified that the land could not be used for subdivision development. Lawrence L. May, also a realtor, testified that the land was suitable for small tracts of acreage or for industrial use. J. C. McLemore, surveyor, testified that the land would be suitable for conventional residential homesites with the supporting commercial facilities within one to three years. He felt that at the present time the land was suitable for 2-5 acre tract developments. As can be readily seen, "highest and best use" is subject to many interpretations and is a nebulous guide at best. In State, Department of Highways v. Jenkins, La.App., 207 So. 2d 380 (3d Cir.1968) it was succinctly put that:
"The willing seller-willing purchaser fiction requires nothing more than a determination by the trier of fact what that land might reasonably be sold for. * * *" [207 So. 2d 380, 387]
It should always be kept in mind that:
"In an expropriation suit it is necessary to arrive at a value which is neither inflated to the prejudice of the expropriating authority nor minimized to an extent which would deny the owner fair, reasonable and just compensation. * * *" [Greater Baton Rouge Consolidated Sewer District v. Nelson, La.App., 144 So. 2d 186, 189 (1st Cir.1962)]
To determine the market value of the property taken in light of the highest and best use to which the property may reasonable be put in the not too distant future, the Louisiana jurisprudence is uniform in holding that the best criterion is evidence as to the price paid in comparable sales, i.e., recent sales of similar property in the vicinity. Gulf States Utilities Company v. Norman, La.App., 183 So. 2d 421 (3d Cir.1966), writ refused, 249 La. 118, 185 So. 2d 529 (1966); State, Department of Highways v. Jenkins, La.App., 207 So. 2d 380 (3d Cir.1968); State, Department of Highways v. Bjorkgren, La.App., 147 So. 2d 905 (1st Cir.1962). The three real estate experts submitted comparable sales to the trial court. In light of these "comparables" Frank Grigsby testified that the market value of Conger's property was $225 per acre; Walter L. Hunter valued it at $200 per acre and Lawrence L. May's valuation was $750 per acre. The discrepancy between the two former appraisals and the latter is due to the "comparables" used. The Conger property is apparently lowland which does not front on a hard-surfaced road. Mr. May's appraisal was based on lands which for the most part fronted on a hard-surfaced road. Mr. May did not take into account that Conger's property was so-called "interior" property. Most of the "comparables" given on truly interior property indicated that $225 per acre is not an unreasonable allowance for this property. The trial judge determined that the expropriation did not amount to a full taking and allowed only 75% of the market value of the land taken for the right of way. This is in line with the jurisprudence, and seems reasonable. Louisiana Power and Light Company v. Greenwald, supra; Texas Gas Transmission Corporation v. Pierce, supra.
For the reasons assigned, the judgment appealed from is affirmed. Costs are to be borne by appellant. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1797601/ | 566 S.W.2d 638 (1978)
Frank SMITH, Appellant,
v.
The STATE of Texas, Appellee.
No. 57168.
Court of Criminal Appeals of Texas, Panel No. 3.
June 7, 1978.
*639 Edith Roberts, Austin, for appellant.
Jim D. Vollers, State's Atty., Austin, for the State.
Before ROBERTS, ODOM and TOM G. DAVIS, JJ.
OPINION
TOM G. DAVIS, Judge.
This is an appeal from a final judgment forfeiting an appearance bond. By per curiam opinion dated February 15, 1978, this appeal was dismissed because it appeared that neither party had filed a brief. On motion for rehearing the appellant demonstrated that a brief had in fact been filed, although under an erroneous cause number. The appeal was therefore reinstated and is now before us on the merits.
The appellant was surety on an appearance bond for James Ray Park in the amount of $1,500. A judgment nisi was entered in the 147th District Court of Travis County. A final judgment was entered against James Ray Park as principal and Frank Smith as surety.
Since the appellee has not filed a brief in this Court, we may accept as true any statements in appellant's brief as to the facts or the record. Texas Rule of Civil Procedure 419, Art. 44.44, V.A.C.C.P.; Smith v. State, 561 S.W.2d 501; Smith v. State, 561 S.W.2d 502. Having carefully reviewed appellant's brief, we find that he has alleged no facts which entitle him to a reversal of the judgment.
Appellant initially contends that the bond is void and unenforceable because the principal failed to write thereon his address.
Although Art. 17.08, Sec. 4, V.A.C.C.P., provides that both the principal and surety "shall write thereon his mailing address," this Court has repeatedly held that the absence of the principal's address will not exonerate the surety or the principal from liability under the bond. Bowen v. State, 413 S.W.2d 915; Hodges v. State, 489 S.W.2d 916; Swaim v. State, 498 S.W.2d 188. We find the bond which was the basis of the instant forfeiture to be valid even though it appears the principal's address has been omitted.
Appellant next contends that the trial court erred in entering final judgment forfeiting the bond because the principal was in custody at the time of the final hearing on the bond forfeiture. This contention is without merit. Article 22.13, Sec. 3, V.A.C.C.P., provides for exoneration due to the following circumstances:
"the sickness of the principal or some uncontrollable circumstance which prevented his appearance at court, and it must, in every such case, be shown that his failure to appear arose from no fault on his part. The causes mentioned in this subdivision shall not be deemed sufficient to exonerate the principal and his sureties, if any, unless such principal appear before final judgment on the bond to answer the accusation against him, or shows sufficient cause for not so appearing."
Accepting as true appellant's allegation that the principal was in custody at the time of the final hearing, we find that the appellant has not alleged facts which show that the principal's failure to appear in court at the time the bond was forfeited was due to "some uncontrollable circumstance." See Fernandez v. State, 516 S.W.2d 677.
Appellant lastly contends that the trial court erred in entering a final judgment forfeiting the appearance bond against him because the principal was never served with citation.
*640 Article 22.05, V.A.C.C.P., provides that the sureties "shall be entitled to notice by service of citation...." This Article also provides, "it shall not be necessary to give notice to the defendant unless he has furnished his address on the bond, in which event notice to the defendant shall be deposited in United States mail directed to the defendant at the address shown on the bond." Formal service of citation on the principal is clearly not required nor contemplated by Art. 22.05. Likewise, Art. 22.03, V.A.C.C.P., provides that upon entry of the judgment nisi, "citation shall issue forthwith notifying the sureties of the defendant...." Appellant's contention that the final judgment forfeiting the bond was erroneous because of the failure to serve the principal is without merit. Hollins v. State, 427 S.W.2d 865; Johnson v. State, 172 Tex. Cr.R. 624, 361 S.W.2d 574.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1170902/ | 765 P.2d 1245 (1988)
94 Or.App. 362
In the Matter of the Compensation of Reyes S. GARCIA, Claimant.
Reyes S. GARCIA, Petitioner,
v.
BOISE CASCADE CORPORATION, Respondent.
WCB 85-15946; CA A46569.
Court of Appeals of Oregon.
Argued and Submitted July 27, 1988.
Decided December 14, 1988.
Reconsideration Denied February 10, 1989.
Quintin B. Estell, Salem, argued the cause and filed the brief for petitioner.
Paul Dakopolos, Salem, argued the cause for respondent. On the brief were Paul J. DeMuniz and Garrett, Seideman, Hemann, Robertson & DeMuniz, Salem.
Before WARDEN, P.J., GRABER, J., and VAN HOOMISSEN, J. Pro Tem.
WARDEN, Presiding Judge.
In this workers' compensation case, claimant seeks to establish the compensability of a disabling degenerative condition of his low back. At the hearing, he asserted that the degenerative condition was an occupational disease or, alternatively, that the herniated disc was caused by a compensable injury that he sustained on September 26, 1985, while working for employer. The referee upheld employer's denial of compensability. The Board affirmed the referee without comment. We review for substantial evidence and errors of law, ORS 656.298(6),[1] and reverse and remand for reconsideration.
To prevail on an occupational disease claim for a preexisting condition, the claimant must prove by a preponderance of the evidence that
"(1) his work activity and conditions (2) caused a worsening of his underlying disease (3) resulting in an increase in his pain (4) to the extent that it produces disability or requires medical services." Weller v. Union Carbide, 288 Or. 27, 35, 602 P.2d 259 (1979).
See Wheeler v. Boise Cascade Corp., 298 Or. 452, 457, 693 P.2d 632 (1985); AMFAC, Inc. v. Ingram, 72 Or. App. 168, 171, 694 P.2d 1005, rev. den. 299 Or. 37, 698 P.2d 965 (1985). He must also establish that the work activity or conditions were the major contributing cause of the worsening of the underlying disease. AMFAC, Inc. v. Ingram, supra, 72 Or. App. at 171 n. 2, 694 *1246 P.2d 1005. To prevail on the injury claim, claimant must prove by a preponderance of the evidence that the September 26, 1985, injury was a material contributing factor in producing the disability. Hutcheson v. Weyerhaeuser, 288 Or. 51, 55, 602 P.2d 268 (1979); Destael v. Nicolai Co., 80 Or. App. 596, 600, 723 P.2d 348 (1986).
The medical evidence comes only from Drs. Munson and Collada, both of whom treated claimant. Collada's deposition testimony is so ambiguous that both claimant and employer can and do rely on it to support their opposing positions. Munson believes that claimant's "heavy lifting" during his work with employer is "a major if not the major contributing factor aggravating his [degenerative low back condition]." The referee discounted Munson's opinion, because "the record indicates that claimant's work did not involve heavy lifting" and "because [Munson] was unaware of the claimant's actual work history." Those findings are not supported by substantial evidence in the record. It is undisputed that claimant worked several years, including the years 1983 to 1985, "pulling greenchain" for employer, a job that the record reveals requires substantial lifting as well as pulling, bending and twisting. The record also indicates that Munson had treated claimant since 1973, so that he could not have been "unaware of claimant's work history." Because Munson's opinion supports claimant's position, and because the referee erred in discounting Munson's opinion for the reasons that he did, we reverse and remand for reconsideration.
Reversed and remanded for reconsideration.
NOTES
[1] Or. Laws 1987, ch. 884, § 12a. The opinion and order of the referee, which the Board affirmed without opinion, is adequate for judicial review under ORS 656.298. George v. Richard's Food Center, 90 Or. App. 639, 752 P.2d 1309 (1988). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1315174/ | 694 S.E.2d 649 (2010)
STAMPS
v.
JFB PROPERTIES, LLC et al.
No. S10Q0041.
Supreme Court of Georgia.
April 19, 2010.
Ashe Rafuse & Hill, William B. Hill, Jr., Joseph C. Sharp, Angela S. Blackwell, Dax E. Lopez, Justin M. Scott, Megan A. Kelly, Atlanta, for appellant.
*650 Brinson, Askew, Berry, Seigler, Richardson & Davis, C. King Askew, Mark M.J. Webb, Rome, Gray, Rust, St. Amand, Moffett & Brieske, Michael D. St. Amand, Sarah B. Hoffman, Atlanta, William F. Sparks, Rome, for appellee.
BENHAM, Justice.
This case is before us on a certified question from the United States District Court for the Northern District of Georgia. 1983 Ga. Const., Art. VI, Sec. VI, Par. IV; OCGA § 15-2-9. The underlying case is a dispute over a $700,000 term life insurance policy on the life of Thomas Stamps, the late husband of plaintiff Diana Lynn Stamps. In 2003, Mr. Stamps was diagnosed with an aggressive form of leukemia. Up until the spring of 2003, Mr. Stamps had a longtime career as an attorney. During his career, Mr. Stamps performed legal work for defendant Charles Prater and the two became close friends. Mr. Stamps' financial situation drastically deteriorated after his diagnosis because he was unable to work and so Mr. Stamps sought financial assistance from Prater who co-owned JFB Properties, LLC with defendant Craig Vaughn. The Stampses disclosed their personal financial information to Prater in this process, including information about several term life insurance policies they owned. Prater enlisted his friend Jimmy Doyle to pursue his contacts in the banking and insurance industries to try and secure funding for the Stampses, but Mr. Doyle's efforts were unsuccessful. Prater then enlisted Vaughn and Doyle to pool their money and lend the Stampses $50,000 pursuant to an unsecured promissory note which the Stampses signed on June 10, 2003. On that day, Prater also offered to purchase the $700,000 term life insurance policy for $520,000, but Mr. Stamps refused, insisting that he wanted to use the policy as collateral for a loan. Eventually, Prater, via JFB Properties, LLC, agreed to lend the Stampses a total of $350,000, including the $50,000 lent on June 10, using the $700,000 life insurance policy as collateral. Before the contract was executed, however, Prater went to prison for crimes unrelated to this matter. Vaughn testified that Prater asked him to continue to oversee the agreement and to have Rick Brown, the attorney for JFB Properties, LLC, draft the paperwork for the agreement. Brown testified he drafted the agreement such that the Stampses were selling the policy to JFB Properties, LLC, rather than using it as collateral for a loan. On July 28, 2003, Vaughn took the agreement to the hospital where Mr. Stamps had been admitted for treatment of a fever and the Stampses signed it without reading it.[1] After Mr. Stamps' death in December 2003, Mrs. Stamps, who had at one time been the beneficiary of the policy, and the defendants both filed claims asserting rights to the proceeds of the insurance policy. The insurance company deposited the funds with the court and instituted an interpleader action.
At trial, a jury returned a verdict in favor of Mrs. Stamps, finding a confidential relationship existed between Mr. Stamps and Prater and that Prater committed fraud.[2] The defendants moved for a judgment notwithstanding the verdict. To resolve defendants' motion, the Northern District of Georgia has certified the following question to this Court:
Does Georgia law support the finding of a confidential relationship between Prater and Stamps, such that Prater owed a fiduciary obligation to Stamps where: (1) Prater and Stamps were close friends and business associates; (2) Stamps was a practicing attorney and had represented Prater in the past; (3) Stamps asked for Prater's help in meeting his financial obligations while he recovered from leukemia and, in connection with his request, provided detailed information to Prater about his finances and about the life insurance policy at issue in this case; (4) Prater promised *651 and voluntarily undertook to help Stamps, personally loaned Stamps $50,000 in exchange for an unsecured promissory note, and later agreed to loan Stamps $300,000 more, with the term $700,000 life insurance policy to be used as collateral for the $350,000 loan; and (5) Prater informed Stamps that he would have his attorney draft a loan agreement whereby the life insurance policy would be used as collateral for a $350,000 loan?
For reasons set forth more fully below, we answer in the affirmative.
A person is bound by any contract he signs without reading unless he can show: (1) an emergency at the time of signing that would excuse his failure to read; (2) the other party misled him by an artifice or device which prevented him from reading; or (3) a fiduciary or confidential relationship existed on which he relied in not reading the contract. Cochran v. Murrah, 235 Ga. 304, 305, 219 S.E.2d 421 (1975). OCGA § 23-2-58 defines a confidential relationship as follows:
Any relationship shall be deemed confidential, whether arising from nature, created by law, or resulting from contracts, where one party is so situated as to exercise a controlling influence over the will, conduct, and interest of another or where, from a similar relationship of mutual confidence, the law requires the utmost good faith, such as the relationship between partners, principal and agent, etc.
Such relationships may be created by law, contract, or by fact. Cochran v. Murrah, 235 Ga. at 306, 219 S.E.2d 421 (based on facts of the case, a confidential relationship existed between the employer and employee). "The showing of a relationship in fact which justifies the reposing of confidence in another is all the law requires." Id. at 307, 219 S.E.2d 421 (emphasis in original). The determination as to whether a confidential relationship exists as defined by OCGA § 23-2-58 is a question for the trier of fact and, if there is any evidence to support the trier of fact's determination, the trier of fact's decision on the matter will be affirmed. Trotman v. Forrester, 279 Ga. 844, 845, 621 S.E.2d 724 (2005) (confidential relationship existed between elderly testatrix and her nephew who was her beneficiary). See also Tankersley v. Barker, 286 Ga.App. 788, 651 S.E.2d 435 (2007) (existence of a confidential relationship is for a jury and there was no error in denying the motion for a directed verdict on that issue); Douglas v. Bigley, 278 Ga.App. 117(1)(a), 628 S.E.2d 199 (2006) (existence of a confidential relationship is for the jury and the trial court's denial of a judgment notwithstanding the verdict on the matter was not error); Howard v. Barron, 272 Ga.App. 360(2), 612 S.E.2d 569 (2005) (motion for a directed verdict improper because there was an issue of fact whether a confidential relationship existed between a seller and a buyer in real estate transaction and the matter was required to be determined by a jury); Yarbrough v. Kirkland, 249 Ga.App. 523(2), 548 S.E.2d 670 (2001) (existence of confidential relationship is ordinarily an issue for a jury and not disposed of on summary judgment).
In this case, there is evidence from which a jury could reasonably conclude that a confidential relationship existed between Mr. Stamps and Prater. Cochran v. Murrah, supra, 235 Ga. 304, 219 S.E.2d 421. Mr. Stamps and Prater had developed a friendship in addition to their past relationship as lawyer and client. When faced with a serious illness and loss of his livelihood, Mr. Stamps turned to Prater and disclosed private financial matters in order to secure a significant amount of money to support his family during his illness. At trial, three witnesses testified that Mr. Stamps did not agree to sell the policy and two witnesses testified that Mr. Stamps wanted to use the policy as collateral to secure a loan. Although Prater went to prison as the relevant events were unfolding, Prater enlisted Vaughn and Brown to facilitate Prater's promise to help Mr. Stamps with his personal financial situation. While in a state of personal crisis, Mr. and Mrs. Stamps reposed their trust in Prater and, by extension, his associates,[3] to secure the promised funds via *652 a loan agreement, not a sales agreement. Accordingly, this Court answers the certified question in the affirmative.
Certified question answered.
All the Justices concur.
NOTES
[1] By this time, Mr. Stamps' cancer had moved to his brain and there was witness testimony at trial that, due to his illness and radiation treatments to his brain, Mr. Stamps' vision had deteriorated such that he could no longer read and had to have documents read to him. Mrs. Stamps was under treatment for anxiety and took prescribed anti-anxiety medication which precluded her from driving.
[2] The jury did not find any fraud on the part of Vaughn or JFB Properties, LLC.
[3] Prater is the common link to any and all ancillary dealings the Stampses had with Vaughn, Doyle, and Brown. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1320957/ | 105 Ga. App. 247 (1962)
124 S.E.2d 493
CITY OF ATLANTA
v.
LUNSFORD.
39321.
Court of Appeals of Georgia.
Decided January 29, 1962.
*248 J. C. Savage, Martin McFarland, for plaintiff in error.
Poole, Pearce & Hall, William F. Lozier, contra.
EBERHARDT, Judge.
1. No mention of interest is made in Code § 36-603, which is the section applicable here. It simply provides that, in the event the final judgment fixing the amount to be paid for the land taken is less than the amount of the award of the assessors, the condemnee shall be bound to refund any excess paid to or received by him.
"The law allows interest only because of a contract, express or implied, for its payment, or as damages for the detention of money, or for breach of some contract, or the violation of some duty. It is very generally stated that interest, being of purely statutory origin and not the creature of the common law, should not be awarded except in such cases as fall within the terms of the statute, unless it has been contracted for either expressly or impliedly. In other words there is no absolute right, independent of contract, express or implied, or of statute, to interest." Best v. Maddox, 185 Ga. 78, 82 (194 SE 578). Accord, Irons v. Harrison, 185 Ga. 244 (8) (194 SE 749); Gormley v. Eison, 189 Ga. 259 (5 SE2d 643). This principle has been applied specifically to a condemnation proceeding such as we here deal with. St. Louis &c. R. Co. v. Knapp, Stout & Co., 160 Mo. 396 (61 SW 300).
Certainly there is no express contract on the part of the condemnee to pay interest on any amount, nor do we find any basis for holding that there is any implied contract on his part to do so. The amount of the assessors' award is required to be paid by the condemnor, and it is made available to the condemnee from the time of such payment under the provisions of Art. I, Sec. III, Par. I of the Constitution of 1945 (Code Ann. § 2-301), which provides that just compensation must be "first paid." State Highway Dept. v. Hendrix, 215 Ga. 821 (113 SE2d 761). The condemnation proceeding is, as to the condemnee, involuntary. *249 If the amount of the award were not made available to the condemnee before the taking of his land, it would result in his being deprived of the use of his land and of the money which the assessors have determined to represent just compensation therefor until a final judgment could be obtained. Often there is considerable delay between the time of the assessors' award and the trial before a jury. At the time the condemnee takes his money down, it is only natural that he has hope that the amount of the jury verdict will be equal to or in excess of the amount of the assessors' award. Neither the condemnor, the condemnee, nor the court can know what the result may be, and thus none can know until final judgment the amount that must finally be paid and accepted as just compensation. The condemnee is not and cannot be bound to refund any amount until final judgment. Thus it would strain credulity to say that there is any contractual obligation on his part to pay any amount until that time. Interest does not begin to run on an obligation until it is due and payable, in the absence of some contractual or statutory provision to the contrary. Approval of the contention of the city that interest should run on the excess from the time of payment of the award into the registry of the court, or even from the time of the withdrawal thereof by condemnee, would amount to holding that the city was authorized to require the condemnee to accept an involuntary loan, the amount of which was indefinite and not determinable until some future date when a final judgment might be obtained, and at "lawful interest," or seven per cent per annum, a rate over which the condemnee could have no control. "[I]nterest eo nomine can only be recovered from the date when the amount of the claim has been liquidated and determined." Insurance Co. of N. A. v. Folds, 42 Ga. App. 306 (4) (155 SE 782). And see 29 C.J.S. 1386, § 333.
It is urged that, since the General Assembly has provided for the payment of interest by the condemnee on such excess amount in the Special Master proceedings (Ga. L. 1957, pp. 387, 396; Code Ann. § 36-615a), a public policy has been adopted which we should apply uniformly both there and in the "three assessor" type of proceedings. We do not agree. Each type of *250 proceeding is statutory, and each must be had, governed, and determined by the terms of its respective statute. Further, the provision for payment of interest by the condemnee on the excess or the difference between the amount of the special master's award and the amount of the final judgment has not yet been tested as to its constitutionality. There is room, we think, for grave doubt that the provision will stand a constitutional test.
Counsel for the city urge that, since it has been held, in State Highway Board v. Warthen, 54 Ga. App. 759 (189 SE 76), Gate City Terminal Co. v. Thrower, 136 Ga. 456, 465 (71 SE 903), and Central Ga. Power Co. v. Stone, 142 Ga. 662 (2) (83 SE 524), that when the amount of the award has been increased by the final judgment the condemnee is entitled to interest on the amount of the increase from the time of the taking of the property, it would be unfair to hold that the city is not likewise entitled to interest on the excess when the amount of the award has been decreased. Again we do not agree. The interest to which the condemnee is entitled flows from the constitutional guaranty of just compensation to the condemnee for his property. Seaboard A.L.R. Co. v. United States, 261 US 299 (43 SC 354, 67 LE 664); Brooks-Scanlon Corp. v. United States, 265 US 106 (44 SC 471, 68 LE 934); Reed v. Chicago &c. R. Co., 25 F 886.
Of course when the final judgment is obtained and the amount that condemnor is required to pay as just compensation is thus finally determined, if there is excess between the amount of the judgment and the assessors' award, both the amount thereof and the obligation to refund by the condemnee has become fixed. Thus it is proper for the court to provide, in this judgment as in other judgments, for the payment of interest thereon from the date of the judgment, and at the lawful rate of seven per cent per annum. Code §§ 110-304 and 57-108.
Judgment affirmed. Carlisle, P. J., and Custer, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1799636/ | 700 So. 2d 316 (1997)
DIOGENES EDITIONS, INC. and Roland L. Freeman
v.
STATE of Mississippi, By and Through BOARD OF TRUSTEES OF INSTITUTIONS OF HIGHER LEARNING as Trustees for the University of Mississippi.
No. 95-CA-01070-SCT.
Supreme Court of Mississippi.
September 25, 1997.
*317 Joshua J. Wiener, Jackson, for Appellants.
Michael C. Moore, Attorney General, Jackson; Mary Ann Connell, Sp. Asst. Attorney General, University; J. Cal Mayo, Jr., Sp. Asst. Attorney General, University of Mississippi, Oxford, for Appellee.
Before DAN LEE, C.J., and McRAE and SMITH, JJ.
SMITH, Justice, for the Court:
¶ 1. Appellants, Diogenes Editions, Incorporated (hereinafter, Diogenes) and Roland Freeman, appeal the judgment of the Hinds County Circuit Court wherein the trial court granted summary judgment to the appellee, the State of Mississippi, by and through the Trustees for the Institutions of Higher Learning and the University of Mississippi and the Center for the study of Southern Culture (hereinafter, the Center or the University). Appellants claimed that the trial judge erred in finding that no issues of material dispute existed which would warrant a finding for the appellants. We affirm in part; reverse and remand in part this case based upon the fact that the University missed its contractually scheduled production deadline. Due to the fact that a breach existed on the part of the University, it is a jury question as to the effect of that breach upon the damages claimed by the appellants. The question of whether the marketing efforts of the University were active and diligent or timely as required by the contract is also one for the jury.
FACTS
¶ 2. This case involves a contract between the parties, Roland Freeman, an internationally renowned documentary photographer, Diogenes editions, Inc., a photographic technical production company owned by D. Gorton, and the University of Mississippi through its Center for the Study of Southern Culture, a division of the University dedicated to the preservation of southern art, music and literature.
¶ 3. In the summer of 1992, Gorton began discussions with William Ferris, director of the Center, concerning entering into a contract for the production of a limited edition portfolio of the works of Roland Freeman. Before the Freeman project, Diogenes Editions had successfully produced a limited edition portfolio of photographs by Eudora Welty. The Welty Portfolios were successfully marketed through a three party agreement between Ms. Welty, Diogenes, and the Mississippi State Department of Archives. The contract for the Freeman portfolios, which was based upon the one used in the Welty project, was signed by Freeman, Diogenes, and the Center on November 23, 1992.
¶ 4. In pertinent part, the contract set forth that Freeman, Diogenes, and the Center agreed to produce forty-five Portfolios of Freeman's photographic work. Each portfolio was to contain twelve black and white photographic prints which were to be 16 X 20 inches in size. All portfolios and prints were to be numbered, and each print was to be embossed by Diogenes with a seal mutually agreeable to all the parties. Diogenes was to perform all of the negative work at his own expense. The Center was to advance the funds for the purchase of the portfolio cases and packaging of the portfolios. Cost of the packaging materials was to be split on a one-third basis, to be deducted by the Center on the sale of the first portfolios.
¶ 5. A publication date (defined as "the first date upon which any of the portfolios may be sold.") was established by the parties as "no later than December 31, 1992." On the publication date, twenty four of the portfolios were to be offered under a "joint marketing arrangement" for a period of six months. During this six month period, the Center was to serve as the sole sales agent and honor orders made or postmarked on or before the last day of the joint marketing period. During the joint marketing period, the price of each portfolio was set at $5,000.
¶ 6. The remaining twenty one portfolios were to be distributed equally among the Center, Freeman, and Diogenes on the publication date, but were not to be sold until *318 after the expiration of the joint marketing period, and for one year thereafter, could not be sold for any price less than $5,000.
¶ 7. The Center was to be "primarily responsible" for the marketing activities associated with the Freeman project. Included among its duties was the requirement to produce, at its expense, a brochure featuring all of the prints along with purchasing information to be sent to interested parties. It was to publish information regarding the portfolios in its newsletter, the Southern Register, and was to use other methods of communication to inform the public, media, and other institutions of the availability and price of the portfolios being offered during the joint marketing period. It was to request that the news media run stories about the portfolios. Within reason, all parties were to be available for interviews and other public relations and promotional activities. The parties specifically agreed that the contract constituted the entire agreement between the parties, and was not to be altered unless in writing and such changes endorsed by all the parties.
¶ 8. In late December, 1992, Diogenes completed the development of the images and attempted to deliver them to the Center. However, it was the Christmas holidays and no one was at the Center who could take the prints before December 31, as required in the contract. Gorton called Ann Abadie, a worker on the project at the Center, who told him to deliver the prints on January 13, 1993, which he did.
¶ 9. The Center did not send out bid requests for the packaging for the prints until February, 1993. The Center's reasoning was that as a State institution, they were statutorily required to get bids on projects costing between $500 and $5,000. When they submitted the bids, only the Harcourt Bindery submitted a bid. Since the Center had to have at least two bids, they called other firms to see if they were interested in bidding on the project. When none were interested, the Center awarded the packaging contract to the Harcourt Bindery.
¶ 10. During the joint marketing period, the Center issued a press release touting the yet to be completed portfolios (although no articles which were dated before July 29, 1993 appeared in the record), wrote an article publicizing the portfolios for the Southern Register, and Ferris contacted several friends in the media appealing for support and publicity for the project.
¶ 11. In March, 1993, Gorton, concerned about the lack of results coming from the Center, and the fact that the prints had yet to be packaged, contacted Ferris concerning the project. Ferris sent him a letter stating that the problem was the bid process, and enclosed a copy of the article in the Southern Register. On May 28, Gorton sent a letter to Ferris encaptioned "notice of default." Therein he complained that the responsibility to comply with the State bid procedures was that of the Center and did not affect the Center's duty to comply with the terms of the contract. The letter also listed other perceived slights and problems with the Center's handling of the project, including that the marketing brochures were not completed, no portfolios had been sold and that in general, marketing of the project had been minimal. He also complained of the Center's failure to keep him abreast of the progress of the project. Finally, he noted that the Center was in breach of the contract and stated his intention to sue if the Center did not rectify its breach. On June 14, 1993, the Center responded by sending him a copy of the brochures and requesting a list of individuals to whom he might wish a copy of the brochure be sent. On June 28, 1993, Freeman wrote a letter to the Center expressing his frustration at the pace of the project, especially since the joint marketing period was two days from being over, and the prints had yet to be packaged into portfolio form or marketed in a coherent manner. He also expressed his disappointment at not being kept abreast of the project and that he was not sent any brochures as Gorton had been.
¶ 12. The portfolios were finally assembled and the first one sold in early July, after the joint marketing period. However, the portfolios were never embossed with the seal as required in the contract, and Ferris eventually determined that the embossing was unnecessary.
*319 ¶ 13. On January 28, 1994, Freeman and Diogenes filed suit in this case. The plaintiffs served interrogatories and document production requests on the Center with the complaint, which the Center answered. The trial court entered a Scheduling Order on October 17, 1994, setting November 30, 1993 as the date for completion of discovery and January 16, 1995, as the deadline for filing pretrial motions.
¶ 14. The Center propounded interrogatories and document production requests upon the plaintiffs on October 27, 1994. Plaintiffs mailed responses to Defendants discovery on January 31, 1995, two months after the discovery completion date and two weeks after the deadline for the filing of pretrial motions. Plaintiffs filed a Notice of Trial Setting on February 16, 1995, reflecting that the case had been set for trial on May 8, 1995, by agreement of counsel.
¶ 15. On April 7, 1995, the Center filed a Motion for Leave to File Dispositive Motion and for Stay of Proceedings and Filed a motion for Summary Judgment. After a telephone hearing on April 18, 1995, the trial court granted the Defendants' Motion for Leave to File a Dispositive Motion. A hearing on the Motion for Summary Judgment was held on May 4, 1995. At the conclusion of argument, the trial court took the matter under advisement and ordered the trial continued.
¶ 16. On September 7, 1995, the trial court entered an Order granting Defendant's Motion for Summary Judgment. Aggrieved, the plaintiffs appeal.
STANDARD OF REVIEW
¶ 17. "It is well-settled that a motion for summary judgment challenges the legal sufficiency of all or part of an opponent's case." Allen v. Mac Tools, 671 So. 2d 636, 640 (Miss. 1996); Dawkins and Co. v. L & L Planting Co., 602 So. 2d 838, 841 (Miss. 1992). "The motion lies only where there is no genuine issue as to any material fact. A fact is material if it tends to resolve any of the issues properly raised by the parties." Allen v. Mac Tools, 671 So.2d at 640.
¶ 18. This Court conducts a de novo review of the record on appeal from a grant of a motion of summary judgment. Id. "When reviewing an award of summary judgment, this Court views all evidence in the light most favorable to the non-movant, including admissions in pleadings, answers to interrogatories, depositions, affidavits, etc. and will presume that all evidence in the non-movant's favor is true." Id. If any triable issues of fact exist, the lower court's decision to grant summary judgment will be reversed. Otherwise, this Court affirms the decision. Id.; Brown v. Credit Center, Inc., 444 So. 2d 358, 362 (Miss. 1983).
DISCUSSION OF LAW
¶ 19. Freeman and Diogenes list two issues for appeal:
I. WHETHER THE TRIAL COURT ERRED IN GRANTING THE CENTER'S MOTION FOR LEAVE TO FILE A MOTION FOR SUMMARY JUDGMENT.
¶ 20. The appellants contend that the trial judge should not have granted the Center leave to file its Motion for Summary Judgment because the court had set a pretrial motion deadline of January 16, 1995, and both the Motion for Leave and the Motion for Summary Judgment were filed and granted beyond that deadline. Appellants base their argument in the language of M.R.C.P. 6(b), which states:
When ... by order of the court an act is required or allowed to be done at or within a specified time, the court for cause shown may at any time within its discretion (1) with or without motion or notice order the period enlarged if request is therefore made before the expiration of the period originally prescribed or as extended by a previous order, or (2) upon motion made after the expiration of the specified period permit the act to be done where failure to act was the result of excusable neglect .. .
¶ 21. The Center listed as its "excusable neglect" the fact that the plaintiffs did not answer its written discovery responses until after the January 16 deadline, and that it therefore could not evaluate these responses to see if the case was ripe for summary *320 judgment until after the deadline. Freeman and Diogenes insist that the appropriate direction for the Center to take would have been to file for an extension of the pretrial deadline before January 16.
¶ 22. We find that summary judgment motions for defendants are governed specifically by M.R.C.P. 56(b), which states:
A party against whom a claim ... is asserted ... may, at any time, move with or without supporting affidavits for a summary judgment in his favor as to all or any part thereof.
¶ 23. The Center was the defendant on the trial level in this case, and, therefore, was free to move for summary judgment at any time. Furthermore, it is well settled that specific statutes govern over general ones. Lenoir v. Madison County, 641 So. 2d 1124, 1129-30 (Miss. 1994); Wilbourn v. Hobson, 608 So. 2d 1187, 1191 (Miss. 1992). Though we could find no cases which apply the rules of statutory construction to the M.R.C.P. in terms of the application of one rule over another, we hold nonetheless that the same principal applies. As a result, this Court finds that the appellants' first assignment of error is meritless.
II. WHETHER THE TRIAL COURT ERRED IN GRANTING THE MOTION FOR SUMMARY JUDGMENT.
¶ 24. Freeman and Diogenes claim that the court should have denied the Center's Motion for Summary Judgment because at least one material factual dispute existed. That being whether or not the Center breached the contract by failing to have the portfolios ready on the publication date. The Center claims that no breach existed and that the Court was correct in granting the Motion because the publication date was clearly defined in the contract as being the first date upon which any of the portfolios could be sold. As such, the Center claims that it had not breached the contract because it could have sold the portfolios on that date.
¶ 25. Contracts are read as a whole so as to give effect to all of their provisions. Brown v. Hartford Ins. Co., 606 So. 2d 122, 124 (Miss. 1992). In this particular contract, twenty-one of the portfolios were to be distributed to the three parties to the contract equally on the publication date. These could not be sold for six months. It is not readily apparent to this Court how those portfolios could be distributed on the publication date if they were not yet assembled. Nor is it apparent how the Center, which had primary responsibility for marketing the portfolios, and had enumerated responsibilities to that end, could hold the portfolios for sale on the publication date when, by its own admission, it did absolutely nothing to let anyone other than the parties to the contract know that the portfolios even existed until February, 1993.
¶ 26. Further, Diogenes and Freeman claim that the Center's marketing of the portfolio was haphazard and insufficient to the task. The sufficiency of the Center's marketing effort is also a question of fact which is properly decided by a jury. It was shown from the record that the Center did not send a mass mailing out to various museums, galleries, and individuals that it thought would be interested in the portfolios until August 18, after the joint marketing period was over. Whether such a late advertisement breached the contract was a jury question. There is also the assertion on the part of Diogenes and Freeman that Ferris unilaterally decided that the portfolios did not have to be embossed. Whether or not such a decision was unilaterally made, was the decision of Ferris, or resulted from some failure to act on the part of Diogenes, who had the responsibility to emboss the portfolios is similarly, a question of fact which is properly decided by a jury.
¶ 27. As a result, this Court finds that the trial judge should have denied the Motion for summary Judgment and allowed this case to proceed to trial.
CONCLUSION
¶ 28. We find that the trial judge was correct in granting the defendant's Motion for Leave to File a Dispositive Motion because M.R.C.P. 56(b) specifically holds that a Motion for Summary Judgment is proper at any time. M.R.C.P. 6(b) is a general rule applying to the scheduling of pretrial motions *321 and is therefore subject to the specific provisions of M.R.C.P. 56(b). The Court finds that the trial judge erred in granting the Motion for Summary Judgment because their existed several issues of material fact, primarily as to whether the contract had been breached, and the effect of any such breach on the success of the project which would preclude a grant of a Motion of Summary Judgment for the defense.
¶ 29. AFFIRMED IN PART; REVERSED AND REMANDED IN PART FOR PROCEEDINGS CONSISTENT WITH THIS OPINION.
PRATHER and SULLIVAN, P.JJ., and PITTMAN, BANKS, McRAE, JAMES L. ROBERTS, Jr. and MILLS, JJ., concur.
DAN LEE, C.J., concurs in result only. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541455/ | 75 B.R. 235 (1987)
ONEIDA MOTOR FREIGHT, Plaintiff,
v.
UNITED JERSEY BANK, Defendant.
Civ. A. No. 87-1440.
United States District Court, D. New Jersey.
July 6, 1987.
*236 Klinger, Nicolette, Mavroudis & Honig, Allan H. Klinger, Oradell, N.J., for plaintiff and third party defendant.
Clapp & Eisenberg, P.C., William S. Katchen, Newark, N.J., for defendant.
OPINION
SAROKIN, District Judge.
In this action by a bankrupt trucking company against its bank for breach of contract and misrepresentation, defendant United Jersey Bank moves to dismiss the complaint.
BACKGROUND
Plaintiff Oneida Motor Freight, Inc. (Oneida), a New York corporation founded in 1935, engaged in interstate trucking in the northeastern United States. On March 28, 1984, Oneida and defendant United Jersey Bank (the Bank) entered into two agreements: a Revolving Credit Agreement, whereby the Bank would extend up to $5 million in credit to Oneida through loans and letters of credit; and an Accounts Receivable Loan and Security Agreement, whereby the Bank would lend Oneida a percentage of Oneida's accounts receivable, with the Bank obtaining a security interest in Oneida's accounts, equipment, and inventory.
In February 1985, Oneida settled a dispute with Dorn's Transportation, a company that Oneida was acquiring. Oneida, to pay its part of the settlement, called upon the Bank to pay certain outstanding letters of credit. According to Oneida, the Bank unilaterally withdrew the necessary funds from Oneida's operating accounts, rather than charging against the letters of credit as had been previously agreed. Thereafter, Oneida's account became habitually overdrawn and experienced deposits of uncollected funds. The Bank, however, repeatedly honored Oneida's overdrafts.
On July 2, 1985, the Bank requested that third-party defendant Donald Singleton, the owner of Oneida, personally guarantee Oneida's debt. Mr. Singleton refused. On July 5, 1985, the Bank ceased honoring Oneida's checks, including over $1 million in recently issued payroll checks. According to Oneida, the dishonor of these checks compelled it to file a Chapter 11 bankruptcy petition on July 10, 1985. Oneida, in a schedule filed with the petition, acknowledged an undisputed, liquidated, and noncontingent debt to the Bank of $7.7 million. Oneida immediately ceased operations and proceeded with a liquidation.
On July 11, 1985, the Bank filed a motion for relief from the automatic stay, to enforce its security interest, and for other relief. The Bankruptcy Court, by orders dated January 14 and March 3, 1986, established the extent and validity of the Bank's lien at over $7.6 million.
Also on July 11, 1985, Oneida moved for authority to use cash collateral of the Bank. On September 30, 1985, the Bankruptcy *237 Court entered a Stipulation and Order confirming the parties' settlement of this application. The order provided for Oneida's use of up to $1.5 million in the Bank's cash collateral and the Bank's release of certain liens, expressly conditioned upon Oneida's payment by October 3, 1985 of over $6.6 million due to the Bank.
On May 12, 1986, Oneida filed an Amended Joint Plan of Reorganization under Chapter 11 in the Bankruptcy Court. The plan includes the Bank's deficiency claim, as a Class 9 creditor, for over $270,000. No objection to this claim has been filed. On August 14, 1986, the Bankruptcy Court entered an order confirming the amended joint plan.
On March 11, 1987, Oneida filed a complaint against the Bank in the Superior Court of New Jersey, Law Division, Bergen County, alleging breach of the financing agreements and misrepresentation surrounding the Bank's failure to honor Oneida's July 1985 checks. On April 15, 1987, the Bank filed a third-party complaint against Donald Singleton.[1] On April 20, 1987, the Bank removed this matter to this court pursuant to 28 U.S.C. § 1452(a).
The Bank moves to dismiss the complaint under Rules 12(b)(6) and 12(c).
DISCUSSION
The Bank's primary argument for dismissal,[2] though made in several forms is that the prior proceedings of the bankruptcy court preclude Oneida's current claims.
At first blush, the determination of which law governs this issue appears straightforward a federal court applies federal rules to determine the preclusive effect of a prior federal question judgment of another federal court. See Seven Elves, Inc. v. Eskenazi, 704 F.2d 241, 243 n. 2 (5th Cir.1983); C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 4468 (1981 & Supp.1986).
In applying this rule, however two questions arise. First, was the original judgment of the bankruptcy court a "federal question" judgment? Yes, answers the court. Though the bankruptcy court had to make some subsidiary state law determinations (such as the validity of the Bank's security interests), the court's orders were in the context of a Chapter 11 reorganization governed by federal bankruptcy law. Second, is it relevant that the current federal action, removed from state court, involves adjudication solely of state law claims? No, answers the court. Even if this action had not been removed, the state court would be bound by federal law in determining the preclusive effect of the bankruptcy court's federal question rulings thus, Erie concerns of inconsistent state and federal results are not present.
The court, therefore, applies federal rules of preclusion to the Bank's motion.
As stated above, the Bank's principal contention is that the prior bankruptcy proceedings preclude Oneida's current claims. The "claim preclusion" branch of the res judicata doctrine, in part, bars relitigation of claims actually litigated in a prior proceeding. In this matter, however, plaintiff's state law claims have never been actually litigated they were neither presented nor adjudicated in any bankruptcy proceeding.[3] The res judicata doctrine, however, also precludes any claim which might have been included in that action. See, e.g., Donegal Steel Foundry Co. v. Accurate Prods. Co., 516 F.2d 583, 587 (3d Cir.1975); *238 Recchion v. Kirby, 637 F.Supp. 284, 286 (W.D.Pa.1985). The Bank's preclusion argument, in essence, is that Oneida's failure to raise its contract and misrepresentation claims in the bankruptcy proceedings bars the current suit.[4]
The Bank, to prevail on its res judicata argument, must demonstrate 1) that the bankruptcy proceedings constitute a final judgment on the merits; 2) that these proceedings involve the same parties as the current suit; and 3) that the current suit is based on the same "cause of action" as that adjudicated in the bankruptcy court. See Purter v. Heckler, 771 F.2d 682, 690 (3d Cir.1985); United States v. Athlone Inds., 746 F.2d 977, 983 (3d Cir.1984).
Under this framework, the Bank's argument hinges on whether plaintiff's current claims and the claims presented to the bankruptcy court are part of the same "cause of action."[5] The Third Circuit has explained its approach to this elusive concept.
Although we declined to adopt one specific legal theory in [Davis v. United States Steel Supply, 688 F.2d 166 (3d Cir.1982) (en banc), cert. denied, 460 U.S. 1014, 103 S.Ct. 1256, 75 L.Ed.2d 484 (1983)], we indicated a predisposition towards taking a broad view of what constitutes identity of causes of action "an essential similarity of the underlying events giving rise to the various legal claims." We therefore do not adhere to any mechanical application of a single test but instead focus on the central purpose of the doctrine of res judicata. We are thus keeping with "[t]he present trend . . . in the direction of requiring that a plaintiff present in one suit all the claims for relief that he may have arising out of the same transaction or occurrence."
United States v. Athlone Inds., 746 F.2d 977, 984 (3d Cir.1984) (citing 1B J. Moore & J. Wicker, Moore's Federal Practice ¶ 0.410[1], at 359 (2d ed. 1983)). Restatement (Second) of Judgments § 24(1) represents the "present trend," and states that a judgment in a prior action extinguishes any claims "with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose."
The court, applying this broad transactional view, finds that Oneida's current claims and the claims presented in the bankruptcy court, are parts of the same "cause of action." Oneida contends that the claims involve different transactions its current claims for breach of contract and misrepresentation focus on the Bank's conduct in failing to honor overdraft checks, while the bankruptcy proceedings centered on the creation of the bank's security interest and the validity of that interest. The court finds, however, that at the least, the claims arise from "a series of connected transactions," thus satisfying the Restatement test. See Southmark Properties v. Charles House Corp., 742 F.2d 862, 871 (5th Cir.1984) (applying the Restatement position in a bankruptcy context).
Oneida contends, though, that res judicata cannot bar its current claims because it had no opportunity to raise those claims in the bankruptcy proceedings.
As an initial matter, the bankruptcy court would have had subject matter jurisdiction to hear Oneida's state law claims. A bankruptcy court may hear "all core proceedings arising under title 11, or arising in a case under title 11." 28 U.S.C. § 157(b)(1). "Core proceedings" specifically include "counterclaims by the estate against persons filing claims against the estate." 28 U.S.C. § 157(b)(2)(C).
Oneida argues, however, that it could not have raised, or was not obligated to have *239 raised, its claims in any of the proceedings which resulted in orders of the bankruptcy court. With respect to the August 14, 1986 order confirming the amended joint plan of reorganization, plaintiff contends that the "Reservation of Claims" provision[6] makes plain that it had no obligation to raise its fraud claims in the confirmation proceedings. With respect to the proceedings resulting in the orders establishing the validity of the Bank's lien,[7] Oneida contends that a counterclaim could not have been properly brought such proceedings. Oneida's position is that the Bank initiated these proceedings as a motion for relief from the automatic stay under § 362; that such a motion is a "contested matter" under Bankruptcy Rule 9014; that Rule 7013, dealing with compulsory counterclaims, is not applicable in such a proceeding; and that, even if counterclaims are permissible, "the defensive and informal nature of [§ 362] stay litigation should . . . preclude the formal assertion of counterclaims." 2 Collier on Bankruptcy ¶ 362.08[3], at 362-67 (15th ed. 1986).[8]
Oneida's contentions, even if accepted, do not rebut the Bank's res judicata argument. As stated above, that doctrine requires that "a plaintiff present in one suit all the claims for relief" that he may have arising from a transaction. See United States v. Athlone, 746 F.2d 977 (3d Cir.1984) (citation omitted). Though Oneida is not the "plaintiff" in all the proceedings involved here,[9] Oneida was under an obligation to the court, to the Bank, and to its creditors to raise its claims against the Bank in the bankruptcy proceedings.[10]
Oneida does not and cannot contend that it had no opportunity during the bankruptcy proceedings to advise the court or the Bank of its intent to bring these claims. The bankruptcy court, if so advised, could have determined the proper procedural mechanism for Oneida to pursue its claims. The Bank, if so advised, could have (and represented at argument that it would have) objected to the confirmation of the reorganization plan. Under these circumstances, Oneida's failure violates a fundamental principle of current preclusion doctrine that courts and parties should be able to rely on a final judgment as the end of all litigation with respect to a particular transaction or occurrence.
Oneida's current claims against the Bank arise from the same transaction, or series of connected transactions, as was the subject of extensive prior bankruptcy proceedings between these parties. Oneida's failure to bring to the court's attention claims against the Bank, of which Oneida was aware before the bankruptcy proceedings commenced, bars its current action.
CONCLUSION
A debtor in a bankruptcy proceeding owes a special duty of disclosure to the court and creditors. Decisions are made by both predicated upon such disclosures by the debtor. Even absent a specific duty to file a claim or counterclaim, it is difficult to envision that a debtor can decline to reveal the existence of a claim and the intent to pursue it, particularly when it asserted against a named creditor.
*240 The court grants defendant United Jersey Bank's motion to dismiss plaintiff's complaint.
NOTES
[1] The court, by order dated June 24, 1987, granted Singleton's motion to dismiss the third-party complaint.
[2] The Bank moves pursuant to Rules 12(b)(6) and 12(c). Oneida contends that the motion is properly understood as a Rule 56 motion for summary judgment because the Bank relies on materials outside the pleadings, namely pleadings and orders from the bankruptcy court. The court finds the dispute irrelevant. Before the court is a legal question regarding the preclusive effect of the bankruptcy proceedings. The Bank may prevail on this motion if the current record supports a finding of preclusion. No discovery is necessary for Oneida to defend against the Bank's res judicata arguments.
[3] Therefore, the Bank's collateral estoppel argument fails. The issues involved in plaintiff's claims were not actually litigated in the bankruptcy court, as would be required for collateral estoppel (or "issue preclusion") to apply. See, e.g., Haize v. Hanover Ins. Co., 536 F.2d 576, 579 (3d Cir.1976).
[4] That the Bank's motion turns on the question of which claims should have been litigated in a prior federal bankruptcy proceeding supports the court's ruling that federal rules of preclusion apply to this motion. Thus, the court does not apply the New Jersey "entire controversy" doctrine.
[5] There is no dispute that the bankruptcy orders constitute final judgments on the merits in a prior suit between the same parties.
[6] Article XII of the amended plan reads:
All claims and causes of action in favor of the Debtor and Debtor-in-Possession not expressly released or terminated in accordance with the Plan are hereby preserved and may be prosecuted by the Debtor or the Creditor's Committee after entry of the Confirmation Order.
[7] These are the orders of January 14 and March 3, 1986, and the September 30, 1985 stipulation and order of settlement in connection with Oneida's application to use cash collateral.
[8] The Bank contends that its application, which also sought a determination of the validity of its lien, is properly considered as an "adversary proceeding" under Rule 7001, in which Oneida would have had the opportunity and obligation to bring its counterclaims under Rule 7013.
[9] For example, the Bank moved for relief from the stay and for a determination of the validity of its lien; Oneida, if it had raised its claim, would have done so defensively as a counterclaim.
[10] Oneida, at argument, stated that it advised the creditors', at their first meeting, of its bad faith and contract claims against the Bank. The court holds that Oneida, by such action, cannot be said to have raised its claims in the bankruptcy proceeding. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1836963/ | 842 So.2d 1003 (2003)
SEMBLER MARINE PARTNERS, LTD., Appellant,
v.
Robert J. SKIDMORE, Inc., Angler's Obsession Commercial Fishing Corp., and Reason, Light & Truth Church Foundation, Appellees.
No. 4D01-4718.
District Court of Appeal of Florida, Fourth District.
April 16, 2003.
*1004 Christopher J. Coleman of Schillinger & Coleman, P.A., Melbourne, for appellant.
Neal A. Sivyer and R.J. Haughey, II of Sivyer Barlow & Watson, P.A., Tampa, for Intervenor Presidential Financial Corporation.
WARNER, J.
By declaratory judgment the trial court established a boundary by acquiescence between property owned by appellant and appellee. Appellant challenges the trial court's ruling, claiming that there was insufficient evidence of any mutual uncertainty of the boundary or any agreement as to a boundary line. We conclude that the evidence showed both uncertainty and disagreement, as well as appellant's passive acquiescence to the boundary for the prescriptive period. We therefore affirm the final judgment.
Charles Sembler ("Sembler") inherited property located in Indian River County along the west side of the Indian River from his grandfather. He walked the property with his grandfather who showed him the boundaries. Sembler later transferred the property to appellant, Sembler Marine Partners, Ltd. ("Sembler, Ltd.").
Robert J. Skidmore, Inc. ("Skidmore") acquired the property adjacent to Sembler's. Sometime in the 1940's, a structure was constructed on Skidmore's property. In 1963, a tenant on the Skidmore property constructed an addition to the structure by adding or extending an outdoor cooler. At the time, Sembler testified that he told the tenant, a friend, that the addition was "very close to the [property] line."
In 1983, Sembler, Ltd. obtained a survey of its property in connection with a loan transaction. The survey, known as the Allen survey, located the boundary between the Sembler, Ltd. and Skidmore parcels in accordance with monuments constituting some iron pins. This was consistent with the boundary of the property as described in its legal descriptions as well as the lines of occupation, as found by the trial judge. The boundary line established by the Allen survey was approximately fourteen feet from the structure on Skidmore's property.
Skidmore did not have a survey conducted prior to the purchase of his parcel because the Allen survey had recently been prepared. Shortly after he purchased the property, he walked it with Sembler who pointed out an iron pipe as the northwest corner of their common boundary. Drawing an imaginary line from the pins to the river bank, the boundary Sembler pointed out would have been about ten feet north of the structure, very close to the Allen survey line. Sembler, Ltd. discussed purchasing Skidmore's property, but instead leased it for five thousand dollars.
In 1990, while Sembler, Ltd. was leasing Skidmore's property, it obtained another survey of the property, known as the Jackson survey. This survey placed the parties' common boundary approximately seventeen feet south of the Allen survey boundary. According to the Jackson survey, the structure on the Skidmore property encroached on Sembler, Ltd.'s property. Harry Underhill, the general partner of Sembler, Ltd., raised the issue of the encroachment with Skidmore who disagreed with the Jackson boundary. Despite the favorable Jackson survey, Sembler, Ltd. failed to take any action until filing this suit for declaratory judgment and to quiet title eight years later.
After hearing the evidence, the trial court found that while the Jackson survey appeared to be more technically correct *1005 than the Allen survey, the parties and their predecessors had acquiesced in the location of the building and the assumed boundary in excess of forty years. It therefore declared the Allen survey of 1983 established the boundary between the Sembler, Ltd. and Skidmore parcels.
Three essential elements must be proven to establish a boundary by acquiescence: (1) uncertainty or dispute as to the location of the true boundary; (2) location of a boundary line by the parties; and (3) acquiescence in the location for the prescriptive period. See Shaw v. Williams, 50 So.2d 125, 126 (Fla.1950); DuBois v. Amestoy, 652 So.2d 919, 920 (Fla. 4th DCA 1995). Moreover, "uncertainty means actual lack of knowledge on the part of both owners as to the true boundary" and must be mutual as to both property owners. Shaw, 50 So.2d at 127-28. Shaw explains that the boundary line so agreed becomes binding "for the reason that the proprietors have by such consent and conduct agreed permanently upon the limits or the extent of their respective lands." Id. at 127 (quoting Watrous v. Morrison, 33 Fla. 261, 14 So. 805, 807 (1894)). It also teaches that "[p]assive acquiescence may forfeit one's right to dispute a boundary, but to do so, it must follow knowledge of the location of the line by the adverse party." Id. at 128.
The evidence presented in this case satisfies the elements of boundary by acquiescence. Sembler was uncertain as to the location of the boundary as early as the 1960's when he expressed concern that Skidmore's tenant was constructing the structural addition very close to the property line. Although appellant cites Evans v. Forte, 510 So.2d 327 (Fla. 2d DCA 1987), for the proposition that a dispute between an owner and tenant as to a boundary line is insufficient to demonstrate the true owner is also uncertain, this proposition protects an owner uninvolved in, and unaware of, his tenant's dispute. 510 So.2d at 330-31. Here, the owner was Sembler, and the testimony regarding his conversation with the tenant reflects Sembler's uncertainty, not that of the owner of the other parcel. Moreover, Sembler later showed Skidmore a boundary line consistent with the Allen survey. Also, Sembler, Ltd. leased the Skidmore property, including the structure which encroached on the Jackson boundary line, demonstrating its acceptance of the Allen survey as establishing the correct line.
Finally, there is also evidence of dispute as to the boundary line. In 1990, Sembler, Ltd. obtained the Jackson survey and raised the issue of the true boundary with Skidmore who refused to accept that boundary. This established a dispute. For a period of eight years, Sembler, Ltd. passively acquiesced to the Allen boundary recognized as the boundary by both Skidmore and Sembler since the mid-1980's. Skidmore's building encroached onto the property now claimed by Sembler, Ltd., yet Sembler, Ltd. took no action for the prescriptive period of seven years. See § 95.12, Fla. Stat. (1975). Prior to the institution of these proceedings, Skidmore transferred his property to appellee, Reason, Light and Truth Church Foundation, which made improvements, including repair to the riprap along the river's edge of the disputed parcel, without Sembler, Ltd. indicating that it had any claim to it. We conclude that the trial court had sufficient evidence to find a boundary by acquiescence at the Allen survey line, even where it concluded that the Jackson survey was technically more correct.
Affirmed.
STONE and GROSS, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1916823/ | 203 B.R. 401 (1996)
In re Glenn R. FIELDS, Debtor.
Paul E. BROUSSARD, Jr., Plaintiff,
v.
Glenn R. FIELDS, Defendant.
Bankruptcy No. 96-10122, Adversary No. 96-1030.
United States Bankruptcy Court, M.D. Louisiana.
December 13, 1996.
*402 Paul E. Broussard, Jr., pro se.
C. Glenn Westmoreland, for debtor/defendant.
OPINION
LOUIS M. PHILLIPS, Bankruptcy Judge.
Now before the Court is the adversary proceeding filed by Paul E. Broussard ("Plaintiff"), appearing pro se, against Glenn R. Fields ("Defendant"), who filed a petition for relief under Chapter 7 of the Bankruptcy Code on January 22, 1996.[1] In his complaint, Plaintiff seeks to except from discharge a prepetition state court judgment (the "Judgment Debt") rendered in favor of Plaintiff and against Defendant, resulting from a prepetition automobile accident caused by Defendant's negligent driving. Plaintiff's complaint is reproduced as follows in its entirety because of its brevity and because Plaintiff is appearing pro se:
Bankruptcy, as I comprehend, relieves people from an overburden of debt. Glenn Fields only sought bankruptcy only when he discovered I was going to garnish his wages after a judgment was rendered to me for property damage and medical costs. The accident involved a hit and run and he had no liability insurance. He has also been notified to surrender his Driver's License and License plate as of 4/12/96. According to the Department of Motor Vehicle, he has not done either. This is further proof that Glenn Fields has no respect for either Local or State Laws, but chooses to utilize the law for his irresponsible actions. We tried very hard to discuss this with Glenn Fields' attorney and his immediate response was that Bankruptcy would be filed.
Attorney Westmoreland did not notify me or the courts about this Chapter 7. Michael Jackson, the attorney that represented me only in the negotiation of the settlement, notified Attorney Westmoreland that he was not the attorney representing me. Furthermore, I filed suit and my garnishment of wages without the assistance of an attorney. This should further prove that this is not being done in good faith. All documents were in my name and I feel that he should have notified me. All of the information I have provided you with is because I was persistent in contacting all parties involved on garnishment of wages and was finally told by Glenn Fields' employer that the Bankruptcy Court had stopped the garnishments. *403 Your careful consideration of my adversary complaint is most appreciated.
Respectfully Yours,
Paul Broussard, Jr.
The Court interpreted Plaintiff's complaint as asserting that the Judgment Debt should be excepted from discharge because, though the accident itself was caused by the Defendant's negligence, the Defendant had intentionally driven without liability insurance required by Louisiana state law (see La.R.S. 32:851 et seq.). At the scheduling conference, this interpretation was borne out, Plaintiff acknowledging that he was in possession of no facts which would establish that the accident itself was caused by an intentional act on Defendant's part. Counsel for Defendant acceded that the complaint attempted to state a claim under section 523(a)(6), relating to the intentional driving of a vehicle without statutorily-required insurance, and subsequently filed an answer and request to dismiss for failure to state a claim. Plaintiff's complaint and Defendant's request to dismiss were consolidated for trial.
Trial was held on Plaintiff's complaint on August 9, 1996. Plaintiff appeared pro se, and Defendant's attorney appeared on behalf of Defendant, who himself did not appear. At trial, the Court found that Plaintiff had a prepetition judgment against Defendant arising out of a prepetition accident, caused by Defendant's negligent operation of his motor vehicle, in which Plaintiff sustained bodily injury and property damage. The Court also found that at the time of the accident, Defendant was intentionally driving his vehicle without statutorily-required liability insurance.
The issue before the Court is whether a debtor's intentional failure to maintain statutorily-required liability insurance constitutes a "willful and malicious injury" under section 523(a)(6) of the Code, when a claimant has suffered an injury that would have been covered by the insurance required by state law, but is deprived of the recovery which would have been afforded against the insurer because of the debtor's failure to carry the required insurance. Courts dealing with this issue have basically taken two approaches. The Eleventh Circuit in In re Walker, 48 F.3d 1161 (11th Cir.1995), as well as the majority of lower courts, have rejected this view, finding that the mere failure to maintain statutorily-required insurance is not a "willful and malicious injury" within the meaning of section 523(a)(6), because when the insurance terminated, there was no intent to harm the injured party, and because the failure to maintain insurance is not the act which causes harm to another party another event, the actual physical injury to the victim, must occur, and another event, such as the actual accident, causes the harm. The minority approach, adopted by the lower courts but not yet adopted by any circuit courts, supports the view that a debtor's intentional failure to maintain statutorily-required liability insurance constitutes a "willful and malicious injury" under section 523(a)(6), on the ground that it is foreseeable that other persons will sustain injury when a vehicle owner has failed to maintain liability insurance or an employer has failed to maintain worker's compensation insurance, and that it is the failure to maintain insurance which necessarily causes the "economic" injury the claimant suffers due to the lack of insurance coverage.
This Opinion is offered because since the trial of this complaint, the Fifth Circuit has issued Corley v. Delaney (In re Delaney), 97 F.3d 800 (5th Cir.1996), which, while it does not deal with the precise factual circumstances before this Court (failure to comply with statutorily-required insurance in the context of section 523(a)(6)), nevertheless is found by this Court to resolve, formally, the question presented here.[2] Accordingly, the *404 Court finds that the Judgment Debt is not excepted from discharge under section 523(a)(6), because by operating his motor vehicle without liability insurance, Defendant did not intend the actual bodily injuries and property damage suffered by Plaintiff, and because such operation was not substantially certain to cause Plaintiff's injuries.
REASONS FOR RULING
A. Section 523(a)(6) of the Bankruptcy Code, its precursor, and the Fifth Circuit definition of "willful and malicious," within the meaning of section 523(a)(6).
Within the Delaney opinion the Fifth Circuit, perhaps somewhat cavalierly in light of the definitions of "willful and malicious injury" that have seen the light of day through many court opinions, states: "As succinctly stated by a bankruptcy court in Georgia, `the plain language of Section 523(a)(6)' excepts from discharge debts arising from `willful and malicious injury' rather than `willful and malicious acts which cause an injury.'" Delaney, 97 F.3d at 802 (quoting Eaves v. Hampel (In re Hampel), 110 B.R. 88, 93 (Bankr.M.D.Ga.1990)). Notwithstanding its breezy "plain meaning" approach to unraveling the meaning of section 523(a)(6), which heretofore has been the subject of considerable contemplation by many courts, the Fifth Circuit in Delaney does, it seems, reach the failure-to-insure issue before this Court. Ultimately, however, this Court's conceptualization of "willful and malicious injury" will have to be a slightly larger mouthful than the morsel just granted by the Fifth Circuit in Delaney, not only because Delaney does not directly deal with the precise issue before this Court, but also because, as will be seen, the so-called "plain meaning" of "willful and malicious injury" is not so "plain" after all. The Court, therefore, begins its analysis with the legislative history of section 523(a)(6) of the Code, and accordingly now turns to section 17a(8) of the Bankruptcy Act of 1898, the precursor to section 523(a)(6).
Section 17a(8) of the Bankruptcy Act, 11 U.S.C. section 35a(8), set forth the "willful and malicious injury" exception to discharge as follows:
Section 17. Debts Not Affected by a Discharge. a. A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as . . . (8) are liabilities for willful and malicious injuries to the person or property of another other than conversion as expected [i.e. excepted] under clause (2) of this subdivision. . . .
11 U.S.C. section 35a(8) (1898).
Although section 17a(8) of the Act set forth an exception to discharge for debts incurred through "willful and malicious injuries," the provision did not set forth the standard for determining what exactly is required for an injury to be "willful and malicious," within the meaning of section 17a(8). The Supreme Court attempted to answer this question in Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505, 48 L.Ed. 754 (1904). In Tinker, the issue before the Supreme Court was whether a judgment obtained against the defendant-petitioner for damages arising from the criminal *405 conversation of the defendant with the plaintiff-respondent's wife was released by the defendant's discharge in bankruptcy, or whether the judgment was excepted from discharge under section 17a(8) of the Bankruptcy Act. The Supreme Court held that the judgment was one recovered for "willful and malicious injuries to the person or property of another," within the meaning of section 17a(8), and, in so holding, set forth the following standard for determining whether an act was willful and malicious under the Bankruptcy Act:
In order to come within that meaning as a judgment for a wilful and malicious injury to person or property, it is not necessary that the cause of action be based upon special malice, so that without it the action could not be maintained. . . . The law will, as we think, imply that degree of malice in an act of the nature under consideration, which is sufficient to bring it within the exception mentioned. [W]e think that a wilful disregard of what one knows to be his duty, an act which is against good morals, an act likely to cause injury, and wrongful in and of itself, and which necessarily causes injury and is done intentionally, may be said to be done willfully and maliciously, so as to come within the exception. . . . It is urged that the malice referred to in the exception is malice towards the individual personally . . . [but] we are not inclined to place such a narrow construction upon the language of the exception. We do not think that the language used was intended to limit the exception in any such way. It was an honest debtor, and not a malicious wrongdoer, that was to be discharged.
Id., 193 U.S. at 486-87, 24 S.Ct. at 508-09 (emphasis added).
The Supreme Court went on to hold that the language of the exception did not refer only to those injuries to person or property which were accompanied by particular malice, or with a malevolent purpose towards the injured person:
It is not necessary in the construction we give to the language of the exception in the statute to hold that every wilful act which is wrong implies malice. One who negligently drives through a crowded thoroughfare and negligently runs over an individual would not, as we suppose, be within the exception. True, he drives negligently, and that is a wrongful act, but he does not intentionally drive over the individual. If he intentionally did drive over him, it would certainly be malicious. It might be conceded that the language of the exception could be so construed as to make the exception refer only to those injuries to person or property which were accompanied by particular malice, or, in other words, a malevolent purpose towards the injured person, and where the action could only be maintained upon proof of the existence of such malice. But we do not think the fair meaning of the statute would thereby be carried out. The judgment here mentioned comes, as we think, within the language of the statute, reasonably construed . . . for the law implies that there must be malice in the very act itself. . . .
Id., 193 U.S. at 489, 24 S.Ct. at 510 (emphasis added).
Although the Supreme Court's standard for "wilful and malicious injury" in section 17(a)(8) of the Bankruptcy Act did not set forth a "reckless disregard" standard as being sufficient to except a debt from discharge under section 17(a)(8), some courts subsequently interpreted the Supreme Court's rationale in Tinker as providing that conduct entered into with reckless disregard to the rights of others that caused damage resulted in nondischargeable liability for "wilful and malicious injury" within the meaning of section 17(a)(8) of the Act. See, e.g., Yackel v. Nys, 258 App.Div. 318, 16 N.Y.S.2d 545 (App. Div.1939), appeal denied, 259 App.Div. 787, 18 N.Y.S.2d 751 (App.Div.1940); Humphreys v. Heller, 157 Misc. 568, 283 N.Y.S. 915 (Sup. Ct. Bronx County 1935); Beam v. Karaim, 47 N.Y.S.2d 193 (N.Y. Broome County Court 1944).
In 1978, with the enactment of the Bankruptcy Code, Congress specifically rejected what it thought was the "recklessness" standard of Tinker v. Colwell. The House Judiciary Committee's Report stated as follows:
*406 Paragraph (6) excepts debts for willful and malicious injury by the debtor to another person or to the property of another person. Under this paragraph, `willful' means deliberate or intentional. To the extent that Tinker v. Coldwell [sic], 193 U.S. 473 [24 S.Ct. 505, 48 L.Ed. 754] (1902), held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a `reckless disregard' standard, they are overruled.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 365 (1977).
The Senate Report, which refers to section 523(a)(5) because S 2266 dealt with willful and malicious conversion or injury in section 523(a)(5), but which is applicable to section 523(a)(6) as well, stated as follows:
Paragraph (5) provides that debts for willful and malicious conversion or injury by the debtor to another entity or the property of another entity are nondischargeable. Under this paragraph `willful' means deliberate or intentional. To the extent that Tinker v. Coldwell [sic], 193 U.S. 473 [24 S.Ct. 505, 48 L.Ed. 754] (1902), held that a less strict standard is intended, and to the extent that other cases have relied on Tinker to apply a `reckless disregard' standard, they are overruled.
S.Rep. No. 989, 95th Cong., 2d Sess. 79 (1978).
Moreover, the Congressional Record Statements for the Bankruptcy Reform Act of 1978 stated as follows:
Section 523(a)(6) adopts the position taken in the House bill and rejects the alternative suggested in the Senate amendment. The phrase `willful and malicious injury' covers a willful and malicious conversion.
124 Cong.Rec. H11096 (daily ed. Sept. 28, 1978); S17412 (daily ed. Oct. 6, 1978); remarks of Rep. Edwards and Sen. DeConcini.
Accordingly, while the legislative history of section 523(a)(6) excludes recklessness as the standard for "willful and malicious injury," within the meaning of that provision, the history does not state what exactly is required for an injury to be "willful and malicious." The Fifth Circuit answered this question in Kelt v. Quezada (In re Quezada), 718 F.2d 121 (5th Cir.1983), cert. denied, 467 U.S. 1217, 104 S.Ct. 2662, 81 L.Ed.2d 368 (1984). In Quezada, the debtors had maintained a vicious bulldog within their fenced premises, with knowledge that the dog had previously bitten a child. The dog escaped from the premises when Mrs. Quezada opened the gate to allow Mr. Quezada to bring his truck into the yard. The dog attacked the four-year-old son of the plaintiff without provocation, causing injuries for which the plaintiff had obtained in state court a judgment of $8,400 as administrator of his child's estate. Other than their harboring of the vicious dog and inadvertently permitting it to escape, no other action or conduct by the Quezadas had caused or contributed to the attack by the dog upon the plaintiff's child. The plaintiff then filed an adversary complaint to determine the dischargeability of his state-court judgment against the Quezadas. The bankruptcy court held that the debt was discharged and the district court affirmed. Id. at 122.
Noting that Congress intended that section 523(a)(6) of the 1978 Bankruptcy Code overruled what was thought to be the "reckless disregard" standard of Tinker, the Fifth Circuit affirmed the district court, finding that no debt for "willful and malicious injury by the debtor" had occurred:
`In order to fall within the exception of section 523(a)(6), the injury to an entity or property must have been willful and malicious. An injury of an entity or property may be a malicious injury within this provision if it was wrongful and without just cause or excessive, even in the absence of personal hatred, spite or ill-will. The word "willful" means "deliberate or intentional," a deliberate and intentional act which necessarily leads to injury. Therefore, a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury.' [Quoting 3 Collier on Bankruptcy section 523.16 at 523-118 (15th ed. 1983).] Under the present facts, no debt for `willful and malicious injury by the debtor', *407 Section 523(a)(6), is shown. The debtors Quezadas' intentional harboring of the vicious pit bulldog within their fence is not shown to be conduct intentionally exposing others to harm by the vicious dog. The negligence of the debtors in permitting the dog to escape when they opened the gate is not shown to be conduct designed to cause deliberate or intentional injury.
Quezada, 718 F.2d at 122.
The Quezada case, as well as others within the Fifth Circuit,[3] establish a standard of "willful and malicious injury" quite similar to the standard actually set forth in Tinker, namely, that "willful and malicious injury" does not require evil motive or malevolent intention for an act to be malicious. More importantly, perhaps, the Quezada case rejects the "reckless disregard" standard for determining "willful and malicious injury," and instead maintains that there must be some type of causal connection between the intentional act, the absence of just cause, and the actual injury. In other words, the Quezada standard and the standard espoused by Congress in section 523(a)(6), is not that the debtor intended an act and is responsible for any harms which ensue, regardless of the causal connection between the act and the injury, but rather that the debtor intended the actual injuries suffered by the claimant or that the act itself necessarily led to the complainant's injury.
Curiously, in Delaney,[4] which followed Quezada, the Fifth Circuit says that it is addressing the causal connexity question for the first time by pronouncing that it is being presented with:
. . . the first occasion for us to address the dischargeability, under 11 U.S.C. section 523(a)(6), of a judgment debt arising from a debtor's accidental firing of a firearm albeit one which he intentionally loads and carries to a confrontation that causes unintended bodily injury to his eventual judgment creditor.
Delaney, 97 F.3d at 801.
To this Court, the question that the Fifth Circuit says it is addressing for the first time in Delaney in fact was addressed and answered by the Fifth Circuit in Quezada in both cases, the debtor's accidental act (i.e., accidentally letting the vicious dog out of the gate in Quezada, and accidentally firing the gun in Delaney) caused unintended bodily injury to the eventual judgment creditor. More to the point, in Quezada, the Fifth Circuit was faced with an intentional act (the keeping of a dangerous dog), an intervening act of negligence (opening the gate and thereby allowing the dog to escape), and an injury caused by the consequence of the debtor's negligence (which would not have been a consequence without the intentional act, i.e., the keeping of the dog no dog, no need to keep the gate closed). However, the focus in Quezada was upon the question of the definition of "malicious." What was missed by the Fifth Circuit in Delaney is that Quezada stands for the proposition that injury resulting directly from a negligent act occurring within a chain of events comprised, in part, of a preceding intentional act, is not *408 sufficiently connected to the intentional act to be excepted from discharge under section 523(a)(6). ("The debtors Quezadas' intentional harboring of the vicious pit bulldog within their fence is not shown to be conduct intentionally exposing others to harm by the vicious dog. The negligence of the debtors in permitting the dog to escape when they opened the gate is not shown to be conduct designed to cause deliberate or intentional injury." Quezada, 718 F.2d at 123).
What the Fifth Circuit in Delaney is really saying by its "first time" pronouncement is that it is addressing, for the first time, the question of whether an intentional act within a chain of events which culminates in an injury, is sufficient to cause the debt grounded in the injury to be excepted from discharge under section 523(a)(6), or whether the intentional act must be performed with the intent to cause the actual harms suffered. Hidden within this question is an additional question, namely, what exactly is the "injury" to which section 523(a)(6) applies? While not present in Delaney, this additional question is presented in the case now before the Court, because the debtor argues that his true "injury" is not the bodily injury or property damage he sustained as a result of Defendant's negligence, but rather is Plaintiff's economic loss which resulted from Defendant's lack of liability insurance. Defendant, of course, argues that the true "injury" is comprised by the actual bodily injuries and the property damage suffered by Plaintiff, rather than Plaintiff's "economic loss." Before the Court addresses this additional question, the Court will explore Delaney in more detail.
As mentioned in Delaney, the Fifth Circuit held that bodily injuries resulting from the debtor's intentional act in twice tapping a loaded firearm against the window of a car in which the victim was riding, were not "willful and malicious," for purposes of section 523(a)(6) of the Code, even though the debtor had intentionally loaded the gun, had consciously chosen to take it with him when he confronted the victim, and might even have foreseen the gun's discharge when he tapped it twice against the car window with his finger on the trigger, absent evidence that the injuries themselves, and not merely the act which produced them, were intended by the debtor or were substantially certain to cause the injuries. In so holding, the Fifth Circuit explicitly joined the majority of circuits[5] that have addressed the issue of *409 whether a deliberate and intentional act that results in injury may constitute a "willful and malicious injury" under section 523(a)(6), or whether the debtor must intend the actual injury before the resulting debt may be nondischargeable, and that have strictly interpreted section 523(a)(6) to require that the debtor either intend the resulting injury or intentionally take action that is substantially certain to cause the injury. The Fifth Circuit also explicitly joined the Eleventh Circuit in In re Walker, 48 F.3d 1161 (11th Cir.1995), which held that an employer's failure to obtain statutorily-required worker's compensation insurance did not constitute a "willful and malicious injury" under section 523(a)(6), and that the employee's physical injury was not substantially certain to result from the debtor's failure to obtain worker's compensation insurance. Moreover, the Fifth Circuit favorably cited Eaves v. Hampel (In re Hampel), 110 B.R. 88 (Bankr. M.D.Ga.1990), in which the bankruptcy court held that a debt based upon a workers' compensation award arising out of the employer's failure to obtain worker's compensation insurance was not excepted from discharge under section 523(a)(6), because the defendant's failure to obtain insurance coverage "did not unleash an unbroken causative chain which led to Plaintiff's physical injury. An act independent from the failure to obtain insurance had to occur before Plaintiff suffered a loss." Id. at 93.
The Fifth Circuit wrote in Delaney as follows:
At the heart of this case is the question whether, for a debtor to be denied a discharge under section 523(a)(6) of a debt arising from his infliction of death or bodily injury, it is the act or the injury that must be willful and malicious. This issue was recently crystallized by the Eleventh Circuit in In re Walker, in which that court stated that the central question in such cases is: `[W]hether a deliberate and intentional act that results in injury may constitute a "willful and malicious injury" under section 523(a)(6), or whether the debtor must first intend the actual injury before the resulting debt may be nondischargeable.' In re Walker, 48 F.3d 1161, 1164 (11th Cir.1995). . . . The Eleventh Circuit went on to note that: `The majority of circuits that have addressed this issue have strictly interpreted section 523(a)(6) to require that the debtor either intend the resulting injury or intentionally take action that is substantially certain to cause the injury. . . .' Id.. . . . Today we join that circuit majority, [footnote omitted citations listed in footnote 5, supra] as did the Eleventh Circuit in In re Walker, by holding that, for willfulness and malice to prevent discharge under section 523(a)(6), the debtor must have intended the actual injury that resulted. . . . "As succinctly stated by a bankruptcy court in Georgia, `the plain language of Section 523(a)(6)' excepts from discharge debts arising from `willful and malicious injury' rather than `willful and malicious acts which cause an injury.'" Eaves v. Hampel (In re Hampel), 110 B.R. 88, 93 (Bankr. M.D.Ga.1990). Here, Delaney unquestionably acted intentionally when he loaded the shotgun, took it with him to the confrontation with Corley, and, with his finger on the trigger, twice tapped the barrel of the gun on the windshield of the car to get Corley's attention. In contrast, however, the firing of the gun was neither deliberate nor intentional; on the contrary, it was wholly unintentional, even though possibly not wholly unforeseeable. It follows that, under our (and the majority of the circuits') reading of section 523(a)(6), Delaney did not intend Corley's injury or any injury for that matter. Thus the injury was not `willful and malicious' on the part of Delaney: He neither intended the *410 injury nor intentionally took action that was `substantially certain' to cause the injuries that Corley suffered. Consequently, as ultimately held by both the bankruptcy court and the district court, the negligence judgment debt was and remains dischargeable in bankruptcy.
Delaney, 97 F.3d at 802 (emphasis added).
Although the issue of what constitutes "willful and malicious injury," within the meaning of section 523(a)(6) of the Code, is a question to be decided by federal rather than state law, the Fifth Circuit nevertheless buttressed its holding in Delaney by referring in a footnote to Louisiana's identical distinction between intentional acts and intended injuries, as found in cases involving the application of intentional injury exclusions found in liability insurance policies. In particular, the Fifth Circuit cited Breland v. Schilling, 550 So.2d 609, 611-614 (La.1989), which held that the proper inquiry is not whether plaintiff's alleged injuries were caused by intentional acts by the insured, but whether insured subjectively intended to inflict plaintiff's specific alleged injuries or reasonably expected that these injuries would follow from his conduct. Accordingly, the Fifth Circuit affirmed the determination of dischargeability by the bankruptcy court on remand, as affirmed by the district court. Delaney, 97 F.3d at 802.[6]
B. Application of the Fifth Circuit's Quezada and Delaney standard.
As discussed, although the Fifth Circuit has not yet ruled on the precise issue before this Court, the Fifth Circuit established in Quezada and Delaney that a debt may be excepted from discharge under section 523(a)(6) of the Code only if the debtor intended the actual injury that resulted or intentionally took action that was substantially certain to cause the injury. Moreover, in Delaney the Fifth Circuit joined the Walker court's rationale and holding, in which the Eleventh Circuit had specifically concluded that an employee-creditor's physical injury *411 was not substantially certain to result from the debtor's failure to obtain worker's compensation insurance, and thus was not excepted from discharge under section 523(a)(6).
Applying the Quezada, Delaney and Walker analyses, this Court concludes that the Judgment Debt in question should not be excepted from discharge under section 523(a)(6) of the Code. Although Defendant intentionally drove his vehicle without liability insurance at the time of the accident, no evidence was adduced at trial that Defendant intentionally caused Plaintiff the actual injuries Plaintiff suffered as a result of the accident. Moreover, it is clear that Plaintiff's bodily injury and property damage was not substantially certain to result from Defendant's failure to obtain motor vehicle liability insurance. While Defendant's failure to obtain such insurance did result in Plaintiff's lack of coverage after the accident, it cannot be said that Defendant intended to injure Plaintiff in an accident or that there was an unbroken chain of events leading from Defendant's intentionally driving without insurance to Plaintiff's bodily injury and property damage. See Walker, 48 F.3d at 1165.
In fact, whether Defendant intentionally drove his car with or without liability insurance is irrelevant for purposes of section 523(a)(6), because that provision only comes into effect if there is an accident there may be an accident, but then again there may not be an accident, regardless of whether the driver has liability insurance. This "if" clearly indicates to the Court that Defendant's intentional driving of his vehicle without liability insurance was not substantially certain to cause Plaintiff's bodily injury or property damage.
The fact that it was foreseeable that financial loss might result as a result of Defendant's intentionally driving his car without liability insurance if the accident occurred is not sufficient for purposes of section 523(a)(6), because it might be that Defendant would never be involved in an accident while intentionally driving an uninsured vehicle. Defendant's mere knowledge that financial harm might ultimately result from his intentionally driving without insurance simply is not the degree of culpability necessary to support a determination of dischargeability under section 523(a)(6). Delaney supports the Court's conclusion, because in Delaney, the Fifth Circuit noted that the debtor's firing of the gun was "wholly unintentional, even though possibly not wholly unforeseeable." (Emphasis added.) Delaney, 97 F.3d at 802. Applying this finding in Delaney to the present case, the Court concludes that Plaintiff's injuries were wholly unintentional on the part of Defendant, even though the economic loss to Plaintiff was possibly not wholly unforeseeable.
By its endorsement of Walker and Hampel, Delaney also disposes of Plaintiff's argument that his true injury is not the bodily injuries and property damage he sustained as a result of Defendant's negligence, but rather is the loss of Plaintiff's statutory right to motor vehicle liability insurance protection under La.R.S. 32:851 et. seq. ("Motor Vehicle Safety Responsibility Law"). In other words, argues Plaintiff, because his economic injury was a necessary and direct result of Defendant's failure to obtain such coverage, Defendant must have intended that economic injury. A minority of lower courts have supported this view, on the ground that it is foreseeable that other persons will sustain injury when a vehicle owner has failed to maintain liability insurance or an employer has failed to maintain worker's compensation insurance, and that it is the failure to maintain insurance which necessarily causes economic injury. See, e.g., Barnett Bank of Southeast Georgia, N.A. v. Ussery (In re Ussery), 179 B.R. 737 (Bankr.S.D.Ga.1995); Hilliard v. Peel (In re Peel), 166 B.R. 735 (Bankr.W.D.Okla.1994); Carter v. Verhelst (In re Verhelst), 170 B.R. 657 (Bankr. W.D.Ark.1993); Hester v. Saturday (In re Saturday), 138 B.R. 132 (Bankr.S.D.Ga. 1991); Matter of Whipple, 138 B.R. 137 (Bankr.S.D.Ga.1991); Strauss v. Zielinski (In re Strauss), 99 B.R. 396 (N.D.Ill.1989); Vig v. Erickson (In re Erickson), 89 B.R. 850 (Bankr.D.Idaho 1988); Juliano v. Holmes (In re Holmes), 53 B.R. 268 (Bankr.W.D.Pa. 1985).
The majority of lower courts, however, have rejected this view, finding that the mere *412 failure to maintain insurance is not a "willful and malicious injury" within the meaning of section 523(a)(6), because when the insurance terminated, there was no intent to harm the injured party, and because the failure to maintain insurance is not the act which causes harm to another party another event, the actual physical injury to the victim, must occur, and another event, such as the actual accident, causes the harm. See, e.g., Choi v. Brown (In re Brown), 201 B.R. 411 (Bankr.W.D.Pa.1996); White v. Grisham (In re Grisham), 177 B.R. 306 (Bankr. W.D.Mo.1995); Herndon v. Brock (In re Brock), 186 B.R. 293 (Bankr.N.D.Ga.1995); Parker v. Grzywacz (In re Grzywacz), 182 B.R. 176 (Bankr.E.D.Mich.1995); LSI Financial Group v. Perry (In re Perry), 166 B.R. 319 (Bankr.M.D.Tenn.1994); Walters v. Betts (In re Betts), 174 B.R. 636 (Bankr. N.D.Ga.1994); Myrick v. Ballard (In re Ballard), 186 B.R. 297 (Bankr.N.D.Ga.1994); Bailey v. Chatham (Matter of Bailey), 171 B.R. 703 (Bankr.N.D.Ga.1994); Collora v. Leahy (In re Leahy), 170 B.R. 10 (Bankr.D.Me. 1994); Szewczyk v. Wojtaszek, 164 B.R. 604 (N.D.Ill.1994); Silva v. Frias (In re Frias), 153 B.R. 6 (Bankr.D.R.I.1993); Tiberi v. Annan (In re Annan), 161 B.R. 872 (Bankr. D.R.I.1993); Morton v. Kemmerer (In re Kemmerer), 156 B.R. 806 (Bankr.S.D.Ind. 1993); Beyersdoerfer v. Bex (In re Bex), 143 B.R. 835 (Bankr.E.D.Ky.1992); Sparks v. Adams (In re Adams), 147 B.R. 407 (Bankr. W.D.Mich.1992); Wood Peek v. Mazander (In re Mazander), 130 B.R. 534 (Bankr. E.D.Mo.1991); Eaves v. Hampel (Matter of Hampel), 110 B.R. 88 (Bankr.M.D.Ga.1990); Basham v. Druen (In re Druen), 121 B.R. 509 (Bankr.W.D.Ky.1990); Conroy v. Kimsey (In re Kimsey), 97 B.R. 1003 (Bankr.D.Neb. 1989); State Farm Insurance Co. v. McConnehea (In re McConnehea), 96 B.R. 121 (S.D.Ohio 1988); Denehy v. Zalowski (In re Zalowski), 107 B.R. 431 (Bankr.D.Mass. 1989); Madden v. Fate (In re Fate), 100 B.R. 141 (Bankr.D.Mass.1989); Pichardo v. Granda (In re Granda), 98 B.R. 598 (Bankr. S.D.Fla.1989); Pritchard v. Eberhardt (In re Eberhardt), 92 B.R. 773, 777 (Bankr. E.D.Tenn.1988); Austin Mutual Insurance Co. v. Schultz (In re Schultz), 89 B.R. 28 (Bankr.E.D.Wis.1988); Pechar v. Moore, 98 B.R. 488 (D.Neb.1988); Samuel v. Baitcher (In re Baitcher), 36 B.R. 588 (Bankr.N.D.Ga. 1983), vacated and remanded for other reasons, 781 F.2d 1529 (11th Cir.1986); Hamilton v. Brower (In re Brower), 24 B.R. 246 (Bankr.D.N.M.1982); Aldridge v. Scott (In re Scott), 13 B.R. 25 (Bankr.C.D.Ill.1981).
In Walker, which the Fifth Circuit explicitly joined in Delaney, the Eleventh Circuit rejected the "statutory right" theory as follows:
However, [the employee-creditor] has failed to cite, and we cannot locate, any persuasive or binding authority to convince us that statutorily required workers' compensation benefits are property, distinguishable from the rights of any other creditor against a debtor. Moreover, this type of `injury' is nothing more than a recasting of the `reckless disregard' standard expressly rejected by Congress and by this court. American Cast Iron Pipe Co. v. Wrenn (In re Wrenn), 791 F.2d 1542, 1544 (11th Cir.1986) (per curiam) ("`[A]n act in reckless disregard of the rights of others is insufficient to constitute "willful and malicious" conduct for purposes of 11 U.S.C. section 523(a)(6).'"); Chrysler Credit Corp. v. Rebhan, 842 F.2d 1257, 1263 (11th Cir.1988); S.Rep. No. 989, at 79, 1978 U.S.C.C.A.N. at 5865; H.R.Rep. No. 595, at 365, 1978 U.S.C.C.A.N. at 6320-21. Operating without insurance is a clear example of recklessness: the failure to insure does not guarantee that an employee will not suffer a physical or economic injury while on the job. The employer's failure to secure workers' compensation coverage mandated by the state legislature may subject him to criminal penalties including imprisonment, . . . but it does not follow that his discharge in bankruptcy is to be denied as an additional penalty. Moreover, we reject the argument that a loss of workers' compensation insurance per se is an injury under section 523(a)(6). [The employee-creditor] argues that [the debtor-contractor's] intentional failure to obtain statutorily required workers' compensation insurance constitutes a `willful and malicious' injury under section 523(a)(6). We conclude *413 that [the debtor-contractor] did not intend to injure the [employee-creditor] and that [the employee-creditor's] physical injuries were not substantially certain to occur as a result of [the debtor-contractor's] failure to act.
Walker, 48 F.3d at 1165-66.
Accordingly, the Eleventh Circuit affirmed the district court's decision to dismiss the employee-creditor's claim on summary judgment. Id. at 1166.
Walker clearly disposes of Plaintiff's argument that his true injury is not the bodily injury and property damage he sustained as a result of Defendant's negligence, but rather is the loss of Plaintiff's statutory right to motor vehicle liability insurance protection under Louisiana's Motor Vehicle Safety Responsibility Law, and that because Plaintiff's economic injury was a necessary and direct result of Defendant's intentional failure to obtain such coverage, Defendant must have intended that economic injury.[7]
Moreover, this Court agrees with the Eleventh Circuit that the "economic injury" argument is nothing more than a recasting of the "reckless disregard" standard expressly rejected by Congress in section 523(a)(6). The economic injury argument is correct in recognizing that intentionally driving a car without statutorily-required insurance constitutes a reckless disregard of the rights of those whom the insurance-requirement statutes are designed to protect. The economic injury argument, however, is incorrect in that it requires the exception from discharge of any injury which might flow from the reckless act itself, regardless of whether an intervening act of negligence occurs, and regardless of whether the injury itself was intended by the actor or whether the intentional act was substantially certain to result in the injury. In essence, the economic injury analysis equates the scope of liability with the scope of the debts excepted from discharge, and would require that any damage which is a foreseeable ultimate consequence of an intentional act be excepted from discharge. Clearly, if the loss of rights due to reckless disregard of rights could be the ground of excepting a debt from discharge, then the debt arising from any foreseeable injury would be excepted, regardless of the actual cause of the actual injury. Thus, in positing that the loss of right (insurance protection) is nondischargeable because it is a foreseeable consequence of driving without insurance, the economic injury theory espouses the same scope of nondischargeability as does the "reckless disregard" standard. Abnegation of the reckless disregard standard, therefore, has resulted in two distinct (and necessarily caused) consequences: the act causing the injury must be intentional, and the injury caused must have either been intended by the actor or substantially certain to be caused, directly, by the intentional act.
Accordingly, this Court finds that although Defendant's intentional operation of his motor vehicle without insurance is a clear example of recklessness, the failure to insure was not substantially certain to cause bodily injury or property damage. Likewise, there is no evidence that the defendant intentionally caused the accident which directly caused the personal injury and property damage upon which the Judgment Debt issued.
CONCLUSION
The Court concludes that under both Quezada and Delaney, the Judgment Debt is *414 not excepted from discharge under section 523(a)(6), because by operating his motor vehicle without liability insurance, Defendant did not intend the actual bodily injuries and property damage suffered by Plaintiff, and because such operation was not substantially certain to cause Plaintiff's injuries. Moreover, Delaney also disposes of Plaintiff's argument that his true injury is not the bodily injuries and property damage he sustained as a result of Defendant's negligence, but rather is the loss of Plaintiff's statutory right to motor vehicle liability insurance protection and that, because Plaintiff's economic injury was a necessary and direct result of Defendant's failure to obtain such coverage, Defendant must have intended that economic injury.
A separate judgment, dismissing the complaint with prejudice, will be entered.
NOTES
[1] On February 27, 1996, a section 341 meeting of creditors was held. The deadline to file a proof of claim was May 27, 1996. The deadline to file a complaint objecting to discharge of the debtor or to determine the dischargeability of certain types of debts was April 27, 1996. On April 29, 1996, the debtor-Defendant was granted a discharge. On May 14, 1996, Plaintiff filed an adversary complaint reciting therein that he had not received notice of the bankruptcy case prior to April 27, 1996. This complaint, which essentially seeks to have the Judgment Debt declared nondischargeable under section 523(a)(6) of the Code, was properly brought. The debtor did not dispute the fact of non-receipt of timely notice by Plaintiff. The effect of the failure timely to notify a creditor holding a right under section 523(a)(6) is the evaporation of the deadline established by section 523(c) by which the creditor must bring the complaint. As well, the requirement that the complaint be filed with the bankruptcy court disappears, with the creditor obtaining an expansion of jurisdiction so that state courts have the concurrent authority to entertain the dischargeability action.
[2] As will be discussed infra, close examination of Fifth Circuit law has revealed that perhaps the Fifth Circuit, through Delaney, was farming ground already plowed in Kelt v. Quezada (In re Quezada), 718 F.2d 121 (5th Cir.1983), cert. denied, 467 U.S. 1217, 104 S.Ct. 2662, 81 L.Ed.2d 368 (1984), a case generally cited for espousing the standard, or definition, of "willful and malicious," within the meaning of section 523(a)(6).
After this Court's Opinion was prepared, the Fifth Circuit issued a substitute Delaney opinion in Corley v. Delaney (In re Delaney), 97 F.3d 800 (5th Cir.1996), in which the Fifth Circuit acknowledged that the issue which the court had addressed allegedly for the first time in the prior Delaney opinion actually had already been decided by Quezada:
Indeed, the majority [of circuits] to which the Eleventh Circuit alluded [in In re Walker] [regarding the strict interpretation of section 523(a)(6) to require that the debtor either intend the resulting injury or intentionally take action that is substantially certain to cause the injury] includes the Fifth Circuit, for in In re Quezada [citation omitted], we held that a creditor must demonstrate `conduct designed to cause deliberate or intentional injury' to establish a `willful and malicious injury' under section 523(a)(6). Accordingly, today we reaffirm our place in the circuit majority identified in In re Walker by holding that, for willfulness and malice to prevent discharge under section 523(a)(6), the debtor must have intended the actual injury that resulted. [Footnote omitted.] As indicated in Quezada and Walker, intent to injure may be established by a showing that the debtor intentionally took action that necessarily caused, or was substantially certain to cause, the injury. [Footnote omitted.]
Delaney, 97 F.3d at 802.
The Fifth Circuit's substitute opinion in Delaney does not change this Court's Opinion in the instant case, but in fact bears out this Court's observations concerning just what happened, and when, regarding the evolution of the Fifth Circuit's section 523(a)(6) "willful and malicious" analysis.
[3] See, e.g., Chrysler Credit Corp. v. Perry Chrysler Plymouth, 783 F.2d 480 (5th Cir.1986); Seven Elves, Inc. v. Eskenazi, 704 F.2d 241, 245 (5th Cir.1983); Petty v. Dardar (In re Dardar), 620 F.2d 39 (5th Cir.1980); Vickers v. Home Indemnity Co. (In re Vickers), 546 F.2d 1149 (5th Cir. 1977); Ragupathi v. Bairrington (In re Bairrington), 183 B.R. 754 (Bankr.W.D.Tex.1995); Wickes Lumber Co. v. Magee (In re Magee), 164 B.R. 530 (Bankr.S.D.Miss.1994); Stanley v. Cole (In re Cole), 136 B.R. 453 (Bankr.N.D.Tex.1992); F.D.I.C. v. Lefeve (In re Lefeve), 131 B.R. 588 (Bankr.S.D.Miss.1991); Meridian Production Credit Assoc. v. Hendry (In re Hendry), 77 B.R. 85 (Bankr.S.D.Miss.1987).
[4] As will be discussed in more detail infra, in Delaney, the Fifth Circuit held that bodily injuries resulting from the debtor's intentional act in twice tapping a loaded firearm against the window of a car in which the victim was riding, were not "willful and malicious," for purposes of section 523(a)(6) of the Code, even though the debtor had intentionally loaded the gun, had consciously chosen to take it with him when he confronted the victim, and might even have foreseen the gun's discharge when he tapped it twice against the car window with his finger on the trigger, absent evidence that the injuries themselves, and not merely the act which produced them (that is, the intentional tapping of debtor's gun on the windshield), were intended by the debtor or were substantially certain to cause the injuries.
[5] The Second, Third, Sixth, Eighth and Tenth Circuits, like the Fifth and Eleventh Circuits, have strictly interpreted section 523(a)(6) to require that the debtor either intend the resulting injury or intentionally take action that is substantially certain to cause the injury. In Navistar Financial Corp. v. Stelluti (In re Stelluti), 94 F.3d 84, 87-88 (2d Cir.1996), the Second Circuit held that a Chapter 7 debtor-wife's debt to a creditor-motor vehicle financier was excepted from discharge under section 523(a)(6) because the debtor's transferring of the creditor-financier's funds to out-of-state bank accounts in the debtor's name was "deliberate and intentional" and because the debtor had "proceeded to take a number of affirmative steps that necessarily produced harm to [the creditor-financier] as she transferred funds from accounts in New Jersey to accounts in Connecticut." In Conte v. Gautam (In re Conte), 33 F.3d 303, 307 (3rd Cir.1994), the Third Circuit held that "actions are willful and malicious within the meaning of section 523(a)(6) if they either have a purpose of producing injury or have a substantial certainty of producing injury," and in Vulcan Coals, Inc. v. Howard, 946 F.2d 1226, 1228-29 (6th Cir.1991), the Sixth Circuit explicitly rejected the very strict view that section 523(a)(6) requires an intent to cause specific injury, but did adopt a narrow interpretation of "willful and malicious" that requires "a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse."
Moreover, in Cassidy v. Minihan, 794 F.2d 340, 343-44 (8th Cir.1986), the Eighth Circuit held that the legislative history of section 523(a)(6) "persuasively indicates a congressional intent to allow discharge of liability for injuries unless the debtor intentionally inflicted an injury, and in Geiger v. Kawaauhau (In re Geiger), 93 F.3d 443, 444-45 (8th Cir.1996), the Eighth Circuit, citing Cassidy, held that the debtor-doctor's medical malpractice debt was not excepted from discharge under section 523(a)(6) because the doctor was at the very least negligent and at the very worst reckless. Moreover, the evidence showed only that the doctor failed to save the creditor-victim's leg from the ravages of an infection, not that the doctor intended to harm the victim, and that the doctor's efforts to treat the victim were not calculated to result in the loss of her leg and therefore were not malicious.
Furthermore, in Dorr, Bentley & Pecha, CPAs, P.C. v. Pasek (In re Pasek), 983 F.2d 1524, 1527 (10th Cir.1993), the Tenth Circuit held that a "`willful and malicious injury' occurs when the debtor, without justification or excuse, and with full knowledge of the specific consequences of his conduct, acts notwithstanding, knowing full well that his conduct will cause particularized injury. Such a standard is consistent with the rule that section 523(a)(6) requires not only intentional conduct on the part of the debtor, but also intentional or deliberate injury."
So far, only the Ninth Circuit has held that the creditor need not show that the debtor acted with an intent to harm the creditor, although the act must necessarily cause harm to the creditor. See Britton v. Price (In re Britton), 950 F.2d 602, 605 (9th Cir.1991). Moreover, according to the Ninth Circuit, while the creditor must show that the debtor acted intentionally, the "intent required is intent to do the act at issue, not intent to injure the victim." Id.
[6] Breland v. Schilling involved the interpretation of an intended injury exclusion clause in a liability insurance policy. The insured had punched another person and fractured his jaw, and a jury had determined that the defendant-insured had not subjectively intended to break the plaintiff's jaw. The Louisiana Supreme Court, focusing on the "result of an intentional act, rather than upon the intended or expected bodily injury," id. at 614, found that the subjective intention and expectation of the insured determined which injuries fell within and which fell beyond the scope of coverage under the policy at issue, and in adopting a "fact-sensitive test for the insured's subjective intent, . . . reject[ed] the approach . . . that an insured intends, as a matter of law, all injuries which flow from an intentional act." Id. at 611, 613. The court held as follows:
[W]hen minor bodily injury is intended, and such results, the injury is barred from coverage. When serious bodily injury is intended, and such results, the injury is also barred from coverage. When a severe injury of a given sort is intended, and a severe injury of any sort occurs, then coverage is also barred. But when minor injury is intended, and a substantially greater or more severe injury results, whether by chance or coincidence, accident, or whatever, coverage for the more severe injury is not barred. Whether a given resulting bodily injury was intended `from the standpoint of the insured' within these parameters is a question of fact. Such factual determinations are the particular province of the trier of fact, in this instance the trial jury.
Id. at 614.
The Louisiana Supreme Court concluded because the terms of the insurance contract dictated that the insured's subjective intent regarding bodily injury, as measured by the jury, controlled whether coverage applied, and because the jury found that the defendant had not intended to break the plaintiff's jaw and that the defendant had not intended to inflict any similar serious injury, the insured's homeowners insurer provided coverage for injuries suffered by the plaintiff. Id.
Of course, though it need not be here, it could be argued that a determination of whether a claimant is afforded insurance coverage (if the injury is not intentional) might involve different considerations than those underlying a section 523(a)(6) exception-to-discharge determination. In fact, the Louisiana Supreme Court seems to abjure the notion that an intentional injury is one substantially certain to follow from an intentional act, which notion is embraced by the Eleventh Circuit in Walker, and implicitly embraced by the Fifth Circuit in Delaney. Apparently, the Louisiana Supreme Court has found no room for an objective "reasonably could be held to know that the intentional act necessarily produced the harm" standard. Regardless, the applicable section 523(a)(6) standard is a federal question, and, as mentioned, it appears that the Delaney reference to state law had the sole purpose of corralling support.
[7] Like the Eleventh Circuit in Walker, this Court cannot find any persuasive or binding authority to convince it that statutorily-required motor vehicle liability insurance benefits are property, distinguishable from the rights of any other creditor against a debtor. However, this conclusion of the Walker court seems irrelevant because even if the right to be protected by statutorily-required insurance is a property right, the property right is triggered only by an injury. The injury, therefore, is the required "if' in the section 523(a)(6) equation. Recasting the Quezada, Delaney, and Walker analyses, the intentional act of driving without insurance may be within the chain of events leading to an injury, but the relevant triggering event is the negligent act itself, which then triggers the statutory right to insurance benefits. Therefore, again, driving without insurance is not substantially certain to cause injury, even to the property right to statutorily-required insurance benefits (if such exists), because driving without insurance is not substantially certain to cause an injury, which is the necessary "if" that must precede the loss of the statutory right. As long as there is the necessity of this "if" in the section 523(a)(6) equation ("I will be hurt if I get hurt; i.e., my statutory right to insurance benefits will be lost if I am injured and there is no insurance coverage"), this "if" is the intervening action causing the injury. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1887244/ | 609 F.Supp. 499 (1985)
INDEX FUND, INC., Plaintiff,
v.
Robert R. HAGOPIAN, John Peter Galanis, Akiyoshi Yamada, Takara Partners, Louise Yamada, Louise Yamada, Inc., Armstrong Investors S.A., Armstrong Capital S.A., Pericles Constantinou, Provident Securities, Inc., First National City Trust Company (Bahamas) Ltd., First National City Bank, Defendants.
No. 73 Civ. 2665 (CHT).
United States District Court, S.D. New York.
February 6, 1985.
*500 *501 Charles E. McGuinness, New York City, for plaintiff.
Shearman & Sterling, New York City, for defendants Citibank, N.A., and Cititrust (Bahamas) Ltd.; Werner L. Polak, New York City, of counsel.
OPINION
TENNEY, District Judge.
The plaintiff, Index Fund, Inc. ("Index Fund"), began this action in 1973 against various parties including First National City Trust Company (Bahamas) Limited ("Cititrust") and First National City Bank ("Citibank"). The plaintiff alleges that Cititrust and Citibank violated the federal securities laws and common law principles of fraud and fiduciary duty by causing the plaintiff to purchase stocks that were *502 worthless or were sold at inflated prices.[1] The plaintiff is seeking damages of $1,010,151.
Cititrust and Citibank ("defendants") now move for summary judgment pursuant to Federal Rule of Civil Procedure ("Rule") 56, or alternatively, for judgment on the pleadings under Rule 12(c) for failure to state a claim. The plaintiff has made a cross-motion for summary judgment and has moved for leave to amend the complaint under Rule 15.
The plaintiff's motion for leave to amend the complaint is granted to the extent set forth below, but the plaintiff's cross-motion for summary judgment is denied. The defendant's motion for summary judgment or to dismiss on the pleadings is granted in part and denied in part. The motion is denied insofar as the plaintiff alleges that the defendants are secondarily liable under the securities laws and the common law, as will be discussed hereinafter. In all other respects, the motion is granted.
BACKGROUND
The history of this case is set forth at length in the Court's previous Opinion, 417 F.Supp. 738 (S.D.N.Y.1976), and will not be repeated here. A brief recital of the facts will suffice.
Essentially, the complaint alleges that in 1970 between June and October the plaintiff purchased certain securities that were worthless or overvalued, and consequently suffered a loss of $1,010,151. According to the plaintiff, the defendants' liability is based on the defendants' relationship with the Armstrong Fund ("Armstrong"); Armstrong is an offshore mutual fund which, allegedly, caused the plaintiff's loss by means of market manipulation and bribery.[2] Cititrust, a wholly-owned subsidiary of Citibank, was Armstrong's trustee.
The plaintiff claims that Cititrust and Citibank failed to exercise proper supervision and control over Armstrong and Armstrong's investment adviser, Everest Management Corporation ("Everest").[3] The plaintiff alleges that Armstrong acting through Everest (1) manipulated the market, thereby causing certain securities purchased by the plaintiff to be worthless or overpriced, and (2) fraudulently induced the plaintiff to purchase the securities in question from Armstrong and others by giving the plaintiff's employee, Robert R. Hagopian ("Hagopian"), a bribe of approximately $500,000.[4]
The defendants have moved for summary judgment and for judgment on the pleadings. In response, the plaintiff has made a cross-motion for summary judgment and, pursuant to Rule 15(a), has moved for leave to amend the complaint to hold the defendants Cititrust and Citibank liable for the fraud perpetrated by Armstrong and Everest.
*503 DISCUSSION
Amending the Complaint
Leave to amend a complaint should be freely given, absent bad faith, undue delay, or undue prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). The pleading rules should be applied liberally, rather than narrowly. Id. Leave to amend should be granted "if the plaintiff has at least colorable grounds for relief...." S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir.1979). In determining whether an amendment is justified, the court "should normally focus on the resultant prejudice to [the] defendant." Middle Atlantic Utilities Co. v. S.M.W. Dev. Corp., 392 F.2d 380, 384 (2d Cir.1968).
Despite the defendants' argument that the plaintiff should not be permitted to amend the complaint in the case at bar, the defendants have made no showing that they would be unduly prejudiced by the proposed amendment. Essentially, the defendants had notice that they could be charged with secondary liability for the acts of Armstrong and Everest. The plaintiff's claims concerning secondary liability are based on the same facts and circumstances as those outlined in the original complaint. See Rule 15(c); 6 C. Wright & A. Miller, Federal Practice and Procedure § 1497, at 490 (1983). All of the elements of secondary liability were effectively set forth in the original complaint, even though the plaintiff did not specifically denominate the theory or statutory basis of secondary liability. In addition, both the plaintiff and the defendants addressed the question of secondary liability at length and in detail in their briefs for the instant motion.
It appears from the record that the plaintiff's claims against Cititrust and Citibank for secondary liability are at least colorable, and there is no suggestion that the plaintiff has acted in bad faith or is guilty of undue delay in seeking to amend the complaint.
The plaintiff's request to amend the complaint is therefore granted. The plaintiff may amend the complaint to the extent necessary to allege that Cititrust and Citibank are secondarily liable under the doctrine of aiding and abetting, and the doctrine of controlling parties.[5]
Moreover, for the purpose of the current motion, the Court will consider the complaint as though it were already amended. See 10A C. Wright and A. Miller, supra, § 2722 at 47-48 (1983) ("[W]hen plaintiff's motion to amend the complaint and defendant's motion for summary judgment are presented together, the court may consider the [summary judgment motion] as [being] addressed to the complaint in the form in which it is sought to be amended."); accord Marbury Management, Inc. v. Kohn, 629 F.2d 705, 711-12 (2d Cir.), cert. denied sub nom. Wood Walker & Co. v. Marbury Management, Inc., 449 U.S. 1011, 101 S.Ct. 566, 66 L.Ed.2d 469 (1980). Because the parties have thoroughly briefed the question of secondary liability, the defendants will not be prejudiced as a result of the Court's treating the complaint as though it were already amended.
Judgment on the Pleadings
The defendants have moved for summary judgment under Rule 56, and for judgment on the pleadings for failure to state a claim under Rule 12(c).[6] Where outside *504 material is presented to the court on a motion to dismiss under Rule 12(c), the motion should be treated as one for summary judgment, and the court should proceed under Rule 56. See Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984); Slevin v. Pedersen Assoc., Inc., 540 F.Supp. 437, 438 n. 2 (S.D.N.Y.1982); 10 C. Wright and A. Miller, supra, § 2713 at 599-600 (1983).
In the case at bar, the parties have submitted affidavits, interrogatories, and substantiating documentation in support of the current motions. Because the Court has considered all of the material submitted, including the matter presented which is outside of the pleadings, the defendants' entire motion will be treated as one for summary judgment.
Summary Judgment
Summary judgment, which cuts off the right to trial, may be granted only if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c); see generally 6 J. Moore, W. Taggart and J. Wicker, Moore's Federal Practice ¶ 56.15 [1.-0] (2d ed. 1983). The court will not try issues of fact on a motion for summary judgment, but, rather, will merely determine whether there are issues of fact that need to be tried. See Heyman v. Commerce and Indus. Ins. Co., 524 F.2d 1317, 1319-20 (2d Cir.1975).
It is well settled that summary judgment should not be granted unless the entire record shows a right to judgment with such clarity as to leave no room for controversy and establishes affirmatively that the adverse party cannot prevail under any circumstances. Neither should summary judgment be granted if the evidence is such that conflicting inferences may be drawn therefrom, or if reasonable men might reach different conclusions.
Phoenix Sav. and Loan, Inc. v. Aetna Casualty and Sur. Co., 381 F.2d 245, 249 (4th Cir.1967).
The party moving for summary judgment has the burden of showing that there are no material facts in dispute, see Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970), and the court will resolve all ambiguities and draw all reasonable inferences in favor of the party opposing the motion. Heyman v. Commerce, 524 F.2d at 1319-20. It should be noted that "[i]ssues of motive and intent are usually inappropriate for disposition on summary judgment." Wechsler v. Steinberg, 733 F.2d 1054, 1058 (2d Cir.1984). Summary judgment, however, will not be denied on the basis of mere conclusory allegations made without factual support. See Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir.1983). Concrete particulars must be set forth in opposition to the motion. See SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978).
A. Primary Liability
The plaintiff's complaint alleges that the defendants are liable as principals under §§ 10(b) and 15(c) of the Securities Exchange Act, §§ 12(2) and 17(a) of the Securities Act, and under the common law.[7] The plaintiff, however, has failed to allege any facts that would give rise to an inference that either Cititrust or Citibank was a direct participant in manipulating the market or bribing Hagopian.[8] In fact, plaintiff's *505 counsel stated in an affidavit that the plaintiff had "not charged ... Citibank or Cititrust with having sold any securities to plaintiff or having misrepresented any facts regarding the sale and purchase of those securities which were the subject of the securities manipulations of Galanis and Yamada." Rebuttal Affidavit of Charles E. McGuinness, sworn to August 31, 1983, ¶ 44.
The record indicates that neither Cititrust, nor Citibank, engaged in any independent fraudulent conduct; thus, neither defendant can be held primarily liable for the plaintiff's loss. See Savino v. E.F. Hutton & Co., 507 F.Supp. 1225, 1241-42 (S.D.N.Y.1981). At most, they may be found secondarily liable under the doctrine of aiding and abetting, or controlling parties. See Lanza v. Drexel & Co., 479 F.2d 1277, 1289 (2d Cir.1973) (en banc); Hackett v. Continental Can Co., 518 F.Supp. 1281, 1284 (E.D.N.Y.1981). Accordingly, summary judgment is granted in favor of Cititrust and Citibank on each of the plaintiff's claims, insofar as the claims pertain to primary liability under the securities laws and the common law.
B. The Investment Advisers Act, and the Investment Company Act
The plaintiff asserts in its complaint that the defendants are liable under § 206 of the Investment Advisers Act. The Supreme Court, however, has ruled that there is no private cause of action under § 206. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 24, 100 S.Ct. 242, 249, 62 L.Ed.2d 146 (1979). The plaintiff's claim under § 206 is therefore dismissed.
The plaintiff also claims that the defendants are liable under §§ 17(e)(1) and 36 of the Investment Company Act. Section 17(e)(1) makes it unlawful for a person acting as an agent for an investment company to accept a bribe. Although the plaintiff's employee, Hagopian, accepted a bribe, he was not acting as an agent for either the defendants, or Everest, or Armstrong. Hagopian was acting on behalf of the plaintiff, Index Fund. Since Hagopian was not the defendants' agent, Cititrust and Citibank cannot be held liable under § 17 for Hagopian's acceptance of the bribe. Accordingly, the plaintiff's cause of action under this section is hereby dismissed.
The plaintiff's claims against Cititrust and Citibank under § 36 of the Investment Company Act must also be dismissed; the plaintiff is not within the group of investors that § 36 is intended to benefit.[9] Congress enacted the Investment Company Act, generally, and § 36 specifically, in order to regulate transactions between investment companies such as mutual funds and their investment advisers. See Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 104 S.Ct. 831, 838-42, 78 L.Ed.2d 645 (1984). A mutual fund is generally only a shell; it is "a pool of assets consisting mostly of portfolio securities that belong to the individual investors holding shares in the fund." Tannenbaum v. Zeller, 552 F.2d 402, 405 (2d Cir.), cert. denied sub nom. Eberstadt & Co. v. Tannenbaum, 434 U.S. 934, 98 S.Ct. 421, 54 L.Ed.2d 293 (1977). Typically, the mutual fund is managed and supervised by its investment adviser. In the instant case, for example, Everest was acting as the investment adviser for Armstrong. Section 36 was intended to address problems that arise out of the unique relationship between an investment company and its investment adviser, and to "correct abuses of self-dealing which produced injury to the stockholders of investment companies." United States v. Deutsch, 451 F.2d 98, 108 (2d Cir.1971), cert. denied, 404 U.S. 1019, 92 S.Ct. 682, 30 L.Ed.2d 667 (1972).
*506 In the case at bar, the plaintiff was not among the group of investors that § 36 was intended to protect. The plaintiff was not a security holder of Armstrong and did not have the unique relationship with Everest or Armstrong that was contemplated by the statute. The plaintiff was not managed or supervised by Everest. Consequently, the plaintiff does not have standing to bring an action against Cititrust or Citibank under § 36, and the plaintiff's claim under this section is therefore dismissed.
C. Secondary Liability
The basic elements of secondary liability under the doctrine of aiding and abetting or the statutory doctrine of control[10] are well established in this circuit. See, e.g., Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir.1983); Marbury Management v. Kohn, 629 F.2d at 712-16; IIT, An Int'l Inv. Trust v. Cornfeld, 619 F.2d 909, 922 (2d Cir.1980); Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38, 47-48 (2d Cir.), cert. denied, 439 U.S. 1039, 99 S.Ct. 642, 58 L.Ed.2d 698 (1978); Lanza v. Drexel, 479 F.2d at 1299-1304.
Three elements must be established in order to impose liability on a defendant as either an aider and abettor or a controlling party. The first two elements are the same under both theories of liability: (1) there must have been a violation of the securities laws by a primary party, and (2) the defendant must have had actual knowledge of the violation, or the defendant must have had a fiduciary relationship with the plaintiff and have acted recklessly.
Under the controlling person doctrine, the plaintiff must also show that the defendant had the power to exercise control over the primary violator, based on a special relationship such as agency or stock ownership.
To establish aider and abetter liability, the plaintiff must show as a third element that the defendant rendered substantial assistance to the principal actor in effecting the primary violation.
1. Securities Law Violation
The plaintiff must first establish the existence of a securities law violation by a primary party. There is little doubt that the plaintiff's allegations, if true, would be sufficient to prove a primary violation in the instant case.
The plaintiff alleges that Everest acting in its capacity as investment adviser for Armstrong was the primary violator, and that Everest violated the securities laws by fraudulently inducing the plaintiff to purchase certain securities that were worthless or overpriced. The complaint alleges, first, that the plaintiff's employee, Hagopian, purchased the securities for the plaintiff because of a substantial bribe given to him by Everest. Second, the plaintiff claims that the securities in question were worthless or overpriced because Armstrong and Everest had fraudulently manipulated the market.
(a) In Pari Delicto Defense
Fraudulent inducement to buy worthless or overpriced securities, if proven, would constitute a primary violation. The defendants, however, claim that because Hagopian accepted a bribe and Hagopian was an employee and agent of the plaintiff the plaintiff itself took part in the venture. The defendants argue that Index Fund is therefore barred from bringing suit on the fraudulent inducement claim.
This type of defense an in pari delicto defense is generally inappropriate in securities cases, and will not be recognized in the case at bar. See Mallis v. Bankers Trust, 615 F.2d 68, 75 (2d Cir.1980), cert. denied, 449 U.S. 1123, 101 S.Ct. 938, 67 L.Ed.2d 109 (1981); Berner v. Lazzaro, 730 F.2d 1319, 1321-24 (9th Cir.1984), cert. granted sub nom. Bateman Eichler, Hill Richards, Inc. v. Berner, ___ U.S. ___, *507 105 S.Ct. 776, 83 L.Ed.2d 772 (1985) (citing cases and commentaries).
The major objective of the securities laws is to prevent deceptive practices in the securities field, protect investors, and provide a means of redress if investors are deceived. See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186, 84 S.Ct. 275, 280, 11 L.Ed.2d 237 (1963); Feit v. Leasco Data Processing Equipment Corp., 332 F.Supp. 544, 563-67 (E.D.N.Y. 1971). Permitting an in pari delicto defense in cases involving securities fraud would frustrate the objectives of the securities laws.
The in pari delicto defense should be permitted only if the alleged facts show that (1) the plaintiff's conduct was as reprehensible as the defendant's, and (2) the defendant was injured by the plaintiff's actions. See Mallis v. Bankers Trust, 615 F.2d at 75; Savino v. E.F. Hutton & Co., 507 F.Supp. at 1234, n. 6; accord Berner v. Lazzaro, 730 F.2d at 1324 (The defense is only appropriate where the plaintiff had equal responsibility for the injury it suffered.); Nathanson v. Weis, Voisin, Cannon, Inc., 325 F.Supp. 50, 57 (S.D.N.Y. 1971) ("In pari delicto generally contemplates that both parties are `in equal fault.'") (citations omitted).
Thus, the Court rejects the defendants' argument that Index Fund should be barred from asserting a claim under the securities laws. If the plaintiff suffered a loss as a result of dishonest dealings or deceptive practices, the plaintiff is entitled to the full protection of the securities laws.
(b) Fraud on the Market
The plaintiff alleges that Everest and Armstrong violated the securities laws by manipulating the market in such a manner that certain stocks appeared to be valuable, when in fact they were practically worthless. The plaintiff claims that Everest and Armstrong created an artificial price and an artificial market for the securities in question. The evidence presented supports an inference that Everest and Armstrong did manipulate the market. Fraud on the market, if proven, would constitute a securities law violation. See Panzirer v. Wolf, 663 F.2d 365, 367-68 (2d Cir.1981), vacated as moot sub nom. Price Waterhouse v. Panzirer, 459 U.S. 1027, 103 S.Ct. 434, 74 L.Ed.2d 594 (1982); Lipton v. Documation, Inc., 734 F.2d 740, 743 (11th Cir.1984), cert. denied sub nom. Peat, Marwick, Mitchell & Co. v. Lipton, ___ U.S. ___, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985); Minpeco, S.A. v. Conticommodity Services, Inc., 552 F.Supp. 332, 337 (S.D.N. Y.1982); Schlanger v. Four-Phase Systems, Inc., 555 F.Supp. 535, 538 (S.D.N.Y. 1982) ("[I]t is hard to imagine that there ever is a buyer or seller who does not rely on market integrity. Who would knowingly roll the dice in a crooked crap game?").
In refuting the plaintiff's allegations concerning market manipulation, the defendants again raise the issue of Hagopian's conduct. The defendants contend that when Hagopian took the bribe and purchased the securities, he knew the securities were worthless or overpriced. The defendants argue that because Hagopian was the plaintiff's employee, Hagopian's knowledge must be imputed to the plaintiff. The defendants assert, therefore, that the plaintiff has no cause of action under the securities laws because when Index Fund purchased the securities in question Index Fund knew that the securities were worthless or overpriced. Thus, the defendants claim that summary judgment should be granted in their favor.
The basic laws of agency require that the defendants' argument be rejected. Ordinarily, of course, an agent's knowledge is imputed to his principal. This is based on the presumption that an agent will give his principal any relevant information he has acquired. This presumption breaks down, however, where an agent is acting in his own interest, in a manner that is obviously hostile to the principal's best interests. If, for example, an employee is stealing from his employer, the employer is apt to be the last one to whom the employee will give that information.
*508 If an agent's interests are adverse to those of the principal, therefore, the agent's knowledge will not be imputed to the principal. See Mallis v. Bankers Trust, 717 F.2d 683, 689 (2d Cir.1983). Notice to an agent "is notice to the principal, unless the person giving notice has reason to know that the agent ... will not transmit the message to the principal." Corporation de Mercadeo Agricola v. Mellon Bank Int'l, 608 F.2d 43, 46 (2d Cir.1979).
In the instant case, Hagopian's interests were adverse to the plaintiff's, and Everest knew that it was unlikely that Hagopian would tell the plaintiff that the securities were worthless, or that he had accepted a bribe. Thus, even if Hagopian knew that the securities were worthless or overpriced, that knowledge cannot be imputed to the plaintiff.
In sum, the facts alleged by the plaintiff, together with the affidavits and documents presented, are sufficient to support an inference that there may have been a primary violation of the securities laws. In this instance, the question is a factual one and, therefore, must be determined by the trier of fact.
2. Scienter
Scienter is the second element that must be established in order to impose aider and abetter liability or statutory liability. The Court finds that the evidence presented raises factual questions concerning the defendants' state of mind and the duty owed to the plaintiff. Summary judgment on this issue, therefore, is inappropriate.[11]
The plaintiff claims that the defendants knew or were reckless in failing to know that Everest and Armstrong were engaged in a broad-based fraudulent scheme. The plaintiff also claims that because Cititrust was the trustee for Armstrong, Cititrust owed the plaintiff a fiduciary duty. The defendants deny having knowledge of any fraudulent scheme, and deny having acted recklessly. The defendants also argue that they did not owe the plaintiff a fiduciary duty.
The Supreme Court has not yet determined whether recklessness constitutes scienter. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193-94 n. 12, 96 S.Ct. 1375, 1380-81 n. 12, 47 L.Ed.2d 668 (1976). In considering the scienter requirement for secondary liability, however, the second circuit has held that recklessness does constitute scienter, but only if the defendant owes a fiduciary duty to the plaintiff. See Armstrong v. McAlpin, 699 F.2d at 91; Rolf v. Blyth, Eastman, 570 F.2d at 47. If the defendant is charged with failing to act, the plaintiff must show that the defendant was reckless in failing to carry out his fiduciary duty. Recklessness involves conduct which is highly unreasonable and constitutes an extreme departure from the standards of ordinary care. See Rolf v. Blyth, Eastman, 570 F.2d at 47.
Absent a fiduciary duty, the scienter requirement is scaled upwards. See Edwards & Hanly v. Wells Fargo Securities Clearance Corp., 602 F.2d 478, 484 (2d Cir.1979), cert. denied, 444 U.S. 1045, 100 S.Ct. 734, 62 L.Ed.2d 731 (1980). The plaintiff must show that the defendant had actual knowledge of the primary violation. Id. Where liability is predicated on the defendant's failure to act, the plaintiff must show *509 that the defendant had "a conscious and specific motivation for not acting...." IIT v. Cornfeld, 619 F.2d at 927. The defendant must have intentionally failed to act in order to facilitate the fraudulent scheme.
In support of its claims, the plaintiff points to Cititrust's position as Armstrong's trustee and the fiduciary nature of that role. As trustee, Cititrust agreed to act as transfer agent, registrar and corporate domiciliary for Armstrong. Cititrust was paid $30,000 a year for its services. The plaintiff contends that because Cititrust is a wholly-owned subsidiary of Citibank, both defendants are liable for Cititrust's alleged breach of fiduciary duty and its failure to supervise Armstrong.
The plaintiff alleges that Cititrust provided all but one of Armstrong's officers and directors, and that the directors were Cititrust employees. The plaintiff argues that Cititrust not only failed to supervise Armstrong, but also breached its duty to ensure that the directors and officers supervised Armstrong.
The plaintiff further contends that the Investment Management Agreement between Everest and Armstrong explicitly imposed a fiduciary duty on Armstrong's board of directors, and, therefore, vicariously imposed a fiduciary duty on Cititrust. The agreement provided that all investments made by Everest on behalf of Armstrong were subject to the control of Armstrong's board of directors. The plaintiff alleges that Armstrong's directors, along with Cititrust, intentionally or recklessly, failed to provide the supervision and control required by the Investment Management Agreement.
The plaintiff claims that, in light of the type of investments being made by Everest, Cititrust must have known or was reckless in not knowing that Everest was manipulating the market. The plaintiff points to Cititrust's responsibility for reviewing Armstrong's financial records, and alleges that a large number of the securities purchased by Everest were unlisted or were "junk" securities, and that acquiring such securities violated Armstrong's internal purchasing goals. In addition, the plaintiff points to a letter written by Cititrust in May 1970 which noted that Armstrong's portfolio was being "churned over." The plaintiff claims that the letter shows that Cititrust was aware of Everest's improper investment activities.
The defendants deny all of the plaintiff's allegations concerning knowledge, intent and recklessness. They argue that Cititrust's role as trustee imposed very limited duties which they contend Cititrust fulfilled and they argue that neither Cititrust nor Citibank owed the plaintiff a fiduciary duty.
It is clear that more than one inference can be drawn from the evidence presented and there is significant controversy concerning the material facts. Resolution of the issue of scienter in this case, therefore, must be resolved by the trier of fact at trial, rather than by the Court on summary judgment.
3. Aiding and Abetting: Substantial Assistance
Substantial assistance is the third and final element that must be established in order to find a defendant liable under the doctrine of aiding and abetting. The plaintiff must show that the defendant rendered substantial assistance to the principal party in effecting the primary violation. See Rolf v. Blyth, Eastman, 570 F.2d at 4 (The defendant rendered substantial assistance to the primary violator by advising the plaintiff that he had nothing to worry about with respect to his portfolio, thereby effectively preventing the plaintiff from discovering the fraud.).
The question on this motion, of course, is not whether the evidence presented by the plaintiff is conclusory, but whether drawing all reasonable inferences in favor of the plaintiff the evidence raises an issue of fact for trial. The Court concludes that it does. Thus, for the reasons previously discussed, and the reasons set forth below, the defendants' motion for summary judgment *510 on the issue of aiding and abetting is denied.
To constitute substantial assistance, a defendant's action or inaction must be a causal factor of the primary violation and the resulting loss by the plaintiff. See Armstrong v. McAlpin, 699 F.2d at 92. In other words, the defendant's conduct must actually cause the plaintiff's loss. See Edwards v. Wells Fargo, 602 F.2d at 484. The defendant must have associated himself with the venture and participated in it as something that he wished to make succeed. See IIT v. Cornfeld, 619 F.2d at 922; Klein v. Computer Devices, Inc., 591 F.Supp. 270, 281 (S.D.N.Y.1984).
In the instant case, the plaintiff claims that the defendants gave substantial assistance to Everest in its fraudulent scheme. The plaintiff rests this claim primarily on the allegation that the defendants "permitted and authorized [Everest] to deal in and dispose of the securities and funds of the Armstrong Fund without proper supervision or direction." See Plaintiff's Complaint, at ¶ 28.
In addition, the plaintiff alleges although without providing supporting documentation that between 1969 and 1971 Cititrust or Citibank provided "banking credits" to various parties who had ties to Armstrong. According to the plaintiff, the banking credits amounted to $19.4 million, and were generally uncollateralized. The defendants deny these allegations, and claim that the named parties simply had commercial checking accounts. Citibank admits to having made certain loans to Galanis, one of Everest's officers.
Moreover, in July 1970, Cititrust transferred an overdraft of $400,000 from the Bahamas to Armstrong's Citibank account in New York. Everest promptly withdrew the money. The defendants claim that this overdraft was a clerical error, but the plaintiff argues that it was done intentionally or at least recklessly.
The plaintiff also asserts that Cititrust was responsible for determining Armstrong's net asset value, based on a monthly review of Armstrong's books and records. After reviewing the records, Cititrust issued monthly valuation reports stating Armstrong's net asset value. The plaintiff claims that all of the reports issued by Cititrust were false, and that Cititrust knew, or was reckless in not knowing, that the reports were false.
In denying the defendant's motion for summary judgment, the Court expresses no view on the ultimate viability of the plaintiff's claims. Although the odds against recovery may be great, the plaintiff is entitled to have the trier of fact decide the material issues of fact that exist.
4. Controlling Persons Doctrine: Control
The plaintiff claims that Cititrust and Citibank are controlling persons under Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t, and Section 15 of the Securities Act, 15 U.S.C. § 77o. The Court finds that summary judgment on the question of control is inappropriate.
Section 20(a) provides in pertinent part:
(a) Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
Section 15 of the Securities Act is substantially the same.[12]
*511 As previously indicated, three elements must be proved in order to establish statutory liability: (1) a primary violation, (2) scienter, and (3) control of the primary violator by the defendant. The first two elements have been discussed above, which leaves only the element of control to be considered.
Congress enacted the control provisions in order to impose liability on parties "who are in some meaningful sense culpable participants in the fraud perpetrated by controlled persons." Lanza v. Drexel, 479 F.2d at 1299. Congress wanted to ensure that a guilty party could not hide behind another person who was in reality being controlled. Congress did not want a controlling party to be able to benefit from another person's fraudulent conduct, while at the same time being insulated from liability. The standard for determining control is provided by Regulation:
The term "control" ... means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
17 C.F.R. § 230.405 (1984).
The plaintiff alleges that, as trustee, Cititrust had the power to influence and control the policies and activities of both Armstrong and Everest. The plaintiff also asserts that Citibank controlled Armstrong through stock ownership. The plaintiff alleges that Citibank owned a company called Securities Management Co., Ltd., which owned all of the voting shares of the Chase Selection Fund, Ltd. ("Chase"); according to the plaintiff, Chase owned 42% of Armstrong. Based on this chain of stock ownership, the plaintiff claims that Citibank controlled Armstrong.
There is disagreement, however, over what stock is in fact owned or controlled by whom. The defendants deny, for example, that Citibank controls Chase, arguing that Citibank has no equity position in Chase. These are questions of fact, however, and must therefore be resolved at trial.
Because conflicting inferences can be drawn from the information presented, it must be left to the trier of fact to determine whether or not the defendants had the power to control Armstrong and were culpable participants in the alleged fraud.
D. Pendant Claims
The plaintiff claims that the defendants are liable for the acts committed by Everest and Armstrong under the common law theory of fraud, and under the doctrine of respondeat superior.[13] The defendants' motion for summary judgment on both causes of action is denied, since the allegations previously recited indicate that there are genuine issues of fact to be resolved concerning the defendants' conduct, state of mind, and duty.
E. Plaintiffs Cross-Motion for Summary Judgment
In response to the defendants' motion for summary judgment, the plaintiff has cross-moved for summary judgment. As previously indicated, summary judgment is not appropriate where material facts are in issue and the evidence is such that conflicting inferences can be drawn. Summary judgment should be granted only if the record makes it clear that the adverse party cannot prevail on the record presented. See Phoenix Savings v. Aetna, 381 F.2d at 249.
That is not the situation here. There is sharp disagreement concerning the inferences to be drawn from the facts and circumstances set forth in the pleadings, affidavits and supporting documents. Although the plaintiff's claims concerning secondary liability are sufficient to withstand *512 the defendants' motion for summary judgment, it is far from clear that the plaintiff can actually prevail on those claims. Accordingly, the plaintiff's cross-motion for summary judgment is denied.
CONCLUSION
The plaintiff's motion for leave to amend the complaint to assert claims concerning secondary liability is granted. The defendants' motion for summary judgment is denied insofar as it pertains to secondary liability, and is granted in all other respects. The plaintiff's cross-motion for summary judgment is denied.
So ordered.
NOTES
[1] Specifically, the complaint alleges liability under Sections 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77q(a) (1982); Sections 10 and 15 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j, 78o (1982); Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5 (1984); Sections 17(e)(1) and 36 of the Investment Company Act ("Investment Company Act"), 15 U.S.C. §§ 80a-17(e)(1), 80a-35 (1982); Section 206 of the Investment Advisers Act ("Investment Advisers Act"), 15 U.S.C. § 80b-6 (1982); and the common law.
In addition, the plaintiff has made a motion for leave to amend the complaint to allege liability under Sections 12(2) and 15 of the Securities Act, 15 U.S.C. §§ 77l, 77o (1982); and Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t (1982).
[2] Armstrong, which was comprised of Armstrong Capital, S.A. and Armstrong Investors, S.A., invested in United States securities on behalf of foreign investors. Armstrong Capital, S.A. served as the conduit for investments in the United States. The Armstrong Fund was formed in 1969.
[3] As investment adviser to Armstrong, Everest managed, and had complete control of Armstrong's investment portfolio. The key figures at Everest were John Peter Galanis ("Galanis") and Akiyoshi Yamada ("Yamada"). Both were officers of Everest and had been the principal promoters of Armstrong.
[4] Hagopian was the president of Index Fund at the time, and he was the president and chairman of the plaintiffs investment adviser, Meridian Management Corporation.
[5] Accordingly, the plaintiff may file an amended complaint within 30 days of the date of this Opinion. The defendants may file an amended answer within 30 days after the filing of the amended complaint.
The plaintiff may amend the complaint to allege that Cititrust and Citibank are secondarily liable under Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b) (1982) and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1984); Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t (1982); Sections 12(2), 15 and 17(a) of the Securities Act, 15 U.S.C. §§ 77l, 77o, 77q (1982); and under the common law. See Plaintiffs Notice of Cross-Motion, dated July 14, 1983, at 1.
[6] The defendants moved for judgment on the pleadings with respect to all causes of action asserted by the plaintiff in the complaint, except for the plaintiff's cause of action for common law fraud.
The defendants also moved for summary judgment on all of the plaintiffs claims, except for the three claims that concern the Investment Advisers Act and the Investment Company Act. On those three claims, the defendants moved only for judgment on the pleadings. As discussed hereinafter, however, the plaintiff has no standing to bring an action against Cititrust or Citibank under either the Investment Company Act or the Investment Advisers Act. Therefore, it does not matter whether the motion to dismiss those three claims is treated as a motion for summary judgment or a motion for judgment on the pleadings; those claims must be dismissed as a matter of law under either Rule 12 or Rule 56.
[7] See infra note 1.
[8] It should be noted that in the complaint the plaintiff asserted claims against all of the defendants named in the action. Allegations concerning primary liability were not specifically or solely asserted against Cititrust and Citibank.
[9] Here again, the plaintiff has simply alleged in its complaint that "the defendants" are liable under § 36. The plaintiff did not specify which of the named defendants it is seeking to hold liable under this section. In terms of the current motion, the plaintiff did not specifically argue its claims under the Investment Company Act against Cititrust or Citibank.
[10] See Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t (1982) ("Section 20(a)"), and Section 15 of the Securities Act, 15 U.S.C. § 77o (1982) ("Section 15").
[11] Even if the plaintiff is able to prove that the defendants failed to provide adequate supervision, it may ultimately be determined at trial that the defendants' failure to supervise constituted negligence, but did not constitute reckless or intentional conduct, which, of course, is necessary to satisfy the scienter requirement. See Marbury Management v. Kohn, 629 F.2d at 710-11 (The court held that the defendants had not acted intentionally or recklessly even though the circumstances indicated that there had been inadequate supervision and lax control by the defendants.); see also Armstrong v. McAlpin, 699 F.2d at 91 (The court noted that "[i]naction on the part of the alleged aider and abetter ordinarily should not be treated as substantial assistance, except when it was designed intentionally to aid the primary fraud or it was in conscious or reckless violation of a duty to act.").
Since, however, it cannot be said as a matter of law that the defendants did not act intentionally or recklessly, resolution of the issue must be reserved for the trier of fact.
[12] Section 15 provides:
Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under sections 77k or 77l of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
[13] The plaintiff may assert claims under both Section 20(a) and the doctrine of respondeat superior. The second circuit has held that Section 20(a) was not intended to supplant the doctrine of respondeat superior. See Marbury Management v. Kohn, 629 F.2d at 712-16. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/819310/ | Slip Op. 01 - 85
UNITED STATES COURT OF INTERNATIONAL TRADE
- - - - - - - - - - - - - - - - - - -x
NORTH AMERICAN FOREIGN TRADING CORP.,:
Plaintiff, :
v. : Court Nos. 81-09-01205-S-1
82-04-00531-S
: 85-04-00470
THE UNITED STATES, 88-02-00074
:
Defendant.
:
- - - - - - - - - - - - - - - - - - -x
Memorandum
[Upon cross-motions, summary judgment
in part for the defendant.]
Decided: July 10, 2001
Fitch, King & Caffentzis (Richard C. King) for the plaintiff.
Stuart E. Schiffer, Acting Assistant Attorney General, Joseph
I. Liebman, Attorney in Charge, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice (James A. Curley); and Office
of the Assistant Chief Counsel, U.S. Customs Service (Karen P.
Binder and Edward N. Maurer), of counsel, for the defendant.
AQUILINO, Judge: By stipulation dated December 2000, the
parties agreed (with the consent of the court) to add action No.
82-04-00531-S to the above-numbered matters encompassing issues
left over from a generation of protest and litigation involving
sundry timepieces designed to track Earth's rotation into this 21st
century, if not diminish or avoid the reach of the Tariff Act of
1930, as amended. E.g., Texas Instruments Inc. v. United States,
Court No. 81-09-01205-S-1 etc. Page 2
82 Cust.Ct. 272, C.D. 4810, 475 F.Supp. 1183 (1979), aff'd, 67 CCPA
59, C.A.D. 1244, 620 F.2d 269 (1980); Texas Instruments Inc. v.
United States, 82 Cust.Ct. 287, C.D. 4811, 475 F.Supp. 1193 (1979),
aff'd, 67 CCPA 57, C.A.D. 1243, 620 F.2d 272 (1980); Texas
Instruments Inc. v. United States, 1 CIT 236, 518 F.Supp. 1341
(1981), aff'd, 69 CCPA 136, 673 F.2d 1375 (1982); Belfont Sales
Corp. v. United States, 11 CIT 541, 666 F.Supp. 1568 (1987), reh'g
denied, 12 CIT 916, 698 F.Supp. 916 (1988), aff'd, 878 F.2d 1413
(Fed.Cir. 1989); Marcel Watch Co. v. United States, 16 CIT 474, 795
F.Supp. 1199 (1992), aff'd, 11 F.3d 1054 (Fed.Cir. 1993); World
Forum Watch, Ltd. v. United States, 20 CIT 890, reh'g denied, 20
CIT 1205 (1996), rev'd, 121 F.3d 727 (Fed.Cir. 1997).
Horologically, the goods at bar in these four actions, which remain
predicated upon entries into the United States many moons ago, are
"clocks" rather than "watches".
I
Plaintiff's complaint in the first-numbered action, for
example, was that all of its merchandise was properly classified
under item 688.45 of the Tariff Schedules of the United States
("TSUS") ("Electrical articles and electrical parts of articles,
not specially provided for . . . Other . . . . . . 5.3% ad val.")
as opposed to the classification by the U.S. Customs Service under
TSUS Schedule 7, including item 715.15 ("Clocks: With watch
movements; or with clock movements measuring less than 1.77 inches
in width"), with the rates of duty 12.7 percent ad valorem on the
Court No. 81-09-01205-S-1 etc. Page 3
casing plus 36 cents on the movements. In addition to standing by
this Customs classification, defendant's answer asserts four
"contingent counterclaims" and a "fifth contingent claim" under
TSUS items 715.15, 720.06 and 720.34; 715.15, 720.14 and 720.34;
715.31; or 715.51; or 678.50 "[i]f the Court finds that the
imported merchandise was not correctly classified under items
760.05, 774.55 and 715.15, TSUS"1.
Subsequent to the commencement of the above-listed
actions and to such joinder of issue, the courts in Marcel Watch
Co. v. United States, supra, resolved the electric/tronic-clocks-
classification controversy essentially in the government's favor --
in contrast with their decisions in the protracted controversy over
imported electronic wristwatches at issue, for example, in Belfont
Sales Corp. v. United States, supra. In fact, that watch action
was pleaded as a predicate to plaintiff's complaints herein.2 That
judicial settlement of issues has brought forth a motion by the
defendant for summary judgment, praying that plaintiff's complaints
be dismissed; that its second contingent counterclaim be granted3;
1
Defendant's Answer in Court No. 81-09-01205-S-1, p. 2. The
effect of grant of one or more of these alternative, contingent
counterclaims would be to increase the duties owed by the
plaintiff.
2
See, e.g., plaintiff's complaint in Court No. 81-09-01205-S-
1, paras. 15, 16.
3
The "United States concedes that the movement should not be
classified under item 720.02, but rather . . . under 720.14, TSUS,
the second alternative classification asserted in the counterclaim
in its answer." Defendant's Brief, p. 4.
Court No. 81-09-01205-S-1 etc. Page 4
that the subject clocks, including their movements and cases be
reliquidated under TSUS items 715.15, 720.14 and 720.34; and that
plaintiff pay to the defendant the increase in duty
assessed upon reliquidation of the imported merchandise
which is subject to the counterclaim, including interest
in accordance with 28 U.S.C. § 1961(a) and (b), from the
dates the answers asserting the counterclaims were filed
until the date the duties are paid . . ..
The motion is accompanied by an obligatory statement of facts as to
which the movant contends there is no genuine issue to be tried.
It represents, in pertinent part:
1. The imported merchandise . . . . consists of a
quartz analog clock, two ball-point pens, and a stand
that has holders for the pens and a slot into which the
clock may be inserted. The clock may be removed from the
holder and used separately.
2. Each of these three elements of the merchandise
retains its separate name, use, and character in the
imported merchandise and is not subordinated to the
identity of the combination.
3. Each of these three elements is classifiable
separately.
* * *
9. Only the clock portion of the imported mer-
chandise is in issue in this case.
10. The clock portion of the merchandise contains a
movement measuring less than 1.77 inches in width and
more than one-half (0.5) inch in thickness. The movement
is a clock movement for tariff purposes.
11. The value of the movement is over $2.25 but not
over $5 each.
12. The movement is neither "Constructed or designed
to operate for over 47 hours without rewinding" nor "Not
constructed or designed to operate for over 47 hours
without rewinding," within the meaning of the superior
headings to items 720.06 through 720.09 and 720.02
through 720.04, TSUS, respectively.
Court No. 81-09-01205-S-1 etc. Page 5
13. If imported separately, the movement would be
properly classifiable as other clock movements, valued
over $2.25 but not over $5, under item 720.14, TSUS,
dutiable at 34 cents each plus 14.8% ad val., plus 5.7
cents for each jewel, if any.
14. The case is a clock case and, if imported
separately, would be properly classifiable as "Clock
cases . . . Other . . . Other" under item 720.34, TSUS,
dutiable at 12.7% ad val.
15. The clock portion of the merchandise (including
the case) is dutiable at 34 cents each plus 14.8% ad
val., plus 5.7 cents for each jewel, in the movement,
plus 12.7% ad val. for the case.
The plaintiff responds with a cross-motion for summary
judgment,
dismissing Court No. 85-04-00470, and overruling
defendant's claims for pre-judgment interest as to all
entries; and further ordering that entries 80-135546, 80-
135693, 80-135929, and 81-782106 . . . be reliquidated
. . . with duties on the "movements" under Item 720.14,
TSUS, at 34¢ each plus 14.8% ad val., as claimed by
defendant.
The plaintiff admits paragraphs 1 through 14 of Defendant's
Statement of Facts Not in Dispute, quoted in part above, and offers
the following factual averments of its own:
15. Entry 81-179819, dated 4/16/81, was liquidated
on 6/11/82, more than one year after entry, and timely
protested under protest 1001-2-009191.
16. The same entry was subsequently protested under
protest 1001-2-009820, which also covered the same
category of merchandise (pens) as was covered by the
first protest, 1001-2-009191.
17. Protest 1001-2-009191 was approved, and the
entry was reliquidated on 4/25/83.
18. No further protest was filed subsequent to the
reliquidation.
Court No. 81-09-01205-S-1 etc. Page 6
19. Summons No. 85-04-00470 was filed against the
second protest.
Plaintiff's Statement of Material Facts Not in Dispute. Paragraphs
18 and 19 are admitted by the defendant without reservation;
paragraph 17 is admitted, subject to the claim that the only
category of merchandise covered by the specified protest was pens,
while defendant's admission of paragraph 16 is conditioned upon an
averment that the second numbered protest covered categories in
addition to pens, including quartz clocks, movements and cases.4
Finally, the defendant denies that entry 81-179819 was liquidated
more than one year after entry5, and it proffers more facts. See
generally Defendant's Additional Statement of Material Facts Not in
Dispute.
A
This court has perused the foregoing submissions and the
written legal arguments presented in conjunction therewith and
concurs in the parties' fundamental position that the above-listed
actions are now susceptible to disposition by summary judgment.
That is, there are no material facts as to which there exists a
genuine issue to be tried within the meaning of CIT Rule 56(h), as
amended January 25, 2000.
The court's jurisdiction to decide the cross-motions is
pursuant to 28 U.S.C. §§ 1581(a) and 2631(a).
4
See Defendant's Response to Plaintiff's Statement of
Material Facts Not in Dispute.
5
See id., para. 15.
Court No. 81-09-01205-S-1 etc. Page 7
II
To address plaintiff's motion first, in the light of
Marcel Watch Co. v. United States, supra, the court concurs that
entries 80-135546, 80-135693, 80-135929, 80-711255, 81-179819 and
81-782106, which form the basis of three of the numbered actions
herein, can be reliquidated under items 715.15, 720.14 and 720.34
of the TSUS in effect on their respective dates.
As for the fourth-numbered action, the plaintiff takes
the position that this court "has no jurisdiction over Court No.
85-04-00470, covering protest 1001-2-009820"6 since it claims to
have filed two protests for entry no. 81-179819 for the same
category of merchandise. Its first protest was approved and led to
a refund of duties paid on pens. Plaintiff's second protest,
concerning the classification of the imported articles in their
entirety, was denied. The plaintiff now argues that the second
protest was invalid because it involved the same merchandise as the
first. See Plaintiff's Memorandum, pp. 2-3. The governing statute
provided that only
one protest may be filed for each entry of merchandise,
except that where the entry covers merchandise of
different categories, a separate protest may be filed for
each category.
6
Plaintiff's Memorandum, p. 2. Plaintiff's complaint
requested reliquidation of any movements at 5.3 percent ad valorem,
a lower rate than that liquidated initially (36¢ each). However,
the holding in Marcel Watch Co. v. United States, 16 CIT 474, 795
F.Supp. 1199 (1992), aff'd, 11 F.3d 1054 (Fed.Cir. 1993), favors
reliquidation at 34 cents each plus 14.8 percent ad valorem -- or
more than that already paid. If the court's jurisdiction has not
attached to the entry in question, of course it could not direct
Customs to reliquidate at the higher rate.
Court No. 81-09-01205-S-1 etc. Page 8
19 U.S.C. §1514(c)(1). See also Webcor Electronics v. United
States, 79 Cust.Ct. 137, 442 F.Supp. 95 (1977). Hence, while two
protests may not be filed for the same category of merchandise, "it
is clear that [the statute] permits importers to file separate
protests where the entry covers merchandise of different
categories". Minox Corp. d/o Berkey Photo, Inc. v. United States,
77 Cust.Ct. 110, 111 (1976).
The defendant points out that the approved first protest
was only for the "refund of duty paid on pens . . . manufactured in
the U.S.A.". Defendant's Additional Statement of Material Facts
Not in Dispute, para. 18, quoting Protest No. 1001-2-009191 (Aug.
24, 1982). The protest referred to in Court No. 85-04-00470 does
not involve duties levied on those American pens. Instead, it
states:
Protest is hereby made against your classification
and assessment of duties on quartz clocks under item
715.15, TSUS, with duty on the "movements" at the rate of
34¢ each under item 720.02, TSUS, or on "cases" at the
rate of 11% ad val. under item 720.34, TSUS, or on pens
at the rate of 1.7¢ each + 11.5% ad val.
Protest No. 1001-82-009820 (Sept. 9, 1982). While the second pro-
test does refer to the pens, it is evident from the complaint in
Court No. 85-04-00470 that the controversy is over the
classification of the clocks. That is, the court cannot and
therefore does not find that the second protest duplicated the
first one. Accordingly, the court concludes that the second
protest was properly filed, and jurisdiction pursuant to 28 U.S.C.
§§ 1581(a) and 2631(a) has therefore attached.
Court No. 81-09-01205-S-1 etc. Page 9
III
The plaintiff argues that the award of prejudgment
interest to the government upon reliquidation would be improper
since statutory amendments providing for such interest were not
enacted until after the entries had been filed, liquidated and
protested. It also claims that it has not incurred any contractual
liability which would necessitate an award of such interest.
The defendant responds that an award of prejudgment
interest would be appropriate for two reasons: (a) although the
plaintiff was notified of defendant's expectation of additional
duties and interest on the clocks when the answers with
counterclaims were served and filed and their correct
classification was decided by Marcel Watch Co., supra, the
plaintiff did not timely acquiesce under those circumstances; and
(b), in the absence of an award, the plaintiff will have enjoyed an
interest-free loan on the difference in duties due on its entries.
See Defendant's Opposition to the Cross-Motion for Summary
Judgment, and Reply Brief in Support of Its Motion for Summary
Judgment, p. 5.
It is well-settled that, in the absence of statutory
authority, prejudgment interest may be awarded in the sound
discretion of the court. E.g., United States v. Imperial Food
Imports, 834 F.2d 1013, 1016 (Fed.Cir. 1987); Rheem Metalurgica
S.A. v. United States, 21 CIT 963, 966, 978 F.Supp. 333, 336
(1997), aff'd, 160 F.3d 1357 (Fed.Cir. 1998). Typically, such
Court No. 81-09-01205-S-1 etc. Page 10
awards have been governed by considerations of equity and fairness.
See, e.g., United States v. Imperial Food Imports, 834 F.2d at
1016, quoting United States v. Goodman, 6 CIT 132, 140, 572 F.Supp.
1284, 1289 (1983). When the amount of damages has been uncertain,
however, courts have denied that kind of an award. See, e.g.,
Eastern Air Lines, Inc. v. Atlantic Richfield Co., 712 F.2d 1402,
1410 (Temp.Emer.Ct.App.), cert. denied, 464 U.S. 915 (1983).
The classification of the kind of clocks herein remained
genuinely controverted at least until the final appeal in the
linchpin case Marcel. And the plaintiff did alter its approach to
focus on its procedural stance unrelated to its classification
claim once the court of appeals had concluded that substantive
matter. And the defendant now admits to having misclassified the
movement(s). In short, in the interest of laying this potentially-
eternal litigation equitably to rest, given the shortcomings of
record on all sides the court declines to exercise its prerogative
of awarding any prejudgment interest at this time.
IV
In light of the foregoing, defendant's motion for summary
judgment should be granted to the extent that all of the entries at
issue herein be reliquidated under TSUS items 715.15, 720.14 and
720.34. Judgments will enter accordingly.
Decided: New York, New York
July 10, 2001
________________________________
Judge
Slip Op. 01-85 Errata
North American Foreign Trading Corp. v. United States
Court No. 81-09-01205-S-1 etc.
The word "classified" at the end of line 17 on page 2
should better be "classifiable".
Delete "81-179819" from line 3 on page 7.
Change the protest number in line 21 on page 8 to 1001-
2-009820.
Dated: New York, New York
July 11, 2001 | 01-03-2023 | 02-05-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/819311/ | Slip Op. 01-84
UNITED STATES COURT OF INTERNATIONAL TRADE
Before: Judge Judith M. Barzilay
_________________________________________ x
KRUPP THYSSEN NIROSTA GMBH and :
KRUPP HOESCH STEEL PRODUCTS, INC.
Plaintiffs, :
Court No. 99-08-00550
v. : Public Version
UNITED STATES, :
Defendant
:
and
:
ALLEGHENY LUDLUM CORP., ET AL.,
Defendant-Intervenors. :
_________________________________________ x
[Plaintiffs’ Motion for Judgment Upon an Agency Record denied in part, remanded in part.]
Decided: July 9, 2001
Hogan & Hartson, LLP, Lewis E. Leibowitz, (T. Clark Weymouth), Craig A. Lewis, for Plaintiffs.
Stuart E. Schiffer, Acting Assistant Attorney General, United States Department of Justice; David
M. Cohen, Director, Commercial Litigation Branch, Civil Division (Velta A. Melnbrencis);
Mildred E. Steward, Attorney, Office of the Chief Counsel for Import Administration, Department
of Commerce, of counsel, for Defendant.
Collier Shannon Scott, PLLC, David A. Hartquist, (Jeffrey S. Beckington), Adam H. Gordon, for
Defendant-Intervenors.
OPINION
BARZILAY, JUDGE:
I. INTRODUCTION
The court reviews the Department of Commerce’s (“Commerce” or “Department”)
Remand Determination in Stainless Steel Sheet and Strip in Coils from Germany (“Remand
Court No. 99-08-00550 Page 2
Determination”). This case originated pursuant to Plaintiffs’ USCIT R. 56.2 Motion for
Judgment Upon the Agency Record. In Krupp Thyssen Nirosta GmbH and Krupp Hoesch Steel
Products, Inc. v. United States, Slip Op. 00-89, 25 CIT __ (2000), 2000 WL 1118114 (“Krupp I”),
the court examined Plaintiffs’ challenge to certain aspects of the Final Determination of the
Department of Commerce’s International Trade Administration in the antidumping investigation
of stainless steel sheet and strip from Germany. See Final Determination of Sales at Less Than
Fair Value; Stainless Steel Sheet and Strip in Coils From Germany, 64 Fed. Reg. 30710 (June 8,
1999), as amended, 64 Fed. Reg. 40557 (July 27, 1999) (“Final Determination”). The court
remanded the case back to Commerce for reconsideration and redetermination pursuant to the
court’s instructions in Krupp I. The court exercises jurisdiction pursuant to 28 U.S.C. § 1581(c)
(1994) which provides for judicial review of a final determination by an administering authority or
commission in accordance with the provisions of 19 U.S.C. § 1516a(a)(2)(B)(i) (1994).
II. BACKGROUND
Familiarity with the facts presented in Krupp I is presumed; however, a brief summation is
necessary to properly delineate the pending issues. Krupp Thyssen Nirosta GmbH (“KTN”) is a
German producer of stainless steel and Krupp Hoesch Steel Products, Inc. (“KHSP”) is KTN’s
United States sales affiliate. KTN was a subsidiary of Krupp Thyssen Stainless (“KTS”). KTS, in
turn, was a joint venture holding company owned by two German steel manufacturers, Krupp AG
Hoesch-Krupp (“Krupp”) and Thyssen Stahl Ag (“Thyssen”). Krupp owned sixty percent of KTS
and Thyssen owned forty percent. Thyssen also owned resellers in Germany (“German
Resellers”) and in the United States (“USR”). KTN sold the subject merchandise in Germany
directly from its factory and inventory through a KTN-affiliated service center specializing in
Court No. 99-08-00550 Page 3
resale of second quality stainless products and through the German Resellers. KTN sold the
subject merchandise in the United States through KHSP, USR and two other Thyssen-owned
importers. Commerce requested that KTN answer its standard dumping questionnaire, which
asked, inter alia, that KTN report all sales (“downstream sales”) by affiliated customers to the
first unaffiliated customer in both the United States and Germany. KTN supplied information for
USR but failed to supply downstream sales data for the German Resellers. Commerce found that
KTN failed to act to the best of its ability and applied partial adverse facts available as a surrogate
for the missing sales data so that it could compute the dumping margin. Final Determination at
30726-27. Additionally, in the Final Determination, Commerce rejected the data KTN provided
for USR. Commerce determined that KTN failed to cooperate to the best of its ability because it
failed to ensure the accuracy of USR’s sales data prior to verification. See id. at 30739.
Therefore, Commerce rejected USR’s sales data entirely and applied total adverse facts available
as a surrogate for USR’s sales data.
This court ordered on remand that Commerce (1) explain why the adverse facts used as
surrogate sales data for Plaintiffs’ affiliated German resellers were rationally related to KTN’s
sales and were not unduly harsh or punitive, (2) demonstrate why its rejection of USR’s cost and
sales data and use of adverse facts available was supported by substantial evidence, (3) point to
substantial evidence demonstrating that KTN had the ability to run checks to discover and correct
the errors in its cost and sales data prior to verification, (4) explain why the allocation
methodology for USR’s sales of unknown origin was not unduly harsh or punitive, (5) explain its
decision not to deduct movement and selling expenses from USR’s gross selling price prior to
applying adverse facts, and (6) exclude USR’s sales of non-subject merchandise from the margin
Court No. 99-08-00550 Page 4
calculation as it had agreed to do after publication of the final administrative determination.
III. STANDARD OF REVIEW
The court must evaluate whether the remand findings are supported by substantial
evidence on the record or otherwise in accordance with law. See 19 U.S.C. § 1516a(b)(1)(B).
“Substantial evidence is more than a mere scintilla;” it is “such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.” Consolidated Edison Co. of New York v.
NLRB, 305 U.S. 197, 229 (1938); Matsushita Elec. Indus. Co., Ltd. v. United States, 750 F.2d
927, 933 (Fed. Cir. 1984). This court noted, “[i]n applying this standard, the court affirms [the
agency's] factual determinations so long as they are reasonable and supported by the record as a
whole, even if there is some evidence that detracts from the agency’s conclusions.” Olympia
Indus., Inc. v. United States, 22 CIT __, __, 7 F. Supp. 2d 997, 1000 (1998) (citing Atlantic Sugar,
Ltd. v. United States, 744 F. 2d 1556, 1563 (Fed. Cir. 1984)). The court may not re-weigh the
evidence or substitute its own judgment for that of the agency. See Granges Metallverken AB v.
United States, 13 CIT 471, 474, 716 F. Supp. 17, 21 (1989).
IV. DISCUSSION
A. GERMAN RESELLERS
As explained in Krupp I, “Commerce [is] required to compare the U.S. prices of the
subject merchandise to the prices (‘normal value’) for the same or similar merchandise in the
home market.” Mannesmannrohren-Werke AG & Mannesmann Pipe & Steel Corp. v. United
States, 23 CIT __, __, 77 F. Supp. 2d 1302, 1304 (1999) (citations omitted) (“Mannesmann”). To
facilitate this process, Commerce requests information from the parties, in particular sales price
data, to make the required comparison. If a party fails to cooperate with the requests, Commerce
Court No. 99-08-00550 Page 5
may use adverse facts otherwise available on the record as a surrogate for the missing information.
See 19 U.S.C. § 1677e(b) (1994).1 In this instance, KNT did not provide price data for the
downstream sales to its affiliated German resellers. Commerce, therefore, used “the ‘highest NV
[normal value] reported by control number’ for ‘KTN’s and NSC’s sales to its affiliates for which
1
The relevant part of 19 U.S.C. § 1677e provides:
(a) In general
If-
(1) necessary information is not available on the record, or
(2) an interested party or any other person--
(A) withholds information that has been requested by the
administering authority or the Commission under this subtitle,
(B) fails to provide such information by the deadlines for
submission of the information or in the form and manner
requested, subject to subsections (c)(1) and (e) of section 1677m
of this title,
(C) significantly impedes a proceeding under this subtitle, or
(D) provides such information but the information cannot be
verified as provided in section 1677m(i) of this title, the
administering authority and the Commission shall, subject to
section 1677m(d) of this title, use the facts otherwise available in
reaching the applicable determination under this subtitle.
(b) Adverse Inferences
If the administering authority or the Commission (as the case may be) finds that
an interested party has failed to cooperate by not acting to the best of its ability to
comply with a request for information from the administering authority or the
Commission, the administering authority or the Commission (as the case may be),
in reaching the applicable determination under this subtitle, may use an inference
that is adverse to the interests of that party in selecting from among the facts
otherwise available. Such adverse inference may include reliance on information
derived from-
(1) the petition,
(2) the final determination in the investigation under this subtitle,
(3) any previous review under section 1675 of this title or determination
under section 1675b of this title, or
(4) any other information placed on the record.
Court No. 99-08-00550 Page 6
KTN did not report home market downstream sales.’” Krupp I at *4 (citing Final Determination,
64 Fed. Reg. at 30728). As determined by this Court in Krupp I, the use of adverse facts for the
missing German reseller sale data was supported by substantial evidence, but Commerce was
asked to show that the adverse facts used were rationally related to sales, indicative of customary
selling practices, and not unduly harsh or punitive.
Plaintiffs contend that Commerce has not offered any new evidence in the Remand
Determination to support its decision to use the highest normal value (“NV”) reported by the
control group. Commerce argues that its choice to use the respondent’s own sales best reflects the
company’s normal sales practices. Additionally, Commerce offers that it applied the adverse facts
based on (1) above-cost sales made at arm’s-length prices, (2) in the ordinary course of trade, (3)
in the home market, and (4) on a model-specific basis. Commerce argues that the adverse facts it
selected best reflect the customary selling practices for each specific product. In evaluating the
parties’ competing claims the court is guided by the language of the Federal Circuit’s holding in
F. LII De Cecco di Filippo Fara S. Martino S.p.A v. United States, 216 F.3d 1027 (Fed. Cir.
2000). In De Cecco, the Court of Appeals interpreted Commerce’s discretion in using adverse
facts against uncooperative parties.
In the case of uncooperative respondents, the discretion granted by the statute
appears to be particularly great, allowing Commerce to select among an
enumeration of secondary sources as a basis for its adverse factual inferences. See
19 U.S.C. § 1666e(b). . . .
Particularly in the case of an uncooperative respondent, Commerce is in the best
position, based on its expert knowledge of the market and the individual
respondent, to select adverse facts that will create the proper deterrent to non-
cooperation with its investigations and assure a reasonable margin. Commerce’s
discretion in these matters, however, is not unbounded.
Court No. 99-08-00550 Page 7
De Cecco, 216 F.3d at 1032.
The court holds that here Commerce has shown the prices it selected as adverse facts were
rationally related to sales and indicative of customary selling practices. Commerce selected
KTN’s own sales data as a surrogate for the missing data of the downstream German resellers.
This information is rationally related to sales because it is derived from KTN’s actual sales
figures. Commerce used the NV figures that KTN provided for its above-cost sales made at
arm’s-length. These sales represented common products sold during the period of investigation
by companies similarly situated to the German resellers and accurately reflect the prices KTN was
able to charge within its home market. Additionally, Commerce applied the adverse facts on a
model-specific basis which ensured the selling price was customary for each specific product.
Commerce used its discretion appropriately in choosing these elements of KTN’s own sales data
to substitute for the missing information from its German resellers.
Commerce used the highest NV per control number (which related to a specific grade and
size of coil) in KTN’s or NSC’s databases. Plaintiffs argue that the use of this adverse sales data
dramatically impacted the dumping margin. The missing information represented only [ ] of
total sales, but increased the overall weighted margin by [ ]. Therefore, Plaintiffs claim that a
relatively small proportion of sales drastically increased the total weighted margin.
Although the adverse facts selected must be rationally related to sales, indicative of
customary selling practices, and not unduly harsh or punitive, the court acknowledges that the
selection of adverse facts against non-cooperative parties must also serve as a deterrent for
withholding data in future proceedings. National Steele Corp. v. United States, 20 CIT 100, 103,
913 F. Supp. 593, 596 (1996) (citing Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1191
Court No. 99-08-00550 Page 8
(Fed. Cir. 1990)). In De Cecco, the court stated:
[i]t is clear from Congress’s imposition of the corroboration requirement in 19
U.S.C. § 1677e(c) that it intended for an adverse facts available rate to be a
reasonably accurate estimate of the respondent’s actual rate, albeit with some built-
in increase intended as a deterrent to non-compliance. . . . Obviously a higher
adverse margin creates a stronger deterrent, but Congress tempered deterrent value
with the corroboration requirement. It could have only done so to prevent the
petition rate (or other adverse inference rate), when unreasonable, from prevailing
and to block any temptation by Commerce to overreach reality in seeking to
maximize deterrence.
De Cecco, 216 F.3d at 1032. Commerce explains that it could have used the highest absolute
price or third party data as a surrogate for the missing German Reseller information. However,
Commerce chose Plaintiffs’ own data instead.
[T]he Department did not use a more adverse facts available approach which
would have assigned the absolute highest home market sale price of any product to
all other varying product types. Neither did the Department rely upon third party
data, such as the petition, as a source of facts available. Instead, the Department
has applied to unreported sales only prices which the respondent itself has applied
to its sales under customary selling practices.
Remand Determination at 7. Although Commerce cannot prove that the adverse facts it selected
are not unduly harsh or punitive simply by stating that they could have chosen to use data more
adverse to Plaintiffs, the use of the highest NV figures illustrates Commerce’s attempt to ensure
that the surrogate data was most closely related to the missing information while simultaneously
attempting to deter non-compliance. In striking this balance, Commerce applied adverse facts
based on Plaintiffs’ own reported sales figures and on a model match test basis. Although
Commerce used the highest NV for the control group, the values used were product-specific and
had to meet the match test criteria. Commerce explains the methodology it used and illustrated
the impact that the adverse facts selected had on the dumping margin.
Court No. 99-08-00550 Page 9
Of the total number of reported home market sales ([ ]), a total of [ ] sales
passed the Department’s model match test (this means the remaining [ ] were
therefore not used in our calculations). These [ ] “matching home market sales”
comprise the [ ] matching sales to which facts available were applied and the
remaining [ ] matching sales which did not receive any facts available. The
Department’s application of adverse facts available to the sub-group of [ ] sales
raised the normal value of the collective [ ] matching sales by [ ] percent.
Remand Determination at 9 n.11.
Commerce applied adverse facts only to a small subgroup of the sales used to calculate the
dumping margin. The net effect of Commerce’s application of adverse facts available was to raise
the average sales price by [ ]. However, Commerce’s use of the adverse facts resulted only in
an additional [ ] increase in the dumping margin. This slight increase and the close relationship
between the adverse facts used and Plaintiffs’ customary sales establishes that Commerce
achieved the balance sought by section 19 U.S.C. § 1677e(b). Therefore, the court finds that the
adverse facts selected and used by Commerce were not unduly harsh or punitive.
B. USR
On remand, the court asked Commerce to point to substantial evidence to sustain (1) its
rejection of the USR’s entire database, (2) its finding that KTN had the ability, prior to
verification, to discover the computer errors that caused the mistakes in the further manufacturing
data base, (3) its adverse inference concluding that KTN could have checked the further
manufacturing cost data, and (4) the use of adverse facts available for USR’s cost and sales data.
Additionally, Commerce was asked to explain its allocation methodology for the sales of
unidentified origin and its decision not to deduct movement and selling expenses from gross unit
prices.
Court No. 99-08-00550 Page 10
1. Rejection of USR’s Entire Data Base
During an antidumping investigation, failure of a party to respond completely or comply
with a request for information may result in Commerce’s rejecting the party’s supplied
information.2 Commerce requested that Plaintiffs provide cost and sales data information that was
vital to the antidumping investigation because the information was to be used to compare home
market prices to export prices. In determining the export price or constructed export price
Commerce must make adjustments in accordance with 19 U.S.C. § 1677a(d).3
2
19 U.S.C. § 1677m(d) provides:
[i]f the administering authority or the Commission determines that a response to a
request for information under this subtitle does not comply with the request, the
administering authority or the Commission (as the case may be) shall promptly
inform the person submitting the response of the nature of the deficiency and
shall, to the extent practicable, provide that a person with an opportunity to
remedy or explain the deficiency in light of the time limits established for the
completion of investigations or reviews under this subtitle. If that person submits
further information in response to such deficiency and either –
(1) the administering authority or the Commission (as the case may be)
finds that such response is not satisfactory, or
(2) such response is not submitted within applicable time limits,
then the administering authority or the Commission (as the case may be) may,
subject to subsection (e) of this section, disregard all or part of the original and
subsequent responses.
3
Section 1677a(d) states:
(d) Additional adjustments to constructed export price
For the purposes of this section, the price used to establish constructed
export price shall also be reduced by --
(1) the amount of any of the following expenses generally incurred by or
for the account of the producer or exporter, or the affiliated seller in the
Court No. 99-08-00550 Page 11
Plaintiffs argue that Commerce has not complied with the court’s Remand Order.
Plaintiffs contend “Commerce merely restated the same reasoning it articulated in the Final
Determination.” Pls.’ Comments on the Results of Redetermination Pursuant to Remand and Br.
in Supp. of Mot. for J. Upon the Agency R. at 9 (“Pls.’ Br.”). Plaintiffs further argue that the
errors were minor and that most of the cost data was verified or verifiable. Furthermore, Plaintiffs
believe that Commerce has failed to substantiate that the minor errors in the cost data
contaminated USR’s sales data.
Commerce contends that the cost and sales information that Plaintiffs supplied was not
capable of being verified. Commerce argues that a logic flaw in the computer program Plaintiffs
used to produce its cost and sales data caused the errors found during verification. Commerce
asserts that Plaintiffs’ reliance on its “integrated” computer system produced erroneous cost data
that was then merged directly into the sales data. Additionally, because Plaintiffs did not “provide
the linking variable that would tie each further manufactured product in the U.S. to the product(s)
as imported. . . . Commerce, was obligated to rely upon the integrated cost and sales database”
and could not “correct” the errors in the computer program. Def.’s Mem. in Opp’n to Pls.’ Mot.
for Summ. J. Upon the Agency R. at 9-10. (“Def.’s Br.”). Therefore, because the errors affected
the sales and cost data, Commerce could neither properly match home market sales to U.S. sales
nor accurately construct the export price.
United States, in selling the subject merchandise (or subject merchandise
to which value has been added)--
...
(2) the cost of any further manufacture or assembly (including additional
material and labor), except in circumstances described in subsection (e) of
this section;. . . .
Court No. 99-08-00550 Page 12
a. Cost Data
The only costs reported by USR were the further manufacturing costs. See Section E
Resp., Conf. Doc. 36 (November 16, 1998 ) (“Section E Resp."). The amount delineated as total
further manufacturing cost (“FURMANU”) is the compilation of many cost fields and sub-cost
fields. For instance, it includes further manufacturing costs (“FURCOM”), further manufacturing
general costs (“FURGNA”), and further manufacturing interest (“FURINT”). FURCOM, in turn,
is comprised of three sub-costs, two of which, further manufacturing labor (“FURLAB”) and
further manufacturing overhead (“FURFOH”), could not be verified as -- Plaintiffs concede.
Thus, FURCOM remains unverified and may be inaccurate. The inaccuracy in the FURCOM
field created systemic errors throughout the cost data base because FURCOM is used to derive
both FURGNA and FURINT.
As illustrated, the errors in the FURCOM cost data field and its sub-cost data created
errors that affected the entire cost data base, even though the actual errors appeared in only a few
fields, because several of the conglomerate cost fields were contingent on erroneous information.
Therefore, Commerce’s determination to reject the cost database was supported by substantial
evidence.
b. Sales Data
Section 1677a(d)(2) requires that Commerce deduct the cost of any further manufacture
from the USR’s sales price to its first unaffiliated customer in the United States to calculate the
constructed export price (“CEP”). The CEP is critical in the dumping margin calculation because
CEP must be compared to NV in order to calculate an accurate dumping margin. As described
above, computer errors corrupted the data reflecting total further manufacturing costs. Clearly, if
Court No. 99-08-00550 Page 13
the total further manufacturing costs are erroneous, then the resulting CEP will also be erroneous.
Plaintiffs argue that “the further manufacturing cost data is used as one of several adjustments to
CEP, and its impact on the dumping calculation is relatively minor.” Pls.’ Br. at 13.
Additionally, Plaintiffs argue that Commerce’s reliance on a prior case involving steel wire rod
from Germany is misplaced and “highlights the extreme position that Commerce has taken in this
case.” Id. (citing Notice of Final Determination of Sales at Less Than Fair Market Value: Steel
Wire Rod from Germany, 63 Fed. Reg. 8953 (Feb. 23, 1998) (“Steel Wire Rod from Germany”)).
The court is not persuaded by Plaintiffs’ argument. In Steel Wire Rod from Germany,
Commerce rejected the respondent’s sales data base because errors in the cost of production
database affected the NV calculation. Although in this instance the errors are in the further
manufacturing data and affect the CEP calculation, the rationale for rejecting the data remains
consistent. Plaintiffs’ attempt to illustrate that the errors are isolated inaccuracies minimizes the
widespread effect of the computer logic errors. It is not the number of errors that is the
determining factor, but the impact the errors have on the data. In this instance, the computer
programming errors were so systemic and pervasive that the inaccuracies affected the cost and
sales data and prevented Commerce from calculating an accurate CEP. As Commerce states in
the Remand Determination,
[w]hile the further manufacturing cost may only be a single field in the U.S.
Reseller’s sales data file (TOTFMG), its impact on the calculated CEP and,
therefore, the dumping margin, is significant. This is true because the TOTFMG
field is a direct reduction from the U.S. Reseller’s sales price to the first
unaffiliated customer in the United States in order to arrive at the CEP. As a
result, an error in this field will corrupt the resulting CEP that is compared to NV
to calculate the dumping margin.
Remand Determination at 20. Plaintiffs’ decision not to provide a linking variable compounded
Court No. 99-08-00550 Page 14
the problems caused by the faulty computer program. Plaintiffs stated:
the Company has provided the further processing costs in an integrated computer
file that also incorporates the specific transactions in which the processing costs
were incurred. Since the cost information is already merged with the sales data,
there is no need to provide a linking variable. Therefore, this field has been
omitted.
Section E Resp. at E-18. In essence, the linking variable requested by Commerce would have
allowed for proper matching of KTN’s home sales to identical or similar merchandise sold in the
United States.4 Since KTN provided integrated sales figures without accompanying linking
variables, further processed products were not properly compared to appropriate U.S. sales.
Additionally, the errors in the further manufacturing field dramatically impacted the sales data
because [ ] percent of KTN’s total USR’s sales underwent further manufacturing. Inaccurate
further manufacturing figures would distort the costs and sales data on the majority of USR’s
sales. The programming errors in the cost data also caused product classification problems.
The extent of the errors found in the cost database, particularly classifying a
product as further processed when, in fact, it received no further processing, or
assigning no further processing costs to a further manufactured product,
undermines the credibility of the data in their entirety, both sales and cost.
Consequently, neither the further manufacturing data nor the non-further
manufactured data can be deemed reliable for calculating the margin, since both
groups of sales are tainted by the programming errors.
Remand Determination at 21 (footnotes omitted). Furthermore, Commerce supports its decision
to reject the sales database because Plaintiffs failed to: (1) substantiate a sale trace at verification,
(2) properly classify non-prime merchandise, (3) identify supplier sales and supply model match
characteristics, and (4) account for early payment discounts.
4
Commerce requested that KTN “[r]eport the identifying variable which will link the
further manufacturing cost record to the corresponding sale or sales in the U.S. sales file.”
Section E Resp. at E-18.
Court No. 99-08-00550 Page 15
The computer program failures combined with the additional errors outlined above
provide substantial evidence to support Commerce’s rejection of the entire database. As stated in
Consolo v. Federal Maritime Commission, 383 U.S. 607 (1966):
[w]e have defined “substantial evidence” as “such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.”. . . . This is
something less than the weight of the evidence, and the possibility of drawing two
inconsistent conclusions from the evidence does not prevent an administrative
agency’s finding from being supported by substantial evidence.
Consolo, 383 U.S. at 619-20 (citations omitted). Commerce has proved that the cost and sales
databases contained significant errors and inaccuracies. The source and cause of the errors was
the integrated computer system Plaintiffs relied on to produce their cost and sales information.
Plaintiffs could have chosen to comply with Commerce’s request and supplied the requisite
linking variables which may have alleviated the effects of the errors. Instead, Plaintiffs relied on
the integrated system that it certified could create an integrated sales response for both further
manufactured and non-further manufactured sales. In Krupp I, this court stated:
Commerce may find on remand that it is appropriate to apply partial facts available
to fill any gaps in the sales data it could not successfully verify, but it may not
disregard the sales data absent evidence in the record that the sales data was fatally
tainted by the errors in the computer program.
Krupp I at *6 (citations omitted). The court affirms Commerce’s conclusion that there were
systemic errors that fatally tainted the entire database. The errors in the cost data were magnified
when they were integrated with the sales data and, thus, tainted both the cost and sales data.
Furthermore, because no linking variables were provided, the errors could not be isolated,
adjusted, or corrected in the final sales data. This chain of events, however unfortunate, was
caused by KTN’s reliance on the computer program and its failure to supply Commerce with the
linking variables.
Court No. 99-08-00550 Page 16
2. Use of adverse facts available for the USR’s cost and sales data
In Krupp I, the court ordered that Commerce point to substantial evidence demonstrating
that KTN had the ability to run checks to discover and correct the errors prior to verification and
that Commerce point to additional evidence in the record, other than errors in the computer
program, before drawing an adverse inference. In the event Commence could not point to
substantial evidence to demonstrate that KTN could have discovered and corrected the errors in
the computer program prior to verification, Commerce was to refrain from drawing an adverse
inference in its use of facts otherwise available.
These remand instructions were necessary because “‘[u]nder the URAA, Commerce is
now required to make more subtle judgments than under the previous best information available
(‘BIA’) standard.’” Krupp I at *7 (quoting Ferro Union, Inc. v. United States, 23 CIT __, __, 44
F. Supp. 2d 1310, 1329 (1999)). Since the enactment of the URAA, Commerce must first find
“an interested party has failed to cooperate by not acting to the best of its ability to comply with a
request for information” before making an adverse inference. 19 U.S.C. § 1677e(b); See also
Ferro Union, 44 F. Supp. 2d at 1330-31. As explained in Mannesmann:
[s]ection 1677e(a) provides, however, that the use of facts available shall be
subject to the limitations set forth in 19 U.S.C. § 1677m(d) (1994). Section
1677m, which were enacted as part of the Uruguay Round Agreement Act
(“URAA”), Pub. L. 103-465 § 231, is “designed to prevent the unrestrained use of
facts available as to a firm which makes its best effort to cooperate with
[Commerce].”
Mannesmann, 77 F. Supp. 2d at 1312 (citations omitted).
Commerce responds that KTN could have run checks to discover the errors prior to
verification because KTN recognized some errors in the cost data prior to verification. In fact,
KTN submitted a revised Section E response after running checks, correcting errors and
Court No. 99-08-00550 Page 17
resubmitting the response to Commerce. Additionally, Commerce asserts that in preparation for
verification KTN was able to isolate certain errors in the cost allocation program and was able to
fix the errors prior to verification. See Remand Determination at 31.
Plaintiffs argue that the errors in the computer program could not have been discovered
prior to verification. Plaintiffs assert that Commerce “has failed to identify” evidence that proves
that the errors could have been detected through rudimentary checks and simply “repeat[s] (albeit
in different words) the same inadequate grounds cited in the Final Determination.” Pls.’ Br. at 15.
Plaintiffs contend that the programming error was undetectable prior to verification and it was
only after a manual trace, during verification, that the error was discovered. Additionally,
Plaintiffs argue that the programming error was inadvertent. KTN claims that it cooperated to the
best of its ability because the administrative record and Commerce’s own comments reflect that
KTN was conducting checks on the submitted data, submitted several revised versions of its
further manufacturing data, and manually reviewed invoices. Furthermore, Plaintiffs contend that
the factual circumstances in this case are similar to Nippon Steel Corp. v. United States, 24
CIT__, 118 F. Supp. 2d 1366 (2000), where the court held that inadvertence is not sufficient
grounds for the application of an adverse inference. See Pls.’ Br. at 19.
The court is not convinced by the record in this case that there is substantial evidence that
Plaintiffs’ conduct here demonstrates that they did not act to the best of their ability with regard to
discovering programming errors in the cost data prior to verification. Therefore, Commerce may
not, under the new statutory scheme, draw an adverse inference in its use of facts otherwise
available for USR’s cost and sales data.
The court agrees with Plaintiffs that the specific mistakes Commerce identified in the
Court No. 99-08-00550 Page 18
computer program were inadvertent and were not a result of Plaintiffs’ failure to act to the best of
their abilities considering the totality of Plaintiffs’ actions and all the information submitted.
Where Plaintiffs were able to correct identified errors they did so. For instance, Commerce itself
agrees that Plaintiffs attempted to check the accuracy of the data prior to verification. “In
checking the data and in preparing for verification the U.S. Reseller found several items that were
incorrectly calculated and presented these corrections at the beginning of verification.” Remand
Determination at 30 (citations omitted). Additionally, Commerce acknowledged that Plaintiffs:
submitted no fewer than three section E further manufacturing cost databases
during the course of the proceeding. Each cost database was submitted with the
required certification as to the accuracy of the information. Because the U.S.
Reseller submitted various versions of the cost information, it is evident that the
U.S. Reseller was conducting checks on the submitted data and finding areas that
needed to be corrected.
Remand Determination at 28-29. Commerce’s findings support the position that the computer
logic flaws that caused the erroneous data were inadvertent and could not have been discovered
through rudimentary checks. Commerce agrees that Plaintiffs checked their information prior to
verification and submitted amended responses to correct the errors. However, the computer logic
flaws were identified at verification and only after a manual trace of the underlying documents
was performed were the errors discovered. See Pls’ Br. at 17. Therefore, the record shows that
the computer errors corrupting USR’s sales data were inadvertently included in the information
Plaintiffs provided to Commerce.
In Nippon Steel Corp. v. United States, 25 CIT __, __, 2001 WL 406192, *4 (2001), the
court held that Commerce’s conclusion that respondent had failed “to act to the best of its ability”
pursuant to 19 U.S.C. § 1677e(b) (1994), was unsupported by substantial evidence. The court
analyzed the instances where respondents failed to comply with Commerce’s information request
Court No. 99-08-00550 Page 19
and differentiated the factual circumstances that allowed Commerce to draw an adverse inference,
and therefore, use adverse facts as surrogate information.
In cases where a respondent claims an inability to comply with the agency’s
requests for information, the Department may permissibly draw an adverse
inference upon a reasonable showing that respondent, in fact, could have complied.
(citations omitted) Here, however, where the respondent acknowledges the ability
to comply, but claims it did not do so because of simple inadvertence, the
Department must show more. As the court observed in its opinion ordering
remand, those cases that do not suggest willfulness on the part of the respondent
pose particular challenges for the Department to draw appropriate lines in order to
determine whether to draw an adverse inference.
Nippon Steel Corp, 2001 WL 406192 at *4 (citation omitted). Here, Commerce has failed to
point to substantial evidence in the record that supports a finding that Plaintiffs willfully failed to
comply with Commerce’s information request. In fact, Plaintiffs specifically instituted the use of
the computer program in an attempt to facilitate compliance with Commerce’s information
demands. See Krupp I at *4. The computer program failure was a byproduct of inadvertent
computer logic errors. In both its Final Determination and Remand Determination, Commerce
has failed to support by substantial evidence that these inadvertent computer logic errors show
that Plaintiffs failed to act to the best of their ability. “While the parties must exercise care in
their submissions, it is unreasonable to require perfection.” NTN Bearing Corp. v. United States,
74 F.3d 1204, 1208 (Fed. Cir. 1995). The statute at issue here has consistently been interpreted by
this court to require more than inadvertent error on the part of a respondent to permit the agency
to use adverse facts in calculating dumping margins. See e.g., Nippon Steel Corp., 118 F. Supp.
2d 1366; Ferro Union, 44 F. Supp. 2d 1310; Mannesmann, 77 F. Supp. 2d 1302. Therefore, the
court remands this case, yet again, and pursuant to 19 U.S.C. § 1677e(a)(2), instructs Commerce
to select neutral facts available for the purpose of calculating USR’s margin rate and any other
Court No. 99-08-00550 Page 20
calculation predicated on USR’s cost and sales data.
3. Sales of Unidentified Origin
In Krupp I, the court sustained Commerce’s use of an adverse inference with respect to the
allocation of sales of unidentified merchandise. See Krupp I at *9. The court then ordered on
remand that Commerce explain how the chosen adverse facts were not unduly harsh or punitive.
Id. As cited in Krupp I, “the purpose of section 1677e(b) is to provide respondents with an
incentive to cooperate, not impose punitive, aberrational, or uncorroborated margins.” De Cecco,
216 F.3d at 1032 (citations omitted); See 19 U.S.C. § 1677e(b).
Plaintiffs argue that Commerce’s allocation of sales of unidentified origin at more than
double the amount of KTN’s verified sales to USR is unduly harsh and punitive. Plaintiffs assert
that Commerce’s allocation increased the overall dumping margin from [ ] to [ ]. Pls.’ Br. at
26-27. Commerce argues that it was inappropriate to base the allocation on KTN’s sales to USR
and, instead, Commerce divided the unidentified sales on a “pro rated basis, using the verified
percentages of the U.S. Reseller’s merchandise supplied by each respondent mill.”5 Remand
Determination at 33. Commerce asserts that the overall effect of this allocation was to increase
the dumping margin by [ ]. To apportion the amount of the dumping margin attributable to the
unidentified sales, Commerce determined that USR should be allocated [ ] million. Commerce
then multiplied the sales by the adverse facts available margin rate of [ ]. KTN argues that the
margin rate should be multiplied by [ ] million because that is the amount of KTN’s verified
sales to USR. The court is not persuaded by KTN’s reasoning.
5
The “mills” Commerce refers to are “one of the three respondent firms in the
concurrent investigation (i.e. Germany, Italy and Mexico).” Remand Determination at 33. KTN
was the “mill” in Germany. Id.
Court No. 99-08-00550 Page 21
When KTN claims the dumping margin would be [ ] lower, it assumes that Commerce
should use KTN’s verified sales figure of [ ] million. As Commerce states:
[t]he Department cannot reasonably assume that the source of the merchandise of
unidentified origin is the same as for the group of merchandise of identified origin.
Such an inference would have been extremely suspect considering that the U.S.
Reseller had the ability to provide relevant information on the origin of many of
these sales, but chose not to do so. Had the Department apportioned sales of
unidentified origin to KTN in accordance with the percentage of verified KTN
sales to the U.S. Reseller ([ ] percent), the Department would not have been
applying adverse facts available to such sales but, rather, would have been applying
non-adverse, or neutral, facts available to these sales.
Remand Determination at 34-35. Additionally, the [ ] million KTN represents as its verified
sales to USR does not include all resales during the period of investigation. See KTN Exh. 6; Def.
Conf. Exh. 12.6 KTN asserts that “Commerce attributed to KTN USR sales of unidentified origin
valued as. . . more than double the value of the KTN material sold to USR.” Pls.’ Br. at 25.
However, KTN does not account for sales of merchandise by KTN to USR prior to the period of
investigation that were then resold during the period of investigation.
Commerce must strike a balance when applying adverse facts available. In this instance,
KTN reported a large number of U.S. Reseller sales transactions for which the manufacturer was
not identified. During verification it became apparent that through rudimentary searches KTN
could have identified the suppliers. Since KTN failed to provide the supplier information, it was
proper for Commerce to draw an adverse inference with respect to the unidentified supplier sales.
See Krupp I at *8. As evidenced in the Remand Determination, the exact number of unidentified
6
In the exhibit KTN lists its verified sales to USR as [ ]. In a footnote, KTN
explains that “[t]he figure for ‘KTN Sales to [USR]’ is based upon a summation of the revenue. .
. for sales with an invoice date during the POI (period of investigation) and customer code. . . for
the U.S. reseller. KTN Exh. 4; Def.’s Conf. Exh. 11 (emphasis added).
Court No. 99-08-00550 Page 22
sales that originated from KTN is unknown. However, it is clear from the record that USR could
have provided at least some of the supplier information but chose not to look behind the data
captured in its inventory system. Commerce has adequately explained its methodology for
determining the allocation without using the most adverse inferences possible. As Commerce
explained:
[t]he respondent has not afforded the Department any reasonable benchmark for
ascertaining what allocation methodology would be more appropriate. . . . It is
entirely possible that KTN benefitted from withholding information on the U.S.
Reseller’s suppliers that would result in higher margins than those actually
calculated absent respondent data. . . . It is certainly possible that in allocating all
of the sales of unidentified origin to the three respondents in this investigation in
accordance with each of their verified percentages of sales to the U.S. Reseller, we
may have underestimated the actual volume of unidentified origin merchandise that
originated from KTN. . . . Despite this possibility, the Department in applying an
adverse inference did not apply all of the sales of unidentified origin to KTN.
Remand Determination at 35-36. The court finds the application of specific adverse facts chosen
and the resulting increase in the dumping margin served as both a “reasonably accurate estimate”
of KTN’s actual rate and “as a deterrent to non-compliance.” De Cecco, 216 F.3d at 1032.
Therefore, the court upholds Commerce’s allocation method.
4. Movement and Selling Expenses
On remand, the court ordered that Commerce explain how its decision not to deduct
verified moving and selling expenses from USR’s average gross price resales was the proper
methodology. See Krupp I at *9. In calculating Plaintiffs’ overall dumping margin, Commerce
made various margin calculations that were weighted and combined to formulate the overall
dumping margin. As Commerce explained:
[b]oth adverse facts available margin percentage rate applied to the U.S. Resellers
sales and the calculated weighted-average unit value for the U.S. Reseller sales
affect the magnitude of the overall weighted-average margin for all U.S. sales. . . .
These estimated dollar margins for the U.S Reseller sales, in turn, are added to the
Court No. 99-08-00550 Page 23
margins calculated for KTN’s properly reported U.S. sales to enable the calculation
of a single weighted-average margin percentage rate for all of KTN’s U.S. sales.
Remand Determination at 37. For USR’s sale prices, Commerce applied an adverse facts
available margin to the weighted-average of USR’s sale prices without deducting movement and
selling expenses. See id. However, the surrogate margin, by Commerce’s own admission, was a
“net” margin rate because it “already reflected deductions for movement and selling expenses.”
Id. Therefore, Commerce was applying a “net” surrogate margin to “gross” sales figures.
Plaintiffs argue that applying the net surrogate margin to USR’s gross sale prices
“arbitrarily inflated KTN’s dumping margin because gross prices are higher than net prices.” Pls.’
Br. at 28. Plaintiffs assert that either (1) USR’s gross sales prices be adjusted to a net sales basis
or (2) the surrogate margin percentage be adjusted to a gross margin percentage. Plaintiffs
contend that movement and selling expenses were verified and should be deducted from USR’s
gross sales prices to obtain the net weighted-average price of USR’s sales to properly adjust
USR’s sales to a net sales basis. In the alternative, Plaintiffs argue that “[t]o properly re-express
the surrogate margin on a gross sales basis, all that would be required is to ignore these verified
adjustments and instead calculate a sales denominator that is based on ‘verified’ gross unit prices
for ‘KTN’s properly reported U.S. sales.’” Pls.’ Br. at 33.
Commerce contends that it had to apply the net margin rate to the gross sales figures
because the systemic errors in USR’s responses made the cost and sales data unuseable for the
purpose of calculating Plaintiffs’ overall weighted-average margin.7 Remand Determination at
7
Commerce states that
the Department deducted movement and selling expenses when they originated
from a properly reported and verified response (i.e., the calculated non-
Court No. 99-08-00550 Page 24
38-39. Commerce explained “[i]n keeping with that practice, when the Department determined
that the U.S. Reseller’s sales data were entirely useless for the purpose of calculating KTN’s
dumping margin, the response was, so to speak, set aside, and the Department turned elsewhere
for surrogate information to serve as the facts otherwise available, in accordance with 776 of the
Tariff Act; 19 U.S.C. § 1677e.” Id. at 38. In setting aside the entire response, Commerce
disregarded movement and selling expenses that had been verified. Commerce asserts it has a
long standing practice that prohibits it from “cherry-picking” the verified information from a
response that has been completely rejected because “mak[ing] any adjustments to an unverified
gross unit price based upon unverified data would render the calculation meaningless.” Id. at 38-
39.
This statement is contrary to the evidence on the record. The record indicates that
Commerce verified forty-seven (47) out of the fifty-two (52) movement and selling expense
reported by USR. Additionally, Commerce used facts available for USR sales data and was able
to use a verified net margin rate to make the required margin calculation. Id.
This Circuit has held that the primary purpose of the antidumping laws is to calculate
accurate margins. See Rhone Poulenc, 899 F.2d at 1191 (stating that the basic purpose of the
statute is to determine dumping margins as accurately as possible); Lasko Metal Prods., Inc. v.
aberrational margin was based on a verified gross unit price adjusted to account
for verified movement and selling expenses) but did not do so where the veracity
of the entire response was suspect ( i.e., the sales portion of the U.S. Reseller
response).
Remand Determination at 39.
Court No. 99-08-00550 Page 25
United States, 43 F.3d 1442, 1446 (Fed. Cir. 1994). “While Congress has left it within
Commerce’s discretion to develop methodologies to enforce the antidumping statute, any given
methodology must always seek to effectuate the statutory purpose – calculate accurate dumping
margins.” Shakeproof Assembly Components Div. of Ill. Tool Works, Inc. v. United States, 23 CIT
__, __, 59 F. Supp. 2d 1354, 1358 (1999). In this instance, Commerce should use a methodology
that would allow the net margin rate to be applied to USR’s net sales price data. Therefore, on
remand, Commerce is to choose a method that enables the margin rate and sales data to be
adjusted to a “net” basis. Furthermore, if additional information is required, Commerce is to use
neutral facts available as surrogate information.8
V. CONCLUSION
For the foregoing reasons, the court holds that the Department's Results of
Redetermination Pursuant to Court Remand; Stainless Steel Sheet and Strip in Coils from
Germany is remanded in part, and sustained in part. Judgment will be entered accordingly.
Dated: ___________________ ___________________________
New York, NY Judith M. Barzilay
Judge
8
As discussed above in Section 2 of this Opinion, Commerce is to select neutral facts
available as surrogate information for USR’s sales data. | 01-03-2023 | 02-05-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1170907/ | 111 Wash. 2d 845 (1989)
765 P.2d 1292
THE STATE OF WASHINGTON, Petitioner,
v.
CHARLES RAY LIDGE, ET AL, Defendants, DEVON ANTONIO ESKRIDGE, Respondent.
No. 54424-7.
The Supreme Court of Washington, En Banc.
January 6, 1989.
*846 Norm Maleng, Prosecuting Attorney, Deborah J. Phillips, Senior Appellate Attorney, and Sally F. Stanfield, Deputy, for petitioner.
John Christiansen of Washington Appellate Defender Association, for respondent.
DURHAM, J.
Devon Eskridge was convicted in King County Superior Court of second degree burglary and third degree possession of stolen property. On appeal, he argues that his due process rights were violated when the State's delay in charging him as a juvenile caused him to be tried as an adult. The Court of Appeals agreed with Eskridge's argument, reversed his convictions, and dismissed the case. We reverse the Court of Appeals and reinstate the convictions.
On May 10, 1985, Eskridge, then 17 years old, and two adults entered Alston's Hallmark Shop in Redmond, Washington. The three acted suspiciously so a store clerk called Redmond police. After the three left the shop, another clerk found that a locked desk drawer containing the day's receipts had been pried open. The police arrived, investigated the scene, and took a vehicle description. Later, police stopped a vehicle matching that description. Eskridge and the two adults in the vehicle were arrested. The police, with permission, searched the vehicle and found money, including rolls of coins. Some of the rolls had "Alston's" printed on them. Money also was found in Eskridge's right stocking.
The adults were held in custody and charged with second degree burglary on May 13, 1985. Because Eskridge was a juvenile, he was placed in the custody of juvenile detention and the information concerning his arrest was transferred to the King County Prosecutor's Juvenile Division. On May 13, the deputy prosecutor reviewing the case determined that the charge against Eskridge was insufficient and *847 requested more information from the Redmond Police Department. After being held for 72 hours, Eskridge was released from detention without being charged.
The additional information was received on May 20. The following day, the prosecutor concluded that sufficient information then existed to charge Eskridge. At that point, however, the State did not have adequate time under its normal procedures to bring charges against Eskridge and have him arraigned in juvenile court. Only 13 days remained before Eskridge's birthday and those procedures generally require 3 weeks.[1] Accordingly, the case was referred to the adult division for prosecution. On June 28, Eskridge was charged as an adult and was added as a codefendant in the case against his companions.
Eskridge brought a pretrial motion to dismiss for prosecutorial delay. He argued that the delay in charging him was not justified and prejudiced him because he lost any opportunity to be tried as a juvenile rather than as an adult. At a pretrial hearing, the State explained the delay through the testimony of Linda Walton, assistant chief deputy prosecuting attorney in charge of the Juvenile Division of the King County Prosecutor's office. Walton testified as to the facts stated above. The defense cross-examined her about special procedures under which the prosecutor's staff could have "rush filed" Eskridge's case. Walton acknowledged the existence of "rush file" procedures but stated that those procedures generally are used only in cases involving serious crimes where the defendant should not be released. Because the prosecutor's resources are limited, Walton stated, "rush file" procedures are not *848 employed in cases such as Eskridge's. At no point did Eskridge attempt to refute Walton's assertions that normal procedures were followed in handling his case.
The trial court denied Eskridge's motion to dismiss, finding that "the State's conduct was neither deliberate nor negligent in failing to file charges", and that the State followed its normal procedures in charging Eskridge. A jury convicted Eskridge of second degree burglary and third degree possession of stolen property.
Eskridge and one of his codefendants, Charles Ray Lidge, appealed their convictions. The Court of Appeals affirmed Lidge's convictions but reversed Eskridge's convictions due to prosecutorial delay. State v. Lidge, 49 Wash. App. 311, 742 P.2d 741 (1987). The State petitioned for review of Eskridge's prosecutorial delay issue, and this court granted review.
[1-3] We have stated that "[a] deliberate delay to circumvent the juvenile justice system violates due process; a negligent delay may also." State v. Alvin, 109 Wash. 2d 602, 604, 746 P.2d 807 (1987). In analyzing whether due process has been violated, courts "must consider the reasons for the delay as well as the prejudice to the accused." United States v. Lovasco, 431 U.S. 783, 790, 52 L. Ed. 2d 752, 97 S. Ct. 2044 (1977). A decision "to prosecute a defendant following investigative delay does not deprive him of due process, even if his defense might have been somewhat prejudiced by the lapse of time." Lovasco, at 796. This court has developed from Lovasco a 3-stage analysis:
(1) The defendant must show he was prejudiced by the delay; (2) the court must consider the reasons for the delay; and (3) if the State is able to justify the delay, the court must undertake a further balancing of the State's interest and the prejudice to the accused.
Alvin, at 604 (citing State v. Calderon, 102 Wash. 2d 348, 352-53, 684 P.2d 1293 (1984)).
As to the first element, the defendant is presumed to have met his burden of proof by showing that a charging *849 delay prevented juvenile court from exercising its jurisdiction. Alvin, at 604; Calderon, at 353. Here, but for the 8-day investigative delay, the State would have had sufficient time to invoke the jurisdiction of the juvenile court. Thus, we turn to the State's explanation for the delay.
At the Superior Court hearing, the State presented its reasons for the delay, as related above. Eskridge argued that the prosecutor's office should have used expedited procedures in order to ensure jurisdiction by the juvenile court. The trial court rejected this argument and found that no due process violation had occurred. This decision is fully supported by this state's case law. We twice have stated that:
Absent extraordinary circumstances, it is appropriate that juvenile offenses be managed in the same manner as are adult crimes. We are reluctant to interfere with standard investigatory procedures by requiring special treatment for juvenile suspects.
Calderon, at 354, quoted in Alvin, at 605. Accordingly, the State was justified in following normal prosecutorial procedures, having no obligation to "rush file" Eskridge's case merely because he was about to turn 18. State v. Anderson, 46 Wash. App. 565, 569-70, 731 P.2d 519 (1986), review denied, 108 Wash. 2d 1005 (1987).
Apparently recognizing as much, Eskridge asserts on appeal a different basis for challenging the sufficiency of the State's investigative delay.[2] Eskridge now argues that the State could not have been following normal procedures in his case because the adults were charged based on the information originally available, but Eskridge was not. He concludes from this disparate treatment that the prosecutors deliberately delayed charging him so that he would be charged as an adult.
We find that no such inference is warranted. The prosecutor who delayed filing charges against Eskridge was not *850 the same prosecutor who immediately filed charges against the adult defendants. As the Supreme Court has indicated, "[t]he determination of when the evidence available to the prosecution is sufficient to obtain a conviction is seldom clear-cut, and reasonable persons often will reach conflicting conclusions." Lovasco, at 793. The fact that one prosecutor decides to charge based on particular evidence hardly implies that another prosecutor would be acting improperly by seeking additional information. Indeed, such an implication would violate the broad discretion that has been granted to prosecutor's charging decisions. See State v. Judge, 100 Wash. 2d 706, 713, 675 P.2d 219 (1984). As the Supreme Court has recognized, this principle is mandated by the limits on judicial decisionmaking:
[T]he Due Process Clause does not permit courts to abort criminal prosecutions simply because they disagree with a prosecutor's judgment as to when to seek an indictment. Judges are not free, in defining "due process," to impose on law enforcement officials our "personal and private notions" of fairness and to "disregard the limits that bind judges in their judicial function."
Lovasco, at 790 (quoting Rochin v. California, 342 U.S. 165, 170, 96 L. Ed. 183, 72 S. Ct. 205, 25 A.L.R. 2d 1396 (1952)).
Allowing prosecutors broad discretion to delay the filing of charges until they are "completely satisfied that [they] should prosecute and will be able promptly to establish guilt beyond a reasonable doubt", Lovasco, at 795, serves important societal interests. Forcing prosecutors to proceed precipitously may waste scarce resources on cases in which the defendant's guilt cannot be established beyond a reasonable doubt. More devastating, however, is the risk that incomplete police investigation will result in charges being brought against innocent persons. These are costs that society should not bear. Lovasco, at 793-94. For these reasons, courts generally conclude that investigative delays are justified. Calderon, at 353.
The disparate timing of the charging decisions here falls entirely within the bounds of prosecutorial discretion. Only *851 8 days separated the dates when the cases were deemed sufficient for charging. During that period, further investigation took place. There has been no showing that the juvenile court prosecutor's staff and the adult criminal division follow identical charging procedures, handle similar case loads, or otherwise operate at the same pace. Thus, the disparate charging decisions could be the result of institutional, as well as individual, differences in evaluating a case.
Eskridge next argues that the State never explained the precise reasoning behind its charging decision beyond the simple allegation that the case was insufficient for charging until the subsequent information was received. Indeed, at the Superior Court hearing, Linda Walton did not specify what information was lacking when the case was originally screened, did not identify what additional information was requested from the police, and did not explain how the receipt of that information tipped the balance in favor of sufficiency.
Unfortunately for Eskridge, however, the State was not asked for this information. Eskridge had every opportunity at the Superior Court hearing to cross-examine Walton. She had Eskridge's file with her and could have answered the very questions that Eskridge now raises for the first time on appeal. That Eskridge chose not to do so at the appropriate time cannot be held against the State now. In sum, the State adequately explained the charging delay as being necessary for further investigation. None of the facts and arguments that Eskridge has raised on appeal justify a contrary conclusion.[3]
*852 Finally, we must balance the State's interests against the prejudice suffered by Eskridge. "The ultimate test is `"whether the action complained of ... violates those `fundamental conceptions of justice which lie at the base of our civil and political institutions".'" Alvin, at 605 (quoting Calderon, at 353). The importance of allowing the State to conduct further investigation has been discussed above and in Calderon. Such delays serve significant societal interests, including the prevention of erroneous or premature prosecutions.
The importance of these delays outweighs any prejudice that Eskridge suffered from the loss of juvenile court jurisdiction. As we stated in Alvin, "the State has a stronger interest in maintaining an orderly administration of judicial process than in disrupting that process to give special advantage in the system to any particular suspect." Alvin, at 606. The State's actions, prompt as they were, do not violate fundamental conceptions of justice.
Therefore, the trial court properly found that Eskridge's due process rights were not violated. The Court of Appeals is reversed and Eskridge's convictions are reinstated.
CALLOW, C.J., and BRACHTENBACH, DOLLIVER, and ANDERSEN, JJ., concur. PEARSON, J. (dissenting)
I agree with the analysis of the Court of Appeals that preaccusatorial delay violated defendant Eskridge's due process rights and that his conviction must be reversed and the case dismissed. State v. Lidge, 49 Wash. App. 311, 317-21, 742 P.2d 741 (1987). Therefore, I dissent.
My review of the record convinces me that the Court of Appeals was correct when it stated:
We conclude that the trial court's findings do not support its conclusion that the delay was neither intentional nor negligent. First, Walton's testimony, which was based solely on her review of the file, did no more than establish that her office followed its usual procedure. The fact *853 that the prosecuting attorney's office made a determination on the legal sufficiency of the case does not answer the question of whether that determination was made negligently. Put another way, the fact that the State acted procedurally properly begs the question of whether the resulting delay was justifiable. We know of no case, and none is cited, where conclusory testimony that a case was "not sufficient" was found, standing alone, to satisfy the burden placed on the State by Calderon. [State v. Calderon, 102 Wash. 2d 348, 684 P.2d 1293 (1984).]
State v. Lidge, supra at 319.
The Court of Appeals points out quite correctly that in State v. Calderon, 102 Wash. 2d 348, 684 P.2d 1293 (1984) "the State offered extensive evidence demonstrating that it was involved in an ongoing large-scale undercover drug buying operation that involved numerous additional arrests which had to be synchronized with the defendant's." State v. Lidge, supra at 320.
In this case, the State "failed to offer any evidence of what information it lacked on May 13 or what additional information it later received which made the case `sufficient.'" State v. Lidge, supra at 320. Identical charges to those filed against the adult codefendants ultimately were filed against defendant Eskridge.
I therefore agree with the Court of Appeals that the State failed to present any facts justifying the delay which caused defendant Eskridge to be subject to prosecution as an adult rather than a juvenile. I disagree with the majority's assertion that Eskridge should be responsible for establishing the cause for the delay. That burden properly rests with the State, which caused the delay, once the defendant establishes the delay prejudiced him. State v. Calderon, supra.
On these facts, the defendant has met his burden of showing prejudice by establishing that there was a prosecutorial-caused delay in bringing the charges and that this delay prevented the juvenile court from exercising its jurisdiction over him. State v. Calderon, supra. The gravity of loss of juvenile jurisdiction in this case far outweighs the *854 importance to the State of the delay. State v. Alvin, 109 Wash. 2d 602, 746 P.2d 807 (1987).
The majority points out that an "investigative" delay does not become improper merely because further investigation proves fruitless. Footnote 3 (citing United States v. Lovasco, 431 U.S. 783, 52 L. Ed. 2d 752, 97 S. Ct. 2044 (1977)). While this is true, such a procedure creates a potential for great abuse unless some reasonable explanation is required concerning the need for such investigation. The majority eliminates the necessity for the State to make any justification for its delay. This establishes bad precedent.
I agree with the majority that broad discretionary powers of determining when to file charges is an important tool for prosecution. In this case, however, without any explanation of the necessity for an "investigative" delay, the record establishes only that the State delayed solely to charge defendant Eskridge as an adult rather than as a juvenile. This constitutes a violation of Eskridge's due process rights.
I would affirm the Court of Appeals, reverse the conviction, and dismiss the case.
UTTER and DORE, JJ., concur with PEARSON, J.
NOTES
[1] It usually takes 1 week for the juvenile court staff to get charges filed and another 2 weeks to bring in the juvenile for arraignment. Juvenile court jurisdiction attaches only until the juvenile is 18, although before the juvenile reaches that age, the court may extend jurisdiction until the age of 21. RCW 13.40.300(1)(a). This extension can be granted at arraignment. Thus, under normal procedures, juvenile court jurisdiction is lost unless the defendant is arraigned before he turns 18.
[2] In doing so, Eskridge relies on facts not presented to the trial court. Even assuming consideration of these facts to be proper, they provide no basis for the inference of bad faith or neglect that Eskridge asks us to draw from them.
[3] In finding the State's explanation inadequate, the Court of Appeals found convincing the fact that the additional information sought by the juvenile court prosecutors did not appear in the supplemental certification for determination of probable cause that was filed after Eskridge was added as a codefendant in the Superior Court action. However, additional information of this sort would not necessarily be included in a document if, for example, that information merely confirmed other facts already present in the record. Furthermore, an investigative delay does not become improper merely because further investigation proves fruitless. United States v. Lovasco, 431 U.S. 783, 795 n. 16, 52 L. Ed. 2d 752, 97 S. Ct. 2044 (1977). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2074680/ | 896 A.2d 1006 (2006)
392 Md. 251
In the Matter of the APPLICATION OF Robert J. KIMMER for Admission to the Bar of Maryland.
Misc. No. 12, September Term, 2005.
Court of Appeals of Maryland.
April 17, 2006.
*1008 Byron L. Warnken, (Warnken, LLC), Baltimore, for appellant.
Paul D. Raschke, Asst. Atty. Gen., for appellee.
Argued before BELL, C.J., WILNER, CATHELL, HARRELL, BATTAGLIA, GREENE and JOHN C. ELDRIDGE, (Retired, Specially assigned), JJ.
BELL, C.J.
The issue presented by the application of Robert Kimmer, the applicant, for admission to the bar of Maryland and the exceptions thereto, filed by the Board of Law Examiners, the Board, is whether a circuit court has jurisdiction[1] over bar admission *1009 matters such that, having determined that an applicant to take the bar examination is entitled, when taking the examination, to accommodation, pursuant to the Americans with Disabilities Act ("ADA"), 42 U.S.C.A. §§ 12101 et. seq., it may order the Board to provide such accommodation. The Circuit Court for Anne Arundel County, ruling on the applicant's Petition for Preliminary Injunction and/or Temporary Restraining Order, determined that the ADA applied and that the applicant was entitled to the accommodation he sought. Accordingly, it granted the applicant's request for a temporary restraining order and ordered the Board to provide "ADA accommodations," as specified.[2] We shall hold that authority over the bar admission process is solely within the jurisdiction of this Court.
I.
The applicant was not diagnosed with, and appears not to have sought evaluation *1010 for, a learning disability until just prior to entering law school in 2002, after he had taken the Law School Aptitude Test ("LSAT"). He had previously taken the Scholastic Aptitude Test ("SAT"), entered Emory University, completed his Bachelor's Degree at that University with a 3.7 Grade Point Average, and taken the LSAT, all without disability accommodation. His dissatisfaction with his LSAT score prompted him to obtain an evaluation to determine if he had learning disabilities.
The psychologist he consulted, Dr. Anne Wake, after testing the applicant over four days, concluded that he has a specific processing learning disability, diagnosis 315.9 in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition ("DSM-IV"). On the strength of that diagnosis and consistent with Dr. Wake's recommendation, he was given accommodation, typically amounting to double time and the use of a computer,[3] throughout law school, at both the University of Baltimore Law School and the George Washington University School of Law.[4]
On May 15, 2005, the applicant wrote to the Board of Law Examiners requesting ADA accommodation when he sat for the July 2005 Maryland bar examination.[5] He included in his letter reports from his psychologist, as well as letters from both of the law schools he had attended, the latter of which indicated that he had received such accommodations throughout his law school career. The applicant specifically asked that he be given double time to complete the examination and that he be permitted to use a word processing computer in doing so. The Board, consistent with its customary practice and its Rules, see Rule 3 d. of the Rules of the Maryland State Board of Law Examiners,[6] forwarded the reports and the letters to its expert psychologist for review. On this occasion, the material was sent to Dr. Lawrence Lewandowski,
The Board's psychologist concluded, on the documentary record,[7] that the applicant *1011 had not demonstrated a disability covered by the ADA and, therefore, was not entitled to accommodation.[8] He consequently recommended that the applicant not be given accommodation. Based on that recommendation, on June 20, 2005, the Board denied the applicant's request for ADA accommodation. The reasons for the decision were amplified by its subsequent letter, dated June 21, 2005, responding to a further inquiry from the applicant for a fuller explanation of its decision. In that letter, the Board advised the applicant, as it had been informed by Dr. Lewandowski, that he did not meet the criteria for either a DSM-IV diagnosis of a learning disorder or as a qualified person under the ADA, explaining that he had demonstrated above average performance in "virtually every dimension of cognitive and academic functioning" and that "[b]ecause a test score is not as high as a superior IQ score, does not mean it is a deficit or impairment."[9] In addition, the Board invited the submission of "additional documentation," by way of "an appeal," to be filed with its Chair, within ten days.
On July 1, 2005, the applicant, through counsel, filed, by letter, Appeal of Denial of Request for Bar Exam Accommodation for Robert Kimmer,[10] with the Board's Chair. Arguing that he was evaluated by a highly-credentialed expert in learning disabilities, that he has a learning disability, as demonstrated by the professional testing performed by that expert, and that his disability "substantially limits the major life activities of reading, writing . . . [and] working, and [that he] has the proficiency and intellect required to practice law," the applicant concluded that he thus required and was entitled to accommodation. Moreover, the applicant asserted, professional examinations, such as bar examinations, fall under the purview of the ADA.
This "appeal," along with a supplemental letter from Dr. Wake addressing the deficiencies the Board identified in the applicant's submission seeking accommodation, *1012 were referred to Dr. Lewandowski for review. Finding that nothing new had been presented, Dr. Lewandowski's recommendation did not change. Based on that assessment and the Chair's review of all documentation, the Board, on July 21, 2005,[11] denied the "appeal," concluding "that there is no justification for granting the accommodations requested and they are therefore denied."
On July 22, 2005, four days before the bar examination he intended to sit for was to be administered, the applicant filed, in the Circuit Court for Anne Arundel County, a Petition for Preliminary Injunction and/or Temporary Restraining Order to enjoin the State Board of Law Examiners "from denying ADA accommodations to [the applicant] on the July 2005 Maryland and multistate bar exam in the form of double time and the use of a computer on the essay exam." He argued in the petition, as he had similarly argued to the Board, that he suffers from a learning disability which substantially limits major life activities, namely reading, writing, and working, that he is thus impaired in his ability to compete with his peers on time restricted examinations, and that the failure of the Board to give him ADA accommodations as requested deprives him of his right to work in his chosen profession. Further, he urged that, because he was planning to take the July 26 and 27 bar examination, it was imperative that the Court quickly order that such accommodations be given.
Following a hearing held on the same day,[12] the trial court ordered the requested injunctive relief, namely, a temporary restraining order requiring that the applicant have the use of a computer for the essay portion of the examination and double time in which to take it and the multistate examination. It concluded that the applicant would likely be successful on the merits of the case, that the likelihood of prejudice regarding other examination takers was outweighed by the applicant's hardship, that the applicant would likely suffer irreparable harm if he was not accommodated and failed the examination, that the accommodations would be easy for the Board to make, and that public policy favored giving accommodations to those with ADA recognized disabilities.[13]
The Board fully complied with the court's order and provided the ordered accommodation for the applicant during the July 2005 examination. Subsequently, however, by letter dated August 2, 2005, *1013 long before the examination had been graded and two days before the expiration of the temporary restraining order, it informed the applicant, through counsel, that it was "maintain[ing] its position that [he] has not established that he is entitled, under the Americans with Disabilities Act, to the accommodations he received for the July 2005 Maryland bar examination." The Board also advised the applicant that, although it would grade his examination anonymously with the other examinees, it would not recommend his admission to the bar of Maryland, even if he passed the examination, "prior to an adjudication on the merits of his entitlement to accommodations for taking the Maryland bar examination."
In response, on September 29, 2005,[14] the applicant filed a Motion for Declaratory Relief. Filed in the same case from which the temporary restraining order was issued, he, in effect, asked the Circuit Court to make the temporary restraining order it had issued on July 22 permanent and, further, for a ruling that the applicant be admitted to the Maryland Bar. In that regard, the applicant argued that the granting of the temporary restraining order would have been otherwise meaningless; in issuing the order, the court also must have intended that the Board recommend the applicant's admission upon his successful passing of the bar examination.
The Board timely opposed this motion. Noting that the motion was filed two months after both the expiration of the temporary restraining order and receipt of the Board's letter informing the applicant of its intention not to recommend the applicant's admission and, thus, characterizing it as "improperly seek[ing] to revive and extend the parameters of a long-expired temporary restraining order, contrary to the Rules, and to transmute it into permanent injunctive relief," the Board submitted that, "[a]s the filing is unsupported by a proper complaint, it is plainly defective and [the Circuit] Court lacks jurisdiction to act on it. It must be stricken."
On November 4, 2005, as required by Rule 10(a) of the Rules Governing Admission to the Bar of Maryland,[15] the Board of Law Examiners reported the results of the July 2005 bar examination to the Court of Appeals, along with its recommendations for admission. The applicant was listed as having passed the examination. On the same date, pursuant to Rule 10(b),[16] this *1014 Court passed an order setting December 5, 2005 as the date on which, in the absence of the filing of exceptions to any applicant, the Board's recommendation would be ratified, and, pursuant to Rule 10(c),[17] the Board filed its exceptions to the applicant's admission.
Thereafter, by letter to the Court, dated November 17, 2005, the Board asked the Court to set the matter of its exception to the admission of the applicant in for a hearing, pursuant to Rule 10(c). It perceived the "discrete issue before the Court [to be] whether [the applicant] is entitled to admission when he has not sought, nor obtained, an adjudication on the merits of his ADA claim." Accordingly, the Board offered in support of its request that "[t]he qualification of an applicant for admission to the Bar is a matter which rests peculiarly within the jurisdiction of this Court." On December 2, 2005, this Court ordered that any proceedings in the Circuit Court for Anne Arundel County regarding the applicant's bar examination and admission be stayed, and scheduled the case for a hearing on the Board's exceptions and on the issue of the Circuit Court's jurisdiction over bar admission matters.
II.
The regulation of the practice of law, including the regulation of the admissions to the bar, long has been, see Act of April, 1715, ch. 48, §§ 12, 13 (Maxcy ed., vol. 1, p. 132 (1811)),[18] and is now, a judicial function. Post v. Bregman 349 Md. 142, 162-63, 707 A.2d 806, 816 (1998); Attorney General v. Waldron, 289 Md. 683, 692, 426 A.2d 929, 935 (1981); Maryland State Bar Ass'n v. Boone, 255 Md. 420, 258 A.2d 438 (1969); Pub. Service Comm'n of Maryland v. Hahn Transportation, 253 Md. 571, 583, 253 A.2d 845, 852 (1969) ("Under our constitutional system of separation of powers, the determination of what constitutes the practice of law and the regulation of the practice and of its practitioners is, and essentially and appropriately should be a function of the judicial branch of the government."). This point was made most forcefully and completely in Waldron, where we explained:
*1015 "Cognizant of the constitutionally imposed responsibility with respect to the administration of justice in this State, this Court has heretofore recognized and held that the regulation of the practice of law, the admittance of new members to the bar, and the discipline of attorneys who fail to conform to the established standards governing their professional conduct are essentially judicial in nature and, accordingly, are encompassed in the constitutional grant of judicial authority to the courts of this State. . . . Thus, in [Public Serv. Comm'n v.] Hahn [Transp., Inc.], 253 Md. [571,] 583, 253 A.2d [845,] 852 [1969], Chief Judge Hammond stated for this Court that `(u)nder our constitutional system of separation of powers, the determination of what constitutes the practice of law and the regulation of the practice and of its practitioners is, and essentially and appropriately should be, a function of the judicial branch of government.' A short time later, this Court determined, inter alia, that the following words of the Supreme Judicial Court of Massachusetts are `highly persuasive':
"It is a necessary implication from the exclusive jurisdiction of the judicial department of control of membership in the bar that the judicial department is not restricted in the (manner) of review in such proceedings to methods prescribed by statute. If this were not true the judicial department would be restricted by legislative action in the performance of its duties with respect to membership in the bar of which it has `exclusive cognizance.'" (Maryland State Bar Ass'n v. Boone, 255 Md. at 431, 258 A.2d at 443.)
"The principle that the admission of attorneys to the bar as well as their supervision once admitted are by nature functions and concerns of the judicial branch of government is far from a novel concept. The history of the courts in the formative years of this nation, and indeed, the history of our ancestral English courts support the conclusion that this uniquely judicial responsibility is of ancient vintage. Even though the doctrine of separation of powers is not an integral part of the British system of government and is one whose fruition occurred on the western shores of the Atlantic, the English courts common law, chancery, admiralty and ecclesiastical have always exclusively admitted attorneys, solicitors and proctors to practice before them. Insofar as the other class of English legal practitioners is concerned, barristers traditionally were regulated by the educational societies known as the Inns of Court, which, in turn, generally are thought to have submitted to the control of judges as visitors to those bodies. All of this oversight and supervision of the English practitioners was accomplished independent of any authorization or predomination by any other department of government. See State v. Cannon, 206 Wis. 589[374], 240 N.W. 441, 445-48 (1932), and In re Day, 181 Ill. 73, 54 N.E. 646, 648-50 (1899), and citations therein, for discussions of the history of the admission and regulation of lawyers in England. See also Note, Admission to the Bar and the Separation of Powers, 7 Utah L.Rev. 82, 82-86 (1960). Similarly, there are early statements in opinions of courts of this country that declare the admission to practice to be an exercise of judicial power. See, e. g., Ex parte Garland, 71 U.S. (4 Wall.) 333, 18 L. Ed. 366 (1867); Ex parte Secombe, 60 U.S. (19 How.) 9, 15 L. Ed. 565 (1857); In re Mosness, 39 Wis. 509, 20 Am.Rep. 55, 56-57 (1876). See also 1 E. Thornton, Attorneys at Law §§ 756-61 (1914). As *1016 has been recognized by a distinguished scholar of these matters:
"It is undoubtedly true that the power to admit one to practice as an attorney at law is a judicial function. It is a power inherent in the court, which is to be exercised by a sound judicial discretion. . . . Early in the national jurisprudence it was held that the power to admit and remove was the exclusive province of a federal court. And this ruling has been consistently maintained. Where a state constitution lodges the judicial power exclusively in the courts, as a coordinate department of government, (as does Maryland's by Art. IV, § 1,) the legislature will not be permitted to encroach upon the judicial powers by assuming to make admission to the bar a legislative function. (Id., § 28, p. 31-32.)"
"Moreover, in more recent decades, various courts from many of our sister jurisdictions have pronounced that such authority, and the power generally to regulate matters regarding the profession and its practitioners, are reposed inherently in the judiciary. . . .
"The statements of this and other courts announcing the obligation of the judicial branch of government to monitor and manage its own house are not hollow proclamations of power, for the placement of this responsibility with the judiciary represents a recognition of this special, and to a degree, unique relationship that has evolved over the years between the legal profession and the tribunals of justice it serves. In this country, it is a well known maxim that attorneys function as officers of the courts, and, as such, are a necessary and important adjunct to the administration of justice. This truism necessarily derives, in our view, from the very theory of the structure of our system of justice."
289 Md. at 692-695, 426 A.2d at 935-936 (and cases therein cited).
To be sure, the judicial power of admitting attorneys to the practice of law was exercised, between 1715 and 1898, by both the county courts and this Courtinitially by the county courts exclusively, William H. Adkins, II, What Doth the Board Require of Thee?, 28 MD. L.REV. 103, 104 (1968); see State v. Johnston, 2 H. & McH. 160, 1786 WL 52, 2-3 (General Court, 1786) (refusing to grant certiorari to review the action of a lower court in admitting to practice one who had been a Tory),[19] and, later, concurrently with this Court. Adkins, 28 Md. L.Rev. at 104. The current procedures for admitting attorneys have their genesis in Ch. 139, 1898 Md. Laws, the enactment of which placed in this Court exclusive jurisdiction over admissions.[20] Chapter 139 provided: *1017 "All applications for admission to the bar in this State shall be made by petition to the Court of Appeals. A State Board of Law Examiners is hereby created to consist of three members of the bar of at least ten years' standing, who shall be appointed by the Court of Appeals, and shall hold office for the term of three years.... All applications for admission to the bar shall be referred by the Court of Appeals to the State Board of Law Examiners, who shall examine the applicant, touching his qualifications for admission to the bar. The said board shall report their proceedings in the examination of applicants to the Court of Appeals with any recommendations said board may desire to make. If the Court of Appeals shall then find the applicant to be qualified to discharge the duties of an attorney, and to be of good moral character and worthy to be admitted, they shall pass an order admitting him to practice in all the courts of the State."
Therefore, it has been clear, since 1898, that the Court of Appeals has had exclusive jurisdiction over the regulation of, and admission to, the practice of law. See Bastian v. Watkins, 230 Md. 325, 329, 187 A.2d 304, 306 (1963) ("[I]n 1898, following a definite trend toward uniformity that apparently began as early as 1831, the Court of Appeals of Maryland was vested with exclusive power to admit applicants to practice law."); Maryland State Bar Ass'n v. Boone, 255 Md. 420, 430, 258 A.2d 438, 443 (1969) ("Since the passage of Ch. 139 of the Laws of 1898 ... the Court of Appeals in the exercise of its inherent and fundamental judicial powers has supervised, regulated and controlled the admission of lawyers."); Application of Allan S., 282 Md. 683, 689, 387 A.2d 271, 275 (1978) ("Upon this Court falls the primary and ultimate responsibility for regulating the practice of law and the conduct and admission of attorneys in this State."); In the Matter of the Application of William H. Hyland, 339 Md. 521, 534, 663 A.2d 1309, 1315 (1995). It follows that the Circuit Court for Anne Arundel County simply had no jurisdiction over any aspect of the applicant's bar admission, including the *1018 circumstances surrounding his bar examination.
III.
Despite the foregoing and its clarity on the question of this Court's exclusive jurisdiction, the applicant nevertheless argues, on this appeal:
"Although the Court's order could only have meant that the Board (1) administer the bar exam, (2) anonymously grade the bar exam, and (3) if Mr. Kimmer passed the anonymously graded bar exam, report the results to this Court in the same manner that it would for any other successful candidate, the Board refused to report the favorable results unless Mr. Kimmer obtained another court order,[21] in a separate hearing on the merits, ruling that he was entitled to ADA accommodations, even though, under the Circuit Court's order, Mr. Kimmer's July 2005 exam, as administered, would forever be his only July 2005 exam."
Notwithstanding the implications of this argument, the applicant denies that he has sought, or is seeking, "to have the trial court direct his admission to the bar." Rather, he says, he merely used appropriate legal process to obtain "valid enforcement of his federal ADA rights," i.e. injunctive relief. Moreover, he asserts that, because the ADA preempts state and local law to the contrary, it "controls" even in cases of bar licensure, which the applicant concedes is an issue for this Court. Further, the applicant notes, and emphasizes, that state courts, and consequently Maryland circuit courts, have concurrent jurisdiction with the federal judiciary over ADA claims. The applicant thus concludes:
"Merely because Mr. Kimmer's ADA issue arises in the context of the bar exam does not place it outside the statutory jurisdiction of the Circuit Court. No one would suggest that an applicant for a CPA exam or a medical board certification would litigate the denial of ADA accommodations before accountant or medical licensure bodies, simply because they, like this Court, ultimately control the licensure process of their profession."[22]
*1019 Notwithstanding the applicant's protestations to the contrary, the thrust of his argument is that the trial court's preliminary ruling is dispositive, and not only of the ADA accommodation question, but also of the Board's obligation not simply to report the applicant's favorable results but, as it would do in the case of a person taking the examination without accommodation, to recommend his admission to the bar. That is necessarily the case when the effect of other actions that must be taken subsequent to the court's temporary ruling necessarily must be informed by, and conform to, what the court must have meant when it made the ruling, whether or not the issue driving the ruling was contested. The implications of adopting that argument in this context are clear; at least with regard to applicants to the bar who claim to have disabilities covered by the ADA, the circuit courts will have concurrent jurisdiction with this Court with regard to their bar admission. While the regulation of the practice of law, including the admission to the bar, was at one time a shared responsibility between the county courts and the General Court and then, later, between the county courts and this Court, that no longer is the case. We decline to retreat to that earlier time.
Sidestepping the historical basis of this Court's exclusive jurisdiction over bar admission matters, the applicant attempts to argue that concurrent jurisdiction between this Court and the circuit courts is necessary in instances where immediate relief, which, presumably, only the circuit courts are equipped to grant, is required. Of course, he believes his case is one of these instances; his reasoning is that, because he submitted his request for accommodations to the Board well within the Board's own deadline, and because he followed each action by the Board with speedy action of his own, the fact that he still had an unfavorable outcome four days before the bar examination for which he planned to sit required that, to obtain the ADA accommodations he sought, he had to seek immediate injunctive relief through the Circuit Court.
The premise on which this argument proceeds is faulty. Neither this applicant nor any other has the right to take a particular bar examination at a particular time, nor to be admitted to the bar at any particular time. That the Board of Law Examiners took longer than the applicant would have liked to render its final decision does not mean that it acted unreasonably or placed the applicant in a situation which could be remedied only by obtaining injunctive relief from the Circuit Court. With respect to the July bar examination, the applicant had two choices: he could have taken the examination unaccommodated, or he could have postponed taking the examination to pursue, through the administrative process, the accommodation to which he believed he was entitled. To be sure, the applicant, without accommodation, may have failed the bar examination had he taken it, or he may have had to delay taking the examination. That, however, is irrelevant to our analysis and to the procedures prescribed by this Court in bar admission matters. There simply is no such immediate need present in bar admission matters such that circuit court jurisdiction is required.
Further, that our own jurisdictional rules require the applicant to bring his bar admission-related ADA claim to the Board and this Court rather than to any other state court does not contradict the ADA and its preemption provisions, contrary to the applicant's arguments. The applicant is correct in that cases arising *1020 under the ADA may be heard in either federal or state courts, Yellow Freight System, Inc. v. Donnelly, 494 U.S. 820, 823, 110 S. Ct. 1566, 1568, 108 L. Ed. 2d 834, 839 (1990); R.A. Ponte Architects v. Investors' Alert, Inc., 382 Md. 689, 715, 857 A.2d 1, 16 (2004); 28 U.S.C. § 1331 (2006), and rules which would outrightly prohibit such claims, or their adjudication, are preempted. Pacific Gas & Electric Co. v. State Energy Resources Conser. & Dev. Comm'n, 461 U.S. 190, 203-204, 103 S. Ct. 1713, 1722, 75 L. Ed. 2d 752, 765 (1983). The ADA does not mandate specific state court procedures by which a plaintiff must be heard, however. Ware v. Wyoming Board of Law Examiners, 973 F. Supp. 1339, 1353 (D.Wy.1997) ("The ADA does not completely preempt or displace a state's procedure for licensing attorneys, rather `the ADA merely prohibits states from discriminating on the basis of disability.'"). Federal preemption of state laws occurs only to the extent to which there is a conflict between the state court procedure and the ADA. Pacific Gas and Electric Co. v. State Energy Resources Conser. & Dev. Comm'n, 461 U.S. 190, 203-204, 103 S. Ct. 1713, 1722, 75 L. Ed. 2d 752, 765 (1983). Therefore, that our rules require the applicant to present his ADA accommodation entitlement claim to the Board of Law Examiners for determination, with the ultimate resolution being entrusted to this Court, and not to any other state court, does not violate the ADA. The applicant's opportunity to be heard, albeit through procedures which differ from those that govern ADA claims which do not arise in the bar admission context, is nevertheless preserved.
It should be noted that similar conclusions have been reached by other courts. In Varad v. Barshak, 261 F. Supp. 2d 47 (D.Mass.2003), plaintiff/applicant orally requested ADA accommodations during the bar examination from a member of the Massachusetts Board of Bar Examiners ("BBE"), but did not make that request in writing or within seventy-five days prior to the bar examination, as the BBE required. Id. at 55. Because she had failed to follow the processes dictated by the BBE, and, thus, failed to exhaust her remedies under the BBE, the Massachusetts Supreme Judicial Court refused to hear the case, to intervene, or to grant her accommodations. Id. at 52. The applicant sought relief from the United States District Court for the District of Massachusetts. That court similarly denied the applicant's request, on summary judgment, because, despite having received notice of the procedures necessary to obtain accommodations, the applicant had failed to comply with them. Id. at 55. Thus, it was determined, if only implicitly, that the Massachusetts Board of Bar Examiners' rules and procedures for obtaining ADA accommodations did not violate the ADA or deny the applicant her right to be heard.
As our historical analysis and jurisprudence make clear, this Court, since 1898, is the only court with jurisdiction over bar admission matters. None of the applicant's arguments to the contrary has merit. The Circuit Court simply had no jurisdiction to order the injunctive relief in this case. Accordingly, the Board's exceptions are sustained.
IV
Neither Title 10 of the Maryland Code, Business Occupations and Professions Article nor the Rules Governing Admission to the Bar of Maryland [Rules] specifically addresses procedures to be followed in a situation such as the applicant's, where an applicant seeks further review of the Board of Law Examiner's decision to deny him ADA accommodations for the bar examination. There are, however, Rules *1021 that are pertinent and, therefore, instructive.
Rules 5[23], 10[24], and 13[25] of the Rules Governing Admission to the Bar of Maryland *1022 describe the general procedures by which bar admissions are controlled. Rule 5 addresses character review. Pursuant to that Rule, an applicant's character questionnaire is submitted to the Character Committee for investigation and report. Rule 5(b)(1). If the Committee concludes that there may be a basis to recommend denial of the applicant's application, after affording the applicant the opportunity for an on-the-record hearing, at which the applicant may be represented by counsel, present witnesses, and testify, it will transmit the transcript of the hearing, along with its report and recommendation, to the Board. Rule 5(b)(2). The Board shall also afford the applicant, as to whom it concludes there is a basis to recommend that his or her application be denied, an opportunity for a hearing, and, if it so recommends, an opportunity to withdraw the application. Rule 5(c). If the Board recommends that an applicant be denied admission or recommends admission contrary to an adverse recommendation of the Character Committee, and the Committee excepts, proceedings on the record (in the case of the former, the applicant being required to show cause and, in the case of the latter, a hearing on the Committee's exceptions) will be held in the Court of Appeals. Rule 5(d).
Rule 10 governs the report and recommendation required to be made by the Board to the Court, as to each successful applicant. Rule 10(a). This Rule permits "any person," including the Board, to take exceptions to the admission of any applicant. Rule 10(c). As we have seen, the board excepted to the applicant's admission. Rule 10(c) also provides, as relevant:
"A hearing on the exceptions shall be held to allow the exceptant and candidate to present evidence in support of or in opposition to the exceptions and the Board and Character Committee to be heard. The Court may hold the hearing or may refer the exceptions to the Board, the Character Committee, or an examiner for hearing. The Board, *1023 Character Committee, or examiner hearing the exceptions shall file with the Court, as soon as practicable after the hearing, a report of the proceedings. The Court may decide the exceptions without further hearing."
Rule 13 describes the procedures by which out-of-state attorneys are admitted to the bar of Maryland. After receipt and investigation of an applicant's petition and supporting data, if the Board concludes that there are grounds to reject the petition, it must afford the petitioner an opportunity for a hearing. Rule 13(j). If the Board recommends rejection, the petitioner may file exceptions with the Court of Appeals. Rule 13(k). The Court will determine whether to hear the exceptions or appoint an examiner to hear the evidence.
In analyzing each of these rules, a general process of review begins to emerge: if there is a basis for the Board to recommend denial of an applicant's application or petition, it shall afford the applicant a hearing. If the Board does recommend denial, the applicant is entitled to be heard, and the Court will issue a show cause order or the applicant may file exceptions with this Court. Except with respect to character matters, where the proceedings will be on the records made before the Character Committee and the Board, the Court will either hear the issue or designate the Board or another body or person to hear the issue. In no circumstance does the applicant remain unheard.
Similarly, the applicant here, upon receiving the Board's letter denying his "appeal," could, and perhaps should, have filed a request for a hearing with the Board. Thereafter, he could have sought review, by exceptions, in this Court.
Rather than pursue the matter of his entitlement to ADA accommodation in this Court, the applicant sought relief in the Circuit Court, thus circumventing this Court's admission procedures and, in the process, undermining this Court's exclusive jurisdiction. Were we to hold that circuit courts have jurisdiction to decide ADA, and other issues, in the bar admission context, we would be participating in the undermining of our jurisdiction; we would be relinquishing our exclusive power over bar admission matters. That exclusivity has existed unabated and unassailed since 1898. We have no intention of relinquishing it to any degree or extent. As indicated, the exceptions of the Board of Law Examiners are sustained. Accordingly, the applicant's admission to the Bar of the State of Maryland is denied.
IT IS SO ORDERED.
NOTES
[1] In analyzing the Circuit Court's jurisdiction over bar admission matters, we use the term "jurisdiction" fundamentally, to indicate the actual power, rather than the propriety, of the Circuit Court acting in such matters. We discussed this issue in Maryland Bd. of Nursing v. Nechay, 347 Md. 396, 405-406, 701 A.2d 405, 410 (1997). There, we observed, as we previously had done in Moore v. McAllister, 216 Md. 497, 507, 141 A.2d 176, 182 (1958), and long had recognized, that "[j]uridically, jurisdiction refers to two quite distinct concepts: (i) the power of a court to render a valid decree, and (ii) the propriety of granting the relief sought." (Citing 1 Pomeroy, Equity Jurisprudence (5th ed.1941), §§ 129-31). See First Federated Commodity Trust Corp. v. Commissioner of Securities for Maryland, 272 Md. 329, 334, 322 A.2d 539, 543 (1974). Noting that the former concept involves jurisdiction in its fundamental sense, Nechay, 347 Md. at 405-406, 701 A.2d at 410, citing McAllister, 216 Md. at 507, 141 A.2d at 182, we offered the explication of the concept set out in Kaouris v. Kaouris, 324 Md. 687, 708-709, 598 A.2d 1193, 1203 (1991):
"Whether a court has fundamental jurisdiction, i.e., the power, to decide a matter, must be determined by looking to `the applicable constitutional and statutory pronouncements,' First Federated Com. Tr., 272 Md. at 335, 322 A.2d at 543, because fundamental jurisdiction involves the power, or authority, of a court to render a valid final judgment. Stewart v. State, 287 Md. 524, 526, 413 A.2d 1337, 1338 (1980). It is a court's `power to act with regard to a subject matter . . . "conferred by the sovereign authority which organizes the court, and is to be sought for in the general nature of its powers, or in authorities specially conferred.'" Pulley v. State, 287 Md. 406, 416, 412 A.2d 1244, 1249 (1980), quoting Cooper v. Reynolds' Lessee, 77 U.S. (10 Wall), 308, 316, 19 L. Ed. 931 (1870). See First Federated Com. Tr., 272 Md. at 335, 322 A.2d at 543 (`If by that law which defines the authority of the court, a judicial body is given the power to render a judgment over that class of cases within which a particular one falls, then its action cannot be assailed for want of subject matter jurisdiction.'); Medical Examiners v. Steward, 207 Md. 108, 111, 113 A.2d 426, 427 (1955) (Fundamental jurisdiction exists when the court has jurisdiction over the subject matter and the parties.); Moore v. McAllister, 216 Md. at 507-08, 141 A.2d at 182 (`[J]urisdiction over the person and the subject matter goes to the very basic power of the equity court.' (Emphasis in the original)").
Nechay, 347 Md. at 405-406, 701 A.2d at 410. See also New York Min. Co. v. Midland Min. Co., 99 Md. 506, 58 A. 217, 220 (1904); Vonoppenfeld v. State, 53 Md.App. 462, 469-470, 454 A.2d 402, 406-407 (1983).
[2] The court's Order was as follows:
"It is hereby ORDERED, in the above-referenced case [Kimmer v. State Board of Law Examiners], on this 25th day of July, 2005, that:
"(1) Plaintiff's request for a Temporary Restraining Order is GRANTED; and it is further ORDERED that
"(2) Defendant shall provide Plaintiff with ADA accommodations for the July 2005 Maryland essay exam and multistate multiple-choice exam in the same manner that Defendant accommodates other bar candidates granted ADA accommodations related to time and/or equipment, which, in Plaintiff's case, is (a) double time for both portions of the exam, and (b) the use of a computer for the essay portion of the exam, with Plaintiff's bar exam to be administered over a four-day period, commencing on July 25, 2005, and concluding on July 29, 2005, with two days for the Maryland essay portion and two days for the multistate multiple-choice portion; and it is further ORDERED that
"(3) Plaintiff shall cooperate with Defendant in terms of times, location, and equipment in the same manner as other bar candidates with ADA accommodations.
"(4) This Order will expire in ten (10) days from the date of this Order."
The petition was not accompanied by a complaint. Moreover, after obtaining the temporary restraining order, the applicant did not pursue obtaining a permanent injunction or seek adjudication on the merits. In fact, the applicant took no further action in the case after the order was issued until after expiration of the temporary restraining order, even though he was placed on notice, prior to its expiration, that the Board did not intend to recommend the applicant's admission to the bar even if he passed the examination, without adjudication of the merits of the applicant's entitlement to the accommodations he received. Thus, other than a subsequent order setting for hearing his later filed Petition for Declaratory Relief, this is the final and only order in the case.
[3] Dr. Wake recommended that the computer be equipped with grammar check and spell check.
[4] The applicant attended the University of Baltimore School of Law for his first year of law school and then he transferred to the George Washington School of Law, from which he obtained his Juris Doctor degree.
[5] Rule 3 of the Maryland Rules of the State Board of Law Examiners addresses Accommodations Pursuant to the Americans With Disability Act. Subsection b prescribes the procedure for making a request for accommodation. It requires a submission on the "Applicant's Accommodations Request Form," contained in the bar application form, along with the specified supporting documentation. No issue is raised as to the failure of the applicant to comply with the Rule, although in clarifying its ruling in response to the applicant's inquiry, the Board brought to the applicant's attention the need to complete the prescribed form and the manner in which its prior submission was deficient. The applicant's expert thereafter supplemented her reports, presumably with the required documentation.
[6] As relevant, that Rule provides:
"d. Board Determination. If there is uncertainty about whether the requested test accommodations are warranted pursuant to the ADA, the applicant's request and all supporting documentation shall be referred to a qualified expert retained by the Board to review and analyze whether the applicant has documented a disability and requested reasonable accommodations. . . ."
[7] Dr. Lewandowski was asked to review the documentation submitted by the applicant in support of his application for ADA accommodation. That documentation included his request form, his personal statement, letters of prior accommodation from the law schools he attended and the psychological report and letter from the applicant's psychologist, Dr. Wake.
[8] Noting the applicant's educational background and after a review of his performance on the tests administered by Dr. Wake, Dr. Lewandowski concluded:
"Analysis of the limited documentation in this case suggests that Mr. Kimmer does not meet criteria for a DSM IV diagnosis of Learning Disorder, nor does he meet criteria as a qualified individual under the ADA. Mr. Kimmer's history and test scores indicate that he performs well above the average person on virtually every dimension of cognitive and academic functioning. There is no evidence of significant impairment or a substantial limitation in learning. Just because every test score is not as high as his superior IQ score does not mean that those scores (i.e., 120) should be considered as impaired or deficits."
[9] The Board also advised the applicant that "[t]he report sent was deficient in that it did not follow the General Guidelines for All Evaluation Reports," not having included the qualifications of the diagnostician, an explanation of how the examination performance is impaired, an explanation for why there were no accommodations given before the date of the report and why they are necessary now. The guidelines were attached to the letter. Dr. Wake responded to this letter, providing the required information, by letter dated June 27, 2005.
[10] Rule 3 e. of the Rules of the Maryland State Board of Law Examiners provides for appeal of an adverse ruling. It provides:
"e. Appeal. An applicant shall file any appeal with the Board within 10 days of the date of the Board's letter denying test accommodations. The appeal shall be in the form of a letter addressed to the Board at the Board's administrative office and shall contain any additional information or documentation the applicant wishes to have considered. The Chairman of the State Board of Law Examiners is delegated the authority to decide appeals on behalf of the Board. The Board's staff will advise the applicant by letter of the results of the appeal."
[11] On July 13, 2005, when the Board had not yet made a determination regarding the appeal, the applicant's attorney called the Board and asked when an answer was anticipated, as the bar exam the applicant planned to take was scheduled for July 26 and 27.
[12] July 22, 2005 was a Friday. The Board was offered the opportunity to postpone the hearing until July 25, 2005, but opted to go forward on the 22nd, inasmuch as nothing was to be gained by the postponement.
[13] In determining whether to issue a temporary restraining order, the trial court must examine and find four factors: "(1) the likelihood that the plaintiff will succeed on the merits; (2) the `balance of convenience' determined by whether greater injury would be done to the defendant by granting the injunction than would result from its refusal; (3) whether the plaintiff will suffer irreparable injury unless the injunction is granted; and (4) the public interest." LeJeune v. Coin Acceptors, Inc., 381 Md. 288, 300-301, 849 A.2d 451, 458-59 (2004); Fogle v. H & G Restaurant, Inc., 337 Md. 441, 654 A.2d 449 (1995): Lerner v. Lerner, 306 Md. 771, 776, 511 A.2d 501, 504 (1986); State Dep't of Health and Mental Hygiene v. Baltimore County, 281 Md. 548, 554, 383 A.2d 51, 55 (1977). Md. Rule 15-501(b) defines "preliminary injunction" as "an injunction granted after opportunity for a full adversary hearing on the propriety of its issuance but before a final determination of the merits of the action."
[14] In its brief, the Board says that the Motion was filed October 3. The certificate of service contains the date September 29 and that is the date that the docket entries indicate that the Motion was filed.
[15] Rule 10(a) of the Rules Governing Admission to the Bar of Maryland provides:
"(a) Report and recommendations as to candidates. As soon as practicable after each examination, the Board shall file with the Court a report of the names of the successful candidates and the Board's recommendation for admission. If proceedings as to the character of a candidate are pending, the Board's recommendation of that candidate shall be conditioned on the outcome of the proceedings."
[16] "(b) Order of ratification. On receipt of the Board's report, the Court shall enter an order fixing a date at least 30 days after the filing of the report for ratification of the Board's recommendations. The order shall include the names and addresses of all persons who are recommended for admission, including those who are conditionally recommended. The order shall state generally that all recommendations are conditioned on character approval, but shall not identify those persons as to whom proceedings are still pending. The order shall be published in the Maryland Register at least once before ratification of the Board's recommendations."
Ratification of board's report occurred "[o]n expiration of the time fixed in the order. . . subject to the conditions state in the recommendations and to any exceptions noted under section (c) of this Rule." Rule 10(d).
[17] "(c) Exceptions. Before ratification of the Board's report, any person may file with the Court exceptions relating to any relevant matter. For good cause shown the Court may permit the filing of exceptions after ratification of the Board's report and before the candidate's admission to the Bar. The Court shall give notice of the filing of exceptions to the candidate, the Board, and the Character Committee that passed on the candidate's application. A hearing on the exceptions shall be held to allow the exceptant and candidate to present evidence in support of or in opposition to the exceptions and the Board and Character Committee to be heard. The Court may hold the hearing or may refer the exceptions to the Board, the Character Committee, or an examiner for hearing. The Board, Character Committee, or examiner hearing the exceptions shall file with the Court, as soon as practicable after the hearing, a report of the proceedings. The Court may decide the exceptions without further hearing."
[18] That Act provided:
"AND BE IT FURTHER ENACTED, by the authority advice and consent aforesaid, That from and after the end of this present session of assembly, no attorney, or other person whatsoever, shall practise the law in any of the courts of this province, without being admitted thereto by the justices of the several courts, who are hereby empowered to admit and suspend them (salvo jure coronae) until his majesty's pleasure shall be known therein . . . PROVIDED ALWAYS, That nothing in this act shall extend, or be construed to extend, to give right to any courts of this province to admit any attorney, or other person practising the law, to practise in any court that has been already refused so to do by his excellency, and his majesty's honourable council. . . ."
[19] A similar situation existed with regard to disciplinary actions against an attorney. Petition of Brack, 187 Md. 407, 408, 50 A.2d 432, 432 (1946); In re Williams, 180 Md. 689, 689, 23 A.2d 7, 11 (1941).
[20] This recognition and allocation of jurisdiction is now codified in Md.Code (1989, 2004 Replacement Vol.), Title 10, Subtitles 1 and 2 of the Business Occupations and Professions Article. In Bastian v. Watkins, 230 Md. 325, 329, 187 A.2d 304, 306 (1963), this Court commented, in that regard: "It has long been recognized that the admission of a resident of Maryland to practice law is a legislative, not a judicial, function in that the right may constitutionally be regulated by statute." As indicated in Attorney General v. Waldron, 289 Md. 683, 698-699, 426 A.2d 929, 937-938 (1981), this observation was reflective of the "comfortable accommodation," Public Service Commission v. Hahn Transp., Inc., 253 Md. 571, 583, 253 A.2d 845, 852 (1969), which has developed between the Judiciary and the Legislature and, despite its "constitutionally imposed responsibility" to regulate the practice of law, the admission of new members to the bar, and the discipline of attorneys, was consistent with the Court's recognition of the General Assembly's ability to "act pursuant to its police or other legitimate power to aid the courts in the performance of their judicial functions ... and ... [to] establish minimum criteria for the learning and character of persons admitted to the bar of this State." We were clear, however, that
"There can be no doubt ... that the deferential respect accorded the legislative branch by the judicial must neither undermine nor dilute the fundamental authority and responsibility vested in the judiciary to carry out its constitutionally required function, an aspect of which, as we have seen, is the supervision of practicing attorneys,"
and that
"since admission to the bar is a judicial function, the Legislature may not prescribe the maximum qualifications necessary for admittance, for this Court is always free to adopt any additional requirements it deems necessary to maintain a high level of professional competence in the bar and promote public trust in and respect for the profession."
Thus, the Judiciary's responsibility and obligation with regard to the practice and admission process are recognized throughout the statute. Section 10-103 provides for the Court to "adopt rules that govern the standards and procedures for admission to the Bar." Section 10-206 provides:
"(a) Except as otherwise provided by law, before an individual may practice law in the State, the individual shall:
"(1) be admitted to the Bar; and
"(2) meet any requirement that the Court of Appeals may set by rule."
Section 10-207(f) prescribes that, to qualify for admission to the bar, in addition to the statutory provisions, "[a]n applicant shall meet any other qualification or requirement that the Court of Appeals establishes by rule."
Moreover, the Rules Governing Admission to the Bar of Maryland are comprehensive.
[21] This is not correct. The Board did report the applicant's favorable results to the Court, but then filed an exception to his admission, as it was permitted by Rule 10(c) to do.
It also is worth remembering that the trial court's ruling was a temporary ruling and was only intended to be as much. The order contained a provision making this fact crystal clear; by its terms, the temporary restraining order would expire in ten days from the date of the order. Tellingly, it was the trial judge herself who penciled in that provision. Moreover, the propriety of issuing the temporary restraining order was a contested issue, and its resolution on a temporary basis did not, as the Board's letter of August 2, 2005 made amply clear, amount to its resolution on a permanent basis. Certainly, the Board did not acquiesce in the decision.
[22] We are not persuaded. This Court acts both legislatively and judicially. We act legislatively when we promulgate rules of procedure and practice, i.e., the Maryland Rules of Practice and Procedure, or to regulate the profession, i.e., the Rules Governing Admission to the Bar of Maryland. The source of our legislative power is the Maryland Constitution, Md. CONST. Art. IV, § 18(a), and the separation of powers doctrine, Md. CONST., Declaration of Rights, Art. 8. Thus, we have, by rule, see Rule 3 of the Rules of the Maryland State Board of Law Examiners, required applicants to present their bar admission-related ADA claims to the Board of Law Examiners for consideration and decision and thus, ultimately, to this Court. Adjudication of this case is pursuant to this Court's constitutional responsibility and jurisdiction, as the highest Court in this state, to regulate the practice and oversee admissions to the bar. The comparison of our process to a professional licensure board's hearing of an ADA claim is, consequently, and to say the least, inappropriate and inapposite.
[23] "Rule 5. Character Review.
"(a) Burden of proof. The applicant bears the burden of proving to the Character Committee, the Board, and the Court the applicant's good moral character and fitness for the practice of law. Failure or refusal to answer fully and candidly any question set forth in the application or any relevant question asked by a member of the Character Committee, the Board, or the Court is sufficient cause for a finding that the applicant has not met this burden.
"(b) Investigation and report of character committee. (1) On receipt of a character questionnaire forwarded by the Board pursuant to Rule 2(d), the Character Committee shall (A) through one of its members, personally interview the applicant, (B) verify the facts stated in the questionnaire, contact the applicant's references, and make any further investigation it finds necessary or desirable, (C) evaluate the applicant's character and fitness for the practice of law, and (D) transmit to the Board a report of its investigation and a recommendation as to the approval or denial of the application for admission.
"(2) If the Committee concludes that there may be grounds for recommending denial of the application, it shall notify the applicant and schedule a hearing. The hearing shall be conducted on the record and the applicant shall have the right to testify, to present witnesses, and to be represented by counsel. A transcript of the hearing shall be transmitted by the Committee to the Board along with the Committee's report. The Committee's report shall set forth findings of fact on which the recommendation is based and a statement supporting the conclusion. The Committee shall mail a copy of its report to the applicant, and a copy of the hearing transcript shall be furnished to the applicant upon payment of reasonable charges.
"(c) Hearing by the board. If the Board concludes after review of the Committee's report and the transcript that there may be grounds for recommending denial of the application, it shall promptly afford the applicant the opportunity for a hearing on the record made before the Committee. The Board shall mail a copy of its report and recommendation to the applicant and the Committee. If the Board decides to recommend denial of the application in its report to the Court, the Board shall first give the applicant an opportunity to withdraw the application. If the applicant withdraws the application, the Board shall retain the records. Otherwise, it shall transmit to the Court a report of its proceedings and a recommendation as to the approval or denial of the application together with all papers relating to the matter.
"(d) Review by court. (1) If the applicant elects not to withdraw the application, after the Board submits its report and adverse recommendation the Court shall require the applicant to show cause why the application should not be denied.
"(2) If the Board recommends approval of the application contrary to an adverse recommendation by the Committee, within 30 days after the filing of the Board's report the Committee may file with the Court exceptions to the Board's recommendation. The Committee shall mail copies of its exceptions to the applicant and the Board.
"(3) Proceedings in the Court under this section shall be on the records made before the Character Committee and the Board. If the Court denies the application, the Board shall retain the records.
"(e) Continuing review. All applicants remain subject to further Committee review and report until admitted to the Bar."
[24] See supra, n.n. 15, 16, and 17.
[25] Rule 13 provides, as relevant, and regarding out-of-state attorneys:
"(f) Petition. (1) The petitioner shall file with the Board a petition under oath on a form prescribed by the Board, accompanied by the fees required by the Board and the costs assessed for the character and fitness investigation and report by the National Conference of Bar Examiners.
"(2) The petitioner shall state (A) each jurisdiction in which the petitioner has been admitted to the Bar and whether each admission was by examination, by diploma privilege or on motion; and (B) the additional facts showing that the petitioner meets the requirements of section (a) of this Rule or should be qualified under section (e) of this Rule.
"(3) The petitioner shall file with the petition the supporting data required by the Board as to the petitioner's professional experience, character, and fitness to practice law.
"(4) The petitioner shall be under a continuing obligation to report to the Board any material change in information previously furnished.
* * * *
"(h) Time for filing. The petition shall be filed at least 60 days before the scheduled attorney examination that the petitioner wishes to take. On written request of the petitioner and for good cause shown, the Board may accept a petition filed after the deadline. If the Board rejects the petition, the petitioner may file an exception with the Court within five days after notice of the rejection.
* * * *
"(j) Action by board on petition. The Board shall investigate the matters set forth in the petition. (1) If the Board decides that the petition should be accepted, it shall mail notice of its decision to recommend acceptance of the petition to the petitioner. (2) If the Board concludes that there may be grounds for rejecting the petition, the Board shall notify the petitioner and shall afford the petitioner an opportunity for the hearing. The hearing will not be held until after the National Conference of Bar Examiners completes its investigation of the petitioner's character and fitness to practice law and reports to the Board. The petitioner may be represented by an attorney at the hearing. Promptly after the Board makes its final decision to recommend acceptance or rejection of the petition, the Board shall mail notice of its decision to the petitioner. (3) If the Board decides to recommend rejection of the petition, it shall file with the Court a report of its decision and all papers relating to the matter.
"(k) Exceptions. Within 30 days after the Board mails notice of its adverse decision to the petitioner, the petitioner may file with the Court exceptions to the Board's decision. The petitioner shall mail or deliver to the Board a copy of the exceptions. The Court may hear the exceptions or may appoint an examiner to hear the evidence and shall afford the Board an opportunity to be heard on the exceptions." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2035934/ | 606 N.E.2d 230 (1992)
238 Ill. App. 3d 208
179 Ill. Dec. 398
James DUMENRIC, Plaintiff,
v.
UNION OIL COMPANY OF CALIFORNIA, a corporation, Defendant, Third Party Plaintiff-Appellee-Cross-Appellant (Aetna Life and Casualty Company, Third Party Defendant-Appellant-Cross-Appellee; Mid-State Mechanical Corporation, Daniel R. Bennett, Daniel R. Bennett & Co., and Swank Insurance Agency, Third Party Defendants).
No. 1-90-2490.
Appellate Court of Illinois, First District, Sixth Division.
October 30, 1992.
*231 Cassidy, Schade & Gloor, Chicago (Timothy J. Ashe, Martha A. Pagliari, Lynn D. Dowd, of counsel), for appellant.
Querrey & Harrow, Ltd., Chicago (Eric L. Samore and Ellen S. Martin, of counsel), for appellee.
Presiding Justice EGAN delivered the opinion of the court:
Aetna Life and Casualty Co. (Aetna) appeals from an order granting summary judgment in favor of Union Oil Company of California (Union). The trial judge held that Aetna was estopped from denying insurance coverage to Union for an occurrence in which James Dumenric was injured while working on an oil storage tank owned by Union. Aetna contends that the record establishes, as a matter of law, that Aetna was not estopped to deny coverage to Union or, alternatively, that fact questions exist that would bar summary judgment.
Union entered into an agreement with Mid-State Mechanical Corporation (Mid-State) under which Mid-State was to perform certain pipe-fitting work at Union locations. The agreement provided that the work would begin on October 21, 1984; the estimated time of completion was given as October 21, 1985. Mid-State was to provide general liability insurance, with Union named as an additional insured; this was Union's company policy at that time.
A certificate of insurance was issued by Daniel Bennett, an insurance broker, to Mid-State on October 18, 1984. The certificate was sent to and reviewed by Union on approximately October 24. The certificate provided that Union was an additional insured on an Aetna insurance policy issued to Mid-State and that Union would be given ten days notice of any cancellation of the policy. The certificate provided that the policy was to run until October 21, 1985. In reliance on this insurance certificate, Union did not require Mid-State to seek other insurance coverage nor did it seek alternative coverage itself.
James Dumenric, an employee of Mid-State, filed suit against Union for injuries incurred while working on Union facilities. Dumenric alleged that he had been injured on December 11, 1984. Union sought coverage for the complaint of Dumenric by tendering the complaint to Bennett. Union specifically referred to the certificate of insurance that had been provided by Bennett.
Aetna informed Union that Bennett had forwarded Union's claim of coverage to Aetna; Aetna had reviewed the matter and determined that Aetna had not insured Mid-State since November 21, 1984, which was before the date of the alleged injuries. Union also tendered to Aetna the defense of another lawsuit filed by another employee of Mid-State, Robert Smith. Aetna denied coverage in the Smith case also.
Union filed a third-party complaint, later amended, against Mid-State, Aetna, Bennett and another insurance company. Only Aetna is involved in this appeal.
Count I of the amended complaint, captioned "Estoppel," sought a declaration that Aetna should be estopped from denying a defense and should indemnify Union up to $500,000 against the Dumenric lawsuit *232 Amended count I also sought costs, expenses and attorney fees incurred in defending the Dumenric action. Amended count IV, captioned "Breach of Contract," sought the same relief as amended count I. Union and Aetna both filed motions for summary judgment. The trial judge granted Union's motion for summary judgment on count I and denied Union's motion for summary judgment on count IV. The judge also denied Aetna's motion for summary judgment.
Aetna appeals from the order granting Union's motion for summary judgment as to count I and denying Aetna's own motion for summary judgment. Union has filed a cross appeal of the order denying its motion for summary judgment on count IV. Aetna has filed a motion to strike Union's cross-appeal.
This case hinges principally on the relationship between Bennett and Aetna. It is Aetna's position that it issued a policy of insurance to Mid-State only; that Aetna never issued the certificate of insurance to Union; and that Bennett was an agent of Mid-State and not of Aetna. The trial judge found, as a matter of law, that Bennett was an agent, or an apparent agent, of Aetna and that Bennett bound Aetna to provide insurance coverage to Union. He held that, if Bennett exceeded his authority, Aetna should proceed against Bennett.
The motions for summary judgment were based on the pleadings and the depositions of Daniel Bennett, Michael Hoder and Benjamin King. Our discussion necessarily begins with the deposition of Daniel Bennett.
Bennett testified that he had been a practicing insurance broker since 1962 and during that time he had worked for numerous insurance companies and agencies. In 1982, Bennett formed his own insurance agency. For the two years following the opening of his own company, Bennett had agreements with, and placed property insurance for, three or four different insurance companies, including Aetna. He considered himself an agent and a broker, sometimes acting on behalf of the company and sometimes on behalf of the insured.
Bennett received commissions from Aetna at a rate of about 16%. He followed a "written set of procedures," but did not say what these procedures were or who required them. He received various manuals from Aetna which detailed which risks or insurance Aetna would be interested in. He did not receive any training from Aetna.
His agreement with Aetna, entitled "Agency Agreement," provided as follows:
"1. Authority of Agent During Term of Agreement
The Agent is authorized, subject to the underwriting rules and practices of the Company as they are from time to time constituted, to solicit proposals, and to collect and receipt premiums, and to bind and execute contracts for the kinds of insurance for which a commission is specified in the Commission Schedules issued by the Company to the Agent.
* * * * * *
2. Notification to the Company
The Agent agrees to forward to the Company copies of all binders, policies, certificates and endorsements issued by the Agent, or to otherwise notify the Company of all liability accepted within three business days following the issuance or acceptance by the Agent."
Bennett issued certificates of insurance. He testified that he did not have to contact Aetna before signing a certificate of insurance "on a risk of this kind." He could just inform the underwriter by calling or sending a copy of the certificate. The policy for issuing certificates varied from company to company.
Bennett stated that he contacted and met with a Mid-State representative a couple of times about Mid-State's insurance needs. He gathered information from Mid-State and then filled out an application for Mid-State which was submitted to Aetna. He met with a Mid-State representative in 1983 and told him that he was duplicating some of Mid-State's current insurance coverage with another carrier. He was attempting to get Mid-State a better price on its insurance.
*233 Bennett determined that insurance from Aetna would best suit Mid-State's needs. He procured a policy from Aetna. Aetna told Bennett that it was not going to renew Mid-State's insurance policy but agreed to extend its insurance coverage of Mid-State for one month until November 21, 1984. He was told by Mid-State that it needed a certificate for Union because Mid-State was going to do some work for Union. Bennett asked a woman at Mid-State to type the certificate. The certificate of insurance was dated October 18, 1984, and stated that it would expire on October 21, 1985. The certificate named Union as an additional insured and showed that Bennett signed as an agent for Aetna. Bennett believed that Union was an additional insured under the Aetna policy when he issued the certificate. Union was not named as an additional insured on the insurance policy. An endorsement policy was never sent to Union.
Bennett told the secretary to type the certificate to show the expiration date of November 21, 1984, instead of October 21, 1985. The inaccurate date was a typographical error. Bennett told the secretary at Mid-State that the coverage was only going to be extended for one month. He made out the certificate without calling Aetna; on a risk of this kind he had the authority to issue the certificate. His authority was based on an understanding between the agents and the underwriters.
Bennett was not sure whether he sent or delivered the policy, but was sure he did one or the other. Generally a policy endorsement was issued when a certificate of insurance was issued. There was a procedural mess at Aetna during this time and policies of endorsement were not being issued after certificates of insurance were submitted.
He had some contact with Mid-State in November of 1984 concerning Mid-State's insurance needs, but Mid-State eventually decided to obtain its insurance from another agency.
Around March 6, 1985, Bennett was contacted by a Union representative, Mike Hoder. When asked whether he was still providing insurance for Mid-State, Bennett responded that he was no longer providing coverage for Mid-State; Bennett sent Union a letter to this effect.
Mike Hoder, Union's supervisor of purchasing, testified that in dealing with a contractor for the first time, Union would generally send a request for an insurance certificate and a form copy of a Union certificate directly to the contractor. The insurance broker would then send back the certificate to Union. He received the certificate from Bennett.
Hoder also received a certificate of insurance from Swank Insurance on October 29, 1984. This certificate stated that they were insuring Mid-State. The insurance coverage provided by Swank was different from the coverage indicated on the certificate provided by Bennett in that (1) Union was not listed as an additional insured; (2) the certificate did not contain a cross liability clause; and (3) it did not address the waiver of subrogation. Hoder did not investigate this new certificate because he had proper insurance from Aetna on file. Sometime later, Union became aware that an insurance problem existed.
Benjamin King, Jr., the President of Mid-State, testified that in the early fall of 1984, he switched insurance brokers from Bennett to Swank, because Aetna had "dropped" Mid-State" due to the amount of refinery work." Swank acquired coverage for Mid-State through another insurance carrier.
Aetna's notice of cancellation of the Mid-State policy was sent to Mid-State and Bennett but not to Union.
To establish estoppel in an insurance context, the insured must show: (1) that he was misled by the acts or statements of the insurer or its agent; (2) reliance by the insurer on those representations; (3) that such reliance was reasonable; and (4) detriment or prejudice suffered by the insured based on the reliance. (Allstate Insurance Co. v. Tucker (1989), 178 Ill.App.3d 809, 127 Ill. Dec. 922, 533 N.E.2d 1004.) An intent to mislead the relying party is not necessary for recovery. *234 Gary-Wheaton Bank v. Meyer (1984), 130 Ill.App.3d 87, 85 Ill. Dec. 180, 473 N.E.2d 548.
Aetna contends that whether Bennett was an agent of Aetna is a fact question that may not be decided by summary judgment and that any reliance by Union on the representations of Bennett was unreasonable.
Both parties have argued extensively and have cited many cases on the issue of whether Bennett was in fact an agent of Aetna. Citing Krause v. Pekin Life Insurance Co. (1990), 194 Ill.App.3d 798, 141 Ill. Dec. 402, 551 N.E.2d 395, Aetna contends that in determining whether an agency relationship exists, a court is to apply a four-prong test, which, for the sake of brevity, we will not repeat. Aetna also cites two opinions from the Seventh Circuit Court of Appeals which held that the four-prong test is applicable even where an agency agreement exists between a broker and an insurer. (Lazzara v. Howard A. Esser, Inc. (7th Cir.1986), 802 F.2d 260; American Insurance Corp. v. Sederes (7th Cir.1986), 807 F.2d 1402.) Union has cited the very recent case of Zannini v. Reliance Insurance Co. (1992), 147 Ill. 2d 437, 168 Ill. Dec. 820, 590 N.E.2d 457, as authority for the proposition that the four-prong test is not applicable where an agency agreement exists between a broker and an insurer. Aetna has sought to distinguish Zannini and argues further that Zannini did not hold that an agency relationship existed as a matter of law.
We have determined that we need not, and should not, decide the question of whether Union has established, as a matter of law, that Bennett was Aetna's agent in fact when the certificate was signed. During oral argument one of the members of this court pointed out that Aetna had instructed Bennett that it intended to cancel Mid-State's policy and agreed to an extension of the policy only until November 21, 1984. Through the negligence of Bennett, the certificate of insurance was issued showing that the policy termination date was October 21, 1985. Thus, the agent acted in contravention of the express direction of his principal. In substance, therefore, under the terms of the agency agreement, upon which Union relies, Bennett had authority to bind Aetna, but the agreement provided that his authority was "subject to the underwriting rules and practices" of Aetna. The evidence shows that Aetna, exercising its rights under the agreement, limited Bennett to binding Aetna only until November 21, 1984. The legal effect of that limiting instruction by Aetna has not been briefed or argued either in the circuit court or in this court. Consequently, we do not feel that we should pass on the question, particularly because we have determined that the trial judge correctly found that Bennett had apparent authority as a matter of law.
In State Security Insurance Co. v. Burgos (1991), 145 Ill. 2d 423, 164 Ill. Dec. 631, 583 N.E.2d 547, the court enunciated the principles of apparent authority:
"Apparent authority arises where a principal creates, through words or conduct, the reasonable impression that the putative agent has been granted authority to perform certain acts. [Citations.] Apparent authority is that authority which a reasonably prudent person, in view of the principal's conduct, would naturally suppose the agent to possess. [Citation.] The principal, having created the appearance of authority, is estopped to deny it to the detriment of a third party. [Citation.]
* * * * * *
* * * It is not necessary that the insurer be aware of the particular acts being performed by the broker; once the insurer has created the appearance of authority, the insurer is estopped to deny it, even though the insurer may be ignorant of its exercise. [Citation.] Fairness mandates such a result because, where the insurer has created the appearance of authority in the broker, the loss must fall upon the insurer, rather than upon the innocent insured. [Citation.]" 145 Ill. 2d at 431-433, 164 Ill. Dec. 631, 583 N.E.2d 547.
We judge that the evidence establishes, as a matter of law, apparent authority *235 on the part of Bennett to bind Aetna. Most important is the agreement itself between Aetna and Bennett. To illustrate the weight to be given the agreement, we refer to Zannini, in which the supreme court held that the existence of the agency agreement between the broker and the insurer rendered unnecessary resort to the four-prong test enunciated in Krause v. Pekin Life Insurance Co. (1990), 194 Ill. App. 3d 798, 141 Ill. Dec. 402, 551 N.E.2d 395. The Zannini court distinguished Krause:
"Unlike the procurer of insurance in Krause, Nesslar [the broker] had an agency-company agreement with Reliance [the insurer], the company with which he placed coverage. The agreement gave Nesslar power to bind Reliance. The weight of the evidence shows that Nesslar was an agent of Reliance, expressly authorized to bind coverage on behalf of Reliance." (147 Ill.2d at 454, 168 Ill. Dec. 820, 590 N.E.2d 457.)
A reasonable argument could be made that Zannini held that the existence of the agency agreement constituted the manifest weight of the evidence that the broker was the agent of the insurer. In any event, in determining the issue of apparent authority, the agreement must be given great weight.
There is no doubt that the agreement gave Bennett the right to bind Aetna which included the issuance of certificates of insurance. Bennett did issue certificates of insurance. He testified that he did not have to get prior approval before signing certificates. Most important, there is nothing expressed in the written agreement that would require Bennett to get prior approval by Aetna. The only requirement is that Bennett was to forward copies of certificates to Aetna, "or to otherwise notify" Aetna within three days after the issuance of the certificate. Regardless of how Aetna may seek to deprecate Bennett's testimony, his testimony was not rebutted by Aetna, which was in a position to do so.
Union has cited Burgos as an example of a reviewing court finding apparent authority as a matter of law. Aetna seeks to distinguish Burgos from this case and argues that factually Burgos was much stronger for the insured than is this case. The issue is not whether this case is factually as strong as Burgos; the issue is whether it is strong enough to support summary judgment. We conclude that it is. We note further that this case is factually stronger than Burgos in an almost decisive aspect. The supreme court held that Burgos established apparent authority as a matter of law even in the absence of a written agency agreement, which is present here.
Aetna also contends that Union did not reasonably rely on the certificate of insurance or, alternatively, an issue of material fact exists whether Union could reasonably rely on the certificate. The principal basis of Aetna's position is the fact that Union received a revised certificate of insurance issued by Swank five days after the Bennett certificate was issued. Aetna concludes, "Union Oil[, after receiving the Swank certificate,] chose to take no action whatsoever." Aetna has not suggested just what "further action" Union should have taken. Hoder testified that it was part of his job to review insurance. He also testified that he relied on Bennett's certificate.
In substance, Aetna's argument is that the Swank certificate provided duplicative coverage and that Hoder should have wondered why. Hoder explained that it was not duplicative coverage: the certificate did not contain a cross-liability clause; it did not address the waiver of subrogation; and most important, it did not list Union as an additional insured, as did the certificate from Bennett. Under these circumstances, we believe that the evidence establishes, as a matter of law, that Union's reliance on the Bennett certificate was reasonable.
We repeat the observation of the supreme court in Burgos that fairness requires that the loss must fall upon the insurer rather than upon the innocent insured where the insurer has created the appearance of authority in a broker. We think that the result of Burgos, which involved *236 a third party, the insured, is even more compelled in this case where an innocent fourth party relied upon the apparent authority of the agent.
For these reasons, we conclude that the trial judge properly entered summary judgment on behalf of Union. In view of our holding, we need not decide whether the evidence established that Aetna ratified the actions of Bennett.
Union has cross-appealed from the denial of its motion for summary judgment on count IV. We had previously denied Aetna's motion to dismiss the cross-appeal. Aetna has renewed its motion to dismiss in its brief. We adhere to the ruling denying the motion to dismiss. (See People v. American National Bank & Trust Co. (1965), 32 Ill. 2d 115, 203 N.E.2d 897; Handley v. Unarco Industries, Inc. (1984), 124 Ill.App.3d 56, 79 Ill. Dec. 457, 463 N.E.2d 1011.) We do, however, affirm the denial of Union's claim on a breach of contract basis. Union asks that this case be affirmed "either on an estoppel or a breach of contract theory." Implicitly, Union recognizes that a party may not recover on both. (Cf. Wagner Excello Foods, Inc. v. Fearn International, Inc. (1992), 235 Ill.App.3d 224, 176 Ill. Dec. 258, 601 N.E.2d 956.) Because we have determined that the evidence, as a matter of law, establishes that Union is entitled to recover under an estoppel theory, it necessarily follows that it cannot also recover under a breach of contract theory. For that reason, the order denying summary judgment to Union on count IV is also affirmed. For these reasons, the judgment of the circuit court is affirmed.
Judgment affirmed.
McNAMARA [*] and RAKOWSKI, JJ., concur.
NOTES
[*] Justice Rosemary LaPorta participated in oral argument before her death. Justice Daniel McNamara was substituted on the panel. He has listened to the oral argument tape and has read the briefs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2158771/ | 667 F. Supp. 414 (1985)
Neoma SHAFER, Plaintiff,
v.
COMMANDER, ARMY and AIR FORCE EXCHANGE SERVICE, et al., Defendants.
No. CA 3-76-1246-R.
United States District Court, N.D. Texas, Dallas Division.
June 26, 1985.
*415 *416 *417 Steven B. Thorpe, Law Offices of James C. Barber, Genice A.G. Rabe, Mullinax, Wells, Baab & Cloutman, P.C., Brian Eberstein, Dallas, Tex., for plaintiff.
Elizabeth Pugh, Judith F. Ledbetter, Don J. Mros, Patrick Sorek, Sharon L. Reich, Richard Greenburgh, Brook Hedge, Alan L. Ferber, Dept. of Justice, Civ. Div., Washington, D.C., John Albach, Sp. Master, Dallas, Tex., for defendants.
MEMORANDUM OPINION
BUCHMEYER, District Judge.
This is an employment discrimination case brought by the plaintiff, Neoma Shafer, against the defendant, the Army and Air Force Exchange Service ("AAFES").[1]
Shafer claims that AAFES has refused to promote her because she is female, and *418 has also discriminated against her in training and job assignment. In addition, Shafer alleges that AAFES discriminates against all female employees at its headquarters in Dallas with respect to promotional advancement opportunities, training opportunities and job assignment.[2] On February 3, 1982, following a class certification hearing, this Court certified Neoma Shafer as the representative, under Rule 23(b)(2), of the following class:
"All females who, since April 1, 1972, have been or who are now employed by the defendants at their AAFES Headquarters Facility, Dallas, Texas (including the Fashion Distribution Center), and who have been discriminated against on account of sex with respect to: promotional and advancement opportunities; training opportunities; and job assignment."
A "Phase I" trial of the class liability issues was held in June of 1983. The filing of post-hearing briefs was completed by August 1983, with some letter-briefs addressing recent case developments being filed by February 20, 1984. (See footnote 1.) The purpose of this opinion is to resolve the class liability issues and all pending motions.[3] Specifically, it holds:
(i) that the AAFES "mobility requirement" for all UA positions above grade 12 is discriminatory because of its disparate impact upon females;
(ii) that AAFES has not discriminated against female employees with respect to training;[4]
(iii) that AAFES has discriminated against females by treating them disparately, and less favorably than men, with respect to initial placement and promotion to UA jobs and to HPP jobs (grades 6-11);
(iv) the motion by Shafer to strike certain tables attached to the AAFES post-trial briefs is moot; and
(v) the motion of AAFES to decertify the class action is denied.
1. Factual Background
a. The Plaintiff
Neoma Shafer has been employed by AAFES, at its headquarters in Dallas, since May of 1968. She is currently a merchandising clerk and has held this same job during most of her employment with AAFES (although, as discussed below, she has unsuccessfully applied for promotion on several occasions).
b. The Defendant
The Army and Air Force Exchange Service is an instrumentality of the Department *419 of Defense. It supplies various goods and services to members of the Army and the Air Force (and their dependents) through a world-wide network of retail establishments known as post exchanges (or "PX's").
AAFES employs approximately 60,000 persons throughout the world. At its headquarters, which are located in Dallas, AAFES employs some 2,000 persons. Approximately 65% of the employees at the AAFES Headquarters are female.
c. Job Categories
There are three catagories of employees at AAFES: (i) UA-EMP "Universal Annual Executive Management Program" employees (grades 13-17); (ii) UA "Universal Annual" employees (grades 5-12); and (iii) HPP "Hourly Pay Plan" employees (grades 1-19).[5]
UA and UA-EMP employees are paid an annual salary; the pay scale is adapted from the federal civil service pay scale. HPP employees are paid by the hour; their wage is determined by the prevailing rates in the area of each facility.
UA and UA-EMP employees are considered to be employees of AAFES' worldwide organization, and their job assignments are determined by the AAFES headquarters in Dallas. HPP employees are considered to be employees of the particular AAFES facility where they work; they work in three broad job classifications: (i) Administrative Support (grades 1-7); (ii) Patron Services (grades 1-7); (iii) Craft and Trade (grades 1-19).
d. Performance Evaluation Reports
All employees of AAFES are evaluated periodically usually this is done annuallyby Performance Evaluation Reports ("PER"). These performance reviews are prepared by the employee's immediate supervisor, and then approved by the secondline supervisor.
An employee who objects to the rating on the PER may submit written objections to it. However, the approving supervisor is not required to discuss the objections or to afford the employer a hearing concerning the PER. The approving supervisor does furnish a final reply to the employee, and the employee's objections and the final decision are then filed with the PER in the individual's personnel folder. The employee has no right to appeal an unsatisfactory evaluation.
There is, necessarily, a large degree of subjective judgment used by the supervisors in completing and approving these Performance Evaluation Reports.[6] An unsatisfactory or marginal evaluation does adversely affect the promotion of the employee.
e. Promotions
AAFES has a "promotion from within" policy; accordingly, job openings are filled through promotion unless there are no AAFES employees qualified for the vacant position. There are no real lines of progression for promotion purposes; AAFES considers all qualified persons to be eligible for promotion.[7] The evidence established that from 80-90% of the promotions at AAFES are filled by employees who are within 2 or 3 grade levels below the vacant position.
A vacancy posting procedure applies with respect to most of the HPP and nonsupervisory UA employees at the AAFES headquarters. Candidates for promotion must meet the minimum qualifications listed *420 in the job description sheets for the posted vacancy. Employees who submit applications are then screened and ranked on the basis of three criteria: performance, potential, and length of service. Of these, performance as reflected in the periodic Performance Evaluation Reviews is most important. The top three candidates are then referred to the supervisor with the vacancy for final selection. There are no grievance rights for employees who were not referred for the final interviews or who were not selected for the open position.
A promotion roster is used with respect to all other promotions at the AAFES headquarters.[8] An employee is placed upon the promotion roster only upon the recommendation of the immediate supervisor. These employees are also ranked according to three criteria of performance, potential and length of service. Specifically:
(i) Promotions into the HPP and nonsupervisory UA positions specifically excluded from the vacancy posting procedure are filled from the promotion roster composed by the Headquarters Personnel Division, with the final decision made by the supervisor with the job opening.
(ii) Promotions involving the supervisory and professional UA positions are handled by the Headquarters AAFES Personnel Division, Career Management Branch, which conducts a "worldwide search" by computer of qualified employees within 2-3 grades below the open position[9] and which creates a promotion roster ranking them according to performance, potential and length of service and, if appropriate, mobility.[10] Final decisions are made by the Director of the Personnel Division.
(iii) A promotion board reviews all promotions involving UA-EMP positions, and makes recommendations concerning these high-level employees to the Commander of AAFES, who makes all final decisions concerning these promotions.
There are no grievance rights for employees who are not placed on a promotion roster or who are not selected for a vacancy.
f. The Mobility Policy
AAFES has a "mobility policy" which requires all UA employees to make a determination as to whether they are "mobile" or "nonmobile" by completing a "Statement of Mobility" (Def. Exh. 5). A person who is mobile agrees to "accept assignment and transfer to any location throughout the world-wide Exchange System." Furthermore, "this mobility obligation is unqualified" and a mobile employee may be required to serve at locations where dependents are not allowed. And, refusal to accept a transfer on the part of a mobile employee "could result in ... separation from AAFES employment for the reasons of declination of transfer."[11]
In order to encourage its employees to be affirmatively mobile, AAFES provides certain benefits to mobile employees which are not available to non-mobile employees. These include preference with respect to vacations, preference in case of reductions in force, free travel to a place of residence upon retirement, and preference for promotions over non-mobile employees when the three criteria (performance, potential, and length of service) are equal.[12] In addition, *421 an employee who is mobile expands his own range of opportunities by being available for promotions worldwide since no AAFES employee can be a UA 13 (or above) without being mobile.
g. Shafer's Applications for Promotion
In 1975, Shafer who is a merchandising clerk, an HPP job applied for promotion to a UA position, that of Quality Assurance Inspector.
There were two vacancies for this position. Of the 98 persons who applied, 82 were female and 16 were male. After the initial screening, 13 applicants 10 females and 3 males were referred for interview. Shafer's application was not referred. A female supervisor conducted the final interviews, and selected two males for promotion to the vacant positions.
Shafer has also applied for promotion to other HPP and UA jobs, both before and after 1975, but has never been successful.
2. The Disparate Impact Case
Shafer's "disparate impact" attack involves only the AAFES mobility policy. This is not "an attack upon the mobility system per se," since that policy applies to both male and female employees. Rather, Sbafer contends that "the use of mobility as a job requirement" for all jobs "UA 13 and above" is discriminatory because of its disparate impact upon females.
a. Shafer's Evidence
It is undisputed that affirmative mobility is a minimum qualification for promotion into any UA job which is grade 13 or above.[13] AAFES witnesses conceded that a person who is not mobile cannot be promoted to a UA-EMP job, no matter how well qualified that person is otherwise. The "mobility policy" is, therefore, an absolute cut factor for UA 13 and above.
Moreover, the evidence established that the mobility requirement did have a disparate impact upon females. The expert witness for AAFES (Dr. O'Dell) testified that the requirement would disqualify a statistically significantly[14] greater percentage of women than men in the AAFES workforce. And, AAFES witnesses attributed the relative absence of females from the EMP workforce to the mobility requirement.
In addition, the evidence demonstrated the obvious: the predominant form of family in our society is one in which the male is the primary wage earner and the female is the supplemental wage earner. It is, therefore, more difficult for a woman to make an open-ended commitment to mobility and to being away from her family for extended periods than for a man to make such a commitment. Where the male is the primary wage earner, he can typically expect his family to relocate with him when he is transferred; however, usually that same man cannot afford to give up his more lucrative job in order to relocate with his wife.[15]
b. The Controlling Authorities
Since the "mobility policy" does have an adverse impact upon female employees, the next question is whether the requirement has a "manifest relationship to the employment in question" and a "demonstrable relationship to successful performance of the jobs for which it was used." Griggs v. Duke Power Co., 401 U.S. 424, 432, 91 S. Ct. 849, 854, 28 L. Ed. 2d 158 (1971). The mere assumption that the requirement "generally would improve the overall quality of the work force" is not sufficient nor does "good intent or absence of discriminatory intent" redeem the challenged practice. Griggs, 401 U.S. at 432, 91 S. Ct. at 854.
In this case, since the mobility policy is used to screen promotions into UA-EMP positions, the issue is not whether mobile employees are potentially better performers; *422 rather, it is whether those employees who are not mobile fail to possess the "minimal qualifications" for these jobs. Albemarle Paper Co. v. Moody, 422 U.S. 405, 426, 95 S. Ct. 2362, 2375, 45 L. Ed. 2d 280 (1975); Watkins v. Scott Paper Co., 530 F.2d 1159 (5th Cir.1976), cert. denied, 429 U.S. 861, 97 S. Ct. 163, 50 L. Ed. 2d 139 (1976). This requires a determination of whether the mobility policy is a "business necesity" for UA-EMP jobs. As stated by the Fifth Circuit in Parson v. Kaiser Alum. & Chem. Corp., 575 F.2d 1374 (5th Cir.1978), cert. denied, 441 U.S. 968, 99 S. Ct. 2417, 60 L. Ed. 2d 1073 (1979):
"[T]his doctrine is very narrow. a practice which is demonstrably discriminatory in impact must:
`Not only foster safety and efficiency, but must be essential to that goal. United States v. Bethlehem Steel Corp., 446 F.2d 652, 662, (2d Cir.1971); United States v. Jacksonville Terminal Co., 451 F.2d 418, (5th Cir.1971), cert. denied, 406 U.S. 906 [92 S. Ct. 1607, 31 L. Ed. 2d 815] (1972). In other words, there must be no acceptable alternative that will accomplish that goal `equally well with a lesser differential racial impact.'" (575 F.2d at 1389) (emphasis added).
c. The AAFES Contentions
The basic claim by AAFES is that the mobility requirement is necessary to assure an adequate source of mobile employees with which to staff its facilities throughout the world. However, this claim is not supported by any study or any empirical evidence.[16] Moreover, one AAFES witness (Smith) conceded that he was unable to say that opening the UA-EMP jobs to all employees would leave AAFES with an insufficient pool of mobile employees.
In addition, the claim that the mobility requirement is "necessary" to staff its world-wide facilities with UA-EMP employees is inconsistent with the fact that AAFES does not require mobility for UA positions below the level of UA 13. Despite this, AAFES is apparently able to generate a sufficient pool of mobile UA employees to staff its facilities with UA employees at grades 5-12 without requiring mobility at that level. Indeed, the evidence established that AAFES did not have a mobility policy for UA-EMP employees prior to 1958, but was still able to perform its mission satisfactorily.
Nor is the AAFES argument, based upon a period in 1968 when volunteers were solicited for duty at PX's in Viet Nam, a convincing one. Although the testimony was sketchy and far from specific, it did indicate that at least one time AAFES had an insufficient number of volunteers to staff its facilities in Viet Nam.[17] However, there was absolutely no showing that the shortage existed only in UA grades 13 and above. Therefore, the testimony does not support the mobility policy and, at best, it merely indicates that there may be certain duty for which even mobile employees will not volunteer.
AAFES also contends that the mobility requirement is necessary because it gives UA-EMP employees background and training outside of AAFES headquarters "to insure that [the] executive level employees gain the proper understanding of [its] worldwide mission in support of the United States Armed Forces." Contrary to this, the final witness for AAFES was Rosalee LeFleur, the highest graded female in the history of AAFES. Between 1969 and 1982, she rose in the UA-EMP ranks from UA 12 to her present grade of UA 16 and during this entire period she was assigned exclusively to AAFES headquarters in Dallas and she performed in an exemplary manner. Therefore, it is obvious that *423 "background and training" outside AAFES headquarters is not a necessary requirement for UA-EMP jobs.
Finally, as Shafer correctly argues, there was no evidence presented which related the mobility requirement to any specific UA-EMP job. There was no proof, therefore, that mobility was related to the performance of the UA positions above level 12. See Griggs, 401 U.S. at 432, 91 S. Ct. at 2378; Albemarle Paper, 422 U.S. 405, 95 S. Ct. 2362, 45 L. Ed. 2d 280. What was proven was the obvious fact that AAFES believes it is simpler and easier to require all UA-EMP employees to be mobile than (i) to create a volunteer pool of mobile UA-EMP employees by offering promotions and other incentives, or (ii) to create a volunteer pool of mobile UA-EMP employees for vacancies as it does other UA employees.[18]
d. Conclusion
Under the evidence, the mobility policy is not a business necessity, and it is not essential to the mission of AAFES or to the successful performance of UA-EMP jobs.[19] Accordingly, Shafer is entitled to a judgment of liability on this issue.
3. The Disparate Treatment Case
Shafer's "disparate treatment" case involves the claims that AAFES has treated females less favorably than males with respect to initial placement and promotion. This attack requires proof of "intent to discriminate." Wilkins v. University of Houston, 654 F.2d 388 (5th Cir.1981); Pouncy v. Prudential Insurance Co., 668 F.2d 795 (5th Cir.1982).
a. The Controlling Authorities
In a class action challenging an employer's entire promotion procedures, the plaintiff must establish that "discrimination was the employer's standard operating procedure the regular rather than the unusual practice." International Brotherhood of Teamsters v. United States, 431 U.S. 324, 97 S. Ct. 1843, 52 L. Ed. 2d 396 (1977); Hazlewood School District v. United States, 433 U.S. 299, 97 S. Ct. 2736, 53 L. Ed. 2d 768 (1977).
Statistical evidence is very relevant in a disparate treatment case attacking promotion practices. In a proper case, a court may infer racial discrimination if gross statistical disparities are shown in analyzing relevant statistics. Lewis v. NLRB, 756 F.2d 882 (5th Cir.1985). In probing discriminatory intent, a trial court may examine history of the employer's practices, anecdotal evidence of class members, and the degree of opportunity to treat employees unfairly in the appraisal process. Carroll v. Sears, Roebuck & Co., 708 F.2d 183, 190 (5th Cir.1983); Pouncy v. Prudential Ins. Co. of America, 668 F.2d 795 (5th Cir.1982). In order to rebut a prima facie case of disparate treatment, the defendant must discredit the plaintiff's evidence or provide a non-discriminatory explanation for the apparently discriminatory result. Page v. U.S. Industries, Inc., 726 F.2d 1038 (5th Cir.1984).
The Fifth Circuit has repeatedly warned of the need for considered and refined statistical analysis in the context of Title VII actions. Pegues v. Mississippi State Employment Service, 699 F.2d 760 (5th Cir. 1983). It has also recognized that, in this analysis, "a difference between expected and observed values in excess of two or *424 three standard deviations at the 5% significance level permits an inference of discrimination." Pegues, 699 F.2d 768, at footnote 9; Rivera v. City of Wichita Fallas, 665 F.2d 531 (5th Cir.1982).
b. The Data Base
Unlike the usual discrimination suit involving complex statistical evidence, the parties in this case worked together to create the data base which the expert witnesses for both sides analyzed for purposes of exhibits and expert opinions. Indeed, the pretrial order for the class liablity trial stated:
"The parties stipulate to the form, substance and accuracy of the computerized data base used in this action, which was jointly prepared by the experts and counsel for the parties from the official files and records compiled and maintained by the defendant."
This cooperation by the attorneys has greatly simplified this Court's obligation to make a "considered and refined statistical analysis" of the exhibits and expert testimony concerning class liability. Pegues, 699 F.2d 766.
c. Non Parametric Analyses
Both the plaintiff's expert, Dr. Michael, and the AAFES expert, Dr. Odell, performed non parametric analyses[20] to test the hypotheses that males and females are selected for promotion by AAFES at the same rate. Proper analysis shows that, according to these studies by both experts, there is a gross statistical disparity adverse to females with respect to promotions by AAFES.
(i) Dr. Michael UA Promotions
In plaintiff's exhibits 6 and 7, Dr. Michael analyzed promotions "using the grade prior to promotion as the pool for analysis." In doing so, he first determined the percentage of males and females in a given grade during a particular year then compared these percentages with the percentages of males and females among those in the given grade who received promotion and, by so doing, controlled for both year and grade of promotion.
By exhibit 6, Dr. Michael concluded that AAFES promotes women at a significantly lower rate than men. Specifically, the actual number of female promotions is 3.66 standard deviations below the number which would be expected if women were treated like men with respect to promotion.[21] The probability of this result occuring by chance is 0 to 3 decimal places. Therefore, this is a grossly significant result adverse to females which, under controlling authority, establishes a prima facie case of discrimination. See Rivera, 665 F.2d at 545, footnote 22.
Moreover, exhibit 6 also demonstrates that the overall significance is not attributable to isolated instances because it reflects that women received less than their proportional share of promotions in eight of the ten years examined and in nine of eleven UA grades. This indicates that the 3.66 standard deviations below the expected number of female promotions is not a product of a few years or a few job grades and, consequently, it adds weight to the summary result adverse to females.
Similarly, exhibit 7 which differs from Exhibit 6 only in that it analyzes promotions from HPP grades 6-11 demonstrates that women have received significantly fewer promotions than would be expected if they were treated as favorably as males. The result is 2.36 standard deviations low and has a probability of .009. Again, this cannot be attributed to isolated instances, instead of a pattern of consistent underpromotion, because women received less than their proportional share of promotions in each year analyzed and in each grade except one.
(ii) Dr. Odell UA Promotions
In defendant's exhibit 7, Dr. Odell analyzed UA promotions using a methodology *425 which differed from Dr. Michael's in one important respect: While Dr. Michael used grade prior to promotion as an availability, Dr. Odell chose to analyze promotion into rather than from grade. Therefore, Dr. Odell selected appropriate availabilities or "pools" of candidates for promotion into grades.[22]
Although exhibit 7 contains eight different UA promotion analyses, Dr. Odell described page 8 as the "master analysis." This analysis shows (i) that AAFES promoted 81.6 less females than would be expected if defendant promoted women at the same rate as men; (ii) that the result adverse to women is statistically significant; and that this is not the result of isolated problems, because women were under promoted in 8 of 11 categories analyzed (or 73%).
On pages 9, 10, 18 and 19 of exhibit 7, Dr. Odell analyzed the same data presented on the "master analysis" (page 8), but he disaggregated it by mobility. Although Dr. Odell could not satisfactorily explain why he did these disaggregations by mobility[23]when asked this on cross-examination, Dr. Odell simply suggested that the Court look to page 8 as the "master analysis" the results on pages 9, 10 and 19 are, overall, statistically significant and adverse to females. The result on page 18 is not but, on cross-examination, Dr. Odell admitted that this page was totally inaccurate.
Therefore, the UA promotion analyses by Dr. Odell actually support the expert opinion by Dr. Michael that the non-parametric analyses demonstrate that AAFES has discriminated against UA female employees with respect to promotion.[24]
(iii) HPP Promotions
By plaintiff's exhibit 6, Dr. Michael also concluded that AAFES promotes women into the higher level HPP jobs (grades 6-11) at statistically significantly lower rates than men, and that the significance could not be attributed to isolated instances. The actual number of female promotions is 2.36 standard deviations which would be expected if women and men were treated equally, and the probability of this occurring by chance is .009.[25]
On page 6 of defendant's exhibit 7, Dr. Odell reached a different conclusion. However, this Court rejects Dr. Odell's conclusion for the following reasons:
... the Odell analysis required him to establish "availability pools"; however, unlike his other availability pools (see pages 2, 3, 4 of exhibit 7), page 6 uses a "mixed availability"; and Dr. Odell admitted that mixed availability was not supproted by any analysis.
... Dr. Odell conceded that he attempted to analyze the promotions in these grades based upon availability pools of 1 and 2 grades below the one in question; it was only after he determined that each of these methods produced results favorable to the plaintiff that his notion of mixed availability was used.
As shown by plaintiff's exhibit 11, any consistent use of either 1 or 2 grade availability produces results that are grossly significant and adverse to females regarding promotions to the higher level HPP jobs. Therefore, this Court rejects Dr. Odell's HPP analyses and concludes, based upon Dr. Michael's analysis, that the plaintiff has established a prima facie case of *426 discrimination concerning promotions of females to HPP grades 6-11.
(iv) Practical Significance
AAFES attacks the plaintiff's statistical analysis on the basis that, although they may show "statistical significance," they have no "practical significance." In this regard, AAFES argues that the plaintiff's evidence merely shows (i) that it "promoted 8.6 too few females" in HPP categories 6-11 during the ten-year period analyzed, an average of less than 1 per year (see footnote 25), and (ii) that it promoted 44.3 too few UA females in ten years, an average of only 4.43 per year.
This argument misconstrues the purpose of Title VII and the "statistical evidence" decisions cited above. No case has been cited by AAFES, and this Court has found none, which holds that results which are statistically significant and which establish a prima facie case of discrimination because of gross statistical disparities will not support a finding of liability because the absolute shortfall is too small. Instead, liability is founded upon levels of statistical significance which compel the inference that sex was a factor in decision making. Thus, while the absolute shortfall may affect remedy, it does not defeat liability.[26]
More importantly, the absolute shortfall of female promotions to UA positions or HPP grades 6-11 is not small, when it is properly understood. The relevant question is not "how do women fare?" It is "how do women fare relative to men?" This requires a comparison of expected female promotions to female promotions actually received.
For example, Dr. Odell's "master analysis" (exhibit 7, page 8) shows an absolute shortfall of 81.6 UA female promotions over a ten-year period. However, the percentage of promotions expected for females is 635/716.6 = 88.6%. Thus, women receive only 88.6% of those promotions they should receive. In contrast, there were 906.4 expected male promotions. Thus, the percentage of expected male promotions is 988/906.4 = 109%. Therefore, while women receive only 88.6% of the promotions they deserve, men receive 109% of the promotions they deserve.
The difference, calculated in this manner, is 20.4%. Thus, a randomly selected female employee at AAFES is at a 20.4% disadvantage in the promotion process when compared with a randomly selected male, controlling for grade and year. Such a difference represents a significant disadvantage for the female employees of AAFES, and is obviously one to which Title VII is surely addressed.
(v) Claimed Defects in Analyses
AAFES makes three basic attacks upon the statistical analyses (including some of those done by its own expert, Dr. Odell).[27] None of these are valid.
Qualifications. AAFES first claims that the plaintiff's UA promotion analysis "failed to control for differing qualifications" of the employees. This attack is baseless. Neither expert assumed that there were uniform qualifications throughout the workforce; instead, each used reasonable methods to control for differences in qualifications. Specifically:
... Dr. Michael analyzed the promotion rates of males and females within job grades. Rather than assuming that all employees in the work force were equally qualified,[28] Dr. Michael specifically allowed for different grades and assumed that the distribution of qualifications within UA grade is the same for males and females. This means that Dr. *427 Michael recognized that some employees may be better qualified than others within a particular grade, he also assumed that there was no reason to suppose that men were disproportionately more qualified than women.[29]
... Dr. Odell, the AAFES expert, also controlled for qualifications. Instead of assuming that all employees were equally qualified, he analyzed promotions into rather than from grades, and selected appropriate "pools" of candidates for promotion into each particular grade. In this manner, Dr. Odell allowed the defendant's own promotion practices to identify the actual pool of qualified candidates for promotions to each grade. And, his analysis is consistent with Dr. Michael's in that it detected a grossly significant underpromotion of females.
Worldwide Workforce. AAFES next claims that the statistical analyses "fail to properly account for the relationships between the defendant's worldwide and Headquarters workforces and failed to account for the impact of that relationship upon the promotion data assembled for the Headquarters workforce." This argument is baseless. The class certified includes only females at the AAFES headquarters. Therefore, both experts properly confined their analyses to headquarters personnel and their relative success in achieving promotions at headquarters. To do otherwise would have been inaccurate since the evidence demonstrated that considerations concerning promotion of an AAFES employee overseas would not necessarily apply to a headquarters employee.
Aggregation of Data. AAFES also claims that the plaintiff's analyses created the appearance of discrimination by improperly aggretating statistics and that the promotion analyses should be considered on a disaggregated basis.[30] This argument, too, is baseless. Neither expert, either Dr. Michael or Dr. Odell, criticized the use of aggregation in statistical analysis. Instead, both presented analyses which summarized the experience of females at AAFES headquarters with respect to promotions over a period of ten years and which demonstrate that females received less than their proportional share of promotions, that this result was statistically significant, and that it could not be attributed to isolated instances in a few years or a few job grades.[31] Moreover, the identical argument that AAFES makes here concerning aggregation of data was rejected by the Fifth Circuit in Capaci v. Katz & Besthoff, Inc., 711 F.2d 647 (5th Cir.1983):
"Finally, K & B attempted to demonstrate that there was no statistically significant evidence of discrimination when the data was broken down by city or year or both. In our view, this was unfair and obviously attempted to disaggregate that data to the point where it was difficult to demonstrate statistical significance. By fragmenting data into small sample groups, the statistical tests become less probitive. Wheeler v. City of Columbus, Mississippi, 686 F.2d 1144, 1151 (5th Cir.1982). Indeed, it became impossible [to] demonstrate significance with such small numbers in many instances, *428 since even a record of hiring or promoting zero women would not yield statistically significant results. There was no reason to fragment the data geographically, since all hiring decisions regarding the manager trainees are made at the firm's New Orleans' office, and liability is premised on `across the board' practices, occurring at all locations. Likewise, liability is premised on actions taken within the entire 1965 to 1970 period, and there was no reason to fragment the data by year. Aggregating the data as Plaintiff did was a much more reasonable approach, since liability under Title VII depends on whether the EEOC demonstrated a system-wide pattern or practice of disparate treatment, rather than `the occurrence of isolated or accidental or sporadic discriminatory acts. It had to establish ... (that) discrimination was the company's standard operating procedure the regular rather than unusual practice.' International Brotherhood of Teamsters v. United States, 431 U.S. 324, 336 [97 S. Ct. 1843, 1855, 52 L. Ed. 2d 396] (1977)."
Accordingly, the attempts made by AAFES to discredit the statistical analyses are baseless, and they are rejected.[32]
d. The Regression Analyses[33]
Both of the experts, Dr. Michael and Dr. Odell, performed regression analyses.[34] Both also testified that, while regressions are done in terms of pay, they also contain information about other issues since a person's pay at any give time is equivalent to initial placement plus promotion. Accordingly, the regression analyses also show that there is a gross statistical disparity adverse to UA females[35] with respect to promotions by AAFES.
(i) Dr. Michael's Regression
Dr. Michael testified about a series of five regression analyses (plaintiff's exhibits 1-5). Plaintiff's exhibits 1 and 3[36] were of the entire UA work force controlling for education, experience and tenure. The value of the female coefficient (or beta) is given under "b" and the significance level in standard deviations as "T."
A review of the betas on these exhibits from 1973 through 1982 clearly indicates that females are payed less at AAFES even after controlling for qualifications in terms of education, experience and tenure. For example, the analysis reveals that being female costs a UA employee from a low of 28.1% in 1973 to a high of 37.1% in 1978 and 1979 when compared to males with equal qualifications in terms of education, experience and tenure. The T scores indicate that the result is grossly significant, with all results more than 12 standard deviations from equality. Therefore, these regression analyses indicate that being female has a substantial, significant, and negative effect on a person's salary with AAFES.
*429 To make certain that these results were not caused by pre-act discrimination,[37] performed the analysis summarized on plaintiff's exhibit 4. It considered only employees hired by AAFES after January 1, 1973 and demonstrates that any conduct responsible for the observed differences in male and female salary must have occurred during the class period. The observed beta is grossly significant at the level of 5 standard deviations, and the approximate measure of each female loss is 15.5% per year. Moreover, since differences in salary must be due to differences in initial job assignment or in promotion, this analaysis supports the plaintiff's claim of liability on theories of placement and promotion discrimination.
The next analysis performed by Dr. Michael (exhibit 5) was to detect differences in promotion isolated from placement discrimination. This regression analysis was similar to those summarized in exhibits 1 and 3, except that initial salary was added as an explanatory variable to explain final pay. This means that the betas can no longer be interpreted as percentage differences in pay, but rather as percentage differences in change of pay over time. Thus, the beta for 1974 on plaintiff's exhibit 5 indicates that the average UA female in 1974 was at a 3% disadvantage with respect to the increase in her salary since 1973; and the beta for 1982 indicates that the average UA female in 1982 was at a 7.4% disadvantage with respect to the increase in her salary since 1973. Moreover, since the evidence established that change in pay and promotion are virtually synonymous at AAFES, women in the 1982 work force were at an average disadvantage of 7.4% in promotions as compared to equally qualified men.[38]
Finally, Dr. Michael compared the analysis in plaintiff's exhibit 4 with that in exhibit 5 "to allow us to understand the way discrimination actually works at AAFES." Exhibit 4 indicates that discrimination in initial assignment and promotion costs the average women in the UA work force 15.5% of her salary after controlling for education, experience and tenure. Then, reviewing the beta for 1982 on plaintiff's exhibit 5, Dr. Michael's opinion was that of this 15.5%, 8.1% was due to discrimination in job assignment and 7.4% was due to discrimination in promotion.
(ii) Dr. Odell's Regression
Dr. Odell, the AAFES expert, analyzed pay in a slightly different manner. Rather than treat male and female pay in a single equation, Dr. Odell first produced a male equation and then sought to determine the percentage of predicted pay women received, as determined by the male equation. The extent to which women receive more or less than the amount predicted by the male equation was termed the "sex factor" by Dr. Odell. In his analyses, this "sex factor" indicates whether men and women are treated differently, who is treated less favorably, and the magnitude of the difference.
Dr. Odell's first regression is summarized on page 27 of defendant's exhibit 7. It utilizes, among other variables, final grade as a predictor for final salary; and it appears to indicate that women and men in the same grade are payed the same. However, this result is meaningless in this case because inclusion of final grade necessarily means that differences in placement and promotion are excluded from the result. Therefore, as Dr. Odell admitted from the stand, this analysis contains no promotion information and no placement information, and is not relevant to the issues in this case.
However, the analyses on pages 28-31 of defendant's exhibit 7 are relevant to the *430 claim of promotion discrimination. Here, Dr. Odell performed regressions using starting salary as a predictor of final salary. Thus, his equation controls for starting salary and analyzes the change in pay over time. Since both experts agree that change in pay can be used to model promotion, these are accurate promotion analyses.
Just as in Dr. Michael's regressions, Dr. Odell's analyses indicates that there is a significant difference in the way men and women are promoted, controlling for education, experience and tenure. For example, page 28 expresses the average female salary as a function of "expected female salary." And, it indicates that in every cell analyzed, except 1972-75, actual female salary is below the expected. Since these figures reflect change in salary based on the male equation, they reflect underpromotion of females as compared to equally qualified males. Moreover, careful review of page 30 of defendant's exhibit indicates that the longer a UA female employee is followed, the further she falls behind males. For example, in terms of 1981 salary, an average woman is $11.94 behind after three years, $23.34 behind after six years, and $66.47 behind after ten years. These results clearly indicate that women have been disadvantaged in the promotion process continuously throughout the class period.
(iii) The AAFES Attacks
AAFES argues that Dr. Michael's regression analyses are defective because the low R2's reduce the reliability of inference of discrimination. However, at this stage of the case, it is not necessary to measure the actual magnitude of the "sex effect" (using Dr. Odell's term). Instead, in a Phase I liability trial the question is whether any sex effect exists, since the defendant is required by law to treat males and females equally. Moreover, there was no testimony at trial by either expert critizing the regressions of Dr. Michael because of the size of the R2. This was not the subject either of cross-examination or direct testimony by Dr. Odell.[39]
AAFES also claims that the analyses by Dr. Michael did not take into account the fact that "defendant's UA employees receive periodic and virtually automatic changes in pay which are unrelated to promotion or placement decisions." This argument is baseless. Both experts used tenure (time with AAFES) as an independent variable to explain pay. Since the changes in pay to which AAFES refers are "periodic and virtually automatic," controlling for tenure also controls for such pay changes. Therefore, as Dr. Michael testified, the differences left after controlling for tenure must be due to changes which are not periodic and automatic that is, promotions.[40]
(iv) Summary
The regression analyses performed by both experts, Dr. Michael and Dr. Odell, reflect a consistent and persistent pattern. Specifically, they indicate that women at AAFES are paid less than men after controlling for those variables which should account for pay. Moreover, both experts agree that a substantial part of the difference is due to differences in placement (initial job assignment) and/or promotion. Therefore, the regression analyses support the conclusion that female employees at AAFES have been significantly disadvantaged with respect to placement and promotion.
4. Other Evidence
As discussed above, the class claims of liability are supported by the non-parametric and regression analyses of both parties' experts. In addition, there is other evidence supporting the class liability case.
a. Subjective Evaluations
The trial evidence established that the single most important criteria for any *431 promotion at AAFES is supervisory evaluation (by the Periodic Evaluation Reports) and that such evaluations are essentially subjective in nature. This, of course, calls for close scrutiny of the system since it provides "a ready mechanism for discrimination." See, e.g., Fisher v. Procter & Gamble, 613 F.2d 527, 546 (5th Cir.1980); Hamilton v. General Motors Corp., 606 F.2d 576 (5th Cir.1979); Swint v. Pullman-Standard, 539 F.2d 77 (5th Cir.1976); and Rowe v. General Motors Corp., 457 F.2d 348 (5th Cir.1972).
Although AAFES correctly argues that women, as well as men, are supervisors at AAFES, it is also true that men are disproportionately more likely to become supervisors than females. Plaintiff's exhibit 8 shows that the percentage of male supervisors at AAFES is twice as large as the percentage of female supervisors. See also plaintiff's exhibit 9. Therefore, the evidence does establish that, on the whole, the net effect is to have men supervise and evaluate women under a subjective evaluation system. And, the fact that the PER forms have specific categories to guide an evaluating supervisor does not remove the subjective decision making which is necessarily involved. See Carroll v. Sears, Roebuck & Company, 708 F.2d 183 (5th Cir. 1983); Medina v. Reinhardt, 686 F.2d 997 (D.C.Cir.1982).
b. Anecdotal Witnesses
The plaintiff presented five female witnesses to testify as to their actual experiences at AAFES. Basically, they testified that: (i) they trained males for supervisory positions, but never received promotions to a supervisor's job themselves; (ii) they held higher positions on a temporary basis, but were never promoted to these jobs permanently; (iii) there were some direct statements of discrimination in promotions;[41] and (iv) one of them (Ms. Merrit) was the victim of sexual harrassment by her supervisor.
AAFES also produced five female witnesses who testified that they knew of no policy of discrimination at AAFES and that AAFES had not intentionally discriminated against them or, to their knowledge, any other females. These witnesses included (i) women who had refused promotions by choice, (ii) women who had remained in lower level jobs for many years with little change of grade, and (iii) women who had received many promotions while employed by AAFES.
By its anecdotal witnesses, the plaintiff merely presented testimony which gave life to her statistical evidence; it is considered only for that purpose. The testimony of the AAFES anecdotal witnesses is understandable, and the Court accepts it to show that these females were not the subject of sex discrimination. However, since the plaintiff has established the class claims of liability through the statistical evidence, these "affirmations of good faith selection" by the AAFES witnesses does not discredit the plaintiff's evidence or explain the statistical results in a nondiscriminatory way. See Pegues v. Mississippi State Employment Serv., 699 F.2d 760, 766 (5th Cir. 1983); Wheeler v. City of Columbus, Miss., 686 F.2d 1144 (5th Cir.1982); and Williams v. New Orleans Steamship Ass'n.,, 673 F.2d 742 (5th Cir.1982).
5. Motion to Strike
The plaintiff's motion to strike certain tables attached to the AAFES post-trial briefs is moot. This opinion is based upon the evidence presented at trial, and does not consider the information contained in these tables.
6. Motion to Decertify
The only remaining motion is that filed by AAFES to decertify the class. It is, of course, based upon General Telephone Co. v. Falcon, 457 U.S. 147, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982), which "significantly altered the pertinent law of this Circuit" concerning "across-the-board" certifications in employment discrimination cases.
*432 In Falcon v. General Telephone Co., 611 F. Supp. 707 (N.D.Tex.1985), affirmed 815 F.2d 317 (5th Cir.1987) this Court analyzed these "significant changes" resulting from the Supreme Court's opinion in Falcon and the Fifth Circuit's opinion in Vuyanich v. Republic National Bank of Dallas, 723 F.2d 1195 (5th Cir.1984), cert. denied, 105 S. Ct. 567 (1984). That analysis[42] identifies five Falcon-Vuyanich factors which trial courts must consider in resolving class certification issues in discrimination matters.
Although Shafer correctly argues that the certification order in this case was not an "across-the-board" certification,[43] application of these five Falcon-Vuyanich factors demonstrates that Shafer is a proper representative of a class of females who claim discrimination in promotions and job assignment by AAFES. In particular:
(i) Class claims are "fairly encompassed." Shafer claims she was discriminated against because of sex in job assignment and in promotions to HPP and UA positions. The class claims are identicalalleged sex discrimination in job assignment and promotions to HPP and UA positions and, therefore, are "fairly encompassed" by the individual claims.
(ii) Same interests and injury. Shafer does, under Falcon and Vuyanich, possess the same interests and she suffered the same injuries as the class because of the sex discrimination in promotions and job assignment.
(iii) Identical evidentiary approaches. Unlike Falcon and Vuyanich, the evidentiary approaches concerning the individual and class claims are identical. Shafer must prove her individual claim through by means of "disparate treatment" evidence, just as she has done in proving the class liability claims.
(iv) Standing. Shafer can assert injury as the result of her failure to obtain a promotion and her job assignment. Therefore, she does have standing to assert the class claims of discrimination in promotion and job assignment. Vuyanich, 723 F.2d at 1200; Blum v. Yaretsky, 457 U.S. 991 [102 S. Ct. 2777, 73 L. Ed. 2d 534] (1983).
(v) Footnote 15 exception. This factor is not relevant to the present case (except as discussed below in footnote 44).
The class attack upon the "mobility policy" must be considered separately. As discussed above, this requirement of mobility as a job requirement for all jobs UA 13 and above is discriminatory because of its adverse impact upon females. Although Shafer has never progressed high enough to apply for a UA 13 position, this policy still has the same impact upon her as it does other HPP and UA employees who may aspire to higher level jobs. Moreover, the claimed effect of this policy is to limit females to the lower-paying UA jobs. Therefore, Shafer may properly represent the class with respect to this claim.[44]Carpenter v. Stephen F. Austin University, 706 F.2d 608, 617 (5th Cir.1983); Richardson v. Byrd, 709 F.2d 1016, 1020 (5th Cir. 1983), cert. denied, 464 U.S. 1009, 104 S. Ct. 527, 78 L. Ed. 2d 710 (1983).
In addition, even if Shafer could not serve as class representative in the *433 attack upon the mobility policy, the decertification of this advanced class action would not be appropriate. Instead, this Court would permit the intervention of another class member to represent the class with respect to this claim.[45] As stated in Carpenter v. Stephen F. Austin University:
"... However, if after the class has been certified and its claims heard and the representatives are found to be inadequate for some reason during the course of the class claims or during a bifurcated hearing with respect to individual claims, the appropriate step is appointment of new representatives from the existing class, not decertification." (706 F.2d at 617.)
7. Conclusion
The plaintiff, Neoma Shafer, has presented a very strong statistical case of employment discrimination, which was supported by anecdotal testimony from several class members. AAFES did not rebut the plaintiff's statistical case; indeed, the analyses of the expert for AAFES actually confirm those done by the plaintiff's expert. Moreover, there is no evidence to otherwise account for the gross statistical disparities which indicate employment discrimination.
Therefore, the plaintiff Shafer is entitled to judgment in favor of the class on Phase I liability that:
(i) the AAFES mobility requirement for all jobs UA 13 and above is discriminatory because of its disparate impact on females;
(ii) AAFES has treated females disparately, and less favorably than males, with respect to initial placement and promotion to UA jobs and to HPP jobs (grades 6-11).
The plaintiff's attorney is directed to submit to this Court an appropriate judgmentand, after conference with the defendant's attorney, a proposed schedule for a Phase II hearing on class relief.[46]
NOTES
[1] The acronym for the A rmy and A ir F orce E xchange S erviceAAFESrhymes, albeit very poorly and Ogden-Nashedly, with the words "gave us" (or, more correctly, "gaf e us"). Therefore, it is somewhat understandable that a party distraught with the delay of this hard working, but overburdened Court, might well at least during the Holiday Season, when spirits are high send an attractive female to these chambers, carrying numerous balloons of festive colors, with this message in verse (sung, of course, to the tune of "Let It Snow, Let It Snow, Let It Snow":
"Oh the case is Shafer v. AAFES
We recall the trial you gave us
Do you remember, yes or no?
Let us know
Let us know
Let us know
"Oh the age of this case is gallful
Your procrastination awful
Our impatience we must show
Let us know
Let us know
Let us know
"Would you finally give the word
Now we're down on our knees, pretty please?
And we heard from a little bird
You'll even add on attorney's fees
"Oh we've spoken as long as we dare to
One final question have we for you
Are we shafted, yes or no?
Let us know
Let us know
Let us know"
However, this "motion" was not accompanied by a certificate of service, a brief, an order or a certificate of conference, as required by Local Rules 2.1(e) and 5.1(a)-(c). Accordingly, it will not be considered for purposes of this opinion. See, however, footnote 46. Please!
[2] Shafer did not seek an "across-the-board" certification attacking every employment practice at AAFES on allegations of sex discrimination. See General Telephone Co. v. Falcon, 457 U.S. 147, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982); Vuyanich v. Republic National Bank of Dallas, 723 F.2d 1195 (5th Cir.1984), cert. denied, 469 U.S. 1073, 105 S. Ct. 567, 83 L. Ed. 2d 507 (1984).
[3] The opinion constitutes this Court's findings of fact and conclusions of law concerning the class liability issues. Rule 52(a), Fed.R.Civ.P.
[4] In closing arguments following the class liability trial, Shafer's counsel conceded that there had been no proof of sex discrimination by AAFES in "training opportunities."
[5] Each category is divided into "grades" for purposes of pay and promotion, and there are "steps" of differing pay levels within each grade. As the grade level increases, so does the pay and the responsibility of the particular job.
[6] This was conceded by the AAFES witnesses; it is also evident from the face of the PER forms (Def. Exhs. 2, 3, 4).
[7] AAFES has 39 career "cones" or fields for UA employees. There was some testimony that not every UA employee of the same grade would be eligible for promotion to a particular vacancy if they were in a different career cone. However, this Court credits other testimony that employees are transferred and promoted between career cones particularly since it is consistent with AAFES policies of "promotion from within" and of affording training courses to permit career changes.
[8] This applies to all supervisory UA employees and to some HPP and non-supervisory UA positions that are excluded from the vacancy posting procedure.
[9] The search first focuses on "surplus employees" (i.e., those who no longer have a job for some reason) and "lateral transfers" (i.e., employees returning from overseas).
[10] As discussed below, "mobility" is a required qualification for promotion into any UA job above grade 12.
[11] It appears that AAFES does "excuse" refusals to transfer, and does not terminate the employee, where there are extenuating circumstances (such as health problems of the employee or family member, financial reasons, etc.). Moreover, AAFES employees who testified indicated that they believed a refusal to transfer would not result in termination, but in denial of a promotion or possibly a demotion.
[12] Testimony at trial established that AAFES employees who are transferred are paid relocation allowances and given additional pay or quarters allowance.
[13] These are all of the UA-EMP jobs (grades 13-17) at AAFES.
[14] That is, a percentage significant at the ".05 level."
[15] The mobility requirement is not, therefore, one which an employee can "readily comply with." Accordingly, the decision in Garcia v. Gloor, 618 F.2d 264 (5th Cir.1980), upon which AAFES places great reliance, is clearly distinguishable from this case.
[16] On no less than three occasions, the Supreme Court has found job requirements to be discriminatory where there was no proof of "a meaningful study of their relationship to job performance ability." Griggs, 401 U.S. at 431, 91 S. Ct. at 853; Albermarle Paper, 422 U.S. 405, 95 S. Ct. 2362, 45 L. Ed. 2d 280; Dothard v. Rawlinson, 433 U.S. 321, 97 S. Ct. 2720, 53 L. Ed. 2d 786 (1977).
[17] The plaintiff argues that anyone "with knowledge of recent American history will realize that the disinclination to serve in Viet Nam was hardly limited to AAFES employees."
[18] This Court discounts the testimony of one witness (Smith) that it would be "too costly" to search out volunteers since this is done for UA employees below grade 13 and since other evidence establishes that, under regulations, AAFES normally has four months to replace a UA-EMP employee in a particular job. Any "administrative inconvenience" cannot justify a practice with a disparate impact upon females. See Gunther v. Iowa State Men's Reformatory, 612 F.2d 1079 (8th Cir.1980).
[19] The parties are in dispute as to who has the burden of proof to show that "suitable alternatives exist which would have less impact" than the mobility policy. However, since this case has been fully tried on class liability issues, the ultimate factual issue is whether or not the mobility policy is discriminatory because of its disparate effect upon females. Williams v. Southwestern Bell Telephone Co., 718 F.2d, 715, 718 (5th Cir.1983). The plaintiff Shafer has met her burden of persuasion on this issue; Lewis v. NLRB, 756 F.2d 882 (5th Cir.1985).
[20] Although the term "non parametric" is subject to interpretation among experts, for purposes of this opinion it means the analyses of the experts other than multiple regression.
[21] In summary, UA females lost 44.3 promotions over a ten-year period, or 4.43 per year, according to exhibit 6.
[22] The plaintiff concedes that, "to the extent that Dr. Odell supported his availability conclusions with statistical analysis, they appear to be correct."
[23] Dr. Odell did concede that disaggregation "always reduces significance." It is for this reason that there must be a good reason to disaggregate data in statistical analyses. See Capaci v. Katz & Besthoff, Inc., 711 F.2d 647 (5th Cir.1983).
[24] Pages 11 and 12 of exhibit 7 are meaningless since, without explanation or justification, they disaggregate by mobility and college degree (even though testimony established that a college degree was not required for entry into any job grade). And, Dr. Odell characterized his final UA promotion analysis (page 17 of exhibit 7) as statistically meaningless.
[25] In summary, females lost 8.6 promotions over ten years in HPP grades 6-11, or less than 1 per year, according to exhibit 6.
[26] The plaintiff argues that "to hold otherwise would be to hold that an employer is free to discriminate against women so long as he does not discriminate `too much.'"
[27] In its brief, AAFES concedes "at the outset ... that its own UA promotion analyses my possess some of the same defects as those of the Plaintiff. However, the fact that both sides may have performed statistical studies which produced questionable results does not change the fact that the burden of proving that Defendant has engaged in intentional discrimination on the basis of sex against its female employees is on the Plaintiff. That burden cannot be met with an improper statistical study no matter who has generated it."
[28] As was done in Pouncy v. Prudential Ins. Co. of America, 668 F.2d 795 (5th Cir.1982).
[29] Dr. Michael's assumption was supported by the evidence at trial. AAFES claimed that people were assigned to job grades on the basis of qualifications. Therefore, it was not unreasonable to assume that employees within a particular job grade were similarly qualified and should be treated similarly with respect to promotion.
[30] For example, AAFES claims that only two UA grades, UA 9 and 10, showed statistically significant results and that one-half of all UA promotions were observed in these two grades. And, it claims that promotions from only two HPP grades, HPP 6 and 7, dominate the HPP promotion analysis because they "accounted for 8 of the 8.6 shortfall for the ten-year period." Therefore, AAFS objects to the summary statistics for both UA and HPP promotions because they supposedly "totally altered the nature and meaning of the component numbers."
[31] For example, contrary to the AAFES claim (see footnote 30), plaintiff's exhibit 6 shows that in 8 of the 10 years (80%), and in 9 of the 11 grades, women in UA grades received fewer promotions than expected. Indeed, in five of those years, the results were statistically significant and were clearly not the result of activity in UA grades 9 and 10. In 1980 the result is significantly adverse to women even though women in grade 9 received more than the expected number of promotions. And, the same result occurs with respect to grade 10 in 1977.
[32] AAFES has made several other attacks upon the statistical analyses in its briefs. These do not merit discussion. However, this Court has considered and rejected each of these arguments by AAFES.
[33] For a discussion of the use of the regression analysis in employment discrimination cases, see Vuyanich v. Republic National Bank of Dallas, 505 F. Supp. 224 (N.D.Tex.1980), reversed on other grounds, 723 F.2d 1195 (5th Cir.1984), cert. denied, 469 U.S. 1073, 105 S. Ct. 567, 583 L. Ed. 2d 507 (1984).
[34] It has been noted that "Most economists think God is working great multiple regressions in the sky" and also that "To every Ph.D., there is an equal and opposite Ph.D." The Official Rules (Delta Publ.Co.1979compiled by Paul Dickson).
[35] Unlike the non parametric analyses, the regression analyses do not show a gross statistical disparity concerning promotions of females in HPP grades 1-11. Plaintiff's exhibit 2 shows statistically significant results in only three years (1973, 1974 and 1975), and in five years (1978-82) women in the grades fared better than males.
[36] The only difference between these exhibits is that in exhibit 3 all variables, including sex, were added to the equation stepwise, whereas in exhibit 1 sex was not added stepwise. This variation was prepared to satisfy the criticism of the AAFES expert, Dr. Odell, and did not alter the results significantly.
[37] A review of the betas on plaintiff's exhibits 1 and 3 indicates that the position of women relative to men has gotten worse since 1973, with the very worst years being 1978 and 1979. This supports Dr. Michael's opinion that the adverse results cannot be attributed to pre-act conduct.
[38] Although the plaintiff's expert performed this analysis, she correctly argues that it is not necessary for her to distinguish between placement and promotion discrimnationbecause "present placement has been used by courts both as proof of initial placement discrimination, and as evidence of promotion discrimination." Vuyanich, 505 F.Supp. at 338.
[39] Indeed, Dr. Odell had agreed in his testimony that an R2 of .6 was acceptable.
[40] AAFES has made several other attacks upon the regression analyses in its brief. These do not merit discussion. However, this Court has considered and rejected each of these arguments by AAFES.
[41] Ms. Freeman testified that her supervisor, in selecting a male for promotion, stated that "a man would be better in that job."
[42] See parts 2 and 3 of this Court's opinion in Falcon, 611 F.Supp. at 711-18.
[43] This Court did refer to the Falcon decision (then pending on certiorari) and "across-the-board" certifications in its Findings of Fact and Conclusions of Law concerning the class certification issues (January 18, 1982). This was incorrect. Here, the class representative, Neoma Shafer, has individual complaints concerning sex discrimination in promotion and job assignmentand the class claims are identical (promotion, job assignment). Shafer was not certified as the representative of a class of applicants or of a class attacking every employment practice of AAFES (e.g., recruitment, hiring, termination). Therefore, this case does not involve an "across-the-board" certification as that term is used in Falcon and Vuyanich.
[44] In addition, the attack upon the mobility policy a particular employment practice which, like a "biased testing procedure [used] to evaluate both applicants and incumbent employees," has the same effect upon all female employees at AAFES would qualify as a "footnote 15 exception" under Falcon (457 U.S. 147, at footnote 15, 102 S. Ct. 2364, at footnote 15) since, for this purpose "the class action is limited to the tainted practice." Fleming v. Travenol Laboratories, Inc., 707 F.2d 829 (5th Cir.1983).
[45] Intervention by another class member would be proper since the intervenor's claims attacking the mobility policy would be "like or related to" Shafer's allegations of promotion discrimination in UA and higher HPP positions. This is not a situation like Vuyanich, in which it was not proper to permit other class members to intervene to attack all employment practices of Republic Bank since the named plaintiffs "had standing to assert only sex discrimination in hiring or race discrimination in termination." Vuyanich, 723 F.2d at 1198-1200.
[46] Explanatory note: For years, the Fifth Circuit approved "across-the-board" class certifications in employment discrimination cases, permitting a single plaintiff whether current employee, ex-employee, or someone not hired to maintain a class action attacking all of the employment practices of an employer. In Falcon, a landmark decision in a Dallas case, the Supreme Court reversed, telling the Fifth Circuit that they just didn't think too much of "across-the-board" certifications. Then in Vuyanich, a later case from Dallas, the Fifth Circuit said, well(!), they now cared even less than the Supreme Court about "across-the-board" certifications. But what of this case, Shafer v. AAFES, where the class represented by attorneys Thorpe and Barber (who had three other class actions pending before this Court) had been certified before Falcon and Vuyanich? Well...
THE FALCON
Once upon a backlog dreary, while I wrote on, weak and weary,
Opinions in class actions filed long ago, in days of yore,
While I pondered, nearly napping, suddenly there came a tapping,
As of someone gently rapping, rapping at my chambers door.
"`Tis some lawyer," I muttered, "TRO'ing at my chambers door
Only this and nothing more."
Back to the class actions turning, all my thoughts within me burning,
When in stepped a frayed, bedraggled Falcon once class-certified when it did soar.
But two Supreme and Circuit trips had made he, so not a minute stopped or stayed he,
And, with mien of class action plaintiffs, perched above my chambers door
Perched upon the Scales of Justice right above my chambers door
Perched, and sat, and nothing more.
Then this troubled bird beguiling my weary fancy into smiling,
By the grave and stern decorum of the countenance it wore,
"Though thy class be shorn and shaven, thou," I said, "art sure no craven
Ghastly grim and ancient Falcon wandering from the Vuyanich shore
Tell me whether the Fifth, the Circuit, will approve class actions, do outpour."
And, quoth the Falcon, "Nevermore."
Sad the Falcon, sitting lonely on those trembling scales, spoke only
That one word, as if his soul by that one word he did rent sore.
Nothing farther then he uttered; not a feather then he fluttered
Till I scarcely more than muttered: "What of the classes I have certified before
What of Hall, of Amason, of Autry, and what of the many more."
But said the Falcon, "Nevermore."
Startled at the stillness broken by this reply so aptly spoken,
"Doubtless," said I, "What it utters is its only stock and store."
But what of Thorpe, of Barber? Are there more across-the-boards to harbor?
What of the Quixotic battles dared, with Ma Bell and Mrs. Bairds?
Will they just handle fender-benders, soothe the pain with their bartenders?
Spoke the Falcon: "Evermore."
"Wretch," I cried, "the Fifth has sent theeby Vuyanich it has bent thee,
But whether Supremely sent, or though the Fifth has tossed thee here ashore,
Desolate, yet all undaunted, in these tortured chambers haunted
Tell me truly, tell me truly, I implore
Are thereare there no class actions?tell me tell me, I implore!"
Quoth the Falcon, "Nevermore."
"Except in Shafer v. AAFES, and you should probably let them know." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2164731/ | 271 Pa. Super. 261 (1979)
413 A.2d 396
Dominick R. RANIELI
v.
MUTUAL LIFE INSURANCE COMPANY OF AMERICA, Appellant.
Superior Court of Pennsylvania.
Argued September 13, 1978.
Filed October 26, 1979.
*264 Barry A. Yelen, Wilkes-Barre, for appellant.
Joseph F. Iracki, Wilkes-Barre, for appellee.
Before PRICE, HESTER and HOFFMAN, JJ.
PRICE, Judge:
This case involves an action by appellee to recover on a sickness disability policy issued to him on February 15, 1973, by appellant, Mutual Life Insurance Company of America (Mutual). The first paragraph of that policy provides that appellee is insured "against loss . . . beginning while this Policy is in force and resulting from sickness incurred *265 during the term of this Policy which is contracted and begins after thirty days from the effective date of this Policy . . . ."[1] Any sickness contracted subsequent to March 15, 1973, was thus within the ambit of the policy.
In his complaint, appellee alleged that he became sick on July 11, 1973, due to an ailment later diagnosed as chronic glomerulonephritis.[2] He was hospitalized for 140 days and became totally disabled as a result of the disease. Mutual answered: (1) that the nephritis was a condition which predated the effective coverage date of the policy; and (2) that appellee had made false and fraudulent statements in his application for the policy. Pursuant to a nonjury trial conducted on April 14, 1977, a verdict was returned in favor of appellee in the amount of $23,900. Appellant's motion for a new trial was denied, but the court en banc modified the verdict so as to reduce the total recovery to $20,900.[3] Appellee filed a timely remittitur as required by the court below, and appellant subsequently perfected this appeal. Appellant now contends that: (1) the verdict was against the facts and the weight of the evidence; and (2) the lower court erred in excluding certain pieces of information from a hypothetical question propounded by appellee's counsel. We agree with appellant's second argument, and consequently reverse and remand for a new trial.
I
In an attempt to demonstrate that appellee's sickness antedated the effective date of the policy, appellant placed on the stand Dr. Basil M. Rudusky, an expert in internal medicine and cardiovascular diseases. In the course of Dr. *266 Rudusky's testimony, appellant's counsel submitted a hypothetical question to the witness. The question incorporated information on appellee's physical condition and history prior to March 14, 1973, and invited the witness to consider, inter alia, "that [appellee] had a history of hypertension and that Dr. Adonizio [appellee's personal physician] had made reference to a possibility that there was a medical report saying that at least ten years prior to July 18, 1973, he had been diagnosed to have albumin in the urine and high blood pressure about a year before the 1973 date." (N.T. 127). Before the witness could state an opinion on whether these symptoms indicated kidney involvement, an objection was interposed. Following discussion, Dr. Rudusky was not allowed to consider any incident of hypertension or albumin in the urine.[4] Confronted with this truncated hypothetical, the witness testified that, "since two of the most important things have been omitted," (N.T. 133), he could not conclude with reasonable medical certainty that appellee had any kidney involvement prior to March 14, 1973.
The continued use of the hypothetical question placed to an expert witness has occasionally been assailed as anachronistic and confusing, McCormick, Evidence § 16 (1954), but it remains a viable and accepted method of allowing the expert witness to render an opinion based on facts not known to him personally. See Houston v. Canon Bowl, Inc., 443 Pa. 383, 278 A.2d 908 (1971); Abbott v. Steel City Piping Co., 437 Pa. 412, 263 A.2d 881 (1970); Gordon v. State Farm Life Insurance Co., 415 Pa. 256, 203 A.2d 320 (1964). In forming the hypothetical, however, it is necessary that all information contained therein be properly of record. See Houston v. Canon Bowl, Inc., supra; McKenzie v. Cost Brothers, Inc., 260 Pa.Super. 295, 394 A.2d 559 (1978); Commonwealth v. Pilosky, 239 Pa.Super. 233, 362 A.2d 253 (1976); Hussey v. May Department Stores, Inc., 238 Pa.Super. 431, 357 A.2d 635 (1976); 2 Wigmore, Evidence 3d ed. *267 § 682 (1940). See generally 56 A.L.R. 3d 300 § 6[a] (1974). Absent this record foundation, the information proffered in hypothetical questions could be so manipulated as to yield almost any response, and in so doing, seriously confuse the finder of fact. The expert's opinion is properly admissible to illuminate obscure and obtuse areas of knowledge. The hypothetical question should be employed to facilitate this end, focusing the witness' expertise onto the narrow issue under consideration; its purpose is not to further obfuscate the complex evidentiary labyrinth through which the finder of fact must carefully tread. Of course, such record evidence upon which the expert relies may be based upon personal examination, the assumed truth of the testimony of other witnesses, or upon a combination of these sources. Hussey v. May Department Stores, Inc., supra. The pivotal question in the case at bar is thus whether the two contested pieces of information were properly of record.
The information with respect to albumin in appellee's urine was first introduced by Dr. Adonizio during cross-examination. At that time, Dr. Adonizio testified that he had knowledge of a report composed by a Dr. Myers, which had been prepared pursuant to a request by the former for Dr. Myers, to examine appellee for consultation. In reading from that report, Dr. Adonizio quoted Dr. Myers as stating that appellee was "`first noted at least ten years ago to have albumin in his urine and to have high blood pressure a year ago,' . . . ." (N.T. 90). Dr. Adonizio then continued to explain that traces of albumin do not necessarily evidence the presence of nephritis. Counsel for appellee made a timely objection to the introduction of this evidence which was overruled by the court below. It thus appears that the necessary evidence of the albumin was in the record and appellant should have been allowed to include it in his hypothetical question.
Even assuming, arguendo, that the statement was not properly admitted, it is nonetheless amenable to being employed in the hypothetical question. In Commonwealth v. Thomas, 444 Pa. 436, 282 A.2d 693 (1971), our supreme court *268 ruled that a medical witness may express an opinion on medical matters based in part upon reports of others which are not in evidence, but which the expert customarily relies upon in the practice of his profession. In Thomas, the appellant was examined by a private physician, Dr. Herring, and a court psychologist. The latter was not called to testify during trial. When Dr. Herring assumed the stand for the Commonwealth in order to testify as to appellant's competency, he employed his own interview with appellant, the tests of the court psychologist, and the results of numerous other psychological tests performed on Thomas.[5] The use of the psychological testing and the reports of Dr. Herring, even if hearsay, were thus available for inclusion in the hypothetical because they were reports from others customarily relied upon by the expert witness. Instantly, there appears to be no reason why an expert may not base his opinion, in part, on information derived from a report relied upon by another expert witness, Dr. Adonizio.
As to the evidence of appellee's hypertension, the sole reference in the record to this fact appears in a report compiled by a Dr. John F. Coyle while appellee was a patient at the University of Pennsylvania Hospital.[6] In that section of the report titled "review of symptoms", the following is noted: "ROS reveals that hypertension was first noted in 1972 during `virile infection,' but was never followed up." (Brief for Appellant at 13).[7] It is not indicated in the report whether this information was garnered from another hospital record or from the patient himself.[8]
*269 First, it must be noted that the precise nature of the information posed by appellee in the hypothetical question was: "the patient had a history of hypertension." (N.T. 127). The trial court, however, in ruling upon the objection to the hypothetical, stated that, "I think your question posed, and we'll have it read, please, of course, `a continued history of hypertension.'" (N.T. 129). The insertion by the court below of the adjective "continued" demanded that appellant produce record evidence that appellee had suffered several incidents of hypertension. This appellant could not do, but such a demonstration was unnecessary. The alteration of a "history of hypertension", to a "continued history of hypertension" was the act of the trial court, not of counsel. Appellant should not be compelled to provide record evidence for questions not of his own design.[9]
Next, we believe that the information as supplied by counsel could properly have been considered by the witness in formulating his opinion. The modern trend is towards a more liberalized use of hospital records, and we have noted that they are admissible to show hospitalization, treatment, and stated symptoms. Commonwealth v. Mobley, 450 Pa. 431, 301 A.2d 622 (1973); Jumper v. Jumper, 240 Pa.Super. 99, 362 A.2d 411 (1976). We see no reason why the information *270 contained in the records, which were admitted into evidence, should not be allowed to be included in the hypothetical.[10]
II
Anticipating our conclusion that the preceding information was properly admissible, appellee contends that the error was nevertheless harmless. He reaches this conclusion by arguing as follows: the policy excludes coverage for a pre-existing "sickness"; "sickness" may be defined as a disabling or manifested illness; appellee was not disabled, nor was the disease manifest, prior to the effective coverage date; thus, Dr. Rudusky's opinion as to whether appellee suffered from incipient i.e. non-manifest nephritis prior to March 15, 1973, was irrelevant. While we agree with appellee's interpretation of "sickness", we perceive a flaw in his logic.
Preliminarily, it is well settled that insurance policies are in essence contracts of adhesion, and consequently, any ambiguities or uncertainties in language are construed strictly against the insurer and in favor of coverage. Mohn v. American Casualty Co., 458 Pa. 576, 326 A.2d 346 (1974); Burne v. Franklin Life Insurance Co., 451 Pa. 218, 301 A.2d 799 (1973). Moreover, words in such contracts are given their plain and popular meanings. Blocker v. Aetna Casualty and Surety Co., 232 Pa.Super. 111, 332 A.2d 476 (1975); Slate Construction Co. v. Bituminous Casualty Corporation, 228 Pa.Super. 1, 323 A.2d 141 (1974).
With these axioms as a foundation, an examination of the instant policy discloses that "sickness" is nowhere defined, nor have the appellate courts of this Commonwealth construed that word in the context of a disability policy wherein coverage is limited to a sickness originating or contracted after a stipulated date. Other jurisdictions have confronted this problem, however, and by employing similar reasoning have reached substantially uniform results.
*271 Webster defines sickness as "(1) diseased condition; illness; ill health;" and a "(2) malady; a form of disease." The same work defines illness as a "state of being ill or such; disease, ailment, malady; disorder of health; sickness." Further, disease is defined as a "condition in which bodily health is seriously attacked, deranged or impaired; sickness; illness" and pathologically "disease is an alteration of state of the human body or of some of its organs or parts interrupting or disturbing the performance of vital functions or a particular instance or case of this; any departure from the state of health presenting marked symptoms; also a specific kind of such alteration; a particular ailment having special symptoms or causes."
Although technically synonymous, these words have assumed clear and divergent meanings when employed in disability insurance clauses delaying coverage until a stipulated date. Sickness has been deemed to have its inception when the disease first becomes manifest or active, or when there is a distinct symptom or condition from which one learned in medicine can with reasonable accuracy diagnose the disease. E.g., Keller v. Orion Insurance Company, 422 F.2d 1152 (8th Cir. 1970); Mutual Hospital Ins., Inc. v. Klapper, 153 Ind.App. 555, 288 N.E.2d 279 (1972); Dirgo v. Associated Hospitals Service, Inc., 210 N.W.2d 647 (Iowa 1973); Southards v. Central Plains Insurance Co., 201 Kan. 499, 441 P.2d 808 (1968); State National Life Insurance Co. v. Stamper, 228 Ark. 1128, 312 S.W.2d 441 (1958); Malone v. Continental Life and Accident Co., 89 Idaho 77, 403 P.2d 225 (1965); Horace Mann Mutual Insurance Co. v. Burrow, 213 Tenn. 262, 373 S.W.2d 469 (1963); 43 Am.Jur.2d Insurance § 1205 (1969); 45 C.J.S. Insurance § 893 (1946). See generally 53 A.L.R. 2d 686 (1957).[11]
*272 Thus, the insured may recover under such a policy even though the medical cause of his sickness may have predated the effective date of the policy. Recovery is, however, conditioned on the fact that prior to the stipulated date, the sickness was not manifest, nor could it have been diagnosed with reasonable certainty by one learned in medicine. Such a policy is reasonable and salutary. Insurers require protection from applicants who would fraudulently attempt to gain coverage for illnesses of which they are aware or should be aware. To deny coverage because of an incipient disease that has not made itself manifest, however, is to set an unconscionable trap for the unwary insured. If the term "contracted" and "sickness" in clauses postponing protection were given an expansive construction, the purported coverage would be illusory. The mere presence of latent germs in the body would act to deny recovery on an otherwise meritorious claim. Indeed, if such were the case, there would be few recoveries on policies of this type, for it is probably rare that an adult is not diseased as such, if by "disease" one means only that the seeds of a future disabling illness are already planted in the body.
Instantly, appellee is entitled to recover on his policy if his bodily system was afflicted with nephritis prior to March 17, 1973, provided that he was not yet disabled, nor had he manifested any symptoms as of that date. Appellee errs, however, in arguing that this conclusion would render Dr. Rudusky's opinion irrelevant. On the contrary, the information contained in the hypothetical question propounded to Dr. Rudusky was available prior to the effective date of coverage. Consequently, had Dr. Rudusky, based on this information, opined that appellee was indeed suffering from nephritis, the logical inference would be that a competent medical practitioner would have been capable of diagnosing those symptoms as well. It would, of course, remain for the trier of fact to determine the weight to be accorded such an opinion, Kuisis v. Baldwin-Lima-Hamilton Corporation, *273 457 Pa. 321, 319 A.2d 914 (1974); Commonwealth v. Williams, 432 Pa. 44, 246 A.2d 356 (1968); Rose v. Hoover, 231 Pa.Super. 251, 331 A.2d 878 (1974), but had it been accepted, a verdict could have been returned in appellant's favor. Consequently, we cannot say that the error was harmless.
The order of the court below is therefore reversed, and the case remanded for proceedings consistent with this opinion.
HOFFMAN, J., concurs in the result.
NOTES
[1] Because the computation of the precise amount of recovery is not disputed on this appeal, provisions of the policy relating to recoverable benefits are not here reproduced.
[2] Glomerulonephritis is a disease in which the vessels within the kidney have been damaged or hardened through the exertion of pressure.
[3] The award was composed of $1,400 for hospitalization indemnity, $16,500 for monthly sickness indemnity, and $3,000 for monthly sickness indemnity (nonconforming sickness).
[4] In his brief, appellant also argues that the witness was precluded from considering the fact of high blood pressure. This contention is belied by the record, however, which clearly indicates that Dr. Rudusky took that fact into account when formulating his opinion.
[5] These tests were also employed by the defense psychiatrist in forming his opinion of insanity.
[6] Appellee was admitted to the University of Pennsylvania Hospital following examination by Dr. Adonizio and administration of a battery of tests at the Pittston Hospital.
[7] The pertinent portion of Defendant's Exhibit 3 Dr. Coyle's notes is reproduced in appellant's brief.
[8] Appellee argues initially that appellant has "waived" any right to object, because when the court excluded the information from the hypothetical question, it granted counsel an opportunity to direct its attention to that part of the record which specifically noted a continued history of hypertension. Counsel failed to immediately do so, indicating that the notes of Dr. Coyle were not in court. He also admitted that a secondary source for the same information, the notes of Dr. Adonizio, were not in evidence. Nevertheless a short time later, counsel succeeded in bringing the court's attention to the precise point in Dr. Coyle's notes which mentions the hypertension. We do not believe that this temporary inability of counsel to advise the court should constitute a "waiver." Although it is obviously difficult for the trial judge to rule on the admissibility of a piece of information when he is uncertain of its record status, the judge is charged with knowledge of the trial proceedings. In light of the fact that the court was directed to the correct area of the record immediately following the incident, we cannot say that appellee should be precluded from presenting his argument.
[9] Indeed, appellee concedes that "If defendant's expert were prevented from considering one instant of hypertension he may have cause to complain; . . . ." (Brief for Appellee at 13). This was, in fact, precisely what appellant's expert was prevented from considering.
[10] The information was, at any rate, includable in the hypothetical under the Thomas rationale discussed supra.
[11] The sole Pennsylvania case on point is Perhacs v. Georgia International Life Insurance Co., 32 Somerset L.J. 367 (1973). In that case, the insurance policy contained a clause permitting recovery for "`sickness originating after the date of (the) policy and while (the) policy is in force.'" Id. at 368. In analyzing the cases dealing with the interpretation of this clause, the Honorable Thomas F. Lansberry of Allegheny County reached the same conclusion as contained herein. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2326158/ | 25 F. Supp. 2d 739 (1998)
BUILDERS TRANSPORT, INC., Plaintiff,
v.
FORD MOTOR COMPANY, Defendant.
BUILDERS TRANSPORT, INC., Plaintiff,
v.
ALEXANDER & ALEXANDER OF NEW YORK, INC., Tri-City Insurance Brokers, Inc., American International Group, Inc., The Insurance Company of the State of Pennsylvania, Reliance National Indemnity Company and Law, Snakard & Gambill, Defendants.
Nos. Civ.A. 1:95-CV-0381, 1:96-CV-0209.
United States District Court, E.D. Texas, Beaumont Division.
April 3, 1998.
*740 J. Thad Heartfield, Heartfield & McGinnis, L.L.P., Beaumont, TX, Christopher A. Marothy, Fischbein Badillo Wagner Harding, New York City for plaintiff Builders Transport, Inc.
Frank G. Jones, Jeff Cody, Fulbright & Jaworski, L.L.P., Dallas, TX, for defendant The Insurance Company of the State of Pennsylvania.
MEMORANDUM OPINION AND ORDER GRANTING MOTION OF BUILDERS TRANSPORT, INC. FOR SUMMARY JUDGMENT AND DENYING MOTION OF INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA FOR SUMMARY JUDGMENT
JOE J. FISHER, District Judge.
In this diversity action, the Court is asked to examine the terms of an umbrella insurance policy and determine the extent of the insurer's liability to contribute to the cost of defense. Even though the carrier paid $13-million of $16.3-million in settlements made on the eve of trial, it claims its coverage for such costs is limited to those incurred from the date underlying coverage was exhausted, which because settlement was made in two parts, is a period of just 18 days. The *741 parties agree that the dispute over liability can be resolved summarily, and each has therefore filed its own motion for summary judgment pursuant to Fed.R.Civ.P. 56(c). For the reasons set forth below, I conclude that the insurer is obligated to contribute, on a pro rata basis, toward all of the costs of defending its insured, including those costs incurred before the limits of underlying coverage were exhausted.
I.
The following facts are undisputed. Builders Transport, Inc. ("Builders" or the "Company") is a public company, whose stock is traded over the counter under the symbol "TRUK". It owns and operates a fleet of trucks that transport freight throughout all parts of the United States except the far west. Headquartered in Camden, South Carolina, it is currently the eighth largest trucker in the country. (Affidavit of Stanford Dinstein, sworn to November 17, 1997), ¶ 2 (hereinafter referred to as "Dinstein Aff."). The Insurance Company of the State of Pennsylvania ("ISOP") is a Pennsylvania insurance company with its principal place of business in New York (Third Amended Complaint, ¶ 5, Ex. "F"). It is a subsidiary of the American International Group ("AIG"), and is a member of the AIG group of companies. (Id).
Builders maintained a three-tiered structure to cover any loss resulting from a motor vehicle accident involving its fleet (Dinstein Aff., ¶ 7). The first $1-million arising from a collision was covered by the Company's self-insured retention ("SIR"), and required that Builders pay all claims, including fees and expenses, for losses under that amount (Dinstein Aff., ¶ 5). The Company then secured coverage from Planet Insurance Co. ("Planet") for the next $1-million of loss (Dinstein Aff., ¶ 6).
With respect to claims that reached the Planet layer of insurance, the Planet policy provided that costs, expenses and fees were to be pro-rated, each party to share such amounts in proportion to what it contributed to a final settlement or verdict. In pertinent part, Endorsement 18 of the Planet policy states:
In the event that any claim[s], exceed the Named Insured's self-insured retention and involve the liability of the Company, then, solely as respects each such claim, the Company and the Named Insured shall pro rate all costs and expenses in direct proportion to the amount of damages applicable to and payable by each of them ... (emphasis added)
To provide further protection against a catastrophic loss, Builders then purchased from ISOP $13-million in excess coverage. Under its policy, ISOP was obligated to provide the following liability coverage:
To pay on behalf of the Insured that portion of the Ultimate Net Loss in excess of the retained limit as hereinafter defined, which the Insured shall become legally obligated to pay as damages to third parties for liability imposed upon the insured by law, or liability assumed by the insured under contract because of (i) personal injury, (ii) property damage, or (iii) advertising liability as defined herein, caused by an occurrence as defined and/or restricted in this policy. (emphasis added)[1]
The personal injury claims from which the fees and expenses at issue here were incurred arose from a multi-vehicle collision in Texas on November 25, 1993 (Dinstein Aff., ¶ 10). Two people died in the accident, and several others suffered catastrophic permanent injuries (Dinstein Aff., ¶ 10). It was clear from the outset that all three layers of Builders' coverage would likely be invoked and then exhausted (See e.g., Dinstein Aff., Exs. "J", "K" and "L").
As a consequence of the collision, suit was brought against Builders in the District Court of Texas, Jefferson County, captioned Clancy, et. al. and Chandler v. Builders Transport, Inc., Cause No. B-144, 840-B (Dinstein Aff., Ex. "C"). The case was settled in two parts shortly before trial began in June 1995. The first portion of the settlement *742 was a payment of $13.8-million to the Clancy plaintiffs made on June 9, 1995 (Dinstein Aff., ¶ 15). The remainder of the case was settled for $2.5-million on June 27, 1995 (Dinstein Aff., ¶ 16), with Builders contributing an additional $1.3-million over and above its SIR and insurance coverages.[2] ISOP claims it is liable only for those costs and fees incurred during the 18 days between June 9, 1995, the date of the settlement with the Clancy plaintiffs, and June 27, 1995, the date its policy limits became exhausted,[3] and nothing more. When Builders demanded that ISOP pay its proportionate pro rata share of all costs and fees incurred in connection with the underlying action, the insurer refused and this case ensued.
II.
With respect to payment of costs and expenses incurred in connection with a covered loss, Builders claims that Endorsement 17 of the ISOP Policy incorporates by reference the terms of the Planet policy by stating:
[S]hould applicable underlying insurance(s) become exhausted by payment of covered claims, this insurance will continue in force as underlying insurance and shall defend any suit arising out of a covered occurrence. (emphasis added)
Builders claims the term "underlying insurance" in the foregoing endorsement is a defined term, since the Planet policy is expressly listed in Endorsement 19 of the ISOP policy as "underlying insurance". Builders further points out that the subject language is found under the heading Defense, Settlement and Supplementary Payments, and not in either the coverage section or the separate definition of "Ultimate Net Loss," thereby rendering the section separately applicable once the ISOP policy attaches. By incorporating by reference the Planet policy into the Defense section of its own policy, Builders alleges that ISOP incorporated by reference the portion of the Planet policy that requires defense costs to be prorated "in direct proportion to the amount of damages applicable to and payable by each of them."
Builders further charges that ISOP relied on and benefitted from the legal work provided by counsel retained in defense of the underlying case in deciding to reach a settlement, and attaches documents to support that conclusion (see, e.g., Dinstein Aff., Exs. "J" and "L"). Therefore, Builders says ISOP actually used those services and should be required to pay for them even if the Planet policy is not found to have been incorporated as alleged.
In opposition, ISOP essentially argues that by failing to use the words "follow form", the language in its own policy cannot effectuate an incorporation by reference. Therefore, according to the insurer, its liability for costs and fees does not begin until all underlying insurance has been exhausted, and liability under its own policy attaches. ISOP says the date underlying insurance became exhausted was when the first portion of the settlement was reached on June 9, 1995.
III.
Summary judgment is warranted if the movant establishes there is no genuine dispute as to any material fact and it is entitled to judgment or partial judgment as a matter of law. Fed.R.Civ.P. 56(c); Thomas v. Harris County, 784 F.2d 648 (5th Cir.1986); Slaughter v. Southern Talc Co., 949 F.2d 167 (5th Cir.1991). The Supreme Court has interpreted the plain language of Rule 56(c) to mandate "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, 91 L. Ed. 2d 265 (1986).
Once the moving party has pointed out the absence of evidence supporting the nonmoving *743 party's case, the nonmoving party's failure to offer proof concerning an essential element of its case necessarily renders all other facts immaterial and mandates a finding that no genuine issue as to material fact exists. Saunders v. Michelin Tire Corp., 942 F.2d 299 (5th Cir.1991). When considering the propriety of a grant of summary judgment in cases involving the construction of insurance policies, the court may also determine whether applicable policy terms are ambiguous. Yancey v. Floyd West & Co., 755 S.W.2d 914, 1988 Tex.App. LEXIS 2285 (1988) The determination of ambiguity is a question of law; "it is only through resolution of ambiguities through the resort to extrinsic evidence which creates a question of fact." Brooks, Tarlton, Gilbert, Douglas & Kressler v. United States Fire Insurance Co., 832 F.2d 1358 (5th Cir.1987). Inasmuch as this action involves the interpretation of an insurance contract, it is ripe for summary judgment.
IV.
There is no choice of law provision in the ISOP policy, which covers claims worldwide. In diversity actions, a federal court must follow the choice of law rules of the state in which it sits. St. Paul Mercury Ins. Co. v. Lexington Ins. Co., 78 F.3d 202, 205 (5th Cir.1996); Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Under Texas choice of law principles, contract disputes are governed by the law of the state with the "most significant relationship" to the case. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414 (1984). The facts here support reliance on the law of Pennsylvania.
ISOP is a Pennsylvania company organized and existing under the laws of the Commonwealth of Pennsylvania (See Third Amended Complaint, ¶ 5). That contact is particularly significant, most especially since this dispute neither concerns any Texas companies, nor were any of the subject insurance policies issued and delivered to Texas residents. It can hardly be deemed unreasonable for ISOP to have expected the laws of the state of its incorporation to apply to disputes involving construction of its insurance policies. See, e.g., TPLC, Inc. v. United National Insurance Co., 44 F.3d 1484, 1491 (10th Cir.1995) ("Pennsylvania has the most significant relationship to the contract and the greatest interest in seeing that its laws apply when interpreting the notice provisions of insurance contracts written and issued by Pennsylvania insurers. It simply would not make sense to have United's insurance contract notice provisions interpreted in fifty different ways every time a dispute arose between United and one of its insureds").[4]
The Court is mindful that Texas has an important connection to the issues raised since the underlying case was brought here, and the attorneys fees at issue were incurred here. However, the contacts with the insurance dispute itself, and not the underlying case, are the ones that are controlling. St. Paul Mercury Ins. Co. v. Lexington Ins. Co., 888 F. Supp. 1372, 1379 (S.D.Tex.1995); aff'd, 78 F.3d 202 (5th Cir.1996). The Court also notes, and counsel for both sides conceded at oral argument, that the laws of Pennsylvania, Texas and New York, the three states with the greatest contacts with this dispute, are all in accord insofar as the issues before the Court are concerned, so the selection of one of those state's laws over Pennsylvania would not change the result.
V.
Insurance policies are construed as are contracts generally, and therefore must be interpreted to effectuate the interest of the parties at the time the contracts were formed. Western Indemnity Insurance Company v. American Physicians Insurance Exchange, 950 S.W.2d 185 (Tex.App. 1997). When the policy language is unambiguous, the words are to be given their plain, ordinary and generally accepted meaning. See Puckett v. United States Fire Insurance Co., 678 S.W.2d 936, 28 Tex.Super. *744 55 (1984); Ranieli v. Mutual Life Ins. Co., 271 Pa.Super. 261, 413 A.2d 396 (1979). Where the language of an insurance contract is ambiguous, the policy is to be construed strictly against the insurer. Chen v. Metropolitan Insurance and Annuity Co., 907 F.2d 566 (5th Cir.1990) ("Even if the insurer's construction is more reasonable than the insured's, the insured's must prevail"). This requirement is even more stringent where the issue is an exception or limitation on an insurer's liability under a policy. Pacific Indemnity Co. v. Linn, 766 F.2d 754, 765 (3d Cir.1985) ("where an exclusion is not prominently displayed and not clearly worded, it may be strictly construed against the insurer"); Assicurazioni Generali, S.p.A. v. Ranger Ins. Co., 64 F.3d 979 (5th Cir.1995). When the language of a policy is susceptible to more than one construction or the language is patently ambiguous, the policy should be construed strictly against the insurer and liberally in favor of the insured. Western World Ins. Co. v. Reliance Ins. Co., 892 F. Supp. 659, 662 (M.D.Pa.1995) ("We read the policy with an eye toward avoiding ambiguity and take care not to torture policy language to create uncertainties where none in fact exist ... Ambiguities are resolved in favor of the insured and in a manner consistent with his or her reasonable expectations when contracting for coverage"); Adams v. John Hancock Mutual Life Insurance Company, 797 F. Supp. 563 (W.D.Tex.1992), aff'd, 49 F.3d 728 (5th Cir.1995).
The general rule of interpreting ambiguous terms against the insurer also applies in connection with defense costs. Aetna Fire Underwriters Insurance Co. v. Southwestern Engineering Co., 626 S.W.2d 99 (Tex.App.1981); Bituminous Casualty Corporation v. Vacuum Tanks, Inc., 75 F.3d 1048 (5th Cir.1996).
VI.
In Pennsylvania, Texas and New York, the determination of whether an excess or umbrella insurer[5] is liable for a proportionate share of all costs and fees incurred in defending an insured begins with an examination of the various layers of coverage, and the specific language of the policies themselves. Courts require pro-rata sharing of defense costs where, as here, the language of the excess or umbrella policy incorporates by reference a proration of costs and fees provision contained in an underlying policy.
The ISOP policy here specifically provides that once underlying coverages are exhausted, "this insurance will continue in force as underlying insurance and shall defend any suit arising out of a covered occurrence" (Endorsement 17, page 1) (emphasis added). ISOP's strained interpretation of its own policy language renders the phrase "as underlying insurance" meaningless. It ignores that "underlying insurance", by virtue of Endorsement 19 of its own policy, means for purposes of this case the Planet policy itself. Likewise, the term "as" is commonly understood to mean "like, similar to, of the same kind, in the same manner, in the manner in which,"[6] or "in the same manner that"; according to the way that ... a correlative construction used to indicate the equality or sameness of two things; as large as, as heavy as, as many as, etc.[7]
Given its plain meaning, then, the phrase "as underlying insurance", when used in the context chosen by ISOP in the defense portion of its own policy, can only mean that upon the exhaustion of underlying coverages, the ISOP policy will defend in the same manner as or according to the way that the underlying Planet policy operated, and that it will provide coverage for expenses to the same degree in which that policy did.[8]*745 Since the Planet policy specifically provides for a pro-rata sharing of defense costs by all contributors to the settlement of a claim, once underlying coverages became exhausted and the ISOP policy attached, ISOP also became liable for its proportionate pro rata share of all costs incurred in the defense of Builders in the underlying action, and not just those incurred from the date of exhaustion of those coverages forward.[9]
The case of General Accident Insurance Company of America v. Safety National Casualty Corporation, 825 F. Supp. 705 (E.D.Pa.1993), relied on by Builders, is directly on point. In General Accident the Court found a duty on the part of an excess carrier in the same position as ISOP to share proportionately all expenses, including those incurred before underlying coverages were exhausted. Safety National had provided up to $25-million of excess coverage to the law firm of Blank, Rome, Comisky & McCauley. Its coverage was excess to, in pertinent part, the primary coverage of General Accident Insurance Company of America. The underlying claims arose from the failure of a Florida S & L and, pursuant to a settlement agreement reached among the parties, each insurer tendered its policy limits. At issue in the case was excess carrier Safety National's obligation to contribute to General Accident Insurance Co. its pro-rata share of defense costs incurred in connection with the underlying claims.
As the ISOP policy here, the Safety National policy incorporated by reference the defense obligations set forth in the underlying General Accident Insurance Co. coverage which "provide[d] for a pro rata sharing of defense costs between insurers." The Court noted:
The plain meaning of the presence of this clause, incorporated by reference into Safety National's policy, is that Safety National's defense obligations are contingent upon the exhaustion of General Accident's primary policy limits and limited to a pro rata share. As General Accident's policy limits were exceeded and the contingency satisfied, it follows that Safety National is obligated to contribute a pro rata share of the costs of defending Blank Rome.
Id., 825 F.Supp. at 709 (emphasis added).
The District Court rejected the very argument advanced by ISOP here that the "liability" section of the policy controlled the date when the obligation to pay costs and attorneys fees began. It observed:
Explaining for what Safety National will be liable, this clause makes clear that the "attaches" clause referred to by Safety National is temporal only and that any attaching liability will require Safety National to indemnify Blank Rome for amounts in excess of the underlying policy limits, up to certain dollar values. It says nothing, however, about the nature of Safety National's duty to defend. The defense obligation and defense cost apportionment clauses incorporated into Safety National's policy address the extent of this duty, and, as stated above, limit liability to Safety National's pro rata share of defense costs, contingent upon exhaustion of underlying policy limits. There is no indication that Safety National intended to limit its liability only to those costs incurred after the underlying policy limits were exhausted. Indeed, just the opposite is conveyed by the incorporated presence of the apportionment clause, which states that the insurer "shall be obligated to pay that proportion of claim expenses [defense costs] as the amount of damages bears to the total amount of damages." Thus when the defense costs were incurred, either before or after policy limits were exceeded, is irrelevant." (emphasis added)
Id., 825 F.Supp. at 709-10.
Likewise here, ISOP provided in its policy that upon liability "attaching", it will defend *746 the claim "as underlying insurance." Accordingly, once its policy was triggered, ISOP was required to defend the claim on the same terms as the underlying insurer. Since the "underlying insurance" here contains a requirement that defense costs be shared on a pro-rata basis, ISOP assumed that liability once its policy attached. "Thus, when the defense costs are incurred, either before or after policy limits were exceeded, is irrelevant." Id., 825 F.Supp. at 710. Cf., Hartford Accident & Indemnity Co. v. Pacific Employers Insurance Company, 862 F. Supp. 160 (S.D.Tex.1994) (Hartford Accident & Indemnity, which provided the uppermost tier of coverage, subrogated to the rights of Baylor University, the insured and first layer SIR, and afforded recovery from primary insurer of all fees paid up to the time primary's policy limit was exhausted and its insurance obligations satisfied).
Similarly, in St. Paul Mercury Insurance Co. v. Lexington Insurance Co., supra, 78 F.3d 202 (5th Cir.1996), a dispute arose among two primary and two excess carriers concerning their respective obligations for costs incurred in an underlying suit. The Court looked first to the language of each insurance contract to see whether and to what extent the excess carriers adopted policy terms of the primary carrier. It found:
St. Paul's policy incorporates Centennial's escape clause. Even though St. Paul's policy does not independently contain an "other insurance" clause, the policy includes a "following form" provision, which states that the policy is to `[f]ollo[w][the] terms and conditions of [Centennial's] insurance ... Accordingly, the district court correctly concluded that all the provisions in the Centennial policy which are not in direct conflict with a provision in the St. Paul policy, including the escape type `other insurance' clause, are to be considered part and parcel of the St. Paul policy. (emphasis added)
Id., 78 F.3d at 206.[10]
ISOP relies almost exclusively on Texas Employers Insurance Association v. Underwriting Members of Lloyds, 836 F. Supp. 398 (S.D.Tex.1993). However, the facts of that case are distinguishable. First, consistent with the cases cited by Builders, the Court began its analysis by examining the actual language used in the policies at issue. However, unlike here, in Texas Employers, it observed that the underlying policy contained no proration clause, and indeed, provided to the contrary; that the underlying insurer would pay for all costs and fees itself. In addition, the excess carriers expressly disclaimed coverage for such amounts.[11] It stated:
*747 [T]he policies make no reference as to how legal fees or costs should be prorated. Assuming arguendo that TEIA is correct and that the policies somehow call for proration of costs incurred before the exhaustion of the underlying policy limits, neither the primary nor the excess policies provides any guidance as to how such costs should be apportioned. The absence of any such provisions further suggests that such apportionment was never contemplated ... Given the absence of any contractual basis from which to infer any obligation on the part of the excess carrier, the Court concludes that under these facts Texas would follow the majority rule and hold that an excess insurer is not obligated to participate in the costs of defense until the primary policy limits are exhausted. (emphasis added).
Given the Court's careful analysis in Texas Employers of the excess and underlying policies themselves, it appears certain that had the underlying policy not only provided for the proration of costs, but, as here, also been incorporated into the excess policies by reference, the Texas Employers court would have reached a different result. See St. Paul Mercury, 78 F.3d at 209 (issue was excess insurers' relative obligations for cost of insured's settlement); Emscor Mfg. Inc. v. Alliance Ins. Group, 879 S.W.2d 894, 903 (Tex. App.Hous. 14th Dist.1994) (issue was when an excess carrier must make its coverage available in a settlement when the insured's primary liability insurer became insolvent); Utica Nat'l Ins. Co. of Texas v. Fidelity & Casualty Co. of New York, 812 S.W.2d 656, 662 (Tex.App. Dallas 1991) (court ordered pro-rata contribution to liability where neither of two different lines of insurance acknowledged the existence of the other); Westchester Fire Ins. v. Heddington Ins. Ltd., 883 F. Supp. 158, 164 (N.D.Tex.1995); Aff'd, 84 F.3d 432 (5th Cir.1996) (loss prorated between two excess insurers where policies had conflicting other insurance clauses).
Here, there is a contractual basis from which to infer the obligation to share costs and fees. The Court rejects ISOP's argument that only the specific words "follow form" can be used to achieve an incorporation by reference of a proration of costs and fees provision from an underlying policy, and ISOP has pointed to no authority for such a proposition. Words of similar import, as used by the insurer here, will suffice. See St. Paul Mercury Ins. Co. v. Lexington Ins. Co., supra, 888 F.Supp. at 1378.
ISOP incorporated by reference, and thereby adopted, the pro-rata sharing provision for costs and expenses contained in the Planet policy. Any other more restrictive interpretation would render meaningless its use of the phrase "continues in force as underlying insurance" in the "defense costs" section of ISOP's own policy. If coverage "continues ... as underlying insurance," it must, by necessity, be on the same terms as the underlying insurance referred to.
Likewise, the refusal of ISOP to contribute its proportionate pro-rata share of all costs incurred to defend Builders in the underlying action was without justification, and was a breach of its insurance agreement. Indeed, its offer of a paltry $50,000 toward those costs for a limited 18 day period, most especially in light of the uncontroverted proof that it relied on the services provided by the lawyers in the underlying case in deciding to tender its $13-million policy limits, cannot be excused. Accordingly, Builders may also recover from ISOP its reasonable costs and attorneys fees incurred in connection with this action as an additional element of reasonable and consequential damages arising from ISOP's breach of the insurance contract.
CONCLUSION
For the foregoing reasons, the motion by Builders for summary judgment on the issue of liability is granted, and the motion of ISOP on the issue of liability is denied. Builders is entitled to recover from ISOP, in the manner set forth in Endorsement 18 of *748 the Planet policy, ISOP's proportionate pro-rata share of all costs and fees incurred in the defense of Builders in the underlying action, plus interest from November 14, 1995 (see, Dinstein Aff., Ex. Q), whether such fees were incurred prior to or after liability under its umbrella policy attached. This matter should be set for trial forthwith to determine the amount of damages, including costs and attorneys fees incurred connection with this action, to which Builders is entitled.
NOTES
[1] The Court notes that the ISOP policy does not contain any language limiting or restricting the term "all costs", as ISOP now suggests, to only those costs incurred after Planet paid out its policy limits.
[2] Though not at issue in this motion, which is limited to liability only, Builders claims that approximately $1.4-million in costs and fees were incurred in defending the underlying case (Dinstein Aff., ¶ 17). It has already settled with Planet, and recovered damages from its insurance broker (Dinstein Aff., ¶ 20).
[3] ISOP estimated at oral argument that amount to be approximately $50,000.
[4] Contrary to ISOP's view, Article 21.42 of the Texas Insurance Code does not require application of Texas law. Article 21.42 does not apply to insurance contracts written by non-Texas insurers for non-Texas insureds. Austin Building Co. v. National Union Fire Ins. Co., 432 S.W.2d 697, 701 (1968).
[5] ISOP claims its position as an "umbrella" insurer, as distinct from a pure "excess" insurer, should impact upon the Court's decision. However, no authority for that proposition has been cited, and the Court does not consider that distinction relevant to its determination.
[6] Black's Law Dictionary, p. 113 (Sixth Edition) (1990).
[7] Webster's New Twentieth Century Dictionary, Unabridged, p. 107 (Second Ed.) (1983).
[8] ISOP also argues that Builders should be estopped by allegations made in several claims for relief contained in prior pleadings from claiming the ISOP policy provided proportionate pro-rata coverage for defense costs. However, each pleading also contained a separate count seeking a declaration that such coverage was indeed bound (See First Amended Complaint, ¶¶ 71-74; Second Amended Complaint ¶¶ 71-74). It is well settled that a party may plead in the alternative, even when those counts are inconsistent. See Fed.R.Civ.P. 8(e); Fredonia Broadcasting Corp., Inc. v. RCA Corp., 481 F.2d 781 (5th Cir. 1973).
[9] If that was intended by the insurer as the intent of the defense portion of Endorsement 17 of the ISOP policy, as ISOP now claims, one would think it would have said so in plain language.
[10] See also National Grange Mutual Insurance Co. v. Continental Casualty Ins. Co., 650 F. Supp. 1404 (S.D.N.Y.1986) (both primary and excess insurer was obligated to contribute, pro rata, in proportion to their respective undertaking toward legal fees and other expenses of litigation); Millers' Mutual Ins. Assoc. of Illinois v. Iowa National Mutual Ins. Co., 618 F. Supp. 301 (D.Col.1985) (primary and excess insurers held liable for a share of defense costs in proportion to the amounts of policy because "equity will not permit excess carrier the windfall of having its defense obligations discharged by the primary insurer"); Coastal Iron Works, Inc. v. Petty Ray Geophysical, 783 F.2d 577 (5th Cir.1986) (primary and excess carriers must share litigation costs where insured was only required to pay amount of primary policy); General Accident Insurance Company of America v. Safety National Casualty Corporation, 825 F. Supp. 705 (E.D.Pa. 1993); Pallotta v. Aetna Ins. Co., 66 Misc. 2d 929, 322 N.Y.S.2d 921 (N.Y.Sup.1971) (excess carrier may be required to share costs of defense); American Fidelity Ins. Co. v. Employers Mutual Casualty Co., 593 P.2d 14, 22, 3 Kan. App. 2d 245 (1979) ("Under general principles of equitable subrogation" where the same risk is covered by both primary and secondary insurance, both are liable for a pro rata share of the costs of defense); Celina Mutual Ins. Co. v. Citizens Ins. Co. of America, 349 N.W.2d 547, 133 Mich.App. 655 (1984) (where excess insurer knew that the primary coverage would be exhausted, it was obligated to pay pro rata share of defense costs based on the amount of settlement it was required to pay); Aetna Casualty & Surety Co. v. Certain Underwriters at Lloyds of London, 56 Cal. App. 3d 791, 129 Cal. Rptr. 47 (Cal.App.2d Dist. 1976) (excess carriers required to share in defense costs based on proration of each insurer's share of total paid out in claims).
[11] The primary policy expressly provided, inter alia, that Texas Employers was required to "pay all expenses incurred by the company, all costs taxed against the insured ... until the company has paid or deposited in court such part of such judgment as does not exceed the limit of the company's liability." In contrast, the excess coverage provided that the "Underwriters shall not be called upon to assume charge of the settlement or defense of any claim made or suit brought or proceeding instituted against the Assured." Id, at 406. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2126891/ | 906 F.Supp. 357 (1995)
HUNTLEIGH CORPORATION
v.
LOUISIANA STATE BOARD OF PRIVATE SECURITY EXAMINERS.
Civ. A. No. 95-90-A.
United States District Court, M.D. Louisiana.
November 28, 1995.
*358 Kermit L. Roux, III, Michael R. Allweiss, Lowe, Stein, Hoffman, Allweiss & Hauver, New Orleans, Louisiana, for Plaintiff.
Frank D. Blackburn, Baton Rouge, Louisiana, for Defendants.
RULING ON MOTIONS FOR SUMMARY JUDGMENT
JOHN V. PARKER, Chief Judge.
This matter is before the court on motions for summary judgment by both plaintiff and defendant. Oral argument is not necessary. Jurisdiction is based on 28 U.S.C. § 1331.
Plaintiff seeks a judgment under 28 U.S.C. § 2201 declaring that the provisions of the Louisiana Private Security Regulatory and Licensing Law, La.R.S. 37:3270-3298, are preempted by 49 U.S.C. § 1305(a)(1), formerly § 1305(a)(1) of the Airline Deregulation Act (ADA), and that with regard to its employees who perform pre-departure screening at airports, plaintiff is not bound by those state laws, or the November 9, 1994 sanctions imposed on plaintiff by defendant, the Louisiana State Board of Private Security Examiners (Board). Plaintiff also seeks an order enjoining the Board from enforcing either the Louisiana Private Security Regulatory and Licensing Law, or the Board's sanctions against them in the future. The issue before the court is whether Louisiana's Private Security Regulatory and Licensing Law, as applied to plaintiff's employees who perform pre-departure screening at airports, has been preempted by federal law.
THE UNDISPUTED FACTS
Plaintiff contracts with individual air carriers to provide pre-departure screening at various airports within the State of Louisiana. As required by federal law, everyone entering the boarding area of an aircraft terminal is subject to screening which includes examination of purses, carry-on bags, and luggage, by hand or with x-ray machines, and walk-through metal detectors.
Under the Louisiana Private Security Regulatory and Licensing Law, La.R.S. 37:3270, et. seq., the Louisiana State Board of Private Security Examiners (Board) has the responsibility and authority to ensure compliance with the provisions of that statute, and to adopt rules and regulations for the private security industry in Louisiana.
On December 1, 1993, the Board determined that plaintiff was in violation of certain provisions of the state statute and several of the Board's rules pertaining to registering and training of private security officers. The employees in question were all performing pre-departure screening at the Baton Rouge and New Orleans airports. Plaintiff requested a rehearing and argued at the rehearing that the Airline Deregulation Act of 1978 (ADA), 49 U.S.C. § 1301, et. seq., prohibits the state from enforcing any state regulation against it with regard to the services it provides that are encompassed by the express preemption section of the ADA. The board *359 rejected this argument, and plaintiff sought judicial review of the decision in state court, which refused to enjoin enforcement of the administrative sanctions during those proceedings. The parties have agreed to stay the state court proceedings pending the outcome of these proceedings.
Airline Deregulation
In 1978 the Congress passed the Airline Deregulation Act, amending the Federal Aviation Act of 1958 (FAA). The Congress determined that the best way to promote efficient, innovative, low cost, and quality interstate air transportation is by allowing market factors, rather than government regulation, to determine the routes, rates, and services of air carriers. Hodges v. Delta Airlines, Inc., 4 F.3d 350 (5th Cir.1993), rev'd, 44 F.3d 334, 335 (5th Cir.1995) (en banc). To achieve this, the Congress dismantled federal economic regulation of the airline industry, and to prevent the states from frustrating the congressional goal of economic deregulation, promulgated the express preemption provision which is the focus of this dispute. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 377, 112 S.Ct. 2031, 2034, 119 L.Ed.2d 157 (1992).
The preemption section of the ADA, designated as 49 U.S.C. § 1305(a)(1), reads:
[N]o state ... shall enact or enforce any law, rule, regulation, standard, or other provision having the force and effect of law relating to the rates, routes or services of any air carrier having authority under Title IV of this Act to provide air transportation.
In 1994, the ADA was superseded by the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which amended and redesignated the preemption statute as 49 U.S.C. § 41713(b)(1). It now provides:
Except as provided in this subsection[1], a State ... may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.[2]
Although the Congress deregulated the economic aspects of the airline industry, federal law still regulates many activities of air carriers. For example, sections 1356(a) of the ADA, and 44901 of the FAAAA require the Administrator of the FAA to prescribe regulations requiring that all passengers and property that will be carried in the cabin of an aircraft in air transportation be screened. The screening must take place before boarding and must be carried out by a weapon-detecting facility or procedure used or operated by an employee or agent of the air carrier. Section 1357(c) of the ADA and Section 44935 of the FAAAA requires the Administrator of the Federal Aviation Administration to prescribe standards for the employment of and contracting for airport security personnel, which includes those performing the task of pre-departure screening. With regard to these standards, section 44935 of the FAAAA says:
[t]he Administrator ... shall prescribe uniform training standards and uniform minimum qualifications for individuals eligible for that training.
The specific standards for screening personnel set out by the Administrator are at 14 CFR § 108.31. These standards include minimum education levels and language skills, basic aptitude requirements, and appropriate training requirements.
DISCUSSION
SUMMARY JUDGMENT
Summary judgment is appropriate if the moving party establishes that there is no genuine issue of material fact and that he or she is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Neither party contends that material facts are in dispute.
*360 PREEMPTION
The Supremacy Clause, Article VI, Clause 2 of the Constitution, provides that "the Laws of the United States ... shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Federal preemption of state law may arise explicitly from a statute's language or implicitly from its structure and purpose. Michael v. Shiley, Inc., 46 F.3d 1316, 1322 (3rd Cir.1995), citing Morales v. Trans World Airlines, Inc., 504 U.S. 374, 381, 112 S.Ct. 2031, 2036, 119 L.Ed.2d 157 (1992). That is to say, state law is preempted by federal law where the Congress has expressly preempted state law, where congressional intent to preempt may be inferred from the pervasiveness of the federal regulatory scheme, or where state law actually conflicts with federal law or interferes with the achievement of congressional objectives. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 67 S.Ct. 1146, 91 L.Ed. 1447 (1947). Preemption is a matter of congressional intent, and in determining whether federal law preempts a state cause of action, courts should primarily look to congressional intent. California Federal Sav. and Loan Ass'n v. Guerra, 479 U.S. 272, 280, 107 S.Ct. 683, 689, 93 L.Ed.2d 613 (1987). Intent to preempt does not have to be inferred from the substantive portions of a statute where the Congress has included an express preemption section providing a reliable indicium of congressional intent. Congressional enactment of a provision defining the preemptive reach of a statute implies that matters beyond that reach are not preempted. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517, 112 S.Ct. 2608, 2618, 120 L.Ed.2d 407 (1992). Preemption is not to be presumed lightly. In fact, there is typically a presumption weighing against preemption to insure that neither the Congress nor the courts unintentionally or unnecessarily disturb the federal-state balance. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977).
Express Preemption
In the recent Supreme Court case of American Airlines, Inc. v. Wolens, ___ U.S. ___, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995), the Court considered the meaning of the phrase "enact or enforce any law" in the context of the preemption section of the ADA, 49 U.S.C. § 1305(a)(1). The issue in that case was whether claims based on the Illinois Consumer Fraud and Deceptive Business Practices Act and state contract law had been preempted by the ADA. The Court held that the state Act was preempted because it was a law enacted or enforced by the state which regulated the rates, routes or services of air carriers. The Court also found that the claim based on state contract law was not preempted. The Court explained that the ADA's preemption bars state-imposed regulation of air carriers, but allows enforcement of contract terms set by the parties themselves. While there was some disagreement within the Court concerning the breach of contract claim, all of the participating members agreed that the Illinois Consumer Fraud Act was preempted because it presented an impermissible stateimposed regulation of the airline industry. Wolens, ___ U.S. at ___, 115 S.Ct. at 823.
In Morales v. Trans World Airlines, Inc., 504 U.S. 374, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992), the Court held that the preemption statute encompasses three types of state laws: (1) those specifically regulating to airlines; (2) those which indirectly regulate rates, routes, or services; and (3) those which have significant effect on rates, routes, or services, even though they are laws of general effect. Morales, 504 U.S. 374, 112 S.Ct. 2031. The court also held that the preemption provision in the ADA preempts all state laws within its sphere, including those which are consistent with the ADA's substantive requirements. Morales, 504 U.S. at 386, 112 S.Ct. at 2038. The issue before the Court was whether "Travel Industry Enforcement Guidelines" proposed by the National Association of Attorneys General (NAAG), which had been drafted to halt allegedly deceptive airline advertisements, were preempted by the federal statute. The Supreme Court held that the NAAG guidelines were preempted, but acknowledged that some state laws affect airline "services" in too tenuous or remote a manner to "relate to ... services" and thus would not be *361 preempted. Morales, 504 U.S. at 389, 112 S.Ct. at 2040. However, the Court did not define what type of effect would be "too remote" to be preempted.
While the Fifth Circuit has considered which "services" are preempted under the ADA on several occasions, all of the cases in which it has done so are distinguishable from the case before this court because they were claims by individual plaintiffs against air carriers based on state tort law. None of the cases in which the Fifth Circuit has considered the issue deal with the state itself, through one of its agencies, attempting to enforce its own specific statutory regulation of air carriers or their agents.
In Hodges v. Delta Airlines, Inc., 4 F.3d 350 (5th Cir.1993), rev'd, 44 F.3d 334, 335 (5th Cir.1995) (en banc), the Fifth Circuit held that a state law tort claim based on negligence, for allowing a case of rum to be stored in an overhead compartment, was not preempted because it was not a law of general effect which regulated air carrier "services". Citing Wolens, the court held that the intent of the Congress was not to preempt state law claims for personal injury.
In Smith v. America West Airlines, Inc., 4 F.3d 356 (5th Cir.1993), rev'd, 44 F.3d 344 (5th Cir.1995) (en banc), the Fifth Circuit held that prohibiting a visibly deranged hijacker from boarding a plane was not a service which was "appurtenant to" and "necessarily included" with the contract of carriage between the passenger and the airline, and thus the plaintiff's suit based on negligence was not preempted.
Morales, 504 U.S. 374, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992), (deceptive airline advertising); and Wolens, ___ U.S. ___, 115 S.Ct. 817, 130 L.Ed.2d 715 (1995), (state consumer fraud act) both dealt with attempted state economic regulation by statutes of general application which the state sought to apply to airline services. The case before this court deals with attempted regulation of safety or security, not economic regulation. The plaintiff in this case is not asserting a personal claim against an airline based on either state tort or contract law.
Smith v. America West Airlines, Inc., 4 F.3d 356 (5th Cir.1993), rev'd, 44 F.3d 344 (5th Cir. en banc, 1995) (visibly deranged hijacker boarding aircraft), which did relate to regulation of air carrier security and safety, and Wolens and Hodges are also distinguishable because they dealt with claims based on state tort and contract law. These cases are distinguishable because the policies and equities involved in cases based on state tort or contract law are obviously very different than those in which a state attempts to directly regulate an air carrier. The courts in those cases refused to find that the state laws had been preempted primarily because of these important equities and policies. We deal here, however, with a specific state regulatory measure and the equities and policies which are involved in claims based on state contract or tort law are not present.
The Louisiana Private Security Regulatory and Licensing Law is a specific law which affects the "services" of air carriers, and is within the reach of the preemptive provisions of the ADA and FAAAA. As noted previously, the federal scheme essentially creates uniform training standards and uniform minimum qualifications for employees or agents of airlines who perform pre-departure screening by requiring the Administrator of the FAA to create uniform regulations in these areas. To allow each state to prescribe the qualifications and training of employees of the airlines or of those with whom the airlines contract to perform such security screening would frustrate the uniformity of the training standards and employee qualifications, and thus conflict with the federal scheme. Additionally, the comprehensive nature of the federal legislation has not left any room for regulation by the individual states in the area of pre-departure screening. The Louisiana Private Security Regulatory and Licensing Law as applied by the Board, is a state law which affects a "service" of an air carrier ___ pre-departure screening. Louisiana cannot add to or subtract from the uniform training standards or minimum qualifications for individuals performing the task of pre-departure screening as set out by the Administrator of the FAA.
*362 Air Carrier
Although both the 1978 and the 1994 versions of the preemption statute apply on their face only to laws regulating air carriers, the courts have not strictly limited application of the act to air-carriers. In Continental Airlines, Inc. v. American Airlines, Inc., 824 F.Supp. 689 (S.D.Tex.1993), the federal district court for the southern district of Texas applied the act to the parent corporation of an air-carrier, and in Marlow v. AMR Services Corp., 870 F.Supp. 295 (D.Hawaii 1994), a court found that the act applied to preempt the state "whistleblower" statute in a suit against AMR, who was not an air carrier.
Although the plaintiff here is not an "air-carrier", it is certainly an agent of an air-carrier and state regulation of its air terminal services would frustrate the intent of the Congress to provide uniform federal standards for those such as plaintiff, who contract with air-carriers to perform their statutorily mandated duties. As the court noted in Marlow, supra:
... it is preposterous to assume that Congress intended to block the prosecution against air carriers of certain suits but allow those same suits to proceed against all others.... The defendant need not be an air carrier so long as the state laws which prohibit defendant's alleged wrongdoing "relate to" airline routes, rates, or services. 870 F.Supp. at 298.
Plaintiff, as the agent of the air carriers with whom it has contracted to perform pre-departure screening, is within the reach of the preemptive statute.
CONCLUSION
Regulation of pre-departure screening as performed by plaintiff's employees is an activity which has been expressly preempted by federal law. Plaintiff's motion for summary judgment is hereby GRANTED, and this court will enter judgment declaring that the provisions of the Louisiana Private Security Regulatory and Licensing Law, La.R.S. 37:3270-3298, as applied to plaintiff's employees performing pre-departure screening at airports, are preempted by federal law, and that plaintiff is not obligated to adhere to the requirements of state law or the November 9, 1994 sanctions imposed by the Louisiana State Board of Private Security Examiners against them, as they apply to plaintiff's employees who perform pre-departure screening at air terminals in Louisiana. The judgment shall also enjoin the Louisiana State Board of Private Security Examiners (Board), its agents, and servants, from enforcing either the Louisiana Private Security Regulatory and Licensing Law, or the Board's sanctions against the plaintiff with regard to plaintiff's employees performing pre-departure screening at airports. The motion for summary judgment on behalf of defendant is hereby DENIED.
NOTES
[1] Neither side contends that any other provision of this subsection applies here.
[2] The Congress did not intend this revision to make a substantive change. American Airlines, Inc. v. Wolens, ___ U.S. ___, ___ n. 1, 115 S.Ct. 817, 821 n. 1, 130 L.Ed.2d 715 (1995). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1491885/ | 970 S.W.2d 695 (1998)
R.W. McINTYRE, Appellant,
v.
LOCKHEED CORPORATION, Appellee.
No. 2-97-341-CV.
Court of Appeals of Texas, Fort Worth.
May 21, 1998.
*696 David Fielding, Nathan B. Schattman, Fielding, Barrett & Taylor, L.L.P., Fort Worth, for Appellant.
David F. Chappell, Mark A. Anderson, Chappell & McGartland, L.L.P., Fort Worth, for Appellee.
Before DAY, LIVINGSTON and BRIGHAM, JJ.
OPINION
LIVINGSTON, Justice.
I. INTRODUCTION
Appellant R.W. McIntyre appeals from the trial court's grant of summary judgment in favor of appellee Lockheed Corporation (Lockheed) in his suit for workers' compensation-related retaliatory discharge. In three points, McIntyre claims the trial court: (1) erred in granting summary judgment; and (2) abused its discretion in denying his motion for new trial. We affirm the trial court's judgment.
II. FACTUAL BACKGROUND
In April 1987, McIntyre went to work for General Dynamics (now Lockheed) in its Quality Assurance Department as a Quality Control Engineer. In early 1988, McIntyre injured his knee and filed a workers' compensation claim. He had surgery on the knee in March 1988. McIntyre asserts he refrained from scheduling a second surgery on the knee at the behest of his then supervisor, Willie Keith, because Keith asked him to do it when it was more convenient to Lockheed.
In 1990, Lockheed began instituting a reduction in force designed to cut two-thirds of its Fort Worth work force. In May 1993, Lockheed's reduction in force focused on the Quality Assurance Department and McIntyre's manager, Mike Scruggs, was told to cut 50 percent of the 227 employees in his department. On May 21, 1993, Scruggs wrote a memo to his supervisor, H.R. O'Neal, in which he detailed his proposed reductions and stated that the reductions "allow[ed] only for satisfying the minimum contractual requirements" and "[did] not have cushion built in for[:] vacations, 990's, sick leave, additional unplanned task[s], or absences."
As part of the reduction, Scruggs determined Lockheed could only keep one of its three Quality Control Engineers. Using Lockheed's guidelines for retention and layoff selection, Scruggs rated the three individuals and determined that McIntyre ranked third because he had fewer skills than the other two individuals, his particular skill was being outsourced, and his communication skills were lacking. Thus, Scruggs recommended to his superiors that McIntyre be one of the two Quality Control Engineers slated for termination. Scruggs's superiors approved his recommendation.
On July 6, 1993, McIntyre received notice that he was to be terminated on September 7, 1993. McIntyre went to his superiors and asked that the termination be postponed so he could take advantage of his medical benefits and have the second surgery. This first request for postponement was granted. Sometime later, McIntyre asked for another postponement and Lockheed granted a second postponement. On December 7, 1993, he *697 was sent notice that he was to be laid off on February 7, 1994.
According to McIntyre, on December 16, 1993, Robert Matthews, a Quality Assurance director at Lockheed, held a meeting in which he discussed the reduction in force and allegedly commented that the layoffs were being used to get rid of "dead heads" who had used workers' compensation insurance or had absenteeism problems. McIntyre re-injured his knee on January 12, 1994, and immediately went on workers' compensation leave. McIntyre was laid off, as planned, on February 7, 1994. On March 15, 1994, McIntyre had surgery on his knee.
On September 15, 1995, McIntyre filed suit for retaliatory discrimination related to his filing of a workers' compensation claim. Lockheed filed its motion for summary judgment on April 25, 1997, and the trial court granted the motion on August 14, 1997. McIntyre filed a motion for new trial that was denied on October 24, 1997.
III. DISCUSSION
A. Standard of Review
In a summary judgment case, the issue on appeal is whether the movant met his summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. See TEX.R. CIV. P. 166a(c); Cate v. Dover Corp., 790 S.W.2d 559, 562 (Tex.1990); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979). The burden of proof is on the movant and all doubts about the existence of a genuine issue of a material fact are resolved against the movant. See Acker v. Texas Water Comm'n, 790 S.W.2d 299, 301-02 (Tex.1990); Cate, 790 S.W.2d at 562; Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex.1965). Therefore, we must view the evidence and its reasonable inferences in the light most favorable to the nonmovant. See Great Am., 391 S.W.2d at 47.
A defendant is entitled to summary judgment if the summary judgment evidence establishes, as a matter of law, that at least one element of a plaintiff's cause of action cannot be established. See Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997). To accomplish this, the defendant-movant must present summary judgment evidence that negates an element of the plaintiff's claim. Once this evidence is presented, the burden shifts to the plaintiff to put on competent controverting evidence that proves the existence of a genuine issue of material fact with regard to the element challenged by the defendant. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex.1995).
B. Propriety of Summary Judgment
In three points, McIntyre contends the trial court erred in granting summary judgment and in denying his motion for new trial because there are genuine issues of material fact as to whether Lockheed terminated him in retaliation for filing a workers' compensation claim. We will discuss these three points together.
Section 451.001 of the Texas Labor Code states that a person may not discharge or discriminate against an employee who files a workers' compensation claim in good faith. See Tex. Labor Code Ann. § 451.001 (Vernon 1996). In order to recover damages for retaliatory discharge, the employee must prove that but for their filing of a workers' compensation claim, the discharge would not have occurred when it did. See Continental Coffee Prods. v. Cazarez, 937 S.W.2d 444, 450 (Tex.1996); Texas Dep't of Human Servs. v. Hinds, 904 S.W.2d 629, 633-37 (Tex.1995). The employee has the burden of demonstrating a causal link between the discharge and the filing of the claim for workers' compensation benefits. See Duhon v. Bone & Joint Physical Therapy Clinics, 947 S.W.2d 316, 318 (Tex.App. Beaumont 1997, no writ). This causal connection is an element of the employee's prima facie case and may be established by direct or circumstantial evidence. See id. at 319. Once the employee has established the causal link, the employer bears the burden to rebut the alleged improper termination by showing there was a legitimate reason behind it. See id. Thereafter, in order to survive a motion for summary judgment, the *698 burden shifts back to the employee to produce controverting evidence of a retaliatory motive. See id.
Circumstantial evidence of a causal link between termination and the filing of a compensation claim may include: (1) knowledge of the compensation claim by those making the decision on termination; (2) expression of a negative attitude toward the employee's injured condition; (3) failure to adhere to established company policies; and (4) discriminatory treatment in comparison to similarly situated employees. See Palmer v. Miller Brewing Co., 852 S.W.2d 57, 61 (Tex. App.Fort Worth 1993, writ denied).
Appellant asserts three evidentiary causal links: (1) Scruggs knew about McIntyre's workers' compensation claim; (2) Scruggs's May 23, 1993 memo shows a tendency to discriminate against those who take time off; and (3) Matthews's statements show Lockheed used the reduction to terminate those who had filed workers' compensation claims. Lockheed contends that the evidence, even when viewed in the light most favorable to McIntyre's claim, fails to show a causal link between his termination and his filing of a workers' compensation claim. We agree.
First, the fact that Scruggs had some knowledge that McIntyre had filed a workers' compensation claim does not, by itself, constitute a causal connection. In his affidavit, Scruggs states that he did not recall that McIntyre had filed a workers' compensation claim until after McIntyre filed suit and that he did not consider the claim at all in making his decision. McIntyre does not rebut this evidence. Nor does he rebut Lockheed's evidence that none of the supervisors who approved his termination knew about his claim.
Even were we to assume that Scruggs had full knowledge of the 1988 claim when he made his decisions, McIntyre presents no evidence that Scruggs' determination was affected by any knowledge of the prior claim, nor does he refute Lockheed's evidence that he ranked last among his peers. McIntyre does not even allege there was any: (1) failure to adhere to established company policies; or (2) discriminatory treatment in comparison to similarly situated employees. See Palmer, 852 S.W.2d at 61.
Second, a reading of Scruggs's memo reveals that he was merely representing to his superiors that his proposed reductions reflected the bare minimum of employees necessary to meet Lockheed's contracts. Scruggs's memo is entirely consistent with having to reduce one-half of one's employees. We find no logical connection between these statements and McIntyre's allegation that Scruggs was intimating or inferring that employees who file workers' compensation claims should be fired.
Third, even if Matthews had said that "deadheads" would be terminated as part of the reduction, McIntyre has failed to show that Matthews had any control whatsoever over McIntyre's fate. Scruggs and Jim Carroll, the former Vice President of the Quality Assurance Department, both state that Matthews took no part in the decision to terminate McIntyre, and McIntyre presents no evidence to the contrary. Moreover, the evidence is uncontested that McIntyre's termination was decided well before any alleged statements by Matthews. McIntyre was present for Matthews's alleged statements only because Lockheed had postponed his termination on two separate occasions at McIntyre's request.
Thus, we find that McIntyre has failed to establish a causal link between his termination and the filing of his workers' compensation claim. Moreover, even if McIntyre had established a causal link, Lockheed more than met its burden to show a nondiscriminatory, legitimate reason for his termination the 50 percent reduction in force and McIntyre's rankingand McIntyre failed to produce controverting evidence of a retaliatory motive. See Duhon, 947 S.W.2d at 319. Thus, McIntyre has failed to show that but for his filing of a workers' compensation claim, he would not have been terminated when he was. See Cazarez, 937 S.W.2d at 450. We overrule appellant's three points and affirm the trial court's judgment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1551165/ | 86 B.R. 146 (1988)
In the Matter of Dennis Paul BARTH and Judith Ann Barth, Debtors.
Judith BARTH, Plaintiff,
v.
WISCONSIN HIGHER EDUCATION CORP., Defendant.
Adv. No. 87-0256-7.
United States Bankruptcy Court, W.D. Wisconsin.
June 6, 1988.
*147 Jean M. Wiencek, Bell, Metzner & Gierhart, S.C., Madison, Wis., for plaintiff.
William H. Olson, Dew, Blaney & Olson, Madison, Wis., for defendant.
MEMORANDUM DECISION
ROBERT D. MARTIN, Chief Judge.
In August of 1982, Judith Barth's ("Barth") son took out a $2,500 guaranteed student loan from the Bank of Waunakee, for which Barth signed as an "endorser" on September 15, 1982. The loan proceeds were used to finance her son's studies at the Madison Area Technical College.
The loan first came due on November 15, 1983. Less than two years later, on September 9, 1985, Barth filed a bankruptcy petition. She received a discharge on December 26, 1985.
On September 15, 1987, the Wisconsin Higher Education Corporation (WHEC) as assignee of the Bank of Waunakee, instituted a collection action on the loan against Scott and Judith Barth in state court. Barth then brought this adversary proceeding against WHEC alleging that WHEC's *148 civil action violated 11 U.S.C. § 524 which creates the injunction of discharge, and asking that WHEC be prohibited from proceeding with its civil suit. WHEC alleged that it was not in violation of section 524 because Barth's obligation was excepted from discharge granted to Barth under section 523(a)(8).
The issues presented are fairly simple:
1. If a debtor has not received educational benefits from a student loan, is the loan still an "educational loan" within the scope of section 523(a)(8); and
2. Should non-student co-makers of educational loans be exempted from the section 523(a)(8) exception to discharge because of legislative history that indicates section 523(a)(8) was primarily aimed at students?
The simple answers are:
1. Yes, the language of section 523(a)(8) is concerned with the nature of the loan, rather than what benefits the debtor may or may not have derived from the loan; and
2. No, the plain language of the statute should not be overridden without a clear expression of Congressional intent. The statutory language is inclusive of all debtors. While the primary target of this section may have been student debtors, the legislative history does not express a clear intent to exclude co-makers from the scope of this section.
* * * * * *
Section 524(a)(2) provides:
(a) A discharge in a case under this title
(2) operates as an injunction against the commencement . . . of an action . . . to collect, recover or offset any such debt as a personal liability of the debtor.
Section 523(a)(8) provides an exception to the discharge granted under section 524(a)(2) for some educational loans:
(a) A discharge under section 727 . . . does not discharge an individual debtor from any debt
. . . .
(8) for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution, unless
(A) such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or
(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents.
Barth contends that section 523(a)(8) does not apply to her because, a.) the debt is not "educational", because she derived no direct educational benefit from the loan; b.) Congress did not intend for section 523(a)(8) to apply to endorsers or co-makers of student loans; and c.) the application of section 523(a)(8) to co-makers runs counter to the "fresh start" philosophy underlying the bankruptcy court.
Barth's claim that her debt to WHEC is not educational because it was not spent on her education misinterprets the language and focus of section 523(a)(8). The language of section 523(a)(8) does not refer to whether the debtor or anyone else derived educational benefits. If a student were to take out a guaranteed student loan and spend it on a car or vacation, the student would derive no educational benefit from the loan, and yet it would still fall within the scope of section 523(a)(8). The application of section 523(a)(8) cannot be nullified by spending the proceeds of the loan on something other than the debtor's education.
The focus of section 523(a)(8) is on the nature and character of the loan, specifically whether it was an educational loan made, insured, or guaranteed by a governmental unit or made under a program funded at least in part by a governmental unit. The subject loan was made under the Guaranteed Student Loan Program. Paragraph 16(b) of the note explicitly provided that the proceeds of the loan were to be used "solely to pay the expenses of attending the educational institution in which the maker is enrolled." The loan was guaranteed *149 by a governmental unit.[1] Thus, the loan in question is an educational loan guaranteed by a government unit within the meaning of section 523(a)(8).
Barth cites In re Boylen, 29 B.R. 924 (Bankr. N.D. Ohio 1983) to support her claim that Congress intended that section 523(a)(8) apply only to the student debtor and not to any co-makers. The court in Boylen found that the intent of section 523(a)(8) was to prevent the abuse of the student loan program by students with large educational loans and few other debts, who file bankruptcy shortly after leaving school. Boylen at 926. The court concluded that because the legislative history focuses mainly on student borrowers, Congress must have meant to exempt co-makers from the application of section 523(a)(8). A number of courts have followed this reasoning. See In re Washington, 41 B.R. 211 (Bankr.E.D.Va.1984); In re Bawden, 55 B.R. 459 (Bankr.M.D.Ala. 1985); In re Zobel, 80 B.R. 950 (Bankr.N.D. Ia.1986); and In re Behr, 80 B.R. 124 (Bankr.N.D.Ia.1987). But see In re Feenstra, 51 B.R. 107 (Bankr.W.D.N.Y.1985).
I find the reasoning of Boylen unpersuasive. First, as the Boylen court noted, the plain language of section 523(a)(8) "does not appear to limit itself . . . to the student debtor only." Boylen, 29 B.R. at 926. Instead, section 523(a)(8) appears to include all debtors with liabilities on educational loans. As the court in Feenstra pointed out:
even though the abusive filing [by students] may have been what spurred Congress' action, the statute itself gave all guaranteed educational loans special treatment in bankruptcy.
Feenstra, 51 B.R. at 111.
Second, the legislative history of section 523(a)(8) does not express a clear intent to exempt co-makers from the exception to discharge. Co-makers are mentioned only a few times twice to note that co-makers are normally not required, and once to note that on some occasions co-makers are prohibited. See H.R.Rep. No. 95-595, 98th Cong., 2d Sess. 133, 136 and 154, reprinted in 1978 U.S. Code Cong. & Ad.News 5787, 6094, 6097 and 6115. "Absent a clearly expressed legislative intention to the contrary, the [statutory] language must ordinarily be regarded as conclusive." Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980). The language of section 523(a)(8) is broad in scope, and the exceptions to it are carefully delineated in subsections (A) and (B). This language must be regarded as the best evidence of Congressional intentions toward co-makers in the absence of any clearly expressed legislative intent to the contrary.
While it is true that section 523(a)(8) runs counter to the general "fresh start" philosophy of the Bankruptcy Code, the same could be said of any exception to discharge. The exceptions to discharge exist because Congress felt that other public policies outweighed the debtor's need for a fresh start. Although exceptions to discharge are to be construed narrowly, that approach to construction is not a suitable basis for a court to override the plain language of the statute creating the exception.
Barth's obligation on the note to WHEC was not discharged in 1985, because it fell within the scope of the section 523(a)(8) exception to discharge. That exception is self-executing, falling as it does outside the purview of section 523(c). The obligation was for an educational loan made under the auspices of a federal program designed specifically to help students finance their education. The note itself specified that loan proceeds were to be spent only on educational expenses, and was guaranteed by a governmental unit. WHEC did not violate the injunction of section 524(a)(2) when it commenced civil action against the debtor, because her debt *150 to WHEC was excepted from discharge under section 523(a)(8). Judgment dismissing the complaint may be entered accordingly.
NOTES
[1] In 1982, when the loan was made, WHEC was a state agency. At this time, WHEC is no longer a state agency. Its current status is unclear, since it now appears to be a private non-profit corporation. This may pose interesting questions of interpretation in the future, but does not influence the decision in this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1889294/ | 171 B.R. 762 (1994)
In re Melissa N. JOYNER, Debtor.
STEVENS INSTITUTE OF TECHNOLOGY, Plaintiff,
v.
Melissa N. JOYNER, Defendant.
Bankruptcy No. 94-11797DAS. Adv. No. 94-0481DAS.
United States Bankruptcy Court, E.D. Pennsylvania.
August 16, 1994.
Allan K. Marshall, Philadelphia, PA, for debtor.
*763 Kenneth F. Carobus, Philadelphia, PA, for Stevens Institute of Technology.
Ronnie Schwartz Albright, Trustee, Philadelphia, PA.
Frederic Baker, Asst. U.S. Atty., Philadelphia, PA.
FINAL ADJUDICATION/MEMORANDUM
DAVID A. SCHOLL, Chief Judge.
A. DISCUSSION
In an Order dated August 10, 1994, this court determined that the student loan obligation of MELISSA N. JOYNER, the Debtor-Defendant in this proceeding ("the Debtor"), was not dischargeable in accordance with § 523(a)(8)(B), because the Debtor was not entitled to relief pursuant to the "undue hardship" exception to that provision. We did provide that she could receive a copy of the transcript of her grades received while she was a student at the Plaintiff, STEVENS INSTITUTE OF TECHNOLOGY ("Stevens"), for use in connection with her impending admission to Drexel University upon payment of only $300 of her potential $10,145.74 student loan obligation. However, we expressly reserved judgment as to whether that portion of the loan used to pay room and board, determined to be $1,650, was nondischargeable as an "obligation to repay funds received as an education benefit, scholarship or stipend," without further research and consideration on our part.
The disposition of this issue turns on whether sums lent by a school to one of its students for campus housing and a meal plan is excepted from discharge under § 523(a)(8). That Bankruptcy Code section presently provides as follows:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt
(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend. . . .
11 U.S.C. § 523(a)(8) (emphasis added).
We believe that our discussion in In re Najafi, 154 B.R. 185, 188-90 (Bankr.E.D.Pa. 1993), resolves this issue. Although we allowed there that the unusual punctuation (or lack thereof) in § 523(a)(8) renders that section something less than a model of clarity, we concluded that
as [In re] Pelkowski, [990 F.2d 737,] . . . 742-44 (3d Cir.1993)], teaches, . . . there is no support for the . . . contention, . . ., that § 523(a)(8) must be read narrowly. We believe that, when reading the Code section . . . broadly . . ., the terms "benefit," "overpayment," and "loan" should be construed as a series of nouns, all modified by the adjective "educational."
We conclude that the portion of Stevens' loan to the Debtor attributable to room and board while attending that institution were conferred as an "educational benefit" to the Debtor within the scope of § 523(a)(8).
There is somewhat relevant case law, although we also believe that the 1990 amendment to § 523(a)(8), see Najafi, supra, 154 B.R. at 189, which post-dated the cases cited hereinafter, greatly strengthens Stevens' position.
Based on this case law, courts should first determine the purpose of the loan in order to answer the question raised. A test for determining the purpose of a potential student loan was first articulated by the court in In re Shipman, 33 B.R. 80 (Bankr.W.D.Mo. 1983). In that case, the court was asked to determine if work study advances were nondischargeable student loans under an earlier version of § 523(a)(8). Id. at 81. Therefore, the court's discussion focused on what constituted a "loan" for the purposes of § 523(a)(8). On this general issue, the court's conclusion is quite broad. "The central issue in determining dischargeability is whether the funds were for educational purposes, not whether the funds constituted a loan." Id. at 82. The court concluded, however, that the work study advances in issue were not for educational purposes because, inter alia, (1) the Debtor expressly affirmed her sole obligation *764 to pay her own tuition; and (2) she used the work study advances to pay her "rent and other living expenses." Id. Thus, the Shipman court suggested that, unless the funds are used to pay tuition, the underlying loan was not an "educational loan." The fact that the funds were used to defray ordinary living expenses so that the debtor might attend school did not, in the court's mind, require a contrary result.
In In re Vretis, 56 B.R. 156 (Bankr. M.D.Fla.1985), the court came to a conclusion which is the opposite from that of the Shipman court, although the two cases are factually similar and they come to the same conclusion regarding the definition of "loan." In Vretis, the debtor received an educational award for his medical studies at the Texas College of Osteopathic Medicine. Id. at 156. The award consisted of a stipend of $6,750 and an additional $710.20 to be used for tuition and fees. Id. The debtor sought to discharge the debt, asserting that it was not an educational loan. Id. at 157. The court cited Shipman and its "educational purposes" test as the proper starting point of its analysis. Id. However, after reviewing the Shipman court's reasons for concluding that the work study advances at issue there did not constitute educational loans, the court stated:
The case at hand materially differs from Shipman in that the award given by the Health Services Corps was designed for tuition and educational purposes. Although the stipend given to support debtor while enrolled in academic training was probably used for rent and living expenses just as the debtor in Shipman used her monies for rent and living expenses, the initial characterization of the loan is what controls. The stipend given the debtor was designated as monies to support debtor while engaged in academic training since the training consumed all of debtor's time without leaving any free time in which to work. . . . Clearly, this award was an educational loan within the meaning of Section 523.
Id.
Although the Vretis court's conclusion seems justified, it is hard to distinguish it from the Shipman case unless one concludes that the Shipman case was wrongly decided.
One other pre-1990 case of relevance is In re Ealy, 78 B.R. 897 (Bankr.C.D.Ill.1987). In that case, a debtor decided to return to school after a short work hiatus. Id. at 898. The debtor's tuition and costs were financed directly by his school under a federal assistance program. Id. The debtor also obtained a guaranteed student loan in the amount of $2,500 from a bank, which he used to purchase a truck, pay off his wife's car loan, and for other miscellaneous expenses. Id. at 897-98. The debtor sought to discharge the loan on the ground of "undue hardship." Id. at 898. Before addressing the "hardship" issue, the court noted that bank had the initial burden of proving that the loan was a student loan. Id. Citing to the Shipman "educational purposes" test, the court concluded that the loan was not an educational loan because the bank did not rebut the debtor's testimony that he did not use the loan proceeds for educational purposes. Id.
In synthesizing the above cases, we conclude that, under the pre-1990 version of § 523(a)(8), there were two different interpretations or applications of the "educational purposes" test. The Shipman and Ealy courts looked to see if the proceeds of the loan were used for educational purposes. The Vretis court, on the other hand, looked to see if the loan itself was awarded for educational purposes.
Our reasoning in Najafi, which notes the significance of the broadened definition of obligations within the scope of amended § 523(a)(8), supports the reasoning of the Vretis court. We find that, if the inquiry is upon whether the student receives an "educational benefit" from a loan, it should not matter whether the money is used for tuition or other living expenses. Both are part of the "educational benefit" sought by the student. Under the guaranteed student loan program, for example, the loan proceeds may apparently be used by the student to pay for tuition, room and board, books, student fees, or any other expenses incidental to education. All of these expenses serve the student's "educational benefit," and lenders and *765 the government do not make distinctions between the uses of proceeds when awarding such loans. Hence, we conclude that room and board expenses are funds received by the Debtor which conferred an "educational benefit" and are therefore nondischargeable.
We are therefore now prepared to enter an Order declaring the Debtor's entire loan obligation to Stevens nondischargeable, observing that the adverse impact of this decision upon the Debtor is offset by our allowing her to obtain her transcripts to forward to Drexel University upon payment of the relatively small sum of $300.
B. ORDER
AND NOW, this 16th day of August, 1994, after trial of this proceeding of August 9, 1994, supplementing our Partial Adjudication and Order of August 10, 1994, which shall remain in full force and effect where not inconsistent herewith, it is hereby
ORDERED AND DECREED that the Debtor's entire indebtedness of $10,145.74 owed to Stevens is declared nondischargeable. | 01-03-2023 | 10-30-2013 |
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