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https://www.courtlistener.com/api/rest/v3/opinions/2519557/
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535 F. Supp. 2d 952 (2008)
Roberta SHANK and Bill Shank, d/b/a Chief's Janitorial, Plaintiffs,
v.
Allen HORAK, Department of Roads, District 4 Operations and Maintenance Manager, individually; and Alan Galaway, Nebraska Department of Roads, Maintenance Manager, individually, Defendants.
Case No. 4:06CV3253.
United States District Court, D. Nebraska.
February 27, 2008.
*953 Joy A. Shiffermiller, Shiffermiller Law Firm, Lincoln, NE, for Plaintiffs.
Bradley D. Thornton, Jennifer A. Huxoll, Nebraska Attorney General's Office, Lincoln, NE, for Defendants.
MEMORANDUM AND ORDER
RICHARD G. KOPF, District Judge.
The plaintiffs, who had a written contract to provide janitorial services to the State of Nebraska, sue two state employees, in their individual capacities only, contending that those employees, while acting under color of law, violated the plaintiffs' constitutional rights to procedural and substantive due process and to freedom of speech. At bottom, the plaintiffs claim the defendants wrongly caused the termination of the plaintiffs' contract.
I do not know why the plaintiffs have pursued these constitutional claims in federal *954 court, as opposed to pursuing contract claims in state court. Perhaps those state law contract claims have little monetary value. In any event, as compared to ordinary contract claims, the federal constitutional claims asserted against state employees in their individual capacities pose a far higher hurdle for the plaintiffs to overcome.
With the foregoing in mind, I have waded through the parties' voluminous submissions to see whether there is enough of a constitutional case to warrant a trial. Deciding that no such trial is warranted, I will grant the defendants' motion for summary judgment.
I. BACKGROUND
The evidentiary record submitted by the defendants includes the affidavit of Alan Galaway, the affidavit of David Cassidy, the affidavit of Allen Horak, the deposition of Roberta Shank, the contract at issue, and various items of correspondence and e-mails. (Filing 32-2, Index of Exhibits.) The plaintiffs have submitted no additional materials.
Without intending to be unkind to the able lawyers, neither parties' statements of fact (or briefs) are particularly helpful.[1] As a result, I have had to mine the underlying record to determine what facts are material and whether those facts are genuinely disputed. Having now completed that task, I find and conclude that the following are the key facts and, for purposes of the summary judgment motion, I believe that there is no genuine dispute about them:
1. Plaintiffs Roberta and Bill Shank, doing business as Chiefs Janitorial, had a written contract with the State of Nebraska for a term of years to clean and maintain rest area facilities at the York interchange on Interstate 80. The contract ran from October 1, 2004, to September 30, 2007. (Filing 32-5, at CM/ECF p. 17.) I assume, without deciding, that the contract was terminable only for cause associated with non-performance of the contract conditions. (Filing 32-5, at CM/ECF p. 17 (providing that the contract could be terminated "in the event the Contractor unsatisfactorily performs the duties previously listed").) The contract was long and provided a detailed list of specifications and requirements (filing 32-5, at CM/ECF pp. 19-26) which were to "be performed to the satisfaction of the Department [of Roads.]" (Filing 32-5, at CM/ECF p. 15.) The contract specifically provided that "[u]nsatifactory conduct by Contractor's employees shall be grounds for termination of the contract." (Filing 32-5, at CM/ECF p. 19.) Under the terms of the agreement, the State of Nebraska was not required to follow any particular procedures in order to terminate the contract. (Id.) For the sake of simplicity, I call this agreement the "York contract."
2. The plaintiffs also had two additional written contracts with the State of Nebraska for a term of years to clean and maintain other rest area facilities in different parts of the State of Nebraska. (Filing 32-4, at CM/ECF p. 17.) Those contracts were not terminated. (Filing 32-4, at CM/ECF p. 78.)
3. Allen Horak, a defendant, was the person at the Department of Roads responsible for the overall administration of the York contract. (Filing 32-5, at CM/ECF p. 1 (providing that the "Contact Person" for the contract was "Allen Horak. . . . ").)
4. Alan Galaway, a defendant, was the "maintenance supervisor" at the Department of Roads who had the day-to-day *955 responsibility for making inspections of the rest areas covered by the York contract to determine whether the plaintiffs were complying with the terms of the contract. (Filing 32-5, at CM/ECF p. 20 (providing that "Mr. Alan Galaway" was to have "overall control of that Rest Area" under the contract).)
5. David Cassidy, a "maintenance superintendent," oversaw Alan Galaway and three other "maintenance supervisors" like Galaway. (Filing 32-3, at CM/ECF p. 1.) Cassidy reported to Alan Horak, who was "next in the chain of command. . . ." (Id.) Cassidy is not a defendant. Cassidy claims to have attended inspections at the York rest areas at least once each week and claims to have personally observed destruction of lawns due to improper mowing, failure to insure personnel at the rest area for extended contract periods, failure to clean even once a day despite the contract requirement that cleaning take place three times a day, and various other deficiencies. (Filing 32-3, at CM/ECF p. 2.) Based upon input and discussions with Roberta Shank and others in addition to. Alan Galaway, and his own personal inspections, Cassidy claims to have provided his opinion in March of 2006 "to Mr. Horak that I believed the problems with Chiefs performance at the York rest areas were severe enough to justify termination." (Filing 32-3, at CM/ECF pp. 2-3.)
6. Carrie Keezer and Mike Keough were among the employees of the plaintiffs who worked at the rest areas covered by the York contract (filing 32-4, at CM/ECF pp. 27-30), and their names appear prominently in the relevant correspondence. (See, e.g., Filing 32-6, at CM/ECF pp. 19, 21, 22, 24.) Roberta Shank was aware when these employees worked for her that Keezer had a felony criminal record for which she served 18 months in prison and that Keough had a criminal record for which he served time in jail. (Filing 32-4, at CM/ECF p. 46.) Shank believed that both employees' criminal problems were drug-related. (Id.) In particular, she believed that Keezer had been in jail for methamphetamine abuse. (Filing 32-4, at CM/ECF p. 44.)
7. The entirety of the summary judgment record establishes that Roberta Shank, as opposed to her husband (Bill Shank), dealt primarily with the York contract.
8. I assume that Roberta Shank sincerely believes that the York contract was terminated for unjustifiable reasons. Nonetheless, she admitted significant deficiencies in the plaintiffs' performance of the York contract before the contract was terminated and both before and after Shank's conversation with Cassidy in August 2005 (discussed in paragraph 9 below). For example:
A. On May 22, 2005, Roberta Shank provided the State of Nebraska with a copy of a letter admonishing one of her male employees in writing for the lack of cleanliness of the York east-bound rest area, the failure to plant seed left by the State of Nebraska, leaving the rest area without staff during contract hours, missing parts, and the unauthorized "borrowing" of the plaintiffs' maintenance equipment (Filing 32-6, at CM/ECF p. 18.) Shank authored and sent the letter as a warning so that she would have a justification to fire the employee later, but upon receipt of the letter, the employee resigned. (Filing 32-4, at CM/ECF p. 86.)
B. On November 16, 2005, Roberta Shank sent David Cassidy an email stating, among other things, that "I know I have some issues I have to deal with [at the York rest areas]" and "I think it will be Carrie and Mike who have to go." (Filing 32-6, *956 at CM/ECF p. 19.) Indeed, she asked Cassidy for help in finding employees to work at the York rest areas. (Id.)
C. Regarding the condition of the York rest area over two days in early February of 2006, Roberta Shank acknowledged in writing to Allen Horak that "I know . . . the bathrooms were deplorable." (Filing 32-6, at CM/ECF p. 25 (letter from Shank to Horak dated March 19, 2006).) Mrs. Shank added that she "kn[e]w that the incident . . . was terrible. . . ." (Filing 32-6, at CM/ECF p. 26.) Mrs. Shank admitted that "the part time attendant that was to be there . . . did not show up for work" and "[h]e was terminated immediately." (Filing 32-6, at CM/ECF p. 25.)
9. Central to the plaintiffs' complaint is a telephone conversation that Roberta Shank claims she had with David Cassidy in August of 2005. In short, Shank claims that she told Cassidy about statements that Carrie Keezer had relayed to Shank about Alan Galaway acting or speaking in a sexually inappropriate manner regarding Keezer.[2] The following are the important facts relative to that alleged conversation:
A. In August of 2005, Shank called Carrie Keezer to discuss complaints Shank was receiving about Ms. Keezer's work, and during that conversation, Keezer told Shank that Alan Galaway was saying "inappropriate things to her" and that Galaway was "sexually harassing her." (Filing 32-4, at CM/ECF pp. 39-40.)
B. After talking with Keezer, Shank called Cassidy. (Filing 32-4, at CM/ECF pp. 47-48.) She did so because it was her "job as an employer to make the report." (Filing 32-4, at CM/ECF p. 49.)
C. Shank does not believe she told Cassidy anything specific, but she may have told him that Galaway "was making comments to [Keezer] about her shape, her tits, things like that . . . [and] time in prison." (Filing 32-4, at CM/ECF p. 50.) She also may have told Cassidy that Galaway "picked her [Keezer] up and turned her, like, upside down." (Filing 32-4, at CM/ECF p. 49.) Shank never discussed this matter again with Cassidy and did not further pursue the report she made to Cassidy. (Filing 32-4, at CM/ECF p. 53.)
D. At the time Shank spoke to Cassidy, she "wasn't totally convinced that Alan [Galaway] was doing it." (Filing 32-4, at CM/ECF p. 53.)
E. Shank admits that she never told Galaway about Keezer's claims. (Filing 32-4, at CM/ECF p. 54.)
F. Until the contract termination process was begun in March of 2006, Shank admits that she never told Horak about Keezer's claims. (Filing 32-4, at CM/ECF pp. 53-54.)
G. There is no evidence that Cassidy said anything to Galaway or Horak about Keezer's claims allegedly recounted to him by Shank. (See, e.g., Filing 32-3, Cassidy Aff., at CM/ECF p. 3; Filing 32-4, Shank Depo., at CM/ECF p. 54.)
H. Galaway has sworn that he knew nothing of Keezer's claims until after *957 this lawsuit was filed. (Filing 32-8, at CM/ECF p. 5.)
I. Horak has sworn he knew nothing of Keezer's claims until the termination process was already under way in March of 2006, at which time Shank spoke to him by phone of her concerns regarding Keezer's claims, (Filing 32-6, at CM/ECF p. 5.)
10. In September of 2005, Roberta Shank met with Cassidy and Galaway to discuss concerns about whether Keezer was abusing drugs again. (Filing 32-4, at CM/ECF pp. 42-43.) At that time, according to Shank, Galaway stated that when Keezer "first started here, she had a cute little figure[,]" but "[n]ow she has no tits. . . . [r]eferring to how thin she was." (Filing 32-4, at CM/ECF pp. 43-44.) In November of 2005, and apparently in response to the earlier conversation about Keezer's questioned drug abuse, Shank wrote Cassidy and stated, among other things, "I plan to investigate whether I have [a] right to ask for a drug test" and "I am now finding out that she [Keezer] has probably been jerking me around." (Filing 32-6, at CM/ECF p. 19.) Subsequently, in December of 2005, Shank wrote Cassidy and said, "I do appreciate all you guys do for us" and "[y]ou and Alan have been great." (Filing 32-6, at CM/ECF p. 21.) She added that "Carrie is skinny but her eyes were not dilated and her rest area was clean." (Id.) Shank then commented, "We will see how it goes." (Id.)
11. Following the problems of early February of 2006 (which, as discussed above, Shank admitted were "deplorable" and "terrible"), a Nebraska Department of Roads employee claimed that he and his family, who were from Sidney, Nebraska (roughly 300 miles west of York), stopped at the York rest area on March 5, 2006, as they were returning home. (Filing 32-6, at CM/ECF p. 14.) The employee's name was Dennis Connot. On March 14, 2006, Connot wrote an e-mail to Horak bitterly complaining about the conditions at York, and the absence of an attendant, on March 5, 2006. Among other things, he stated that he found that the "rest area was so filthy . . . I wouldn't have watered a cow in it." (Id.) Horak forwarded the e-mail to the Department's legal counsel on March 15, 2006. (Id.)[3]
12. On March 16, 2006, Horak sent the plaintiffs a detailed letter threatening to terminate the contract, setting forth a specific, but not all-inclusive, list of complaints (focusing on the incidents in February of 2006) and warning that the Department of Roads "believes the matters set forth above may constitute sufficient grounds to permit it to exercise its rights under Section 19 [of the contract] but wishes to provide you the opportunity to respond." (Filing 32-6, at CM/ECF pp. 15-16.) Horak gave the plaintiffs 10 days to respond.
13. On March 19, 2006, Roberta Shank responded in writing to Horak's letter. (Filing 32-6, at CM/ECF pp. 25-26.) While she admitted that there had been serious problems in early February of 2006, she generally denied that there were grounds to terminate the contract. Shank implied that Galaway and perhaps others were looking for reasons to complain as a pretext[4] for contract termination, but *958 Shank did not specifically mention Keezer's complaints about sexual harassment or her alleged conversation about that matter with Cassidy.
14. After Shank got the March 2006 letter from Horak, she went to Carrie Keezer and told her to write down the specifics of Galaway's alleged bad behavior. (Filing 32-4, at CM/ECF p. 51.) That was the first time that Shank was aware of the "crudeness" of the remarks. (Id.) It is from that list, obviously prepared in anticipation of litigation, that the specific allegations in the complaint regarding Galaway are derived. (Filing 32-4, at CM/ECF p. 50.) To be sure, if Galaway made the remarks or engaged in the conduct attributed to him in the complaint (see filing 21, at CM/ECF pp. 2-4 and ¶ 8a-8m), a reasonable woman would have found such behavior terribly offensive.[5]
15. Horak claims that on March 24, 2006, he received a complaint from a Noella Brown, a female member of the traveling public, reporting that "she had been verbally harassed with comments of a sexual nature by an individual named `Mike', who was working as a janitor at the York Eastbound rest area." (Filing 32-6, at CM/ECF p. 3.) On the same day he claims he received the complaint, Horak passed the complaint on to the Department's lawyer. On March 24, 2006, the lawyer wrote the plaintiffs. (Filing 32-6, at CM/ECF p. 29.) Without naming the woman who made the complaint, the lawyer described the complaint (including the reference to "Mike"), requested that the plaintiffs take immediate steps to investigate, and asked the plaintiffs to immediately contact Horak. (Id.)[6]
16. After she got the letter about a member of the traveling public, Shank contacted her employee, Mike Keough. (Filing 32-4, at CM/ECF p. 59.) Keough remembered the incident and stated that "he was shoveling snow and this lady came up to him and tapped him on the shoulder and tried to get him into a conversation. He felt he had not said anything inappropriate to her." (Id.)
17. Prior to the termination of the contract, Shank had two telephone conferences with Horak. (Piling 32-4, at CM/ECF p. 64.) Before these conferences took place, Shank had received the letter threatening termination and the letter advising Shank of the sexual harassment complaint by the female member of the traveling public. (Filing 32-4, at CM/ECF pp. 64-65.) During these conferences, Shank was given the opportunity to "plead[] [her] case." (Filing 32-4, at CM/ECF p. 71.) Horak was courteous. (Filing 32-4, at CM/ECF p. 77.) For example, while discussing the complaint about "Mike," Shank brought up her concerns about Galaway. (Filing 32-4, at CM/ECF p. 66.)
18. After the telephone conferences between Horak and Roberta Shank, and on March 27, 2006, Horak wrote the plaintiffs, terminating the contract effective at 4:30 p.m. on March 29, 2006. (Filing 32-6, at CM/ECF p. 30.)
19. Under Nebraska law, persons like the plaintiffs may seek relief from contract *959 terminations like the one involved in this case by adhering to the procedures set forth in the "State Contract Claims Act." See Neb.Rev.Stat. §§ 81-8,302 et seq. (West 2007). Following procedures, established under the Act, any party to a state contract that is wrongly terminated is permitted to litigate his or her claim before the State Claims Board or the Lancaster County Nebraska District Court, Neb. Rev.Stat. § 81-8,305 (West 2007).
II. ANALYSIS
In their amended complaint, the plaintiffs assert two claims. The first claim is that the defendants took the property interest represented by the contract from the plaintiffs without due process of law in violation of the Fourteenth Amendment. (Filing 21, at CM/ECF p. 4 ("First Cause of Action").) The second claim is that the defendants' termination of the contract was motivated by the plaintiffs speaking out on matters of public concern in violation of the First Amendment. (Filing 21, at CM/ECF pp. 4-5 ("Second Cause of Action").)
The defendants based their summary judgment motion on the defense of qualified immunity and also on the merits. Their arguments focus on the merits, however, and so shall I.
Due Process
While it is difficult to tell, the plaintiffs apparently assert a procedural due process claim coupled with a substantive due process claim. If so, both lack merit.
First, assuming the contract created a property interest, the plaintiffs were given all the procedural process they were due. There is no evidence or claim that the defendants failed to comply with any termination provision contained in the detailed written contract between the parties. Prior to the termination of the contract, the plaintiffs were given specific notice of the, problems and the plaintiffs were given an opportunity to respond. They were able to, and did, respond both in writing and orally. Had they wanted to do so, the plaintiffs also could have sought the procedural protections of the State Contract Claims Act that would have provided them with fully independent review of the termination. Still further, I have found no cases, and the parties have provided none, that call for different or other procedural protections in contract cases like this one.
Accordingly, the motion for summary judgment must be granted on the merits because the plaintiffs were given all the procedural due process the Constitution requires. See, e.g., Mathews v. Eldridge, 424 U.S. 319, 335, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976) (holding that no evidentiary hearing is required prior to the termination of social security benefits and stating that the factors to be considered when determining what process is due are (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation and the probable value of additional procedural safeguards; and (3) the fiscal and administrative burdens that any additional procedural requirements would impose). See also Wilkinson, v. Austin, 545 U.S. 209, 224-225, 125 S. Ct. 2384, 162 L. Ed. 2d 174 (2005) (holding that informal and non-adversary procedures for placing inmates in a "supermax" prison were adequate and applying Mathews).[7]
Second, assuming the contract created a property interest, the plaintiffs' *960 substantive due process claim fails as well. In order to show that contract termination was actionable under the Constitution, the plaintiffs must "meet[] the Supreme Court's rigorous `shocks the conscience' substantive due process standard." Neal v. Fields, 429 F.3d 1165, 1166 (8th Cir. 2005) (state licensing board's disclosure of ongoing investigation to potential employers, coupled with board's failure to hold prompt name-clearing hearing, did not shock the conscience and thus did not violate nurse's substantive due process rights). Given Roberta Shank's admissions that there were serious problems with the plaintiffs' performance of their side of the contract, and even assuming (for the sake of argument) a bad motive on the part of Horak and Galaway, the termination comes nowhere close to shocking the conscience. See, e.g., Omni Behavioral Health v. Miller, 285 F.3d 646, 651 (8th Cir.2002) (affirming grant of summary judgment and holding that the termination of a contract to provide foster care services did not violate the plaintiffs right to substantive due process because the plaintiff failed to establish that the termination was "`arbitrary, or conscience shocking, in a constitutional sense,'" even though the termination was based on a child abuse investigation that ended with the dismissal of, or acquittal on, all charges) (quoting County of Sacramento v. Lewis, 523 U.S. 833, 847, 118 S. Ct. 1708, 140 L. Ed. 2d 1043 (1998) (in turn quoting Collins v. City of Harker Heights, 503 U.S. 115, 128, 112 S. Ct. 1061, 117 L. Ed. 2d 261 (1992)).)
Free Speech
The plaintiffs claim that they wrongly lost their contract because of protected speech. As best as I understand it, the plaintiffs claim they were punished (1) for what Roberta Shank allegedly told Cassidy in August of 2005 about Galaway allegedly sexually harassing Keezer and (2) for what Robert Shank allegedly told Horak in March of 2006 about Galaway's alleged harassment of Keezer when Shank was trying to convince Horak not to terminate the contract.
To prevail on their speech claim, the plaintiffs must prove two things: (1) that Roberta Shank engaged in speech protected under the First Amendment and (2) that such speech was a "substantial" or "motivating" factor in the termination. See, e.g., Board of County Commissioners v. Umbehr, 518 U.S. 668, 675, 116 S. Ct. 2342, 135 L. Ed. 2d 843 (1996) (dealing with the First Amendment in regard to the termination of a trash hauling contract). Importantly, contractors like the plaintiffs are protected under the First Amendment to an extent similar to the protections afforded state employees. Id. at 678-679, 116 S. Ct. 2342.
The summary judgment record establishes that Roberta Shank's speech was not protected. Furthermore, there is insufficient evidence from which a reasonable fact-finder could conclude that Shank's speech motivated the termination.
First, I turn to the question of whether Roberta Shank engaged in protected speech. The question of protected' speech is a matter of law for the court to decide. See, e.g., McGee v. Public Water Supply, 471 F.3d 918, 920 (8th Cir.2006) (holding that manager of county water supply district was not speaking as a citizen when he made statements questioning environmental compliance on two projects) (citing Connick v. Myers, 461 U.S. 138, 148 n. 7, 103 S. Ct. 1684, 75 L. Ed. 2d 708 (1983)).
It is clear beyond dispute that Shank was speaking as a part of her duty as a contractor and not as a public citizen. Indeed, that is exactly what she said she was doing in her deposition when she stated that it was her "job as an employer to make the report" (Filing 32-4, at CM/ECF pp. 48-49) Furthermore, it is obvious *961 that Shank was not speaking, as a citizen, but rather as a party to a contract seeking to protect her parochial interests in that agreement. Accordingly, there is no First Amendment protection for Shank's statements to Cassidy or Horak about Galaway's alleged bad behavior regarding Keezer. See, e.g., Garcetti a Ceballos, 547 U.S. 410, 126 S. Ct. 1951, 1959-1960, 164 L. Ed. 2d 689 (2006) (district attorney was not protected under the First Amendment for writing a memorandum in which he recommended dismissal of a case due to governmental misconduct; focusing on whether the employee was speaking pursuant to his duties).
Second, and regarding the issue of causation, it is necessary to focus on the knowledge of each of the defendants. Nonetheless, and in both cases, proof that the speech, protected or otherwise, motivated the termination is sorely lacking.
Insofar as Galaway is concerned, there is simply no evidence that he knew of Shank's complaints regarding Keezer. Therefore, there is no basis from which a reasonable fact-finder could conclude that Shank's speech caused Galaway to act to the detriment of the plaintiffs.
Regarding Horak, by the time that Shank spoke to Horak about her concerns regarding Galaway and Keezer, the contract termination process was too far along for the accusation to matter. At the time that Shank told Horak about Galaway, the following things had already happened: (1)a formal notice threatening termination" had been given[8]; (2) Shank had admitted serious deficiencies in the plaintiffs' performance of the contract; (3) Dennis Connot had told Horak that the "rest area [was] so filthy . . . I wouldn't have watered a cow in it"; and (4) a member of the public had complained to Horak about sexual harassment On the part of one of the plaintiffs' attendants. Furthermore, there is no claim that Horak was personally implicated. Under these circumstances, no reasonable finder of fact could conclude that Shank's belated accusation about Galaway when communicated to Horak became a substantial or motivating factor in Horak's decision to terminate the contract.
III. CONCLUSION
The plaintiffs may have had a contract claim. It is clear, however, that they never had a constitutional claim. Accordingly,
IT IS ORDERED that:
1. The defendants' motion for summary judgment (filing 31) is granted.
2. A separate judgment shall be entered dismissing this case with prejudice.
JUDGMENT
Pursuant to the memorandum and order filed this day,
IT IS ORDERED that judgment is entered for the defendants and against the plaintiffs, providing that the plaintiffs shall take nothing from the defendants and the plaintiffs' complaint is dismissed with prejudice.
NOTES
[1] Part of this problem can be traced 6 the failure by both sides to fully and carefully comply with the requirements of NeCivR 7.1 and 56.1. While counsel may not believe it, we write the local rules to help them with their advocacy.
[2] Cassidy agrees that he had several telephone conferences with Shank, but he denies that she told him anything about Keezer's complaints regarding Galaway's alleged inappropriate conduct. (Filing 32-3, at CM/ECF p. 3.) For purposes of the summary judgment motion, I assume that Shank had a conversation with Cassidy where she relayed to Cassidy Keezer's complaints.
[3] While Shank "controverts" this information, she does not deny that Connot sent the email. Rather, she states that she was not given a copy of it until her deposition was taken after this lawsuit was filed. (Compare Filing 41, at CM/ECF p. 10 ¶ 24 (defendants' statement of facts) with Filing 43, at CM/ECF p. 9 ¶ 18 (plaintiffs' response to defendants' statement of facts).)
[4] For example, Shank's letter stated: "It seems after I received a sexual harassment complaint last summer and I verbally passed it on, I have had a lot more complaints from the Department." (Filing 32-6, at CM/ECF p. 25.)
[5] While Galaway denies it, for purposes of the summary judgment motion, I assume that he made the remarks or engaged in the conduct regarding Keezer attributed to him in the complaint.
[6] The plaintiffs do not deny the information contained in this paragraph. (Compare Filing 41, at CM/ECF p. 13 ¶ 29 (defendants' statement of facts) with Filing 43, at CM/ECF p. 10 (plaintiffs' response to defendants' statement of facts containing no reference to paragraph 29 of the defendants' statement of facts).)
[7] Even if the procedures used were found to violate the procedural due process requirements of the Fourteenth Amendment, both defendants would surely be entitled to qualified immunity. The plaintiffs have cited no cases from which a reasonable official would have known that some other process was required.
[8] Since the evidence shows that Horak had no knowledge of the accusations regarding Keezer until he spoke with Shank after notice had been given, a fact-finder could not find that the threat of termination was prompted by accusations that Shank had yet to make to Horak.
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535 F. Supp. 2d 765 (2008)
Thomas FLOWERS, et al., Plaintiffs
v.
REGENCY TRANSPORTATION, IN and Timothy Foster, Defendants.
Civil Action No. 3:06CV610TSL-JCS.
United States District Court, S.D. Mississippi, Jackson Division.
January 25, 2008.
*766 Lisa Mishune Ross, Lisa M. Ross, Attorney, Jackson, MS, for Plaintiffs.
Jennifer R. Chrestman, The Kullman Firm, PLC, Jackson, MS, for Defendants.
MEMORANDUM OPINION AND ORDER
TOM S. LEE, District Judge.
This cause is before the court on the motion of defendants Regency Transportation, Inc. (Regency) and Timothy Foster for summary judgment pursuant to Rule 56(c) of the Federal' Rules of Civil Procedure. Plaintiffs Thomas Flowers, Shannon Carter, Clarence Brown, Shirley Dorsey, George Perry, Lekesha Sanders, Schynies James, Sheila Willis, Sarita McGee and Jerlene Bridges oppose the motion, and the court, having considered the parties' memoranda and submissions,[1] concludes that the motion should be denied.
Defendant Regency, which is owned and operated by defendant Foster, is a Mississippi company based in Jackson which provides transportation of Medicaid patients to doctors' offices, pharmacies and dialysis treatments pursuant to a contract with the Mississippi Division of Medicaid. Plaintiffs were all formerly employed by Regency as drivers, and have brought this action claiming entitlement to recover overtime compensation under § 7 of the Fair Labor Standards Act, §§ 29 U.S.C. §§ 201, et seq. Section 7 of the FLSA requires employers to pay overtime wages (at a rate of not less than one and one-half times the regular hourly wage) to employees engaged in commerce who work more than forty hours in a week. 29 U.S.C. § 207(a)(1). For its part, Regency does not deny that plaintiffs worked more than forty hours a week without overtime pay; but it contends that it was not subject to the requirements of the FLSA because plaintiffs fall within the "motor carrier" exemption to the FLSA. Under Section 13 of the FLSA, employees whose qualifications and maximum hours of driving are subject to regulation by the Secretary of Transportation (Secretary) under the Motor Carrier Act are exempt from the FLSA's overtime provisions. 29 U.S.C. § 213(b)(1). For those "motor carriers" subject to the Secretary's jurisdiction, the Secretary may prescribe the "qualifications and maximum hours of service of employees of, and safety of operation and equipment of, a motor carrier." 49 U.S.C. § 31502. See Shew v. The Southland Corp., 370 F.2d 376, 380 (5th Cir.1966) (as "there is no concurrent jurisdiction between the Fair Labor Standards Act and the Motor Carrier Act," a motor carrier employee under the jurisdiction of the Secretary "is excluded from the benefits of the overtime provisions of the [FLSA]").
Under the Motor Carrier Act, "the Secretary of Transportation has the power to establish qualifications and maximum hours of service for employees who (1) are employed by carriers whose transportation of passengers or property by motor vehicle is subject to the Secretary's jurisdiction under the Motor Carrier Act (MCA); and (2) engage in activities of a character directly affecting the safety of operation of *767 motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce within the meaning of the MCA." Barefoot Mid-America Dairymen, Inc., 16 F.3d 1216, 1994 WL 57686, *2 (5th "Cir.1994) (citing 29 C.F.R. § 782.2(a)). Defendants have the burden to establish that the exception applies, and to sustain this burden, must demonstrate that the plaintiffs meet both of these requirements. See id.
"First, their employer, [Regency], must be a motor vehicle carrier subject to the Secretary's jurisdiction-i.e., a carrier engaged in interstate or foreign commerce." See also Lieberman v. Corporate Connection, No. 03-CIV-22814, 2005 WL 5501491, at 1 (S.D.Fla.2005) ("Secretary of Transportation only has jurisdiction over interstate transportation. . . . Only if the Defendant is taking part in interstate commerce can it be subject to the regulations of the Secretary of Transportation, and thereby protected by the Motor Carrier Act."). Second, "the employee himself must also be engaged in interstate commerce before the Secretary of Transportation has jurisdiction over him, and his employment must directly affect the safety of operation of vehicles on the public highways." Barefoot, 1994 WL 57686, at *3 (citing, among other authorities, 29 C.F.R. § 782.2(a)). See also 49 U.S.C. § 31101(2) (defining "employee" as "an operator of a commercial motor vehicle . . . who directly affects commercial motor vehicle safety in the course of employment"). Thus, "[c]ourts determine the Motor Carrier safety exemption by focusing on how the employer's business and the employees' activities affect interstate commerce." Rees v. Souza's Milk Tramp., Co., 2007 WL 4374063, *6 (E.D.Cal.2007).
A "motor carrier," which is defined as "a person providing commercial motor vehicle . . . transportation for compensation," 49 U.S.C. § 13102(14), may engage in interstate commerce either by "actually transporting goods across state lines or (by) transporting within a single state goods that are in the flow of interstate commerce." Barefoot, 1994 WL 57686, at *2 (citations omitted). The former, which is all that is pertinent here, occurs when "passengers, property, or both, are transported by motor carrier between a place in a State and a place in another State". 49 U.S.C. § 13501(a)(1)03. See also Lieberman, 2005 WL 5501491, at **1-2 (S.D.Fla. April 21, 2005) (employer must show that it provides motor vehicle transportation for compensation between a place in one state and a place in another state). Addressing this requirement, the court in Lieberman, wrote:
A carrier's involvement in interstate commerce must be established by some concrete evidence such as an actual trip in interstate commerce or proof that interstate business was solicited. Furthermore, the Defendant's involvement in interstate commerce must be real and actual, not merely hypothetical or conjectural. If the employer or employee's involvement in interstate commerce could be characterized as de minimus, (sic) they may not be subject to the Secretary of Transportation's jurisdiction at all, and thus are not covered by the Motor Carrier Act.
Lieberman, 2005 WL 5501491, at *2. In addition to showing that it has engaged in interstate commerce that is more than de minimis, the carrier must demonstrate that the employees to whom the exemption is sought to be applied are also engaged in interstate commerce, and that their employment directly affects the safety of operation of vehicles on the public highways. Barefoot, 1994 WL 57686, at *3. As drivers, plaintiffs "clearly engaged in activities directly affecting the safety of operation of vehicles on public highways." Barefoot, 1994 WL 57686, at *3 (citations omitted). The question as to them is whether they *768 engaged in interstate transportation: In the court's opinion, Regency has presented insufficient evidence on these issues to warrant its request for summary judgment.
It is undisputed that in its contract with the Medicaid Division, Regency agreed to provide Medicaid beneficiaries with transportation to their medical appointments "regardless of the location of the appointments," and expressly acknowledged that "this may include transportation to and/or from locations outside of the bidder's service region and may include transports to medical providers in communities outside the state of Mississippi." However, Regency has presented no evidence as to the extent to which it was actually required to transport patients to out-of-state appointments. In an affidavit from former Regency office manager Vickie Powell, Powell recites:
As the office manager I dispatched drivers to transport customers, to various locations in Mississippi, Alabama, and Louisiana. I dispatched all drivers for both intrastate and interstate trips. When assigning drivers to make interstate trips, I could call a driver and ask them to make the trip. The interstate trips were distributed generally among the drivers and the interstate trips were shared indiscriminately by the drivers. I would randomly call drivers and assign interstate trips. There was no one driver who made all the interstate trips. All drivers could expect to make a trip from Mississippi to Alabama or Louisiana at some time.
While the tenor of Powell's affidavit seems intended to suggest a regular, if not substantial, interstate aspect to Regency's business, in fact, it provides little information of substance on this issue; her affidavit does not indicate how many out-of-state trips were made.
The only other proof Regency has offered on this issue is a report of a 2004 Department of Labor investigation which concluded that all of Regency's drivers were covered by the Motor Carrier exemption so that consequently, Regency compensation practice (of paying "straight time" for hours worked in excess of forty during a week) did not violate the FLSA. The "narrative summary" of the investigation recites that Regency's drivers (of which there were thirteen at that particular time) transport patients to appointments "in Louisiana, Alabama and Mississippi," and concludes that all drivers came within the motor carrier exemption. There is nothing in the DOL's report suggesting the extent of out-of-state travel.[2]
In response to Regency's motion, plaintiffs point out the noticeable absence of proof from Regency as to the total number of trips Regency drivers made to out-of-state destinations or the proportion of those trips to the total number of trips made under its contract with the Medicaid Division. They note further that in his deposition testimony, Foster, while unable to quantify the number of out-of-state trips made by Regency drivers, conceded that such trips were "Sporadic." And for their part, plaintiffs have presented evidence that out-of-state trips occurred only occasionally and were not a regular part of Regency's business. Specifically, in opposition to Regency's motion, four of the ten *769 plaintiffs, Flowers, Sanders, Willis, !slid Carter, provide affidavits in which each declares that he or she was "responsible for transporting patients to doctor visits in Jackson, Mississippi from Rankin and Simpson counties" and that he or she "did not travel outside the. State of Mississippi during the time that I worked for Regency?' In addition, plaintiffs McGee and Perry each state that during the three-year period of his/her employment with Regency, he/she did not travel outside the State of Mississippi more than two times. Finally, each of the six plaintiffs who have submitted an affidavit recites that "Regency Transportation officials never told me that we were expected or required to travel across state lines."
There is lacking in this case evidence that Regency or its employee/drivers engaged in more than de minimis interstate commerce. While plainly, there is no requirement that an employer's interstate business be substantial or that its employees engage in a substantial volume of interstate activity in order that the employees come under the jurisdiction of the Secretary of Transportation, the connection by both with interstate commerce must be more than de minimis. Thus, in Coleman v. Jiffy June Farms, Inc., 324 F. Supp. 664, 670 (S.D.Ala.1970), aff'd, 458 F.2d 1139 (5th Cir.1972), the court found both that the defendant employer's "involvement in interstate cartage [was] both static and minimal" and that the employees' involvement was likewise de minimis, thus dooming the employer's quest to escape FLSA overtime provisions. Considering the employer's activities, the court observed that "[w]hen measured by revenues," the employer's out-of-state deliveries constituted a mere .23% of all deliveries in the course of the employer's business. As for the employees, drivers for the company, the court wrote: "[D]efendant, Jiffy Poultry, employs 67 driver-loaders among whom this infinitesimal interstate traffic is allegedly divided. Assuming, arguendo, that the interstate work is so divided, each driver would spend .00343% of his time in interstate commerce." Id. The court acknowledged that the Secretary of Transportation's "jurisdiction over safety of operations is not determined by considerations as to whether the fraction of the employee's time devoted to safety-affecting work is substantial" but rather depends on the "character of the employee's activities." Id. It acknowledged, as well, that the employees at issue were "full-time drivers and loaders," id., and courts have held without exception that drivers affect highway safety, see Levinson v. Spector Motor Serv., 330. U.S. 649, 67 S. Ct. 931, 91 L. Ed. 1158 (1947); Morris v. McComb, 332 U.S. 422, 68 S. Ct. 131, 92 L. Ed. 44 (1947) Nevertheless, the court concluded that the subject drivers'"occasional and minimal involvement with interstate commerce" was so insubstantial as to preclude application of the motor carrier exemption, stating,
[T]he court does not feel constrained to allow an exemption which would deprive 67 working men of overtime compensation on the basis of a minimum of evidence of interstate activity which is minimal in its scope and minimal in its nature.
Coleman, 324 F.Supp. at 670.[3]
Relying on the Coleman court's holding and reasoning, the court in Kimball v. *770 Goodyear Tire and Rubber Co., 504 F. Supp. 544, 548 (D.C.Tex.1980), found the motor carrier exemption inapplicable to thirty-nine truck drivers who sought overtime compensation under the FLSA from their employer. The evidence showed that less that one percent of the hauls involved were interstate: of a total of 49,329 hauls made by the drivers, only 88 were possible interstate trips, "representing .17% of the total hauls. The court found the facts there to be "more persuasive than in Jiffy June Farms," stating, "The interstate trips here were 0.17%, as opposed to 0.23%. In Jiffy June Farms, the trips were made two to three times weekly; here, on the average only once every three weeks. Thus, Goodyear is not exempt from the FLSA by virtue of 29 U.S.C. s 213(b)(1)." Id. See also Dole v. Circle "A" Constr., Inc., 738 F. Supp. 1313, 1322 (D.Idaho 1990) (a driver is not exempt under the Motor Carrier Act merely because he takes one or two interstate trips).[4]
These courts recognize that the motor carrier exemption will not relieve an employer of all FLSA overtime obligations if driving in interstate commerce is not a regular and expected part of an employee's duties. Masson v. Ecolab, Inc., No. 04 Civ. 4488(MBM), 2005 WL 2000133, *8 (S.D.N.Y. Aug.17, 2005) (citing Crooker v. Sexton Motors, Inc. 469 F.2d 206, 210-11 (1st Cir.1972)). Indeed, "[t]o extend the motor carrier exemption to any driving activity, no matter how infrequent or trivial, would be to encourage employers to send their employees on a minimal number of interstate trips simply to avoid the overtime compensation provisions of FLSA." *771 Id. ("Driving in interstate commerce alone does not trigger the motor carrier exemption. Such driving, however frequent, must have been an expected and regular part of an employee's job duties.").
Citing Brennan v. Schwerman Trucking Co., 540 F.2d 1200 (4th Cir.1976), defendants argue alternatively that the Motor Carrier exemption applies because, by virtue of its contract with the Mississippi Department of Medicaid, it "held itself out as operating in interstate commerce." In Brennan, the court concluded that where the exemption, formerly codified at 49 U.S.C. § 304(a)(1), explicitly gave the Secretary of Transportation Commission power to regulate "common carriers by motor vehicle" and where Schwerman held itself out as a "common carrier by motor vehicle," Swchwerman was subject to the Secretary's regulation, and thus, the Motor Carrier Act exemption applied.
Initially, the court observes that because the holding in Brennan is antithetical to the methodology for determining the Secretary's jurisdiction set forth in Coleman, defendants' argument does not persuade the court that summary judgment is appropriate. Moreover, the Brennan decision was based on a finding that Swchwerman was a "common carrier by motor vehicle."[5] At the time Brennan was decided, 49 U.S.C. § 304(a)(1) and (2) gave the Secretary the authority to regulate "common carriers by motor vehicle," as well as "contract carriers by motor vehicle."[6] Title 49 U.S.C. § 303(a)(14) defined a "common carrier by motor vehicle" as "any person which holds itself out to the general, public to engage in transportation by motor vehicle in interstate or foreign commerce of passengers." On the other hand, "contract carrier by motor vehicle" was formerly defined as follows:
"motor contract carrier" means-(A) a person, other than a motor common carrier, providing motor vehicle transportation of passengers for compensation under continuing agreements with a person or a limited number of persons-(i) by assigning motor vehicles for a continuing period of time for the exclusive use of each such person; or (ii) designed to meet the distinct needs of each such person; and (B) a person providing motor vehicle transportation *772 of property for compensation under continuing agreements with one or more persons-(i) by assigning motor vehicles for a continuing period of time for the exclusive use of each such person; or (ii) designed to meet the distinct needs of each such person.
49 U.S.C. 304(a)(15).
For their part, defendants do not contend that Regency held itself out to the general public as providing transportation in interstate commerce. Instead, they urge that the exemption applies because Regency held itself out to the Medicaid Division as providing transportation in interstate commerce by virtue of its contract with the Medicaid Division. Thus, despite its assertion to the contrary, Regency does not squarely fall within the definition of a "common carrier by motor vehicle" as formerly defined in 49 U.S.C. § 304(a)(14). Instead, it would appear that, under the definitions formerly set forth in the Motor Carrier Act, Regency would be more properly characterized as a "contract carrier by motor vehicle." As the "holding out" language is notably absent from the definition of a "motor contract carrier," where, instead, the definition turns on "providing motor vehicle transportation," defendants have not established that this case falls within the ambit of Brennan, such that the court could conclude that the exemption applies.
"Exemptions under section 13 are construed narrowly against the employer, and the employer bears the burden of proving the applicability of a claimed exemption." Id. (citing Smith v. City of Jackson, Miss., 954 F.2d 296, 298 (5th Cir.1992), and Dalheim v. KDFW-TV, 918 F.2d 1220, 1224 (5th Cir.1990)). See also Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S. Ct. 453, 4 L. Ed. 2d 393 (1960) (exemptions to the FLSA are "narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit"). Defendants have not sustained that burden with the proof presented on the present motion.
Accordingly, it is ordered that defendants' motion for summary judgment is denied.
SO ORDERED.
NOTES
[1] Defendants' unopposed motion to strike exhibit "f" will be granted.
[2] In any event, "DOL opinion letters do not warrant significant judicial deference." Rees v. Souza's Milk Transp., Co., 2007 WL 4374063, *6 (E.D.Cal.2007); See also Christensen v. Harris County, 529 U.S. 576, 587, 120 S. Ct. 1655, 146 L. Ed. 2d 621 (2000) ("[i]nterpretations such as those in opinion letters . . . do not warrant . . . deference."); Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 161, 89 L. Ed. 124 (1944) (opinion letters are entitled to respect but only to the extent that they have the power to persuade).
[3] This court recognizes that "courts have found drivers to be covered by the motor carrier exemption even where they engage in, or are subject to, only a small percentage of interstate driving." Badgett v. Rent-Way, Inc., 350 F. Supp. 2d 642, 654 (W.D.Pa.2004). See, e.g., Morris v. McComb, 332 U.S. 422, 68 S. Ct. 131, 92 L. Ed. 44 (1947) (where interstate hauling of freight, which comprised approximately 4 percent of employer's total business; was indiscriminately assigned to employer's drivers, entire class of employee drivers were covered by exemption); Brennan v. Cardinal Indus., Inc., No. C-2-74-563, 1976 WL 1720 (S.D.Ohio Mar.8, 1976) (exemption applied to employer's truck drivers even though less than one percent of the trips made by drivers during the period in question were interstate transports). Coleman is distinguishable from such cases.
In one such case, Barefoot v. Mid-America Dairymen, Inc., 1994 WL 57686, at *3 (5th Cir.1994), the requirement that the employee work for an interstate carrier was satisfied in light of undisputed evidence that the employer was engaged in the transport of goods in interstate commerce in that it shipped millions of pounds of unprocessed milk from facilities in Texas to other states. Considering whether the employees were themselves involved in interstate commerce, the court held that as truck drivers, they were "clearly engaged in activities directly affecting the safety of operation of vehicles on public highways." It then held that although the 26 plaintiffs had collectively made a total of only 20 interstate trips for the employer, "it [was] the character of the activities, `rather than the proportion of the employee's time or activities,' that determines the jurisdiction of the Secretary under the MCA." Id. (citations omitted). Where the evidence shows that the employer was not engaged in more than de minimis interstate commerce, it will follow that its employees have not done so, even if they are in jobs which affect the safety of operation of vehicles on public highways.
[4] Defendants suggest that regardless of how frequently any driver may have made an out-of-state trip, all its drivers were subject to being called upon to make out-of-state trips, and therefore, its employees were engaged in activities of a character directly affecting the safety of operation of motor vehicles in interstate commerce. Although numerous courts have held that the second inquiry is satisfied where an employer's drivers could reasonably expect to be called upon to drive in interstate commerce, see, e.g., Chao v. First Class Coach, Co., 214 F. Supp. 2d 1263 (M.D.Fla.2001), here, defendants have not presented evidence sufficient to establish that, in fact, Regency, and hence its drivers, could reasonably expect to be called upon to transport Medicaid patients to out-of-state appointments. While that possibility may have existed by virtue of Regency's contract with the Medicaid Division, it appears from the evidence that out-of-state transports may have been more hypothetical than real.
[5] The court further notes that the Motor Cartier Act no longer purports to define "common carrier by motor vehicle" or the related term, "contract carrier by motor vehicle." In 1983, when the Act was revised, "motor carrier" was substituted for "common carrier by motor vehicle" and "contract carrier by motor vehicle" as "motor carrier" was inclusive of both terms. See 49 U.S.C. § 31502, Historical and Statutory Notes, Revision Notes and Legislative Reports, 1983 Acts.
[6] 49 U.S.C. § 304(a)(1) and (2) formerly provided:
It shall be the duty of the [Secretary]
(1) To regulate common carriers by motor vehicle as provided in this chapter, and to that end the Commission may establish reasonable requirements with respect to continuous and adequate service, transportation of baggage and express, uniform systems of accounts, records, and reports, preservation of records, qualifications and maximum hours of service of employees, and safety of operation and equipment.
(2) To regulate contract carriers by motor vehicle as provided in this chapter, and to that end the Commission may establish reasonable requirements with respect to uniform systems of accounts, records, and reports, preservation of records, qualifications and maximum hours of service of employees, and safety of operation and equipment. `It shall be the duty of the [Secretary] . . . (1) to regulate common carriers by motor vehicle No regulate contract carriers by motor vehicle as provided in this chapter, and to that end the Commission may establish reasonable' requirements with respect to uniform systems of accounts, records, and reports, preservation of records, qualifications and maximum hours of service of employees, and safety of operation and equipment.'
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535 F. Supp. 2d 805 (2008)
Maria MOLINA, Plaintiff,
v.
WAL-MART STORES TEXAS, L.P., Defendant.
No. EP-07-CV-271-PRM.
United States District Court, W.D. Texas, El Paso Division.
February 27, 2008.
Daniela Labinoti, Scherr & Legate, PLLC, El Paso, TX, for Plaintiff.
Laura M. Enriquez, Arthur Robert Piacenti, Lucky, Enriquez, Piacenti & Smigiel, El Paso, TX, for Defendant.
MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION TO REMAND
PHILIP R. MARTINEZ, District Judge.
On this day, the Court considered Plaintiff Maria Molina's "Motion to Remand," filed on August 31, 2007, and Defendant Wal-Mart Stores Texas, L.P.'s "Response *806 to Plaintiff's Motion to Remand," filed on September 14, 2007, in the above-captioned cause.[1] After careful consideration, the Court is of the opinion that Plaintiff's Motion to Remand should be denied for the reasons set forth below.
I. BACKGROUND
Plaintiff is a resident and citizen of Texas. Def.'s Not. of Removal Ex. B. Defendant is a limited partnership, whose members it asserts are not citizens of Texas. Id. at ¶ 6.
Plaintiff commenced this action by filing her Original Petition in the County Court at Law. Number Six in El Paso Country, Texas on June 25, 2007. Id. at ¶ 2. Defendant was served with the Original Petition on July 9, 2007. Id. at ¶ 3. Defendant timely filed its Notice of Removal on August 3, 2007, alleging diversity jurisdiction. Id. at ¶¶ 4, 7.
On August 31, 2007, Plaintiff filed the instant Motion to Remand wherein she argues that the Court lacks subject matter jurisdiction and the cause should therefore be remanded to state court. Pl.'s Mot. to Remand ¶ 1. Specifically, she argues that Defendant fails to establish (1) that the parties are diverse, and/or (2) that the amount in controversy exceeds $75,000. Id.
II. LEGAL STANDARD
A party may remove an action to federal court if the action is one over which the federal court has subject matter jurisdiction. 28 U.S.C. § 1441(a). The jurisdiction of federal courts is limited. Flowery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir.2001). "[T]he burden of establishing federal jurisdiction rests on the party seeking the federal forum." Id. The removing party must establish "that federal jurisdiction exists and that removal was proper." Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). Any doubts as to the propriety of removal should be resolved in favor of remand. Acuna v. Brown & Root, Inc., 200 F.3d 335, 339 (5th Cir.2000).
District courts have original jurisdiction over actions in which the requirements for diversity jurisdiction are satisfied. 28 U.S.C. § 1332. Diversity jurisdiction requires (1) a complete diversity of citizenship among the parties, and (2) an amount in controversy in excess of $75,000. Id. at § 1332(a). The diversity requirements must exist at the time a suit is filed in state court and at the time of removal. In re Allstate Ins. Co., 8 F.3d 219, 221 (5th Cir.1993).
III. ANALYSIS
A. Diversity of Citizenship
Plaintiff argues that Defendant "fail[s] to bring forth any evidence or state sufficient facts to establish diversity jurisdiction exists" in its Notice of Removal. Pl.'s Mot. to Remand ¶ 12. In its Notice of Removal, Defendant asserts that it "is not a citizen of Texas because it is a limited partnership whose members are not citizens of Texas." Def.'s Not. of Removal ¶ 6. In its Response to Plaintiff's Motion to Remand, Defendant submits an affidavit from K. Elizabeth Crawford, the Subsidiary Administrator for Wal-Mart Stores, Inc. Def.'s Resp. to Pl.'s Mot. to Remand Ex. A. Therein, Crawford identifies the members of Defendant's partnership and explains that each member is a citizen of Arkansas.[2]Id. at ¶¶ 4-6.
*807 The party asserting diversity jurisdiction must "distinctly and affirmatively allege[]" the citizenship of the parties. Howery, 243 F.3d at 919 (quoting Mc-Govern v. American Airlines, Inc., 511 F.2d 653, 654 (5th Cir.1975)) (alteration in original). For purposes of diversity jurisdiction, a limited partnership "assumes the citizenship of each of its partners." Corfield v. Dallas Glen Hills LP, 355 F.3d 853, 856 n. 3 (5th Cir.2003).
Where there is a defective allegation of citizenship, a removing party may supplement its allegations to cure the defect. D.J. McDuffie, Inc. v. Old Reliable Fire Ins. Co., 608 F.2d 145, 147 (5th Cir. 1979) (citing 28 U.S.C. § 1653). A court may consider information contained in an affidavit filed subsequent to the notice of removal to determine whether there is an adequate basis for removal. Willingham v. Morgan, 395 U.S. 402, 408 n. 3, 89 S. Ct. 1813, 23 L. Ed. 2d 396 (1969), abrogated on other grounds in Osborn v. Haley, ___ U.S ___, 127 S. Ct. 881, 166 L.Ed.2d, 819 (2007). Statements in a responsive pleading to a motion to remand may also cure jurisdictional defects in the removal petition. Mendrop v. Shelter Mut. Ins. Co., No. 2:05CV15-P-R, 2006 WL 2246429, at *4 (N.D.Miss. Aug. 4, 2006) (finding that a formal motion to amend defects in a removal petition is not necessary and accepting a responsive pleading for that purpose).
Because Defendant does not identify its members or their citizenship, the Court finds its allegations regarding citizenship to be defective. See. Howery, 243 F.3d at 919 (requiring citizenship to be "distinctly and affirmatively alleg[ed]"). However, by submitting Crawford's affidavit, Defendant has remedied its failure to set forth the citizenship of its members in its Notice of Removal Therefore, the Court concludes that Defendant has satisfied its burden to show that complete diversity exists, and will turn to Plaintiff's second argument.
B Amount in Controversy
Plaintiff's Original Petition does not identify a numerical amount of damages.[3] Where a petition does not include a specific monetary demand, a defendant may establish the propriety of removal by producing "summary judgment type evidence" which shows that the actual amount in controversy exceeds $75,000. Manguno, 276 F.3d at 723.
In support of removal, Defendant submits Plaintiff's pre-suit demand letter which it received on January 9, 2007. Def.'s Not. of Removal ¶ 7. In that letter, Plaintiff demanded $100,000 in damages for her injury. Id. at Ex. C. Plaintiff argues Defendant's reliance on the pre-suit letter is barred by Chapman v. Powermatic, Inc., 969 F.2d 160 (5th Cir.1992). Pl.'s Mot. to Remand ¶ 13.
Contrary to Plaintiff's contention, Chapman addressed only the timeliness of removal. In Chapman, the Fifth Circuit held that a pre-suit document does not trigger the thirty day removal period set forth in 28 U.S.C. § 1446(b). Chapman, ¶¶ 4, 5. She, states that both Wal-Mart Rio Grande Investment, LLC and Wal-Mart Stores East, LP are citizens of Arkansas. Id.
She further states that on June 30, 2007, shortly after Plaintiff filed suit, Wal-Mart Stores Texas, LP merged into Wal-Mart Stores Texas, LLC. Id." Ex. A ¶ 6. According to Crawford, Wal-Mart Stores, Texas, LLC, the surviving entity, is a citizen of Arkansas. Id. Ex. A ¶ 6. *808 969 F.2d at 163. Plaintiff has not alleged that Defendant's removal was untimely. Thus, Plaintiff's reliance on Chapman is misplaced.
Pre-suit demand letters may be submitted as evidence to demonstrate that the amount in controversy exceeds $75,000. St. Paul Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1254 (5th Cir.1998) (examining the plaintiffs' pre-complaint demand letters to determine whether a claim for declaratory relief satisfied the requisite amount in controversy). See also Hammel v. State Farm Fire & Cas. Co., No. 06-7470, 2007 WL 519280, at *4 (E.D.La. Feb. 14, 2007) (holding that the removing party established the requisite amount in controversy by submitting a pre-suit demand letter for $86,800).
Therefore, the Court finds that the presuit demand letter is evidence that the amount in controversy exceeds $75,000, and also finds Plaintiff's argument regarding Defendant's failure to establish subject matter jurisdiction to be without merit.
IV. CONCLUSION
As Defendant has established that the parties are diverse and that the amount in controversy exceeds $75,000, the Court concludes diversity jurisdiction exists. Accordingly, the Court finds that it has subject matter jurisdiction over the above-captioned cause and that Plaintiff's Motion to Remand should be denied.
Accordingly, IT IS ORDERED that Plaintiff Maria Molina's "Motion to Remand" (Docket No. 4) is DENIED.
NOTES
[1] Pursuant to Rule 6(d) of the Federal Rules of Civil Procedure and Local Rule CV-7(d), Plaintiff had until September 25, 2007, to file a reply to Defendant's Response. The Court has not received any reply to date.
[2] Crawford identifies the members of Wal-Mart Stores Texas, L.P. at the time Plaintiff filed suit as Wal-Mart Rio Grande Investment, LLC and. Wal-Mart Stores East, LP. Def.'s Resp. to Pl.'s Mot. to Remand Ex. A
[3] In Texas state court actions, "`[a]n original pleading . . . shall contain . . . (b) in all claims for unliquidated damages only the statement that the damages sought are within the jurisdictional limits of the court.'" De Aguilar v. Boeing Co., 47 F.3d 1404, 1412 (5th Cir.1995) (quoting TEX.R. CIV. P. 47(b)).
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535 F. Supp. 2d 146 (2008)
Ryan POULLARD,[1] Plaintiff,
v.
FEDERAL BUREAU OF PRISONS, Defendant.
Civil Action No. 07-0836 (JDB).
United States District Court, District of Columbia.
March 6, 2008.
*147 Ryan Poullard, Beaumont, TX; pro se.
Kenneth Adebonojo, U.S. Attorney's Office, Washington, DC, for Defendant.
MEMORANDUM OPINION
JOHN D. BATES, District Judge.
For the reasons stated below, the Court will transfer this action to the United States District Court for the Eastern District of Texas.
I. BACKGROUND
Plaintiff currently is serving a prison sentence in the custody of the Federal Bureau of Prisons ("BOP") at the Federal Correctional Institution in Beaumont, Texas ("FCI Beaumont"). See Compl. ¶ 4. He is a member of the Ifa faith group. See id. ¶ 6 & Ex. A (September 24, 2004 letter approving plaintiffs request to introduce Ifa at FCI Beaumont).
The Court has reviewed plaintiff's Complaint and Amended Complaint, keeping in mind that pleadings prepared by a pro se litigant are held to a less stringent standard than is applied to formal pleadings drafted by a lawyer.[2]See Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972); Richardson v. United States, 193 F.3d 545, 548 (D.C.Cir.1999). The Court may, and does, consider both his pleadings in order to understand the nature and basis of plaintiff's claims. See Gray v. Poole, 275 F.3d 1113, 1115 (D.C.Cir.2002) (citing Richardson, 193 F.3d at 548). Taken together, the Court construes plaintiffs pleadings as alleging violations of: (1) his right to the free exercise of his religion, (2) his right to equal protection of the laws, and (3) the Religious Freedom Restoration Act ("RFRA"), 42 U.S.C. § 2000bb et seq. Compl. ¶¶ 1, 6, 23; Amd. Compl. ¶¶ 1, 8, 20. The sole defendant is the BOP.
Plaintiff alleges that the BOP "insolently `renamed' plaintiff's religion in an attempt to force it into a religious category that is already established within the federal prison system." Compl. ¶ 6. In this way, the BOP allegedly denies plaintiff and other members of the Ifa faith group "many of the materials and accommodations necessary for the practice of their approved religious beliefs." Amd. Compl. ¶ 7. According to plaintiff, the BOP uses the terms "Yoruba/Santeria, General Yoruban Program, Yoruba/Ifa, and Yoruba" instead of "Ifa" alone, and thus "has treated plaintiffs religion with disgust and disdain." Compl. ¶ 6. "This ongoing disparagement" of the Ifa, religion, plaintiff alleges, "violates his constitutionally protected religious freedoms and it evidences a campaign of religious discrimination on the part of the defendant." Id.
Both the Complaint and Amended Complaint describe an incident which occurred on July 19, 2006 and resulted in a Disciplinary Hearing Officer ("DHO") Report and disciplinary sanctions. FCI Beaumont staff found so many books and personal papers of plaintiff's in the cell he shared with two other inmates that staff directed him "to move all his personal papers and books to the units [sic] center storage." Id., Ex. E (Incident Report No. 1491830 dated July 20, 2006). Plaintiff responded that "he needed to have all this [sic] items in his cell due to his ongoing legal battle with the BOP and that all his books were all religious materials" Id. Plaintiff claimed that he did not have sufficient space in his locker to store his books and papers because he used his locker for religious offerings. *148 See id., Ex. F-G (memoranda supporting Incident Report). Staff opened plaintiffs locker, noticed a "foul smell" emanating from the locker, and inside "discovered several food items that were in decomposing state," id., Ex. E, which evidently were plaintiffs "religious food offerings." Id. When plaintiff refused to clean his area and store his books and papers in his locker as directed, staff escorted him to the Special Housing Unit. See id., Ex. G.
The July 19, 2006 incident apparently is but one example of the BOP's alleged "disrespect" for plaintiffs Ifa faith. For instance, plaintiff alleges that Ifa followers must wear Ides (beaded bracelets) and Ilekes (beaded necklaces) at all times. Plaintiffs Motion Requesting Permission To Supplement Original Pleading In Response To Defendant's Motion to Dismiss ("Pl.'s Mot. to Supplement") at 2. He states that BOP does not provide these items, forcing plaintiff and others to make their own Ides and Ilekes "[u]sing hobby craft beading materials." Id. Plaintiff alleges that he was denied a visit with his father on July 23, 2007 because he refused to remove his religious beads, see id. at 3-4, and that he was denied a visit with his sister on August 7, 2007 because plaintiff refused to remove one of the two sets of beaded necklaces he wore. Plaintiffs Motion Requesting A Standing Order From The Court at 1-2. Further, he alleges that the BOP has denied him religious materials, outdoor worship space, and other accommodations (such as a designated locker for storing religious supplies and literature) for the practice of his faith. See, e.g., Pl.'s Mot. to Supplement, Ex. (Remedy ID # 354786-F1 and attachments).
As a result of the BOP's actions, plaintiff alleges that he has "lost his natural rest and sleep, suffered pain and emotional trauma, depression, humiliation, anxiety and apprehension, and was made to feel that his sincerely held religious beliefs were inferior to the religious beliefs of others." Compl. ¶ 21. For defendant's alleged disparagement of plaintiff's religion and the "wrongful additional punishment [imposed] on the plaintiff without due process," id. ¶ 23, plaintiff demands damages of $22 million. Id. ¶ 24. In addition, plaintiff seeks injunctive relief to include certain accommodations for his religious practice. Amd. Compl. ¶ 21.
II. DISCUSSION
A. Plaintiff's Motion to Supplement
Plaintiff moves for leave to file a supplemental pleading. See Pl.'s Mot. to Supplement. In the Court's discretion, see Banks v. York, 448 F. Supp. 2d 213, 214 (D.D.C.2006), a party may file a supplemental pleading "setting out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented." Fed.R.Civ.P. 15(d). Leave to file a supplemental pleading should be "freely granted . . . where such supplementation will promote the economic and speedy disposition of the controversy between the parties, will not cause undue delay of trial [or] inconvenience and will not prejudice the rights of any other party." Wells v. Harris, 185 F.R.D. 128, 132 (D.Conn.1999) (citations omitted). Such a filing may be allowed "even though the original pleading is defective in stating a claim or defense." Fed.R.Civ.P. 15(d).
It appears that plaintiff intends to supplement his complaint by alleging facts pertaining to an incident on July 23, 2007 when staff at FCI Beaumont denied him a visit with his father because plaintiff refused to remove the religious beads worn by Ifa followers. Pl.'s Mot. to Supplement at 3-4. However, plaintiff's proposed supplemental pleading merely sets forth allegations pertaining to the July 19, 2006 *149 incident which are substantially similar to; those set forth in the original Complaint. See Compl. ¶¶ 7-17; Amd. Compl. ¶¶ 9-19. The main differences between the two pleadings are plaintiffs newfound reliance on the Administrative Procedure Act, see 5 U.S.C. § 702, as a basis for this Court's jurisdiction and the inclusion of a claim under RFRA. See Amd. Compl. ¶¶ 1-2, 20. Plaintiff states that "his original pleading is in fact defective in its statement of a claim for relief," and submits the supplemental pleading to "correct[] these errors."[3] Pl.'s Mot. to Supplement at 4.
Because plaintiffs proposed supplemental pleading itself does not allege facts pertaining to occurrences or events taking place after the date of the original Complaint, the Court does not consider it truly to be a supplemental complaint. Rather, the Court construes the proposed pleading as an amended complaint presenting alternative bases for relief. Accordingly, the Court construes plaintiffs motion for leave to file a supplemental pleading as a motion to amend his Complaint and will grant the motion.[4]
B. Venue and Transfer to the Eastern District of Texas
Defendant moves to dismiss under Rule 12(b)(3) of the Federal Rules of Civil Procedure on the ground that venue is improper. See Def.'s Mot. to Dismiss at 6-7. The Court declines to dismiss this action, and instead will grant the BOP's alternative motion to transfer this action to the United States District Court for the Eastern District of Texas pursuant to 28 U.S.C. § 1404(a).[5] See Def.'s Opp'n to Pl.'s Mot. to Amend/Supplement at 15-16.
"Courts in this jurisdiction must examine challenges to [] venue carefully to guard against the danger that a plaintiff might manufacture venue in the District of Columbia." Cameron v. Thornburgh, 983 F.2d 253, 256 (D.C.Cir.1993). A civil action against a federal government agency "may be brought in any judicial district in which (1) a defendant in the action resides, (2) a substantial part of the events or omissions giving rise to the claim occurred . . ., or (3) the plaintiff resides if no real property is involved in the action." 28 U.S.C. § 1391(e). Under these criteria, venue in this district is not proper. A substantial part of the events or omissions giving rise to plaintiffs claims occurred at FCI Beaumont where plaintiff currently is incarcerated. This civil action may be brought in the Eastern District of Texas.
"Many, if indeed not most, petitions filed by prisoners not confined in the District of Columbia and not sentenced here originally, will tend to involve factors that make transfer to the place of incarceration appropriate." Starnes v. McGuire, 512 F.2d 918, 926 (D.C.Cir.1974) (en banc). Given the likelihood that witnesses and relevant evidence are maintained at FCI Beaumont, and given the difficulty of transferring an *150 incarcerated plaintiff for purposes of pursuing litigation, the Court concludes that transfer of this action to the United States District Court for the Eastern District of Texas is both convenient for the parties and in the interest of justice. See Starnes, 512 F.2d at 930-31; Stern v. Fed. Bureau of Prisons, No. 07-cv-00564, 2007 WL 1555830, at *2 (D.D.C. Mar.22, 2007) (federal prisoner's case challenging the validity of BOP's Inmate Financial Responsibility Program transferred to the district where the prisoner was incarcerated and where all the events that gave rise to the action occurred); Rogers v. Fed, Bureau of Prisons, 257 F. Supp. 2d 147, 148 (D.D.C.2003) (transferring under 28 U.S.C. § 1404(a) to the district where petitioner was incarcerated a petition for mandamus or declaratory judgment seeking resolution of issues not related to the District of Columbia).
III. CONCLUSION
The Court will transfer this action to the United States District Court for the Eastern District of Texas. With the exception of plaintiffs "Motion Requesting Permission to Supplement Original Pleading In Response To Defendant's Motion to Dismiss," all pending motions will be denied without prejudice. An Order consistent with this Memorandum Opinion is issued separately.
NOTES
[1] Plaintiff also is known as Shangowande Orunmila, Compl. ¶ 4, and as Shankowande Ajanaa-Werepe. Amd. Compl. ¶ 5.
[2] Before the Court is plaintiff's Motion Requesting Permission to Supplement Original Pleading In Response To Defendant's Motion to Dismiss ("Pl's Mot. to Supplement"). As is explained below, this proposed "supplemental pleading," with exhibits attached thereto, has been deemed plaintiff's Amended Complaint ("Amd. Compl.").
[3] With this statement, plaintiff appears to address BOP's argument that sovereign immunity bars his demand for monetary damages by adding demands for declaratory and injunctive relief that may be granted if he were to prevail on his constitutional or RFRA claims.
[4] Indeed, a plaintiff has an "absolute right to amend [his] complaint once at any time before the defendant has filed a responsive pleading." James V. Hurson Assoc., Inc. v. Glickman, 229 F.3d 277, 282-83 (D.C.Cir. 2000).
[5] Plaintiff did not oppose defendant's motion to dismiss this action for improper venue. However, he did "request[] that this court enter its order granting the plaintiff permission to supplement his original pleading and accepting his supplemental pleading prior to transfer, should this court decide that transfer to the Eastern District of Texas is warranted." Plaintiff's Answer to, Defendant's Opposition to Plaintiff's Motion for Summary Judgment and for a Standing Order Pursuant to LCvR 7, 56.1 at 4.
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535 F. Supp. 2d 676 (2007)
Grant THORNTON, LLP, Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant; and
Federal Deposit Insurance Corporation, Plaintiff,
v.
Grant Thornton, LLP, Defendant; and
Gary Ellis, Plaintiff,
v.
Grant Thornton, LLP, Defendant.
Civil Action Nos. 1:00-0655, 1:03-2129, 1:04-0043.
United States District Court, S.D. West Virginia.
March 14, 2007.
*677 *678 *679 Andrew J. Morris, Mark W. Ryan, Mayer Brown, Washington, DC, Catherine L. Doyle, Stanley J. Parzen, Mayer Brown, Chicago, IL, John H. Tinney, John H. Tinney, Jr., Kimberley R. Fields, The Tinney Law Firm, Charleston; WV, for Plaintiff.
Brad A. Harman, Clint R. Latham, David Mullin, John M. Brown, John G. Turner, III, Mullin Hoard & Brown, Amarillo, TX, Charles T. Miller, Stephen M. Horn, U.S. Attorney's Office, Charleston, WV, John A. Davidovich, John Wessling, Mary P. Davis, Federal Deposit Insurance Corporation, Washington, DC, for Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
DAVID A. FABER, Chief Judge.
INTRODUCTION
A bench trial was held on May 17, 2004, through June 10, 2004. Closing arguments were held on August 20, 2004. Set forth herein are the court's findings of fact and conclusions of law pursuant to Fed. R.Civ.P. 52.
Because this case was tried before the court as a bench trial, the court's findings are presumed to be based on admissible evidence. Fishing Fleet, Inc. v. Trident Ins. Co., Ltd., 598 F.2d 925, 929 (5th Cir. 1979); see also Chicago Title Ins. Co. v. IMG Exeter Associates Ltd. P'ship, 985 F.2d 553, 1993 WL 27392 at *4 (4th Cir. 1993) (unpublished); see also Harris v. Rivera, 454 U.S. 339, 346, 102 S. Ct. 460, 70 L. Ed. 2d 530 (1981) ("In bench trials, judges routinely hear inadmissible evidence that they, are presumed to ignore when making decisions."). Accordingly, the court finds it unnecessary to rule on each separate objection raised by the parties. The court has considered those objections relating to the evidence supporting the findings contained herein and, to the extent such objections relate to the evidence which the court cites in support of its findings, such objections are hereby overruled.
FINDINGS OF FACT
I. Background
1. The First National Bank of Keystone ("Keystone" or the "Bank") located in Keystone, McDowell County, West Virginia, was incorporated in 1904 under the National Banking Act GT Ex. 22. Prior to 1992, Keystone was a small community bank servicing primarily McDowell County and the surrounding area. Keystone was a national banking association within the Federal Reserve System, the deposits of which were insured by the Federal Deposit Insurance Corporation ("FDIC"). Keystone's principal place of business was in West Virginia. Prior to his death in 1997, J. Knox McConnell, the Bank's president and its largest shareholder, controlled Keystone. FDIC Ex. 431 at 2-3.
*680 2. From at least 1992 through October 1997, Keystone's board of directors consisted of two inside directors, J. Knox McConnell and Billie Cherry, and outside directors Michael Gibson, a local attorney; Andres Rago, a local doctor; Julian Budnick, a retired furniture salesman; and Louis Pais, a retired beer distributor. When McConnell died in October 1997, Terry Church replaced him on the board. At the same time, Billie Cherry became president of the Bank, and Melissa Quizenbeury, a long-time employee, became a director. Gibson, May 20, 2004, Tr. at 7, 10; FDIC Exs. 90, 124, 248 at 2; GT Exs. 208, 625. After McConnell's death, Church controlled every material aspect of the Bank's operations. Carney, May 19, 2004, Tr. at 69-71; Quay, June 4, 2004, Tr. at 13-14; FDIC Ex. 417 at 3. Church was also the executrix of McConnell's estate, giving her control of the largest single block of Keystone stock. FDIC Ex. 248 at 2.
3. In December 1998, Julian Budnick resigned from the board and was replaced by his son Victor Budnick, an attorney. Budnick, May 18, 2004, Tr. at 86-88; Gibson, May 20, 2004, Tr. at 10. In March 1999, two new directors were elected: Bernard Kaufman, a retired attorney and investor, and Daniel Halsey, a local car dealer. Most of the outside directors owned sizable blocks of Keystone stock, and outside director Gibson actually bought more stock during the last few months of the Bank's existence. Gibson, May 20, 2004, Tr. at 58; FDIC Ex. 248 at 2, FDIC Exs. 263, 880.
4. This civil action arises from the fraudulent operation and eventual collapse of Keystone. The fraud was conceived and perpetrated by senior bank management and continued for years until detected. In addition to McConnell, who died in October, 1997, before the Bank was closed, the principal perpetrators of the fraud, all Keystone insiders, were Terry Church, Michael Graham and Billie Cherry. FDIC Exs. 431, 432. Church, Graham and Cherry have all been convicted of numerous felonies, their convictions have been affirmed on appeal, and all three were sentenced to lengthy terms of incarceration.[1] FDIC Exs. 430, 433, 434, 435, 558, 560, and 579. For several years the wrongdoers successfully concealed the fraud from the public, from the Bank's examiners, from the Bank's board of directors, and even from some of Keystone's own senior management.
5. Central to the fraud was an investment strategy that involved securitization of high risk mortgage loans. Beginning in 1992, Keystone originated nineteen securitizations over a six-year period. GT Ex. 514. Keystone would acquire Federal Housing Authority ("FHA") or high loan to value real estate mortgage loans from around the United States, pool a group of these loans, and sell interests in the pool through underwriters to sophisticated investors. GT Ex. 22. The pooled loans were serviced by third-party loan servicers; principal among these servicers were Advanta and Compu-Link. GT Ex. 22. Keystone retained residual interests ("residuals") in each loan securitization. GT Ex. 22. The residuals were subordinated securities that would receive payments only after all expenses were paid and all investors in each securitization pool were paid. GT. Ex. 22. In short, Keystone stood to profit from a securitization only after everyone else was paid. The residuals were assigned a value that was carried on the books of the Bank as an asset. Over time, the residual evaluations came to represent a significant portion of the Bank's book value. GT Ex. 22.
*681 6. From 1993 until 1998 when the last loan securitization was completed, .the size and frequency of these transactions expanded from about $33 million to approximately $565 million, for the last one hi September 1998. FDIC Ex. 431 at 3. All told, Keystone acquired and securitized over 120,000 loans with a total value in excess of $2.6 billion, FDIC Ex. 431 at 3. Keystone appeared to be an exceptionally profitable bank, whose assets purportedly grew from $107 million in 1992 to over $1.1 billion in 1999. FDIC Ex. 431 at 3; GT Ex. 22.
7. In reality, the securitization program proved highly unprofitable. Owing to the risky nature of many of the underlying mortgage loans, the failure rate was excessive. As a result, the residual interests retained by the Bank, proved highly speculative and, in actuality, they did not perform very well. Malami, May 26, 2004, Tr. at 77-134; Potter, May 26, 2004, Tr. at 159-60; Potter, May 27, 2004, Tr. at 34-36. Keystone's valuation of the residuals was greater than their market value. Quay, June 4, 2004, Tr. at 29; FDIC Ex. 286. McConnell, Church, and others concealed the, failure of the securitizations by falsifying the Bank's books. FDIC Ex. 431. Bogus entries hid the true financial condition of the Bank from the Bank's directors, shareholders, depositors and regulators. FDIC Ex. 431. Among the bogus documents were false remittance reports, prepared by Graham and given to examiners from the Office of the Comptroller of the Currency ("OCC"). At the same time, the wrongdoers embezzled large sums from the Bank, covering their theft with other false entries in the Bank's books. FDIC Ex. 431.
8. The embezzlement of funds and the falsification of Keystone's financial records were both integral parts of the fraudulent scheme. The scheme participants booked false credits to interest income to make it appear that Keystone was highly profitable and booked false debits to loans to fraudulently inflate assets and capital which made this a very common ("a garden variety") form of fraud. These fraudulent entries, and their reflection in the Bank's financial statements, enabled Keystone's corrupt management to continue to embezzle funds and conceal their earlier embezzlements. Carmichael, May 24, 2004, Tr. at 36-41; Carmichael, May 25, 2004, Tr. at 30-31; Goldman, June 9, 2004, Tr. at 83-84.
9. One of the boldest acts of fraud designed to conceal the Bank's true financial condition occurred when approximately $515 million in loans were sold by Keystone, but continued to be carried on the Bank's books as assets. FDIC Ex. 431; GT Ex. 22. Discovery of these fraudulent entries would have revealed at once the fraud and the. Bank's insolvency, resulting in the Bank's immediate seizure and closure by federal regulators. Johnson, May 17, 2004, Tr. at 148; C. Wilson, May 17, 2004, Tr. at 240.
II. Hiring of Grant Thornton
10. Keystone had a long history of conflict with federal bank examiners and regulators. GT Ex. 22. In May, 1998, the OCC sought civil money penalties against Keystone's management and board for repeatedly filing inaccurate call reports. Casey, June 1, 2004, Tr. at 105; Gibson, May 20, 2004, Tr. at 12; FDIC Ex. 64 at 5; FDIC Ex. 182 at 31; FDIC Ex. 183 at 48. Call reports are detailed statements of a bank's financial condition that must be filed with the FDIC at the end of each quarter. Carney, May 19, 2004, Tr. at 103; FDIC Exs. 106, 171, 270, 323.
11. In examinations from 1995 to 1998, the OCC repeatedly criticized Keystone's management and records. GT Exs. 22, 243; FDIC Exs. 182, 183. The OCC asked for additional civil monetary penalties *682 when it discovered over $100 million in errors in Keystone's accounting records. Carney, May 19, 2004, Tr. at 62-63; Goldman, June 9, 2004, Tr. at 111. In its 1998 examination report, the OCC stated that Keystone's management had demonstrated an unwillingness or inability to follow appropriate accounting guidelines and comply with applicable laws and regulations. FDIC Ex. 183 at 3; GT Ex. 22. In the same examination, the OCC stated that Keystone had not filed an accurate call report the last seven quarters, that the Bank was willfully violating brokered deposit restrictions, and that data was being manipulated to enhance Keystone's capital position. FDIC Ex. 183 at 22, 41, 48. At one point, the OCC, suspecting that McConnell and Church were involved in an illegal kickback scheme concerning appraisal fees, made a criminal referral. FDIC Ex. 180; Quay, June 4, 2004, Tr. at 17-20; GT Ex. 22. The OCC discovered that Graham had made an "input error" of $31 million while entering data on loan residual evaluations, and criticized numerous other actions of Bank management designed to enhance Keystone's capital position as reflected by the Bank's records. FDIC Ex. 183 at 48. Over time a hostile relationship developed between Keystone officials and the regulators. GT Ex. 22. Church and McConnell (prior to his death) were at the center of this conflict. GT Ex. 22.
12. By the Spring of 1998, conflict between Keystone and the regulators had reached a critical juncture. In May of 1998, the OCC required Keystone to enter into a Formal Agreement obligating, Keystone to take specific steps to improve its regulatory posture and financial condition. FDIC Ex. 64; Gibson, May 20, 2004, Tr. at 12. This included retaining a nationally recognized independent accounting firm. Gibson, May 20, 2004, Tr. at 14; Buenger, June 2, 2004, Tr. at 179-81; FDIC Exs. 64, 228. Discussions followed between Bank officials and defendant Grant Thornton LLP ("Grant Thornton") concerning the possible employment of Grant Thornton as the Bank's outside auditor. Grant Thornton knew that the Bank had significant accounting problems and was aware of the troubled relationship between the Bank and federal regulatory authorities. Buenger, June 2, 2004, Tr. at 179-81; Quay, June 3, 2004, Tr. at 15; FDIC Exs. 64, 228.
13. Between July 17 and August 21, 1998, appropriate officials at Grant Thornton approved acceptance of the Bank as a client. Quay, June 3, 2004, Tr. at 24. While the approval process was taking place, Stanley Quay, Grant Thornton's partner who was to be in charge of the audit, drafted a proposal covering the services he expected Grant Thornton to perform for the Bank. Quay, June 3, 2004, Tr. at 24-25; FDIC Ex. 75. Under this proposal, there were two principal levels of service Grant Thornton was to perform for the Bank: (1) An audit of the Bank's consolidated financial statements as of December 31, 1998; and (2) Completion of certain "agreed-upon-procedures" relative to elements of the Bank's financial statements beginning quarterly as of June 30, 1998. Quay, June 3, 2004, Tr. at 25-26.
14. On or about July 27, 1998, the OCC indicated it had no objection to the hiring of Grant Thornton by the Bank. Gibson, May 20, 2004, Tr. at 67-68; FDIC Ex. 79. Grant Thornton began its work at the Bank on or about August 12, 1998. Carmichael, May 24, 2004, Tr. at 110-11; Casey, June 1, 2004, Tr. at 99; Gibson, May 20, 2004, Tr. at 69-70; FDIC Ex. 91.
15. On September 10, 1998, Quay prepared and signed an engagement letter by which Grant Thornton agreed to perform an audit of Keystone's December 31, 1998, financial statements in accordance with Generally Accepted Auditing Standards *683 ("GAAS"). Quay, June 3, 2004, Tr, at 28; FDIC Ex. 98. Billie Cherry signed the letter on behalf of Keystone on, February 5, 1999. Quay, June 3, 2004, Tr. at 28-29; FDIC Ex. 98.
16. Stan Quay was the lead Grant Thornton partner on the engagement FDIC Ex. 75. Susan Buenger, a junior manager, performed substantial work on the engagement. FDIC Ex. 75, Quay reviewed the Formal Agreement, and was familiar with its terms. Quay, June 3, 2004, Tr. at 18-19.
III. Grant Thornton's Standard of Care
17. The American Institute of Ceded Public Accountants (AICPA) is a national professional organization for CPAs. During the time period involved, the AICPA set the professional standards that applied to the work of. CPAs. GAAS, promulgated by the AICPA, are the standards applicable to auditing functions. GAAS is, generally accepted as the minimum standard of professional conduct in performing an audit. Generally Accepted Accounting Principles ("GAAP") "encompass the convention, rules, and procedures necessary to define accepted accounting practice at a particular time." Carmichael, May 24, 2004, Tr. at 11-14.
18. Due professional care under GAAS requires the auditor to exercise professional skepticism. Carmichael, May 24, 2004, Tr. at 23. Professional skepticism is an attitude that includes a questioning mind and a critical assessment of audit evidence. Carmichael, May 24, 2004, Tr. at 27-29; Buenger, June 2, 2004, Tr. at 62; Goldman, June 9, 2004, Tr. at 19; GT Ex. 266 (AU 230.07). The auditor has the responsibility to plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement, whether caused by error or fraud. Carmichael, May 24, 2004, Tr. at 32-34; Buenger, June 2, 2004, Tr. at 62-63; Quay, June 3, 2004, Tr. at 151; FDIC Exs. 438, 473 (AU 110.02). "When considering the auditor's responsibility to obtain reasonable assurance that the financial statements are free from material misstatement, there is no important distinction between errors and fraud." GT Ex. 268 (AU 312.08).
19. An auditor should have a "show me" attitude, and not accept unsubstantiated assertions by management. Buenger, June 2, 2004, Tr. at 63; Carmichael, May 24, 2004, Tr. at 27-29; FDIC Ex. 728. When applying procedures to the client's records, schedules and supporting data, the auditor should be on guard against accepting documents at face value. Buenger, June 2, 2004, Tr. at 63-64; Goldman, June 9, 2004, Tr. at 38-39; Carmichael, May 24, 2004, Tr. at 25.
20. If there is a high risk of fraud, the auditor ought to employ a heightened professional skepticism. Carmichael, May 24, 2004, Tr. at 29-31. Grant Thornton had many reasons to employ a heightened professional skepticism in its audit of Keystone's financial statements. Grant Thornton rated the Keystone audit maximum risk. Buenger, June 2, 2004, at Tr. 64; Carmichael, May 24, 2004, Tr. at 29; FDIC Ex. 174. It was the highest risk audit on which Buenger and Quay had ever worked. Buenger, June 2, 2004, Tr. at 64; Quay, June 3, 2004, Tr. at 189. Quay and Buenger testified that their "fraud antenna" were up as high as they could get. Buenger, June 2, 2004, Tr, at 64; Quay, June 3, 2004, Tr. at 189.
IV. Grant Thornton's Failure to Check the Remittances From Servicers
21. Due professional care is to be exercised in the performance of the audit and the preparation of the report. GT Ex. 262 (AU 150.02); GT Ex. 266 (AU 230.01).
22. The auditor has the responsibility to plan and perform the audit to obtain reasonable assurance about whether the *684 financial statements are free of material misstatement, whether caused by error or fraud. Carmichael, May 24, 2004, Tr. at 32-36; FDIC Ex. 473 (AU 110.02).
23. The auditor should specifically assess the risk of material misstatement due to fraud and should consider that assessment in designing the audit procedures to be performed. Carmichael, May 24, 2004, Tr. at 34-36; FDIC Ex. 695 (AU 316.12).
24. As already noted, the risk of material misstatement in Keystone's financial statements due to error or fraud was high, and Grant Thornton had already reached that conclusion before its year-end 1998 audit of Keystone commenced. Carmichael, May 24, 2004, Tr. at 94.
25. Buenger was responsible for testing Keystone's interest income during the year-end, 1998 audit. Keystone's management was reporting $98.8 million in interest income from loans owned by Keystone during 1998. Buenger, June 2, 2004, Tr. at 78. Over $65 million of the interest income was fraudulent and nonexistent. Carmichael, May 24, 2004, Tr. at 41.
26. Buenger performed the interest income testing in March, 1999. Buenger did not perform a test of details, which would have entailed looking for underlying support for the recorded item. Carmichael, May 24, 2004, Tr. at 49. Buenger did not examine remittance records of interest income. It would only have taken a short time to check the remittance records to verify the interest income. By tracking the ten remittances showing income for 1998 from loan servicer Compu-Link into Keystone's bank statement, Buenger could have verified 80-90% of the interest income. Buenger, June 2, 2004, Tr. at 71-93; Carmichael, May 24, 2004, Tr. at 100-01; Carmichael, May 25, 2004, Tr. at 23-25, 154-57; G. Ellis, May 22, 2004, Tr. at 78-80, 86, 94-95; Johnson, May 17, 2004, Tr. at 184-87; Quay, June 3, 2004, Tr. at 154-56; Terry Depo., November 16, 2002, pp. 14-15, 17-25, 31-34, 36-45 (FDIC Ex. 902).
27. GAAS requires an auditor to obtain the best evidence available within the time constraints and money constraints applicable to the engagement. Buenger, June 2, 2004, Tr. at 90. In this case, it would have been less time consuming and costly to perform a test of details rather than the analytical test that Buenger performed because the bulk of the interest income came from one servicer. Grant Thornton would only need to look at twelve remittances to very effectively substantiate most of the interest income. Carmichael, May 24, 2004, Tr. at 100-01.
28. Instead, the primary procedure that Buenger relied on to test interest income was an ineffective "analytical test." This test compared recorded interest income for the annual period to the average balance of loans outstanding during the same period, as reflected in the quarterly average balances reported in Keystone's call reports, to calculate an annual yield. Carmichael, May 24, 2004, Tr. at 84-85, 97-98. Buenger then considered the reasonableness of this calculated expectation of the yield based on her understanding of the industry yield on the same types of loans. Buenger, June 1, 2004, Tr. at 180-81; Carmichael, May 24, 2004, Tr. at 84-85, 97-98; FDIC Ex. 164.
29. The analytical test that Buenger did to test interest income only considered information provided by management. Carmichael, May 24, 2004, Tr. at 90. The data that Buenger obtained in her analytical testing was not independent of the entity, was not from a person independent of those responsible for the amount being audited, was not developed under a reliable system with adequate controls, and Grant Thornton had determined that the prior auditors were incompetent. Carmichael, May 24, 2004, Tr. at 98-100. Buenger *685 used only three items of information hi her analytical test. Goldman, Juke 9, 2004, Tr. at 29-30; Quay, June 4, 2004; Tr. at 10-13. The first was the average balance of owned loans reported on Keystone's call reports. Goldman, June 9, 2004, Tr. at 30. Buenger and Quay knew that the OCC had imposed civil money penalties on Keystone for filing inaccurate call reports; in fact, the OCC said that Keystone had not filed an accurate call report in the last seven quarters. Quay, June 4, 2004, Tr. at 10-11. Buenger decided not to use the call report information for March 31, 1998 because the OCC' had required the call report to be restated, but she then proceeded to use the other 1998 call reports despite knowing that the OCC had determined those call reports were also inaccurate. Buenger, June 2, 2004, Tr. at 106-09. Thus, Buenger knew the call report information she used was of questionable reliability. Carmichael, May 24, 2004, Tr. at 89-90, 98-99; Goldman, June 9, 2004, Tr. at 32-33; Quay, June 3, 2004, Tr. at 151.
30. The second piece of information Buenger used in her analytical test was a chart of Keystone's month end loan inventories for 1998 that was provided to her by Graham. According to Buenger's memorandum to the file on Keystone's loan purchasing, Keystone purchased loans throughout the year, and then sold, them into securitizations. Buenger, June 2, 2004, Tr. at 96-98; FDIC Ex. 181. Buenger believed Keystone was funding these purchases with brokered deposits. Buenger, June 2, 2004, Tr. at 95. Keystone's loan inventory should have dropped substantially at the time of the securitizations because the loans were sold into the securitizations. Buenger, June 2, 2004, Tr. at 97-98. Keystone had two securitizations in 1998 one in May for $275 million and one in September for $565 million. But according to the Graham chart, the Keystone loan inventory only dropped slightly in those months with a $47 million drop in May, 1998 and a $32 million drop in September, 1998. FDIC Ex. 164. Finally, there were large discrepancies between the total loan inventories on Graham's chart and the total loan inventories reflected in Grant Thornton's workpapers on its agreed upon procedures. FDIC Ex. 164; Buenger, June 2, 2004, Tr. at 103-04. For example, as of June 30, 1998, Graham's chart reflected Keystone owned $566 million in loans, but Grant Thornton's reconciliation of loans as of the same date reflected an inventory of only $402 million. FDIC Ex. 164; Buenger, June 2, 2004, Tr. at 103-04. Buenger realized the numbers in Graham's chart were not reasonable, and didn't tie to any of the other numbers of which she was aware. Buenger, June 2, 2004, Tr. at 95-104, 130-31; Quay, June 4, 2004, Tr. at 8-10; FDIC Exs. 164, 915. Nevertheless, neither Buenger nor Quay asked Graham to explain why the loan balances that he provided Buenger made no sense. Buenger, June 2, 2004, Tr. at 103-04; Quay, June 4, 2004, Tr. at 9-10. Even though she had determined that Graham's chart made "no sense," Buenger continued to use the January through March 1998 loan inventories in Graham's chart in her analytical test of income. Buenger, June 2, 2004, Tr. at 104-06, 109-10; Goldman, June 9, 2004, Tr. at 26-27, 150; Quay, June 3, 2004, Tr. at 150-51. Buenger violated GAAS by failing to investigate how Graham provided her bogus loan inventories that made "no sense," by failing to investigate how Graham had made the $31 million "input error" on the residual valuation, and by using information that she knew contained material errors in her analytical test. Goldman, June 9, 2004, Tr. at 19-29, 31-32.
31. The third piece of information used by Buenger in her analytical test was a "remittance report," reflecting $10 million in income from Compu-Link during the *686 month of December, 1998. FDIC Ex. 165. One of Graham's subordinates, Debbie Watkins, provided the "remittance report" to Buenger with a letter from Forest Krumm of Compu-Link. Buenger, June 1, 2004, Tr. at 187; Buenger, June 2, 2004, Tr. at 64-65. The Krumm letter states that "enclosed is a trial balance." FDIC Ex. 165. The letter does not reference a "remittance report" as being enclosed. FDIC Ex. 165. The "remittance report" contains no identifying markings to indicate that it is a true Compu-Link record. FDIC Ex. 165. Under GAAS, Buenger should have investigated these anomalies, and could not rely on the "remittance report" until she cleared them up. Buenger violated GAAS by using data on the remittance report in her analytical test, and by failing to investigate the anomalies in the information she was provided. Buenger, June 2, 2004, Tr. at 64-65, 72-73; Carmichael, May 24, 2004, Tr. at 102-05; Carmichael, May 25, 2004, Tr. at 158-59, 169-70; FDIC Ex. 165.
32. Detailed testing is better and provides stronger evidence than analytical testing. Goldman, June 9, 2004, Tr. at 46-47. At trial, Buenger professed not to know that there was a difference between an analytical test and a test of details. Buenger, June 2, 2004, Tr. at 71. An auditor with Buenger's level of training and experience should know the difference between an analytical test and a test of details. Goldman, June 9, 2004, Tr. at 46.
33. After the OCC reported the $500 million of missing loans in August, 1999, Grant Thornton's first step was to look for check and wire remittances showing the interest income, but they could not find any evidence to support $500 million in loans. Carmichael, May 24, 2004, Tr. at 85-86; Quay, June 3, 2004, Tr. at 154-56.
34. In August, 1999, Buenger and Quay asked Graham and Church to provide proof of the income from the loans, and they came back and said they couldn't find it. Quay, June 3, 2004, Tr. at 154-56. Graham and Church had every reason to produce whatever proof they could to support the income from loans. If Buenger and Quay had asked for the same proof in March, 1999, the result would likely have been the same: Church and Graham would not have been able to provide proof of the income. Buenger, June 2, 2004, Tr. at 79-90; Carmichael, May 24, 2004, Tr. at 101.
35. When Quay tested the more than $11 million in income from the residuals during the year-end, 1998 audit, he performed detailed testing procedures by actually examining the remittances, the checks, and wires from the services. Quay decided that the best way to test the residual income was to trace the actual remittances into the cash accounts. Buenger, June 2, 2004, Tr. at 78-79; Goldman, June 9, 2004, Tr. at 47-48; Quay, June 3, 2004, Tr. at 152-54; Carmichael, May 24, 2004, Tr. at 96; FDIC Ex. 188. The fact that Quay used detailed testing procedures to test the residual income is further evidence that Buenger should have done the same when she tested the interest income, especially given the fact that the amount of interest income Keystone was reporting was $98 million.
36. Under GAAS, AU 329.16 states the following concerning the reliability of data used in analytical procedures:
The auditor should assess the reliability of the data by considering the source of the data and the conditions under which it was gathered, as, well as other knowledge the auditor may have about the data. The following factors influence the auditor's consideration of the reliability of data for purposes of achieving audit objectives:
Whether the data was obtained from independent sources outside the entity or from sources within the entity.
*687 Whether sources within the entity were independent of those who are responsible for the amount being audited.
Whether the system was developed under a reliable system with adequate controls.
Whether the data was subjected to audit testing in the current or prior year.
Whether the expectations were developed using data from a variety of sources.
FDIC Ex. 715.
37. In Grant Thornton's audit of Keystone, potential misstatements in interest income would be apparent in the remittance records as they were in August, 1999. Detailed evidence was readily available and was not voluminous. Carmichael, May 24, 2004, Tr. at 91-92; Johnson, May 17, 2004, Tr. at 184-87; FDIC Ex. 548.
38. Quay and Buenger had rated the Keystone audit a "C" or "comprehensive" audit. Carmichael, May 24, 2004, Tr. at 92-94, 96-97; FDIC Ex. 436. Although Grant Thornton's audit manual states that a "C" rated audit generally concentrates on tests of details for income statement accounts, Quay and Buenger did not use tests of details for a majority of the accounts, and instead only used tests of details for two of the accounts. Goldman, June 9, 2004, Tr. at 51-52.
39. In March, 1999, given the high risk of material misstatement in Keystone's financial statements, and the fact that Keystone's $98 million in interest income was more than 90% of Keystone's reported income, Buenger should have tested Keystone's interest income for 1998 by reviewing the remittance records of interest income for 1998. Her failure to do so was a violation of GAAS. Carmichael, May 24, 2004, Tr. at 30, 84-85, 94-96.
40. If Buenger had followed GAAS, by testing Keystone's interest income for 1998 by reviewing the remittance records of interest income for 1998, it is more likely than not she would have discovered the loan inventory fraud in March, 1999, reported it to Keystone's board, Keystone's president Owen Carney, and the OCC, and Keystone would have been closed by March 30, 1999. Budnick, May 18, 2004, Tr. at 122; Buenger, June 2, 2004, Tr. at 79-80; Carney, May 19, 2004, Tr. at 101; Carmichael, May 24, 2004, Tr. at 31, 41-42; Carmichael, May 25, 2004, Tr. at 30-31; Gibson, May 20, 2004, Tr. at 34-37; Johnson, May 17, 2004, Tr. at 138-44, 148, 184-87; Potter, May 27, 2004, Tr. at 13; Quay, June 3, 2004, Tr. at 167-68; C. Wilson, May 17, 2004, Tr. at 240; FDIC Exs. 408, 548.
V. Grant Thornton's Failure to Properly Prepare for the Confirmation Process
41. Keystone's December 31, 1998 financial statements represented Keystone owned loans held for sale and loans receivable of approximately $579 million. FDIC Ex. 291 at 4. Approximately $548 million of the $579 million was ostensibly located at large loan servicing organizations. The loans serviced by Compu-Link and Advanta were recorded at $469.7 million, but this amount was fraudulently overstated by $431.8 million. Of this amount, $236 million in loans being serviced by Advanta were recorded as assets on Keystone's books, when in fact the loans were owned by United National Bank ("United"). The $236 million were loans that United was to have sold to Keystone for inclusion in the December 1998 securitization that Keystone abruptly cancelled. Carmichael, May 24, 2004, Tr. at 41; Hale Depo., August 27, 2002, 51-55, 138-39, 155-59 (FDIC Ex. 889); J. Wilson, May 21, 2004, Tr. at 23-27.
42. The confirmation process was primary and critical to the Keystone audit. *688 Buenger, June 2, 2004, Tr. at 131-32; Carmichael, May 24, 2004, Tr. at 46-47. Buenger was tasked with doing the confirmations. Buenger, June 2, 2004, Tr. at 6-23.
43. Professional skepticism is important in performing confirmation procedures, and evaluating the results of the confirmation procedures. Buenger, June 2, 2004, Tr. at 132; Carmichael, May 24, 2004, Tr, at 48; FDIC Exs. 439, 483 (AU 330.15).
44. Buenger had never worked on an audit of a bank involved in the securitization business before Keystone; she had no experience regarding the securitization business. Buenger, June 2, 2004, Tr. at 133-34.
45. The auditor's understanding of the client's arrangements and transactions with third parties is key to determining the information to be confirmed. The auditor should obtain an understanding of the substance of such arrangements and transactions to determine the appropriate information to include in the confirmation request. Buenger, June 2, 2004, Tr. at 134-35; Carmichael, May 24, 2004, Tr. at 54-55; FDIC Ex. 439 (AU 330.25); FDIC Ex. 483 (AU 330.15).
46. An understanding of the substance of the client's arrangements and transactions with third parties is an important factor in determining the information to be confirmed. Buenger, June 2, 2004, Tr. at 135; FDIC Ex. 436 at 133.
47. Buenger violated GAAS, including AU 330.25, by failing to obtain an adequate understanding of Keystone's arrangements and transactions with United, Compu-Link and Advanta. Carmichael, May 24, 2004, Tr. at 47-48, 52-56; Carmichael, May 25, 2004, Tr. at 18-21. Indeed, Buenger testified that she had no idea Keystone had a relationship with United. Buenger, June 2, 2004, Tr. at 135. Buenger did not investigate the details of that relationship, nor did she review or ask to review the written agreements between United and Keystone. Buenger knew little or nothing of the details concerning the Bank's relationship with United. Buenger, June 2, 2004, Tr. at 135-40.
VI. Grant Thornton Failed to Confirm $85 Million in Loans that Were Allegedly in Transit
48. In order to conduct the audit in accordance with GAAS, Grant Thornton was required to confirm Keystone's loans in the manner prescribed by GAAS. Confirmation is the' process of obtaining and evaluating a direct communication from a third party in response to a request for financial information about a particular item affecting financial statement assertions. Goldman, June 9, 2004, Tr. at 52-53. The confirmation response must come to the auditor directly from the third party, and must be in response to the auditor's confirmation request. Goldman, June 9, 2004, Tr. at 53-54.
49. According to Keystone's books, as of December 31, 1998, and the lead sheet of supposed Keystone-owned loans that Buenger was trying to confirm, the Bank owned $85 million in loans that were being serviced by Compu-Link, but were transferred' to Advanta for servicing effective January 15, 1999. These loans were in fact non-existent. Neither Advanta nor Compu-Link ever confirmed to Buenger that the 5 million in loans existed, that the loans were owned by Keystone, or that servicing of the loans was transferred from Compu-Link to Advanta. Buenger did nothing to investigate this discrepancy, but improperly relied upon the dubious remittance statement that was given to her with the Forrest Krumm letter, discussed above. Buenger, June 2, 2004, Tr. at 66-67, 141-44; Quay, June 3, 2004, Tr. at 127-32; FDIC Ex. 500. Buenger failed to confirm the $85 million in loans in according *689 with GAAS. Goldman, June 9, 2004, Tr. at 52-57.
VII. Grant Thornton's Failure with Respect To the Advanta Confirmation
50. The first confirmation response from Advanta was received by Grant Thornton on or about January 24, 1999, and went into a folder in the confirmation drawer in Grant Thornton's Cincinnati office. That confirmation showed only $6 million' in loans owned by Keystone were being serviced by Advanta, rather than the $242 million in loans Keystone was reporting. Burke Depo., December 13, 2002, 16-21, 34-36, 129-30 (FDIC Ex. 898); Gunter Depo., December 20, 2002, 260-64 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at, 58-61; French Depo, November 19, 2002, 85-86 (FDIC Ex. 907); Ramirez Depo., September 26, 2002, 165-71, 197-98 (FDIC Ex. 896); FDIC Exs. 175, 176, 177, 255, 500.
51. Buenger did not know she had the first January confirmation, response in the confirmation drawer, and on March 15, 1999, she asked Advanta to send another confirmation. Carmichael, May 24, 2004, Tr., at 61-62; FDIC Exs. 255, 500. On March 17, 1999, Buenger received another confirmation response from Advanta, which again showed only $6 million in loans owned by Keystone being serviced by Advanta. Burke Depo., December 13, 2002, 20-25, 32-36, 129-40 (FDIC Ex. 899); Gunter Depo., December 20, 2002, 260-64 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 61-62; FDIC Exs. 169, 176, 177, 257, 500.
52. Both Advanta confirmation responses identified Keystone as Investor 405. FDIC Exs. 176, 177, 500. Buenger never made any inquiry about what the investor numbers meant. She was not aware of the significance of the investor numbers. Buenger, June 2, 2004, Tr. at 66.
53. The "investor" is the owner. Buenger, June 2, 2004, Tr. at 152; Carmichael, May 24, 2004, Tr. at 63; Johnson, May 17, 2004, Tr. at 180. The number following "investor" identifies the owner of the loans. Investor 405 was Keystone and Investor 406 was United. Ramirez Depo., September 26, 2002, 141-42 (FDIC Ex. 896).
54. The independent auditor should be thorough in his or her search' for evidential matter and unbiased in its evaluation. FDIC Ex. 480 (AU 326.25). A thorough and skeptical auditor would have determined what the investor numbers meant. Carmichael, May 25, 2004, Tr. at 65-66.
55. There was a $236 million discrepancy between the amount of Keystone-owned loans Advanta confirmed it was servicing in its two confirmation responses and what Keystone's books said. Carmichael, May 24, 2004, Tr. at 61; French Depo., November 19, 2002, 87-92 (FDIC Ex. 907); FDIC Exs, 176, 177, 235, 379, 500.
56. Buenger reviewed the second Advanta confirmation "response on or about March 17, 1999. Buenger, June 2, 2004, Tr. at 155; FDIC Exs. 169, 176, 177, 500. Buenger did not notify Keystone's management, the OCC, or even. Quay of the $236 million discrepancy. Buenger testified it kind of got put on the "backburner." Buenger, June 2, 2004, Tr. at 155-57; Goldman, June 9, 2004, Tr. at 58; Carmichael, May 24, 2004, Tr. at 61-62.
57. Buenger can't tell what she was doing during the 91 hours she billed to Keystone during the last two weeks of March, 1999 that was more important than resolving the $236 million discrepancy issue with Advanta. Buenger, June 2, 2004, Tr. at 156-57; FDIC Ex. 210.
58. Buenger's failure to pursue the $236 million discrepancy was a violation of GAAS. If Buenger had followed GAAS and *690 promptly investigated the $236 million discrepancy, she would have discovered the fraud, which would have led to the closure of the Bank. Budnick, May 18, 2004, Tr. at 122, 138-39, 145-46; Carmichael, May 24, 2004, Tr. at 30-31, 41-42, 66-69; Carmichael, May 25, 2004, Tr. at 30-31; Gibson, May 20, 2004, Tr. at 35-37, 59; Johnson, May 17, 2004, Tr. at. 148; Kaufman, May 18, 2004, Tr. at 205-07; C. Wilson, May 17, 2004, Tr. a 240. Buenger's evaluation and investigation of the Advanta confirmation response demonstrated a lack of professional skepticism and due care. Her actions were an extreme departure from GAAS. Carmichael, May 24, 2004, Tr. at 68-69.
59. Quay saw and initialed the Advanta confirmation response on March 23, 1999. Quay, June 3, 2004, Tr. at 133-34; FDIC Exs. 169, 176, 177, 500.
60. On April 7, 1999, Buenger called Patricia Ramirez, the Investor Reporting Manager for Advanta, and talked with her for three minutes. The word "United" was not used during the Buenger-Ramirez conversation. Buenger, June 2, 2004, Tr. at 67; Gunter Depo., December 20, 2002, 269-74 (FDIC Ex. 913); Ramirez Depo., September 26, 2002, 182-83 (FDIC Ex. 896); FDIC Ex. 282.
61. On April 7, 1999, one minute after the phone call between Buenger and Ramirez concluded, Ramirez sent an e-mail to Buenger reflecting that United, Investor No. 406, owned $236 million in loans being serviced by Advanta. The e-mail does not reflect that the $236 million in loans are owned by Keystone. Gunter Depo., December 20, 2002, 269-74, 294-95 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 70; FDIC Exs. 169, 500. There is nothing in Keystone's records reflecting that Keystone owned loans under Investor No. 406, or under the name United National Bank, and there is nothing in the e-mail reflecting the $236 million in loans are owned by Keystone. Goldman, June 9, 2004, Tr. at 59-61.
62. All of the documentary information provided by Advanta to Grant Thornton was true and accurate. Buenger, June 2, 2004, Tr. at 162; Carmichael, May 25, 2004, Tr. at 144-45; Goldman, June 9, 2004, Tr. at 75; Johnson, May 17, 2004, Tr. at 179-81; C. Wilson, May 18, 2004, Tr. at 62-63. That information showed that United, not Keystone, owned the $236 million in loans, and the inevitable conclusion from that is that Keystone's financial statements were materially misstated as a result of fraud. Carmichael, May 24, 2004, Tr. at 72-73; Johnson, May 17, 2004, Tr. at 121-26; FDIC Exs. 169, 178, 379, 500.
63. Buenger violated GAAS by failing to carefully evaluate and investigate the Advanta confirmation responses especially the e-mail from Ramirez. If Buenger had followed GAAS, she would have found the fraud on April 7, 1999, and the Bank would have been closed in April, 1999. Budnick, May 18, 2004, Tr. at 122; Carney, May 19, 2004, Tr. at 101; Carmichael, May 24, 2004, Tr. at 30-31, 79; Carmichael, May 25, 2004, Tr. at 30-31; Gibson, May 20, 2004, Tr. at 34-37; Johnson, May 17, 2004, Tr. at 148; C. Wilson, May 17, 2004, Tr. at 240.
64. To comply with GAAS's requirements of professional skepticism, Buenger should have called Ramirez back after receipt of the e-mail to determine why the email reflected that the loans were owned by United and requested that Ramirez confirm in writing that the $236 million in loans were owned by Keystone. Carmichael, May 24, 2004, Tr. at 70-71, 75-76; Carmichael, May 25, 2004, Tr. at 21-22; Quay, June 3, 2004, Tr. at 135-39. Buenger failed to take either step; in fact, she never spoke with Ramirez again after receipt of the e-mail. Buenger, June 2, 2004, *691 Tr. at 66-69; Goldman, June 9, 2004 Tr. at 62.
65. In any event, the court does not believe Buenger's testimony about the telephone call with Ramirez for the following reasons. First and most importantly, the physical evidence, i.e., the email, contradicts Buenger's account of the phone call. According to Buenger, Ramirez told her "[t]hese belonged to Keystone at 12/31/98." Buenger, June 2, 2004, Tr. at 28. However; one minute later, Ramirez sent Buenger an email which stated:
"Below is the information requested from investor 406 as of 12/31/98. Investor number 406, investor name United National Bank, number of loans, 6,283, month end balances $236,221,923.07."
FDIC Exs. 754, 777. Ramirez's email is completely at odds with the statements Buenger attributes to her. For this reason alone, Buenger's testimony on this point is not credible.
66. Second, Joey Johnson, an OCC examiner, testified that, on August 25, 1999, he and other OCC examiners met with Grant Thornton to apprise them of the OCC's discovery of major discrepancies in the loan balances serviced by Compu-Link and Advanta. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. At that meeting, Stan Quay told the OCC they had confirmed those balances for the year ended 1998 and they all reconciled. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Thereafter, Grant Thornton retrieved copies of the confirmations and the confirmation requests from their Cincinnati office. Johnson, May 17, 2004, Tr. at 112; FDIC Exs. 379, 754, 755. According to Johnson, the examiners questioned Buenger about why she added the $236 million owned by United to the $6 million owned by Keystone. Johnson, May 17, 2004, Tr. at 125; FDIC Ex. 379. Buenger stated that code 406 loans were under a "bad name" and should have been included in the confirmed loans. Johnson, May. 17, 2004, Tr. at 126; FDIC Ex. 379. Buenger did not tell the OCC that Ramirez had told her that the United loans were Keystone loans. Johnson, May 17, 2004, Tr. at 126. Nor did she offer FDIC Exhibit 281, her handwritten note of what Ramirez purportedly told her, to the OCC. Indeed, Grant Thornton never offered Exhibit 281 to the OCC while the. Bank was still open.. Johnson, May 17, 2004, Tr. at 127-28. The court found Johnson to be completely credible. Furthermore, the failure of Grant Thornton to produce Exhibit 281 to the OCC undermines Buenger's credibility regarding what Ramirez supposedly told her.
67. Third, during her testimony, Ramirez was clear that she was absolutely certain regarding ownership of the loans wider investor codes 405 and 406. Putting aside the purportedly speculative testimony, Ramirez testified that she had never been confused retarding the ownership of the loans. Ramirez Depo., September 26, 2002, 143 (FDIC Ex. 896). The court found Ramirez to be a totally credible witness. Indeed, her credibility was strengthened by her candor in explaining that she didn't have a specific recollection of her conversation with Buenger.
68. Fourth, as to certain points, Buenger's testimony regarding scrutiny of her confirmation process during the last week of the Bank's existence and what she did was contradicted by Michael Gibson and Gary Ellis, both of whom the court found to be completely credible.
69. Finally, the demeanor of Buenger on the witness stand, when taken together with her interests in the case, leads the court to believe she was not entirely truthful.
70. During the trial, Grant Thornton filed a motion to exclude the speculative testimony of Patricia Ramirez. By Order entered September 29, 2005, that motion *692 was denied. The court's findings regarding the phone call between Buenger and Ramirez do not depend on the purportedly speculative testimony. However, for the following reasons, the court denied the motion to exclude it.
71. Ramirez testified via video deposition. The disputed portion of her testimony concerns a conversation she had with Susan Buenger on April 7, 1999. Buenger testified that Ramirez told her "[the United loans] belonged to Keystone at 12/31/98. Buenger, June 2, 2004, Tr. at 28. Ramirez testified that, although she has no specific recollection of the conversation with Buenger, she never would have made the remarks Buenger has attributed to her.
72. At the outset, the court notes that much of the deposition testimony that Grant Thornton argues is speculative is not, in fact, speculative. See e.g., Ramirez Depo., September 26, 2002, 186 (FDIC Ex. 896) (Q: Is there any possibility that you told Susan Buenger that the United loans were actually Keystone loans? A: No. Q: How do you know? A: Because I know who owned the loans. 405 did not belong to 406.). To borrow the FDIC's analogy, someone might ask me whether I have ever introduced myself as Abraham Lincoln and, although I cannot recall the details of every conversation I have ever had, I could answer that question under oath in the negative without speculating.
73. As to the speculative testimony, Federal Rule of Evidence 406 provides:
Evidence of the habit of a person or of the routine practice of an organization, whether corroborated or not and regardless of the presence of eyewitnesses, is relevant to prove that the conduct of the person or organization on a particular occasion was in conformity with the habit or routine practice.
74. According to the Fourth Circuit, in determining whether examples of specific conduct of a party are numerous enough and sufficiently regular to be admissible as evidence of a pattern of conduct or habit, the key criteria are adequacy of sampling and uniformity of response or ratio of reactions to situations. Wilson v. Volkswagen of America, Inc., 561 F.2d 494, 511 (4th Cir.1977).
75. The evidence in this case showed that Advanta was in the business of servicing loans. Investor reporting and responding to confirmation requests were so commonplace that Advanta had an entire department dedicated to those tasks, and Patricia Ramirez was the manager of that department. At the time period in question, Daniel Burke worked in the investor reporting department at Advanta and had primary responsibility for Keystone's loans. Burke testified that when a confirmation request was received, "you'd pull the file, get the information, give it to the supervisor or manager to verify and then send it to them." Burke Depo., December 13, 2002, 9 (FDIC Ex. 898). Burke further testified that the supervisor reviewed the information before it was sent to the requesting party to make sure the information was correct. Burke Depo., December 13, 2002, 17 (FDIC Ex. 898). He testified that Advanta responded to confirmation requests from auditors "numerous times." Burke Depo., December 13, 2002, 17 (FDIC Ex. 898). He responded to two confirmation requests from Grant Thornton regarding Keystone's loans, one in January of 1999 and the other in March of 1999. Both of these responses were correct, indicating that Advanta was servicing approximately $6 million dollars worth of loans on Keystone's behalf. Burke testified that in the four or five years he worked with Ramirez she never confused one investor with another investor. Burke Depo., December 13, 2002, 28-29 (FDIC Ex. 899). Ramirez herself testified that she had never made a mistake concerning *693 investor numbers. Ramirez Depo., September 26, 2002, 189 (FDIC Ex. 896); see also Romero Depo., September 25, 2002, 109-10 (FDIC Ex. 905) ("[T]here's no doubt in our minds, the investor number is such an integral part of how we . . . service loans, it's the thing that drives where payments go, where remittances go. There's no question of that ever being inaccurate.").
76. Ramirez' unequivocal testimony was that the loans boarded in Investor No. 406 belonged to United National Bank.
Q: And as of December 16, 1998, who did you understand to own the loans boarded in Investor No. 406?
A: United National Bank.
Q: And, to whom did you authorize information access for Investor No. 406?
A: United National Bank.
Q: Now, do you recall ever becoming confused about who owned the loans in Investor No. 406?
A: No.
Q: Do you ever recall having any doubt that it was United National Bank that owned the loans in Investor No. 406?
A: >No.
* * *
Q: Please
A: That's who we reported and remitted to.
Q: And the reporting and remitting you did to United National Bank was something you did as part of your job?
A: Correct.
Q: How familiar are you with investor numbers.
A: Very familiar. Everything runs off of investor numbers.
Ramirez Depo., September 26, 2002, 142-43 (FDIC Ex. 896). Her responses in this regard were not speculative. Ramirez further testified that, in sending the email, she specifically "felt like I had to make sure that I identified the information being provided was not Keystone's but was United's." Ramirez Depo., September 26, 2002, 175 (FDIC Ex. 896).
77. Upon further questioning, Ramirez testified:
Q: Now, if Ms. Buenger had asked you, if she said, "I'm looking for 244 million in loans that Advanta is servicing on behalf of Keystone," what would you have said?
A: I would have told her what the total amount of loans were being serviced for Keystone did not equal what she was looking for.
Q: If she said, "Hey, I think what I should do is add up Investor 405 and 406," what would you say?
A: I would have said that would have been incorrect.
Q: If she gave you any indication that she intended to sum the unpaid principal balance in Investor Nos. 405 and 406 to arrive at the loans serviced by Advanta on behalf of Keystone, what would you have said?.
A: Is would have told her it was wrong.
Q: If she had hit the reply button on the e-mail and said to you, "What the heck is United," in response to your e-mail, "Tell me what United is and why you're sending me United when I'm trying to confirm Keystone loans," what would you have written back in response to that reply?
A: I would have said that Investor 406 or United National Bank was *694 the owner of the loans in Investor 406.
Ramirez Depo., September 26, 2002, 179-80 (FDIC Ex. 896). The court believes that the foregoing testimony is admissible under F.R.E. 406 for the reasons cited above. However, out of an abundance of caution, the court has disregarded this and any other arguably speculative testimony by Ramirez in making its findings and conclusions.
78. The Court finds that Ramirez did not state to Buenger that "the loans coded under the United name actually belonged to Keystone as of December 31, 1998," as reflected in Buenger's handwritten note. Buenger, June 2, 2004, Tr. at Gunter Depo., December 20, 2002, 269-74 (FDIC Ex. 913); Carmichael, May 24, 2004, Tr. at 69-70; Ramirez Depo., September 26, 2002, 143-45; 179-80, 185-89, 192-93, 196, 198-200, 222, 247-49 (FDIC Ex. 896). Ramirez clearly knew that United owned the $236 million in loans, as she worked with United with respect to the loans on a regular basis, repeatedly provided United with documentation of its ownership of the loans and never demonstrated any confusion about who owned the loans. Ramirez Depo., September 26, 2002, 143-45; 179-80, 185-89, 192-93, 196, 198-200, 222, 247-49 (FDIC Ex. 896); J. Wilson, May 21, 2004, Tr. at 27. Moreover, if Ramirez had made such a statement, GAAS would require that Buenger obtain written confirmation of such a significant fact, in order to avoid a swearing match over what was said. Carmichael, May 24, 2004, Tr. at 71-73, 81-82; Goldman, June 9, 2004, Tr. at 69, 72-73. The auditing standards require an auditor to obtain the best evidence they can within the time constraints and money constraints set on them. Goldman, June 9, 2004, Tr. at 71. A written confirmation is the highest form of evidential matter an auditor can receive. Goldman, June 9, 2004, Tr. at 71. There were no time or money constraints that would prevent Buenger from obtaining the best evidence a written confirmation from Ramirez that Keystone owned the loans. Goldman, June 9, 2004, Tr. at 72-73. Oral confirmations should be documented in the workpapers. If the information in the oral confirmation is significant, the auditor should request the parties involved to submit written confirmation of the specific information directly to the auditor, As previously stated, Buenger failed to obtain any such written confirmation. Carmichael, May 24, 2004, Tr. at 71-73, 81-82; Goldman, June 9, 2004, Tr. at 54-55; FDIC Ex. 439 (AU 330.29).
79. The $236 million exception was a significant auditing question, but Quay was not involved in evaluating its significance. Carmichael, May 24, 2004, Tr. at 77-78.
80. The auditor with final responsibility for the audit should direct assistants to bring to his attention significant accounting and auditing questions raised during the audit so that he may assess their significance. GT Ex. 267 (AU 311.12). Quay violated GAAS by failing to supervise or participate in the evaluation of the Advanta confirmation responses. Carmichael, May 24, 2004, Tr. at 56-58, 77-79; FDIC Exs. 709, 710.
VIII. Grant Thornton Issues its Audit Report
81. On March 24 and 25, 1999, Quay presented several members and prospective members of Keystone's board and Keystone's shareholders with draft copies of Keystone's December 31, 1998 financial statements and told them that Keystone was going to get a clean opinion on its financial statements. Budnick, May 18, 2004, Tr. at 122-30; G. Ellis, May 22, 2004, Tr. at 13-14, 46; Gibson, May 20, 2004, Tr. at 54-56; Kaufman, May 18, 2004, Tr. at 198-99, 219-20; Quay, June 4, 2004, Tr. at 74-77, 84-85; FDIC Exs, 263, 882. At the shareholders meeting the next day, Quay *695 also distributed copies of Keystone's financial statements. G. Ellis, May 22, 2004, Tr. at 14-15; Kaufman, May 18, 2004, Tr. at 199-200; Quay, June 4, 2004, Tr. at 78-79, 106-09; FDIC Ex. 172. Neither Quay nor Buenger made any disclosure to the Board or shareholders of the $236 million discrepancy that Buenger had discovered. Budnick, May 18, 2004, Tr. at 128-29; Carmichael, May 24, 2004, Tr. at 64; Quay, June 4, 2004, Tr. at 78, 80. Quay violated GAAS by making statements to Keystone's directors, prospective directors, and officers that Keystone was going to receive a "clean opinion" on its financial statements when he had no reasonable basis for making such statements. Carmichael, May 25, 2004, Tr. at 27-28, 175.
82. On April 19, 1999, `Grant Thornton issued and delivered to Keystone's board its audit report stating that Keystone's financial statements were fairly stated in accordance with GAAP, and reflecting a shareholder's equity of $184 Million. Bud nick, May 18, 2004, Tr. at 131-33; G. Ellis, May 22, 2004, Tr. at 23-24, 48-50; Ellis Ex. 4; FDIC Exs. 291, 621. In fact, Keystone was insolvent as of year-end, 1998. Carmichael, May 24, 2004, Tr. at 41. The audited financial statements provided by Quay to the board on April 19, 1999, were substantially the same as the financial statements Quay had provided board members and shareholders in March, 1999. Budnick, May 18, 2004, Tr. at 136-37; Kaufman, May 18, 2004, Tr. at 203-05; FDIC Exs. 291, 296. Grant Thornton's audit report violated GAAS by offering a "clean opinion" on Keystone's financial statements without having adequate evidence to support that opinion and having substantial evidence that contradicted the opinion. Carmichael, May 24, 2004; Tr. at 75; Carmichael, May 25, 2004, Tr. at 28-30.
83. Because Keystone's financial statements reflected ownership of more than $500 million in loans that were not in fact owned by Keystone, the financial statements were materially misstated. Quay, June 4, 2004, Tr. at 88.
84. Grant Thornton represented to Keystone's board that it had encountered no significant difficulties in performing the year-end, 1998 audit. FDIC Ex. 296.
85. Keystone's board of directors and Gary Ellis reasonably relied on Grant Thornton's report. The report led Keystone's board to believe that the Bank was in good financial condition. Based on Grant Thornton's report, Keystone's board continued to declare dividends and operate the Bank. If Grant Thornton had exercised due professional care in connection with its audit, the fraud-would have been discovered. If Grant Thornton had disclosed to Keystone's board or the OCC the fact that Keystone was carrying over $400 million in loans on its books that were not owned by Keystone, the Bank would have been closed by April 21, 1999. Budnick, May 18, 2004, Tr. at 42, 138-39, 145-46; G. Ellis, May 22, 2004, Tr. at 55; Gibson, May 20, 2004, Tr. at 35-37, 59; Johnson, May 17, 2004, Tr. at 148; Kaufman, May 18, 2004, Tr. at 205-07; Potter, May 27, 2004, Tr. at 14;, Quay, June 4, 2004, Tr. at 74-76; C. Wilson, May 17, 2004, Tr. at 240; `FDIC Ex. 341.
IX. Gary Ellis Becomes President of Keystone
86. In 1984, Gary Ellis was President of, the Bank of Dunbar. The Bank of Dunbar was later merged into United Bank at which time Ellis joined the management team at United, eventually becoming its President. J. Wilson, May 21, 2004, Tr. at 44-46.
87. From the, time of the merger with the Bank of Dunbar until the time Ellis left United, United more than doubled in size. Ellis was instrumental in the growth *696 of United. J. Wilson, May 21, 2004, Tr. at 47.
88. In 1998, United National Bank merged with George Mason Bankshares of Virginia. G. Ellis, May 22, 2004, Tr. at 9. In the spring of 1999, following the merger, Ellis voluntarily began looking for employment outside United. G. Ellis, May 22, 2004, Tr. at 10. Ellis had dealt with Keystone in the past, and on March 19, 1999, Billie Cherry, Chairman of Keystone's board, invited Ellis to attend Keystone's annual shareholders meeting on March 25, 1999. G. Ellis, May 22, 2004, Tr. at 10-13. During that call, Cherry suggested that Ellis should consider becoming president of Keystone. G. Ellis, May 22, 2004, Tr. at 10-13.
89. Ellis was not fired or told to leave United, had no deadline for leaving United, and could have remained at United rather than leaving for the Keystone position. G. Ellis, May 22, 2004, Tr. at 9-10.
90. In late March 1999, Ellis `Visited Keystone and discussed with Keystone directors Gibson, Budnick, Kaufman and Church his potential employment as president of the Bank. Gibson received "pretty glowing recommendations" about Ellis. Gibson, May 20, 2004, Tr. at 85. Ellis received a rolling two-year contract at $375,000 per year with benefits. G. Ellis, May 22, 2004, Tr. at 33-36; Gibson, May 20, 2004, Tr. at 90. The contract discussions included compensation for board meetings and committee meetings. G. Ellis, May 22, 2004, Tr. at 34; Gibson, May 20, 2004, Tr. at 90. The total value of the final contract between Ellis and Keystone was approximately $460,000 to $470,000 per year. L. Ellis, May 26, 2004, Tr. at 16, 21; Ellis Ex. 9.
91. Doing his due diligence before accepting a position, Ellis attended Keystone's board meeting on March 24 and annual shareholders meeting on March 25, 1999. G. Ellis, May 22, 2004, Tr. at 13-18; Gipson, May 20, 2004, Tr. at 82-82; FDIC Ex. 263. At both meetings, Quay passed out copies of the financial statements Grant Thornton was auditing for Keystone. G. Ellis, May 22, 2004, Tr. at 14-15. Quay also told Ellis and other members of the board that Grant Thornton was going to give Keystone a clean audit opinion for 1998. Budnick, May 18, 2004, Tr. at 122-30; G. Ellis, May 22, 2004, Tr. at 46; Gibson, May 20, 2004, Tr. at 54-56; Kaufman, May 18, 2004, Tr. at 198-99, 219-20.
92. Ellis visited Keystone again, on or about March 30, and Quay offered similar assurances at that time. G. Ellis, May 22, 2004, Tr. at 16-17.
93. Ellis relied on the financial statements Quay gave him, and Quay's oral representations to Ellis and others that Keystone was going to get a clean audit opinion. G. Ellis, May 22, 2004, Tr. at 15-16, 55. On April 2, 1999, Ellis met with his attorneys to draft a proposed employment agreement with Keystone. G. Ellis, May 22, 2004, Tr. at 18. During the first two weeks of April 1999, Ellis met with Church and Cherry regarding their expectations for him. G. Ellis, May 22, 2004, Tr. at 20. It was decided that Ellis would be responsible for the "banking" business at Keystone as opposed to the mortgage loan securitizations. G. Ellis, May 22, 2004, Tr. at 20; Ellis Ex. 9.
94. On April 19, 1999, at a Keystone board meeting, Ellis reviewed Grant Thornton's final audit report on Keystone for 1998, and that report showed that Grant Thornton gave Keystone a clean opinion. G. Ellis, May 22, 2004, Tr. at 23-27; Ellis Ex. 4. The Board voted to approve Ellis' hiring as president of Keystone, subject to the signing of a contract and approval by the OCC. G. Ellis, May 22, 2004, Tr. at 28-29. Ellis resigned from United by letter dated April 20, 1999. G. *697 Ellis, May 22, 2004, Tr. at 92-93; Ellis Ex. 7.
95. Ellis' employment contract was signed on April 26, 1999. G. Ellis, May 22, 2004, Tr. at 29.
96. Quay intended and knew that Ellis would rely on his statements, and Ellis did, in fact, rely on them. Quay, June 4, 2004, Tr. at 74-88; G. Ellis, May 22, 2004, Tr. at 15-16, 55; Ellis Ex. 4.
X. The OCC Discovers the Fraud and the Bank is Closed
97. In 1999, an examination of . . . Keystone was conducted by a team of OCC examiners. Johnson, May 17, 2004, Tr. at 102-03; C. Wilson, May 1'7, 2004, Tr. at 193. The examination began on site in late June/early July of 1999. Johnson, May 17, 2004, Tr. at 103; C. Wilson; May 17, 2004, Tr. at 193. Members of the exam team included Joey Johnson, Cindy Wilson, and Mark Blair. Johnson, May 17, 2004, Tr. at 102-03; C. Wilson, May 17, 2004, Tr. at 193. Blair was the examiner in charge of the examination. C. Wilson, May 17, 2004, Tr. at 193.
98. Throughout the examination, the bank examiners had difficulty obtaining accurate records from the services. Johnson, May 17, 2004, Tr. at 105. They were informed in, late July or early August by Church and Ellis that the Bank did not want the examiners to contact the services directly. C. Wilson, May 18, 2004, Tr. at 21; FDIC Ex. 353.
99. Church and Graham made several efforts to have Advanta and Compu-Link respond to the OCC with information on loans owned by United as well as Keystone, in order to keep the fraud concealed. Romero. Depo., September 25, 2002, 266-87 (FDIC Ex. 905); C. Wilson, May 17, 2004, Tr. at 217-23; FDIC Exs. 365, 367, 369, 373, 374, 413.
100. On August 5, 1999, examiners met with Church, Graham, and Cherry and indicated they wanted to contact the services directly to obtain accurate information. C. Wilson, May 18, 2004, Tr. at 22, 213; FDIC Ex. 354. Church, "Graham, and Cherry became irate and insisted that such contacts would damage the Bank's reputation. C. Wilson, May 18, 2004, Tr. at 22, 213-15.
101. In, early August, bank examiners learned that Keystone had the ability to manipulate servicer data and servicer reports that, while appearing to come directly from the servicers, were actually prepared by the Bank. C. Wilson, May 18, 2004, Tr. at 42-44; Blair, June 4, 2004, Tr. at 164-65. As a result, examiners sent by registered or certified mail, on August 6, 1999, requests directly to Compu-Link and Advanta for information on Keystone loans. C. Wilson, May 17, 2004, Tr. at 215-17; C. Wilson, May. 18, 2004, Tr. at 45; FDIC Exs. 350, 351.
102. On Monday, August 23, 1999, the examiners, incident to their examination of the Bank, contacted the Bank's loan servicers by phone to determine the balances of loans actually owned by Keystone. Johnson, May 17, 2004, Tr. at 106-07; C. Wilson, May 17, 2004, Tr. at 224-25; FDIC Exs. 369, 408. During that week, Joey Johnson spoke by telephone with Beverly Reck, an employee of Compu-Link, one of the servicers, and was told by Reck that Compu-Link was boarding $31 million in Keystone Loans. Johnson, May 17, 2004, Tr. at 106; FDIC Ex. 408.
103. Blair and Wilson contacted Advanta and learned that Advanta was only servicing approximately $6 million in Keystone loans, far less than the approximately $242 million that Keystone was reporting. C. Wilson, May 17, 2004, Tr. at 233; Johnson, May 17, 2004, Tr. at 122-26; FDIC Exs. 408, 413, 379.
104. These contacts with, Compu-Link and Advanta led the examiners to quickly *698 conclude that the Bank's books overstated loans it owned by approximately $515 million. C. Wilson, May 17, 2004, Tr. at 230.
105. On Wednesday, August 25, 1999, Blair, SS Analyst Kathy Gerardy and Johnson met with Ellis and Quay to obtain an explanation for the discrepancy between the servicers' records and the Bank's records. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Church joined the meeting after it began. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Church and Quay were informed that the examiners' direct contacts with the servicers indicated the Bank was reporting over $500 million in loans boarded at the two servicers that were not shown on the servicers' records. Johnson, May 17, 2004, Tr. at 112; FDIC Ex. 379. Church insisted the Bank owned the $500 million of loans in question and stated she had no idea why the records showed a difference. FDIC Ex. 379. Quay repeatedly asserted that the numbers had been reconciled and confirmed by Grant Thornton auditors at year-end 1998. Johnson, May 17, 2004, Tr. at 117; FDIC Ex. 379. The examiners told Quay and Church that the Bank would have to provide proof that it owned the entire balance of loans it claimed. FDIC Ex. 379.
106. Quay left the meeting and told Buenger to have the confirmations faxed to the Bank, which Buenger did. Buenger, June 2, 2004, Tr. at 162-64. Buenger called Dale Schaffer in Grant Thornton's Cincinnati office, and told him to fax the servicer confirmation workpapers to her. Buenger, June 2, 2004, Tr. at 164-65. She reviewed the fax to make sure Schaffer had sent her what she wanted. Buenger, June 2, 2004, Tr. at 167.
107. Quay and Buenger represented to the OCC that the fax contained the confirmations Buenger received in connection with her audit fieldwork. Buenger, June 2, 2004, Tr. at 167-68; Johnson, May 17, 2004, Tr. at 117-19.
108. Later, Quay provided copies of confirmation requests that were prepared and signed by Church and printed on Bank letterhead, but mailed from Grant Thornton's office. Johnson, May 17, 2004, Tr. at 117-19; FDIC Exs. 379, 754, 755.
109. The Advanta confirmation was initialed "S.B. 3/17/99" and "S.J.Q. 3/23/29." FDIC Ex. 754. The initials were identified as those of Susan Buenger and Stanley Quay. The response from Advanta showed an ending balance as of 12/31/98 of $6,342,110.34 for investor number 405, Keystone Bank, and a balance of $236,221,923.07 for investor number 406, United National Bank. FDIC Ex. 754. The two numbers had been added together by Buenger in a handwritten notation at the bottom of the response to produce a total of $242,564,033.41. FDIC Ex. 754. Johnson described this as a "forced reconciliation" to arrive at the total the Bank was reporting for Advanta-serviced loans the Bank owned with no basis to support adding the two numbers together. Johnson, May 17, 2004, Tr. at 124-25.
110. On or about August 25, 1999, Buenger was asked by the examiners to explain why she had added together the two numbers provided by Advanta in its response to the confirmation request. Johnson, May 17, 2004, Tr. at 125, 137-38; FDIC Ex. 379. Buenger stated that the loans coded 406 were under a "bad name" and should have been included in the total of loans owned by Keystone. Johnson, May 17, 2004, Tr. at 126, 138; FDIC Ex. 379. At that time, Buenger did not provide any evidence that she did anything further to verify the Bank's claim that it owned all the loans. Johnson, May 17, 2004, Tr. at 126-28, 138. She did not assert at that time, as she did later, that Patricia Ramirez of Advanta had told her *699 the loans coded as United Loans were actually owned by Keystone, nor did she offer, or refer to, a handwritten note produced later that read: "Per discussion with Patricia Ramirez at (619) 674-3876, the loans coded under the `United' name actually belonged to Keystone as of December 31, 1998." Johnson, May 17, 2004, Tr. at 126. Buenger admitted the note was important evidence of her confirmation work. Buenger, June 2, 2004, Tr. at 169. The documents in the fax Buenger gave to the OCC show that Keystone owned $6 million in loans and that United owned $236 million in loans being serviced by Advanta. FDIC Exs. 408, 754.
111. The only written confirmations Grant Thornton ever received with regard to the loans serviced by Advanta showed that $236 million of the loans carried on Keystone's books were actually owned by United. Johnson, May 17, 2004, Tr. at 179-81; Carmichael, May 24, 2004, Tr. at 68-69, 73, 82; FDIC Ex. 754. Even if Buenger had received an oral confirmation from Ramirez at Advanta that Keystone, and not United, was the owner of these loans, under GAAS, Buenger was obligated to obtain written confirmations. Carmichael, May 24, 2004, `Tr. at 70-71; FDIC Ex. 485. According to GAAS, if information in an oral confirmation is significant, the auditor cannot rely on the oral confirmation, but must obtain the confirmation from the servicer in writing. Carmichael, May 24, 2004, Tr. at 71-72; FDIC Ex. 485. The $236 million at issue here was significant since it constituted about one-fourth of the Bank's claimed assets. Carmichael, May 24, 2004, Tr. at 71-72. Therefore, Buenger and Grant Thornton were negligent in their failure to obtain written confirmation from Advanta of what Buenger asserts Ramirez told her over the telephone. Carmichael, May 24, 2004, Tr. at 68-73.
112. On or after August 25, 1999, Buenger made changes to her workpapers. Buenger, June 2, 2004, Tr. at 53-55. Initially, she did not admit this fact in her deposition, but when confronted with the evidence, she admitted that she had changed her workpapers.. Buenger, June 2, 2004, Tr. at 170-71; FDIC Ex. 500. The e-mail from Ramirez to Buenger, dated April 7, 1999, is initialed by Buenger on March 17, 1999 and by Quay on March 23, 1999, dates which on their face are not correct Johnson, May 17, 2004, Tr. at 127-29; FDIC Ex. 754 at p. 17.
113. When informed on August 26, 1999, that some $500 million in loans were missing, Quay stated finding the loans would not be a problem, they could simply trace the interest payments back to the mortgages they represented. Kaufman, May 18, 2004, Tr. at 216-17. Quay attempted to do this, but after about 45 minutes was not successful. Kaufman, May 18, 2004, Tr. at 217. Quay had indicated that if actual cash receipts in respect of debt service on the loans could be located, the loans were probably real and belonged to. Keystone. Budnick, May 18, 2004, Tr. at 148. Similarly, the absence of cash receipts would be a strong indicator that the loans did not exist. Budnick, May 18, 2004, Tr. at 148.
114. On August 26, 1999, Quay called Patricia Ramirez and contended that Keystone owned $242 million in loans serviced by Advanta. Ramirez told Quay that he was wrong, that Keystone only owned $6 million in loans being serviced by Advanta, and that she had never confirmed a larger number to Grant Thornton, which was true. Ramirez Depo., September 26, 2002, 201-06 (FDIC Ex. 896).
115. Also on August 26, 1999, Quay called Lynn Ellen ("Dee") Romero, a client support specialist for Advanta. She also told Quay that Advanta was servicing only *700 $6 million in loans owned by Keystone. Quay said that Advanta was sending millions of dollars to Keystone every month. Romero tried to straighten Quay out on these issues, but he resisted straightening. Romero Depo., September 25, 2002, 99-109, 269-71 (FDIC Ex. 905).
116. On or about August 26, 1999, Quay and Buenger checked the remittances received by Keystone from Compu-Link and Advanta during 1999. They were unable to find evidence of income to support Keystone's ownership of over $500 million in loans being serviced by Compu-Link and Advanta, nor could they find evidence to support Keystone's reported interest income for 1999. Budnick, May 18, 2004, Tr. at 148-49; Buenger, June 2, 2004, Tr. at 172-73; Kaufman, May 18, 2004, Tr. at 217-18; Quay, June 3, 2004, Tr. at 155-56.
117. After their August 25, 1999 meeting, efforts were made by Bank management, the external auditors and the examiners to locate the missing loans. As part of these efforts, Johnson prepared a calculation of interest received by Keystone that quickly showed the Bank to be receiving far less in interest income than it should have received on the number of loans it claimed to own. Johnson, May 17, 2004, Tr. at 142-43, 185-87.
118. At the regular meeting of the Bank's board of directors on August 26, 1999, Ann Jaedicke, Kathy Gerardy and Blair of the OCC and Prosser of the FDIC advised the board that they had contacted two of the Bank's servicers, Advanta and Compu-Link, and learned that $515 million of loans the Bank had booked as owned were not in fact owned by the Bank. Gibson, May 20, 2004, Tr. at 70-71.
119. On August 26, 1999, examiners gave the Bank's board of directors notice that they had until the close of business, on Monday, August 30, to account for the discrepancy. FDIC 408. In the meantime, the examiners themselves proceeded to visit the offices of the servicers to examine relevant records. FDIC 408.
120. After the August 26, 1999 meeting, Gibson heard Quay questioning Buenger about the confirmation of the loans. Gibson, May 20, 2004, Tr. at 80-81. When Buenger revealed that she had relied on a phone call to confirm the Advanta loans, Quay got angry with Buenger and criticized her for relying on a phone call and failing to follow up in writing. Gibson, May 20, 2004, Tr. at 80-81.
121. On Friday, August 27, 1999, Johnson traveled to Compu-Link headquarters in Lansing, Michigan, accompanied by FDIC examiners Phil Yannick and Mike Pisano. Johnson, May 17, 2004, Tr. at 152, 174; FDIC Ex. 408. The three examiners met with CFO Reck and MIS manager Dan Pearson of Compu-Link and were provided copies of trial balances and remittance records for the universe of loans owned by Keystone and those held in trust for Keystone securitizations and owned by other institutions. FDIC Ex. 408. The examiners also examined copies of reports routinely provided to the Bank by Compu-Link. FDIC Ex. 408. Reck and Pearson explained how Compu-Link identified loans held by Keystone and how it identified loans in securitizations owned by other institutions. FDIC Ex. 408. Reck also provided copies of remittance checks sent to Keystone since October, 1998. Johnson, May 17, 2004, Tr. at 188; FDIC Ex. 408. It was clear to the examiners that the Bank had not removed from its books loans it had sold into securitizations. FDIC Ex. 408.
122. On or about August 27, 1999, FDIC examiner Kristin Jertberg visited the office of Advanta and obtained records supporting the balances of loans owned by Keystone and serviced at Advanta. FDIC Ex. 408. Loans for code 405 were the only *701 loans owned by Keystone and were approximately $6 million for the relevant time period. FDIC Ex. 408. Remittance records from Advanta supported the total of $6 million in Keystone-owned loans rather than approximately $242 million the Bank was carrying on its books. FDIC Ex. 408.
123. On August 29, 1999, Quay and Buenger and several Keystone employees checked Keystone's remittances from Compu-Link and. Advanta, and in less than two hours determined that the remittances were only a small fraction of the amount reported on Keystone's books, and that the remittances did not support Keystone's claimed ownership of $558 million in loans. Ellis, May 22, 2004, Tr. at 37-40, 78-80, 86, 94-95.
124. On August 30, 1999, the examiners presented their findings to senior management in Washington D.C. FDIC Ex. 408. A conference call was held with Church, Ellis, Graham, Quay, Reck and Compu-Link president, John LaRose. FDIC Ex. 408. Quay stated that he had no specific explanation for the $515 million discrepancy previously identified, but that be had discovered approximately $500 million in loans boarded by Compu-Link that the Bank was not getting credit for owning. FDIC Ex. 408. Quay later provided, a spreadsheet listing the loans he claimed supported a $500 million "boarding error" at Compu-Link. FDIC EL 408. LaRose stated that this was false and the examiners insisted that an explanation for the $515 million discrepancy be provided first before dealing with the purported boarding error. FDIC Ex. 408.
125. Late in the evening of August 30, 1999, Ellis, Quay, and Gibson met at Webster's Restaurant in Bluewell, West Virginia. Quay and Ellis told Gibson that Church had admitted falsely reporting income from the missing loans on the Bank's books. Gibson, May 20, 2004, Tr. at 75.
126. On August 31, 1999, the examiners obtained affidavits from Compu-Link and Advanta attesting that the balances of Keystone owned loans serviced by them were, respectively, $31 million and $6 million. FDIC Ex. 408. Bank management failed to provide a plausible explanation for the missing loans, but did confirm that there was no additional cash influx from the loans beyond remittances the examiners had confirmed with the servicers. FDIC Ex. 408. The examiners concluded that the Grant Thornton auditors had been reconciling Bank generated documents with servicer reports the Bank had obtained in electronic format and "doctored," that they failed to "follow the audit trail on actual remittance received" by the Bank on loans it owned, `and that even a small principal and interest analysis would have shown that "the volume of loans reported by the Bank was bogus." FDIC Ex. 408.
127. Meredith Hale, a native of McDowell County, West Virginia, was hired by Keystone in November, 1994. Hale Depo., August 27, 2002, 6-9 (FDIC Ex. 889). She had no "previous work experience in the banking industry. Hale Depo., August 27, 2002, 9 (FDIC Ex. 889). As part of her job at Keystone, Hale received monthly reports from loan servicers during the 1998 time period. Hale Depo., August 27, 2002, 1`38, 140-41 (FDIC Ex. 889). Hard copies of the servicers' reports were kept in a file cabinet under the stairs near Church's office. Hale Depo., August 27, 2002, 142 (FDIC Ex. 889). Hale would do a monthly reconciliation to ensure that the servicers' records were correct. Hale Depo., August 27, 2002, 143-53 (FDIC Ex. 889). As part of this process Hale had electronic access to records at both Compu-Link and Advanta and communicated frequently with United Bank. Hale Depo., August 27, 2002, 146-53 (FDIC Ex. 889). Periodically, Church would give Hale a loan inventory list for reconciliation. Hale Depo., August *702 27, 2002, 153-55 (FDIC Ex. 889). Sometime between March and May, 1999, Hale noticed that Church had included approximately $400 million in United-owned loans as part of the Keystone inventory. Hale Depo., August 27, 2002, 156-59 (FDIC Ex. 889). Hale deleted the United loans from the Bank's inventory leaving only around $40 million in the Keystone inventory. Hale Depo., August 27, 2002, 156-59 (FDIC Ex. 889). Church told her she had done it wrong and that the deleted loans did not belong to United "outright." Hale Depo., August 27, 2002, 157 (FDIC Ex. 889). Hale testified that where United was paid the principal balance, the accrued interest, and the premium on the loan, it seemed to be that United owned the loan. Hale Depo., August 27, 2002, 157 (FDIC Ex. 889). Hale's testimony illustrates the case with which the fraud could have been discovered had Grant Thornton made proper inquiry of the services, United, and even Hale.
128. Compu-Link and Advanta were both open and helpful in providing and explaining requested information. Johnson, May 17, 2004, Tr. at 111-12, 133-34; C. Wilson, May 17, 2004, Tr. at 223, 226-29; C. Wilson, May 18, 2004, Tr. at 63-64; Romero Depo., September 25, 2002, 266-67 (FDIC Ex. 905); FDIC Exs. 368, 369, 372, 408. From this, and other evidence of record, the court concludes that the same level of cooperation, disclosure and assistance would have been readily available to Grant Thornton's auditors.
129. The examiners concluded that the loans were not missing but were in fact owned by others. On Wednesday, September 1, 1999, the Bank was determined to be insolvent and was closed. Johnson, May 17, 2004, Tr. at 145. The OCC entered an order finding that Keystone had been including loans that it no longer owned as assets on its balance sheet. FDIC Exs. 405, 406. The Comptroller of the Currency appointed the FDIC as receiver for the insolvent Bank. Johnson, May 17, 2004, Tr. at 146; FDIC Exs. 405, 406, 407, 409. Had the discrepancy been discovered earlier the Bank would have been deemed insolvent and closed at that time since the Bank was critically undercapitalized. Johnson, May 17, 2004, Tr. at 148; C. Wilson, May 17, 2004, Tr. at 240.
130. Unlike Grant Thornton, the bank examiners were not conducting audits governed by professional auditing standards with the objective of determining whether the financial statements were fairly stated in all material respects. Blair, June 4, 2004, Tr. at 178. Specifically, the examiners had no responsibility to test Keystone's ownership of loans and reported interest income; the OCC relied on the Bank's outside auditors, i.e., Grant Thornton, to confirm the existence of the loan inventory. Blair, June 4, 2004, Tr. at 178-79. Because of their significance to Keystone's financial statements, confirming the existence of the loans was among Grant Thornton's chief duties. When the OCC put on their auditor "hat" in August of 1999 and confirmed the existence of the loan inventory, they were able to discover the fraud in approximately two weeks. Blair, June 4, 2004, Tr. at 179.
131. There is no evidence that the OCC or FDIC did anything to interfere with Grant Thornton's duties with respect to the Keystone engagement.
132. There is no evidence that the outside directors did anything to interfere with Grant Thornton's duties with respect to the Keystone engagement.
133. On the day the Bank was closed, Gary Ellis, then serving as President of Keystone, was politely, but summarily, ushered out of his office, relieved of the keys to his `company vehicle, and left on the street in Keystone. G. Ellis, May 21, 2004, Tr. at 152-54. There is no evidence *703 whatsoever that Ellis had any role in perpetrating the fraud that led to the closure of Keystone, was aware of any of the fraudulent acts of McConnell, Cherry, Graham, Church, and others, or was in possession of any information or knowledge that would have made him suspect that such misconduct was going on.
XI. FDIC's Damages
134. The court found the opinions of the experts of the FDIC and Gary Ellis Douglas Carmichael, Harry Potter, and Lane Ellis to be more persuasive than the expert witnesses offered by Grant Thornton, especially with respect to the issues of Grant Thornton's negligence and the appropriate measure of damages.
135. From April 21, 1999, until the Bank was closed on September 1, 1999, the additional cost of operations was $24,004,688. Potter, May 26, 2004, Tr. at 190-91; FDIC Exs. 627, 632, 633. This figure comprises expenses that would not have been incurred had Keystone been closed on April 21, 1999. Potter, May 26, 2004, Tr. at 160-61. This amount included expenses such as wages and salaries of Bank employees; interest paid on CDs, IRAs, and savings accounts; office supplies; legal, consulting, and accounting fees; directors' fees; utilities; etc. FDIC Ex. 632.
136. Keystone received $153,143 in revenues that it would not have received had the Bank been closed on April 21, 1999. Potter, May 26, 2004, Tr. at 190-91; FDIC Ex. 627.
137. On July 23, 1999, the Bank, paid business operating taxes. to McDowell County in the amount of $239,387. Potter, May 26, 2004, Tr. at 198; Potter, May 27, 2004, Tr. at 93; FDIC Ex. 627. Had the Bank been closed by April 21, 1999, these taxes would not have been paid. Potter, May 26, 2004, Tr. at 160-61.
138. A conservative estimate of the amount of interest the Bank would have received from April 21, 1999 until September 1, 1999 on loans originated after October 31, 1998 is $66,156. FDIC Ex. 627.
139. Based on the foregoing, from April 21, 1999, until the Bank was closed on September 1, 1999, the net additional cost of operations was $24,024,777.
140. From April 21, 1999, until the Bank was closed on September 1, 1999, the Bank paid dividends in the amount of $1,056,000. Potter, May 26, 2004, Tr. at 199-201; FDIC Exs. 626, 633. If the Bank had been closed by April 21, 1999, these dividends would not have been paid. Potter, May 26, 2004, Tr. at 200.
141. Grant Thornton was paid $595,400 in fees on the Keystone engagement. Potter, May 27, 2004, Tr. at 4-6; FDIC Ex. 624. This amount includes $60,150 for tax services and Lewtan model services. Potter, May 27, 2004, Tr. at 5; FDIC Ex. 624.
142. The net worth comparison, which Grant Thornton contends is the appropriate measure of damages, would actually have resulted in a greater damage figure. Potter, May 26, 2004, Tr. at 159-60; Potter, May 27, 2004, Tr. at 104-05. Grant Thornton has countered this argument, by contending that the value of the residuals actually increased during the relevant time period. In support of this contention, Grant Thornton offered the expert testimony of Dr. John McConnell.
143. According to McConnell, more likely than not, the value of the Keystone residuals increased over the various damage windows considered by Potter. McConnell, June 7, 2004, Tr. at 148. The methodology McConnell used to support his opinion was what he referred to as a "comparable security valuation approach." McConnell, June 7, 2004, Tr. at 149. Essentially, McConnell compared the Keystone residuals to Fannie Mae interest only securities, i.e., the counter bond index.[2]*704 McConnell, June 7, 2004, Tr. at 156-57, 180. The prices of the Fannie Mae interest only securities increased from October 1998 until the end of 2000. McConnell, June 7, 2004, Tr. at 158, Based on his opinion that Keystone residuals moved in the same direction as the Fannie Mae interest only securities, McConnell concluded that the prices of the Keystone residuals would have increased 23 percent from April 19, 1999 until September 1, 1999. McConnell; June 7, 2004, Tr. at 161-62; GT Ex. 297.
144. McConnell never did a valuation of the Keystone residuals. McConnell, June 7, 2004, Tr. at 147, 184. McConnell also conceded that if the Keystone residuals did not respond to interest rates in the same way as the Fannie Mae interest only securities, his opinion would be of questionable validity. McConnell, June 7, 2004, Tr. at 181.
145. The court does not find persuasive McConnell's theory that, more likely than not, the value of the residuals increased from April 19, 1999 to September 1, 1999. Keystone's own financial statements showed the value of the residuals declined during the time period in question. McConnell, June 8, 2004, Tr. at 7. As of March 1999, Bear Stearns valued Keystone's residual interests in 1998-P2 at somewhere between zero and .35 percent. McConnell, June 8, 2004, Tr. at 12-13. Quay himself admitted that Keystone's valuation of the residuals was greater than their market value. Quay, June 4, 2004, Tr. at 29; FDIC Ex. 286. Under McConnell's methodology, as of year-end 1998, the value of the residuals would have been $569 million. McConnell, June 8, 2004, Tr. at 30. Grant Thornton's own audit of Keystone's financial statements indicated the value of the residuals would be $396 million for the same time period. McConnell, June 8, 2004, Tr. at 30.
146. The Fannie Mae interest only securities were not similar enough to Keystone's residuals to support McConnell's conclusions. For example, prepayments on Fannie Mae mortgages slowed down between September 1998 and September 1999, resulting in an increase in value for that same period. McConnell, June 8, 2004, Tr. at 47-49. Interest rates also rose over the same period. McConnell, June 8, 2004, Tr. at 52. However, prepayments on Keystone loans went up during the same period. McConnell, June 8, 2004, Tr. at 50-52. According to McConnell, the expectation for Fannie Mae interest only securities is that when interest rates rise, prepayments will decrease. McConnell, June 8, 2004, Tr. at 69. Thus, Keystone's residuals did not move in the same direction as the Fannie Mae securities. McConnell, June 8, 2004, Tr. at 69.
147. Based on the foregoing, the court finds that the value of the Keystone residuals did not increase from April 19, 1999 to September 1, 1999.
XII. Gary Ellis' Damages
148. As a result of the ensuing tumult, including the criminal investigation and ultimate conviction of several longtime Keystone officials, Ellis tried, but was unable to obtain, similar employment in the banking industry. G. Ellis, May 21, 2004, Tr. at 154-66; G. Ellis, May 22, 2004, Tr. at 5-7.
149. When Gary Ellis was employed at United his average compensation package was worth $319,000 per year. L. Ellis, May 26, 2004, Tr. at 16. The typical or normal retirement age in the banking industry for Gary Ellis would allow him to *705 retire on June 30, 2007. L. Ellis, May 26; 2004, Tr. at 22. The value of Gary Ellis' total compensation package at Keystone was approximately $460,000 per year. L. Ellis, May 26, 2004, Tr. at 16, 21.
150. The cumulative present value of Gary Ellis' loss of compensation as of May 26, 2004, was $2,015,181. L. Ellis; May 26, 2004, Tr. at 25. With adjustments for, social security and pension, the total amount of Gary Ellis' loss, as of May 26., 2004, was $2,419,233. L. Ellis, May 26, 2004, Tr. at 30; Ellis Exs, 56, 57.
151. Gary Ellis `has remained employable and able to work and has, since October of 2000, been employed by West Virginia State University. L. Ellis, May 26, 2004, Tr. at 32-33; G. Ellis, May 21, 2004, Tr. at 156-57, 160, 164.
152. The evidence failed to establish that Ellis' health impaired his ability `to obtain a position in the banking industry. L. Ellis, May 26, 2004, Tr. at 32.
153. From 1999 until the date of trial, there were recurring openings for bank executives in West Virginia at the presidential and vice-presidential level. L. Ellis, May 26, 2004, Tr. at 40-41, 49; Blair, June 4, 2004, Tr. at 209-12.
154. After the failure of Keystone Ellis made an extensive job search seeking a position in banking. He talked to at least two dozen people, but was unable to obtain a job in banking. G. Ellis, May 21, 2004, Tr. at 155-66; G. Ellis, May 22, 2004, Tr. at 5-7. He concluded the taint of being associated with the collapse of Keystone made it impossible for him to obtain a banking position. `Q, Ellis, May 21, 2004, Tr. at 162-63.
155. Based on the facts that Ellis was employable, desirous of working, and had an excellent reputation in banking prior to the Keystone collapse, and that positions in banking were available during the period of his search, the court concludes that Ellis' association with Keystone tainted his reputation to the extent that he could not continue his career in banking.
156. In October 2000, Ellis accepted a position at West Virginia State University. His salary there was about $48,000 per year; it has increased since then to roughly $52,000. G. Ellis, May 21, 2004, Tr. at 156-57.
157. Ellis' two-year, rolling contract with Keystone was worth approximately $460,000 per year; he received $140,625 from Keystone before it collapsed. L. Ellis, May 26, 2004, Tr. at 16, 21.
158. In order to serve as Keystone Bank's president, Ellis brought $49,500 of Keystone stock which is now worthless. G. Ellis, May 22, 2004, Tr. at 35-36; L. Ellis, May 26, 2004, Tr. at 30.
159. As a result of accepting the position of president of Keystone, Ellis lost a career in banking. The present value of his loss of overall compensation and other damages is $2,419,233, including the loss of the Keystone stock's value. L. Ellis, May 26, 2004, Tr. at 15-29; Ellis Exs. 56-58. This amount is calculated conservatively,[3] based on his income at United, through an anticipated retirement in June of 2007, and reduced for the mitigating effects of his present employment.
XIII. Grant Thornton's Alleged Negligence With Respect to the Agreed-Upon-Procedures Work
160. The FDIC's claim that Grant Thornton should have discovered Keystone's misrepresentation of its loan portfolio by October 31, 1998, is based entirely upon Grant Thornton's undertaking to perform *706 certain "agreed-upon-procedures" for Keystone. The FDIC's theory of liability with respect to the agreed-upon-procedures work is tied solely to alleged deficiencies in one of seven procedures the "scanning" of general ledger accounts outlined in the engagement letter between Grant Thornton and Keystone and on remarks by Stan Quay about the general ledger just prior to the October 29, 1998 meeting of the Keystone board of directors.
161. Although Keystone was required to retain new auditors pursuant to the terms of the Formal Agreement with the OCC, Grant Thornton had no role in the negotiation of that Agreement and was not a party to it. Carmichael, May 25, 2004, Tr. at 88-89, 97-98. Instead, Grant Thornton negotiated and entered into two contracts with the Bank to provide services. Buenger, June 1, 2004, Tr. at 132-33; Quay, June 3, 2004, Tr. at 28. These contracts were the audit engagement letter and the agreed-upon procedures engagement letter. FDIC Exs. 98, 101.
162. Keystone and Grant Thornton engaged in extended discussions in an effort to reach agreement on the terms of an agreed-upon-procedures engagement letter. They exchanged a number of drafts and did not finalize the agreement until October 22, 1998. Quay, June 3, 2004, Tr. at 29; Carmichael, May 25, 2004, Tr. at 86-87; FDIC Ex. 101.
163. The parties agree that the OCC had the right to approve the terms of the agreed-upon-procedures engagement letter. The evidence was undisputed at trial that, for several months after October 1998, the OCC withheld its approval and discussed with Quay modifications it wanted in the letter. Quay, June 3, 2004, Tr. at 29; Carmichael, May 25, 2004, Tr. at 99. Furthermore, the evidence shows that the OCC also withheld approval of the October 22, 1998 engagement letter. GT Ex. 159, Schneck Depo, September 19, 2002, 111-12, 131-32 (GT Ex. 741). Final OCC approval on the terms of the engagement letter was not received until August 11, 1999, three weeks before the Bank closed, at a meeting between Quay and Ron Schneck of the OCC. Quay, June 3, 2004, Tr. at 101; Schneck Depo, September 19, 2002, 111-12, 131-32 (GT, Ex. 741). The October engagement letter between Grant Thornton and the Bank, as well as the letter agreed to by the OCC the following August, contemplated that Grant Thornton would provide a written report setting forth the results of its agreed-upon procedures work. FDIC Ex. 101. The letter specifically provided that Grant Thornton could withhold its report if "unexpected circumstances" arose. FDIC Ex. 101. Both the FDIC's and Grant Thornton's liability experts agreed at trial that it was reasonable for Grant Thornton not to issue any report until the OCC signed off on the terms of the engagement letter. Carmichael, May 25, 2004, Tr. at 99; Goldman, June 8, 2004, Tr. at 217-18. No written report on Grant Thornton's agreed-upon procedures work was ever completed or issued. Quay, June 3, 2004, Tr. at 166.
164. When Grant Thornton first began performing the agreed-upon-procedures, it did not undertake to do any scanning and no scanning was done. The scanning procedure did not become part of the engagement letter until October 19, 1998. Quay, June 3, 2004, Tr. at 29-30. When the scanning provision was inserted into the engagement letter on October 19, 1998 scanning was not required to be completed until March 31, 1999. Buenger, June 1, 2004, Tr. at 140; FDIC Ex. 101.
165. Based `on the foregoing, the court concludes that Grant Thornton had no contractual duty to perform scanning prior to October 31, 1998, and has no factual basis on which to find that, if Grant Thornton *707 had begun scanning work in August or September of 1998 which it was not required and did not undertake to do, it would have uncovered the fraud by October 31, 1998.
CONCLUSIONS OF LAW,
I. Jurisdiction and Venue
Except as otherwise provided by act of Congress, the district courts have original jurisdiction of all civil actions' commented by the United States or by any agency thereof. 28 U.S.C. § 1345. Under 12 U.S.C. § 1819(b)(1), the FDIC is an agency of the United States for purposes of 28 U.S.C. § 1345. Therefore, this court has jurisdiction over the consolidated civil action as filed by the FDIC, receiver for Keystone.
This court has supplemental jurisdiction over the claim of plaintiff Gary Ellis under 28 U.S.C. § 1367, because it is so related to the claims of the FDIC that it forms part of the same cause or controversy under Article III of the United States Constitution. United States v. Mfrs. Hanover Trust Co., 231 F. Supp. 160 (S.D.N.Y. 1964), Ellis' claim was originally asserted as a cross-claim against Grant Thornton and arises from a common nucleus of facts with the claims of the FDIC.
Venue is proper in this district under 28 U.S.C. § 1391 because a substantial part of the events or omissions giving rise to plaintiffs' claims occurred in the Southern District of West Virginia.
II. Law Applied
Where the FDIC is a party in its capacity as receiver and litigation involves the rights of creditors, depositors and stockholders, the substantive law of the state where the cause of action arose is applicable except where some provision of the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) provides otherwise. O'Melveny & Myers v. FDIC., 512 U.S. 79, 84-85, 114 S. Ct. 2048, 129 L. Ed. 2d 67 (1994); Resolution Trust Corp. v. Fid. and Deposit Co. of Md., 205 F.3d 615, 626 (3d Cir.2000); Am. Nat'l Bank of Jacksonville v. FDIC, 710 F.2d 1528, 1534 (11th Cir.1983). Therefore, the court has looked to the substantive law of West Virginia in assessing the rights and liabilities of the parties to this consolidated civil action.
Absent special circumstances, federal district courts must decide questions involving the application of state law even if they are extremely difficult to resolve. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813-18, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976); Meredith v. Winter Haven, 320 U.S. 228, 234, 64 S. Ct. 7, 88 L. Ed. 9 (1943); Wohl v. Keene, 476 F.2d 171, 174-75 (4th Cir.1973). When state law is unsettled, the federal court must attempt to predict how the state's highest court would rule if confronted with the issue. Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S. Ct. 1776, 18 L. Ed. 2d 886 (1967); Food Lion, Inc. v. Capital Cities/ABC Inc., 194 F.3d 505, 512 (4th Cir. 1999); Sanderson v. Rice, 777 F.2d 902, 905 (4th Cir.1985); Hatfield v. Palles, 537 F.2d 1245, 1248 (4th Cir.1976).
In the absence of direct authority, the federal court may look to state high court decisions in related or analogous cases for an indication of how the state's highest court is likely to rule. Perez-Trujillo v. Volvo Car Corp. (Sweden), 137 F.3d 50, 55 (1st Cir.1998). In absence of other authority, federal courts may follow the considered dicta of the state's highest court. Anderson v. Nissan Motor Co., Ltd., 139 F.3d 599, 601 (8th Cir.1998); State Farm Fire & Cas. Co. v. Fullerton, 118 F.3d 374, 378 (5th Cir.1997); McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 662-63 (3d Cir.1980). Additionally, a federal court may examine cases from other jurisdiction *708 to determine what law the controlling state would adopt. Ross v. Creighton Univ., 957 F.2d 410, 414-15 (7th Cir.1992); Teletronics Int'l, Inc. v. CNA Ins. Co./Trans. Ins. Co., 120 Fed.Appx. 440, 444-45 (4th Cir.2005) (unpublished).
"In determining state law, a federal tribunal should be careful to avoid the danger of giving a state court decision a more binding effect than would a court of that state under similar circumstances. Rather, relevant state precedents must be scrutinized with an eye toward the broad policies that informed those adjudications, and to the doctrinal trends which they evince." McKenna, 622 F.2d at 662.
Where the issues in this case are somewhat unsettled under West Virginia law, the parties have offered the law of other jurisdictions in an effort to support their respective positions. In making its Conclusions of Law herein, the court has relied on only those cases which it feels are reflective of the way the West Virginia Supreme Court of Appeals would decide the issue.
III. Accounting Malpractice
In order to recover on a claim of professional malpractice, the plaintiff must show: (1) the existence of a legal duty owed by the defendant to the plaintiff, (2) a breach of that duty, and (3) damages proximately caused by the breach. See Sewell v. Gregory, 179 W.Va. 585, 371 S.E.2d 82, 84 (1988). In the case of a client suing a retained professional for negligence, the existence of a duty is established by virtue of the client hiring the professional. See Calvert v. Scharf 217 W.Va. 684, 619 S.E.2d 197, 203 (2005); McGuire v. Fitzsimmons, 197 W.Va. 132, 475 S.E.2d 132, 136-37 (1996).
The standard of care applicable to an accountant's preparation of a report depends upon generally accepted accounting practices. First Nat'l Bank of Bluefield v. Crawford, 182 W.Va. 107, 386 S.E.2d 310, 313 (1989); see also United States v. Arthur Young & Co., 465 U.S. 805, 811, 104 S. Ct. 1495, 79 L. Ed. 2d 826 (1984) ("By examining the corporation's books and records, the independent auditor determines whether the financial reports of the corporation have been prepared in accordance with generally accepted accounting principles.").
An accountant who undertakes to perform professional services for a client is required to exercise the knowledge, skill, and ability ordinarily possessed and exercised by members of the profession in similar circumstances. Keister v. Talbott, 182 W.Va. 745, 391 S.E.2d 895, 898 (1990); Weaver v. Union Carbide Corp., 180 W.Va. 556, 378 S.E.2d 105, 107 (1989).
"An auditor who undertakes to examine the books and audit the accounts of a client does not guarantee the correctness of the accounts. He does undertake to use skill and due professional care and to exercise good faith and to observe generally accepted auditing standards and professional guidelines, with the appropriate reasonable, honest judgment that a reasonably skillful and prudent auditor would use under the same or similar circumstances." Mishkin v. Peat, Marwick, Mitchell & Co., 744 F. Supp. 531, 538 (S.D.N.Y.1990).
Compliance with Generally Accepted Accounting Standards (GAAS) and Generally Accepted Accounting Practices (GAAP) is strong evidence that an auditor has conducted himself with due professional care. However, such compliance is not dispositive and does not end the inquiry. Keister, 391 S.E.2d at 898; see also Kemin Indus., Inc. v. KPMG Peat Marwick, LLP, 578 N.W.2d 212, 217 (Iowa 1998); Maduff Mortgage Corp. v. Deloitte, Haskins & Sells, 98 Or.App. 497, 779 P.2d 1083, 1086 (Or.Ct.App.1989).
*709 By Order dated May 12, 2004, the court denied Grant Thornton's Motion in Limine to Exclude Grant Thornton's Internal Guidance. In its motion, Grant Thornton argued that GAAP and GAAS are the only professional standards that apply to Grant Thornton's conduct. As discussed above, Grant Thornton is mistaken. West Virginia law is not such that an auditor's compliance with GAAP and GAAS fully discharges his duty to act with reasonable care and immunizes him from liability. Just as a violation of GAAP or GAAS is not negligence per se, neither does compliance with GAAP and GAAS end the inquiry of whether an auditor has exercised "the knowledge, skill, and ability ordinarily possessed and exercised by members Of the profession in similar circumstances." Keister, 391 S.E.2d at 898. Certainly, compliance with GAAP and GAAS is strong evidence that an auditor has conducted himself in accord with the appropriate standard of care. Furthermore, in determining whether an accountant who undertakes to perform professional `services has exercised "the knowledge, skill, and ability ordinarily possessed and exercised by members of the `profession in similar circumstances," inquiry into GAAP and GAAS, the national standards, is necessary. See, e.g., Mishkin, 744 F.Supp. at 537-38 (concluding that deviation from professional standards "may be some evidence of negligence"); Kemin Indus., 578 N.W.2d at 217 ("We are unable to accept the argument that the formalized standards of the American Institute of Certified Public Accountants are the only measure of professional negligence with respect to auditing activities."); Maduff Mortgage Corp., 779 P.2d at 1086 ("[The AICPA standards] are principles and procedures developed by the accounting profession itself, not by the courts or the legislature. They may be useful to a jury in determining the standard of care for an auditor, but they are not controlling. The amount of care, skill and diligence to be used by defendant in conducting an audit is a question of fact for the jury, just as it is in other fields for other professionals.").
The "prudent auditor" rule set out in the cases cited above, and followed in West Virginia, recognizes that circumstances surrounding a given audit may require procedures not specifically called for in broadly stated formal standards, but that prudent and reasonable auditing practices nonetheless require. Accountants long have recognized that generally accepted accounting principles are far from being a canonical set of rules that will ensure identical accounting treatment of identical transactions in all cases. See Thor Power Tool Co. v. Comm'r of Internal Revenue, 439 U.S. 522, 544, 99 S. Ct. 773, 58 L. Ed. 2d 785 (1979).
Grant Thornton's internal manual is relevant evidence of what Grant Thornton believes GAAP and GAAS require and what is necessary to comply with those standards. Therefore, the internal manual is probative on the issue of whether Grant Thornton violated its duties to the Bank and Gary Ellis.
An independent certified public accountant does not play the role of an advocate for its client. In order to properly do their job, auditors must not share common interests with the company they audit. The accountant owes ultimate allegiance to the corporation's creditors and stockholders and ultimately to the investing public. The independent auditor serves a "public watchdog" function requiring the accountant to maintain independence from the client. Arthur Young & Co., 465 U.S. at 817-18, 104 S. Ct. 1495; see also Medinol, Ltd. v. Boston Scientific Corp., 214 F.R.D. 113, 116 (S.D.N.Y.2002) ("[T]he auditor's interests are not necessarily aligned with the interests of the company. And, as has become crystal clear in the face of the *710 many accounting scandals that have arisen as of late, in order for auditors to properly do their job, they must not share common interests with the company they audit.").
Ordinarily in cases involving the question of professional malpractice, the issue is resolved through expert testimony. First Nat'l Bank of Bluefield, 386 S.E.2d at 314 n. 9.
Under West Virginia law, in the absence of privity of contract, an accountant is liable for the negligent preparation of a financial report or audit only to those he knows, or has reason to know, will be receiving and relying on the report or audit. See id. at 313. Conversely, if the auditor knows a third party will receive the report and rely upon it, the auditor is liable to the third party for damages resulting to the third party from the auditor's negligence in preparing the report. See Cordial v. Ernst & Young, 199 W.Va. 119, 483 S.E.2d 248, 260 (1996).
Grant Thornton knew that Gary Ellis, as a potential officer and director of Keystone, would be relying on its audit of Keystone. Ellis, in fact, relied on Quay's and Grant Thornton's negligent misrepresentations regarding Keystone's financial condition when he signed his employment agreement and was justified in doing so, making Grant Thornton liable.
IV. Causation
A. Proximate Cause in General
Under West Virginia law, a proximate cause of injury is a cause that, in natural and continuous sequence, produces foreseeable injury and without which the injury would not have occurred. Hudnall v. Mate Creek Trucking, Inc., 200 W.Va. 454, 490 S.E.2d 56, 61 (1997). A plaintiff's burden of proof is to show that a defendant's breach of a particular duty of care was a proximate cause of the plaintiffs injury; it is not necessary to prove that it was the sole proximate cause. Mays v. Chang, 213 W.Va. 220, 579 S.E.2d 561, 565 (2003). Thus, West Virginia requires the plaintiff to prove (1) that the injury would not have occurred without the defendant's negligence, and (2) that the injury was a foreseeable result of that negligence.
Where the wrongful act is a failure to perform a duty and performance of the duty would have prevented the harm, causation is established at least where the harm was reasonably foreseeable in the event of a dereliction. Bernstein v. Crazy Eddie, Inc., 702 F. Supp. 962, 986 (E.D.N.Y.1988); see also In re Gouiran Holdings, Inc., 165 B.R. 104, 106 (E.D.N.Y.1994) (holding allegations that but for the accountant's malpractice, the plaintiff would not have suffered an increase in debt and embezzlement by its principals was sufficient to establish proximate cause).
The FDIC has proven that the losses for which it seeks recovery would not have occurred but for the negligence of Grant Thornton. FDIC has proved that if Grant Thornton had followed GAAS, it would have discovered and reported the fraud and insolvency of Keystone before April 19, 1999, which would have led to immediate closure of the Bank. Grant Thornton's failure to follow GAAS thus resulted in the prolongation of the life of the Bank for the period from April 21, 1999 until September 1, 1999, a time during which the Bank continued to incur significant net operating losses.
Harry Potter's damage calculation of $25,080,777 includes only those expenses that would not have been incurred if the Bank had been closed as of April 21, 1999, offset by revenues and appropriate credits received during the same period. Potter, May 26, 2004, Tr. at 160-61. Thus, "but for" Grant Thornton's gross negligence, *711 the FDIC would have avoided $25,080;777 in losses.
B. Foreseeability
FDIC' has also satisfied the "foreseeable injury" prong of the West Virginia proximate cause test. From the standpoint of a reasonably prudent auditor, it is foreseeable that the failure to discover, Oat the Bank has lost hundreds of millions of dollars and is hopelessly insolvent will result in a continuation of those losses. Potter, May 27, 2004, Tr. at 8-11; Odborne, June 7, 2004, Tr. at 48-51.
Grant Thornton's negligence in failing to discover the fraud at Keystone allowed that fraud to continue, and the losses that the FDIC seeks to recover are the foreseeable result of that ongoing fraudulent scheme. As Grant Thornton's expert conceded, it is certainly foreseeable from the standpoint of a reasonably prudent auditor that the failure to discover fraud will result in the continuation of the fraud. Osborne, June 7, 2004, Tr. at 48-51. See Lincoln Grain, Inc. v. Coopers & Lybrand, 216 Neb. 433, 345 N.W.2d 300, 308-09 (1984) (explaining that a CPA should reasonably foresee that his failure to detect material errors or falsifications in a client's books during an audit will likely result in continued errors and falsifications).
Gary Ellis suffered foreseeable harm to his career which was caused by his reliance on Grant Thornton's negligent, material misrepresentations in deciding to leave United Bank for the position at Keystone. He has, been "tainted" and unable to find employment in banking since Keystone's collapse, despite an otherwise spotless employment record and, appropriate efforts to find such employment, He has, however, found full-time employment in higher education, at a much lower salary.
Much ado has been made by Grant Thornton that the decision of the Fifth Circuit Court of Appeals in Askanase v. Fatjo, 130 F.3d 657 (5th Cir.1997), defeats the FDIC's theory of causation. In essence, Grant Thornton argues that as long as an auditor does not give specific advice that leads to a losing transaction, the auditor can perform a negligent audit but nonetheless be immune from any liability for subsequent losses because its negligence would have done nothing more than "furnish the condition that made the plaintiffs injury possible." First and most importantly, the court does not believe that the West Virginia Supreme Court of Appeals would adopt this position. Furthermore, this strained interpretation of Askanase is simply off the mark. A careful reading of the opinion and the case it cites reveals nothing more than an affirmation of the well-settled principle that damages are recoverable only if they are a natural and foreseeable consequence of the negligent act.
In Askanase, Ernst & Young completed an allegedly negligent audit opinion for LivingWell on March 31, 1987. See id. at 668. LivingWell filed for bankruptcy on October 27, 1989. See id. The Bankruptcy Trustee filed suit against Ernst & Young bringing claims for breach of contract, negligence, gross negligence, fraud, and fraud based conspiracy. See id. at 663. The negligence claims were thrown out as time-barred by the statute of limitations. See id. at 668-69. The court also found that Texas law did not permit a breach of contract claim based upon accounting malpractice. See id. at 676.
As to the fraud claims, the Trustee argued "that but for Ernst & Young's alleged misrepresentation, LivingWell would not have continued to exist, could not have incurred more debt, and would not have lost more money." Id. Finding the Trustee's theory of detrimental reliance to be insufficient, the Askanase court held:
*712 Under Texas law, a cause of action is legally insufficient if the defendant's alleged conduct did no more than furnish the condition that made the plaintiffs injury possible. The Trustee's theory would make Ernst & Young an insurer of LivingWell because Ernst & Young would be liable for LivingWell's losses no matter what created LivingWell's losses, i.e., a recession or a decline in the fitness industry. Because the Trustee does not adequately allege detrimental reliance, his fraud claim must fail.
Id.
Grant Thornton has seized upon the foregoing language as support for its argument that Grant Thornton cannot be held liable for the damages claimed by the FDIC. The court does not agree.
Some of the differences between the case at bar and Askanase bear mentioning. As noted in the Findings of Fact, during the period of Grant Thornton's audit, Keystone was being carefully scrutinized by federal regulators. Indeed, it was because of this scrutiny and demands on the part of the OCC that Grant Thornton was hired in the first place. Further, it is indisputable that had Grant Thornton's audit report reflected Keystone's true financial position, the. Bank would have been closed in a matter of days. The unique position that Keystone was in at the time period in question with federal regulators carefully watching the Bank's actions and waiting for assurances from the outside auditor that the Bank's financial statements were accurate distinguish this case from any of the other cases relied upon by the parties, including Askanase.
The Askanase opinion gives no assurances that had Ernst & Young issued an audit report that was correct that Living-Well would have been closed at an earlier date. Unlike Keystone, there was no government entity ready to swoop in and close LivingWell. LivingWell was a business trying to stay afloat by restructuring debt, changing the organization, and similar methods. In the case of Keystone, a bank that was hopelessly insolvent, the Bank would not have been given the option of trying to stay open: the regulators would have stepped in and promptly closed the Bank.
Bluntly put, Grant Thornton's tortured interpretation of the quoted language in Askanase just doesn't make sense. Under Grant Thornton's theory, an auditor would never be liable for performing a negligent audit. The very nature of an audit is that an accountant opines on the fairness of an entity's financial statements. FDIC Ex. 438 (AU 110.01). Thereafter, in reliance on that audit, an entity makes business decisions to act or not act in certain ways. Thus, it could be argued that an auditor never does more than "furnish the condition that made the plaintiffs injury possible." This cannot be the case and the court does not believe that the West Virginia Supreme Court of Appeals would so find.
In any event, in this case, Grant Thornton did more than "furnish the condition." It affirmatively acted when it issued its audit report and that opinion effectively kept the Bank open.
Further, the court does not believe that anything in Askanase is really inconsistent with its decision herein. In Askanase, it was the plaintiffs failure to consider the foreseeability of the claimed damages that troubled the court, who concluded that the plaintiffs theory "would make [the accounting firm] an insurer of [the insolvent company] because [the accounting firm] would be liable for [the insolvent company's] losses no matter what created [those] losses." Askanase, 130 F.3d at 676 (emphasis added), The emphasized phrase is critical because it reveals that the foreseeability component *713 was not part of the plaintiffs damage equation. In other words, the plaintiff in Askanase included all damages that would not have accrued "but for" the defendant's misconduct and made no effort to consider whether the claimed damages were a natural and foreseeable consequence of the alleged negligence. In that context the court's statement that it is not enough to merely furnish the condition that makes the injury possible is entirely accurate and consistent with reams of case law.[4] The FDIC, unlike the plaintiff in Askanase, included only those losses that were natural and foreseeable results of Keystones continued operations. Notably, Grant Thornton never, pointed to a single expense included in Mr. Potter's analysis that was not a natural and foreseeable loss to Keystone from its continued operation beyond the time of Grant. Thornton's audit. It was highly foreseeable that Keystone would continue to pay interest expense on deposits, dividends, legal fees, consulting fees, salaries, and other routine operating expenses. Moreover, with Keystone's deposit (liability) balance being nearly ten times larger than its' loan (asset) Balance, it was a virtual certainty that the Bank would continue to lose money for as long as it operated. Accordingly, losses stemming from these natural and foreseeable events are an appropriate component of damage attributable to Grant Thornton's negligent audit that failed to uncover the Bank's true state of affairs. See Lincoln Grain, Inc. v. Coopers & Lybrand, 216 Neb. 433, 345 N.W.2d 300, 308-09 (1984) (explaining that a CPA should reasonably foresee that his failure to detect material errors or falsifications in a client's books during an audit will likely result in continued errors and falsifications).
A similar analysis guided the court in Comeau v. Rupp, 810 F. Supp. 1172 (D.Kan.1992).[5] The accountants in Comeau argued that the FDIC had no evidence that the accountants' negligence caused any of the FDIC's claimed damages relating to losses sustained on 19 loans the failed S & L purchased after the accountants had conducted their audits. See id. at 1176-77. The FDIC's theory of causation was that if the auditors had advised the S & L of its precarious financial condition, the board of directors would not have purchased the loans that resulted in the losses. See id. Like Grant Thornton in, this case, the accountants in Comeau argued that in order to, prove causation, the FDIC had to prove that the accountants made specific representations that caused the S & L to purchase the loans from which the losses flowed. See id. at 1176-77.
*714 The court observed that while the accountants' argument might apply in the context of a fraud claim,[6] it had no place in a claim for negligence where causation was to be determined "according to the same principles of proximate cause governing any negligence action." Id. at 1177. The court then cited the following principles of proximate cause:
Proximate cause of an injury is that cause which in natural and continuous sequence, unbroken by an efficient intervening cause, produces the injury and without which the injury would not have occurred, the injury being the natural and probable consequence of the wrongful act. Moreover, although foreseeability is an element of proximate cause, it is not necessary that a defendant should have been able to anticipate the precise injury. A negligent act may be considered a proximate cause of the injury if by the exercise of reasonable care it might have been foreseen or anticipated that some injury might result.
Id. (internal citations and quotations omitted). Then, in an observation that illuminates the error in Grant Thornton's interpretation of Askanase, the court stated, "Thus, one who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof."[7]Id. (emphasis added).
Applying these principles to the case before it, the court, in a statement tailor-made for this case, concluded as follows:
As to proximate cause, therefore, the issue is not whether the Accountants expressed a negligently-formed opinion as to the soundness of specific loans purchased by [the defunct S & L]. And it is certainly not a question of whether the Accountants "caused" the loans to sustain losses (which would effectively grant auditors absolute immunity against malpractice actions). Rather, the inquiry is whether it was reasonably foreseeable to the Accountants that the lending and/or loan servicing practices of [the defunct S & L], if unchecked, could be expected to result in loan losses of the type sustained by [the defunct S & L].
Id. at 1177-78. Accordingly, the court found that proximate cause was adequately supported by the FDIC's allegations that (1) the accountants allowed a dangerous condition to continue unheeded by the board, (2) this dangerous condition led the board to purchase the bad loans, and (3) such loans would not have been purchased but for the accountants failure to alert the board of the institution's true financial condition. Id. at 1178.
This is precisely the theory the FDIC advanced in this case. First, Grant Thornton's negligent audit allowed a dangerous condition to continue, i.e., Keystone's continued operations despite the fraud and overwhelming insolvency. Second, this dangerous condition led to the Bank continuing to pay foreseeable interest expense, dividends, salaries, etc. Third, these foreseeable expenses would not have been incurred but for Grant Thornton's failure to alert the board, of Keystone's true financial condition. As stated in the findings of fact, the FDIC established each of these points at trial, and thus its theory of causation is sound.
*715 C. Intervening and Superseding Cause
"An intervening cause, in order to relieve a person charged with negligence in connection, with an injury, must be a negligent act, or omission, which constitutes a new effective cause and operates independently of any other act, making it and it only, the proximate cause of the injury." Wehner v. Weinstein, 191 W.Va. 149, 444 S.E.2d, 27, 32-33 (1994) (quoting Perry v. Melton, 171 W.Va. 397, 299 S.E.2d 8 (1982)). Grant Thornton argues that the conduct of Keystone's inside !directors, outside directors, and the federal regulators was an intervening or superseding cause of the damages suffered by the FDIC.
1. Imputation
At various times, Grant Thornton has argued that the actions and knowledge of Keystone's directors and officers should be imputed to the FDIC. The FDIC has responded that the actions and knowledge of Keystone's directors and officers cannot, under West Virginia law, be imputed to the receiver either for the purpose of asserting affirmative defenses or claims. The court found the FDIC's position to be the more persuasive. See Order of 9/29/2002 filed in Gariety v. Grant Thornton, LLP, 2:99cv0992. Grant Thornton has raised the argument again in its Proposed Findings of Fact and Conclusions of Law.
In an action brought by the FDIC as receiver, state law governs the imputation of knowledge of the failed institution's management to the receiver. See O'Melveny & Myers v. FDIC, 512 U.S. 79, 84-85, 114 S. Ct. 2048, 129 L. Ed. 2d 67 (1994). Accordingly, the law of West Virginia controls. The West Virginia Supreme Court of Appeal's ("WVSCA") opinion in Cordial v. Ernst & Young, 199 W.Va. 119, 483 ;248 (1996), appears to be West Virginia's clearest statement on the doctrine of imputation. Cordial involved an accounting malpractice suit brought by the West Virginia Insurance Commissioner, as receiver for Blue Cross and Blue Shield of West Virginia. On appeal from a jury verdict in Ernst & Young's favor, one point addressed by the WVSCA was whether the West Virginia Insurance Commissioner had standing to bring claims on behalf of the creditors and policyholders of Blue Cross and Blue Shield. In short, the WVSCA held that the Insurance Commissioner had standing to sue on behalf of all parties affected by a defunct insurer because the receiver is appointed to benefit the failed corporation and the policyholders, creditors, shareholders, and the public. Cordial, 483 S.E.2d at 257. In addition to this holding, however, the WVSCA had opportunity to address whether Ernst & Young could assert the defense that because Blue Cross' managers knew the company's true financial condition, it could not bring a valid claim against Ernst & Young for improper accounting. See id. at 257 n. 9. The WVSCA stated that "since [the] Commissioner, acting as receiver, is vindicating the rights of the public, including the Blue Cross creditors, policyholders, providers, members, and subscribers, we find no merit in this contention." Id.
In the course of its holding, the WVSCA cited with approval Resolution Trust Corporation v. KPMG Peat Marwick, 845 F. Supp. 621 (N.D.Ill.1994). The WVSCA stated that:
[T]he Resolution Trust court discussed whether the receiver was subject to certain defenses which the accounting firm could assert against the bank in receivership. We find some of the court's comments instructive toward the standing issue herein addressed. The Resolution Trust court observed that public policy concerns mandate a finding that the duty of FDIC to collect on assets of *716 a failed institution runs to the public and not to the former officers and directors of the failed institution. The Resolution Trust court continued: Self-evidently, it is the public which is the intended beneficiary of FSLIC, just as it is the public which is the beneficiary of the common law duty imposed upon officers and directors to manage properly the institutions entrusted to their care.
Id. at 257 (internal citations and quotations omitted).
While the Cordial court cited Resolution Trust in its standing analysis, its adoption of the view that a receiver represents the public is crucial. If a receiver is viewed as representing the public, it follows that a suit against a receiver is a suit against the public. The FDIC argues that, based on the WVSCA's view of receivers, it has adopted the position "the FDIC as Receiver for a failed bank is not liable for the misconduct of bank management." While the court does not agree that the WVSCA has yet taken this position, the court must nonetheless attempt to predict what the WVSCA would do if asked to adopt this rule.
In considering the law of other jurisdictions, the court finds the United States Court of Appeals for the Ninth Circuit's decision in FDIC v. O'Melveny & Myers, 61 F.3d 17 (9th Cir.1995), to be particularly persuasive. The O'Melveny court stated:
We recognize that, in general, "[a] receiver occupies no better position than that which was occupied by the person or party for whom he acts . . . and any defense good against the original party is good against the receiver." Allen v. Ramsay, 179 Cal. App. 2d 843, 854, 4 Cal. Rptr. 575 (1960). However, this rule is subject to exceptions; defenses based on a party's unclean hands or inequitable conduct do not generally apply against that party's receiver. See Camerer v. California Say. & Commercial Bank, 4 Cal. 2d 159, 170-71, 48 P.2d 39 (1935). While a party may itself be denied a right or defense on account of its misdeeds, there is little reason to impose the same punishment on a trustee, receiver or similar innocent entity that steps into the party's shoes" pursuant to court order or operation of law. Moreover, when a party is denied a defense under such circumstances, the opposing party enjoys a windfall. This is justifiable as against the wrongdoer himself, not against the wrongdoer's innocent creditors. As we noted in our earlier opinion:
A receiver, like a bankruptcy trustee and unlike a normal successor in interest, does not voluntarily step into the shoes of the bank; it is thrust into those shoes. It was neither a party to the original inequitable conduct nor is it in a position to take action prior to assuming the bank's assets to cure any associated defects or force the bank to pay for incurable defects. This places the receiver in stark contrast to the normal successor in interest who voluntarily purchases a bank or its assets and can adjust the purchase price for the diminished value of the bank's assets due to their associated equitable defenses. In such cases, the bank receives less consideration for its assets because of its inequitable conduct, thus bearing the cost of its own wrong.
Also significant is the fact that, the receiver becomes the bank's successor as part of an intricate regulatory scheme designed to protect the interests of third parties who also were not privy to the bank's inequitable conduct. That scheme would be frustrated by imputing the bank's inequitable conduct to the receiver, thereby diminishing the value of the asset pool held by the receiver *717 and limiting the receiver's discretion in disposing of the assets. See Gulf Life, 737 F.2d at 1517; cf., Langley v. FDIC, 484 U.S. 86, 91-92, 108 S. Ct. 396, 401-02, 98 L. Ed. 2d 340 (1987).
In light of these considerations, we conclude that the equities between a party asserting an equitable defense and a bank are at such variance with the equities between the party and a receiver of the bank that equitable defenses good against the bank should not be available against the receiver. To hold otherwise would be to elevate form over substance something courts sitting in equity traditionally will not do. See Drexel [v. Berney], 122 U.S. [241,] 254, 7 S.Ct. [1200,] 1205, 30 L. Ed. 1219 [(1887)]. Of course, it does not necessarily follow that equitable defenses can never be asserted against . . . a receiver; we hold only that the bank's inequitable conduct is not imputed to [a receiver].
Id. at 19.
The court also finds persuasive the opinion in Comeau v. Rupp, 810 F. Supp. 1127 (D.Kan.1992). In Comeau, Grant Thornton took the position that the wrongful actions of the bank's officers must be imputed to, the FDIC. The court concluded that Grant Thornton could not impute the knowledge or conduct of bank officers and directors "for the purpose of asserting the defense of contributory negligence Against the FDIC's claims, or for the purpose of claiming indemnity from the FDIC." Id. at 1142-43. The court first noted that if the conduct of the officer's was attributed to the FDIC:
then the public would be made to pay for wrongs that it was in no real position to prevent[.] . . . Such a policy would defeat rather than further the tort principle of compensating the victim, while doing nothing either to deter culpable parties from refraining from tortious conduct, or to encourage the shareholders to employ more trustworthy corporate managers.
Id. at 1142. As a further basis for its holding, the Comeau court noted that no inequity would result:
in withdrawing from the [Grant Thornton's] litigation arsenal a defense that would normally be available. [Grant Thornton]. seek[s] to impute the Rupps' conduct to the FDIC for two reasons: (1) to set up the defense of contributory negligence to their own negligence as alleged by the FDIC, and (2) to obtain indemnity from the FDIC in the event that they are found liable to the Comeaus. See 762 F.Supp. at 1441. In either case, the relief sought by [Grant Thornton] would come into play only upon plaintiffs initial showing of some culpable conduct on the part of [Grant Thornton]. But by imputing to FDIC the torts of RCSA's officers, [Grant Thornton] would shift [its] liability for plaintiffs losses to the FDIC. Thus, this is not a case where a wholly innocent party will be called upon to pay for a loss caused by another. To the contrary, allowing the FDIC to disavow the wrongful acts of RCSA's former officers prevents culpable parties from transferring liability for their tortious conduct to an entity that is indisputably without fault in bringing about RCSA's losses: the public, in the person of the FDIC.
In any event, refusing to impute to the FDIC the conduct and knowledge of RCSA'S managers does not lessen plaintiff s burden to prove that its losses were caused by [Grant Thornton's] wrongful conduct. In other words, [Grant Thornton] may still argue that the knowledge and actions of the Comeaus and/or Rupps, although not attributable to the RCSA, were the legal cause of plaintiffs losses, which could *718 not have been prevented by more prudent accounting practices.
Id.
Another decision the Court finds persuasive and consistent with West Virginia law is In re Jack Greenberg, Inc., 240 B.R. 486 (Bankr.E.D.Pa.1999), a well reasoned decision that thoughtfully analyzes the doctrine of imputation in the context of auditor liability. In that case a Chapter 7 trustee of a bankrupt corporation filed suit against Grant Thornton for failure to discover or rectify fraud committed by the corporation's vice-president. Grant Thornton moved for summary judgment on the basis that the vice-president's knowledge and conduct must be imputed to the corporation and thus the trustee. See id. at 500. In resolving the imputation issue, the court observed,
[A]uditor liability cases do not fit squarely within the traditional law on imputation. . . . The imputation theory grew out of actions, most frequently brought by financial institutions, to recover on obligations that were created through the fraudulent acts of their agents. Notably, in these cases, the plaintiff was seeking to recover from an innocent party. The policy reason for imputing the knowledge of the wrongdoer to the plaintiff employer was explained by the Pennsylvania Supreme Court:
Where one of two innocent persons must suffer by the fraud or negligence of a third, whichever of the two has accredited him, ought to bear the loss. Unlike traditional imputation cases, in auditor liability cases the plaintiff is not seeking to retain the benefit of a fraudulent transaction and the defendant is not an innocent party. Thus, while the imputation doctrine may be applied in auditor liability cases, the doctrine was not crafted with that purpose in mind.
Id. at 507-08 (quoting Gordon v. Continental Cas., 319 Pa. 555, 181 A. 574, 577 (1938)).
The Greenberg court then looked to the cases of Cenco, Inc. v. Seidman & Seidman, 686 F.2d 449 (7th Cir.1982) and Schacht v. Brown, 711 F.2d 1343 (7th Cir. 1983) wherein the imputation defense in auditor liability cases has received its most comprehensive analyses. The court found in these cases an "express recognition . . . that the objectives of tort liability are the touchstone by which a court should decide whether to invoke the doctrine [of imputation] in the context of a suit against a corporation's professional advisers." Greenberg, 240 B.R. at 508. The objectives of tort liability were identified as compensating the victims of wrongdoing and deterring wrongdoing. See id. at 509. After carefully analyzing the facts of the case before it in light of these underlying objectives, the Greenberg court ultimately reached the conclusion that imputation of knowledge should not be invoked if the proceeds of a recovery would benefit innocent creditors, while the doctrine should be applied if the proceeds would benefit culpable shareholders. See Greenberg, 240 B.R. at 517. Stated another way, imputation is an equitable defense that should not be applied if it will produce an inequitable result such as sparing a blameworthy accounting firm at the expense of innocent creditors.[8]See id. at 504-05. That is *719 precisely what the result would be if the court were to apply the doctrine of imputation in this case. Any recovery by the FDIC will ultimately inure to the benefit of the public. If the FDIC's claims were barred or diminished by virtue of imputation, the FDIC and thus the public would be deprived a recovery while Grant Thorn ton would enjoy a free pass for its negligent accounting work. This outcome would be patently inequitable and the equitable defense of imputation should not permit it.
Essentially, Grant Thornton is attempting to have the public pay for the acts of Keystone management by using their illegal and improper behavior as a defense to the FDIC's claims. Undoubtedly, the regulatory scheme designed to protect bank investors "would be frustrated by imputing the bank's inequitable conduct to the receiver, thereby diminishing the value of the asset pool held by the receiver and limiting the receiver's discretion in disposing of the assets." O'Melveny, 61 F.3d at 19. To hold the public responsible for the illegal acts of the Keystone officers is a result this court cannot justify. Neither would the WVSCA should the issue come before it.
But even if this conclusion were in error, the Court concludes that Keystone's management had abandoned the interests of Keystone and, was acting adversely to Keystone's interests for their own personal gain. Accordingly, imputing their knowledge and/or conduct to the FDIC would be improper under the adverse interest exception to imputation. See Clark v. Milam, 872 F. Supp. 307, 310 (S.D.W.Va.1994).
Aside from seeking to impute the knowledge of Keystone's corrupt insiders to the FDIC, Grant Thornton has argued that the FDIC should be barred from recovery because of the alleged negligence of Keystone's innocent outside directors. The essence of Grant Thornton's claim appears to be that the outside directors, while not involved in any fraudulent conduct, negligently allowed the fraud to flourish under their watch. The court concludes, however, that the principles articulated above would apply with equal force even if the court were to find that the outside directors were negligent. West Virginia law will not permit Grant Thornton to shift the loss caused by its negligence to the FDIC, regardless of whether the source of proposed imputation is guilty or innocent.
Moreover, "courts have adopted a modified form of contributory negligence in the case of auditor malpractice actions." Comeau v. Rupp, 810 F. Supp. 1172, 1181 (D.Kan.1992). Under this modified form, "the contributory negligence of the client is a defense only where it has contributed to the accountant's failure to perform the contract and to report the truth." Lincoln Grain, Inc., 345 N.W.2d at 307. The justification for this modified form of contributory negligence was articulated as follows:
We are . . . not prepared to admit that accountants are immune from the consequences of their negligence because those who employ them have conducted their own business negligently. The situation in this respect is not unlike that of a workman injured by a dangerous condition which he has been employed to rectify. Accountants, as we know, are commonly employed for the very purpose of detecting defalcations which the employer's negligence has made possible. Accordingly, we see no reason to hold that the accountant is not liable to his employer in such cases.
National Sur. Corp. v. Lybrand, 256 A.D. 226, 236, 9 N.Y.S.2d 554 (1939). There *720 was no evidence of negligence on the part of Keystone's outside directors that contributed to Grant Thornton's failure to properly carry out its responsibilities at Keystone.
However, even if negligence on the part of the outside directors could be imputed to the FDIC, Grant Thornton still would not carry the day. In Bradley v. Appalachian Power Co., 163 W.Va. 332, 256 S.E.2d 879 (1979), West Virginia's highest court adopted the doctrine of comparative negligence[9] and held that "[a] party is not barred from recovering damages in a tort action so long as his negligence does not equal or exceed the combined negligence or fault of the other parties involved in the accident." The evidence in this case failed to establish that the outside directors were negligent in the issuance of Grant Thornton's audit report.
2. Pre-receivership Conduct of Federal Regulators[10]
Grant Thornton argues that the pre-receivership conduct of the OCC was an intervening and superseding cause of the damages to Keystone, sufficient to break the causal chain between any negligence on the part of Grant Thornton and the damages incurred by Keystone. First, Grant Thornton says that regulators had been examining the Bank for several years and had not found the fraud, and thus it is unfair and unreasonable to expect Grant Thornton to have uncovered the fraud in a comparatively short period of time. Second, Grant Thornton contends that the regulators were negligent in not discovering the fraud and closing the Bank before Grant Thornton's arrival, and thus the regulators' negligence is the sole proximate cause of all damages the FDIC seeks to recover from Grant Thornton. Third, Grant Thornton contends that the regulators should have discovered the fraud and closed the Bank at various points after Grant Thornton's arrival, and their failure to do so constitutes an intervening and superseding cause. Fourth, Grant Thornton contends that the regulators had information concerning Keystone records and management that would have been useful to Grant Thornton in evaluating the Keystone engagement, including whether or not to accept it in the first, place, but the regulators did not share that information with Grant Thornton.
As explained more fully below, the court concludes that Grant Thornton's arguments are legally irrelevant to the issue of whether Grant Thornton breached its professional duties to Keystone and thereby caused the damages the FDIC seeks to recover.
The court does not believe that anything the regulators did or failed to do in their regulatory capacity should operate to reduce or defeat the FDIC's claim against Grant Thornton in this case so long as the regulators did not actually interfere with *721 Grant Thornton's undertakings. See FDIC v. Ernst & Whinney, No. 387-364, 1987 WL 39943 (E.D.Tenn.1987). As the Ernst & Whinney court observed:
While E & W is free to argue that its audits were not the proximate cause of the losses sustained, if, in fact, it failed to perform its audits in accordance with generally accepted auditing standards; it cannot be heard to claim that the %FDIC was a joint tortfeasor. The FDIC's Pap Watery activities are simply not parallel to E & W's auditing responsibilities and give rise to no duty to warn directors, officers or shareholders of any improprieties. . . . The Court does not believe that any actions on the part of the FDIC or the banks in question, prior to their closing, can serve as a defense to accounting malpractice unless they involve an actual interference with the auditor's duties.
Id. at *2. There is no evidence that the regulators interfered with Grant Thornton's duties at Keystone, and thus, any reference to alleged deficiencies in the regulators' conduct has no relevance to this case.
Unlike Grant Thornton, the bank examiners were not conducting audits governed by professional auditing standards with the objective of determining whether the financial statements were fairly stated in all material respects. Specifically, the examiners had no responsibility to test Keystone's ownership of loans and reported interest income, whereas these were among Grant Thornton's chief duties in light of their significance to Keystone's financial statements upon which Grant Thornton was opining, and these procedures were the keys to discovering the fraud. Accordingly, the examiners' failure to discover the fraud sooner than they did is in no way relevant to whether Grant Thornton was negligent in carrying out its entirely separate responsibilities at Keystone.
Grant Thornton also argues that if the regulators had discovered the fraud and closed the Bank before Grant Thornton's arrival, all of the damages the FDIC seeks to recover from Grant Thornton would have been avoided. In other words, Grant Thornton would never have had the opportunity to be negligent if the regulators had not been negligent in the first place. Alternatively, Grant Thornton contends that the regulators should have closed the Bank at" some point after Grant Thornton's arrival, and their failure to do so constitutes a superseding cause of all damages to Keystone.
The court notes that the principle of sovereign immunity prohibits Grant Thornton from joining federal regulators and, seeking contribution. To the extent Grant Thornton's causation arguments are an attempted end run around that legal barrier, they are rejected. See United States v. Gaubert, 499 U.S. 315, 111 S. Ct. 1267, 113 L. Ed. 2d 335 (1991); FDIC v. Jennings, 615 F. Supp. 465, 467 (D.C.Okla. 1985) ("It is evident that the decisions of whether and how to intervene in failing banks is discretionary with the FDIC and thus falls within the discretionary function exception of the Federal Tort Claims Act."); FDIC v. Carter, 701 F. Supp. 730, 787 (C.D.Cal.1987) (holding that the discretionary function exception of the Federal Tort Claims Act protects federal regulators from any liability for negligence in examining a bank or for negligence in the decision to place an institution in receivership).
The crux of Grant Thornton's argument regarding the alleged failure to inform is that the regulators had information and concerns regarding Keystone' management and record-keeping that were not communicated to Grant Thornton, and that if Grant Thornton had been aware of these concerns, it would have at least altered its *722 audit procedures and might have even refused the engagement altogether. Grant Thornton does not and cannot allege that the regulators lied in response to Grant Thornton's inquiries, but rather that they did not voluntarily assemble a package of agency-wide concerns regarding Keystone and present it to Grant Thornton. The argument fails because the regulators had no duty to disclose any information to Grant Thornton.
Courts have uniformly held that claims or defenses based upon pre-receivership actions of regulators are legally insufficient. See, e.g., FDIC v. Ornstein, 73 F. Supp. 2d 277, 281 (E.D.N.Y.1999) (court struck affirmative defenses to the extent they relied on pre-receivership conduct by federal regulators); FDIC v. Raffa, 935 F. Supp. 119, 124 (D.Conn.1995) (because FDIC's oversight of banks is intended to protect only depositors, insurance fund and public, and FDIC owes no duty to bank's officers and directors, the FDIC cannot be held accountable for any alleged breach of duty or discretionary act made either pre or post-bank closing); FDIC v. Lowe, 809 F. Supp. 856, 858 (D.Utah 1992) (well settled that affirmative defenses against FDIC in its capacity as regulator are insufficient as a matter of law); FDIC v. Crosby, 774 F. Supp. 584, 586 (W.D.Wash.1991) (regulatory conduct of FSLIC prior to receivership does not give rise to duty). FDIC v. Ashley, 749 F. Supp. 1065, 1068 (D.Kan.1990) (contributory negligence not available against FDIC for pre-closing activities).
The consequence of the principle underlying this line of cases is that the regulators' failure to do anything in their regulatory capacity cannot operate to reduce or defeat the FDIC's claim against Grant Thornton. If Grant Thornton failed to perform its services in accordance with applicable professional standards, "it cannot be heard to claim that the [OCC or FDIC] was a joint tort feasor. The [OCC's and FDIC's] regulatory activities are simply not parallel to [Grant Thornton's] auditing responsibilities and give rise to no duty to warn directors, officers, or shareholders of any improprieties." Ernst & Whinney, 1987 WL 39943, at *1; see also Sedgwick v. FDIC, 1999 WL 1495451, at *3 (D.Ariz.1999) ("The function of banking regulators such as the OTS and FDIC is aimed at protecting the federal deposit insurance funds and the public at large, not particular individuals.").
According to Grant Thornton, the existence of a duty is not necessary for the regulators' inactions to serve as an intervening/superseding cause. As support for this position, it points to the case of Clark v. Milam, 152 F.R.D. 66 (S.D.W.Va.1993).[11] According to Clark: "regardless of whether Plaintiff owed Defendants a duty, Plaintiffs acts could still theoretically break the chain of causation and absolve Defendants of liability." Clark, 152 F.R.D. at 72. Grant Thornton also argues that the Supreme Court's decision in O'Melveny & Myers v. FDIC, 512 U.S. 79, 114 S. Ct. 2048, 129 L. Ed. 2d 67 (1994), somehow changed the landscape of the well-established rule discussed in the previous section that claims or defenses based on prereceivership actions of regulators are legally insufficient. According to Grant Thornton, it does not matter that O'Melveny did not involve pre-receivership conduct of federal regulators. The court disagrees.
Much has been made in recent years of the O'Melveny decision's impact on the so-called "no duty" rule, and indeed there has been a split among district courts as to whether O'Melveny enables defendants to *723 assert affirmative defenses based On the FDIC's post-receivership conduct. See RTC v. Liebert, 871 F. Supp. 370, 878 (C.D.Cal.1994) (discussing the split). This Court need not entangle itself in this debate because the conduct at issue here is pre-receivership conduct of federal regulators, an issue O'Melveny did not even address. The post O'Melveny cases holding that the FDIC owes a duty were decided in the post-receivership context. See, e.g., FDIC v. Ornstein, 73 F. Supp. 2d 277 (E.D.N.Y.1999). In other words, they deal with the actions of the FDIC as receiver of a failed bank, as opposed to the pre-receivership conduct of the bank's regulators. Moreover, such cases specifically hold that no duty is owed for the pre-receivership acts of regulators. Id. at 281; RTC v. Massachusetts Mut. Life Ins. Co., 93 F. Supp. 2d 300, 304-05 (W.D.N.Y.2000).
In Ornstein, a case relied on by Grant Thornton, the New York district court considered the impact of O'Melveny on the "no duty" rule as it related to post-receivership mitigation of damages and found that, in that context, the "no duty" rule had been abolished by O'Melveny. But more importantly for purposes of this case was the court's discussion of defenses based on pre-receivership conduct:
The FDIC's Bernstein argument does, however, serve to defeat the third affirmative defense, which apparently seeks to shift the blame for defendants' conduct to the actions of (non-FDIC) regulatory agencies taken before [Central Federal Savings Bank's] failure. This is analogous to the defense raised by the defendant in Bernstein, and it is foreclosed by the rule of that case. See Bernstein, 944 F.2d at 106; see also RTC v. Sands, 863 F. Supp. 365, 372-73. (N.D.Tex.1994) ("[P]re-conservatorship conduct of federal banking regulators cannot be attacked by directors."); FDIC v. Cheng, 832 F. Supp. 181, 187-88 (N.D.Tex.1993). Accordingly, the third affirmative defense is struck [that their actions as directors "were mandated by federal regulatory agencies having or asserting jurisdiction over the acts and actions of the bank and its directors and officers"]. The fourth affirmative defense ["that any losses were caused not by defendants but by `plaintiff and its predecessor'"], the basis of which is unclear, is struck to the extent that it relies on pre-receivership conduct by federal regulators.
Ornstein, 73 F.Supp.2d at 281 (citing FDIC v. Bernstein, 944 F.2d 101 (2d Cir. 1991)). Accordingly, the Ornstein court ranted the motion to strike and motion in limine regarding any defenses or evidence relating to pre-receivership conduct of federal regulators, including evidence that such conduct `caused the losses at issue.
Likewise, after considering O'Melveny, a Texas district court granted the FDIC's motion for summary judgment in part relating to twenty-one affirmative defenses to the extent they were "asserted against the FDIC in its corporate capacity for actions taken by it or other regulatory agencies." FDIC v. Schreiner, 892 F. Supp. 848 (W.D.Tex.1995). Schreiner relied upon Resolution Trust Corp. v. Sands, 863 F. Supp. 365 (N.D.Tex.1994), which observed that O'Melveny "does not affect the reasoning of Mijalis [FDIC v. Mijalis, 15 F.3d 1314 (5th, Cir.1994)] because the Fifth Circuit was addressing the FDIC's own conduct, not that which is attributable to it as receiver of a failed institution." Schreiner, 892 F.Supp. at 855.
As further evidence that pre-receivership conduct was not at issue in O'Melveny, the court stated as follows:
[T]he rules of decision at issue here do not govern the primary conduct of the United States or any of its agents or contractors, but affect only the FDIC's *724 rights and liabilities, as receiver, with respect to primary conduct, on the part of private actors, that has already occurred.
O'Melveny, 512 U.S. at 88, 114 S. Ct. 2048 (emphasis added); see also Resolution Trust Corp. v. Heiserman, 1994 WL 907409, at *2 (D.Colo.1994) ("O'Melveny did not address, and is not applicable to, the affirmative defenses stricken in this case [of contributory and comparative negligence, failure to mitigate, waiver, estoppel, ratification, consent, acquiescence, assumption of risk, laches, unclean hands, lack of causation, intervening and superseding causes and reliance to the extent they implicate the conduct of federal regulatory agencies]. The sole affirmative defense addressed in O'Melveny was the defense of imputed knowledge.").
Given the fact that O'Melveny did not address the issue of pre-receivership conduct by regulators, there is no basis for this Court to stray from the long line of cases holding that the regulators' conduct in connection with regulating or examining a bank does not give rise to a claim or defense. For example, in Harmsen v. Smith, 586 F.2d 156, 157 (9th Cir.1978), directors of a bank claimed that the OCC was negligent in performing bank examinations, in supervising employees who performed the examinations, and in failing to discover illegal or unsound banking practices. The district court held that the OCC owed no duty to the bank or its shareholders for breach of which a negligence action would lie and, further, that the discretionary function exception to the Federal Tort Claims Act, 28 U.S.C. § 2680(a), prevented an action based upon the act in question. See id. at 157.
The court also stated that nothing in the language of the statutory directive to conduct bank examinations, 12 U.S.C. § 481, purported to impose any duty on the OCC or Comptroller to protect shareholders. See id. The statutes concerning federal examination of national banks were designed to provide the Comptroller with information necessary to carry out regulatory functions, and while "bank examinations may reveal irregularities and even fraud, which discoveries may redound to the benefit of innocent persons, including stockholders, that result is merely an incidental benefit to the examined banks." Id. Moreover, the court stated, "We agree with every other court that has considered the issue that the federal scheme of bank regulation creates no duty from the Comptroller to shareholders and directors of national banks." Id. The legislative purpose behind bank examinations contains nothing to suggest that Congress intended "private actions against the Comptroller for a failure to perform or carelessly performing his statutory duties." Id. at 158. While the Comptroller is statutorily obligated to undertake bank examinations; these statutes were designed by Congress to afford guidance to the Comptroller in exercising its regulatory functions. Id. Therefore, the OCC owes no duty to the banks, including their shareholders, it examines.
In First State Bank of Hudson County v. United States, 599 F.2d 558, 561 (3d Cir.1979), the bank argued that the FDIC had actual knowledge of misapplication of funds or, alternatively, had failed to discover the malfeasance and thus violated the standard of due care. The court concluded that the FDIC owed no duty to warn the bank because nothing in the Federal Deposit Insurance Act purported to establish any duty requiring that the FDIC warn banks of irregularities perpetuated by their officials. Id. at 563. Further, the FDIC was not acting for the benefit of the bank or the bank's depositors and other creditors. Id. The court stated, "If bank examinations by the FDIC reveal any irregularities or fraud, such *725 examinations, though they may inure incidentally to the benefit of a bank, are intended primarily for the protection of the insurance fund." Id. The court ultimately held that "the Federal Deposit Insurance Act imposes no duty on the FDIC to warn the officers and directors of a bank about wrongdoing committed by one of its officials and discovered by the FDIC. The duty to discover fraud in their institution is upon, bank directors and they mad not transfer it to the FDIC by the easy expedient of purchasing insurance protection from it" Id. at 563-64. Additionally, "Congress intended the examinations to, be a valuable means of protecting the important interests of the federal insurance fund, not a direct measure to protect, the banks from misconduct and shortcomings of their officials and employees." Id. at 564.
Similarly, the OCC and FDIC in their regulatory capacities do not owe a duty to an independent auditor to voluntarily disclose information onto close a bank at a certain time. The OCC regulates banks and is statutorily obligated to conduct examinations of banks, but it does not owe a duty to them. Independent auditors are further removed from this obligation and thus, since the OCC does not owe a duty to the banks (including their shareholders) it examines, it is abundantly clear that the OCC does not owe a duty to an independent auditor such as Grant Thornton. See FDIC v. Collins, 920 F. Supp. 30, 34 (D. Conn.1990).
For these reasons, the Court concludes that no action or inaction on the part of federal regulators can serve as a defense to a claim for accounting malpractice unless such action involved actual interference with conducting the audit. There is no evidence that any such interference occurred in this case.
As a final note, even if the pre-receivership conduct of the OCC and FDIC could serve as an intervening and superseding cause that breaks the causal chain between any negligence on the part of Grant Thornton and the losses alleged by the FDIC, it would not do so in this case. Simply put, the pre-receivership conduct of the FDIC and OCC at issue was not "a negligent act, or omission, which constitutes a new' effective cause and operates independently of any other act, making it and it only, the proximate cause of the injury."
V. Damages
A. Damages in General
The objective of awarding damages for negligent conduct is to put the plaintiff, insofar as possible, in the same position it would have been in if the tort had not been committed. Hannah v. Heeter, 213 W.Va. 704, 584 S.E.2d 560, 571 (2003). Recoverable damages are limited to those that can reasonably be expected to flow from the tortious conduct: Mueller v. Am. Elec. Power Energy Servs., Inc., 214 W.Va. 390, 589 S.E.2d 532 (2003).
"As in all damages awards for tortious injury, `[i]nsistence on mathematical precision would be illusory and the judge or juror must be allowed a fair latitude to make reasonable approximations guided by judgment and practical experience.'" Sea-Land Servs., Inc. v. Gaudet, 414 U.S. 573, 590, 94 S. Ct. 806, 39 L. Ed. 2d 9 (1974) (quoting Whitaker v. Blidberg Rothchild Co., 296 F.2d 554, 555 (4th Cir.1961)). "[I]f a plaintiff can demonstrate that the defendant's acts caused him economic loss and so establish liability, the plaintiff will also be able to establish `facts and circumstances tending to show the probable amount of . . . damages' sufficient to allow the trier of fact to form a `reasonable and probable estimate' of recoverable damages." Miller v. Asensio & Co., Inc., 364 F.3d 223, 231 (4th Cir.2004) (quoting Story Parchment Co. v. Paterson Parchment Paper *726 Co., 282 U.S. 555, 565, 51 S. Ct. 248, 75 L. Ed. 544 (1931)). "If a plaintiff proves liability and damages which are definitively attributable to the wrong, a jury's award of damages will be upheld even if there is some uncertainty as to their amount." Id. (internal citations and quotations omitted); see also Smith v. White, 77 W.Va. 377, 87 S.E. 865, 866 (1916) ("[A]lthough the damages are substantial, the amount is largely a matter of conjecture, and all the court can do is to determine, from the conflicting evidence, such an amount as, in its judgment, is reasonable."); Pickens v. Coal River Boom & Timber Co., 58 W.Va. 11, 50 S.E. 872, 875 (1905) ("And where, from the nature of the case, the amount of damages cannot be estimated with certainty, or only a part of them can be so estimated, we can see no objection to placing before the jury all the facts and circumstances of the case having any tendency to show damages, or their probable amount, so as to enable them to make the most intelligible and probable estimate which the nature of the case will admit.").
The evidence in this case establishes that: 1) the Bank was insolvent because of the fraudulent activities of McConnell, Church, Graham, and others; 2) the FDIC would have promptly closed the Bank upon discovery of the insolvency; and 3) but for the negligence of Grant Thornton, the fraud and the Bank's insolvency would have been discovered by April 19, 1999.
The theory of damages adopted by Harry Potter, the FDIC's damages expert, which he characterized as a "cash out the door" method, objectively measured additional costs incurred by the Bank after April 21, 1999. This method is distinct from what is called a "deepening insolvency" analysis. Deepening insolvency attempts to measure damages incurred by an insolvent business that tries to stay afloat by borrowing, declining to pay accounts due, and similar, tactics. Such tactics would not have been open to the Bank here because the FDIC and/or OCC would have shut it down as soon as its insolvent condition became apparent. Cases disallowing deepening insolvency as a theory of damages for a failing business are thus distinguishable from this case.
In any event,
[t]here is a trend toward recognizing "deepening insolvency" as a cause of action against a party who creates the false appearance of solvency in an insurance company or other financial institution. As a result of this deception, regulatory authorities allow the company to keep operating, and do not place it into receivership in a timely fashion. Damages are measured by the dissipation of assets or increased debt load occurring after the false representation of solvency was made.
Fla. Dep't. of Ins. v. Chase Bank of Tex., 274 F.3d 924, 935 (5th Cir.2001). The trend to which the Fifth Circuit was referring was detailed by the Third Circuit in Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340 (3d Cir.2001):
Growing acceptance of the deepening insolvency theory confirms its soundness. In recent years, a number of federal courts have held that "deepening insolvency" may give rise to a cognizable injury to corporate debtors. See [Schacht v. Brown, 711 F.2d 1343, 1350 (7th Cir.1983)] (applying Illinois law and holding that, where a debtor corporation was fraudulently continued in business past the point of insolvency, the liquidator had standing to maintain h civil action under racketeering law); Hannover Corp. of America v. Beckner, 211 B.R. 849, 854-55 (M.D.La.1997) (applying Louisiana law and stating that "a corporation can suffer injury from fraudulently extended life, dissipation of *727 assets, or increased insolvency"); Allard v. Arthur Andersen & Co., 924 F. Supp. 488, 494 (S.D.N.Y.1996) (applying New York law and stating that, as to, suit brought by bankruptcy trustee, cause courts have permitted recovery under the `deepening insolvency' theory, [defendant] is not entitled to summary judgment as to whatever portion of the claim for relief represents damages flowing from indebtedness to trade creditors"); In re Gouiran Holdings, Inc., 165 B.R. 104, 107 (E.D.N.Y.1994) (applying New York law, and refusing to dismiss claims brought by a creditors' committee because it was possible that "under some set of facts two years of negligently prepared financial statements could have been a substantial cause of [the debtor] incurring unmanageable debt and filing for bankruptcy protection"); Feltman v. Prudential Bache Securities, 122 B.R. 466, 473 (S.D.Fla.1990) (stating that an "`artificial and fraudulently prolonged life and . . . consequent dissipation of assets' constitutes a recognized injury for which a corporation can sue under certain conditions", but concluding that there was no injury on the facts). Some state courts have also recognized the deepening insolvency theory. See, e.g., Herbert H. Post & Co. v. Sidney Bitterman, Inc., 219 A.D.2d 214, 639 N.Y.S.2d 329 (N.Y.App. Div. 1st Dep't 1996) (applying New York law and allowing a malpractice claim for failing to detect embezzlement that weakened a company, which already was operating at a loss, thereby, causing default on loans and forcing liquidation); Corcoran v. Frank B. Hall & Co., 149 A.D.2d 165, 175, 545 N.Y.S.2d 278 (N.Y.App. Div. 1st Dep't 1989) (applying New York law and allowing claims for causing a company to "assume additional risks and thereby increase the extent of its exposure to creditors").
Id. at 362 (3d Cir.2001).
The unifying theme among these cases, and the explicit direction from the Fifth Circuit in Chase Bank, is that in a deepening insolvency case, damages are to be measured by the foreseeable dissipation of assets from the entity's continued operations. To properly quantify the dissipation of Keystone's assets caused by its continued operations during each damage window, it was necessary to capture those foreseeable expenses that would not have been incurred but for the Bank's continued operations and reduce them by those revenues that would not have been received but, for the Bank's continued operations. This approach necessarily excluded from consideration expenses and revenues that would have been incurred or received regardless of whether the Bank continued to operate because such amounts had no relation to the causative event of continued operations. See LaSalle Tatman Bank, F.S.B. v. United States, 317 F.3d 1363, 1373 (Fed.Cir.2003) ("[U]nrelated events . . . do not reduce the liability of the wrongdoer for the losses caused by the wrong.").
That is precisely what Mr. Potter did in this case. Potter testified that his methodology was a subset of the deepening insolvency analysis taking only those elements of the deepening insolvency that were proximately caused by the conduct of Grant Thornton.[12] Potter first tallied the *728 foreseeable payments that Keystone would not have made if the Bank had ceased operations after Grant's negligence. From these amounts Mr. Potter subtracted those revenues that would not have been received if the Bank had ceased operations. These revenues included interest income on new loans originated after a damage window, increased interest income from short term investment of newly received deposits, and bank operation revenues after a damage date such as loan underwriting fees, check cashing fees, safety deposit box rentals, and the like. Items such, as interest income on loans originated before a liability date and distributions from the prior existing securitization transactions were not included as a credit because these revenues would have been (and were) received whether or not the Bank closed. As a result these revenues were not causally linked to Keystone's continued operations and thus could not properly reduce the amount of damages. See La-Salle Talman Bank, 317 F.3d at 1373.
Grant Thornton has persistently advanced the argument that the only acceptable method of computing damages in this case is to compare Keystone's net worth at the beginning and end of each damage window. In support of this position, it relies on the case of Lively v. Rufus, 207 W.Va. 436, 533 S.E.2d 662 (2000). Lively is not on point. Lively held that "the proper measure of damages for the destruction of a business is the difference between the fair market value of the business before and after its destruction." Lively, 533 S.E.2d at 670 (emphasis added). That measure makes sense when the claim is that the defendant destroyed the business. The plaintiff is alleging, in such cases, that the business's entire loss of value is attributable to the defendant's conduct.[13] The issue before the Court in this case, however, is not the destruction of a business, but rather the improper prolonging of the life of a business where foreseeability must be taken into consideration. Accordingly, Lively is simply off point. Here again, the distinct nature of this case is crucial because of the regulatory oversight of the FDIC and OCC, the Bank would have been closed as soon as its insolvent condition was discovered, a discovery Grant Thornton's negligence postponed.
Even Grant Thornton's damages expert, Roger Osborne, explained that a pure net worth comparison is inappropriate. Mr. Osborne explained that after starting with a net worth comparison, one must then "look at the potential reasons that that net worth has changed during that period of time to see if it's appropriate to assign responsibility or blame for any adverse change to a particular party's wrongdoing." Osborne, June 7, 2004, Tr. at 15. In other words, you can only include those components of a change in net worth that are a foreseeable and natural consequence of the negligent act. This is simply another way of reaching the same result as Mr. Potter. For example, if the objective was to determine how many people attended an event in a 5000-seat facility, you could either count the number of empty seats and subtract it from 5000, or you could simply count the number of people. Either approach would produce an accurate count. The same is true of the differing *729 methodologies adopted by Mr. Osborne and Mr. Potter. Mr. Osborne would ostensibly start with a change in net worth and then back out those components that are unforeseeable and not causally linked to the conduct (an indirect approach), whereas Mr. Potter simply tallies the foreseeable components that are causally linked to the negligence (a direct approach). Either approach, properly applied, produces an accurate result. In sum, Mr. Potter's damage computation is entirely consistent with applicable case, law regarding how to quantify damages in a case of this nature.
As Mr. Potter made clear at, trial, the largest element of damage to Keystone was the interest expense it continued, to pay after it should have been closed an amount that indisputably reduced Keystone's net worth and would thus be encompassed by Grant Thornton's approach. Yet in an effort to avoid this component of damage, Grant Thornton has argued that Keystone's obligation to pay interest existed before Grant Thornton arrived and' thus would have been on the Bank's books even if Grant Thornton had found the fraud on October 31, 1998. But Grant Thornton's assertion that the obligation to pay interest had accrued before Grant Thornton's arrival is simply wrong. While the deposit liability was obviously on the books at all relevant times, Keystone's obligation to pay interest on this amount accrued with the passage of time so that if the Bank, had been closed earlier, the interest expense would have never accrued or been paid, a point conceded by Mr. Osborne. Rouse, May 25, 2004, Tr. at 190-91; Osborne, June 7, 2004, Tr. at 50. For this reason the Court finds that Keystone's interest expense is an appropriate component of damages.
The FDIC suffered damages in the amount of $25,0861777. This amount includes the net additional cost of operations in the amount of $24,024,777 and dividends paid from April 21, 1999, until the Bank was closed on September 1, 1999, in the ount of $1,056,000.
The objective of compensatory damages under West Virginia law is not to adopt a certain methodology, but to place the injured party in the position it would have been absent the tortious conduct. The FDIC's damage computation ties damages to causation in a manner that heeds this objective. Accordingly, the Court concludes that the FDIC's damage computation is a reasonable and proper quantification of Keystone's damages stemming from Grant Thornton's misconduct.
B. Fees Paid to Grant Thornton
Of all the components of damages the FDIC seeks to recover, the fees paid to Grant Thornton are unique in that at least some of them would have been incurred even if the Bank had closed earlier. Certain courts have recognized that a party is entitled to recover payment of audit fees when the audit was so negligent as to fail in its essential purpose.
While minor inaccuracies in an audit or report may be overlooked, where by reason of the accountant's negligence, inaccuracies and failure to report facts of serious character appear, he or she is not entitled to compensation. And when compensation is paid to an accountant in reliance upon his or her report, it may be recovered, upon proof that through the accountant's negligence, the audit was in substance, false.
World Radio Labs., Inc. v. Coopers & Lybrand, 251 Neb. 261, 557 N.W.2d 1, 15 (1996) (per curiam).
Even were the court to agree with those jurisdictions that allow a party to recover payment of audit fees when the audit was so negligent as to fail in its essential purpose, it would be impossible for the court *730 to do so in this case. Given, the court's findings regarding Grant Thornton's negligence, the FDIC would be entitled to recover only those fees paid that related to the audit.[14] On the record before it, it would be difficult, if not impossible, for the court to determine how much of the $535,000 in fees paid to Grant Thornton was for work done on the audit. Therefore, the court has not included fees paid to Grant Thornton in its calculation of the FDIC's damages.
C. Prejudgment Interest
As to the FDIC's request that the court award prejudgment interest, 12 U.S.C. § 1821(l) provides:
In any proceeding related to any claim against an insured depository institution's director, officer, employee, agent, attorney, accountant, appraiser, or any other party employed by or providing services to an insured depository institution, recoverable damages determined to result from the improvident or otherwise improper use or investment of any insured depository institution's assets shall include principal losses and appropriate interest.
Accordingly, if prejudgment interest is available under West Virginia law in a case of this nature, the court may award prejudgment interest.
The statute governing the availability of prejudgment interest under West Virginia law provides as follows:
Except where it is otherwise provided by law, every judgment or decree for the payment of money entered by any court of this State shall bear interest from the date thereof, whether it be so stated in the judgment or decree or not: Provided, That if the judgment or decree, or any part thereof, is for special damages, as defined below, or for liquidated damages, the amount of such special or liquidated damages shall bear interest from the date the right to bring the same shall have accrued, as determined by the court. Special damages include lost wages and income, medical expenses, damages to tangible personal property, and similar out-of-pocket expenditures, as determined by the court. The rate of interest shall be ten dollars upon one hundred dollars per annum, and proportionately for a greater or lesser sum, or for a longer or shorter time, notwithstanding any other provisions of law.
W.Va.Code § 56-6-31. This statute states that prejudgment interest can be recovered when the claim is either for liquidated damages or for special damages. Special damages, as defined by section 56-6-31, include "lost wages and income, medical expenses, damages to tangible personal property, and similar out-of-pocket expenditures, as determined by the court." W.Va.Code § 56-6-31. Moreover, under section 56-6-31, prejudgment interest on special or liquidated damages is recoverable as a matter of law. Id.; Eriksen Constr. Co. v. Morey, 923 F. Supp. 878, 880 (S.D.W.Va.1996) (interpreting West Virginia law).
One factor determining whether a plaintiff's damages constitute special damages under West Virginia law is whether the plaintiff can prove an ascertainable pecuniary loss. In Capper v. Gates, 193 W.Va. 9, 454 S.E.2d 54, 64 (1994), the Supreme Court of West Virginia held that "[i]n contract or tort actions, prejudgment interest is available to a litigant as part of compensatory *731 damages if there is an ascertainable pecuniary loss." Other cases have made similar holdings. See, e.g., Ericksen Constr. Co., 923 F.Supp., at 880 (under West Virginia law, award of compensatory damages includes award of prejudgment interest); Chafin v. Chafin, 202 W.Va. 616, 595 S.E.2d 679, 690 (1998) (losses "capable of being rendered certain by reasonable calculation" may be subject to prejudgment interest); Beard v. Lim, 185 W.Va. TO, 408 S.E.2d 772, 776 (1991) (prejudgment interest is available on "ascertainable pecuniary loss").
Even assuming that the FDIC is entitled to prejudgment interest under FIRREA, the court does not believe that the damages the FDIC seeks to recover are "special or liquidated damages" within the meaning of W. Va.Code § 56-6-31. Accordingly, the FDIC's request for an award of prejudgment interest is denied.
D. Damages of Gary Ellis
Ellis has suffered damages in the amount of $2,419,233.[15] Grant Thornton has made much ado about the damage figure that Ellis' expert, Lane Ellis, determined was applicable to Ellis' situation. Grant Thornton failed, however, to offer an alternative amount.
In this case, Ellis showed that Grant Thornton was negligent and that its negligence caused him economic loss. This loss was primarily in the form of an inability to earn future compensation at the level he had prior to Grant Thornton's negligence. The evidence at trial showed that, but for Grant Thornton's negligence, Gary Ellis would not have taken the job at Keystone. Consequently, he would never have purchased Keystone stock and he would likely have continued working at United or some other bank making roughly the same salary as he had during his many years at United. In the court's view, reliance on Gary Ellis' salary at United in ascertaining his damages makes the most sense given Gary Ellis' long tenure with that bank. Lane Ellis testified to several other possible methods for arriving at damages, none of which were preferable to the one chosen. Accordingly, the court finds that the $2,419,233 damage figure to be reasonable given the evidence in the case.
Grant Thornton also contends that Ellis cannot receive damages for this type of loss. However, under West Virginia law, it is clear that permanent physical impairment was not the only type of lasting consequence which would sustain an award of future damages, such as for future earnings. See Cook v. Cook, 216 W.Va. 353, 361, 607 S.E.2d 459 (2004) ("[W]e have determined that a permanent physical impairment is not the only type of lasting consequence which will sustain an award of future damages, including future earnings. . . . The relevant evidence of a lasting or permanent consequence is determined by the nature of the consequence and does not necessarily involve medical evidence; nevertheless, the relevant evidence in all cases must establish the lasting or permanent consequence to a reasonable degree of certainty.").
Ellis has established to a reasonable degree of certainty that his employment at Keystone during its demise has rendered him unable to secure an executive level position in banking.
CONCLUSION
In view of the Court's findings and conclusions and Grant Thornton's failure to, put forth sufficient evidence to support them, the Court determines that Grant *732 Thornton's claims and counterclaims, to the extent that any remain viable, should be denied in entirety.
After these Findings of Fact and Conclusions of Law are filed, an Order will be entered deconsolidating the claim of Gary Ellis, Civil Action No. 1:04cv0043. As to Gary Ellis, a separate judgment will be entered this day, pursuant to Federal Rule of Civil Procedure 58, in accord with the foregoing findings of fact and conclusions of law. The court is aware that the amount of the credit, if any, Grant Thornton is entitled to receive because of the Kutak Rock settlement remains open for decision. The parties have seven days in which to file a brief, of no more than five pages, setting forth their positions on the most expeditious way to resolve the issue of the credit. Once the issue of the Kutak Rock credit is resolved, the court will enter final judgment on the FDIC's claims.
NOTES
[1] On December 29, 2006, Cherry died of a cerebral hemorrhage while in federal custody.
[2] The counter bond index is really an index of Fannie Mae interest only prices. McConnell, June 7, 2004, Tr. at 185.
[3] According to Lane Ellis, Gary Ellis' salary at United was in the lower 30' percent of the range for banking executives.
[4] The case from which Askanase takes the language that it is not enough to "furnish the condition that made the plaintiff's injury possible" involved an individual suing a gas pump company' because the pump exploded, requiring the fire department to put out the fire with water. This, in turn, caused a nearby surface to be wet and slippery and an individual fell and sustained injuries. See Union Pump Co. v. Allbritton, 898 S.W.2d 773, 776 (Tex.1995). The court in that case quite appropriately ruled that while the exploding gas pump "furnished the condition" that made the slip and fall injury possible, the relation between the two was simply too attenuated to constitute legal causation. Grant Thornton has also cited the West Virginia cases of Perry v. Melton, 171 W.Va. 397, 299 S.E.2d 8 (1982), and Wehner v. Weinstein, 191 W.Va. 149, 444 S.E.2d 27 (1994). These cases are in the same vein as Askanase (i.e. the claimed injury was not a natural and foreseeable consequence of the alleged negligence).
[5] The reader should note that there are two opinions cited in this case with citations that are almost identical. This opinion should not be confused with Comeau v. Rupp, 810 F. Supp. 1127 (D.Kan.1992).
[6] Askanase was a fraud case.
[7] The harmony of the Comeau and Askanase opinions can be seen in that the Comeau court limited damages to those that were "natural and probable consequences" of the negligence and the Askanase court rejected an attempt to collect all losses "no matter what created [those] losses." Therefore, the two decisions are entirely consistent; both require damages to be the natural and foreseeable consequence of the negligence.
[8] The holding in Greenberg was subsequently disapproved by the Tenth Circuit in Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340 (3rd Cir.2001), in the context of a suit brought by a bankruptcy trustee. The Lafferty court explained that the Greenberg rationale was "preferable from a public policy perspective" and implied that it would join most other courts in approving of Greenberg's holding in the context of a receiver as opposed to a bankruptcy trustee. The court concluded, however, that the case before it required strict application of Section 541 of the Bankruptcy Code and that Greenberg's holding was contrary to the statute. In the case at bar, however, the FDIC is the receiver of Keystone, and the Bankruptcy Code is not in play. Accordingly, the Court concludes that the Greenberg analysis is appropriate.
[9] The Bradley court used the term "comparative negligence" as a shorthand method of referring to comparative contributory negligence. King v. Kayak Mfg. Corp., 182 W.Va. 276, 387 S.E.2d 511, 514 (1989).
[10] By Order entered May 12, 2004, the Court granted the FDIC's motion in limine to exclude evidence of the alleged pre-receivership failures of the federal regulators. In so doing, the court was and still is of the opinion that the alleged failures of the regulators is not relevant to the issues of whether Grant Thornton was negligent with respect to its work at Keystone. In other words, the fact that the FDIC or OCC had not discovered the fraud at an earlier date would not absolve Grant Thornton of liability. Grant Thornton was, however, still free to argue that the conduct of the regulators (during the time of Grant Thornton's engagement) was an intervening and superseding cause to Grant Thornton's negligence. For these reasons and as explained more fully herein, the motion in limine was granted.
[11] The court notes that Clark is not binding authority on this court particularly where, as here, the case was decided by a fellow district judge attempting to interpret state law.
[12] If Potter had included all changes in Keystone's asset values, as Grant Thornton suggests that he should, this would have resulted in a much higher damage number because it would have included the decline in the value of the residuals, the losses on the B-Certificates, and the collapse of the 1997 P-1 securitization. Potter, May 27, 2004, Tr. at 104-05. Therefore, Grant Thornton has not been prejudiced by Potter's election not to use a pure deepening insolvency analysis.
[13] In arriving at the means to calculate damages under the particular facts of the Lively case, the court began with the basic principle that the purpose of awarding damages is "to put the plaintiff in the same position, so as far as money can do it, as he would have been [in] if . . . the tort [had] not [been] committed." Lively, 533 S.E.2d at 668 (internal citations omitted). As demonstrated above, the measure of damages used by Mr. Potter and the FDIC in this case places the FDIC where it would have been "but for" Grant Thornton's malfeasance and is a proper measure of damages under West Virginia law.
[14] Under the court's adopted theory of damages, the FDIC would also be able to recover an amount equaling the fees paid to Grant Thornton for work done after issuance of the audit report because if the Bank had been closed by April 21, 1999; those fees would never have been paid in the first place.
[15] August 8, 2006, Ellis filed a motion to submit an updated damage figure. For certain of the `reasons discussed in Grant Thornton's opposition, that motion is DENIED and the court has not considered the revised damage figure.
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535 F. Supp. 2d 118 (2008)
UNITED STATES of America
v.
Antonio DOUGLAS, Defendant.
Criminal No. 08-013(RCL).
United States District Court, District of Columbia.
March 3, 2008.
*119 Nancy Boggs Jackson, U.S. Attorney's Office, Washington, DC, for United States of America.
Nathan I. Silver, II, Law Offices of Nathan I. Silver, Bethesda, MD, for Defendant.
MEMORANDUM AND ORDER
ROYCE C. LAMBERTH, District Judge.
Defendant Antonio Douglas has been charged with conspiracy to transport stolen goods, interstate transportation of stolen goods and aiding and abetting, and unlawful possession of a firearm and ammunition by a person convicted of a crime punishable by imprisonment for a term exceeding one year.[1] Following a hearing On February 29, 2008, this Court ordered that the defendant be detained pending trial, pursuant to 18 U.S.C. § 3141. Upon consideration of the arguments and proffers at the hearing, this Court finds that no condition or combination of conditions will reasonably assure the safety of the community if the; defendant were to be released pending trial. See 18 U.S.C. § 3142(e). Accordingly, the Court ORDERS that the defendant be detained without bond pending trial.
DISCUSSION
Under the Bail Reform Act,[2] in order to detain a defendant pretrial, the government bears the burden of establishing "that no condition or combination of conditions will reasonably assure the appearance of the person as required and the safety of the community." 18 U.S.C. § 3142(e). The facts supporting a finding that no condition or combination of conditions will reasonably assure the safety of the community must be supported by clear and convincing evidence. 18 U.S.C. § 3142(f). Pursuant to 18 U.S.C. § 3142(f)(1)(E), the government may request detention in a case that involves "any felony that is not otherwise a crime of violence that involves . . . the possession or use of a firearm or destructive device." 18 U.S.C. § 3142(f)(1)(E). Upon motion of the government, "the judicial officer shall hold a hearing to determine whether any condition or combination of conditions set forth in subsection (c) . . . will reasonably assure the appearance of such person as required and the safety of any other person and the community." 18 U.S.C. § 3142(f)(1). Further, the Court must conduct an independent assessment of four factors listed in § 3142(g) to determine whether pretrial detention is appropriate.[3]
The evidence in this case is sufficient to conclude that no condition or set of *120 conditions will reasonably assure the safety of the community. At the hearing, the government represented that the facts giving rise to the indictment occurred while defendant was on supervised release following his conviction in a Montgomery County, Maryland court for conspiracy to commit theft. Further, the government made unopposed representations that in the instant matter, defendant has been charged with a conspiracy that has uncovered 22 firearms, in addition to the firearm that was seized from defendant's residence. Moreover, the government asserted that it has two videotapes of defendant committing theft in retail establishments during business hours and in the presence of the public. These factors, taken together, establish that there are no set of conditions that this Court can impose that would assure the safety of the community.
The Court must now independently assess the four factors enumerated in § 3142(g) to determine whether the evidence clearly and convincingly supports the facts used to support the Court's finding. Here, the evidence supports a finding of potential danger to the community and weighs in favor of the defendant's detention pending trial. First, the nature and circumstances of the offenses charged against the defendant favor detention. Defendant has been charged with, inter alia, unlawful possession of a firearm by a convicted person. Further, the defendant is charged with a conspiracy that involves 22 firearms all of which pose a danger to the community. As such, the circumstances surrounding defendant's charged offenses demonstrate that defendant is dangerous to other individuals in the community.
Second, the weight of the evidence against the defendant also favors detention. The government represents that it has videotape footage of defendant committing acts of theft in retail establishments. Additionally, the government seized a firearm and ammunition from defendant's residence. Defendant's possession of a firearm was prohibited not only because of his status as a convicted felon, but also because the possession occurred in the District of Columbia where firearms are patently illegal.
Third, the nature and seriousness of the danger to the community that would be posed by the defendant's release also weighs significantly in favor of the government. The sheer number of weapons involved in the alleged conspiracy, the firearm and ammunition found in defendant's residence, and defendant's alleged participation in acts of theft in public places clearly show that the defendant is a danger to the community.
Finally, the Court must consider the history and characteristics of the defendant, including his ties to the community. Defendant has two prior felony convictions for conspiracy theft and conspiracy robbery. Defendant has numerous other arrests for, inter alia, possession of a controlled substance, reckless driving, and possession of an open container of alcohol. Defendant's criminal history, combined with the weight of the evidence against the defendant and the nature and seriousness of the danger posed by defendant's release all weigh in favor of detention.
CONCLUSION
For the aforementioned reasons, the Court finds that pretrial detention of the defendant is appropriate in this case because there is clear and convincing evidence that no conditions of release will reasonably assure the safety of the community. Accordingly, it is hereby
*121 ORDERED that the defendant be detained without bond pending trial.
SO ORDERED.
NOTES
[1] These counts are in violation of 18 U.S.C. § 371, 18 U.S.C. § 2314 and 2, and 18 U.S.C. § 922(g)(1).
[2] 18 U.S.C. § 3141 et seq.
[3] Those factors are: (1) the nature and circumstances of the offense charged, including whether the offense is a crime of violence; (2) the weight of the evidence against the defendant; (3) the history and characteristics of the person, including the defendant's ties to the community; and (4) the nature and seriousness of the danger to any person or the community that would be posed by the person's release. See 18 U.S.C. § 3142(g).
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535 F. Supp. 2d 1255 (2008)
K.W. Michael CHAMBERS, et al., Plaintiffs,
v.
Michael J. COONEY, M.D., Defendant/Counterclaim Plaintiff,
v.
Dr. Eugene de Juan, et al., Counterclaim Defendants.
Civil Action No. 07-0373-WS-B.
United States District Court, S.D. Alabama, Southern Division.
January 23, 2008.
*1256 Michael D. Knight, P. Russel Myles, McDowell Knight Roedder & Sledge, L.L.C., Mobile, AL, for Plaintiffs.
Frederick C. Laney, Paul Kirby Vickrey, Chicago, IL, J. Don Foster, Jackson, Foster & Graham, LLC, Mobile, AL, for Defendants.
ORDER
WILLIAM H. STEELE, District Judge.
This matter comes before the Court on defendant SurModics, Inc.'s Motion to Dismiss (doc. 40). The Motion has been briefed and is ripe for disposition at this time.
I. Relevant Background.
A detailed review of the factual underpinnings and procedural posture of this consolidated action is unnecessary to resolve the discrete issues raised in the Rule 12 Motion. In the Amended Complaint (doc. 38, Exh. 6), Michael J. Cooney, M.D. ("Dr.Cooney") brought certain claims against SurModics, Inc. ("SurModics") and others based on SurModics' acquisition of a company called InnoRx, Inc. In particular, the Amended Complaint alleges a scheme by SurModics, InnoRx and others to deprive Dr. Cooney of proceeds from that transaction and to rob him of inventorship rights for certain technologies that he had helped to innovate while working for and with InnoRx by eliminating his name from patent applications pertaining to those inventions.
The specific claims that Dr. Cooney asserts against SurModics include the following: (1) a claim for unjust enrichment on the theory that InnoRx was unjustly enriched by the value of Dr. Cooney's intellectual property and his subsequent exclusion from licensing rights for that intellectual property; (2) a claim for fraud based on InnoRx's failure to inform Dr. Cooney that his name was being removed from the '750 Patent application and that he was being deliberately excluded from other patent applications despite his status as an inventor; and (3) a claim for breach of fiduciary duty on the ground that InnoRx owed Dr. Cooney a fiduciary duty which it breached to Dr. Cooney's detriment. (Amended Complaint, ¶¶ 48-58.) With respect to each of these causes of action, Dr. Cooney predicates liability for SurModics on its status as successor to InnoRx.
The Amended Complaint also includes two other causes of action that are of particular significance to the pending Motion to Dismiss. In particular, Count IV, *1257 captioned "Correction of Inventorship," states that Dr. Cooney is a co-inventor of the '750 Patent and asks this Court prow ant to 35 U.S.C. § 256 to correct that patent to reflect his co-inventor status. Count IV also sets forth a laundry list of 15 other pending patent applications and states that "[i]n the event that patents are issued on [those] applications and Dr. Cooney is not named as an inventor [f]or each such patent, Dr. Cooney reserves the right to amend the Complaint to add such patents to seek a correction of inventorship." (Amended Complaint, ¶ 59.) The relief requested by Dr. Cooney in Count IV is that he "should be declared the owner of all rights arising from his status as co-inventor of the '750 patent and the [15 other enumerated] applications (once they issue)." (Id., ¶ 62.) Further, Count V of the Amended Complaint is captioned "Tortious Interference with Prospective Economic Advantage?' A fair reading of Count V is that Dr. Cooney alleges that SurModics had determined based on its own analysis, that Dr. Cooney was entitled to inventor status on the pending patent applications, but failed either to notify the Patent and Trademark Office of that determination or to file appropriate petitions to correct ownership. (Id., ¶¶ 64-67.) As a result of these allegedly wrongful omissions, Dr. Cooney claims, he "has been deprived the right to independently license the pending applications on which he is an inventor." (id., ¶ 68.)
In its Motion to Dismiss, SurModics asks this Court to dismiss Count IV to the extent it seeks relief concerning pending patent applications, to dismiss Count V for failure to state a claim upon which relief can be granted, and to strike certain paragraphs of the Amended Complaint that it contends improperly recount statements made during settlement negotiations.
II. Legal Standard.
On a motion to dismiss for failure to state a claim upon which relief can be granted, the Court must view the complaint in the light most favorable to the plaintiff. Hill v. White, 321 F.3d 1334, 1335 (11th Cir.2003). Thus, "when ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, ___ U.S. ___, 127 S. Ct. 2197, 2200, 167 L. Ed. 2d 1081 (2007). The rules of pleading require only that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2), Fed. R.Civ.P. While a complaint attacked by a Rule 12(b)(6) motion need not be buttressed by detailed factual allegations, the plaintiffs pleading obligation "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1964-65, 167 L. Ed. 2d 929 (2007). The rules of pleading do "not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." Id. at 1974; see also Financial Sec. Assur., Inc. v. Stephens, Inc., 500 F.3d 1276, 1282 (11th Cir.2007) (explaining that "factual allegations in a complaint must possess enough heft to set forth a plausible entitlement to relief') (citation omitted). The Court's inquiry at this stage focuses on whether the challenged pleadings "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Erickson, 127 S.Ct. at 2200 (quoting Twombly, 127 S.Ct. at 1964). Thus, the proper test is whether the complaint "contain[s] either direct or inferential' allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Financial Sec., 500 F.3d at 1282-83 (citation and internal quotations omitted).
*1258 III. Analysis.
A. Count IV Correction of Inventorship
SurModics devotes nearly half of its lengthy memorandum of law in support of the Motion to Dismiss to Count IV, the claim for correction of inventorship pursuant to 35 U.S.C. § 256. In so doing, SurModics does not allege that this cause of action fails to state an actionable claim to the extent that Dr. Cooney seeks correction of the '750 Patent to designate him as a co-inventor. Rather, SurModics's position is that Count IV should be dismissed "to the extent it seeks an order correcting inventorship of pending patent applications." (SurModics Brief (doc. 41), at 7.)
This is a phantom issue. While the legal premise of SurModics' argument is correct,[1] it is combating claims that simply are not alleged. Dr. Cooney emphatically states in his response brief that he "is not requesting this Court to declare him an inventor on pending patent applications" and that he "stipulates that he will not seek a correction of inventorship on any patent application until it issues." (Cooney Response (doc. 46), at 1-2.) Such a stipulation is fully supported by the plain text of Count IV itself, in which Dr. Cooney states that "[i]n the event that patents are issued" with respect to those 15 pending applications, "Dr. Cooney reserves the right to amend the Complaint to add such patents to seek a correction of inventorship." (Amended Complaint, ¶ 59 (emphasis added).) As Dr. Cooney is not presently requesting correction of inventorship by this Court as to any of the 15 pending patent applications, SurModics' Motion to Dismiss Count IV "to the extent" that he is so requesting is denied as moot.[2] For the sake of clarity, the Court observes that Count IV does not read, and is not to be construed for purposes of this action, as requesting correction of inventorship as to any of the 15 pending patent applications at this time. Rather, Count IV is confined to the '750 Patent. If Dr. Cooney later seeks to petition the Court in this action for correction of inventorship or a declaration of ownership rights as to any patent other than the '750 Patent, it will be necessary for him to seek leave of court to amend his pleadings to do so, pursuant to Rule 15, Fed.R.Civ.P., and in conformity *1259 with the deadlines specified in the applicable Rule 16(b) Scheduling Order.[3]
B Count V: Tortious Interference Prospective Economic Advantage.
1. Pleading Requirements.
Next, SurModics contends that Dr. Cooney's tortious interference claim (Count V) is fatally infirm as presented in the Amended Complaint because it fails, to plead the elements of that cause of action. SurModics' position is that Count V should be dismissed because it "does not identify a single potential business relationship involving any alleged efforts by Dr. Cooney to license the 15 listed pending patent applications." (SurModics Brief, at 24.) SurModics further maintains that Count V fails because it does not identify "any business relation that supposedly would have proceeded to softie sort of binding, if not contractual, relationship but for the undisclosed `interference' that Dr. Cooney attributes to SurModics." (Id.)
To evaluate this argument, the Court must first examine the appropriate pleading standard for a claim of tortious interference with prospective economic advantage. Although there is some question as to which state's law applies to Count V, both parties' briefs rely primarily on New York law on this question; therefore, the Court will assume (without deciding) that New York law applies.[4] Under New York law, the tort of tortious interference with prospective economic advantage "has a limited scope," imposes "demanding" requirements on plaintiffs, and is "very difficult to sustain." Henneberry v. Sumitomo Corp, of America, 415 F. Supp. 2d 423, 467 (S.D.N.Y.2006) (citations omitted). Indeed, New York law provides that "[a]llegations of tortious interference must be more than just mere suspicions, and, therefore, the complaint must allege interference with a specific identified business relationship with a third party." American Bldg. Maintenance Co. of New York v. Acme Property Services, Inc., 515 F. Supp. 2d 298, 316 (N.D.N.Y.2007) (citations omitted); see also Henneberry, 415 F.Supp.2d at 469 (granting motion to dismiss tortious interference with prospective advantage claim where plaintiff "failed to plead adequately the first element of this claim-i.e., that he had a continuing or existing *1260 business relationship with a third party with which defendant interfered"). More generally, to state a viable claim for tortious interference with prospective business relations under New York law a plaintiff "must allege the following four elements: (1) a business relationship between plaintiff and a third party; (2) that defendants, having knowledge of such relationship, intentionally interfered with it; (3) that defendants acted with the sole purpose of harming the plaintiff or, failing that level of malice, used dishonest, unfair or improper means; and (4) injury to the business relationship." Zdenek Marek v. Old Navy (Apparel) Inc., 348 F. Supp. 2d 275, 280 (S.D.N.Y.2004). "Furthermore, plaintiff must allege that defendants directly interfered with the business relationship by directing some activities towards the third party and convinc[ing] the third party not to enter into a business relationship with the plaintiff." Id. (citation omitted); see also Piccoli AM v. Calvin Klein Jeanswear Co., 19 F. Supp. 2d 157, 167-68 (S.D.N.Y.1998) (finding that plaintiff failed to state claim for tortious interference where there was no allegation that defendants' conduct was directed towards any third party with whom plaintiff had existing or prospective business relationship).
Count V of the Amended Complaint does not comport with these bedrock requirements under New York law. As pleaded, Count V does not identify any specific continuing or existing business relationships with third parties with which SurModics is alleged to have interfered; rather, Dr. Cooney merely states that his right to license the pending patent applications has been infringed by SurModics' alleged wrongdoing. He does not identify specific licensees, either by name or other description. He does not state that he has a continuing or existing relationship with such licensees, or even that he has ever been in contact with any of them; rather, it appears that the relationships that have allegedly been interfered with are purely speculative and hypothetical. And he does not allege that SurModics directed any activities toward those amorphous putative licensees to convince them not to do business with Dr. Cooney. In all of these respects, Count V is inadequately pleaded under New York law.[5]
2. Necessity of Proving Patent Inventorship Rights.
Under the circumstances, any attempt by Dr. Cooney to amend Count V to correct *1261 these pleading flaws would be futile.[6] Even if Dr. Cooney were to amend his pleading to recite the technical elements, of the tortious interference plain in a manner that satisfied pleading requirements imposed by New York law, this cause of action would remain subject to an insuperable defect. Count V is entirely predicated on Dr. Cooney's contention that he should have been named as co-inventor on the 15 pending patent applications. He reasons that SurModics knew he was a coinventor for those applications, but failed to correct inventorship on those applications, resulting in a deprivation Of Dr. Cooney's right to license those patent applications and constituting the tort of tortious interference with prospective economic advantage. It is abundantly clear, however, that a necessary prerequisite to an award for Dr. Cooney on Count V would be a determination by this Court that he is in fact a co-inventor for: the patent applications at issue. As already discussed, supra, however, it is undisputed by the parties that federal courts lack jurisdiction to adjudicate inventorship rights for pending patent applications. Dr. Cooney "cannot use a tortious interference claim to accomplish indirectly that which he cannot, accomplish directly in a correction of inventorship claim. Therefore, even if Dr. Cooney were able to amend his tortious interference cause of action to comport with the pleading standards of New York law, Count V would still, fail to state a claim on which relief can be' granted because Dr. Cooney's theory of relief presupposes co-inventorship status on pending patent applications, a determination that this Court lacks jurisdiction to make. See, e.g., 35 U.S.C. § 116; Carter v. ALK Holdings, Inc., 510 F. Supp. 2d 1299, 1304 (N.D.Ga.2007) (construing statutory scheme as one "in which Congress intended for courts to become involved in inventorship only after the patent has issued"); Sagoma Plastics, Inc. v. Gelardi, 366 F. Supp. 2d 185, 187-88 (D.Me.2005) (holding that "the courts may not interfere with the patent process until after the PTO has rendered a final decision on the precise nature of the patent, if it chooses to issue a patent at all" and that district courts are not empowered to determine questions of inventorship prior to patent's issuance).[7]
Ian response, Dr. Cooney does not suggest that this Court can or should become involved in inventorship determinations of pending patent applications. Instead, he argues that "no judicial determination of inventorship on the pending applications is necessary" (doc. 46, at 7) for Count V because SurModics had already determined *1262 Dr. Cooney to be a named inventor, yet failed to list him in that capacity on the patent applications. This argument misses the point. Whatever it may have said or done at some other time, SurModics has plainly taken the position in this litigation that Dr. Cooney is not a co-inventor of the pending patent applications and that his name should not be listed on those applications. If Count V were to proceed, the finder of fact would necessarily be tasked with determining whether Dr. Cooney's name should have been listed on those applications, so as to trigger his licensing rights and enable him to secure economic advantage from the business relationships that SurModics allegedly interfered with. After all, unless Dr. Cooney is listed as a co-inventor, he has no licensing rights as to those pending patent applications. But the decision of whether or not Dr. Cooney is a co-inventor (and thus one whose name should be listed on the applications) is for the Patent and Trademark Office to make as to those pending applications, not for this Court or a federal jury. The Court will not overstep its jurisdictional authority and invade the province of the Patent and Trademark Office to make inventorship determinations for pending patent applications in the guise of deciding a commonlaw cause of action for tortious interference with prospective economic advantage.
3. Conclusion.
For all of these reasons, the undersigned finds that Dr. Cooney's claim against SurModics for tortious interference with prospective economic advantage fails to state a claim upon which relief can be granted because it does not comply with state-law pleading requirements for such claims. Even if it did, the tortious interference claim would still fail a Rule 12(b)(6) analysis because implicit in any relief that might be granted Dr. Cooney on that cause of action would be a determination by the fact-finder that he is a co-inventor or otherwise has inventorship rights in pending patent applications, and federal courts are not empowered to make such determinations.
C. Request to Strike Allegations Concerning Settlement Negotiations.
Lastly, the Court turns to SurModics' request pursuant to Rule 12(f), Fed.R.Civ. P., that Paragraphs 46, 47, and 64-67 of the Amended Complaint be stricken as containing inadmissible evidence of settlement negotiations, pursuant to Rule 408, Fed.R.Evid. In this very action, the Court has previously rejected the parties' improper attempts to extract anticipatory evidentiary rulings concerning statements in the pleadings. Specifically, Dr. Cooney previously asked the Court to dismiss the former stockholders of InnoRx's tortious interference claim against him "because the evidence on which it is predicated consists of statements made by Dr. Cooney in settlement negotiations, which are inadmissible under Rule 408 of the Federal Rules of Evidence. This kind of evidentiary objection is inappropriate at the Rule 12(b) stage." Chambers v. Cooney, 2007 WL 2493682, *12 (S.D.Ala. Aug. 29, 2007) (footnote omitted). The parties now argue whether the statements identified in SurModics' motion to strike constitute settlement negotiations or not, with SurModics proffering extrinsic evidence in support of its position. Again, the Court declines to make anticipatory evidentiary rulings at the Rule 12(b) stage of the proceedings based on an undeveloped factual record.
SurModics' request is governed by Rule 12(f), Fed.R.Civ.P., which authorizes district courts to "order stricken from any pleading . . . any redundant, immaterial, impertinent, or scandalous matter." Id. However, "[s]triking matter on Rule 12(f) grounds is a drastic, disfavored remedy." English v. CSA Equipment Co., 2006 WL *1263 2456030, *2 n. 5 (S.D.Ala. Aug. 22, 2006); see also Stephens v. Trust for Public Land, 479 F. Supp. 2d 1341, 1346 (N.D.Ga. 2007) (noting that a motion to strike IS a "drastic remedy" and that such motions "are rarely granted absent a showing of prejudice"); BB In Technology Co. v. JAF, LLC, 242 F.R.D. 632, 641 (S.D.Fla.2007) (opining that Rule 12(f) motions. "will usually be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties"); Carlson Corporation/Southeast School Bd. of Seminole County, Fla., 778 F. Supp. 518, 519 (M.D.Fla.1991) (characterizing motions to strike as "time wasters" and observing that such motions "will usually be denied").
SurModics' justifies its request that certain paragraphs of the Amended Complaint be stricken by arguing that the statements set forth therein constitute settlement negotiations that would be inadmissible under Rule 408, Fed.R.Civ.P. As noted supra, however, the question of admissibility is not properly before the Court; rather, the question presented by SurModics is whether those statements should be stricken from the court file in its entirety. SurModics has made no showing to warrant such a remedy in this case. Significantly, movant makes no showing that it would sustain any prejudice by virtue of the inclusion of those statements in the court file or that any harm will befall it unless those allegations are stricken. Absent any evidence of prejudice, the Court declines to impose the drastic, disfavored remedy of striking the challenged allegations pursuant to Rule 12(f). See Evonik Degussa Corp. v. Quality Carriers, Inc., 2007 WL 4358260 (S.D.Ala. Dec. 13, 2007) (denying motion to strike exhibits to notice of removal where movant alleged that exhibits constituted settlement negotiations that were inadmissible under Rule 408). The Motion to Strike is denied, subject to SurModics' right to challenge admissibility of these statements at an appropriate juncture.
IV. Conclusion.
For all of the foregoing reasons, it is ordered that SurModics' Motion to Dismiss and to Strike (doc. 40) is granted in part, and denied in part. The Motion to Dismiss is granted with respect to Dr. Cooney's claim for tortious interference with prospective economic advantage, and Count V of his Amended Complaint is dismissed pursuant to Rule 12(b)(6) for failure to state a claim on which relief can be granted. The Motion to Dismiss is denied as moot with respect to Count IV of the Amended Complaint because the Motion hypothesizes that Dr. Cooney is bringing claims that he is unequivocally not bringing in these proceedings. The Motion to Strike is denied, with the proviso that SurModics may litigate the admissibility of the challenged statements at an appropriate time. SurModics is ordered to file an answer to Dr. Cooney's Amended Complaint on or before February 4, 2008.
NOTES
[1] It is an uncontroversial and well-established proposition that federal courts have jurisdiction only to correct inventorship on issued patents, not on pending patent applications. See, e.g., Eli Lilly and Co. v. Aradigm Corp., 376 F.3d 1352, 1356 (Fed.Cir.2004) (explaining that 35 U.S.C. § 256 allows an alleged coinventor to bring a cause of action to correct inventorship on an issued patent, but that 35 U.S.C. § 116 "plainly does not create a cause of action in the district courts to modify inventorship on pending patent applications"); 35 U.S.C. § 116 ("Whenever through error . . . an inventor is not named in an application, and such error arose without any deceptive intention on his part, the Director [of the Patent and Trademark Office] may permit the application to be amended accordingly, under such terms as he prescribes."). Dr. Cooney does not maintain otherwise in these proceedings.
[2] It appears that SurModics based this aspect of the Motion to Dismiss on language in the ad damnum clause of the Amended Complaint, wherein Dr. Cooney requests "[a]n order correcting the inventorship of the '750 patent and the [15 pending] applications." (Amended Complaint, at 23.) While this inconsistency reflects poor draftsmanship, a simple telephone call between counsel would likely have resolved the discrepancy to the satisfaction of all concerned. Indeed, it might have saved the parties (and this Court) substantial time and resources had SurModics called Dr. Cooney's counsel to request clarification before firing off a 29-page Rule 12(b)(6) Motion and brief directed in considerable part at claims that the Amended Complaint did not appear to be pursuing and that Dr. Cooney now unequivocally disavows.
[3] The foregoing also disposes of Surmodics' second argument, to-wit, that "Count IV should be dismissed to the extent it seeks a declaration that Dr. Cooney will be a coowner of any patents that may issue from pending patent applications." (SurModics Brief (doc. 41), at 17.) As stated, Dr. Cooney has disavowed any intent to utilize Count IV as a platform for litigating patent applications" other than the '750 Patent, so once again SurModics is asking the Court to slay, an imaginary dragon.
[4] This makes sense, given the, fragmentary information available to the Court. Federal courts sitting in diversity generally apply the choice-of-law rules of the state in which they sit. See Grupo Televisa, S.A. v. Telemundo Communications Group, Inc., 485 F.3d 1233, 1240 (11th Cir.2007) ("A federal court sitting in diversity will apply the conflict-of-laws rules of the forum state."). "Lex loci delicti has been the rule in Alabama for almost 100 years. Under this principle, an Alabama court will determine the substantive rights of an injured party according to the law of the state where the injury occurred." Fitts v. Minnesota Mining & Mfg. Co., 581 So. 2d 819, 820 (Ala.1991). "Whore as here, the injury in question is financial,' the location where the financial injury was felt is determinative under lex loci delicti." Chambers v. Cooney, 2007 WL 2493682, *11 (S.D.Ala. Aug. 29, 2007). The Amended Coniplaint reflects that Dr. Cooney is a resident Of New York. (Doc. 38, Exh. 6, ¶ 5.) Therefore, it appears that the injury from the alleged toitious interference would have been felt by Dr. Cooney in New York, such that New York law would apply under the lex loci delicti doctrine. No party has argued otherwise, at least for purposes of the pending Motion to Dismiss, so the Court will not explore that question further at this time.
[5] In so concluding, the Court rejects Dr. Cooney's arguments to the contrary. Dr. Cooney relies heavily on the unpublished decision of SLM, Inc. v. Shelbud Products Corp., 1993 WL 127969 (S.D.N.Y. Apr. 20, 1993), wherein the district court found that a complaint need not "identify by name the prospective business relationships that it alleges have been interfered with," as long as the complaint "sufficiently identifies the prospective business relationships as being with inventors, SLM employees, and others in the toy industry." Id. at *5. But SLM is distinguishable. The concern here is not that Dr. Cooney has failed to name prospective licensees by name, but that he has offered no description or characterization of them at all such that it is impossible for SurModics to discern anything about the relationships that it is accused of interfering with. That was simply not the case in SLM. Shred-It USA, Inc. v. Mobile Data Shred, Inc., 202 F. Supp. 2d 228 (S.D.N.Y.2002) is distinguishable for precisely the same reason, inasmuch as Dr. Cooney's Amended Complaint says nothing about the relationships allegedly interfered with. More generally, the Court finds that the Henneberry, American Bldg., and Zdenek Marek line of authority discussed above accurately reflects New York law concerning pleading requirements for a claim of tortious interference with prospective economic advantage, and Dr. Cooney has unambiguously failed to satisfy the requirements identified in those authorities.
[6] The law of this Circuit is clear that a court need not sua sponte afford a represented party an opportunity to amend his complaint to correct deficiencies where, as here, the plaintiff has not requested leave to do so. See, e.g., Wagner v. Daewoo Heavy Industries America Corp., 314 F.3d 541, 542 (11th Cir.2002) ("A district court is not required to grant a plaintiff leave to amend his complaint sua sponte when the plaintiff, who is represented by counsel, never filed a motion to amend nor requested leave to amend before the district court.").
[7] In Stevens v. Broad Reach Companies, L.L.C., 2006 WL 1556313 (W.D.Mo. May 31, 2006), the district court determined that these principles forbid not only direct claims to decide inventorship issues of pending patent applications, but also "state law claims that are premised on [plaintiffs] assertion that he is either the sole or joint inventor of the [technology] which the `Defendants seek to patent. These claims require the Court to resolve questions of inventorship in a pending patent application before' granting the `relief sought . . . [which] gives`rise to the risk of an inconsistent determination' of inventorship. As the Court has determined that the PTO is the proper forum for resolving questions of inventorship in pending patent applications, these claims will also be dismissed." Id. at *8. The Court finds the Stevens reasoning persuasive, and expressly adopts it here.
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535 F. Supp. 2d 170 (2008)
Mary Ellen ANKUDA, Plaintiff
v.
R.N. FISH & SON, INC., Defendant.
No. 07-95-P-H.
United States District Court, D. Maine.
February 26, 2008.
David J. Berg, Latti & Anderson LLP, Boston, MA, for Plaintiff.
Leonard W. Langer, Marshall J. Tinkle, Tompkins, Clough, Hirshon & Langer, Portland, ME, for Defendant.
MEMORANDUM DECISION ON MOTION IN LIMINE
DAVID M. COHEN, United States Magistrate Judge.
Defendant R.N. Fish & Son, Inc. filed a motion in limine to exclude testimony of plaintiff Mary Ellen Ankuda's designated *171 expert witnesses, Daniel Briggs, David, A. Halsey, M.D., and various health-care providers. See Defendant's Motion in Limine To Exclude Expert Testimony, etc. ("Modon") (Docket No. 7) at 1. Based on the plaintiffs counsel's representations in his client's opposing brief, the defendant withdrew its motion with respect to Ankuda's health-care providers, including Dr. Halsey. See Defendant's Reply Memorandum in Support of Its Motion In Limine To Exclude Expert Testimony ("Reply") (Docket No. 9) at 5. For the reasons that follow, I grant the Motion insofar as it pertains to Briggs.
I. Applicable Legal Standard
The defendant seeks to exclude Briggs' testimony pursuant to Federal Rule of Evidence 702, Daubert, v. Merrell Dow Pharm., 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 Mt. 1167, 143 L. Ed. 2d 238 (1999), on grounds that it is speculative, unreliable, insufficiently grounded and unhelpful to the trier of fact. See Motion at 3-6. Rule 702 provides:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
Fed.R.Evid. 702. Under Rule 702, "it is the responsibility of the trial judge to ensure that an expert is sufficiently qualified to provide expert testimony that is relevant to the task at hand and to ensure that the testimony rests on a reliable basis." Beaudette v. Louisville Ladder, Inc., 462 F.3d 22, 25 (1st Cir.2006). With respect to reliability:
In Daubert, the Supreme Court set forth four general guidelines for a trial judge to evaluate in considering whether expert testimony rests on an adequate foundation: (1) whether the theory or technique can be and has been tested; (2) whether the technique has been subject to peer review and publication; (3) the technique's known or potential rate of error; and (4) the level of the, theory or technique's acceptance within the relevant discipline. However, these factors do not constitute a definitive checklist or test, and the question of admissibility must be tied to the facts of a particular case.
Id. (citations and internal quotation marks omitted); see also, e.g., Zachar v. Lee, 863 F.3d 70, 76 (1st Cir.2004) ("The court's assessment of reliability is flexible, but an expert must vouchsafe the reliability of the data on which he relies and explain how the cumulation of that data was consistent with standards of the expert's profession.") (citation and internal quotation marks omitted).
As the First Circuit has observed, "Daubert does not require that the party who proffers expert testimony carry the burden of proving to the judge that the expert's assessment of the situation is correct." United States v. Mooney, 315 F.3d 54, 63 (1st. Cir.2002) (citation and internal quotation marks omitted). "It demands only that the proponent of the evidence show that the expert's conclusion has been arrived at in a scientifically sound and methodologically reliable fashion." Id. (citation and internal quotation marks omitted). That said, "nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence which is connected to existing data only by the ipse dixit of the expert. A court may *172 conclude that there is simply too great an analytical gap between the data and the opinion proffered." Ruiz-Troche v. Pepsi Cola of P.R. Bottling Co., 161 F.3d 77, 81 (1st Cir.1998) (citation and internal quotation marks omitted).
II. Analysis
The plaintiff alleges that on or about June 12, 2004 she sustained personal injuries while a passenger aboard a vessel owned and operated by the defendant, the MN PINK LADY II ("Vessel"). See Plaintiff's Complaint, etc. (Docket No. 1) ¶¶ 1-11. She attributes her injuries to the defendant's negligence. See id. ¶ 14. Her expert disclosure lists, among her expected expert witnesses, marine surveyor Daniel Briggs. See Plaintiffs Expert Disclosure ("Plaintiff's Disclosure"), attached to Motion, at 1. Attached to the Disclosure is a report of Briggs in which he states that, he has reviewed photographs of the Vessel's interior and exterior taken on September 12, 2007, a photograph of the Vessel taken from the company's web site, buoy data and a summary of facts of the case prepared by the plaintiffs counsel (the latter, "Fact Summary"). See Letter dated October 4, 2007 from Daniel C. Briggs AMS to Mr. David Berg ("Briggs Report"), attached to Plaintiffs Disclosure. That Fact Summary recounts, in relevant part:
Mary Ellen Ankuda was injured on the Pink Lady II on June 12, 2004, at approximately 11:15 AM. She was injured while going through the door that goes from the salon to the outside of the vessel on the right side. The door is towards the front of the vessel. Mrs. Ankuda was 69 years old at the time, with no significant prior maritime experience. She was on a weekend excursion to Maine with a group of elders from her local senior center. They were on the boat for a short, approximately a hour, trip. They had left at approximately 10:30 AM, so the injury occurred about half way through the trip.
Mrs. Ankuda's memory of the weather that morning is as follows: "It was approximately 70 degrees out. It was windy out. The boat was rocking. I cannot give the exact wind speed and wave height and direction."
* * *
Mrs. Ankuda's memory of how the incident occurred is as follows: "I was in the dining room area and went out the right side door to look at some seals. I then went back in through the same door. I pulled open the door and went to step in, and but the wind slammed the door shut. The door hit me in the rear end and knocked me across the metal plate across the doorway and the door and then onto the ground. I landed on my right side and injured my right arm and right knee in the fall."
You will note in the photographs that the door has a door closer and that there is also a warning notice on the window facing out. . . . Mrs. Ankuda testified that there was no door closer on the door on June 12, 2004, and that there was no warning sticker on the window. At this time, I am not aware of anyone who actually witnessed Mrs. Ankuda's accident.
Fact Summary, attached to Plaintiffs Disclosure. In his report, Briggs states, in relevant part:
It is my opinion that a passenger vessel such as the Pink Lady II should have a door closer/damper on doors such as the doors, leading in and out of the dining area/salon i.e., safe and reasonable maritime practice would require door closers/dampers on such dampers [sic]. This device minimizes the risk to passengers of doors slamming on them at minor cost to the vessel owner. Also, *173 given Coast Guard regulations require passenger vessels such as the Pink Lady II to have a high threshold on the door in question, safe and reasonable maritime practice would be to have a warning sticker to alert passengers of the threshold. Failure to have a door closer/dampener and warning sticker would be a deviation from safe practices.
It is my opinion for the accident to have occurred as stated by. Mrs. Ankuda the vessel may have encountered a wake from another vessel, a large swell, or could have been maneuvering. Any of these may have caused the door to close on her. The fact that the door did close on her as rapidly as she reports tells me that at the time of the accident the door was not fitted with a door closer/damper or if it was the device was not operating correctly.
Briggs Report.
In moving to exclude Briggs' testimony, the defendant complains that the foregoing opinions are, in effect, ipse dixit supported only by Briggs' say-so. See Motion at 3-6. The plaintiff counters by:
1. Emphasizing the depth of Briggs' qualifications and experience (for example, that he has been in the maritime industry since 1970 and has been a marine surveyor for sixteen years). See Opposition to Defendant's Motion In Limine To Exclude Expert Testimony, etc. ("Opposition") (Docket No. 8) at 1-2; Exh. A thereto.
2. Observing that Briggs' opinions regarding the necessity of a door, closer and a warning sticker "need little if any explanation" and "barely qualify as expert opinions because it is so obvious to lay people that a door with a 6 inch (or more) threshold presents a danger" and because it is fairly apparent that most commercial establishments in New England are equipped with door closers and that those have been installed for safety reasons. See Opposition at 3.
3. Protesting that the defendant unreasonably challenges the basis for Briggs' opinion regarding the necessity of a door closer when its own expert, Thomas Hill, is expected to testify that the doorway in question was "equipped with an appropriate hydraulic door-closer which prevents the door from closing on anyone passing through the doorway." Id.; Defendant R.N. Fish & Son, Inc.'s Expert Witness Disclosure ("Defendant's Disclosure"), attached to id., at 2,
4. Observing that, based on the plaintiff's description of how the accident occurred, "it is obvious to the lay person and to the expert that the door must have shut quite hard on her." Opposition at 4.
5. Asserting that, while Briggs performed no tests, experiments or studies, he took into account all possibilities and ruled out the least likely an approach that has been approved by courts considering Daubed motions. See id. at 4-5 The plaintiff explains: "All Mr. Briggs is saying in his report is that the best explanation for why the accident occurred as Mrs. Ankuda said that it did is that either there was no door closer or that it was not working properly. . . . [I]f a door slams shut the way that Mrs. Ankuda has described, it does not take a rocket scientist to say that there was either no door closer or that it was not working correctly." Id. at 5.
In its reply brief, the defendant argues, inter alia, that the plaintiff falls well short of meeting her burden of demonstrating the reliability of Briggs' testimony as an expert, having all but conceded that his conclusions derive from common-sense observations and deductions. See Reply at 1-3. I agree.
*174 The plaintiff essentially supplies two bases for Briggs' opinions: experience and common sense. "Experts may testify on the basis of experience." Brown v. Wal-Mart Stores, Inc., 402 F. Supp. 2d 303, 308 (D.Me.2005). "However, if the expert witness is relying solely or primarily on experience, then the witness must explain how that experience leads to the conclusion reached, why that experience is a sufficient basis for the opinion, and how that experience is reliably applied to the facts." Id. (citation and internal punctuation omitted); see also, e.g., Ambrosini v. Labarraque, 101 F.3d 129, 133 (D.C.Cir. 1996) (for purposes of first prong of Daubert analysis, "`knowledge' connotes more than subjective belief or unsupported speculation") (citation and internal quotation marks omitted).
Briggs constructs no bridge from his experience to his conclusions. See generally Briggs Report; Opposition at 1-6. He does not illuminate the source of his knowledge that lack of a properly functioning door closer on a vessel or of warning signs on a vessel door contravenes safe and reasonable maritime practice for example, that there are published maritime rules or standards so holding or that marine surveyors are so trained. See generally id. Nor does he explain on what basis he concluded, assuming the facts as stated by the plaintiff, that the door closer either was entirely lacking or not functioning properly for example, that he possesses specialized knowledge and/or experience regarding door closers or relies on others' testing, studies or specifications regarding acceptable door-closer performance in conditions such as those described by the plaintiff. See generally id. He offers only his say-so. That does not suffice to withstand a Daubert challenge. See, e.g., Brown, 402 F.Supp.2d at 308 ("We've been presented with only the experts' qualifications, their conclusions and their assurances of reliability. Under Daubert, that's not enough.") (citations and internal quotation marks omitted); Nichols v. Continental Airlines, No. CIV. 01-232-B-S, 2002 WL 1724017, at *3 (D.Me. July 23, 2002) ("In the present case [plaintiffs expert] opines that it was too dark in the plane and the flight attendants did not do adequate `walk-throughs' because in his opinion [plaintiff] would not have fallen if there had been enough light and attentive flight attendants. This is no more than an, `I say it; therefore it is so' averment.").
The plaintiff's proffer of obviousness (or common sense) as a foundation for Briggs' opinions is equally, if not more, unhelpful to her efforts to salvage his testimony in the face of the instant Daubert challenge. A statement of the obvious which is within the ken of a lay jury or a judge presiding at a bench trial is not a proper subject of expert testimony. See, e.g.; United States v. Zajanckauskas, 441 F.3d 32, 39 (1st Cir.2006) ("Expert testimony does not assist where the [trier of fact] has no need for an opinion because it easily can be derived from common sense, common experience, the [trier of fact's] own perceptions, or simple logic.") (citation and internal quotation marks omitted); United States v. Posher, 590 F.2d 381, 383 n. 1 (1st Cir.1979) ("In saying that the expert would invade the province of the jury, we think the trial court was stating that the issue was not a proper subject of expert testimony under F.R.Evid. 702, that is, a subject beyond the ken of the ordinary juror and reliably analyzed by modern science."); Brown, 402 F.Supp.2d at 309 ("This Court concludes that the Plaintiffs expert designation is fatally deficient. Mr. Dodge's opinions merely place an expert sheen on common sense. Mr. Dodge arrives at conclusions as old as humanity itself: (1) if something is bumped, objects may fall; and, (2) the more bumped, the more likely.") (footnote omitted); Falconer v. Penn Mar., Inc., 380 F. Supp. 2d 2, 5 *175 (D.Me.2005) ("As it was under common law, expert testimony is admissible under Rule 702 if it concerns matters beyond the understanding of the average person.") (citation and internal quotation marks omitted).
Two final points merit comment. To the extent the plaintiff relies on the opinion of, the defendant's expert, Thomas Hill, to buttress her own expert's conclusions either as a matter of fair play or' as a factual matter her reliance is misplaced. Briggs did not state that he relied on Hill; Hill's testimony therefore is irrelevant. See, e.g., Reali v. Mazda Motor of Am., Inc., 106 F. Supp. 2d 75, 79 (D.Me.2000) ("Reali devoted much of his briefing to impugning the methodology employed by, and conclusions of Mazda's expert, Thibault, claiming that Thibault's methodology was no better. The effort is misguided. The issue presented by Mazda's motion in limine is whether [the] testimony [of Reali's expert] satisfies the reliability and relevance standards of Daubert and Kumho Tire."). In any event, as the defendant points out, Hill is expected to testify merely that the Vessel door in question was "equipped with an appropriate hydraulic door-closer"; he did not state that lack of such a device represents a breach of safe and reasonable maritime practices. See Reply at 3.
Finally, to the extent the plaintiff asserts that Briggs did follow an acceptable methodology the practice of ruling out the least likely possibilities her point is not well-taken in these circumstances. Case law on which she relies for the proposition that such methodology is acceptable is distinguishable inasmuch as those cases concerned medical opinions (medical diagnoses; opinion based on results of laboratory testing) and, to the extent the experts' testimony was ruled admissible, involved greater explication of the bases of their conclusions than was provided here. See Opposition at 4; see also, e.g., Labarraque, 101 F.3d at 140 (expert's methodology passed Daubert muster in case in which he explained why, based on review of literature, medical records and medical studies, he had eliminated possible causes of plaintiff's birth defects besides Depo-Provera); Claar v. Burlington N.R.R., 29 F.3d 499, 502-03 (9th Cir.1994) (district court did not err in deeming proffered expert testimony unreliable in case in which, inter alia, expert doctors had made no effort to rule out other possible causes of plaintiffs' injuries even though they admitted such a step would be standard procedure before arriving at a diagnosis); United States v. Natson, 469 F. Supp. 2d 1253, 1258 (M.D.Ga. 2007) (while government's expert reliably applied a scientifically valid DNA testing method to conclude that DNA testing did not exclude defendant as father of fetus, testimony was irrelevant because jury could only speculate from that opinion that defendant was in fact the father).[1]
*176 III. Conclusion
For the foregoing reasons, the Motion, which the plaintiff has withdrawn as to Dr. Halsey and other health-care providers, is GRANTED as to Briggs.
NOTES
[1] The plaintiff requests that, if the court were inclined to grant the Motion as it pertained to Briggs, it first conduct an evidentiary Daubert hearing. See Opposition at 6. She notes that this could be accomplished during trial "without any complicated machinations" inasmuch as this is a bench trial. See id. A proponent of expert testimony is not entitled as a matter of right to a Daubert hearing. See, e.g., United States v. Diaz, 300 F.3d 66, 73-74 (1st Cir. 2002); Target Mkt. Publ'g, Inc. v. ADVO, Inc., 136 F.3d 1139, 1143 n. 3 (7th Cir.1998). It is difficult to discern what useful purpose would be served in convening such a hearing in this instance: The plaintiff does not say what testimony she would present if the hearing were held, and the nature of the argument made in her brief suggests that she has nothing to add. See, e.g., ADVO, 136 F.3d at 1143 n. 3 ("[T]he Supreme Court did not suggest in either Daubert or General Electric [Co. v. Joiner, 522 U.S. 136, 118 S. Ct. 512, 139 L. Ed. 2d 508 (1997),] that district courts would be required to conduct in limine hearings concerning every rejected proffer of expert testimony. The district court in the present case had before it Burton's report and all of the documents upon which that report purportedly drew. Target is apparently unable to tell this Court exactly what missing information a hearing would have supplied to aid the district court in making its determination. A hearing was not required.").
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420 F.Supp.2d 62 (2006)
Christine D. PERSICO, Plaintiff,
v.
Jo Anne B. BARNHART, Commissioner of Social Security, Defendant.
No. 04-CV-3816 (RJD).
United States District Court, E.D. New York.
March 6, 2006.
*63 Aba Heiman, Fusco, Brandenstein & Rada, PC, Woodbury, NY, for Plaintiff.
Kathleen Anne Mahoney, Assistant U.S. Attorney, Leslie A. Ramirez-Fisher, Special Assistant U.S. Attorney, United States Attorney's Office, Brooklyn, NY, for Defendant.
MEMORANDUM & ORDER
DEARIE, District Judge.
Plaintiff Christine D. Persico seeks review pursuant to 42 U.S.C. § 405(g), challenging the final determination of the Commissioner of Social Security denying her disability benefits for the period of September 21, 1995, to December 1998. Plaintiff began working again part-time in December 1998, thereby closing the period of disability for which she seeks benefits. Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, the Commissioner now moves for judgment on the pleadings, *64 affirming her determination that plaintiff was able to perform her past relevant work during the period in question. Plaintiff cross-moves for judgment on the pleadings, seeking reversal of the Commissioner's decision. For the reasons discussed below, the Commissioner's motion for judgment on the pleadings is denied and the case is remanded for further proceedings.
PROCEDURAL HISTORY
Plaintiff applied for disability insurance benefits on March 4, 1996, alleging that she had been disabled since September 21, 1995. Tr. 30-32. The application was initially denied, and denied again upon reconsideration. Tr. 33, 52-55, 57-59. Plaintiff then requested a hearing, which was held before ALJ Leonard E. Ryan on January 26, 1998. Tr. 60, 821-67. On October 13, 1998, ALJ Ryan found that plaintiff was not disabled as defined by the Social Security Act and was therefore not entitled to disability benefits. Tr. 644-56.
On October 26, 1998, plaintiff requested review of ALJ Ryan's decision on the grounds that evidence was entered into the record subsequent to the hearing without affording plaintiff the opportunity to object or comment. Tr. 657-58. On July 28, 2000, the Appeals Council granted plaintiff's request for review. Tr. 682-84.
On October 25, 2000, ALJ Ryan disclosed the evidence in question to plaintiff's attorney. Tr. 704-05. Plaintiff testified at a second hearing in front of ALJ Ryan on March 2, 2001. Tr. 799-820. On April 18, 2001, ALJ Ryan again found that plaintiff was not disabled during the period in question because she was able to perform her past relevant work and, alternatively, she was able to perform other sedentary work. Tr. 17-29. ALJ Ryan's decision became final when the Appeals Council denied plaintiff's request for review on August 18, 2004. Tr. 4-6. Plaintiff timely commenced this action.
BACKGROUND
A. Plaintiff's Age, Education, and Work Experience
Plaintiff was born on November 28, 1964, making her thirty at the onset of her alleged period of disability. Tr. 30, 686, 809. As of the date of her application, she had obtained a general equivalency diploma and attended approximately two years of college. Tr. 67, 809, 825. Plaintiff has also taken classes in legal shorthand, and continued to attend college part-time during her alleged period of disability, ultimately obtaining a degree in nursing from the College of Staten Island in January 2000. Tr. 803, 806, 832-33, 844.
Plaintiff worked as a secretary from 1984 through 1995, the last nine years of this period for the same law firm. Tr. 67. At the law firm, plaintiff began as a receptionist and was ultimately promoted to a position as a legal secretary for a senior partner. Tr. 67, 825, 841-45. Plaintiff began to experience symptoms of Chronic Fatigue Syndrome ("CFS") in November 1994, and these symptoms began to affect her work. Tr. 837. Around July 1995, she was reassigned to the "floating staff." Id. Plaintiff stopped working at the law firm in September 1995. Id.
Plaintiff began working again part-time as a hostess in a restaurant in December 1998. Tr. 721. From September 1999 through March 2000, plaintiff worked thirteen hours per week performing general clerical duties at a bus company. Id. Plaintiff stopped working at the bus company to study for her nursing exam and, after earning her degree, began working as a registered nurse at Maimonides Medical Center in Brooklyn in July 2000. Tr. 789, 803.
*65 B. Medical Evidence
1. Treating Physician Konstantinos Koutelos, M.D.
Plaintiff first saw Dr. Koutelos on November 14, 1994, complaining of anxiety, dizziness, fatigue, and tingling in her arms and legs. Tr. 461. Dr. Koutelos diagnosed "anxiety hyperventilation syndrome," prescribed Buspar for her anxiety, and ordered routine lab work. Id. Dr. Koutelos thereafter found that plaintiff suffered from hypothyroidism and prescribed Synthroid. Tr. 462-63, 827. On December 22, 1994, Dr. Koutelos noted that plaintiff's fatigue had lessened. Tr. 463, 465.
In response to plaintiffs complaints of hematuria (blood in the urine), Dr. Koutelos ordered a renal ultrasound on December 22, 1994. Tr. 463. The ultrasound was performed on December 26, and the results were negative. Tr. 486.
On January 6, 1995, Dr. Koutelos noted again that Plaintiff's fatigue had improved, but diagnosed plaintiff with bronchitis. Tr. 465. Dr. Koutelos prescribed an antibiotic and an antihistamine for the bronchitis and ordered further laboratory tests for the hematuria. Id.
On January 13, 1995, Dr. Koutelos ordered a cystoscopy for further evaluation of the hematuria. Tr. 464. The cystoscopy revealed a normal bladder. Tr. 464. Plaintiff again complained of fatigue on February 15, 1995, and Dr. Koutelos ordered additional blood work. Tr. 468. Later in 1995, Dr. Koutelos noted that Plaintiff's fatigue could be the result of Epstein-Barr virus or sleep apnea, and continued to prescribe Synthroid for hypothyroidism. Tr. 467. On April 21, 1995, Plaintiff's urinalysis showed no evidence of hematuria. Tr. 196.
On July 20, 1995, Dr. Koutelos noted that plaintiff had benign hematuria, continued to prescribe Synthroid for Plaintiff's hypothyroidism, and advised plaintiff to lose weight and walk to try to alleviate her fatigue. Tr. 470. On September 11, 1995, Dr. Koutelos again advised exercise, but also noted Plaintiff's muscle aches. He ordered tests for Lyme disease and Epstein-Barr. Id. On September 14, 1995, plaintiff tested negative for Lyme disease and positive for Epstein-Barr. Tr. 198-99.
After seeking a second opinion from Dr. Solis, plaintiff returned to Dr. Koutelos on October 19, 1995, claiming her health had improved since leaving work. Tr. 469. Dr. Koutelos noted improved sleep and ability to exercise, and restated his assessment of hypothyroidism. Id.
Plaintiff complained of anxiety attacks to Dr. Koutelos on December 29, 1995. Tr. 466. Dr. Koutelos's notes indicate that he was considering diagnoses of depression and fibromyalgia. Id. At this time, Dr. Koutelos recommended an anti-depressant. Id.
On February 16, 1996, Dr. Koutelos diagnosed anxiety and depression and noted Plaintiff's positive test results for Epstein-Barr. Tr. 466.
On March 15, 1996, Dr. Koutelos completed a questionnaire for the New York State Office of Disability Determinations. Tr. 86-89. Dr. Koutelos noted that the plaintiff suffered from hypothyroidism and fatigue. Tr. 86. Plaintiff's symptoms were listed as fatigue and myalgia (muscle aches or pain). Id. Dr. Koutelos also noted that plaintiff had been prescribed Synthroid, displayed no symptoms of a significant psychiatric disorder, tested positive for Epstein-Barr, and suffered from fatigue all day that was greater in the afternoon. Tr. 87-88. Dr. Koutelos also stated that any depression suffered by plaintiff was secondary to fatigue. Tr. 88. Dr. *66 Koutelos noted no limitation to lifting and carrying, standing and walking, sitting, or pushing and pulling. Tr. 88-89.
In a June 5, 1996 letter to-plaintiff's private insurer, Dr. Koutelos stated that plaintiff had been under his care since November 14, 1994, for hypothyroidism. Tr. 458. Dr. Koutelos also noted that plaintiff declined antidepressants, and that this might be contributing to her fatigue. Id. He also noted patient's recurring muscle pain and poor quality sleep. Id. Dr. Koutelos recommended consultation with a psychiatrist and a rheumatologist, and noted that plaintiff said she was unable to work secondary to her fatigue. Id.
2. Treating Physician Roberto Solis, M.D.
On September 19, 1995, plaintiff sought a second opinion from Dr. Solis, who noted plaintiff's symptoms as muscle pain, headaches that limited her ability to concentrate, and skin rash. Tr. 96-101, 828. Dr. Solis also noted plaintiff's positive Epstein-Barr, and for the first time in plaintiff's medical treatment suggested that she might be suffering from Chronic Fatigue Syndrome. Tr. 97, 99, 828.
On October 3, 1995, Dr. Solis again noted that plaintiff's symptoms were consistent with CFS. Tr. 150.
On January 11, 1996, plaintiff complained of stiffness, weakness, headaches, and insomnia to Dr. Solis. Tr. 100, 151. Dr. Solis prescribed Buspar, which had also been prescribed by Dr. Koutelos. Id.
Plaintiff complained of fatigue, rash, trouble sleeping, and tiredness to Dr. Solis on February 20, 1996. Tr. 101. Dr. Solis diagnosed CFS and continued Buspar. Id.
On March 21, 1996, plaintiff's lab tests were again positive for Epstein-Barr virus. Tr. 94-95.
On March 28, 1996, Dr. Solis completed a questionnaire for plaintiff's private disability benefits carrier, on which he listed his diagnosis of CFS. Tr. 146-47. Dr. Solis noted plaintiff's symptoms as headaches, lethargy, myalgia, rash, sore throats, and anxiety. Objective findings consisted of positive Epstein-Barr virus titers, rash, tender joints, and muscle aches. Tr. 146.
On March 29, 1996, Dr. Solis completed a medical questionnaire in connection with plaintiff's Social Security disability claim on which he diagnosed CFS and Epstein-Barr virus. Tr. 90-93. Plaintiff's symptoms were headache, lethargy, myalgia, joint stiffness, fatigue, weakness, and rash. Tr. 90. Dr. Solis noted that he had prescribed Buspar and that he had not observed any behavior suggestive of a psychiatric condition. Tr. 91. In response to a request to describe any clinical findings "such as any loss of motion in degrees . . ., site and severity of any neurological defects, any organ enlargement, and other abnormalities," Dr. Solis listed nothing. Tr. 91. Laboratory findings consisted of positive tests for Epstein-Barr. Tr. 92. Dr. Solis noted constant fatigue and depression that was secondary to fatigue. Id. Contrary to Dr. Koutelos's answers to the same questionnaire two weeks earlier, Dr. Solis stated that plaintiff could not lift and carry anything, her ability to stand and walk was limited to less than two hours per day, she could not sit for more than six hours per day, and her ability to push and pull was limited. Tr. 92-93. Dr. Solis also noted a lack of concentration, headaches, and anxiety. Id.
Dr. Solis saw plaintiff again on July 1, 1996 and noted a negative lab result for HIV. Tr. 153. He continued Synthroid and Buspar. Id. Dr. Solis diagnosed CFS and anxiety. Id.
*67 On December 26, 1996, Dr. Solis examined plaintiff and noted that she had CFS and an upper respiratory infection. Tr. 156. Dr. Solis continued to prescribe Buspar. Id.
In a letter dated June 30, 1997, Dr. Solis states that plaintiff had to withdraw from three classes due to CFS. Tr. 123. Dr. Solis's examination notes from this date indicate that plaintiff was suffering from chronic fatigue, myalgia, and gastroesophageal reflux disease. Tr. 157.
In an August 7, 1997 letter to plaintiff's private insurer, Dr. Solis restated his diagnosis of CFS, and recommended that plaintiff's private disability payments be reinstated. Tr. 121-22.
Dr. Solis noted on December 16, 1997, that plaintiff had been off Buspar for two to three months. Tr. 158.
3. Treating Physician and CFS Specialist Susan M. Levine, M.D.
Plaintiff began seeing Dr. Levine, a CFS specialist, in March of 1996. See Tr. 102. Dr. Levine noted plaintiff's symptoms as "severe exhaustion; low-grade fevers; night sweats; muscle aches in the shoulders and back; dizziness; headaches; difficulty with short-term memory and concentration; and weight gain," Tr. 102. Dr. Levine noted that these symptoms had worsened in the past year, and that plaintiff "became disabled in early 1995." Id. As a result of these symptoms, Dr. Levine stated that plaintiff could not lift and carry more than ten pounds, she could stand and walk for less than two hours per day, she could sit for less than six hours per day, and her ability to push and pull was limited as well. Tr. 104-05. Dr. Levine's physical examination showed red throat; enlarged cervical lymph nodes; non-palpable thyroid; a normal chest, heart, and lung exam; mild abdominal distention; 4/5 motor strength in the lower extremities; deconditioning in Plaintiff's limbs; the inability to count backwards serial 7's more than four sequences; positive testing for previous exposure to Herpes Virus VI, which is "thought to be causative of CFS"; and low calcium and chromium levels. Tr. 102. Dr. Levine prescribed the antiviral drug Amantadine and bed rest. Id. Dr. Levine recommended that the plaintiff be found totally and permanently disabled. Tr. 102-03.
In a report to Plaintiff's attorney dated April 29, 1996, Dr. Levine described her examination of plaintiff on April 24, 1996. Tr. 108-108A. Dr. Levine noted that plaintiff had 5/5 motor strength in her upper extremities and 4/5 motor strength in her lower extremities and a limited range of motion in her hips. Tr. 108A. Dr. Levine also noted erythema with a red arc at the back of Plaintiff's throat, and a slightly enlarged thyroid and lymph glands. Id. It was Dr. Levine's recommendation, "[b]ased on [her] wide experience in treating over 2,500 patients with CFS," that plaintiff be granted total disability. Id. Dr. Levine stated that patients who have been ill for as long as plaintiff are unlikely to recover, and that plaintiff should be granted "total and permanent disability." Id.
In a letter to Plaintiff's private disability insurer dated May 20, 1996, Dr. Levine noted that plaintiff could not stand, walk, or lift for more than fifteen minutes at a time, and that visiting friends, cooking, light cleaning, and household chores were out of the question due to Plaintiff's severe exhaustion. Tr. 512. Dr. Levine stated that plaintiff was incapable of even lowstress, sedentary work. Id. Dr. Levine restated her opinion that plaintiff was "totally disabled" and would remain so for an indeterminate period of time. Id.
*68 Plaintiff saw Dr. Levine on June 20, 1996 complaining of severe exhaustion, low-grade fevers, night sweats, difficulty concentrating, recurring muscle and joint aches, gastrointestinal disturbances, nausea and vomiting, the need to sleep for long periods of the day, and dizziness. Tr. 384. Dr. Levine restated her diagnosis of CFS and prescribed bed rest and vitamin B-12. Id.
Plaintiff again saw Dr. Levine on August 28, 1996. Tr. 384. In addition to restating her previous symptoms, plaintiff complained of intermittent cognitive disturbances, the inability to read for long periods of time, difficulty remembering, and rashes. Id. Plaintiff's throat was red and she had enlarged cervical lymph nodes. Id. Dr. Levine advised plaintiff to continue bed rest. Id.
In a letter to Plaintiff's private insurance carrier dated October 10, 1996, Dr. Levine reported that plaintiff could stand for only fifteen minutes at a time three times per day with frequent rest periods; she could walk, climb stairs, lift and carry packages weighing more than ten pounds, crawl, climb, bend, or kneel for more than ten minutes no more than three times per day. Tr. 383. Plaintiff's fatigue, which was precipitated by any kind of physical or emotional stress, is noted as the cause of these restrictions. Id.
On December 2, 1996, Sallyann Kelley-Brophy, a registered nurse at Plaintiff's private disability insurance carrier, wrote to Dr. Levine. Tr. 354-55. Ms. Kelley-Brophy indicated that plaintiff had refused Dr. Koutelos's recommendation of anti-de-pressants, and informed Dr. Levine that, contrary to Dr. Levine's assessment of Plaintiff's abilities, plaintiff had been observed walking multiple city blocks carrying a small child. Tr. 354. In a December 6, 1996, response to Ms. Kelley-Brophy's letter, Dr. Levine stated that psychological counseling probably would not help the Plaintiff's condition, that plaintiff was not capable of even a graded exercise program, and that she did not believe plaintiff was psychologically impaired. Tr. 306.
Ms. Kelley-Brophy again wrote to Dr. Levine on May 28, 1997, and stated that Dr. Levine's assessment that plaintiff was totally disabled was contradicted by her attending college classes and carrying a small child several city blocks. Tr. 304-35. Ms. Kelley-Brophy further suggested that plaintiff had not been completely honest with Dr. Levine and that Dr. Levine did not see plaintiff often enough to support her assessment of disability. Id. In a letter dated June 6, 1997, Dr. Levine replied, "Perhaps I don't have enough knowledge of this patient's activities to conclude one way or another whether she is capable of returning to work." Tr. 302. Dr. Levine further stated that she would "defer to [Ms. Kelley-Brophy's] judgment in this situation." Id.
Plaintiff next saw Dr. Levine on July 11, 1997, and reported feeling weak, tired, and run-down. Tr. 131. Plaintiff also complained of low-grade fevers, night sweats, muscle and joint aches, difficulty concentrating, headaches, and sinus congestion. Id. Plaintiff had a red throat. Id. Dr. Levine continued to assess CFS, advised bed rest, and was considering prescribing Kutapressin. Id.
In another letter to Plaintiff's private insurer dated July 22, 1997, Dr. Levine recommended that Plaintiff's insurance payments be reinstated. Tr. 124. While acknowledging that plaintiff "had attempted to attend some part-time courses," Dr. Levine stated that plaintiff "was forced to withdraw from 1994 to 1997" due to her illness. Id. Dr. Levine concluded that plaintiff was "incapable of even sedentary, stress-free work." Id.
*69 4. State-Appointed Consultative Psychiatrist Juan Fiks, M.D.
Dr. Juan Fiks conducted a psychiatric examination of plaintiff on behalf of the New York State Bureau of Disability Determinations on April 19, 1996. Tr. 106-07. Dr. Fiks noted that plaintiff said she had Epstein-Barr but that she was out of the acute stage. Tr. 106. Dr. Fiks also noted plaintiff's complaints of fatigue, anxiety, trouble sleeping, fevers and chills, and tension headaches. Tr. 106-07. As to her mental state, Dr. Fiks noted that plaintiff was anxious and "ha[d] the equivalence of depression." Tr. 106. Plaintiff was observed as being in no physical distress, clean and well presented, of appropriate affect and adequate insight and judgment, and of average to above average intelligence. Tr. 106-07. Dr. Fiks noted a diagnostic impression of anxiety disorder. Tr. 107.
5. Independent Medical Examiner Todd E. Feinberg, M.D.
On January 16, 1997, Dr. Feinberg conducted a neurobehavioral examination of plaintiff at the request of her private disability insurance provider. Tr. 332-39. In addition to examining plaintiff, Dr. Feinberg reviewed the medical reports of Drs. Solis, Koutelos, and Levine. Tr. 333-34. Plaintiff told Dr. Feinberg that she "`doesn't do much of anything,'" that her appetite was "not so much,'" her sleep was variable, and that she did not have a persistent blue mood. Tr. 334. Plaintiff also told Dr. Feinberg that she was unable to do any labor, and that she was unable to walk, carry things, or sit for an extended period of time. Tr. 334. Dr. Feinberg found no evidence of psychopathology and he could not affirm or deny Dr. Solis's and Dr. Levine's diagnosis of CFS, which Dr. Feinberg characterized as "a controversial diagnosis." Tr. 336. However, Dr. Feinberg described plaintiff as "totally disabled" because of CFS, and noted that plaintiff is only able to engage in limited stress situations and limited interpersonal limitations. Tr. 337. Dr. Feinberg assessed that plaintiff could lift one to ten pounds only 33% of the time, that she had no "power grip," that she could not use feet for repetitive movements operating foot controls, and that the Buspar could be contributing to plaintiff's dizziness, fatigue, nausea, and headaches. Tr. 338-39.
6. Other Medical Evidence
Urologist Jeffrey Gordon, M.D.
At the request of Dr. Solis, Dr. Gordon examined plaintiff for her asymptomatic hematuria on May 1, 1996. Tr. 184, 219. Dr. Gordon noted that the physical examination was unremarkable, that urinalysis revealed 10-15 red blood cells per high powered field with bacteriuria present, and that he would like to see plaintiff's old x-rays and medical records to make a more complete assessment. Tr. 184. Dr. Gordon's impression was that plaintiff had asymptomatic micro-hematuria. Id.
Neurologist Arun Nangia, M.D.
Also at the request of Dr. Solis, plaintiff saw Dr. Nangia on July 30, 1997, for complaints of "sudden, uncontrollable movement of the left mostly to the right side followed by feeling of hot inside the head and pain and soreness at the back of the neck and the head but not radiating down her shoulder or upper extremity." Tr. 216. Plaintiff had suffered three or four episodes already that year, and similar episodes had been occurring since childhood. Id. Dr. Nangia noted that plaintiff denied any motor weakness, fainting spells, or dizziness. Id. Dr. Nangia listed possible causes as complex partial seizure, vertobrasilar insufficiency/posterior circulation stroke, tempromandibular joint dysfunction, or cervical radiculopathy. Tr. *70 217-18. Dr. Nangia recommended the plaintiff undergo more testing. Tr. 218.
Neurologist Matthew J. DeLuca, M.D.
Plaintiff saw another neurologist, Dr. DeLuca, on August 11, 1997, for the "episodes of heat-like sensation" she had been having since childhood. Tr. 190-91. Dr. DeLuca noted similar symptoms to those noted by Dr. Nangia. Id. Dr. DeLuca also noted that Plaintiff's muscle strength was 5/5. Tr. 191. Dr. DeLuca's impression was that plaintiff suffered from transient brainstem ischemia, which occurs from compression of the vertebral artery during head movements. Id. Dr. DeLuca also recommended further testing. Id.
C. Plaintiff's Testimony
Plaintiff first testified in front of an ALJ at a hearing on January 26, 1998. See Tr. 821-67. Plaintiff described how, when she began to experience symptoms in late 1994, she went to see Dr. Koutelos. Tr. 826. Dr. Koutelos ran blood tests and plaintiff tested positive for a thyroid condition and Epstein-Barr. Tr. 826-27. Plaintiff acknowledged that her thyroid condition was successfully regulated by the Synthroid. Tr. 827.
Plaintiff stated that she began seeing Dr. Solis in September 1995 because she was still feeling "terrible." Tr. 828. Plaintiff testified that she had seen Dr. Solis "[e]very few months" since September 1995, and that Dr. Solis prescribed "pretty much all" of plaintiff's medications. Tr. 829.
Plaintiff testified that she saw Dr. Levine less often than she saw Dr. Solis. Tr. 829. Plaintiff at first could not recall whether Dr. Solis referred her to Dr. Levine, but then affirmed that Dr. Solis referred her to a CFS clinic that then referred her to Dr. Levine. Tr. 829-30. Plaintiff stated that she last saw Dr. Levine around July 1997. Tr. 830.
Plaintiff also testified about her school attendance during her alleged period of disability. Tr. 831. Despite the fact that she had been trained in shorthand, her illness made it difficult for her to take notes in class. Tr. 831-33, 835-36. Plaintiff testified that she had difficulty reading due to her illness, which forced her to withdraw from a biology class. Tr. 831. Plaintiff also was forced to withdraw from an Italian class, and took an incomplete in a math class due to her illness. Tr. 833, 834, 840. When asked whether she had completed any course work since September 1995, plaintiff replied that she had completed one course in nursing. Tr. 833. When she did attend classes, plaintiff was driven to and from school by her husband because her illness affected her reflexes and caused "star[ry] eyes." Tr. 836-37.
Plaintiff stopped working in September 1995 because she "was constantly exhausted" and "had pain just about everywhere." Tr. 841. Plaintiff's symptoms included rashes, loss of motor ability in the hands, and insomnia. Tr. 852, 857.
DISCUSSION
The court reviews the Commissioner's findings only to determine whether they are "supported by substantial evidence in the record as a whole or are based on an erroneous legal standard." Beauvoir v. Chater, 104 F.3d 1432, 1433 (2d Cir.1997); see also 42 U.S.C. § 405(g) ("The findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive. . . ."). The Supreme Court has defined "substantial evidence" in Social Security cases as "more than a mere scintilla" and that which "a reasonable mind might accept as adequate to support a conclusion." Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 28 L.Ed.2d 842 (1971) (internal *71 quotation marks and citation omitted). Furthermore, "it is up to the agency, and not th[e] court, to weigh the conflicting evidence in the record." Clark v. Comm'r of Soc. Sec., 143 F.3d 115, 118 (2d Cir.1998) (citation omitted). If the court finds that there is substantial evidence to support the Commissioner's determination, the decision must be upheld, even if there is substantial evidence for plaintiff's position. Jones v. Sullivan, 949 F.2d 57, 59-60 (2d Cir.1991). The court "may not substitute its own judgment for that of the Secretary, even if it might justifiably have reached a different result upon a de novo review." Id. (internal quotation marks and citation omitted).
A claimant is eligible for disability benefits under the Social Security Act if her impairments are of such severity that she is "not only unable to do [her] previous work but cannot, considering [her] age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy." 42 U.S.C. § 423(d)(2)(A). The Social Security Administration follows a five-step procedure when evaluating whether a claimant is disabled:
First, the [Commissioner] considers whether the claimant is currently engaged in substantial gainful activity. If [she] is not, the [Commissioner] next considers whether the claimant has a "severe impairment" which significantly limits [her] physical or mental ability to do basic work activities. If the claimant suffers such an impairment, the third inquiry is whether, based solely on the medical evidence, the claimant has an impairment which is listed in Appendix 1 of the regulations. If the claimant has such an impairment, the [Commissioner] will consider [her] disabled without considering vocational factors such as age, education, and work experience. . . . Assuming the claimant does not have a listed impairment, the fourth inquiry is whether, despite the claimant's severe impairment, [she] has the residual functional capacity to perform [her] past work. Finally, if the claimant is unable to perform [her] past work, the [Commissioner] then determines whether there is other work which the claimant could perform.
Rosa v. Callahan, 168 F.3d 72, 77 (2d Cir.1998) (quoting Berry v. Schweiker, 675 F.2d 464, 467 (2d Cir.1982)); see also 20 C.F.R. § 404.1520(a)(4) (2005). Although the burden is on plaintiff to show that she is disabled, once she has shown that "[her] impairment renders [her] unable to perform [her] past work, the burden then shifts to the [Commissioner] to show there is other gainful work in the national economy that plaintiff could perform." Balsamo v. Chater, 142 F.3d 75, 80 (2d Cir.1998) (internal quotations omitted) (citations omitted).
In this case, the ALJ found at Steps One and Two that plaintiff did not engage in substantial gainful activity during the alleged period of disability and that plaintiff had a severe impairment. Tr. 28. At Step Three, the ALJ found that none of plaintiff's impairments and no combination of plaintiff's impairments met or equaled the criteria of a listed impairment in Appendix 1, Subpart P. Id. The ALJ concluded at Step Four that plaintiff had the residual functional capacity ("RFC") to perform her past relevant work. Id. at 28-29. The ALJ also found the plaintiff capable of "the full range of sedentary work during the period under consideration" at Step Five. Id. at 28. Because he found that plaintiff had the RFC to perform her past relevant work and could have performed other work during the period in question, the ALJ concluded that plaintiff was not disabled.
*72 A. SSR 99-2p
Plaintiff first argues that the ALJ's decision is "based on an erroneous legal standard," Beauvoir v. Chater, 104 F.3d 1432, 1433 (2d Cir.1997), because the ALJ failed to apply Social Security Ruling 99-2p, 64 Fed.Reg. 23380 (April 30, 1999).[1]See Green-Younger v. Barnhart, 335 F.3d 99, 107-108 (2d Cir.2003) (holding that a decision denying benefits where the ALJ did not follow a relevant Social Security Administration Memorandum was based on "an erroneous legal standard"). SSR 99-2p defines CFS as "a systemic disorder consisting of a complex of symptoms that may vary in incidence, duration, and severity [that is] characterized in part by prolonged fatigue that lasts 6 months or more and that results in substantial reduction in previous levels of occupational, educational, social, or personal activities." 64 Fed. Reg. at 23381. According to the Ruling, CFS involves the concurrence of four or more of the following symptoms, all of which must have persisted or recurred during six or more consecutive months and none of which predated the fatigue:
(1) Self-reported impairment in short-term memory or concentration severe enough to cause substantial reduction in previous levels of occupational, educational, social, or personal activities;
(2) Sore throat;
(3) Tender cervical or axillary lymph nodes;
(4) Muscle pain;
(5) Multi-joint pain without joint swelling or redness;
(6) Headaches of a new type, pattern, or severity;
(7) Unrefreshing sleep; and
(8) Postexertional malaise lasting more than 24 hours.
64 Fed.Reg. at 23381. The Commissioner also requires certain clinical findings to justify a finding of disability. SSR 99-2p, 64 Fed.Reg. at 23381-82; 20 C.F.R. § 404.1508. Under the Ruling, one or more of the following medical signs clinically documented over a period of at least six consecutive months establishes the existence of a medically determinable impairment for individuals with CFS:
(1) Palpably swollen or tender lymph nodes on physical examination;
(2) Nonexudative pharyngitis;
(3) Persistent, reproducible muscle tenderness on repeated examinations, including the presence of positive tender points;
(4) Any other medical signs that are consistent with medically accepted clinical practice and are consistent with the other evidence in the case record.
64 Fed.Reg. at 23382 (footnote omitted). SSR 99-2p also lists the following examples of laboratory findings that confirm the existence of CFS:
(1) An elevated antibody titer to Epstein-Barr virus (EBV) capsid antigen equal to or greater than 1:5120, or early antigen equal to or greater than 1:640;
(2) An abnormal magnetic resonance imaging (MRI) brain scan;
(3) Neurally mediated hypotension as shown by tilt table testing or another clinically accepted form of testing; or
(4) Any other laboratory findings that are consistent with medically accepted clinical practice and are consistent with the other evidence in the case record; for example, an abnormal exercise stress *73 test or abnormal sleep studies, appropriately evaluated and consistent with the other evidence in the case record.
Id. The Ruling also acknowledges that some individuals with CFS report ongoing problems with certain aspects of mental functioning. Therefore, when testing documents deficits in "short-term memory, information processing, visual-spatial difficulties, comprehension, concentration, speech, word-finding, calculation, and other symptoms suggesting persistent neurocognitive impairment, . . . such findings constitute medical signs or . . . laboratory findings that establish the presence of a medically determinable impairment." Id. Similarly, appropriately documented medical signs, such as "anxiety or depression, indicative of the existence of a mental disorder," will also establish the existence of a medically determinable impairment. Id. Once a medically determinable impairment has been established pursuant to SSR 99-2p, the five-step evaluation is conducted. Id.
The ALJ did not acknowledge medical findings and lab reports that establish CFS according to SSR 99-2p. For example, the ALJ states that Dr. Solis's and Dr. Levine's assessments of the plaintiff "are based merely on [plaintiff's] subjective reports of her limitations" and that "[n]o objective clinical evidence was cited before the physicians concluded that [plaintiff] was severely and `permanently' disabled." Tr. 25. This is simply not true. Plaintiff twice tested positive for the Epstein-Barr virus and her doctors repeatedly noted muscle tenderness, both of which are listed in SSR 99-2p as signs or findings that establish CFS. Also, plaintiff was continually diagnosed as suffering from anxiety and was prescribed Buspar throughout her period of disability. "[A]ppropriately documented" anxiety is another objective indicator of CFS recognized by SSR 99-2p. See 64 Fed.Reg. at 23382. Even if it were uncertain whether the ALJ's failure to properly identify this evidence constitutes reversible error, "[w]here there is a reasonable basis for doubt whether the ALJ applied correct legal principles, application of the substantial evidence standard to uphold a finding of no disability creates an unacceptable risk that a claimant will be deprived of the right to have her disability determination made according to the correct legal principles." Johnson v. Bowen, 817 F.2d 983, 986 (2d Cir.1987). As the Court finds that the ALJ failed to apply the correct legal principles to plaintiff's case, the decision of the Commissioner cannot be affirmed.
B. Plaintiff's Credibility
Plaintiff's second argument is that the ALJ's determination that plaintiff's statements were "not entirely credible" is not based on substantial evidence. Tr. 23. The ALJ based his credibility determination, first, on a report by an investigator for plaintiff's private insurer. See Tr. 25. The investigator observed plaintiff carrying a small child from a parked car into a hospital during her alleged period of disability. However, the ALJ ignored several aspects of the investigator's report that actually support a finding of disability. The investigator observed the plaintiff for nine days. On the other eight days, plaintiff did not leave her house. See Tr. 315-17, 359-67, 392-411. In total, plaintiff left her house for only a little more than two hours during the entire nine-day period. See Tr. 406-07. Even on the day she was observed carrying the child, she was driven to the hospital by someone else, which corroborates plaintiff's statement that she could not drive due to her illness. Tr. 406-07.
The ALJ also misstated exactly what was observed. The report states that *74 plaintiff was observed being driven to the hospital in a van and then carrying a child from the parked van into the hospital. Tr. 406-07. The ALJ wrote in his decision that the claimant was observed "walking several blocks from her home without any difficulty to the emergency room at Victory Memorial Hospital, carrying a small child in her arms." Tr. 25. The ALJ's statement implies that plaintiff walked from her home to the hospital when in fact she was driven by someone else, only walking from the parked car to the hospital.
The ALJ also based his credibility determination on the fact that plaintiff attended college classes during her alleged period of disability. See Tr. 25. However, the record is clear that plaintiff was forced to withdraw from many of these classes due to her illness. For example, plaintiff had difficulty reading due to her illness, which forced her to withdraw from a biology class. Tr. 831. Furthermore, even though plaintiff had been trained in shorthand while at the law firm, she recorded the lectures because her illness prevented her from taking notes. Tr. 831-33, 835-36. She was driven to and from class by her husband, which further corroborates Plaintiff's testimony that CFS made her too sick to drive. Tr. 836-37. Moreover, the fact that plaintiff was, at some points during her alleged period of disability, able to shop, do dishes, perform self-care activities, and watch television should not foreclose a finding of disability due to CFS. SSR 99-2p specifically states that "[t]he medical signs and symptoms of CFS fluctuate in frequency and severity. . . ." 64 Fed.Reg. at 23383. According to SSR 99-2p, it is reasonable to assume that plaintiff would have good days and bad days, and that her abilities would fluctuate accordingly. Because a reasonable mind could not accept this evidence as adequate to support a finding that the plaintiff was not credible, Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 28 L.Ed.2d 842 (1971), the Court finds that the ALJ's credibility determination is not based on substantial evidence. See Aponte v. Sec'y, Dep't of Health & Human Servs., 728 F.2d 588, 591 (2d Cir.1984) (holding that credibility findings must be supported by substantial evidence).
C. Treating Physician Rule
Plaintiff argues that the ALJ improperly discounted the evidence and opinions of treating physicians Drs. Solis and Levine. The opinion of a treating physician is controlling if it is "well supported by medically acceptable clinical and laboratory diagnostic techniques and is not inconsistent with the other substantial evidence in [the] . . . record." 20 C.F.R. § 404.1527(d)(2); SSR 99-2p, 64 Fed.Reg. at 23383; see also Green-Younger v. Barnhart, 335 F.3d 99, 106 (2d Cir.2003). The ALJ must provide "good reasons" for not assigning controlling weight to the treating physician's diagnosis. Schaal v. Apfel, 134 F.3d 496, 505 (2d Cir.1998); see also Snell v. Apfel, 177 F.3d 128, 133 (2d Cir.1999). When the treating physician's opinion is not given controlling weight, a number of factors are used to determine what weight the opinion deserves, including (1) the length of the treatment relationship and the frequency of examination, (2) the nature and extent of the treatment relationship, (3) the evidence in support of the opinion, (4) the opinion's consistency with the record as a whole, and (5) whether the opinion is from a specialist. 20 C.F.R. § 404.1527(d)(2); see also Schisler v. Sullivan, 3 F.3d 563, 567 (2d Cir.1993).
The ALJ found the opinions of Drs. Solis and Levine neither well supported nor consistent with the other substantial evidence in the record. Tr. 25. However, as discussed above, the opinions *75 of Drs. Solis and Levine are supported by "medically acceptable clinical and laboratory diagnostic techniques," as required by SSR 99-2p. The Court also finds that these opinions are consistent with the other substantial evidence in the record. Much of the ALJ's decision was based on his finding that the plaintiff was not credible. The ALJ then uses this credibility determination to discount the opinions of Drs. Solis and Levine, stating that their opinions "are based merely on Ms. Persico's subjective reports of her limitations." Tr. 25. The ALJ reasoned that if the doctors' opinions were based solely on incredible statements, then the opinions should not control, nor should they be given much weight. However, as the Court finds that the ALJ's credibility determination was not based on substantial evidence, his decision to discount the opinions of Drs. Solis and Levine was, accordingly, also faulty. The ALJ also failed to afford weight to Dr. Levine's opinion as that of a specialist. For these reasons, the Court finds that the opinions of Drs. Solis and Levine are entitled to substantial, if not controlling, weight.
CONCLUSION
The ALJ's decision denying benefits in this case is not consistent with the Social Security Administration's Ruling governing the evaluation of CFS claims, and is therefore based upon an erroneous legal standard. The Court also finds that the ALJ's conclusion that plaintiff was not entirely credible and his decision to discount the opinions of treating physicians Drs. Solis and Levine are not based on substantial evidence. For these reasons, the Commissioner's motion for judgment on the pleadings is denied, and Plaintiff's cross-motion is granted. On remand, the Commissioner is directed to reconsider the evidence concerning Plaintiff's CFS claim according to Social Security Ruling 99-2p.
SO ORDERED.
NOTES
[1] Social Security Rulings "represent precedent final opinions and orders and statements of policy and interpretations that [the Social Security Administration] has adopted." 20 C.F.R. § 402.35(b)(1) (2005). "They are binding on all components of the Social Security Administration. . . ." Id. § 402.35(b)(2).
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2520137/
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54 F. Supp. 2d 195 (1999)
Alphonsoe CAMPBELL, Plaintiff,
v.
POLICE OFFICER DAVID FERNANDEZ et al., Defendants.
No. 98 CIV. 0140(CM).
United States District Court, S.D. New York.
May 21, 1999.
*196 Noel Tepper, Noel Tepper, Esq., Poughkeepsie, NY, for Alphonsoe Campbell, plaintiff.
David L. Posner, McCabe & Mack, Poughkeepsie, NY, for David Fernandez, Police Officer, L. Police Officer, John Doe, Richard Roe, Michael Moe, and other members of the City of Poughkeepsie Police Department Neighborhood Recovery Unit, Westchester County D.E.A. Drug Task Force Whose Names are Unknown, the City of Poughkeepsie Police Department, defendants.
MEMORANDUM DECISION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT DISMISSING THE COMPLAINT
McMAHON, District Judge.
In this action arising out of the arrest and subsequent strip search of plaintiff, defendants move for summary judgment dismissing the complaint. The motion is denied.
Viewed most favorably to plaintiff, the facts are as follows: plaintiff, a forty-six year old construction worker, stopped by Marksman's Mini Mart Grocery Store in Poughkeepsie to purchase a beer on his way home from work. He went to the basement of the store to drink the beer, where he was joined by another individual. Soon thereafter, he heard the owner of the store, Basil White, yell "Thief, thief!" and saw him running down the basement stairs pursued by a man with a gun wearing a ski mask. This man was defendant PO David Fernandez of the Poughkeepsie Police Department.
Officer Fernandez and several compatriots were executing a search warrant that had been issued after presentation of *197 an affidavit from another Poughkeepsie police officer, defendant Lawrence Bartolotti, which indicated that DEA agents had made several undercover buys of marijuana from the location. During one of the two controlled buys, the marijuana was retrieved from the basement of the store. The search warrant authorized the search of Mr. White, another male (identity unknown) described as dark-complected African American, early 40s, moustache, medium build, about 5'-10" or 5'-11", who had retrieved the marijuana from the basement during the controlled buy. Other than knowing that plaintiff is an African American male, I have no basis for concluding that plaintiff met the description of the unknown male, so as to bring him within the specific parameters of the search warrant. The warrant also directed that any person present could be searched pursuant to New York's Criminal Procedure Law § 690.15(2), which provides that: "A search warrant which directs a search of a designated or described place, premises or vehicle, may also direct a search of any person present thereat or therein." N.Y.Crim. Proc. Law § 690.15 (McKinney 1994). Of course, it is well-settled, and has been for a very long time, that this overly-broad directive cannot be read literally, and does not authorize executing officers to search anyone unless the application demonstrates probable cause for the search of that person. See People v. Nieves, 36 N.Y.2d 396, 404, 369 N.Y.S.2d 50, 60, 330 N.E.2d 26 (1975).
Upon arriving in the basement, Officer Fernandez and a second masked individual (also a police officer) detained plaintiff and White by pointing their guns, directing them to lay down on their stomachs and handcuffing them. Plaintiff was patted down in the basement; no weapons were discovered. Plaintiff was then taken upstairs to the public area of the store, where he was directed by Officer Bartolotti to remove all of his clothing. Plaintiff and White were thereupon strip searched in the store not in the restroom or in a nonpublic area. Plaintiff disputed the officers' right to strip search him, and also asked that they at least wait until they arrived at the police station to conduct their search. The officers refused.
The officers allegedly taunted the two men (both of them black) about the size of their penises and addressed them by racial epithets during the search. A full-body cavity search revealed no contraband on plaintiff. The officers also carefully searched his clothing, however, and found a small bag of marijuana in one of his pants pockets. Plaintiff was taken to the station house and booked for a violation after being fingerprinted and processed in the manner of a felony arrestee. He later pleaded guilty to the violation.
Discussion
Although plaintiff's complaint is far from a masterpiece of legal draftsmanship, his First Cause of Action adequately pleads a claim against the named individual defendant police officers for violation of his Fourth Amendment rights by virtue of the police conduct described above. To the extent he alleges that his First and Fifth Amendment rights were violated, the claim is dismissed. Moreover, to the extent plaintiff purports to assert a claim for false arrest, it must be dismissed, as plaintiff's guilty plea whatever the reason for it constitutes conclusive evidence of the good faith and reasonableness of the officer's belief in the lawfulness of that arrest. See Cameron v. Fogarty, 806 F.2d 380, 388 (2d Cir.1986).
This leaves his claim for the violation of his rights by virtue of the strip search conducted in the store. The Fourth Amendment guarantees an individual's right to be free from "unreasonable" searches and seizures. Defendants contend that their strip search of plaintiff was reasonable, because the warrant authorized them to search "any person" on the premises, and because the information available to them plaintiff's presence in the basement, a non-public area of the premises from which marijuana had been *198 procured during a controlled buy strongly suggested that he might be involved in drug activity. They justify the need to strip search plaintiff immediately, in the store, on the ground that drugs can be easily secreted and disposed of.
Plaintiff urges that the officers had no probable cause to search him, as his mere presence in a drug-prone location was insufficient and they had no basis to believe that he had anything to do with the prior buy or that he was involved in drug activity when they found him. He also contends that strip-searching him in a public place, rather than waiting until he was removed to the precinct, where he could be searched in privacy, was patently unreasonable especially as he had been frisked and found clean of weapons and, once handcuffed, was in no position to dispose of any contraband that might have been secreted on his person.
Defendants are correct that settled law would permit them to search an individual found in plaintiff's compromising position, based on the information underlying the search warrant. See, e.g., Nieves, supra, 36 N.Y.2d 396, 404-05, 369 N.Y.S.2d 50, 330 N.E.2d 26; see also, Watt v. Richardson, 849 F.2d 195 (5th Cir.1988). Therefore, plaintiff's claim of lack of probable cause is unfounded. They are also correct that a strip search, in and of itself, would not necessarily violate plaintiff's rights, in view of the nature of the crime defendants were investigating, the circumstances of the arrest, and the proven ability of drug dealers to secrete contraband on their persons. See Weber v. Dell, 804 F.2d 796 (2d Cir.1986).
However, that does not dispose of the question of whether it was reasonable to strip plaintiff in the store, when there was no evidence to suggest either that Campbell represented any threat to the officers or that, once arrested, he had the ability to dispose of contraband before they could find it. Based on the evidence before me, a reasonable juror could easily find that the police officers who were carrying out a procedure already found by courts to be an invasion of rights "of the first magnitude," Chapman v. Nichols, 989 F.2d 393, 395 (10th Cir.1993) acted unreasonably in subjecting plaintiff to the added humiliation of being denuded, exposed and taunted in a public place. There is a disputed issue of fact concerning just how public the area of the premises where plaintiff was searched was the officers assert that plaintiff was shielded from public view, plaintiff and Mr. White say otherwise and that disputed fact is a material fact, as the reasonableness of defendants' conduct may depend in significant part on just how private or public the area was. This particular aspect of plaintiff's claim, therefore, must be decided by a jury.
Defendants' claim that they are entitled to qualified immunity must also go to trial. The question of whether, in the circumstances presented, it was objectively reasonable for the officers to strip a man in a public place and force him to expose his most intimate body parts to public view is clearly an issue of fact that is reserved for the jury. See, e.g., Rodriguez v. City of New York, 72 F.3d 1051, 1065 (2d Cir. 1995).
Plaintiff's second claim for relief is directed against the City of Poughkeepsie Police Department, which allegedly has a policy of strip searching everyone found at a drug location which policy, if it exists, would be patently unconstitutional. See Weber, 804 F.2d at 802; Wachtler v. County of Herkimer 35 F.3d 77, 81 (2d Cir. 1994). Poughkeepsie disputes the existence of any policy, but the defendant officers testified that they acted pursuant to such a policy when they strip searched plaintiff. Because it is alleged that the defendants acted pursuant to an unconstitutional policy or practice, there is no basis to dismiss the claim against the City on Monell grounds. See Monell v. Department of Social Services, 436 U.S. 658, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). To the *199 extent that the complaint as drafted purports to hold the City liable in negligence, that claim is dismissed.[1]
The parties are directed to file a Joint Pre-Trial Order (limited to the issues that remain in the case), proposed voir dire (limited to case-specific questions), in limine motions and proposed jury instructions by June 25, 1999. Responses to in limine motions are due July 9, 1999. The final pre-trial conference will be scheduled as soon as all pre-trial papers are submitted.
This constitutes the decision and order of the Court.
NOTES
[1] I realize that I am reading the literal language of the complaint generously. However, the full record, as developed during discovery and submitted to the Court on this motion, is more than sufficient to make out the one and only claim under 42 U.S.C. § 1983 that can be asserted directly against a municipality. To the extent it may be necessary, the complaint will be deemed amended to assert such a claim.
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54 F. Supp. 2d 867 (1999)
Robert D. SPEEDY, Plaintiff,
v.
REXNORD CORPORATION, Defendant.
No. IP 98-0687-C-T/G.
United States District Court, S.D. Indiana, Indianapolis Division.
May 5, 1999.
*868 John H. Haskin, Craig Wiley, Haskin Lauter Cohen & Larue, Indianapolis, IN, for plaintiff.
Pamela V. Keller, Ice Miller Donadio & Ryan, Indianapolis, IN, for defendants.
Entry On Motion to Disqualify Defense Counsel
TINDER, District Judge.
The Plaintiff Robert D. Speedy filed a Motion to Disqualify Defense Counsel, seeking to disqualify the Defendant's law firm, Ice Miller Donadio & Ryan ("IMDR"), from this matter because Bradley J. Wilson, an attorney previously associated with the Plaintiff's counsel's law firm, is now associated with IMDR. The Defendant filed its Brief in Opposition to Plaintiff's Motion to Disqualify Defense Counsel on April 28, 1999, with the affidavits of Bradley Wilson, Michael D. Marine, and Pamela V. Keller.
The Plaintiff moves to disqualify IMDR pursuant to Rule 1.10(a) and (b) of the Rules of Professional Conduct adopted by the Indiana Supreme Court,[1] contending that the rule is one of "imputed disqualification" which requires no showing of bad faith and operates to avoid the appearance of impropriety. He asserts that Attorney Bradley J. Wilson was a former associate with the law firm of Haskin Lauter Cohen & LaRue (the "Haskin firm"), which represents the Plaintiff in the instant action; that Wilson had worked on the instant case since August 1998; and that Wilson left the Haskin firm to join the labor and employment department of IMDR. The Plaintiff argues that under Rule 1.10 Attorney Wilson would be prohibited from representing the Defendant in this case and, therefore, IMDR may not represent the Defendant in this matter.
As the Defendant contends, the Seventh Circuit has recognized that the imputed disqualification of a law firm may *869 be rebutted by implementation of "specific institutional mechanisms" which prevent the flow of confidences from a "tainted" attorney to his new law firm. See Cromley v. Board of Educ. of Lockport Twnshp. High Sch., 17 F.3d 1059, 1065 (7th Cir. 1994). Courts in the Seventh Circuit should apply a three-part test when determining whether an attorney should be disqualified. See Cromley, 17 F.3d at 1064. The court must first determine "whether a substantial relationship exists between the subject matter of the prior and present representations." Id. If so, then it must determine "whether the presumption of shared confidences with respect to the prior representation has been rebutted." Id. If this presumption has not been rebutted, then the court must determine "whether the presumption of shared confidences has been rebutted with respect to the present representation." Id. Disqualification is appropriate if this second presumption is not rebutted. See id.; see also LaSalle Nat'l Bank v. Lake County, 703 F.2d 252, 255-56 (7th Cir.1983).
For purposes of this motion the court assumes that the first and second parts of the Cromley test have been satisfied and considers whether the presumption of shared confidences has been rebutted with respect to the present representation. This presumption can be rebutted by a demonstration "that `specific institutional mechanisms' (e.g., `Chinese Walls') had been implemented to effectively insulate against any flow of confidential information from the `infected' attorney to any other member of his present firm." Cromley, 17 F.3d at 1065. Types of institutional mechanisms that have been found to be sufficient for this purpose are:
(1) instructions, given to all members of the new firm, of the attorney's recusal and of the ban on exchange of information; (2) prohibited access to the files and other information on the case; (3) locked case files with keys distributed to a select few; (4) secret codes necessary to access pertinent information on electronic hardware; and (5) prohibited sharing in the fees derived from such litigation.
Id.; see also LaSalle Nat'l Bank, 703 F.2d at 259 (describing other approved screening mechanisms). Such mechanisms must be employed "as soon as the `disqualifying event occurred.'" Id.
In moving for IMDR's disqualification the Plaintiff erroneously relies on Analytica, Inc. v. NPD Research, Inc., 708 F.2d 1263 (7th Cir.1983). There, the Seventh Circuit held that the presumption of shared confidences was irrebuttable when an entire law firm changed sides. Analytica, 708 F.2d at 1267. The court rejected a per se rule of disqualification, recognizing that an individual attorney who moves to the firm retained by an adversary could "avoid disqualification by showing that effective measures were taken to prevent confidences from being received by whichever lawyers in the new firm are handling the new matter." Id. at 1266. In this case only one attorney, Bradley Wilson, has changed firms; thus, Analytica is not controlling. See Cromley, 17 F.3d at 1065 n. 3.
The Defendant has rebutted the presumption of shared confidences in the instant case by proving, through the sworn af fidavits of Attorneys Wilson, Marine, and Keller, that effective screening procedures were timely employed and fully implemented. See Cromley, 17 F.3d at 1065 (stating "Uncontroverted affidavits are sufficient rebuttal evidence.") On March 24, 1999, before Attorney Wilson joined IMDR on March 29, 1999, IMDR's Special Counsel, Art Kalleres, sent every member of IMDR an electronic message, entitled "Conflicts Screening System for Bradley Wilson." (Marine Aff. ¶¶ 5, 6 Ex. A; Keller Aff. ¶¶ 5, 6, Ex. A.) The message advised of Wilson's employment and explained the procedures to be followed to prevent the disclosure of any client confidences relating to Wilson's prior representation. (Id., Ex. A.) All members of *870 IMDR were directed to "strictly observe" the screening system; not to discuss with Wilson any matter in which the Haskin firm is involved, regardless of whether Wilson had been personally involved in the case while at the Haskin firm; and not to discuss in Wilson's presence anything related to any case involving the Haskin firm. (Id.) Kalleres instructed that Wilson was not to discuss, be involved with, or have access to any information relating to any matter that is or was handled by the Haskin firm. All files involving matters in which the Haskin firm is or was involved were to be maintained in a confidential manner. Such files were to be placed in a file cabinet at the end of each day, Wilson was not allowed access to any information in such files, and the persons working on such files were to take steps to ensure against inadvertent disclosure to Wilson. (Id.) The message directed that all persons were to comply with Indiana Rules of Professional Conduct, particularly Rules 1.9 and 1.10.(Id.)
The IMDR attorneys personally representing the Defendant in this case, Attorneys Marine and Keller reviewed the message from Special Counsel Kalleres. (Marine Aff. ¶ 4; Keller Aff. ¶ 4.) They have abided by all of the mechanisms established by IMDR to screen Attorney Wilson. (Marine Aff. ¶¶ 5-9; Keller Aff. ¶¶ 5-10.)
In addition, on his first day of employment with IMDR, Attorney Wilson was advised of and agreed to follow IMDR's mechanisms implemented to screen him from cases involving the Haskin firm. (Wilson Aff. ¶¶ 5-9.) He has fully complied with these mechanisms. (Id. ¶ 16.) No member of IMDR has discussed with him any matter relating to the Haskin firm; (id. ¶ 12); no discussions relating to any case in which the Haskin firm is involved have taken place in his presence; (id. ¶ 13); he has had no access to any files involving the Haskin firm; (id. ¶ 14); and he has not been involved with or had access to any information relating to any matter handled by the Haskin firm. (Id. ¶ 15.) Wilson also has been and is denied access to computerized files and folders on IMDR's computer system which were generated by the labor and litigation sections, unless Byron Myers, a partner in the labor section, or Phil Whistler, a partner in the litigation section, first determines that Wilson may have access in accordance with the "Conflicts Screening System." (Id. ¶ 10.) Because Attorney Wilson is paid on salary, he does not directly receive any fees derived from this case. (Id. ¶ 11.)
Assuming that while employed with the Haskin firm Attorney Wilson gained any of the Plaintiff's confidences, IMDR timely implemented institutional mechanisms that effectively shield any flow of that information from Attorney Wilson to any other member of IMDR (and effectively shield any flow of confidential information gained through IMDR's representation of the Defendant in this case to Attorney Wilson). Thus, the presumption of shared confidences with respect to IMDR's present representation of the Defendant has been rebutted. The Plaintiff's motion to disqualify counsel is DENIED.
NOTES
[1] The Rule provides:
(a) While lawyers are associated in a firm, none of them shall represent a client if he knows or should know in the exercise of reasonable care and diligence that any one of them practicing alone would be prohibited from doing so by Rules 1.7, 1.8(c), 1.8(k), 1.9, or 2.2.
(b) When a lawyer becomes associated with a firm, the firm may not represent a person in the same or a substantially related matter if it knows or reasonably should know that that lawyer, or a firm with which the lawyer was associated, had previously represented a client whose interests are materially adverse to that person and about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(b) that is material to the matter.
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277 Kan. 27 (2003)
82 P.3d 460
ARY JEWELERS, L.L.C., Appellee,
v.
SCOTT KRIGEL, INDIVIDUALLY AND AS TRUSTEE OF THE SCOTT W. KRIGEL REVOCABLE TRUST, Appellants.
No. 88,991.
Supreme Court of Kansas.
Opinion filed December 31, 2003.
Sanford P. Krigel, of Krigel & Krigel, P.C., of Kansas City, Missouri, argued the cause, and Karen S. Rosenberg, of the same firm, was with him on the briefs for appellants.
Barry L. Pickens, of Spencer Fane Britt & Browne, LLP, of Kansas City, Missouri, argued the cause, and Michael C. Leitch, of the same firm, was with him on the briefs for appellee.
The opinion of the court was delivered by
NUSS, J.:
This case involves a dispute over escrowed funds. ARY Jewelers, L.L.C., (ARY) contracted to buy Krigel's, Inc., which owned and operated a jewelry business in several Midwestern states. After the sale failed, a Johnson County District Court granted summary judgment to ARY and ordered return of its $1.5 *28 million in escrow. Scott Krigel, individually and as trustee of the Scott W. Krigel Revocable Trust which owned the company stock (collectively the Krigels), appealed not only the grant of summary judgment to ARY but also the denial of their own summary judgment motion based upon breach of contract. We transferred the case from the Court of Appeals on our own motion pursuant to K.S.A. 20-3018(c).
The issues on appeal, and this court's accompanying holdings, are as follows:
1. Did the district court err in granting summary judgment to ARY because the court misinterpreted the contract? No.
2. Did the district court err in granting summary judgment because genuine issues of material fact remained on the issue of estoppel? No.
3. Did the district court err in granting summary judgment because genuine issues of material fact remained on the issue of waiver? No.
4. Did the district court err in denying the Krigels' motion for summary judgment because the court misinterpreted the contract? No.
Consequently, the judgment of the district court is affirmed.
FACTS
Krigel's, Inc., a family-owned Kansas corporation operating jewelry stores across several Midwestern states, began having financial problems early in 2000 and soon became insolvent. Scott Krigel (Scott), on behalf of the Scott W. Krigel Revocable Trust, began to seek a buyer for the family business. On November 21, 2000, following extended negotiations with Gohar Husain, both Scott on behalf of his trust and Husain on behalf of ARY signed a Stock Purchase Agreement (SPA), which provides the basic dispute in this case.
The SPA called for Krigel's, Inc., to file for Chapter 11 bankruptcy. After approval of the bankruptcy court and sale closing, ARY was to purchase all of the stock of Krigel's, Inc., with $50,000 escrowed at Assured Quality Title Company. Upon closing, ARY was also to pay 60% of the debt owed to each of Krigel's, Inc.'s *29 unsecured creditors and assume responsibility for or pay off all debt Krigel's, Inc., owed to its only secured creditor, Foothill Capital Bank (Foothill Capital). ARY's obligation to Krigel's, Inc.'s unsecured creditors approximated $6 million. ARY's obligation to Foothill Capital approximated $8 million at the time the parties signed the SPA.
The same day as the SPA's execution, Husain, again on behalf of ARY, and Scott, on behalf of himself and Krigel's, Inc., signed a Consulting and Noncompetition Agreement for Scott Krigel (consulting agreement). It required ARY to hire Scott as a consultant for up to 1 year and forbade him from competing with ARY in the area of existing Krigel's, Inc., stores for 2 years. In exchange for these considerations, ARY was to pay Scott $1,450,000 from a second escrow account it funded at Assured Quality Title. In short, ARY's cash obligation at closing totaled $7.5 million the $6 million to Krigel's, Inc., unsecured creditors and the $1.5 million for the company stock and Scott's considerations.
The SPA provided at paragraph 9, and the consulting agreement at paragraph 19, that if ARY failed to provide proof of its ability to pay unsecured creditors prior to Krigel's, Inc., bankruptcy filing or if it failed to pay the unsecured creditors on the effective date of the bankruptcy plan, then the Krigels would immediately be entitled to the escrowed $1.5 million.
Of great importance to this case is paragraph 4(c) of the SPA, which contains the "Foothill Capital financing condition." It provides as follows:
"4. Representations, Warranties and Covenants of Purchaser. Purchaser hereby represents, warrants and covenants to the Seller that:
. . . .
(c) Within four weeks from the date hereof [December 19] Purchaser shall provide Seller with evidence of Foothill Capital's consent to the continued financing of Company's obligations to Foothill Capital. In the event Foothill Capital does not consent within the foregoing time period this Stock Purchase Agreement and related agreements shall be void and of no further effect." (Emphasis added.)
Paragraph 5(c) repeats the unfulfilled condition's nullifying effect on the SPA but provides for the possibility of waiver. It states in relevant part:
*30 "5. Seller's and Purchaser's Conditions to Closing
"In addition to the conditions set forth in Section 6 below, Closing shall be subject to the following conditions:
. . . .
(c) If any of these conditions have not occurred as of the Closing Date [December 19], this Agreement shall be null, void and of no further effect, unless any such unfulfilled conditions are waived by the affected party." (Emphasis added.)
Paragraph 6(a) of the SPA repeats the waiver possibility. It states in relevant part:
"6. Conditions to Closing. The obligation of each party to proceed to closing is subject to the following conditions:
(a) The parties shall not be in breach of the conditions specified in Section 5 above, unless waived by the affected party." (Emphasis added.)
Under paragraph 8(d), a waiver is required to be submitted to the opposing party in writing: "All notices, requests, demands, and other communications required or permitted to be given hereunder shall be in writing . . . ." Paragraph 8 continues at subsection (e) with integration language:
"Entire Agreement. This Agreement (including the Exhibits referred to herein) sets forth the entire Agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede[s] all prior agreements, arrangements, and understandings, whether written or oral, related to the subject matter hereof. No representation, promise, inducement or statement of intention has been made by any party hereto which is not embodied in the Agreement or in the Exhibits attached hereto or the written statements, certificates or other documents delivered pursuant hereto." (Emphasis added.)
Following the agreements' execution, all parties agreed Scott would lead the negotiation for continued financing with Foothill Capital because Krigel's, Inc., had a working relationship with the bank. Four days before the December 19, 2000, closing date, Thomas Morgan, Vice President of Foothill Capital, notified ARY and Scott of his company's interest in providing ARY bankruptcy emergence financing as follows:
"December 15, 2000
"Mr. Gohar Husain
"ARY Jewelers, LLC
"Re: Emergence Financing Proposal Letter
*31 "Dear Mr. Husain:
"In accordance with Foothill Capital's discussions with Stuart Fetter and Scott Krigel, President of Krigel's Jewelers it is Foothill's understanding that ARY, LLC's intends to purchase 100% of the stock of Krigel's Jewelers. This is further evidenced by the execution of that certain `Stock Purchase Agreement' dated November 21, 2000. It is Foothill's understanding that Krigel's Jewelers anticipates filing for Chapter 11 protection on or about January 15, 2001 and will exit shortly thereafter under ownership of ARY, LLC. Please let this letter serve as an expression of Foothill Capital's interest in reviewing the opportunity to provide emergence financing for Krigel's Jewelers under ARY, LLC's ownership, but should not be considered a commitment to lend." (Emphasis added.)
Morgan went on to propose loan terms significantly different than what Foothill Capital had granted Krigel's, Inc., prior to its insolvency. After Scott reviewed a copy of the letter, he concluded it did not satisfy the requirement of Foothill Capital's consent under SPA paragraph 4(c). Nevertheless, he forwarded it via email to ARY's Husain with the following endorsement:
"Dear Gohar,
"I just received the correspondence that you and I have been waiting for from Foothill. I have attached a copy of Foothill's letter to this email. As you can see from the letter, it appears that Foothill will be willing to provide Krigel's with financing. Krigel's accepts this letter as complying with paragraph 4(c) of the Stock Purchase Agreement. Please let me know if this meets with your approval.
"Scott Krigel"
In an affidavit submitted to the district court, Max Jevinsky, ARY's attorney, claimed that on December 19, 2000, he notified Krigel's, Inc., by letter that Foothill Capital had not consented to continued financing within the terms of paragraph 4(c). Nevertheless, he requested an extension of the consent period to January 18, 2001. His letter provided:
"Dear Mr. Krigel:
"I have reviewed Tom Morgan's Emergence Financing Proposal Letter of December 15, 2000 (the `Proposal').
"Paragraph 4(c) of the Stock Purchase Agreement (the `Agreement') speaks in terms of `Foothill Capital's consent to the continued financing of the Company's obligations to Foothill Capital'. The Proposal, however, is merely a terms sheet and cannot reasonably be considered a `consent'. As such, it does not satisfy the requirement of paragraph 4(c) of the Agreement.
"That being said, ARY is satisfied that it and Foothill Capital can satisfactorily and in good faith negotiate a lending commitment shortly after Mr. Husain's *32 return to the United States, and that the Proposal will be considered acceptable for purposes of the Agreement. However, Mr. Husain is presently unable to discuss this matter with his principals as they are not available during the observance of Ramadan.
"It is my understanding that you and Mr. Husain spoke after our conversation on Saturday, and that you have no objection to a short extension of the time period of paragraph 4(c) of the Agreement. We realize that ARY will not have a formal commitment from Foothill Capital by then, but we merely want to have a greater level of comfort that the Proposal will in fact result in a timely lending commitment on mutually acceptable terms.
"I recommend that the acceptance period in paragraph 4(c) of the Agreement be extended to January 18, 2001. This would slightly delay your formal notification of vendors, but that appears to me to be not particularly significant since you have already notified the majority of the holders of the largest claims, and they are apparently enthusiastic and supportive of the Company's plan. This slight delay will not affect the schedule for filing and obtaining acceptance of the reorganization plan.
"If you are agreeable to the recommended extension I will appreciate your signing the enclosed duplicate of this letter and returning it to me. Thank you for your continued cooperation.
"Very truly yours,
"Berman, DeLeve, Kuchan & Chapman. L.C.
[signature]
Max Jevinsky"
Jevinsky claimed he received no response to his letter. ARY and Krigel's, Inc., continued to negotiate with Foothill Capital, however, to try to salvage the transaction. One day after the expiration of Jevinsky's proposed extension, January 19, 2001, despite the continued problems experienced in obtaining Foothill Capital's consent to financing, Scott directed counsel for Krigel's, Inc., to file for Chapter 11 bankruptcy.
ARY admits that at least twice it attempted to intervene in the bankruptcy action to seek delays allowing it sufficient time to complete financing negotiations with Foothill Capital. In response to ARY's second request for additional time, Krigel's, Inc.'s attorneys moved the bankruptcy court to delay the effective date of their petition to March 30, 2001. Moreover, according to Scott, ARY's Husain had repeatedly and consistently stated to him that (1) if favorable financing could not be negotiated, ARY would close the SPA by paying cash, and (2) ARY could pay Krigel's, Inc., unsecured *33 and secured debt by paying cash and that financing was not necessary. He also alleged that no ARY representative ever informed him during the negotiation of the SPA that ARY required acceptable financing to proceed with the SPA.
ARY's negotiations with Foothill Capital continued into March 2001 without success. Finally, on March 28, ARY notified Krigel's, Inc., that if Foothill Capital did not approve continued financing on the same terms as Krigel's, Inc., had enjoyed prior to insolvency, ARY would consider the SPA void.
Two days later, on March 30, 2001, the extended effective date of the bankruptcy ARY failed to close on the SPA and failed to pay Krigel's, Inc., unsecured creditors. Because of ARY's alleged failure to perform, the next day Scott made a demand on Assured Quality Title for release of the escrowed $1.5 million per the default provisions of the agreements. ARY contested the demand and claimed the entire transaction void due to Foothill Capital's failure to agree to continued financing on the same terms as Krigel's, Inc., had enjoyed prior to insolvency.
That same month, April 2001, ARY filed a petition for declaratory judgment in Johnson County District Court and amended the petition on June 13, 2001, essentially seeking return of its escrowed funds. On August 9, 2001, Scott and his trust filed an answer and a counterclaim for breach of contract seeking possession of the funds.
After discovery closed, the parties filed motions for summary judgment on February 27, 2002. The district court found the terms of the SPA were unambiguous. Considering only the "four corners" of the agreements, the court held that SPA paragraph 4(c), which contained the Foothill Capital financing condition, "affected" both parties. The court further concluded that since ARY had not submitted a written waiver, the agreements were null and void:
"Based on the uncontroverted facts set forth above, the Court concludes that paragraph 4(c) of the SPA is a representation and warranty of ARY to Krigel. Krigel waived the requirements of that paragraph by sending written notice of his waiver to Gohar Husain on December 15, 2000. However, paragraph 4(c) also affected the purchaser, ARY. Thus, pursuant to SPA ¶¶ 5(c) and 6(a), ARY would *34 also have to waive it, or Foothill's lack of consent to financing rendered the SPA and related agreements null and void.
"While it is alleged that ARY's representative, Gohar Husain, may have orally told Scott Krigel that ARY would close the transaction even without continued financing from Foothill, neither Mr. Husain nor any other representative of ARY ever waived the requirements of SPA paragraph 4(c) in writing. The SPA requires waivers, and all other communications permitted or required under the SPA, to be in writing. Therefore, ARY did not waive paragraph 4(c), and by the express terms of paragraph 4(c), the SPA and the ancillary Consulting Agreement were null and void as of December 19, 2000."
As a result, the district court denied the Krigels' motion for summary judgment, granted ARY's motion, and ordered Assured Quality Title to release the escrowed $1.5 million to ARY.
ANALYSIS
Issue 1: Did the district court err in granting summary judgment to ARY because the court misinterpreted the contract?
The Krigels first claim the district court misconstrued paragraph 4(c) of the SPA as a financing term which affected both parties. They argue that because the term was a representation and warranty made by ARY for the sole benefit of the Krigels, the Krigels alone could and did properly waive the provision under paragraphs 5(c) and 6(a). Since they properly waived this provision, the Krigels allege ARY had no valid reason not to perform its obligations and consequently is in breach, entitling the Krigels to the $1.5 million in escrow.
We first observe that the parties elected to have the SPA governed by Missouri law. Accordingly, we apply Missouri's substantive law and rules of contractual construction in our de novo review. See Unrau v. Kidron Bethel Retirement Services, Inc., 271 Kan. 743, 763, 27 P.3d 1 (2001) (The interpretation and legal effect of written instruments are matters of law, and an appellate court exercises unlimited review.). Our interpretation of this contract is therefore governed by the principles stated in Armstrong Business Services, Inc. v. H&R Block, 96 S.W.3d 867, 874 (Mo. App. 2002):
"The cardinal rule in contract interpretation is to ascertain the intention of the parties and to give effect to that intention. Atlas Reserve Temporaries, Inc. v. Vanliner Ins. Co., 51 S.W.3d 83, 87 (Mo. App. 2001) (quoting J.E. Hathman, Inc. *35 v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 [Mo. 1973]). Unless the contract is ambiguous, the intent of the parties is determined based on the contract alone, not on extrinsic or parol evidence. [Citation omitted.] In determining whether a contract is ambiguous, words should be given their natural and ordinary meaning. [Citation omitted.] A contract is ambiguous if its terms are reasonably open to more than one meaning, or the meaning of the language used is uncertain. [Citation omitted.] A contractual provision is not ambiguous merely because the parties disagree over its meaning. [Citation omitted.]"
Against this backdrop, we consider whether the Krigels had the sole authority under paragraphs 5(c) and 6(a) to waive the unfulfilled condition contained in paragraph 4(c). In particular, we consider the possible waiver of Foothill Capital's failure to consent within 4 weeks of the date of the SPA to the continued financing of Krigel's, Inc., obligations to Foothill under the prebankruptcy terms. These paragraphs were previously set forth in this opinion.
The district court held that paragraph 4(c) was a representation and warranty of ARY to "Krigel," and Scott waived the unfulfilled condition by sending written notice of waiver to Husain on December 15, 2000, per paragraphs 5(c) and 6(a). The court additionally held that ARY was required to waive the unfulfilled condition because the condition also affected ARY as a party as stated in paragraphs 5(c) and 6(a).
We agree with the district court. Without Foothill Capital's continued financing of Krigel's, Inc.'s secured debt of $8 million under the prebankruptcy terms, ARY would have been obligated to add this amount in cash to its $7.5 million cash outlay at closing. This makes a substantial difference to a buyer, and therefore ARY was affected by paragraph 4(c). Under paragraphs 5(c) and 6(a), ARY also was required to waive the unfulfilled condition, which it did not do.
Issue 2: Did the district court err in granting summary judgment because genuine issues of material fact remained on the issue of estoppel?
The Krigels argue that genuine issues of material fact exist to prevent summary judgment for ARY. Specifically, they claim that ARY's representatives' statements and acts estop ARY from relying upon paragraph 4(c)'s unfulfilled condition of Foothill Capital's *36 consent to continued financing, even though ARY had not waived that provision in writing as required by paragraph 8(d). ARY responds that we should not consider this argument because the Krigels did not plead estoppel in the district court.
Our first step is to determine whether the Krigels adequately raised the theory of estoppel in pleadings below. If not, the issue cannot be raised on appeal. See Dalmasso v. Dalmasso, 269 Kan. 752, 765, 9 P.3d 551 (2000) (Issues not raised before the trial court cannot be raised on appeal.).
We initially observe that the district court did not mention estoppel in its journal entry of judgment filed on May 29, 2002, which suggests the issue was not adequately raised by the Krigels at that level. A careful review of the pleadings converts this suggestion into a certainty. We have examined ARY's amended petition for declaratory judgment, the Krigels' answer and counterclaim for breach of contract, and ARY's reply to the counterclaim. Estoppel is not mentioned except by ARY as an affirmative defense to the Krigels' counterclaim in accordance with K.S.A. 60-208(c) ("In pleading to a preceding pleading a party shall set forth affirmatively. . . estoppel.").
We have also carefully examined the Krigels' motion for summary judgment on their counterclaim and on ARY's amended petition, as well as ARY's memorandum in opposition. Additionally, we have reviewed ARY's own motion for summary judgment, the Krigels' response, and ARY's reply. Despite the Krigels' opportunities to mention estoppel in two different dispositive pleadings, they did not do so. Neither did ARY.
We do acknowledge that in the Krigels' response to ARY's motion for summary judgment, they argued in relevant part:
"ARY Jewelers never asserted until March 28, 2001, and thereafter that it had to secure a commitment for adequate financing as a condition to its closing the SPA. To the contrary, Gohar Husain, ARY Jewelers member and representative, repeatedly stated that if negotiations for financing were unsuccessful, ARY Jewelers would proceed with the closing and pay cash....
. . . .
"The alleged facts set forth by ARY Jewelers misconstrue what actually occurred during the negotiation process. Additionally, ARY Jewelers' version of the facts completely ignores the repeated representations made by ARY Jewelers' authorized *37 representative, Gohar Husain, which were directly contrary to the assertions now made by ARY Jewelers.
"Gohar Husain repeatedly told Krigel that ARY had a lot of money and that they could make the deal work even without obtaining suitable financing. Mr. Husain told Krigel from the very start of the negotiations that both the secured and unsecured debt would be paid by cash if the negotiations for financing were unsuccessful. . . .
"Moreover, ARY Jewelers' attorney in the chapter 11 bankruptcy proceedings stated during at least two hearings that he was urging ARY Jewelers to close the SPA. At the hearings where ARY Jewelers requested an extension to the effective date of the plan, ARY Jewelers' never represented to the Court that ARY Jewelers could not close the SPA because the so-called financing contingency had failed."
These arguments, however, appear under the Krigels' chosen heading of "parol evidence." While headings are not necessarily dispositive of the issue, the Krigels' accompanying text presents Husain's representations solely as parol evidence to rebut ARY's claim that paragraph 4(c) was a financing contingency in ARY's favor, i.e., ARY as an affected party. As evidenced by ARY's reply to the Krigels' pleading, it certainly did not interpret these arguments as estoppel based. Nor did the district court.
We do acknowledge that "[i]n considering a motion for summary judgment under K.S.A. 60-256, pleadings are to be liberally construed in favor of the party opposing the motion." Oller v. Kincheloe's, Inc., 235 Kan. 440, 448, 681 P.2d 630 (1984) (quoting Voth v. Chrysler Motor Corporation, 218 Kan. 644, Syl. ¶ 1, 545 P.2d 371 [1976]). Furthermore, the Krigels cite Turon State Bank v. Bozarth, 235 Kan. 786, 684 P.2d 419 (1984), to suggest that since they alleged facts to the district court which could support a theory of estoppel, their failure to characterize those facts as estoppel should not result in summary judgment being entered against them.
The Krigels' reliance on these authorities is misplaced. Following a bench trial, the district court in Bozarth construed the facts to support estoppel as a defense. This court rejected plaintiff's argument that it had not been affirmatively pled and held the facts constituted notice of this defense to the plaintiff, which nullified any possible unfairness. In the instant case, however, absolutely no one understood that any of the Krigels' numerous pleadings contained *38 estoppel as a theory until the Krigels' appellate brief was filed. That is too late for our consideration. Dalmasso, 269 Kan. at 765.
The Krigels essentially ask us to impose an affirmative duty upon the district court to raise legal theories and arguments for a party during the summary judgment process. In effect, the Krigels invite us to require the district court to apply the review standards governing a motion to dismiss under K.S.A. 60-212(b)(6) (failure to state a claim upon which relief can be granted) to the summary judgment process under K.S.A. 60-256. We decline to do so. Indeed, in Frontier Ditch Co. v. Chief Engineer of Div. of Water Resources, 237 Kan. 857, 864, 704 P.2d 12 (1985), we held the trial court erred in raising sua sponte the affirmative defense of statute of limitations to defendant's argument when it granted summary judgment to the plaintiff. See Reebles, Inc. v. Bank of America, N.A., 29 Kan. App. 2d 205, 213, 25 P.3d 871 (2001) (appellate court will not review grant of summary judgment against plaintiff on issue of estoppel because it did not raise estoppel as a cause of action in its pleadings for the trial court's consideration); Midwest Iron and Metal, Inc. v. Zenor Elec. Co., 28 Kan. App. 2d 353, 355, 19 P.3d 181 (2000) (appellate court will not review grant of summary judgment against plaintiff on issue of breach of implied warranty because it did not raise the claim in response to defendant's motion for judgment on all issues or on its own motion to reconsider the grant of summary judgment).
Though somewhat alike, the processes involving motions for summary judgment and motions to dismiss contain some fundamental differences. A summary judgment motion typically is filed after discovery has been completed as in the instant case, and the parties are aware of almost all of the facts and all the legal claims. See Montoy v. State, 275 Kan. 145, 148-49, 62 P.2d 228 (2003) (Ordinarily, a summary disposition of a pending case before the district court should not be granted until discovery is complete.). By contrast, a motion to dismiss typically is filed much earlier in the case when many facts are undiscovered and the legal theories may be in flux. As the court stated in Noel v. Pizza Hut, Inc., 15 Kan. App. 2d 225, 234, 805 P.2d 1244, rev. denied 248 Kan. 996 *39 (1991), when it reviewed a motion to dismiss, "[t]he development of these facts and the legal theory to which they may be appended is left to the discovery and pretrial procedures. . . . As the matter develops, the precise theory may be shifted as the facts warrant." Accordingly, the court considering a motion to dismiss must "determine whether those pleaded facts and inferences state a claim, not only on the theory which may be espoused by the plaintiffs, but on any possible theory we can divine." 15 Kan. App. 2d at 231.
The district court did not err in granting summary judgment to ARY on the issue of estoppel.
Issue 3: Did the district court err in granting summary judgment because genuine issues of material fact remained on the issue of waiver?
The Krigels argue that genuine issues of material fact on additional grounds exist to prevent summary judgment for ARY. Specifically, they claim that through the words and actions of ARY representatives, ARY waived paragraph 4(c) (the Foothill Capital consent to continued financing provision) and paragraph 8(d) (the written notice provision) of the SPA. ARY responds that we should not consider these arguments because the Krigels did not allege waiver in the district court. In the alternative, ARY claims that even if waiver had been sufficiently raised, no waiver occurred, either in writing or by implication.
Our first step, as with issue 2, is to determine whether the theory of waiver was raised below. If not, the issue cannot be raised on appeal. See Dalmasso, 269 Kan. at 765. We initially observe that the district court did mention waiver in its journal entry of judgment filed on May 29, 2002. A careful review of the pleadings reveals the waiver issue was actually raised preemptively by ARY in its motion for summary judgment, and in ARY's reply to the Krigels' response. Specifically, ARY acknowledged that the Krigels had argued waiver of paragraph 4(c) in other litigation between the parties based upon Husain's alleged representations that ARY would pay cash if acceptable financing were not obtained. ARY then presented arguments on why waiver did not apply to the instant *40 case. In ARY's reply memorandum of April 2, 2002, it claimed, among other things:
"Whatever Mr. Husain purportedly said, the SPA requires waivers to be made in writing. See SPA § 8(d). Thus, Mr. Husain could have made that statement a thousand times without any legal effect under the terms of the SPA. The SPA was null and void by its terms as of December 19, 2000."
We therefore conclude the general issue of waiver was properly raised by a party, was properly considered by the district court, and is properly before this court on appeal. Consequently, we continue our analysis by examining Missouri's legal definition of waiver:
"The intentional relinquishment of a known right, on the question of which intention of the party charged with waiver is controlling, and if not shown by express declarations but implied by conduct, there must be a clear, unequivocal, and decisive act of the party showing, such purpose, and so consistent with intent to waive that no other reasonable explanation is possible." Errante v. Kadean Real Estate Service, Inc., 664 S.W.2d 27, 29 (Mo. App. 1984).
In the instant case, the district court found that the SPA requires waivers, and all other communications permitted or required under the SPA, to be in writing. While it was alleged that ARY's representative, Husain, may have orally told Scott that ARY would close the transaction even without continued financing from Foothill Capital, the court found that neither Husain nor any other representative of ARY ever waived the financing requirement of paragraph 4(c) in writing. Consequently, ARY did not waive the requirement. As a result, the district court held that by the express terms of paragraph 4(c), the SPA and consulting agreement were null and void as of December 19, 2000.
We agree with the district court. There is no evidence of ARY's written waiver.
We next consider the Krigels' apparent argument that ARY impliedly waived the written waiver requirement of paragraph 8(d). As support they cite Keltner v. Sowell, 926 S.W.2d 528 (Mo. App. 1996), which holds that the requirement of a written notice in a contract may be waived by an oral agreement of the parties or by their conduct. In response, ARY alleges this specific argument was never raised in or addressed by the district court. We agree. The district court's journal entry makes no mention of this issue, nor is *41 it found in any of the numerous pleadings we have carefully reviewed.
Even if we disregard this procedural bar, our consideration of this specific argument provides no relief to the Krigels. Husain's alleged representations about paying cash instead of refinancing that were made before November 21, the date of the SPA's execution, are negated by the SPA's integration provision. ARY's conduct and representations after December 19 Husain's alleged representations, ARY's continued negotiations for refinancing, and counsel's two attempts to extend the bankruptcy's effective date are of no consequence because the SPA was already null and void due to the failure of Foothill Capital's consent to financing by the deadline. Under Missouri law, a condition subsequent cannot be waived after the failure of the condition. Baumann v. Brittingham, 759 S.W.2d 880, 881 (Mo.App. 1988) (Defendants' continued pursuit of financing after the deadline was not an implied waiver of the contingency provision because the failure of the contingency made the contract void.); Errante v. Kadean Real Estate Service, Inc., 664 S.W.2d at 29.
We acknowledge that ARY's attorney, Jevinsky, allegedly did request in his December 19 letter that the December 19 deadline be extended until January 18. Even resolving the facts and inferences which may reasonably be drawn from this evidence in favor of the Krigels as we are required to do in reviewing summary judgments, however, Jevinsky was clearly only extending by 30 days the date for ARY to receive Foothill Capital's consent to such financing. Extending the deadline for fulfilling the condition is inconsistent with an intent to waive the condition, i.e., intentionally relinquishing it as required by Missouri law. See Fleischer v. McCarver, 691 S.W.2d 930 (Mo.App. 1985) (sellers extended the financing contingency deadline in writing by one week and court held they never waived financing contingency). Accordingly, Jevinsky was neither expressly nor impliedly waiving the condition of Foothill Capital's consent to financing or approving the replacement of the financed $8 million with equivalent amounts of ARY's cash.
We hold ARY did not make any written waiver of the condition requiring Foothill Capital's consent to financing, nor did it make *42 any implied waiver of the requirement that waivers be in writing. Consequently, the district court did not err in granting summary judgment to ARY on this issue.
Issue 4: Did the district court err in denying the Krigels' motion for summary judgment because the court misinterpreted the contract?
For the Krigels' last argument, they claim the district court erred in denying their motion for summary judgment on their counterclaim for breach of contract and on ARY's amended petition. They specifically argue the court erred in interpreting paragraph 4(c) of the SPA; since only the Krigels' were required to waive the unfulfilled financing condition, there was no valid reason for ARY not to close the transaction. According to the Krigels, ARY's failure to pay the unsecured creditors of Krigel's, Inc., on the effective date of the bankruptcy plan therefore constituted a breach of the contract, and consequently, the Krigels are entitled to the escrowed funds.
These arguments were addressed and rejected earlier in the opinion when we considered the district court's grant of summary judgment to ARY. For those same reasons, the district court correctly denied the Krigels' motion for summary judgment.
Affirmed.
ABBOTT, J., not participating.
BRAZIL, S.J., assigned.
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54 F. Supp. 2d 1199 (1999)
Craig ROSS and his wife, Jeri Ann Ross
v.
Ted BOODRY, Jr. and Mildred Boodry and the Vessel Aurora, and Francois Vigneron.
No. CIV. A. G-99-279.
United States District Court, S.D. Texas, Galveston Division.
July 16, 1999.
James Bruce McIver, Mandell and Wright, Houston, TX, for Craig Ross, Jeri Ann Ross, plaintiffs.
Edward J. Patterson, III, Fulbright and Jaworski, Houston, TX, for Ted Boodry, Jr., Mildred Boodry, Vessel Aurora, Francois Vigneron, defendants.
ORDER DENYING DEFENDANTS' MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM FOR WHICH RELIEF MAY BE GRANTED
KENT, District Judge.
This case arises out of injuries allegedly sustained by Plaintiff Craig Ross during a boating accident in Galveston Bay. Plaintiffs allege that Defendants were negligent under the general maritime law and that such negligence was the cause of Plaintiff's injuries. Now before the Court is Defendants' Partial Motion for Dismissal for Failure to State a Claim of June 14, 1999. For the reasons set forth below, Defendants' Motion to Dismiss for Failure to State a Claim is DENIED.
I. FACTUAL SUMMARY
Plaintiff Craig Ross joined Defendant Francois Vigneron aboard the vessel AURORA on October 26, 1996, for a pleasure cruise in Galveston Bay. Defendant Vigneron was operating the AURORA, which was owned by Defendants Ted Boodry, Jr., and Mildred Boodry. During the cruise, Plaintiff Craig Ross was allegedly knocked unconscious, resulting in a traumatic and disabling brain injury. He and his wife filed suit in this Court on May 6, 1998. In addition to the damages sought by Craig Ross, Plaintiff Jeri Ann Ross seeks damages for loss of society, support, and consortium.
II.ANALYSIS
Defendants argue that damages for loss of consortium are not available under the general maritime law and ask the Court to dismiss all such claims on the part of Plaintiff Jeri Ann Ross under Fed.R.Civ.P. 12(b)(6). When considering a motion to dismiss for failure to state a claim for which relief may be granted, the Court accepts as true all well-pleaded allegations in the complaint and views them in a light most favorable to the plaintiff. See Malina v. Gonzales, 994 F.2d 1121, 1125 (5th Cir.1993). Unlike a motion for summary judgment, a motion to dismiss should be granted only when it appears without a doubt that the plaintiff can prove no set of facts in support of her claims that would entitle her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L.Ed.2d *1200 80 (1957); Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994). The United States Court of Appeals for the Fifth Circuit has noted that dismissal for failure to state a claim is disfavored and will be appropriate only in rare circumstances. Mahone v. Addicks Util. Dist. Of Harris County, 836 F.2d 921, 926 (5th Cir.1988).
Defendants' argument that the United States Court of Appeals for the Fifth Circuit does not allow consortium damages is misleading. Defendants cite Nichols v. Petroleum Helicopters, Inc., 17 F.3d 119, 122-23 (5th Cir.1994), for the proposition that the trend in that direction encompasses the spouses of non-seamen. However, Defendants fail to mention that the Fifth Circuit recognizes a distinction between non-seaman maritime workers injured on the high seas and those injured in territorial waters. See Nichols, 17 F.3d at 123. While the Fifth Circuit recognizes that spouses of non-seaman maritime workers injured on the high seas cannot recover for loss of consortium, see id. at 122-23 (citing Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 98 S. Ct. 2010, 56 L. Ed. 2d 581 (1978)), it expressly allows the recovery of such damages for injuries occurring in territorial waters. See id. at 123. Moreover, this Court has found no Fifth Circuit decisions holding that spouses of nonseafarers[1] may not recover damages for loss of consortium. Presumably, Defendants have found no such caselaw either. At least one circuit that has addressed that issue, however, has held that spouses of nonseafarers may claim such non-pecuniary damages. See Sutton v. Earles, 26 F.3d 903, 914-15 (9th Cir.1994) (allowing survivors of deceased victims of a pleasure boat accident to recover for loss of society). This Court is of a similar mind; it is not willing to dismiss Plaintiffs' claims for loss of consortium under Rule 12(b)(6) without clear guidance from the Fifth Circuit. Accordingly, Defendants' Motion to Dismiss for Failure to State a Claim is DENIED.
III.CONCLUSION
For the reasons set forth above, Defendant's Motion to Dismiss for Failure to State a Claim is DENIED. The parties are ORDERED to bear their own taxable costs and expenses incurred herein to date.
IT IS SO ORDERED.
NOTES
[1] The United States Supreme Court has defined "nonseafarers" as "persons who are neither seamen covered by the Jones Act, 46 U.S.C.App. § 688 (1988 ed.), nor longshore workers covered by the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. § 901 et seq." Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 205 n. 2, 116 S. Ct. 619, 623 n. 2, 133 L. Ed. 2d 578 (1996).
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(2008)
Susan H. MINEHAN, Petitioner,
v.
UNITED STATES OFFICE OF SPECIAL COUNSEL, Respondent.
Civil Action No. 08-0499 (JR).
United States District Court, District of Columbia.
November 19, 2008.
MEMORANDUM OPINION
JAMES ROBERTSON, District Judge.
In this action for a writ of mandamus, petitioner seeks to compel the Office of Special Counsel ("OSC") to investigate alleged prohibited personnel practices ("PPP") by her former employer, the Department of Army. OSC moves to dismiss or for summary judgment on the bases that one claim is barred by the statute of limitations and that it complied with its statutory duty to investigate the charge forming the basis of the remaining claim. Upon consideration of the parties' submissions, the Court grants respondent's motion for summary judgment.
This civil action, filed March 24, 2008, stems from petitioner's grievances to OSC on February 25, 2000 and March 18, 2003.[1] Because OSC issued its final action on the earlier grievance on December 18, 2001, see Declaration of Kristin Ellis ¶ 10, respondent rightly asserts that this claim is barred by the six-year statute of limitations applicable to lawsuits against the United States. 28 U.S.C. § 2401. Petitioner's 2003 grievance restated one of the claims made in the 2000 grievance that OSC had investigated. Ellis Decl. ¶ 12; but see Pl.'s Opp. at 4 (asserting that the later grievance "contained new information and should not have been construed as containing the same information" as the earlier grievance). After "[r]eviewing the evidence submitted by Petitioner as well as information from her previous complaint," Ellis Decl. ¶ 13, OSC adopted its earlier finding of insufficient evidence of a PPP. Id. ¶ 14. In response to petitioner's request for reconsideration based on her claim of new information, OSC, having indicated previously that it had considered her new information, "affirmed the previous decision to close the case." Id. ¶ 15.
Mandamus is an extraordinary remedy to compel an agency "to perform a duty owed to the plaintiff." 28 U.S.C. § 1361. OSC must investigate complaints "to the extent necessary to determine whether there are reasonable grounds to believe that a prohibited personnel practice has occurred, exists, or is to be taken." 5 U.S.C. § 1214(a)(1). Because OSC satisfied its statutory duty by conducting an investigation of the alleged PPP, see Ellis Decl. ¶¶ 4-8, 13, no basis exists for issuing the writ. A separate Order accompanies this Memorandum Opinion.
NOTES
[1] In the first grievance, petitioner claimed that Army officials unlawfully denied her a non-competitive promotion, unlawfully mis-classified her position and retaliated against her for filing a complaint with the Office of Inspector General. Ellis Decl. ¶ 5. The second grievance restated the claim of unlawful misclassification. Id. ¶ 12.
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486 F.Supp.2d 159 (2007)
Louis P. TORTORELLA, et al.
v.
UNITED STATES of America, et al.
Civil Action No. 06-10054-RGS.
United States District Court, D. Massachusetts.
April 30, 2007.
*160 Brian M. Donovan, Office of the Attorney General, Boston, MA, for Defendants.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS OR TRANSFER
STEARNS, District Judge.
On January 11, 2006, four Massachusetts Army National Guard (MNG) soldiers, Louis P. Tortorella,[1] Wayne R. Gutierrez, Joseph P. Murphy, and Steven M. Littlefield, filed this putative class action against the United States, the Commonwealth of Massachusetts, the MNG, and a number of federal and state officials.[2] Plaintiffs were among the many Guardsmen *161 mobilized by the federal government in the aftermath of the terrorist attacks of September 11, 2001. Plaintiffs seek, on their own behalf and on behalf of the proposed class, payment of Temporary Duty Travel and Transportation Allowances (TDY) to reimburse personal expenditures that plaintiffs incurred for room and board while called to active duty. Plaintiffs allege that the call-up orders which they received on September 12, 2001, were stamped
(a) Government Quarters Not Available;
(b) Government Meals Not Available; [and] (c) Per Diem: Not Authorized
and, as such, were contrary to federal law. The Pay and Allowances Act provides that
a member of a uniformed service is entitled to travel and transportation allowances for travel performed or to be performed under orders, without regard to the comparative costs of the various modes of transportation
(1) upon a change of permanent station, or otherwise, or when away from his designated post of duty regardless of the length of time he is away from that post;
(2) upon appointment, call to active duty, enlistment, or induction, from his home or from the place from which called or ordered to active duty to his first station. . . .
37 U.S.C. § 404(a).[3]
Plaintiffs allege that the refusal of defendants to pay TDY allowances also contravenes a specific provision of the National Guard Organization Act, 32 U.S.C. § 502(f). This statute requires Guardsmen to perform non-training duties without their consent in return for the "pay and allowances provided by law." Finally, plaintiffs allege violations of provisions of federal law requiring that all branches of the armed services be paid on a uniform basis. See 37 U.S.C. § 411. In addition to the federal statutory claims, plaintiffs assert common-law claims for breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, claims for non-payment of wages under G.L. c. 149, § 148, and a demand for treble (punitive) damages.[4]
On March 2, 2006, plaintiffs filed a motion for class certification. On March 20, 2006, the federal defendants responded with a motion to dismiss, arguing that the district court lacks subject matter jurisdiction because each plaintiff seeks damages in excess of $10,000. Under the Tucker Act, 28 U.S.C. § 1491(a)(1), the Court of Federal Claims has exclusive jurisdiction over non-tort claims against the United States where the amount in controversy exceeds $10,000.[5] The federal defendants *162 also sought a stay of the motion for class certification until after the motion to dismiss was decided. On March 31, 2006, the Commonwealth defendants moved to dismiss on grounds that plaintiffs' claims for money damages are barred by the Eleventh Amendment and that, in any event, because the Guardsmen were mobilized for federal duty, relief, if any, is available only from the United States.[6]
On April 21, 2006, the court stayed the determination of the motion for class certification. On August 4, 2006, the court heard oral argument on the motions to dismiss. On August 7, 2006, the court stayed determination of the motions to dismiss to give the Department of Defense (DOD) the opportunity to conduct an audit to determine whether the Guardsmen were in fact owed back pay or per diem. The government agreed that it would pay any reimbursements that the audit found to be due and owing.[7] The court ordered the United States to file periodic status reports regarding the progress of the audit and the reimbursement process.[8] On February 22, 2007, the court held a hearing to review the final status report and to hear further argument on the motions to dismiss.[9]
It is settled law that "`[t]he United States, as a sovereign, is immune from suit save as it consents to be sued . . ., and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.'" United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 63 L.Ed.2d 607 (1980), quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 85 L.Ed. 1058 (1941). As a rule, "a waiver of the Government's sovereign immunity will be strictly construed, in terms of its scope, in favor of the sovereign." Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct. 2092, 135 L.Ed.2d 486 (1996). See also Murphy v. United States, 45 F.3d 520, 522 (1st Cir.1995).
The "Little Tucker Act" waives sovereign immunity and confers jurisdiction on the district court, concurrent with the jurisdiction of the Court of Federal Claims, to hear claims against the United States "not exceeding $10,000 in amount, founded either upon the Constitution, or any Act of Congress, or any regulation of an executive *163 department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort." 28 U.S.C. § 1346(a)(2). As previously noted, under the "Big Tucker Act," 28 U.S.C. § 1491(a)(1), non-tort claims against the United States in excess of $10,000 may be brought only in the Court of Federal Claims.
Plaintiffs concede that the interplay between the Big and. Little Tucker Acts would ordinarily bar the district court from hearing their claims against the United States.[10] Plaintiffs contend, however, that the court retains jurisdiction by virtue of § 702 of the Administrative Procedure Act (APA), 5 U.S.C. § 702. Section 702 of the APA waives sovereign immunity when a plaintiff seeks non-monetary relief from a decision of a federal agency. Plaintiffs contend that while their prayer may sound in money damages, the relief they request is in fact injunctive in nature, because they are asking the court to "[e]njoin the irrational and wholly arbitrary distribution of expense reimbursement allowances to members of the [MNG] in violation of the Plaintiffs' constitutional rights to equal protection."[11]
Plaintiffs rely principally on a passage taken from Bowen v. Massachusetts, 487 U.S. 879, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988). In Bowen, Justice Stevens, writing for a majority of the Court, observed that
[i]t is often assumed that the Claims Court has exclusive jurisdiction of Tucker Act claims for more than $10,000. (Title 28 U.S.C. § 1346(a)(2) expressly authorizes concurrent jurisdiction in the district courts and the Claims Court for claims under $10,000.) That assumption is not based on any language in the Tucker Act granting such exclusive jurisdiction to the Claims Court. Rather, that court's jurisdiction is "exclusive" only to the extent that Congress has not granted any other court authority to hear the claims that may be decided by the Claims Court. If, however, § 702 of the APA is construed to authorize a district court to grant monetary relief other than traditional "money damages" as an incident to the complete relief that is appropriate in the review of agency action, the fact that the purely monetary aspects of the case could have been decided in the Claims Court is not a sufficient reason to bar that aspect of the relief available in a district court.
Id. at 910 n. 48, 108 S.Ct. 2722.
As defendants persuasively point out, this language, while seemingly broad, is of very limited application, as a number of courts have held. In a recent and analogous case, Suburban Mortgage Assocs., Inc. v. U.S. Dep't. of Hous. & Urban Dev., 480 F.3d 1116 (Fed.Cir.2007), the Court of Appeals for the Federal Circuit aptly summarized the current state of the law as it pertains to Bowen.
This case requires us to reexamine the jurisdictional boundary between the Tucker Act and the Administrative Procedure Act, as that boundary is understood in the light of the Supreme Court's decision in Bowen v. Massachusetts. The case began as a dispute between plaintiff Suburban Mortgage . . . *164 and defendants, the United States Department of Housing and Urban Development . . . with regard to a contract for insurance. Plaintiff sued the Government in the United States District Court for the District of Columbia. The suit was cast in part as an action for specific performance of the contract and in part as a declaratory judgment action. The relief sought was to require the Government to perform its contract obligations so that Suburban Mortgage could get the money allegedly due it under the insurance agreement. . . . [D]espite Suburban's valiant effort to frame the suit as one for declaratory or injunctive relief, this kind of litigation should be understood for what it is. At bottom it is a suit for money for which the Court of Federal. Claims can provide an adequate remedy, and it therefore belongs in that court.
Id. at 1117-1118. The Federal Circuit went on to observe that
[o]ne consequence of the Bowen case has been to create a sort of cottage industry among lawyers attempting to craft suits, ultimately seeking money from the Government, as suits for declaratory or injunctive relief without mentioning the money. . . . This court has had several opportunities to deal with such attempts, and to interpret and apply Bowen.
To thwart such attempted forum shopping, our cases have emphasized that in determining whether a plaintiff's suit is to be heard in district court or the Court of Federal Claims, we must look beyond the form of the pleadings to the substance of the claim. We have cautioned litigants that dressing up a claim for money as one for equitable relief will not remove the claim from Tucker Act jurisdiction and make it an APA case.
Id. at 1124.
The Amended Complaint at issue here suffers from the same defect as the one identified in Suburban Mortgage. No matter what dressing plaintiffs serve with the Amended Complaint, the taste is overwhelmingly that of a money award. Recognizing as much, plaintiffs in essence concede that most of their case belongs in the Court of Federal Claims. Nonetheless, they argue that this court should retain jurisdiction over the Equal Protection and Takings Clause claims. This is puzzling as there is no relief that this court can grant under these claims that is not more abundantly available in the Court of Federal Claims.
The court, however, understands that there are potential plaintiffs whose existing or remaining claims may not exceed $10,000. Consequently, the court will grant plaintiffs' counsel sixty days from the date of this Order to determine if any putative class members are willing to waive the recovery of damages in excess of $10,000. The court will retain jurisdiction over these claims under the Little Tucker Act. If warranted by numerosity, the court will entertain a motion for certification of a class of "Little Tucker" claimants. The case against the United States will otherwise be TRANSFERRED to the Court of Federal Claims. The claims against the Commonwealth of Massachusetts are DISMISSED. The Clerk will, however, retain the case on the court's docket for sixty (60) days pending the report of plaintiffs' counsel.[12]
SO ORDERED.
NOTES
[1] Louis P. Tortorella died after the Complaint was filed. The court understands that his estate will move to have itself substituted as the lead plaintiff.
[2] The Complaint named the following individuals in their official capacity: Francis J. Harvey, the Secretary of the Army; Donald H. Rumsfeld, the former Secretary of Defense; David M. Walker, the Comptroller General of the United States; Mitt Romney, the former Governor of Massachusetts; Martin J. Benison, the Comptroller of the Commonwealth of Massachusetts; Brigadier General Oliver J. Mason, Jr., the Adjutant General of the MNG; and Colonel Leonard Samborowski, the Inspector General of the MNG. The individual defendants were dismissed from the case on August 7, 2006.
[3] See also Joint Federal Travel Regulation (JFTR), Para. T4020.B.2 (Nov. 1, 2003) (requiring that military authorities provide an active duty soldier with transportation, lodging and food, or reimbursement for his or her reasonable and necessary authorized expenses).
[4] Plaintiffs also allege more generic violations of the Equal Protection and Takings Clauses of the United States Constitution.
[5] Defendants also argue that plaintiffs failed to exhaust the administrative remedies provided by the Army Board for Correction of Military Records (ABCMR). In opposition, plaintiffs have presented affidavits explaining why they did not seek redress from the ABCMR. The parties agree that the court may look to these affidavits in deciding the issue. Valentin v. Hospital Bella Vista, 254 F.3d 358, 363 (1st Cir.2001) (in cases where a defendant challenges the accuracy of the jurisdictional facts asserted by the plaintiff, the defendant's challenge "permits (indeed, demands) differential fact finding."). The affidavits demonstrate that plaintiffs brought the failure to pay per diem issue to the attention of their commanding officers on a number of occasions without results. Because the directive that disallowed the per diem reimbursement was included in their official orders, plaintiffs argue that they were con strained by the military chain of command to accept the orders as lawful. Plaintiffs plausibly allege that they did not appeal the rejection of their per diem claims because they believed that as soldiers they had no right to question the decision of their commanding officers. As a practical matter, it would have been futile for plaintiffs to appeal to the ABCMR, because its function is to determine whether errors were made in per diem reimbursements, not whether a call-up order violated the law by disallowing all per diem.
[6] The court agrees with these arguments and will dismiss any remaining claims against the Commonwealth of Massachusetts.
[7] According to the governments' Sixth and Final Status Report, as of February 16, 2007, the government had reimbursed 215 MNG soldiers whom the audit had identified as having claims due and owing. Under the terms of the court's prior orders, these claims were paid without any release or waiver of a recipient's right to litigate the accuracy of the amount paid by the government.
[8] On September 15, 2006, plaintiffs renewed the motion for class certification and filed a motion for a preliminary injunction. The Commonwealth thereafter renewed its motion to dismiss. On October 10, 2006, the court held a hearing on the motions. On October 20, 2006, the court denied the request for an injunction and stayed the case for an additional period of time to permit the audit to be completed.
[9] On April 19, 2007, the United States moved to transfer the case to the Court of Federal Claims. The motion is intended as an alternative to, and not a substitute for, the motion to dismiss.
[10] The total of the claims of each of the named plaintiffs is alleged to exceed $10,000.
[11] The Amended Complaint, however, also requests that the court "[a]ward monetary damages to Plaintiffs on each count of Plaintiffs' Complaint in an amount to be determined at trial: [t]reble such amount of damages, and award Plaintiffs their costs and attorney's fees as provided for by M.G.L. c. 149; [and a]ward exemplary and punitive damages in an appropriate amount to deter future conduct. . . ."
[12] While the case is not concluded, there is much to commend on the part of the lawyers involved. In the first instance, the diligence of plaintiffs' counsel, John Shek, is to be acknowledged in bringing this action to rectify the inexplicable failure of DOD to meet its commitments to the citizen soldiers who responded without hesitation to the emergency of September 11, and who endured personal financial hardship as a result. In the second instance, counsel for the United States, Assistant U.S. Attorney Mark Quinlivan, is to be commended for recognizing the potential that a wrong had been done and for seeking a means to rectify it before insisting that the court address the legal arguments supporting the motion to dismiss.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522077/
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486 F. Supp. 2d 1301 (2007)
In re NATURE'S SUNSHINE PRODUCTS SECURITIES LITIGATION.
No. 2:06-CV-267 TS.
United States District Court, D. Utah, Central Division.
May 21, 2007.
*1302 Karen Pieslak Pohlmann, Marc J. Sonnenfeld, Morgan Lewis & Bockius, Philadephia, PA, Erik A. Christiansen, Kent O. Roche, Raymond J. Etcheverry, Parsons Behle & Latimer, Salt Lake City, UT, for Nature's Sunshine Products. Securities Litigation.
Brent O. Hatch, Gary A. Dodge, Mark F. James, Hatch James & Dodge, A. John Pate, Gary D.E. Pierce, Pate Pierce & Baird, Gregory D. Phillips, Scott R. Ryther, Cody W. Zumwalt, Kevin A. Howard, Howard Phillips & Andersen, Salt Lake City, UT, Laurence M. Rosen, Phillip Kim, The Rosen Law Firm PA, New York City, Richard A. Maniskas, Alison K. Clark, Marc A. Topaz, Schiffrin Barroway Topax & Kessler, Radnor, PA, Daniel S. Sommers, Elizabeth S. Finberg, Steven J. Toll, Cohen Milstein Hausfeld & Toll, Washington, DC, for Plaintiffs.
MEMORANDUM DECISION AND ORDER DENYING MOTION TO DISMISS
STEWART, District Judge.
This matter is before the Court on Defendants' Motion to Dismiss.[1]
I. INTRODUCTION
The facts are set forth by the parties in the pleadings and memoranda. Plaintiffs bring the following claims in the Class Action Complaint ("CAC"): (1) violation of Section 10(b) of the Securities Exchanges Act of 1934 ("Exchange Act")[2] and SEC Rule 10b-5(b) by Defendant Faggioli, CEO of Nature's Sunshine Products ("NSP"), and Defendant NSP[3] stemming from alleged material misrepresentations, in connection with the sale of NSP securities, to the investing public from March 16, 2005 through April 5, 2006;[4] a (2) violation of Section 10(b) and SEC Rule 10(b)-5(a) and (c) by Defendants Faggioli and NSP for alleged misrepresentations to the NSP's independent auditor, KPMG LLP ("KPMG"), to obtain unqualified or "clean" audit opinions ("the scheme claim");[5] and (3) control person liability under Section 20(a) of the Exchange Act[6] against Defendant Faggioli, Defendant Huff, former CFO of NSP, and Cristiani, former Board Director and NSP Audit Committee Chairman.
Defendants now move to dismiss Plaintiffs' claims under Fed.R.Civ.P. 12(b)(6) *1303 for, among other reasons, failure to plead fraud with particularity, or to meet the heightened pleading requirements imposed by the Private Securities Litigation Reform Act of 1995 ("PSLRA").[7] Having reviewed the memoranda, and heard oral argument, the Court now issues the following ruling.
II. DISCUSSION
A. Rule 12(b)(6) Standard
In considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), all well-pleaded factual allegations, as distinguished from conclusory allegations, are accepted as true and viewed in the light most favorable to the nonmoving party.[8] A Rule 12(b)(6) motion to dismiss may be granted only if it appears beyond a doubt that the plaintiffs are unable to prove any set of facts entitling them to relief under their theory of recovery.[9] All well-pleaded factual allegations in the amended complaint are accepted as true and viewed in the light most favorable to the nonmoving party.[10] But, the court "need not accept conclusory allegations without supporting factual averments."[11] "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted."[12]
B. Failure to Plead with Requisite Particularity
Federal securities fraud claims under Rule 10b-5 are subject to the pleading requirements of Fed.R.Civ.P. 9(b).[13] Accordingly, a plaintiff must "set forth the time, place and contents of [any] false representation, the identity of the party making the false statements and the consequences thereof."[14]
The PSLRA also imposes pleading requirements for 10b-5 claims. Under the PSLRA, a complaint must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed."[15] Additionally,
the PSLRA heightened the standard for pleading the scienter element of a securities fraud claim. . . . [Under the PSLRA,] the complaint shall, with respect to each act or omission alleged to violate [10b-5(b)], state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.[16]
1. Rule 10b-5(b) Claim
To state a claim under Rule 10b-5(b) for securities fraud, a complaint must allege *1304 that (1) the defendants made an untrue or misleading statement of material fact, or failed to state a material fact necessary to make statements not misleading; (2) in connection with the purchase or sale of securities; (3) the defendants acted with scienter, that is, with intent to defraud or recklessness; (4) the plaintiffs relied on the misleading statements; and (5) the plaintiffs suffered damages as a result of their reliance.[17]
(i) Untrue or Misleading Statement of Material Fact
a. Untrue or Misleading Statement
Defendants generally assert that Plaintiffs have not identified any false statement or explained why it is false. More specifically, Defendants argue that Plaintiffs have not shown that any financial statements, including its 2004 annual report on Form 10-K, issued November 22, 2005, contain misrepresentations. Defendants note that NSP has not expressly admitted its financials between 2002 and 2005 are inaccurate, has not restated its financials, and is currently investigating whether it needs to do so. Defendants assert that Plaintiffs do not identify any part of the financial statements that is misstated, by how much, or why it is purportedly misstated.
Defendants also argue that Plaintiffs have not identified any false or misleading statements within the March 16, 2005, May 9, 2005, August 5, 2005, and November 22, 2005, SOX certifications ("2005 SOX certifications"). Citing language in the 2005 SOX certifications,[18] and asserting that it is a qualifier of sorts, Defendants contend that Plaintiffs are required to identify fraud involving management or employees exercising significant control over financial reporting within NSP, and have not done so. Finally, Defendants argue that Plaintiffs have not shown how press releases[19] and 8-Ks[20] by NSP in late 2005 and early 2006 were false or misleading.
Plaintiffs argue that there are two types of false statements alleged: first, false 2005 SOX certifications signed by Faggioli,[21] and second, false reassurances, beginning in November 2005, that NSP's financial statements for the three and nine months ended September 30, 2005 were accurate.[22]
Plaintiffs first argue that the CAC identifies the dates of the 2005 SOX certifications,[23] specifies the precise statements alleged to be false,[24] and identifies why they are materially false. More specifically, Plaintiffs allege the statements to be materially false because:
1. KPMG states in a March 27, 2006 letter to the SEC that:[25]
a. an investigation by a special committee of the board of directors of NSP found electronic evidence *1305 that Faggioli knew of a fraud in the international operations of the Company yet represented otherwise to KPMG in representation letters dated March 15, 2005, and August 5, 2005;
b. Faggioli had approved a payment in violation of the Foreign Corrupt Practice Act ("FCPA");
c. the evidence provided by the investigation indicates Cristiani was aware of the fraud, that it could be material, and that it could pose a significant problem to 1\1SP, but that he did not disclose this to KPMG; and that
2. Faggioli's payment was part of the fraud;[26]
3. Faggioli sought to cover up the fraud by issuing a false management representation letter to KPMG;[27]
4. KPMG states in a March 31, 2006 letter to the SEC that it informed NSP's board and audit committee of likely illegal acts it discovered in connection with its audit of NSP's financial statements for the three year period ended December 31, 2005;[28]
5. NSP announced in a March 20, 2006 Form 8-K that it had contacted the U.S. Department of Justice about potential violations of law, and that its financial statements from 2002 through 2005 could not be relied on;[29]
6. KPMG determined that the fraud would have a material impact on NSP's financial statements, identifying the errors and periods to which it related;[30] and
7 a special committee, investigators, and KPMG later insisted that Faggioli be fired as a result of his involvement in fraud and illegal acts.[31]
Second, Plaintiffs argue that Defendants also gave false reassurances, through specific press releases and 8-Ks, that NSP financial statements with respect to the three and nine months ended September 30, 2005, were accurate.[32] Plaintiffs argue that the reassurances were false because:
1. according to KPMG, as of March 15, 2005, seven months prior to these alleged reassurances, Faggioli was aware of serious fraud in NSP's international operations and had participated in illegal acts related to the fraud that had a material effect on NSP's financial statements;[33] and
2. Faggioli was aware of KPMG's raising issues regarding the accuracy of the financial statements for the period ended September 30, 2005;[34]
a. as CEO, Faggioli was responsible for the accuracy of NSP's financial statements; and[35]
b. it is logical to infer that, before Faggioli reassured investors that management believed the quarterly financials were accurate, they discussed with KPMG the accounting errors at issue which *1306 precluded KPMG from issuing a clean, review opinion on the financial statements, otherwise no reasonable basis for the reassurances existed.[36]
Defendants reply, in part, by attacking the facts pleaded by Plaintiffs regarding KPMG's statements. Defendants emphasize that an auditor's statements must also be particularized,[37] and that KPMG's statements are not. Rather, Defendants assert that KPMG's statements are conclusory allegations and opinion. Defendants also attempt to downplay the statements by KPMG by emphasizing the qualifying language in KPMG's statements such as "likely illegal acts," and "appear to have had a material effect." Finally, and in connection with the alleged qualifying language in the 2005 SOX certifications, Defendants dispute that KPMG asserted that Faggioli was involved in the alleged fraud. Rather, Defendants argue that the only reasonable inference from KPMG's statement is that Faggioli was aware of the fraud.[38] Defendants generally assert that Plaintiffs have not sufficiently set forth their allegations of the fraud upon which the alleged false statement is based.
Plaintiffs are required to identify in the Complaint specific facts that support the allegations about the misleading nature of Defendants' statements.[39] However, "plaintiffs need only plead with particularity sufficient facts to support [their] beliefs."[40] Clearly, generalized or conclusory allegations of fraud will not be sufficient.[41] Accordingly, the Tenth Circuit has directed courts to "evaluat[e] the facts alleged in a complaint to determine whether, taken as a whole, they support a reasonable belief that the defendant's statements identified by the plaintiff were false or misleading."[42]
Such an approach will involve an evaluation of (1) the level of detail provided by the facts stated in a complaint; (2) the number of facts provided; (3) the coherence and plausibility of the facts when considered together; (4) whether the source of the plaintiffs knowledge about a stated fact is disclosed; (5) the reliability of the sources from which the facts were obtained; and (6) any other indicia of how strongly the facts support the conclusion that a reasonable person would believe that the defendant's statements were misleading. . . . If, measuring the nature of the facts alleged against these indicia, a reasonable person would believe that the defendant[s'] statements were false or misleading, the plaintiff[s have] sufficiently pled with particularity facts supporting [their] belief in the misleading nature of the defendant[s] statements.[43]
Indeed, in this type of case, what is important is that Plaintiffs' allegations "put defendants on notice of precisely what they are alleged to have done wrong and permit *1307 them to defend against the charge."[44] Defendants should be put "on notice of the substance of [Plaintiffs'] claims."[45] Ultimately, Plaintiffs should demonstrate that "the range, sources, and level of detail of the facts alleged" show that their Complaint "is not frivolous or conclusory and deserves to proceed to the next stage of litigation."[46]
The Court finds that, taken as a whole, the facts alleged in the Complaint support a reasonable belief that Plaintiffs' statements were false or misleading.
First, the Court first finds that Plaintiffs have sufficiently pleaded a false or misleading statement as to the 2005 SOX certifications. Again, under the PLSRA Plaintiffs must only specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint must state with particularity all facts on which that belief is formed.
Here, Plaintiffs have identified specific statements in the 2005 SOX certifications that they allege to have been misleading. Plaintiffs have further articulated their reasoning for why the statements were misleading, specifically, because Faggioli falsely asserted that he was unaware of fraud involving management or employees exercising significant control over financial reporting within NSP. As to statements made on information and belief, the Court proceeds by addressing the factors set forth by the Tenth Circuit above.
Plaintiffs state, on information and belief, that Faggioli was, in fact, aware of, and involved with, a fraud involving the international operations of NSP. Plaintiffs assert that Faggioli was involved in the alleged fraud identified by KPMG, which involved NSP's international operations. While Plaintiffs do not go into great detail regarding the alleged fraud, they do assert that an alleged payment by Faggioli in violation of the FCPA was one aspect of the fraud. Plaintiffs identify KPMG as the source for these facts. KPMG's written statements indicate that a NSP special committee viewed certain electronic communications to reach the conclusion that Faggioli knew of the fraud. KPMG, as an independent auditor of NSP, is a reliable source.
The Court acknowledges that it is unclear from KPMG's statements whether they specifically implicate Faggioli in the international operations fraud. However, this is not fatal to Plaintiffs' Complaint. Additional specificity as to this matter would likely only be available as a result of discovery. Defendants are on notice of what Plaintiffs are asserting as well as the specific source from which Plaintiffs' assertions are based.[47] Assuming Plaintiffs' interpretation of KPMG's statements is true, as the Court must at this stage, and taking the other facts alleged by Plaintiff in the Complaint as a whole, and assuming their veracity as well, a reasonable person would believe that the Defendants' statements in the 2005 SOX certifications were false or misleading.
Second, the Court finds that Plaintiffs have sufficiently pleaded a false or misleading statement as to the alleged false reassurances regarding NSP's financials. *1308 Plaintiffs have identified specific statements in the 8-Ks and press releases that they allege to have been misleading. Plaintiffs have articulated their reasoning for why the statements were misleading, specifically, because Faggioli knew from KPMG that the financials were not accurate.
As to statements made on information and belief, Plaintiffs allege that Faggioli knew that KPMG had raised material issues regarding the accuracy of the financial statements ending September 30, 2005, and that those issues precluded KPMG from completing a review and issuing an unqualified review for those statements. Plaintiffs also assert that Faggioli knew of the material fraud as of March 15, 2005. Again, Plaintiffs support this with KPMG's statements that Faggioli falsely represented that he was unaware of any relevant fraud on March 15, 2005. The Court finds that, assuming the veracity of these factual allegations, a reasonable person would believe that the Defendants' reassurances regarding NSP's financials were false or misleading.
In short, the Court finds that, while Plaintiffs' alleged facts are not seamless, taken as a whole, they support a reasonable belief that Defendants' statements, identified by Plaintiffs, were false or misleading. The level of detail is sufficient, as is the coherence and plausibility of the facts. Their underlying source an independent auditor is reliable.
b. Materiality
Defendants contest that Plaintiffs have adequately pleaded the materiality of the alleged false or misleading statements. Defendants assert that Plaintiffs have not set forth anything regarding the amount of money involved in the alleged fraud or the payment that purportedly violated the FCPA.
Plaintiffs argue that a CEO's representations of his company's financial statements are material. Plaintiffs also argue that when the information regarding the irregularities was released to the market, NSP's stock declined. Finally, Plaintiff points to KPMG's March 31, 2006 letter stating that certain illegal acts appear to have had a material effect on the financial statements of NSP.
A statement is material if a reasonable investor would consider it important in determining whether to buy or sell stock.[48] Moreover, "the materiality of disclosed information may be measured post hoc by looking to the movement, in the period immediately following disclosure, of the price of the firm's stock."[49]
The Court finds that the alleged misstatements were material in that an investor would consider them important in determining whether to buy or sell NSP stock. Furthermore, upon NSP's March 20, 24 and 27, 2006 disclosures, regarding the internal investigation, and immediate effects thereof, NSP's stock price declined significantly.
(ii) Scienter
Defendants argue that Plaintiffs fail to adequately allege scienter. Defendants argue that Plaintiffs set forth no facts, other than KPMG's assertion that Faggioli knew of the alleged fraud, including who sent the information, when it was sent, or what the content of the message was. Defendants contend that Plaintiffs do not aver that Faggioli knew that failure to disclose the alleged fraud would mislead *1309 investors. Defendants argue that Plaintiffs do not allege when Faggioli approved the allegedly illegal payment, and whether or how he knew it violated the FCPA.
Defendants argue that any stock sales by Faggioli are not sufficient to demonstrate scienter because they were not made at times and quantities that were suspicious. Defendants assert Faggioli sold 32% of his holdings, and that they were sold at a temporal distance from the relevant NSP statements.
Plaintiffs respond that there is no requirement that they allege how Faggioli knew of the fraud, who sent him the information, when it was sent, and what its content was. Plaintiffs point to KPMG's March 26, 2006 letter that states that Faggioli knew of a fraud, as per various electronic communications uncovered by a special committee, yet signed two management representation letters to KPMG to the contrary.[50] Plaintiffs' general allegation is that, after fraud at NSP was discovered, NSP attempted to cover it up, pretend that no material errors had been detected, and to protect Faggioli. Plaintiffs support this general allegation with the following specific allegations:
1. Faggioli disregarded known contrary information when reassuring investors that NSP's financial statements were accurate;[51]
2. NSP's March 20, and April 3, 2006 Form 8-Ks purposefully downplayed the magnitude of the irregularities;[52]
3. KPMG's April 14, 2006 letter to the SEC stated that, it disagreed with NSP's April 3, 2006 characterization of the financials;[53] and
4. KPMG's April 14, 2006 letter asserts that KPMG disagreed with NSP's April 3, 2006 8-K which stated that Faggioli's continuing employment was consistent with a recommendation by independent investigators. KPMG indicates in the letter that, as per a special committee and independent investigators, Faggioli should be terminated.[54]
Plaintiffs also set forth the following regarding Faggioli's stock sales and their timing:
1. Faggioli sold 46% and 74.1% of his NSP stock in December 2004 and September 2005, respectively;[55] no public evidence demonstrates that Faggioli sold any NSP stock prior to 2004, despite his being an officer since 1989;[56]
2. a November 10, 2005 press release announced NSP was reviewing its financial statements concerning its foreign operations;[57]
3. the December 2004 sale was made 10 weeks before Faggioli issued the false management representation letter to KPMG; and
4. Faggioli's proceeds from 2004 and 2005 represented 179% and 396% of his salary for those periods.
The PSLRA requires that, "with respect to each act or omission alleged to violate *1310 [the Exchange Act], [the complaint] state with particularity facts giving rise to a strong inference that the defendant acted [either recklessly or with the intent to defraud]."[58] "When reviewing a plaintiff's allegations of scienter under the PSLRA, a court should . . . examine the plaintiff's allegations in their entirety . . . and determine whether . . . taken as a whole, [they] give rise to a strong inference of scienter."[59] A strong inference is a "conclusion logically based upon particular facts that would convince a reasonable person that the defendant knew a statement was false or misleading."[60] Where there may be competing inferences, "we consider the inference suggested by the plaintiff while acknowledging other possible inferences, and determine whether plaintiff's suggested inference is `strong' in light of its overall context."[61] Where scienter is based upon Defendants' non-disclosure of material facts, Plaintiffs must demonstrate that (1) Defendants knew of the potentially material fact, and (2) Defendants knew that failure to reveal the potentially material fact would likely mislead investors.[62]
The Court notes several circumstances which may indicate scienter, as indicated by relevant case law. Evidence that a defendant has taken steps to cover-up a misdeed is strong proof of scienter.[63] Failure to take remedial actions requested by auditors contributes to the inference that defendants knew that their statements were false or misleading when made.[64] A strong inference of scienter may be shown from insider trades at times and in quantities that were suspicious in light of the insider's total stock holdings,[65] and considering whether the trades were normal and routine and whether profits reaped were substantial in relation to compensation levels.[66]
The Court finds that, examining Plaintiffs' allegations as a whole, Plaintiffs have met the pleading requirements regarding scienter. First, as discussed in more detail above, and based on the supporting documentation by KPMG, there is strong inference that Faggioli knew of a material fraud. KPMG referred to electronic communications and an investigation by a special committee at NSP that supported as much. Considering subsequent events, in the light most favorable to Plaintiffs e.g., that KPMG determined that the fraud appeared to be material, and that disclosure of Faggioli's knowledge of the fraud and KPMG's inability to issue an unqualified opinion caused a precipitous decline in stock price the risk of misleading investors was "so obvious that [Faggioli] must have been aware of it."[67]
*1311 Moreover, the Court finds that Plaintiffs have set forth factual allegations which support that NSP took steps to cover-up a misdeed, failed to take remedial actions requested by KPMG, and that suspicious insider trades took place.
With respect to the alleged cover-up, Plaintiffs cite specific KPMG statements which dispute NSP's characterization of the effect of the alleged fraud. Moreover, Plaintiffs cite to KPMG's statements protesting the measures taken by NSP to remedy the effects of the alleged fraud.
As to Faggioli's stock trades, the Court finds that Plaintiff has pleaded sufficient facts which, if true, support that Faggioli's trades were at times and in quantities that were suspicious in light of his total stock holdings, that the trades were not normal and routine, and that profits reaped were substantial in relation to compensation levels. For example, Plaintiffs allege that Faggioli had not traded previous to the time period, in question, despite having been CEO for many years. Moreover, it is alleged that Faggioli traded in significant quantities of stock during the period between 32% and 74% of his total holdings. Finally, Plaintiffs have alleged that the proceeds from Faggioli's sales were significantly greater than his contemporaneous salary levels.
While each of the above indicia may or may not, in and of themselves, be sufficient to establish a strong inference of scienter, taken as a whole, and combined with the Court's other findings, as set forth above, the factual allegations support a reasonable belief of Defendants' knowledge of false or misleading statements that were either reckless or intended to defraud.
(iii) Remaining elements
The remaining elements of the 10b-5(b) claim are not in dispute, and, therefore, the Court does not address them.
2. Rule 10b-5(a) and (c) Claim
Defendants make many of the same objections to Plaintiffs' Rule 10b-5(a) and (c) claim as they do to Plaintiffs' Rule 10b-5(b) claim. Indeed, the elements of the two claims are quite similar,[68] and Plaintiffs appear to rely on the same essential factual allegations for their 10b-5(a) and (c) claim as support their 10b-5(b) claim. The general provisions of Rule 10b-5(a) and (c) prohibit the use of "any device, scheme, or artifice to defraud" or the participation "in any act, practice, or course of business" that would perpetrate fraud on investors. In jurisdictions where a cause of action under these provisions has been recognized, to state a claim a "plaintiff must allege that a defendant (1) committed a deceptive or manipulative act, (2) with scienter, that (3) the act affected the market for securities or was otherwise in connection with their purchase or sale, and that (4) defendants' actions caused the plaintiffs' injuries."[69]
Defendants argue that Plaintiffs' cause of action under 10b-5(a) and (c) has not been recognized by the Tenth Circuit. Defendants argue that the theory is inconsistent with Tenth Circuit case law.[70] Moreover, Defendants appear to argue *1312 that, even if the cause of action were valid, Plaintiffs have not alleged any misstatement before March 15, 2005, and that, therefore, Plaintiffs' claim is lacking in particularity and cannot apply to the beginning of the class period April 23, 2002.
Plaintiffs assert that "[t]he appropriate level of particularity for the 10b-5(a) and (c) claims is that plaintiffs must specify what deceptive or manipulative acts were performed, which defendants performed them, when the acts were performed, and what effect the scheme had on investors in the securities at issue."[71] Plaintiffs argue that they have adequately pleaded Faggioli's scheme to conceal a fraud and deceive KPMG so as to obtain unqualified or "clean" audit opinions and prop up NSP's stock price. Plaintiffs also argue that the class period of their claim may precede the date of the first alleged deceptive act. Plaintiffs cite In re Enron Corp,[72] to support this proposition.
Defendants reply that In re Enron was reversed by the Fifth Circuit in Regents of the University of California v. Credit Suisse First Boston (USA), Inc.[73]
The Court recognizes that Rule 10b-5(a) and (c) scheme liability is somewhat novel. However, the Court does not read Tenth Circuit law to preclude the cause of action. In the case of Anixter v. Home-Stake Production Co., the Tenth Circuit noted that § 10b "`prohibits only the making of a material misstatement (or omission) or the commission of a manipulative act.'"[74] The Court believes that a Rule 10b-5(a) and (c) cause of action falls within these parameters. Nonetheless, the Court finds that Plaintiffs have not pleaded their cause of action with particularity back to the beginning of their proposed class April 23, 2002. Plaintiffs themselves characterize the alleged fraud as "Faggioli's scheme to conceal a fraud and deceive KPMG so as to obtain unqualified or `clean' audit opinions and prop up NSP's stock price." Faggioli became CEO in November 24, 2003, KPMG was not NSP's auditor until July 8, 2002, and Plaintiffs' first allegation of deception occurs on March 15, 2005. Plaintiffs have not pleaded particularized supporting facts that would support a reasonable belief of scienter, or the other elements of the cause of action prior to this date. Plaintiffs may not avoid the requirements of the PSLRA in this instance to maintain a class period extending back to April 23, 2002.
As discussed above, pursuant to Plaintiffs' claim under Rule 10b-5(b), Plaintiffs have met the relevant pleading requirements for a class period beginning March 15, 2005. Because of the other pleading deficiencies that exist for Plaintiffs' claims prior to this date, Plaintiffs' reliance on In re Enron Corp. is inapposite. Accordingly, the Court finds that Plaintiffs have stated a Rule 10b-5(a) and (c) claim only for a period beginning March 15, 2005.
C. Control Person Liability
Defendants argue that Plaintiffs' Complaint does not state a claim for control person liability.
Section 20(a) of the Exchange Act states:
Every person who, directly or indirectly, controls any person liable under any *1313 provision of this chapter or of any rule or regulation thereunder shall also be jointly and severally with and to the same extent, as such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the acts" or acts constituting the violation or cause of action.[75]
To state a prima facie case of control person liability under Section 20(a) of the Exchange Act, Plaintiffs must establish "(1) a primary violation of the securities laws and (2) `control' over the primary violator by the alleged controlling person,"[76]
Defendants argue that Plaintiffs have failed to establish a primary violation of the securities laws. As discussed above, Defendants' argument fails. Plaintiffs have adequately pleaded a primary violation of the securities laws. Defendants also argue that Plaintiffs have set forth no allegation that Cristiani, an outside director, exerted control or influence over the day-to-day operations of NSP. Finally, Defendants argue that Huff's position as NSP's CFO is not sufficient to show that he exercised control over the alleged misrepresentations.
Plaintiffs argue that they have alleged control person liability over Cristiani because such liability exists where a defendant possesses the power, directly or indirectly, to direct or cause the direction of management and policies of the primary violator. Plaintiffs contend Cristiani is NSP's Audit Committee Chairman, with power to direct the management and policies of NSP related to accounting and auditing, during the relevant period.[77] Plaintiffs also argue that control can be demonstrated by influence over or involvement in wrongdoing.[78] Plaintiffs emphasize KPMG's statement from the March 27, 2006 letter to the SEC that Cristiani, in addition to Faggioli, was aware of the alleged fraud and that, in his words, could be considered material from an auditing standpoint and could be a significant problem to NSP. Plaintiffs assert that, despite this knowledge, Cristiani did not correct Faggioli's incorrect management representations to KPMG.[79]
Plaintiffs assert that Huff exercised control over the alleged misrepresentations and-exerted control and influence over the day-to-day operations of NSP. Plaintiffs assert that, as CFO, Huff was responsible for accounting and financial reporting, signed all of the 2005 SOX certifications at issue,[80] and issued, with Faggioli, the false and misleading reassurances that the financial statements were accurate.[81] Plaintiffs assert that Huff was fired as a result of the fraud,[82] and sold significant amounts of stock prior to discovery of the fraud.[83]
The Court finds that Plaintiffs have adequately pleaded control person liability for Cristiani and Huff. As previously noted, liability may be imposed where a defendant possesses the power, directly or indirectly, to direct or cause the direction of *1314 management and policies of the primary violator[84] Plaintiffs' factual allegations assert that, as NSP's Audit Committee Chairman, Cristiani had power to direct the management and policies of NSP related to accounting and auditing, during the relevant period. Moreover, Huff, as CFO responsible for the financial reporting which is the subject matter of the alleged primary violation, is a control person.[85] The Court need not address these individuals' alleged involvement in the primary violation to find properly pleaded control person liability.
III. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that Defendants' Motion to Dismiss (Docket No. 88) is GRANTED IN PART and DENIED IN PART. Defendants' Motion is GRANTED in that Plaintiffs' Rule 10b-5(a) and (c) claims are dismissed as they relate to the class period pre-dating March 15, 2005. Defendants' Motion is DENIED in all other respects.
SO ORDERED.
NOTES
[1] Docket No. 88.
[2] 15 U.S.C. § 78j(b).
[3] Plaintiff bases all claims against NSP under the doctrine of respondeat superior.
[4] More specifically, Plaintiffs assert that Defendants issued and filed with the SEC materially false and misleading Sarbanes-Oxley Act ("SOX") certifications, Form 10-Q quarterly reports, and press releases in which Defendants falsely represented that they believed the Company's statements accurately reflected the financial condition of the Company and that they had disclosed to KPMG any potential fraud.
[5] The stated class period for the scheme claim is April 23, 2002 through April 5, 2006.
[6] 15 U.S.C. § 78t(a).
[7] 15 U.S.C. § 78u-4(b).
[8] Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir.2002).
[9] Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957).
[10] GFF Corp. v. Associated Wholesale. Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.1997).
[11] S. Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir.1998); Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.1991).
[12] Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir.1991).
[13] See Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1095 (10th Cir.2003).
[14] Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997) (citation and internal quotation marks excluded).
[15] Adams, 340 F.3d at 1095.
[16] Id.
[17] Grossman v. Novell, Inc., 120 F.3d 1112, 1118 (10th Cir.1997).
[18] Defendants contend that, by signing the SOX certifications, Faggioli asserted that he was not aware of any fraud involving management or other employees having a significant role over NSP's financial reporting.
[19] The relevant dates are: November 21, 2005, December 1, 2005, and January 13, 2006.
[20] The relevant dates are: November 10, 2005, December 2, 2005, and January 17, 2006.
[21] CAC, at ¶¶ 37, 48, 52.
[22] Id. at ¶¶ 54-55, 58-60, 61-77.
[23] Attached to CAC.
[24] CAC, at ¶¶ 38, 39, 40.
[25] Id. at ¶ 41.
[26] Id. at ¶¶ 45, 111.
[27] Id. at ¶¶ 41, 107-109, 118.
[28] Id. at ¶ 41.
[29] Id. at ¶¶ 43, 91.
[30] Id. at ¶¶ 45, 92.
[31] Id. at ¶¶ 93, 95, 118.
[32] Id. at ¶¶ 54, 58, 62, 69, 72, 73.
[33] Id. at ¶¶ 56, 64, 127.
[34] Id.
[35] Id. at ¶ 21.
[36] Id. at ¶ 128.
[37] Defendants cite, e.g., In re Aspeon, Inc. Sec. Litig., 168 Fed.Appx. 836 (9th Cir.2006), in support.
[38] Defendants argue that there is no connection between the fraud which Faggioli knew of, and the alleged illegal FCPA payment referred to by KPMG other than that they both related to the international operations of NSP.
[39] Adams, 340 F.3d at 1098.
[40] Id. at 1099 (citing Novak v. Kasaks, 216 F.3d 300, 314 n. 1 (2d Cir.2000), and stating "[w]e adopt an approach similar to the Second Circuit's in Novak").
[41] Id.
[42] Id.
[43] Id. at 1100.
[44] Id. at 1102.
[45] Id. at 1105.
[46] Id.
[47] To the extent that Defendants dispute the particularities of whether Faggioli only knew of, as opposed to participated in, the alleged international operations fraud, the Court finds that this is better resolved pursuant to summary judgment after some discovery.
[48] Grossman, 120 F.3d at 1119.
[49] Oran v. Stafford, 226 F.3d 275, 282 (3d Cir.2000). 13
[50] CAC, at ¶ 90.
[51] Id. at ¶¶ 41, 54-55, 58-60, 61-77, 90, 92.
[52] Id. at ¶¶ 81, 93.
[53] Id. at ¶ 84.
[54] Id. at ¶ 95(b).
[55] Id. at ¶ 134. Defendants argue that Plaintiff's September 2005 calculation improperly excludes the value of Faggioli's stock options. Including the options, the amount is 32%.
[56] Id. at ¶¶ 14-15.
[57] Id. at ¶¶ 54, 134.
[58] 15 U.S.C.A. § 78u-4(b)(2).
[59] City of Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1258 (10th Cir.2001).
[60] Adams, 340 F.3d at 1105.
[61] Pirraglia v. Novell, Inc., 339 F.3d 1182, 1187 (10th Cir.2003).
[62] City of Philadelphia, 264 F.3d at 1261.
[63] SEC v. Lucent Tech., Inc., 363 F. Supp. 2d 708, 717 (D.N.J.2005); Rocker Mgemt., LLC v. Lernout & Hauspie Speech Prod. N.V., No. 00-5965, 2005 WL 1365465, at * 13 (D.N.J. June 7, 2005).
[64] In re OCA, Inc. Sec. and Deriv. Litig., No. 05-2165, 2006 WL 3747560, at *22. (E.D.La. Dec. 14, 2006).
[65] Sorkin v. Fischer Imaging Corp., No. 03-CV-00631, 2005 WL 1459735, at *11 (D.Colo. June 21, 2005).
[66] In re Qwest Comms. Int'l., Inc., 396 F. Supp. 2d 1178, 1195 (D.Colo.2004).
[67] Fleming Cos., 264 F.3d at 1258 (quoting Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1232 (10th Cir.1996)).
[68] Where the cause of action has been recognized, the only difference between the elements appears to be that the 10b-5(a) and (c) claims do not require an untrue statement. CompuDyne Corp. v. Shane, 453 F. Supp. 2d 807, 821 (S.D.N.Y.2006).
[69] In re Parmalat Sec. Litig., 376 F. Supp. 2d 472, 492, (S.D.N.Y.2005); accord Shriners Hosp. for Children v. Qwest Commc'n Intern. Inc., No. 04-CV-0781, 2005 WL 2350569, at *6 (D.Colo. Sept. 23, 2005).
[70] Defendants cite Anixter, 77 F.3d at 1224, in support.
[71] In re Enron Corp. Sec., Deriv. & ERISA Litig., 439 F. Supp. 2d 692, 722 (S.D.Tex. 2006).
[72] In re Enron Corp. Sec., Deriv. & ERISA Litig., 235 F. Supp. 2d 549, 705 (S.D.Tex. 2002).
[73] 482 F.3d 372 (5th Cir.2007).
[74] 77 F.3d at 1224 (citing Central Bank of Denver, 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994)).
[75] 15 U.S.C. § 78t(a).
[76] City of Philadelphia, 264 F.3d at 1270.
[77] CAC, at ¶¶ 16-17.
[78] Plaintiffs cite Grubka v. WebAccess, Inc., 445 F. Supp. 2d 1259, 1268-69 (D.Colo.2006) (implying liability may be imposed if Plaintiffs can demonstrate participation, with scienter, in the allegedly fraudulent misrepresentations) in support of this proposition.
[79] CAC, at ¶ 90.
[80] Id. at ¶ 35, 37, 39, 47, 48, 50, 51, 61, 65.
[81] Id. at ¶¶ 54, 58, 72, 93, 123-24.
[82] Id. at ¶¶ 123-24.
[83] Id. at
[84] Adams, 340 F.3d at 1108.
[85] Id. at 1109.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522044/
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486 F. Supp. 2d 868 (2007)
UNITED STATES of America, Plaintiff,
v.
Travis GROVER, Defendant.
No. 06-CR-40-LRR.
United States District Court, N.D. Iowa, Cedar Rapids Division.
February 1, 2007.
*869 *870 Charles J. Williams, U.S. Attorney's Office, Cedar Rapids, IA, for Plaintiff.
Christopher A. Clausen, Boliver Law Firm, Marshalltown, IA, Rick Lee Sole, Glasson, Sole, McManus & Pearson, PC, Cedar Rapids, IA, for Defendant.
SENTENCING MEMORANDUM
READE, Chief Judge.
TABLE OF CONTENTS
I. INTRODUCTION ........................................................871
II. RELEVANT PRIOR PROCEEDINGS ..........................................871
III. FACTUAL FINDINGS ....................................................872
IV. THREE-STEP PROCESS ..................................................874
*871
V. PRE-DEPARTURE ADVISORY SENTENCING GUIDELINES RANGE ..................874
A. Base Offense Level ..............................................874
B. Acceptance of Responsibility ....................................877
C. Criminal History Category .......................................878
1. Prior criminal history ......................................878
2. Criminal history calculation ................................880
3. Conclusion ..................................................882
D. Pre-Departure Advisory Sentencing Guidelines Range ..............882
VI. UPWARD DEPARTURE PURSUANT TO USSG § 4A1.3 ......................882
A. Seriousness of Defendant's Criminal History .....................883
B. Likelihood that Defendant Will Commit Other Crimes ..............883
C. Extent of Departure .............................................884
VII. UPWARD DEPARTURE PURSUANT TO USSG § 5K2.1 OR § 5K2.21 .....885
A. General Principles ..............................................885
B. USSG § 5K2.1 ...............................................886
1. Applicability of Departure ..................................886
2. Extent of Departure .........................................886
C. USSG § 5K2.21 ..............................................888
VIII. VARIANCE ............................................................888
A. Sentence to be Imposed ..........................................888
B. Alternative Sentences ...........................................889
IX. UNDISCHARGED TERMS OF IMPRISONMENT ..................................890
X. RESTITUTION .........................................................891
XI. CONCLUSION ..........................................................891
I. INTRODUCTION
A jury found Defendant Travis Grover guilty of distributing of heroin, in violation of 21 U.S.C. § 841(a)(1). He now appears before the court for sentencing.
II. RELEVANT PRIOR PROCEEDINGS
On April 6, 2006, the grand jury charged Defendant and Shaun Williams in a one-count Indictment. The Indictment charged that, on or about October 13, 2004, Defendant and Williams knowingly and intentionally distributed and aided and abetted the distribution of a mixture or substance containing a detectable amount of heroin, a Schedule I controlled substance, to Stan Butterbaugh, resulting in the death of Butterbaugh from the use of the heroin, in violation of 21 U.S.C. § 841(a)(1) and (b)(1)(C).
On May 11, 2006, Williams appeared before a United States magistrate judge and pled guilty to the offense. On May 26, 2006, the undersigned accepted Williams's guilty plea. The court later sentenced Williams to 240 months of imprisonment.[1]
On May 30 and 31, 2006, Defendant was tried before a jury. On June 1, 2006, the *872 jury found Defendant guilty of distributing heroin or aiding and abetting the distribution of heroin, as charged in the Indictment. Verdict (docket no. 61) at 1. In response to a special interrogatory, however, the jury stated that it was unable to unanimously find, beyond a reasonable doubt, that Butterbaugh died as a result of Defendant's heroin distribution. Id. at 2.
On October 26, 2006, the United States Probation Office ("USPO") prepared a Presentence Investigation Report ("PSIR"). On October 30, 2006, the USPO revised the PSIR. On November 7, 2006, the government and Defendant filed their respective sentencing memoranda. In their sentencing memoranda, the parties addressed whether the court should depart upward pursuant to USSG § 4A1.3 (Inadequacy of Criminal History Category) and USSG § 5K2.1 (Death).
On December 19, 2006, the court gave the government and Defendant notice that it was considering departing upward pursuant to USSG § 5K2.21 (Dismissed and Uncharged Conduct). See Notice (docket no. 91) at 1. On December 20, 2006, the government filed a supplemental sentencing memorandum, in which it discussed the propriety of such a departure.
On December 22, 2006 and February 1, 2007, the court held a sentencing hearing ("Hearing"). Defendant was personally present and represented by his attorney, Christopher A. Clausen. Assistant United States Attorney Charles J. Williams represented the government. At the Hearing, the court pronounced sentence in a manner consistent with the instant Sentencing Memorandum.
III. FACTUAL FINDINGS
Based on the evidence presented at Defendant's trial, the court finds the government has proven the following facts by a preponderance of the evidence:[2]
*873 During 2003 and 2004, Defendant was a middleman in the heroin trade in Cedar Rapids.[3] Defendant helped other persons secure heroin, in exchange for a "free high," that is, a portion of the heroin sold. For example, Defendant twice obtained heroin for Butterbaugh, Jeremy Carstens and Ryan Polanski in 2003 or 2004. On both occasions, the three heroin users paid Defendant for heroin, which he promptly obtained. Defendant then used some of the heroin.
In October of 2004, Polly Greene and Shane Peterson, two long-time paramours and intravenous heroin users, were using heroin at least once a week with Butterbaugh. On October 13, 2004, at about 10:00 or 11:00 a.m., Butterbaugh went to the apartment Greene and Peterson shared in Cedar Rapids. The three addicts decided to buy heroin to use together. After unsuccessfully attempting to buy heroin from other drug dealers, Butterbaugh called Defendant. Defendant told Butterbaugh that Defendant could get them heroin later in the afternoon.
Around 3:00 or 4:00 p.m., Butterbaugh, Peterson and Greene went to Defendant's apartment for the heroin. Greene, who was pregnant, brought her minor daughter with her. In the apartment, Butterbaugh gave Defendant $100. Defendant made some phone calls and then met someone outside in an adjacent parking lot. About five minutes later, Defendant returned to the apartment with some heroin. Butterbaugh, Peterson, Greene, Defendant and Defendant's girlfriend used some of the heroin intravenously. Between 4:30 and 5:30 p.m., Butterbaugh, Peterson, Greene and her daughter left Defendant's apartment,
Later that evening, Butterbaugh called Defendant and asked for more heroin. Butterbaugh and Peterson drove back to Defendant's apartment. Greene and her daughter stayed home.
Around 5:30 or 6:00 p.m., Butterbaugh, Peterson and Defendant met Williams at Williams's apartment in Cedar Rapids.[4] Butterbaugh, Peterson and Defendant asked Williams if he could get them some heroin. Williams explained that he had already called his source, a man known as "Black." Williams left the apartment and bought one-half gram of heroin from Black for $50.
When Williams returned to his apartment, Butterbaugh, Peterson and Defendant were waiting in the living room. Williams took Defendant into the kitchen and gave Defendant one-quarter gram of the heroin. The two then went into the living room. Defendant gave Butterbaugh the one-quarter gram of heroin, and Butterbaugh gave Defendant an unknown amount of cash. Defendant gave $20 of the cash to Williams.
As Defendant, Butterbaugh and Peterson left Williams's apartment, Williams told them to "be careful" because the heroin was "pretty good stuff."
*874 When Butterbaugh and Peterson returned to Peterson's and Greene's apartment, they had heroin. Butterbaugh, Peterson and Greene got high in Peterson's bedroom, while Greene's daughter stayed in the living room. Butterbaugh and Peterson also drank beer; Butterbaugh and Peterson had been drinking beer since about noon.
Soon thereafter, Butterbaugh lay himself down on the floor. Peterson and Greene periodically attempted to arouse Butterbaugh without success. About an hour and a half after he fell unconscious, Butterbaugh began to have difficulty breathing. Greene called 9-1-1.
When emergency personnel arrived, they unsuccessfully tried to revive Butterbaugh. They transported Butterbaugh to St. Luke's Hospital, where he was pronounced dead.
Dr. Ruth Macke, a pathologist, performed an autopsy on Butterbaugh, at the request of the Linn County Medical Examiner, Dr. Donald Linder. Relying, in part, on Dr. Macke's autopsy report, Dr. Linder concluded that the cause of Butterbaugh's death was respiratory arrest due to heroin usage. Dr. Linder noted that a contributing factor in Butterbaugh's death was an enlarged heart.
In sum, the court finds that the government has met its burden to prove, by a preponderance of the evidence, that Defendant sold Butterbaugh heroin and that such heroin resulted in his death. Defendant twice sold heroin to Butterbaugh, and such heroin directly and proximately caused Butterbaugh's death.
Where appropriate, the court makes additional factual findings in later portions of the instant Sentencing Memorandum.
IV. THREE-STEP PROCESS
The Sentencing Guidelines are no longer mandatory. United States v. Haack, 403 F.3d 997, 1002 (8th Cir.) (discussing United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005)), cert. denied, ____ U.S. ____, 126 S. Ct. 276, 163 L. Ed. 2d 246 (2005). They are advisory. Id. The Eighth Circuit Court of Appeals has explained that, in the post-Booker world, "there are essentially three steps to determining an appropriate sentence." United States v. Sitting Bear, 436 F.3d 929, 934 (8th Cir.2006).
First, the district court should determine the applicable Sentencing Guidelines range without consideration of any Guidelines departure factors, because the Guidelines remain an important sentencing factor. See 18 U.S.C. § 3553(a)(4). Second, the district court, where appropriate, should consider the departure provisions contained in Chapter 5, Part K and/or § 4A1.3 of the Guidelines, as those sentencing provisions have not been excised by Booker. The resulting range is the post-Booker advisory Guidelines range. Third, the district court should consider the rest of the § 3553(a) factors in determining whether to impose the "Guidelines sentence" as determined in the prior steps or a "non-Guidelines sentence" driven by the other § 3553(a) considerations, and sentence the defendant accordingly. Haack, 403 F.3d at 1003; see also United States v. Denton, 434 F.3d 1104, 1114 (8th Cir.2006) (reviewing the sentence imposed by the district court under the three-part Haack methodology).
Id. at 934-35. In what follows, the court adheres to this three-step process.
V. PRE-DEPARTURE ADVISORY SENTENCING GUIDELINES RANGE
A. Base Offense Level
The parties do not dispute that USSG § 2D 1.1 is the applicable sentencing *875 guideline section for Defendant's violation of 21 U.S.C. § 841(a)(1). See USSG App. A. They disagree about the drug quantity that should be attributed to Defendant.
The USPO recommends that the court hold Defendant accountable for at least fifteen grams of heroin. PSIR at ¶ 21. According to the PSIR, the government has the following information:
1. PSIR at ¶ 9 (attributing six grams to Defendant): Williams supplied Defendant with half-gram quantities of heroin once a week during a three- or four-month period in late 2004.
2. PSIR at ¶ 10 (attributing six grams to Defendant): Williams bought half-gram quantities of heroin from Defendant two to three times a week from December of 2005 through January or February of 2006.
3. PSIR at ¶ 11 (attributing one gram to Defendant): Defendant sold Butterbaugh one gram of heroin for $100 on the afternoon of October 13, 2004.
4. PSIR at ¶ 12 (attributing one-quarter gram to Defendant): Defendant bought one-quarter gram of heroin from Williams and then sold it to Butterbaugh on the evening of October 13, 2004.
5. PSIR at ¶ 14 (attributing three grams to Defendant): Defendant and Williams bought three grams of heroin from Matt Fountain in 2004.
6. PSIR at ¶ 15 (attributing two grams to. Defendant): on two occasions in the summer or fall of 2004, Defendant supplied Butterbaugh with one gram of heroin.
Based on these allegations, the USPO conservatively estimates that Defendant is responsible for fifteen grams of heroin, PSIR at ¶ 16, and, therefore, Defendant's base offense level should be 16. Id. at ¶ 21 (citing USSG § 2D1.1(a)(3) and (c)(12) (setting a base offense level of 16 if defendant is accountable for at least 10 grams but less than 20 grams of heroin)).[5] The USPO made its recommendations based solely upon the government's Offense Conduct Statement and information in the government's discovery file, not the evidence presented at trial. Id. at ¶ 8.[6]
The government urges the court to accept the USPO's recommendation and states generally that the USPO's recommendation is accurate. The government relies solely on the evidence presented at trial but does not cite specific testimony at trial that supports its drug quantity calculation. The government did not present any additional evidence at the Hearing.[7]
Defendant objects to the drug quantity attributed to him in the PSIR. He contends that the government's evidence is suspect, because it is based upon the testimony of co-conspirators and cooperating witnesses. Defendant opines, without explanation, that "the only reliable information relating to drug quantity would place him at less than five grams of heroine [sic], which would be a base offense level of 12." Letter from Attorney Clausen to USPO ("Objections") at ¶¶ 1-3 (emphasis added).
*876 The government bears the burden to prove drug quantity under USSG § 2D 1.1 by a preponderance of the evidence. United States v. Marshall, 411 F.3d 891, 894 (8th Cir.2005). The court "may consider any evidence in its sentencing determination that has sufficient indicia of reliability to support its probable accuracy." Id. The court may rely upon the testimony of witnesses, including cooperating co-conspirators, to establish the appropriate drug quantity. See United States v. Quintana, 340 F.3d 700, 702 (8th Cir.2003) (relying on the testimony of witnesses); see also United States v. Sarabia-Martinez, 276 F.3d 447, 450-51 (8th Cir.2002). (stating that district court may rely upon co-conspirator testimony and relying on testimony of cooperating witness). "`The district court is free to believe all, some, or none of [a] witness's testimony.'" United States v. Moore, 212 F.3d 441, 446 (8th Cir.2000) (quoting United States v. Carter, 997 F.2d 459, 461 (8th Cir.1993)). The advisory Sentencing Guidelines "permit a district court to approximate the quantity of drugs for sentencing purposes where . . . there has been no direct seizure of drugs directly establishing the relevant amount." United States v. Frazier, 280 F.3d 835, 851 (8th Cir.2002) (citing, in part, USSG § 2D1.1, cmt. (n. 12)).
The court has reviewed the trial evidence and finds that the government has not proved that Defendant is responsible for fifteen grams of heroin. The government did not present evidence, either at trial or the Hearing, that fully supports the assertions in the PSIR. Although a number of the government's witnesses credibly testified that Defendant was involved in the heroin trade in Cedar Rapids, there is little evidence in the record about the specific quantities of heroin that he was dealing. There is also very little evidence about the prices at which Defendant sold his heroin; if the court knew the prices, it might be able to infer quantity. DEA Special Agent Jarad Harper credibly testified at trial that, in the Cedar Rapids area, a gram of heroin costs between $250-$400; a half-gram of heroin costs between $100-$200; and a quarter-gram of heroin costs between $50-$100.
With respect to each of the government's allegations, the court makes the following factual findings:
1. PSIR at ¶ 9: There is insufficient evidence in the record to prove that Williams supplied Defendant with six grams of heroin in fall and winter of 2004. Williams testified that he and Defendant used heroin together two to three times per week in 2004. Williams testified that sometimes Defendant would supply the heroin. On other occasions, Williams would supply it. Notably, Williams did not testify to quantity or price. Accordingly, the court shall not attribute any quantity of heroin to Defendant.
2. PSIR at ¶ 10: There is no evidence in the record that Williams bought half-gram quantities of heroin from Defendant two to three times a week from December of 2005 through January or February of 2006. Accordingly, the court shall not attribute any quantity of heroin to Defendant.
3. PSIR at ¶ 11: The court finds that Defendant sold Butterbaugh one-half gram of heroin for $100 during the afternoon of October 13, 2004. Greene testified that, on the morning of October 13, 2004, Butterbaugh wanted $100 worth of heroin. This price indicates that Butterbaugh wanted approximately one-half gram of heroin. It is also consistent with Greene's testimony that, on the afternoon of October 13, 2004, she witnessed Butterbaugh hand Defendant an unknown amount of cash, and Defendant *877 later returned with enough heroin for Butterbaugh, Greene, Peterson and Defendant to share. Greene's daughter corroborated the facts that money changed hands, Defendant briefly left the apartment and then the adults went back to the bedroom, presumably to use heroin. Accordingly, the court shall attribute one-half gram of heroin to Defendant.
4. PSIR at ¶ 12: The court finds that Defendant bought one-quarter gram of heroin from Williams and then sold it to Butterbaugh. Williams credibly testified that he bought one-half gram from his source, Black, and gave one-quarter gram of it to Defendant, who in turn sold it to Butterbaugh. Although Greene implied on cross-examination that Defendant sold Butterbaugh one-gram of heroin,[8] the court finds Williams's testimony more credible. Accordingly, the court shall attribute one-quarter gram of heroin to Defendant.
5. PSIR at ¶ 14: There is no evidence in the record that Defendant and Williams bought three grams of heroin from Matt Fountain in 2004: Accordingly, the court shall not attribute any quantity of heroin to Defendant.
6. PSIR at 15: The court finds that Defendant sold Butterbaugh one-half gram of heroin in late 2004. Carstens credibly testified that he witnessed Butterbaugh give Defendant $100 for a half-gram of heroin approximately two weeks before Butterbaugh's death. Although Carstens also credibly testified that Defendant sold Butterbaugh heroin on one other occasion in 2003 or 2004, the government did not present evidence regarding the quantity of heroin or amount of money involved. Therefore, the court cannot estimate the drug quantity involved in this other transaction. Accordingly, the court shall attribute one-half gram of heroin to Defendant.
In sum, the court finds by a preponderance of the evidence that Defendant is responsible for one and one-quarter grams of heroin.[9] Therefore, Defendant's base offense level is 12. USSG § 2D1.1(a)(3) and (c)(14) (setting base offense level at 12 where the defendant is responsible for "[l]ess than 5 G of Heroin").
B. Acceptance of Responsibility
In its entirety, USSG § 3E1.1 provides:
§ 3E1.1. Acceptance of Responsibility
(a) If the defendant clearly demonstrates acceptance of responsibility for his offense, decrease the offense level by 2 levels.
(b) If the defendant qualifies for a decrease under subsection (a), the offense level determined prior to the operation of subsection (a) is level 16 or greater, and upon motion of the government stating that the defendant has assisted authorities in the investigation or prosecution of his own misconduct by timely notifying authorities of his intention to enter a plea of guilty, thereby permitting the government to avoid preparing for trial and permitting the government *878 and the court to allocate their resources efficiently, decrease the offense level by 1 additional level.
USSG § 3E1.1 (emphasis in original). "This adjustment is not intended to apply to a defendant who puts the government to its burden of proof at trial by denying the essential factual elements of guilt, is convicted, and only then admits guilt and expresses remorse." Id., cmt. (n. 2). "Conviction by trial, however, does not automatically preclude a defendant from consideration for such a reduction." Id. Defendant bears the burden to prove, by a preponderance of the evidence, that he has accepted responsibility. Peters v. United States, 464 F.3d 811, 812 (8th Cir.2006) (stating that the burden is on the defendant).
In the PSIR, the USPO stated that "defendant has not demonstrated anything to the [USPO] which would clearly reflect an acceptance of responsibility for his conduct." PSIR at ¶ 19. In his response to the PSIR, Defendant objected. Objections at ¶ 14. He claimed that he never denied involvement with the distribution of heroin. Id. He pointed out that he did not testify at trial or offer any evidence on his behalf. Id. At the Hearing, however, Defendant clarified his position and conceded that he is not entitled to a reduction for acceptance of responsibility.
Accordingly, the court finds that Defendant is not entitled to a reduction for acceptance of responsibility. Defendant went to trial and has not accepted responsibility for his actions in any respect. This is not one of those rare situations in which a defendant who puts the government to its burden of proof at trial is entitled to an acceptance-of-responsibility reduction. USSG § 3E1.1; see, e.g., United States v. Kiel, 454 F.3d 819, 823-24 (8th Cir.2006) (affirming denial of acceptance of responsibility under analogous circumstances); cf. USSG § 3E1.1, cmt. (n. 2) (setting forth examples of such "rare situations").
C. Criminal History Category
1. Prior criminal history
Defendant has a long and serious criminal history, even though he is only thirty-years old:
In May of 1995 (age 18), Defendant was charged with Possession of Drug Paraphernalia, after he was found with a marijuana pipe. PSIR at ¶ 30. In June of 1995, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
In August of 1995 (age 18), Defendant was charged with Theft in the Fifth Degree, after he stole merchandise from a grocery store. PSIR at ¶ 31. In August of 1995, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
On June 15, 1996 (age 19), Defendant was charged with Possession of Drug Paraphernalia, after he was found with a small pipe with residue believed to be marijuana. PSIR at ¶ 32. In August of 1996, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
On June 27, 1996 (age 19), Defendant was charged with Trespassing, after he was caught swimming in a public pool when it was closed. PSIR at ¶ 33. In August of 1996, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant not be assessed any Criminal History Points for such conviction. Id. (citing USSG § 4A1.2(c)(1) (excluding trespassing convictions *879 for which only a fine was imposed)).
In August of 1997 (age 20), Defendant was charged with Forgery, after he forged and cashed checks on another person's bank account. PSIR at ¶ 34. In September of 1998, Defendant was convicted and received a five-year prison sentence. Id. The entire sentence was suspended, however, and Defendant was placed on five, years of probation. Id. In 2001 and 2002, Defendant repeatedly violated his probation by failing to keep appointments with his probation officer, submitting urine samples that tested positive for marijuana, cocaine and morphine, and reporting for a substance abuse evaluation with alcohol on his breath. Id. In May of 2002, Defendant's probation was revoked and he was sentenced to five years in prison. Id. at ¶¶ 34-35. Defendant's prison term was discharged in May of 2003. Id. at 1134. The USPO recommends that Defendant be assessed three criminal history points for such conviction. Id. (citing USSG § 4A1.1(a)).
On September 3, 1997 (age 20), Defendant was charged with Possession of Drug Paraphernalia, after he was found in a hotel room "where narcotics AND paraphernalia were found." PSIR at ¶ 36. In March of 1998, he was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
On September 5, 1997 (age 20), Defendant was charged with Possession of a Controlled Substance, after he was found at a hotel with marijuana. PSIR at ¶ 37. In December of 1997, he was convicted and ordered to pay a $250 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
In March of 1998 (age 21), Defendant was charged with Theft in the Fifth Degree and Public Intoxication, after he stole meat from a grocery store while drunk. PSIR at ¶ 38. In March of 1998, Defendant was convicted on both counts and ordered to pay a $50 fine on each count. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such convictions. Id. (citing USSG § 4A1.1(c)); see also id. § 4A1.2(c)(2) (excluding "[p]ublic intoxication" convictions).
In May of 1998 (age 21), Defendant shoplifted an item from a gas station and pushed and elbowed an employee who tried to stop his escape. PSIR at ¶ 39. In June of 1998, Defendant was charged with Robbery in the Second Degree. Id. In May of 1999, Defendant pled guilty to Extortion. Id. He received a deferred judgment and was placed on five years of probation. Id. For the same reasons outlined above in connection with Defendant's 1998 Forgery conviction, Defendant's probation was revoked and, in June of 2002, he was sentenced to five years of prison. Id. The sentence was ordered to run concurrently with Defendant's sentence on the 1998 Forgery conviction. Id. In May of 2003, Defendant was discharged from prison. Id. The USPO recommends that Defendant be assessed three criminal history points for the Extortion conviction. Id. (citing USSG § 4A1.1(a)).
On February 5, 2005 (age 28), Defendant was charged with Theft in the Fifth Degree, after he shoplifted merchandise from a department store. PSIR at ¶ 41. In February of 2005, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A 1.1(c)).
*880 On February 7, 2005 (age 28), Defendant was charged with Theft in the Fifth Degree, after he stole from a restaurant. PSIR at ¶ 42. On February 24, 2005, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
In March of 2005 (age 28), Defendant was charged with Theft in the Fifth Degree, after he shoplifted from a grocery store. PSIR at ¶ 43. Defendant was convicted in the same month and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
On August 8, 2005 (age 28), Defendant was charged with Forgery, after he forged and cashed checks on the account of another in May of 2005. PSIR at ¶ 44. In March of 2006, Defendant was convicted and sentenced to five years of prison. Id. The USPO recommends that Defendant be assessed three criminal history points for such conviction. Id. (citing USSG § 4A 1.1(a)).
On August 22, 2005 (age 28), Defendant was charged with Theft in the Fifth Degree, after he stole more than $200 worth of drills from a department store. PSIR at ¶ 45. In March of 2006, Defendant was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A 1.1(c))
On October 6, 2005 (age 28), Defendant was charged with Interference with Official Acts, after he hindered police offers from serving an arrest warrant on his girlfriend. PSIR at ¶ 46. In December of 2005, Defendant was convicted and ordered to pay a $212 fine. Id. The USPO recommends that Defendant not be assessed any Criminal History Points for such conviction. Id. (citing USSG § 4A1.2(c)(1) (excluding "hindering or failing to obey a police officer" conviction for which only a fine was imposed)).
On October 30, 2005 (age 28), Defendant was charged with Theft in the Fifth Degree, after he stole merchandise from a store. PSIR at ¶ 47. The next day, he was convicted and ordered to pay a $50 fine. Id. The USPO recommends that Defendant be assessed one Criminal History Point for such conviction. Id. (citing USSG § 4A1.1(c)).
In November of 2005 (age 28), Defendant was charged with Theft in the Second Degree and Forgery after he presented and cashed another person's checks at a gas station in June of 2005., PSIR at ¶ 48. In February of 2006, Defendant was convicted of Forgery and sentenced to five years of prison. Id. The Theft in the Second Degree charge was dismissed. Id. The USPO recommends that Defendant not be assessed any Criminal History Points for this Forgery conviction, because the sentence imposed was related to the sentence imposed for Defendant's March of 2006 Forgery conviction. Id. (citing USSG § 4A1.2(a)(2)). Both sentences resulted because Defendant wrongfully cashed the checks of the same person. Id. However, the checks were cashed at different businesses in different counties, and Defendant was arrested by different law enforcement agencies on separate occasions. Compare PSIR ¶ 44, with id. ¶ 48
2. Criminal history calculation
The USPO recommends that Defendant be assessed with a total of sixteen criminal history points and, therefore, his Criminal History Category is VI. PSIR at ¶ 52. Although the USPO originally totaled twenty criminal history points in accordance *881 with the convictions outlined in Part V.C.1, eleven of those points were assessed pursuant to USSG § 4A1.1(c). PSIR at ¶ 49. Because § 4A1.1(c) only allows the court to assess four points, the USPO reduced Defendant's criminal history points total by seven points to thirteen points. Id. The USPO added two points pursuant to USSG § 4A1.1(d), however, because Defendant committed the instant federal offense while on probation on his Extortion conviction. Id. at ¶ 50. The USPO also added an additional one point pursuant to USSG § 4A 1.1(e), because Defendant committed the instant federal offense less than two years after release from imprisonment on his Extortion conviction and his 1998 Forgery conviction. Id. at ¶ 51.
Defendant unconditionally accepts the USPO's description of his criminal history and generally concurs in the USPO's calculations of his criminal history points. However, Defendant objects to paragraph 39 of the PSIR, in which the USPO recommends that Defendant be assessed three criminal history points for his Extortion conviction. Defendant points out that he was also assessed three criminal history points for his 1998 Forgery conviction. He maintains that, because he ended up serving time for those two convictions concurrently, it is impermissible "double counting" to assess him three points for each conviction.[10] Defendant cites no authority for his position.
Section 4A1.2 states that "[p]rior sentences imposed in unrelated cases, are to be counted separately," but "[p]rior sentences imposed in related cases are to be treated as one sentence for purposes of § 4A1.1(a), (b), and (c)." USSG § 4A1.2(a)(2). Application Note 3 to USSG § 4A 1.2 defines "related." It states:
Prior sentences are not considered related if they were for offenses that were separated by an intervening arrest (i.e., the defendant is arrested for the first offense prior to committing the second offense). Otherwise, prior sentences are considered related if they resulted from offenses that (1) occurred on the same occasion, (2) were part of a single common scheme or plan, or (3) were consolidated for trial or sentencing.
USSG § 4A1.2, cmt (n. 3); see also United States v. Davidson, 437 F.3d 737, 740 (8th Cir.2006) (listing nine factors that the court should consider in determining whether prior criminal convictions are part of a single scheme or plan) (citation omitted).
Defendant's 1998 Forgery and Extortion convictions are clearly unrelated. Defendant's 1998 Forgery conviction stemmed from his arrest in August of 1997 for forging and cashing checks on another person's bank account in Linn County, Iowa. PSIR at ¶ 34. Defendant's Extortion conviction stemmed from his arrest in May of 1998 for shoplifting an item from a gas station and pushing and elbowing an employee who tried to stop his escape in Black Hawk County, Iowa. Id. at ¶ 39. Thus, the two offenses occurred on different occasions and in different locations. There is no evidence that the two offenses were part of a single common scheme or plan. The two convictions did not result from offenses that were consolidated for trial or sentencing. The cases proceeded under different docket numbers in different counties. Only after Defendant violated his probation in 2001 and 2002 were the *882 two new terms of five years of imprisonment ordered to run concurrently. Although Defendant ultimately ended up serving concurrent prison time on the two sentences, they are still "unrelated" for purposes of USSG § 4A1.2(a)(2). See, e.g., United States v. Paden, 330 F.3d 1066, 1067-68 (8th Cir.2003) (rejecting defendant's argument that two convictions occurring four days apart were "functionally consolidated" for purposes of § 4A1.2(a)(2), because the defendant pled guilty to both charges on the same date and the sentences ran concurrently); see also United States v. Piggie, 316 F.3d 789, 794-96 (8th Cir.2003) (similar); United States v. Nicholson, 231 F.3d 445, 455-56 (8th Cir.2000) ("Where prior convictions are sentenced under separate docket numbers, and there is no formal order of consolidation, the convictions are counted separately for purposes of § 4A 1. 2(a)(2)." (Citation omitted.)).
Accordingly, the court holds that the USPO accurately calculated Defendant's criminal history. Defendant was properly assessed with sixteen criminal history points.
3. Conclusion
Because Defendant has sixteen criminal history points, he is a Criminal History Category VI. See USSG Sentencing Table.
D. Pre-Departure Advisory Sentencing Guidelines Range
At an offense level of 12 and a Criminal History Category VI, the advisory Sentencing Guidelines range, if the court does not depart upward pursuant to Chapter 4 or 5, is 30 to 37 months of imprisonment. See USSG Sentencing Table. The statutory maximum sentence is 240 months of imprisonment. See 21 U.S.C. § 841(b)(1)(C) (stating that "such person shall be sentenced to a term of imprisonment of not more than 20 years"). There is no statutory minimum sentence. See id.
VI. UPWARD DEPARTURE PURSUANT TO USSG § 4A1.3
The government seeks an upward departure pursuant to USSG § 4A1.3. Section 4A 1.3 grants the court the discretion to depart upward when
reliable information indicates that the defendant's criminal history category substantially under-represents the seriousness of the defendant's criminal history or the likelihood that the defendant will commit other crimes . .
USSG § 4A1.3(a)(1). "When contemplating and structuring such a departure, the district court should consider both the nature and extent of a defendant's criminal history." United States v. Hacker, 450 F.3d 808, 812 (8th Cir.2006) (citing United States v. Gonzales-Ortega, 346 F.3d 800, 802 (8th Cir.2003)). `In deciding the likelihood that a defendant may commit other crimes, a court may take into account any evidence of obvious incorrigibility and conclude that leniency has not been effective.'" Id. (citing United States v. Herr, 202 F.3d 1014, 1016 (8th Cir.2000)).
The fact that Defendant is a Criminal History Category VI does not foreclose the possibility of an upward departure pursuant to USSG § 4A1.3. See USSG § 4A1.3, cmt. (n. 2(B)); see also United States v. Hawk Wing, 433 F.3d 622, 631 (8th Cir.2006) (discussing upward departures pursuant to USSG § 4A1.3 and explaining that if the district court finds that the sentencing range in Criminal History Category VI is inadequate, "then it may impose a reasonable sentence above the Category VI range" (citation omitted)). Indeed, the advisory Sentencing Guidelines provide specific guidance for cases like Defendant's:
*883 In determining whether an upward departure from Criminal History Category VI is warranted, the court should consider that the nature of the prior offenses rather than simply their number is often more indicative of the seriousness of the defendant's criminal record.
USSG § 4A1.3, cmt. (n. 2(B)).
A. Seriousness of Defendant's Criminal History
The court first considers the seriousness of Defendant's criminal history. Not including the instant offense, Defendant has eighteen criminal convictions. Four of the convictions are felony convictions for extortion or forgery. Defendant's remaining convictions are for relatively minor offenses, such as shoplifting and possession of drug paraphernalia.
The court begins with the recognition that Defendant was scored sixteen criminal history points. This exceeds the minimum necessary to qualify for Criminal History Category VI by three points. In reality, however, even this calculation substantially underrepresents the seriousness of Defendant's criminal history. Clearly, the court may consider "[p]rior sentence(s) not used in computing the criminal history category" in determining whether a departure is warranted. USSG § 4A1.3(a)(2)(A); see, e.g., United States v. Porter, 439 F.3d 845, 848 (8th Cir.2006) (affirming an upward departure where the court considered two prior criminal convictions that were uncounted pursuant to USSG § 4A1.2(e)(3) due to their age).
Defendant was only scored four criminal history points for eleven convictions, because of the limitation in USSG § 4A1.1(c). No points were assessed to seven such convictions. Moreover, no points were assessed for Defendant's February of 2006 Forgery conviction, see PSIR at ¶ 49, because the sentence imposed was related to the sentence imposed for Defendant's March of 2006 Forgery conviction. Id. at ¶ 44 (citing USSG § 4A1.2(a)(2)). Had the February of 2006 Forgery conviction counted, Defendant would have had an additional three points.[11]
Therefore, if all of Defendant's convictions would have been counted, he would have "earned" at least twenty-six criminal history points, rather than the sixteen points he was actually assessed. This would have been at least twice the minimum threshold for a Criminal History Category VI. Although the sheer number of Defendant's prior convictions is not dispositive in all cases, USSG § 4A1.3, cmt. (n. 2(B)), the court finds that the totality of Defendant's record shows that Criminal History Category VI substantially underrepresents the seriousness of Defendant's criminal history.
B. Likelihood that Defendant Will Commit Other Crimes
Defendant has an extremely high risk of recidivism. Defendant has committed crimes almost constantly since he was eighteen-years old. Incarceration appears to be the only way to stop Defendant from committing crimes. Defendant committed the instant federal offense while on probation for his Extortion conviction. PSIR at ¶ 50. Defendant committed the instant federal offense less than two years after release from imprisonment on his Extortion conviction and his 1998 Forgery conviction. Id. at ¶ 51. Defendant has shown a lack of respect for authority by repeatedly" violating the terms of his probation.
The Eighth Circuit Court of Appeals has summarized a case involving a person who *884 had a criminal history similar to Defendant's:
[The defendant] has been incarcerated one-half of his adult life for a wide variety of serious offenses. He has resumed criminal activity promptly upon each release from prison, committing the instant offenses, and earlier offenses, while on parole. It would seem that only incarceration has kept his criminal history as low as category IV.
United States v. Washington, 109 F.3d 459, 462 (8th Cir.1997). Defendant's criminal history demonstrates a "proclivity for recidivism." See United States v. Lara-Banda, 972 F.2d 958, 959 (8th Cir.1992). Defendant is an "`unrepentant, incorrigible, recidivist, who poses a significant threat to the safety of the community.'" United States v. Aguilar-Lopez, 329 F.3d 960, 963 (8th Cir.2003) (quoting Lara-Banda, 972 F.2d at 960).
Defendant is the classic case of a "younger defendant[ ] . . . who [is] more likely to have received lenient treatment [in the past], yet who may actually pose a greater risk of serious recidivism than older defendants." USSG § 4A1.3, cmt. (backg'd). For example, Defendant was convicted seven times for Theft in the Fifth Degree, a simple misdemeanor under Iowa law, in violation of Iowa Code § 714.2(5). He received a $50 fine for each conviction, even though imprisonment was a possible sanction. See Iowa Code § 903.1(1)(a) ("The court may order imprisonment not to exceed thirty days in lieu of a fine or in addition to a fine."). Moreover, persons with two prior convictions for Theft in the Fifth Degree are subject to a charging enhancement to Theft in the Third Degree, an aggravated misdemeanor, in violation of Iowa Code § 714.2(3). A person convicted of an aggravated misdemeanor is subject to much more severe penalties, including up to two years of imprisonment. Id. § 903.1(2). It appears, however, that the authorities never pursued such a charging enhancement against Defendant.
In sum, the court finds that Defendant's criminal history category substantially under-represents the likelihood that he will commit other crimes. USSG § 4A1.3(a)(1).
C. Extent of Departure
Because Defendant's criminal history category substantially under-represents the seriousness of his criminal history and the likelihood that he will commit other crimes, the court finds that an upward departure pursuant to USSG § 4A1.3(a)(1) is appropriate. The advisory Sentencing Guidelines instruct on the extent of upward departures for understated criminal history:
UPWARD DEPARTURES FROM CATEGORY VI. In a case in which the court determines that the extent and nature of the defendant's criminal history, taken together, are sufficient to warrant an upward departure from Criminal History Category VI, the court should structure the departure by moving incrementally down the sentencing table to the next higher offense level in Criminal History Category VI until it finds a guideline range appropriate to the case.
USSG § 4A1.3(a)(4)(B). However, the court need not "take a mechanistic approach to departures based on criminal history." United States v. Gonzales-Ortega, 346 F.3d 800, 803 (8th Cir.2003) (citing United States v. Leaf 306 F.3d 529, 533 (8th Cir.2002)).
As indicated, Defendant's Offense Level before departures is 12 and he is a Criminal History Category VI. The court finds Defendant's criminal `history warrants moving down the Sentencing Table two levels to level 14, Criminal History Category *885 VI, for an advisory guideline range of 37 to 46 months of imprisonment.
VII. UPWARD DEPARTURE PURSUANT TO USSG § 5K2.1 OR § 5K2.21
The government seeks an upward departure to the statutory maximum of 240 months of imprisonment pursuant to USSG § 5K2.1 (Death) or USSG § 5K2.21 (Dismissed and Uncharged Conduct). After setting forth the general law of Chapter 5 departures, the court examines each provision, in turn.
A. General Principles
In discussing the propriety of Chapter 5 departures generally, the Eighth Circuit Court of Appeals recently summarized:
Departures are appropriate if the sentencing court finds that there exists an aggravating or mitigating circumstance "of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that, in order to advance the objectives set forth in 18 U.S.C. § 3553(a)(2), should result in a sentence different from that described." USSG § 5K2.0. The guidelines provide that sentencing courts [are] to treat each guideline as carving out a "heartland," a set of typical cases embodying the conduct that each guideline describes. When a court finds an atypical case, one to which a particular guideline linguistically applies but where conduct significantly differs from the norm, a court may consider whether a departure is warranted. USSG § 1A1.1, cmt. (n. 4(b)).
United States v. Chase, 451 F.3d 474, 482 (8th Cir.2006) (formatting altered). The decision whether to depart from the advisory Sentencing Guidelines rests within the sound discretion of the district court. See, e.g., United States v. Thin Elk, 321 F.3d 704, 707-08 (8th Cir.2003) (reviewing for an abuse of discretion "because the decision to depart embodies the traditional exercise of discretion by the sentencing judge" (citations and internal quotation marks omitted)). However, "[b]efore a departure is permitted, certain aspects of the case must be found unusual enough for it to fall outside the heartland of cases . ." Koon v. United States, 518 U.S. 81, 98, 116 S. Ct. 2035, 135 L.Ed2d 392 (1996). The district court must "carefully articulate the reasons for departure, particularly where the waters are unchartered." United States v. Reinke, 283 F.3d 918, 925-26 (8th Cir.2002) (citing Koon, 518 U.S. at 95, 116 S. Ct. 2035).
"The district court is not left adrift . . . in determining which cases fall within and which cases fall outside of the `heartland.'" United States v. McCart, 377 F.3d 874, 877 (8th Cir.2004) (citing Koon, 518 U.S. at 94, 116 S. Ct. 2035). In USSG § 5K2.1 et seq., "[t]he Sentencing Commission enumerated some of the factors that it believed are not adequately accounted for in the formulation of the Guidelines and might merit consideration as aggravating or mitigating circumstances." Thin Elk, 321 F.3d at 708 (citing USSG § 5K2.0). The enumerated factors that might merit consideration as aggravating circumstances are so-called "encouraged" factors. See, e.g., McCart, 377 F.3d at 877 (discussing "encouraged" and "discouraged" factors). "`If the [enumerated] factor is an encouraged factor, the court is authorized to depart if the applicable Guideline does not already take it into account.'" Id. (quoting Koon, 518 U.S. at 96, 116 S. Ct. 2035). Death, USSG § 5K2.1, and Dismissed and Uncharged Conduct, USSG § 5K2.21, are two "encouraged" factors.
The court finds that this case falls outside the "heartland." The court considers *886 USSG § 5K2.1 and USSG § 5K2.21, in turn.
B. USSG § 5K2.1
The government seeks an upward departure pursuant to USSG § 5K2.1. Section 5K2.1 provides:
§ 5K2.1. Death (Policy Statement)
If death resulted, the court may increase the sentence above the authorized guideline range.
Loss of life does not automatically suggest a sentence at or near the statutory maximum. The sentencing judge must give consideration to matters that would normally distinguish among levels of homicide, such as the defendant's state of mind and the degree of planning or preparation. Other appropriate factors are whether multiple deaths resulted, and the means by which life was taken. The extent of the increase should depend on the dangerousness of the defendant's conduct, the extent to which death or serious injury was intended or knowingly risked, and the extent to which the offense level for the offense of conviction, as determined by the other Chapter Two guidelines, already reflects the risk of personal injury. For example, a substantial increase may be appropriate if the death was intended or knowingly risked or if the underlying offense was one for which base offense levels do not reflect an allowance for the risk of personal injury, such as fraud.
USSG § 5K2.1 (emphasis in original).
Although resulting death does not mandate a sentence at or near the statutory maximum, id., USSG § 5K2.1 clearly "authorize[s] courts to `increase the sentence above the authorized guideline range' up to the statutory maximum for the offense of conviction." United States v. Howard, 454 F.3d 700, 703 (7th Cir.2006) (quoting USSG § 5K2.1).[12] Every circuit court of appeals that has considered the issue has held that an upward departure under § 5K2.1 may be based on harm resulting from relevant conduct, not just conduct comprising the offense of conviction. United States v. Purchess, 107 F.3d 1261, 1271 (7th Cir.1997) (citing in part United States v. Sanders, 982 F.2d 4, 9-10 (1st Cir.1992); United States v. Shields, 939 F.2d 780, 782-83 (9th Cir.1991); and United States v. Kim, 896 F.2d 678, 683-84 (2d Cir.1990)).
1. Applicability of departure
The court finds that an upward departure under § 5K2.1 is appropriate. As the court's factual findings make clear, "death resulted" from Defendant's heroin distribution. USSG § 5K2.1. By selling Butterbaugh heroin twice, Defendant knowingly risked Butterbaugh's death. See United States v. Williams, 51 F.3d 1004, 1012 (11th Cir.1995) ("When determining whether a death `resulted' from the offense for purposes of section 5K2.1, a factual finding `that death was intentionally or knowingly risked is sufficient.'" (citing United States v. White, 979 F.2d 539, 545 (7th Cir.1992) and United. States v. Rivalta, 892 F.2d 223, 232 (2d Cir.1989))), abrogated on other grounds by Jones v. United States, 526 U.S. 227, 231, 119 S. Ct. 1215, 143 L. Ed. 2d 311 (1999).
2. Extent of departure
In considering the extent of the departure, the court has considered all of the factors listed in § 5K2.1. Some of the factors weigh against a sentence near the *887 statutory maximum sentence of 240 months of imprisonment. For example, there is no evidence that Defendant intended, planned or prepared to kill Butterbaugh. Indeed, Defendant had every motive to keep Butterbaugh alive, so Defendant could sell Butterbaugh more heroin and score more "free highs." Multiple deaths did not result from Defendant's conduct. As a spate of the court's recent cases show, there is nothing extraordinary about the means by which Butterbaugh's life was taken. See generally United States v. Bradford, 461 F. Supp. 2d 904 (N.D.Iowa 2006) (detailing heroin sale resulting in death); United States v. Ragland, No. 06-CR-01-LRR, 2006 WL 2513026 (N.D.Iowa Aug. 28, 2006) (same); United States v. L.M., 427 F. Supp. 2d 867 (N.D.Iowa 2006) (same).
Other factors weigh in favor of a departure at the upper end of the statutory range. Defendant's repeated sale of heroin to Butterbaugh on the date of his death was plainly reckless and extremely dangerous. Cf. United States v. Merrival, 176 F.3d 1079, 1081-82 (8th Cir.1999) (characterizing speeding drunk driver as an "extremely dangerous" defendant that warranted a twelve-level upward departure pursuant to USSG § 5K2.1 and USSG § 5K2.2). Simply by selling heroin, Defendant knowingly risked that death or serious injury would result. Heroin is a dangerous controlled substance.
Although USSG § 2D 1.1 arguably takes into account some of the pernicious effects of heroin, it does not take into account death. USSG § 2D 1.1 contains a specific provision for death, USSG § 2D 1. 1(a)(2), that was inapplicable here. If the offense of conviction establishes that death resulted from the use of the substance, the base offense level is 38. USSG § 2D1.1(a)(2). Such provision was inapplicable because the jury was inexplicably unable to find that Defendant's heroin distribution caused Butterbaugh's death beyond a reasonable doubt; death was not, therefore, established by the "offense of conviction." Id.; see id. § 1B1.2(a) (defining offense of conviction as "the offense conduct charged in the count of the indictment . . . of which the defendant was convicted").
There is one especially aggravating factor here. Defendant knew that the heroin he sold Butterbaugh was especially pure and dangerous. Immediately following Defendant's second sale of heroin to Butterbaugh, Williams told Defendant, Butterbaugh and Peterson to "be careful" because the heroin was "pretty good stuff." Yet Defendant made no effort whatsoever to warn Butterbaugh himself or recall his product. Cf. United States v. Ihegworo, 959 F.2d 26, 29 (5th Cir.1992) (affirming ten-level upward departure pursuant to USSG § 5K2.1, where defendant knew he was distributing extraordinarily pure heroin and death resulted).
Based on all of the factors, the court finds that an upward departure to the middle of the statutory range is appropriate for Defendant. Accordingly, the court shall depart upward ten levels pursuant to USSG § 5K2.1 to level 24. At level 24 and Criminal History Category VI, Defendant's advisory Guidelines Sentence is 100 to 125 months of imprisonment. Although the upward departure is greater than many this court has previously imposed, it is certainly not unprecedented. See, e.g., Ihegworo, 959 F.2d at 28 n. 2 (noting that upward departure was for ten levels); see also United States v. Lewis, 235 F.3d 394, 396-97 (8th Cir.2000) (affirming an "exceptional" upward departure of fourteen levels that resulted in an increase in the defendant's sentencing range from 18 to 24 months of imprisonment to 87 to 108 months of imprison ment); United States v. Reis, 369 F.3d *888 143. 152 (2d Cir. 2004) ("[The Second Circuit Court of Appeals] has often affirmed upward departures that more than triple the upper-limit of the sentencing range." (Citations omitted.)); cf. Merrival, 176 F.3d at 1082 (affirming twelve-level upward departure pursuant to § 5K2.1 and § 5K2.2 where drunk driver killed two people and seriously injured three others).
C. USSG § 5K2.21
The government also seeks an upward departure pursuant to USSG § 5K2.21. That section provides:
§ 5K2.21. Dismissed and Uncharged Conduct (Policy Statement)
The court may depart upward to reflect the actual seriousness of the offense based on conduct (1) underlying a charge dismissed as part of a plea agreement in the case, or underlying a potential charge not pursued in the case as part of a plea agreement or for any other reason; and (2) that did not enter into the determination of the applicable guideline range.
USSG § 5K2.21 (emphasis in original).[13] Because the court has already departed upward pursuant to USSG § 5K2.1 on account of Butterbaugh's death, it may not also depart upward pursuant to USSG § 5K2.21. See United States v. Pena, 339 F.3d 715, 719 (8th Cir.2003) (explaining that the advisory Sentencing Guidelines generally prohibit "double counting," that is, when "one part of the Guidelines is applied to increase a defendant's punishment on account of a kind of harm that has already been fully accounted for by application of another part of the guidelines" (citations and internal quotation marks omitted)).
VIII. VARIANCE
A. Sentence to be Imposed
Defendant's advisory Sentencing Guidelines range, after all applicable adjustments and departures, is 100 to 125 months of imprisonment. In this postBooker world, however, this sentence is merely advisory. In other words, the departure issue is not the ultimate inquiry.
Departures are based on specific sections of Chapter 5, Part K of the U.S. Sentencing Guidelines (USSG) Manual and USSG § 4A1.3. Reasonableness of the ultimate sentence is based on the statutory elements contained in § 3553(a). While the [issues of departures and variances] may sometimes overlap[,] . . . district courts . . . would do well not to make post-Booker sentencing any more confusing than necessary by conflating the two distinct analyses.
United States v. Zeigler, 463 F.3d 814, 820 (8th Cir.2006) (Hansen, S.J., concurring) (citations omitted).
The court turns to examine the § 3553(a) factors. In pertinent part, § 3553(a) directs the court to consider:
(1) the nature and circumstances of the offense and the history and characteristics of the defendant;
(2) the need for the sentence imposed
(A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;
(B) to afford adequate deterrence to criminal conduct;
(C) to protect the public from further crimes of the defendant; and
*889 (D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner;
(3) the kinds of sentences available;
(4) the kinds of sentence and the sentencing range established for . . . the applicable category of offense committed by the applicable category of defendant as set forth in the guidelines . . . issued by the Sentencing Commission . . .
(5) any pertinent policy statement . . . issued by the Sentencing Commission. . . .
(6) the need to avoid unwarranted sentence disparities among defendants with similar records, who have been found guilty of similar conduct; and
(7) the need to provide restitution to any victims of the offense.
18 U.S.C. § 3553(a). The court need not explicitly set forth its analysis of all of the § 3553(a) factors here. "Nothing in § 3553(a) or in the Booker remedy opinion requires `robotic incantations' that each statutory factor has been considered." United States v. Lamoreaux, 422 F.3d 750, 756 (8th Cir.2005) (quoting United States v. Crosby, 397 F.3d 103, 113 (2d Cir.2005)); see also United States v. Gnavi, 474 F.3d 532, 538 (8th Cir.2007) (stating that a district court is not required to `categorically rehearse'" all of the § 3553(a) factors, so long as it makes clear it considered all of them) (quoting United States v. Dieken, 432 F.3d 906, 909 (8th Cir.2006)). The court's discussion of many of the factors militating in favor of a sentence near the middle of the statutory range of zero to 240 months of imprisonment are already set forth in the court's discussion of Defendant's advisory Sentencing Guidelines range, including the court's discussion of the appropriateness of upward departures. Put simply, this is not the typical heroin distribution case. Defendant personally distributed heroin resulting in the death of another human being. Butterbaugh's death was reasonably foreseeable to Defendant; indeed, Defendant knew the heroin he sold Butterbaugh was especially pure and dangerous. Defendant has a lengthy and serious criminal history and poses a high risk to re-offend. Considering all of these factors, the court shall sentence Defendant within the advisory Sentencing Guidelines range, but at the high end of such range. The court shall sentence Defendant to 120 months of imprisonment.
B. Alternative Sentences
In the event that the court is mistaken about the propriety or extent of its upward departures pursuant to USSG § 4A1.3 and/or USSG § 5K2.1, and Defendant's advisory Sentencing Guidelines range is less than 100 to 125 months of imprisonment, the court would nonetheless exercise its discretion under Booker, vary upward and impose a sentence of 120 months of imprisonment. A sentence below 120 months of imprisonment would not adequately `reflect the seriousness of Defendant's offense, promote respect for the law or provide just punishment. A sentence below 120 months of imprisonment would also create unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct. See, e.g., United States v. Lazenby, 439 F.3d 928, 933-34 (8th Cir.2006). The court so finds after considering all of the § 3553(a) factors.[14]
*890 IX. UNDISCHARGED TERMS OF IMPRISONMENT
Defendant has two undischarged terms of imprisonment for his March of 2006 and February of 2006 Forgery convictions. PSIR at ¶¶ 44 and 48. Defendant is tentatively scheduled to be discharged from prison on both convictions on March 7, 2008.
USSG § 5G1.3 provides:
§ 5G1.3. Imposition of a Sentence on a Defendant Subject to an Undischarged Term of Imprisonment
(a) If the instant offense was committed while the defendant was serving a term of imprisonment (including work release, furlough, or escape status) or after sentencing for, but before commencing service of, such term of imprisonment, the sentence for the instant offense shall be imposed to run consecutively to the undischarged term of imprisonment.
(b) If subsection (a) does not apply, and a term of imprisonment resulted from another offense that is relevant conduct to the instant offense of conviction under the provisions of subsections (a)(1), (a)(2), or (a)(3) of § 1B1.3 (Relevant Conduct) and that was the basis for an increase in the offense level for the instant offense under Chapter Two (Offense Conduct) or Chapter Three (Adjustments), the sentence for the instant offense shall be imposed as follows:
(1) the court shall adjust the sentence for any period of imprisonment already served on the undischarged term of imprisonment if the court determines that such period of imprisonment will not be credited to the federal sentence by the Bureau of Prisons; and
(2) the sentence for the instant offense shall be imposed to run concurrently to the remainder of the undischarged term of imprisonment.
(c) (Policy Statement) In any other case involving an undischarged term of imprisonment, the sentence for the instant offense may be imposed to run concurrently, partially concurrently, or consecutively to the prior undischarged term of imprisonment to achieve a reasonable punishment for the instant offense.
USSG § 5G1.3 (emphasis in original). In the case at bar, Defendant did not commit the instant federal offense while serving a term of imprisonment. He also did not commit the instant federal offense between the time of sentencing on another offense and the time he was to commence a separate term of imprisonment. His 2006 Forgery convictions are unrelated to the instant offense. Therefore, subsection (c) applies. Id.; see, e.g., United States v. Burch, 406 F.3d 1027, 1030 (8th Cir.2005) (reviewing district court's decision to impose consecutive sentences for clear error, because the district court's decision to apply USSG § 5G1.3(b) or (c) "usually turns upon the extent to which the offenses in question are related, and such relatedness inquiries are necessarily fact-sensitive"). The court has the discretion to impose a concurrent, partially concurrent or consecutive sentence. USSG § 5G1. 3(c); see also 18 U.S.C. § 3584(a) ("[l]f a term of imprisonment is imposed on a defendant who is already subject to an undischarged term of imprisonment, the terms may run concurrently or consecutively.")
*891 In deciding whether to impose a concurrent, partially concurrent or consecutive sentence under subsection (c), the court, in the interest of "achiev[ing] a reasonable incremental punishment for the instant offense and avoid[ing] unwarranted sentence disparity," considers the following factors:
(i) The factors set forth in 18 U.S.C. § 3584 (referencing 18 U.S.C. § 3553(a));
(ii) The type (e.g., determinate, indeterminate/parolable) and length of the prior undischarged sentence;
(iii) The time served on the undischarged sentence and the time likely to be served before release;
(iv) The fact that the prior undischarged sentence may have been imposed in state court rather than federal court, or at a different time before the same or different federal court; and
(v) Any other circumstance relevant to the determination of an appropriate sentence for the instant offense.
USSG § 5G1.3, cmt. (n. 3) (emphasis in original). Considering these factors, ineluding the factors at 18 U.S.C. § 3553(a), the court finds that the sentence for the instant federal offense should run consecutively to the undischarged terms of imprisonment for Defendant's March of 2006 and February of 2006 Forgery convictions.
X. RESTITUTION
The USPO recommends that the court order Defendant to pay $3,340 in restitution to Barb Butterbaugh. PSIR at ¶ 17. The restitution would cover miscellaneous expenses associated with Butterbaugh's death, including funeral bills. Id.; see 18 U.S.C. § 3663A (providing mandatory restitution to victims of certain crimes). The government urges the court to adopt the USPO's recommendation.
Defendant objects to any order of restitution. He reasserts his claim that he is not responsible for Butterbaugh's death and points out that the jury was unable to find, beyond a reasonable doubt, that Butterbaugh died as a result of Defendant's heroin distribution. Defendant does not, however, object to the amount of the restitution, assuming such restitution is ordered.
The court orders Defendant to make restitution in the amount of $3,340 in restitution to Barb Butterbaugh. As the court's prior factual and legal findings make clear, Defendant is responsible for Butterbaugh's death. Defendant must, therefore, make restitution. See, e.g.; id. § 3663A(b)(3) (requiring restitution for "funeral and related services" when a victim dies). Because Defendant is indigent, see PSIR ¶¶ 75-78, the restitution is not due and payable immediately. Id. § 3664(f)(2) (directing district court to consider the financial resources and projected earnings of the defendant in determining the manner and schedule in which restitution is to be made); see United States v. Ruff, 420 F.3d 772, 776-77 (8th Cir.2005) (Loken, C.J., concurring) (explaining that restitution from indigent defendants is not due immediately). The restitution obligation is due joint and several with Williams's restitution obligation.
XL CONCLUSION
The court found that Defendant's base offense level under the advisory Sentencing Guidelines was 12. USSG § 2D1.1(a)(3) and (c)(14). Defendant conceded that he was not entitled to a § 3E1.1 acceptance-of-responsibility reduction. Because Defendant was a Criminal History Category VI, the court found that, before departures, Defendant's advisory Sentencing Guidelines range was 30 to 37 months of imprisonment. See USSG *892 Sentencing Table. The court found that Defendant's Criminal History Category VI substantially under-represented the seriousness of Defendant's criminal history and the likelihood that he will commit other crimes. Accordingly, the court departed upward two levels pursuant to USSG § 4A1.3 to a level 14. The court then found Defendant's case to be outside the "heartland" and decided to depart upward an additional ten levels to level 24 pursuant to USSG § 5K2.1. Defendant's advisory Sentencing Guidelines range, after all departures, was 100 to 125 months of imprisonment. The court decided a variance from the advisory Sentencing Guidelines range was not appropriate, and, after analyzing the factors at 18 U.S.C. § 3553(a), decided that a sentence of 120 months of imprisonment was a reasonable sentence. The court ordered the sentence to run consecutively to the undischarged terms of imprisonment in Linn County, Iowa, Case No. FECR XXXXX-XXXX and Benton County, Iowa, Case No. FECR 9757. The court ordered Defendant to make restitution in the amount of $3,340 to Barb Butterbaugh. The restitution obligation is due joint and several with the restitution obligation imposed in United States v. Shaun Williams, Case No. 06-CR-40-1-LRR.
IT IS SO ORDERED.
NOTES
[1] Under the advisory Sentencing Guidelines, Williams had a total Offense Level of 35 and was a Criminal History Category VI. His advisory Sentencing Guidelines range was 292 to 365 months of imprisonment. Pursuant to USSG § 5K1.1 (Substantial Assistance to Authorities), the court departed downward to an advisory Guidelines Sentence of 240 months of imprisonment. After considering all of the factors at 18 U.S.C. § 3553(a), the court imposed a sentence of 240 months of imprisonment.
[2] The court is not bound by the jury's inability to find, beyond a reasonable doubt, that Defendant's heroin distribution was the cause of Butterbaugh's death. See, e.g., United States v. Adams, 451 F.3d 471, 472-73 (8th Cir. 2006), cert. denied, ___ U.S. ____, 127 S. Ct. 1135, 166 L. Ed. 2d 902 (2007); United States v. McKay, 431 F.3d 1085, 1094-95 (8th Cir. 2005), cert. denied, ___ U.S. ____, 126 S. Ct. 2345, 164 L. Ed. 2d 859 (2006) and ___ U.S. ____, 127 S. Ct. 46, 166 L. Ed. 2d 48 (2006); see also Cunningham v. California, 549 U.S. ____, ____ n. 4, 127 S. Ct. 856, ____ n. 4, 166 L. Ed. 2d 856 (2007) (Alito, J., dissenting) ("Every Court of Appeals to address the issue has held that a district court sentencing post-Booker may rely on facts found by the judge by a preponderance of the evidence." (citing, in part, United States v. Pirani, 406 F.3d 543, 551 n. 4 (8th Cir.2005))).
At the Hearing, Defendant also urged the court to follow United States v. Wendelsdorf, 423 F. Supp. 2d 927, 937-40 (N.D.Iowa 2006) and increase the burden of proof upon the government as the extent of the upward departure increases. The court declines to follow Wendelsdorf. Wendelsdorf relied, in large part, on United States v. Kikumura, 918 F.2d 1084 (3d Cir.1990) (citing McMillan v. Pennsylvania, 477 U.S. 79, 88, 106 S. Ct. 2411, 91 L. Ed. 2d 67 (1986) (stating, in dictum, that a sentencing enhancement should not become "the tail which wags the dog of the substantive offense")). Kikumura is no longer good law, insofar as subsequent Supreme Court cases have completely eroded its jurisprudential basis. See Blakely v. Washington, 542 U.S. 296, 304, 124 S. Ct. 2531, 159 L. Ed. 2d 403 (2004) (discussing McMillan and making clear that a constitutional violation only occurs when the court makes a factual finding by a preponderance of the evidence to "authorize a sentence in excess of that otherwise allowed for the underlying offense"). A panel of the Third Circuit Court of Appeals recently recognized the same. United States v. Grier, 449 F.3d 558, 569-70 (3d Cir.) (overruling Kikumura in light of Blakely), vacated and reh'g en banc granted by 453 F.3d 554 (3d Cir.2006). Even if the court had the discretion to apply a higher burden of proof, it would decline to do so. The court also declines to automatically impose a downward variance equal to the upward departure. See Wendelsdorf 423 F.Supp.2d at 938-40 ("[I]n cases where acquitted or uncharged conduct is proved by a preponderance, but not by clear and convincing evidence, and the circumstances are extreme, then a sentencing court metes out the upward departure . . ., but departs downwardly in the same exact amount of the upward departure." (adopting United States v. Gigante, 94 F.3d 53 (2d Cir. 1996) and its progeny to "neutraliz[e] the effects of any upward adjustment" under the advisory Sentencing Guidelines)).
[3] In Cedar Rapids, heroin is commonly known as "diesel."
[4] Beginning in July or August of 2004, Defendant and Williams supplied each other with heroin from time-to-time, depending on who had a source. During 2004, Defendant and Williams used heroin together about two to three times per week.
[5] Concerned about potential double counting, the USPO recommends that the court not separately assess the heroin in PSIR paragraphs 11, 12 and 15.
[6] The USPO did not have access to the trial transcript when it prepared the PSIR, because the court reporter had not yet prepared it.
[7] In its sentencing memorandum, the government repeatedly implies that the minimum drug quantity for a base offense level 16 is fifteen grams of heroin. The government overstates its burden. The government must only prove that Defendant is responsible for ten grams of heroin. See USSG § 2D1.1(a)(3) and (c)(12) (setting a base offense level of 16 if defendant is accountable for of least 10 grams but less than 20 grams a heroin).
[8] Greene testified that, when Peterson and Butterbaugh returned, she got one-quarter gram, Peterson got one-quarter gram and Butterbaugh got one-half gram.
[9] At trial, there was some evidence that Defendant was responsible for more heroin. For example, Greene testified that she and Peterson were daily heroin users and that Defendant sold them heroin "a couple of times" in 2004. Greene did not, however, testify to any quantities or prices.
[10] Defendant concedes that, regardless of whether he is assessed the three points, he is a Criminal History Category VI. For the sale of completeness, the court decides the issue. The court also notes that the resolution of this issue bears on the starting point for the departure issue examined in Part VI.
[11] The court also notes that Defendant received no points for his Trespassing, Public Intoxication and Interference With Official Acts convictions.
[12] There are very few Eighth Circuit Court of Appeals cases that discuss or even mention § 5K2.1 departures.
[13] Section 5K2.21 became effective on November 1, 2000. The amendment resolved a conflict in the circuit courts of appeal as to whether § 5K2.0 permitted consideration of dismissed or uncharged conduct. United States v. Bolden, 368 F.3d 1032, 1035 (8th Cir.2004).
[14] The court would also impose the same sentence regardless of whether the advisory Sentencing Guidelines are entitled to a presumption of reasonableness or whether extraordinary circumstances must attend a sentence varying substantially from the advisory Sentencing Guidelines. See Cunningham, 549 U.S. at ____n. 13, 127 S. Ct. 856, 166 L.Ed.2d at 856 (explaining that the Supreme Court has granted two petitions for certiorari this term, in order to resolve these two questions) (referencing Claiborne v. United States, ___U.S.___, 127 S. Ct. 551, 166 L. Ed. 2d 406 (2006) and Rita v. United States, ___U.S. ___, 127 S. Ct. 551, 166 L. Ed. 2d 406 (2006)).
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52 F. Supp. 2d 1126 (1999)
Susan KANTER & Sharlon Plunk, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
WARNER-LAMBERT CO., et al., Defendants.
No. C99-1154 FMS.
United States District Court, N.D. California.
June 9, 1999.
*1127 *1128 Daniel S. Mason, Joseph W. Bell, Steven S. Lubliner, Furth Fahrner & Mason, San Francisco, CA, Geoffrey Gordon-Creed, Kevin J. Holl, Gordon-Creed Kelley Holl & Sugarman LLP, San Francisco, CA, for plaintiffs.
Jeffrey S. Gordon, Kaye Scholer Firerman Hays & Handler, Los Angeles, CA, for Warner-Lambert Co., Pfizer, Inc., defendants.
Michael F. Healy, Wayne A. Wolff, Sedgwick Detert Moran & Arnold, San Francisco, CA, for Care Technologies, Inc., defendant.
Stuart L. Gasner, Christa M. Anderson, Keker & Van Nest LLP, San Francisco, CA, for Hogil Pharmaceutical Corp., defendant.
ORDER REMANDING CASE TO STATE COURT AND GRANTING PLAINTIFFS' REQUEST FOR FEES AND COSTS
FERN M. SMITH, District Judge.
INTRODUCTION
This class action suit, originally filed in the San Francisco Superior Court, was removed by defendant Pfizer on the basis of diversity of citizenship.[1] Plaintiffs have filed a motion to remand the case to state court and to recover from defendants their attorneys' fees and costs stemming from the removal to federal court. Defendant Pfizer filed an opposition, in which all defendants have joined. Plaintiffs' motion requires the Court to determine whether defendants have met their burden of demonstrating that the amount in controversy, exclusive of interest and costs, exceeds $75,000, and if not, whether the removal justifies charging defendants with plaintiffs' reasonable fees and costs incurred in obtaining remand.
BACKGROUND
Defendants manufacture and sell over-the-counter head lice remedies. Plaintiffs allege that defendants have continued to sell those products despite knowledge that head lice have developed resistance to their active ingredients, rendering the products useless. Plaintiffs seek to represent a class of all California residents who have purchased the allegedly offending products, and for whom the products failed to work. Plaintiffs' claims are all based on California law; they seek actual damages, punitive damages, injunctive relief and attorneys' fees.
*1129 DISCUSSION
I. Legal Standard
When a case is removed from state court, a district court must remand the case if it determines that it lacks subject matter jurisdiction. See 28 U.S.C. § 1447(c). There is a "strong presumption" against removal jurisdiction, Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992), Sullivan v. First Affiliated Securities, Inc., 813 F.2d 1368, 1371 (9th Cir. 1987), cert. denied, 484 U.S. 850, 108 S. Ct. 150, 98 L. Ed. 2d 106 (1987), and any uncertainties are to be resolved in favor of remand, see Ethridge v. Harbor House Restaurant, 861 F.2d 1389, 1393 (9th Cir. 1988). Defendants bear the burden of proving, by a preponderance of the evidence, actual facts sufficient to support jurisdiction. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403-404 (9th Cir. 1996); Gaus, 980 F.2d at 566. If the complaint does not already disclose a sufficient factual basis for jurisdiction, such facts must appear in the notice of removal. Schroeder v. Trans World Airlines, Inc., 702 F.2d 189, 191 (9th Cir.1983).
When the assertion of subject matter jurisdiction is based on diversity of citizenship, defendants must prove: (1) that all plaintiffs are of different citizenship than all defendants, Carden v. Arkoma Associates, 494 U.S. 185, 187, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990); and (2) that the amount in controversy, exclusive of interest and costs, exceeds the jurisdictional minimum currently $75,000, see 28 U.S.C. § 1332(a), Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 376 (9th Cir.1997), Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403-404 (9th Cir. 1996). Ordinarily, to satisfy the amount in controversy requirement in a class action suit, defendants must prove that each member of the proposed class has a monetary claim that exceeds $75,000. See Czechowski v. Tandy Corp., 731 F. Supp. 406, 409 (N.D.Cal.1990) (amount in controversy requirement was then $10,000). Claims of class members may only be aggregated to satisfy the requirement if they are "joint and common" rather than "separate and distinct." United States v. Southern Pac. Transp. Co., 543 F.2d 676, 682 (9th Cir. 1976).
II. Analysis
A. Diversity of Citizenship
Defendants have failed to meet their burden of proving that the parties are of diverse citizenship. In the Notice of Removal, defendants allege sufficient facts to prove that plaintiffs are California citizens and that defendant Pfizer is a corporate citizen of Delaware and New York. Citing plaintiffs' complaint, the Notice asserts, without supporting facts, that "[n]one of the other defendants is a citizen of the State of California." Notice at ¶ 4. Plaintiffs' complaint, however, does not contain sufficient factual allegations to determine the citizenship of any of the three remaining defendants. See Complaint at ¶ 7 (alleging state of incorporation and principal executive offices, but not principal place of business, of defendant Warner-Lambert), ¶ 9 (alleging headquarters of defendant Care Technologies, but neither its state of incorporation nor principal place of business), ¶ 10 (alleging headquarters of defendant Hogil Pharmaceutical, but neither its state of incorporation nor principal place of business). Because a "sufficient factual basis for jurisdiction" appears neither in the complaint nor in the Notice of Removal, removal is improper. Schroeder, 702 F.2d at 191.
B. Amount in Controversy
Because it is possible that defendants could cure these defects and attempt to remove a second time, the Court moves on to their contention that the amount in controversy requirement has been met. On that score, defendants do not dispute that the actual monetary damages to each class member are between $9.00 and $17.00 the approximate cost of a single package of one of the defendants' products. Instead they make three separate arguments that will be addressed in turn: (1) that compliance *1130 with the injunctive relief requested by plaintiffs will cost each defendant more than $75,000; (2) that the class members have a common and undivided interest in their claims for punitive damages; and (3) that the value of the claim for attorneys' fees under the California Consumer Legal Remedies Act ("CLRA") exceeds $75,000 per named plaintiff.
1. Cost of Compliance with Injunctive Relief
Defendants point out that plaintiffs have requested an injunction that would prohibit defendants from selling the products at issue. See Complaint, Prayer for Relief at p. 18. Defendants have submitted evidence that the cost to each defendant of complying with such an injunction would exceed $75,000. Relying on a recent Seventh Circuit case, In re Brand Name Prescription Drugs Antitrust Litigation, ("Brand Name"), 123 F.3d 599 (7th Cir. 1997), defendants contend that the amount in controversy requirement is thereby satisfied. Id. at 609-610. This approach to the jurisdictional minimum is dubbed the "either-viewpoint" or "defendant's-view-point" approach. Id. at 609.
Defendants' argument neglects, indeed obfuscates, the fact that the Ninth Circuit rejected the "defendant's-viewpoint" approach in Snow v. Ford Motor Co., 561 F.2d 787, 789-791 (9th Cir.1977). See Smiley v. Citibank (South Dakota), N.A., 863 F. Supp. 1156, 1163 (C.D.Cal.1993); see also Sanchez, 102 F.3d at 405 n. 6 (noting that Snow adopted the "plaintiff's viewpoint" rule for class actions seeking damages and injunctive relief). Like defendants in this case, the defendant in Snow, Ford Motor Company, had contended that "the right sought to be enjoined is a single right of a single defendant, namely, its right to market its packages." Snow, supra at 790. The Ninth Circuit rejected this approach in strong terms:
"Th[at] argument misses the mark. Given Snyder[ v. Harris, 394 U.S. 332, 89 S. Ct. 1053, 22 L. Ed. 2d 319 (1969) ], the proper focus in this case is not influenced by the type of relief requested, but rather continues to depend upon the nature and value of the right asserted. The right asserted by plaintiffs is the right of individual future consumers to be protected from Ford's allegedly deceptive advertising which is said to injure them in the amount of $11.00 each. That figure is below the jurisdictional minimum."
Snow, supra at 790-791 (citations omitted, footnote omitted).
Snow is squarely on point. The right asserted by plaintiffs in this case is the right of individual future consumers to be protected from purchasing defendants' allegedly defective products. Such a purchase is said to injure consumers in an amount between $9.00 and $17.00 each. Defendants' attempt to distinguish Snow on its facts is unpersuasive and contrary to the very specific holding in Snow. Defendants argue that, in Snow, if any one class member obtained an injunction, "the cost to the defendant would have been $11 the value of the wiring connector kit [at issue]." Defendants' Opposition at 8.[2] This argument lacks merit. Even if it were accurate, defendants' argument "misses the mark."[3] It erroneously views the value of the injunction sought in the Snow case from the defendant's viewpoint an approach Snow squarely rejected.
*1131 2. Aggregation of Punitive Damages
Defendants' next contention is that the members of the class have a common and undivided interest in their claims for punitive damages; therefore, the punitive damages claims may be aggregated to satisfy the jurisdictional minimum. Although that argument has not been addressed by the Ninth Circuit, it has been repeatedly rejected by district courts in this circuit, including the undersigned, as inconsistent with Ninth Circuit precedent. See, e.g., Gibson v. Chrysler Corp., 1998 WL 646659, at *3-4 (N.D.Cal. July 20, 1998); Haisch v. Allstate Ins. Co., 942 F. Supp. 1245, 1251 (D.Ariz.1996); Villarreal v. Chrysler Corp., 1996 WL 116832, at *3 (N.D.Cal. March 12, 1996); Borgeson v. Archer-Daniels Midland Co., 909 F. Supp. 709, 718 (C.D.Cal.1995); Smiley, 863 F.Supp. at 1163; Harris v. Chase Manhattan Bank, N.A., 1992 U.S. Dist. LEXIS 19986, at *5-6 (N.D.Cal. June 30, 1992); Kasky v. Perrier Group of America, Inc., 1991 WL 577038, *1-3, 1991 U.S. Dist. LEXIS 21177, at *4-9 (S.D.Cal.1991); accord Brand Name, 123 F.3d at 608-609 (relied on by defendants for their cost of compliance argument).
"The Ninth Circuit has held that claims are only common and undivided if they derive from rights that plaintiffs hold in group status, or they relate to a single res such as an estate or an insurance policy. Eagle v. AT & T Co., 769 F.2d 541, 546 (9th Cir.1985), cert. denied, 475 U.S. 1084, 106 S. Ct. 1465, 89 L. Ed. 2d 721 (1986); Potrero Hill Community Action Comm. v. Housing Auth. of the City and County of San Francisco, 410 F.2d 974, 978 (9th Cir.1969)." Gibson, 1998 WL 646659, at *2. This rule has been interpreted narrowly; "[i]f each plaintiff could pursue a claim individually, the interests are separate and distinct and may not be aggregated." Id. at *4 (citing Borgeson, 909 F.Supp. at 718). Claims for punitive damages do not meet this restrictive test.
Defendants have cited In re Northern Dist. of Cal., Dalkon Shield IUD Prod. Liab. Litig., 526 F. Supp. 887 (N.D.Cal. 1981), vacated, 693 F.2d 847 (9th Cir.1982), for the proposition that punitive damages claims may be aggregated. Reliance on that opinion is misplaced; it was vacated by the Ninth Circuit in its entirety and has no value as precedent.
Aggregation of punitive damages to meet the jurisdictional minimum is not permitted in this circuit.
3. Attribution of Attorneys' Fees and Supplemental Jurisdiction
Defendants' final argument regarding the jurisdictional amount progresses as follows: (1) plaintiffs have a claim for attorneys' fees which is likely to exceed $150,000; (2) those fees are properly attributed solely to the two named plaintiffs, not absent class members, which raises the amount in controversy for the named plaintiffs beyond the jurisdictional minimum; and (3) because the Court has jurisdiction over the claims of the named plaintiffs, it may exercise supplemental jurisdiction over the claims of the remaining class members. That argument fails.
Defendants present no evidence that the attorneys' fees will actually exceed $150,000, as is their burden. They rely only on plaintiffs' admission that this assumption is a reasonable one. See Defendants' Opposition at 14; Plaintiffs' Memorandum at 4. Such reliance is inappropriate; plaintiffs may not concede subject matter jurisdiction.
Even if defendants' assumption is reasonable, the assertion of jurisdiction on this basis still fails. It is based on the presumption that Zahn v. International Paper Co., 414 U.S. 291, 94 S. Ct. 505, 38 L. Ed. 2d 511 (1973), was overruled by 28 U.S.C. section 1367 the supplemental jurisdiction statute. Zahn held that the amount in controversy requirement must be met by every member of the plaintiff class. See Goldberg v. CPC International, Inc., 678 F.2d 1365, 1367 (9th Cir.1982). Such a showing would be impossible in this case.
*1132 The Court finds persuasive the opinions of the Third and Tenth Circuits which concluded that section 1367 did not overrule Zahn, see Meritcare Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214, 220-222 (3rd Cir.1999); Leonhardt v. Western Sugar Co., 160 F.3d 631, 640 (10th Cir.1998); see also Tortola Restaurants, L.P. v. Kimberly-Clark Corp., 987 F. Supp. 1186, 1189-1190 (N.D.Cal.1997), even though other circuits have disagreed, see Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928, 930 (7th Cir.1996); In re Abbott Laboratories, 51 F.3d 524, 528-529 (5th Cir.1995). The language of section 1367 is ambiguous as to whether the statute was intended to overrule Zahn, but the legislative history is clear in that regard. See H.R.Rep. No. 101-734, at 29 & n. 17 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6875 & n. 17 (citing Zahn and stating that section 1367 "is not intended to affect the jurisdictional requirements of 28 U.S.C. section 1332 in diversity-only class actions, as those requirements were interpreted prior to Finley [v. United States, 490 U.S. 545, 109 S. Ct. 2003, 104 L. Ed. 2d 593 (1989)]"). Furthermore, the view of section 1367 espoused by the Third and Tenth Circuits is consistent with the restrictive view of the jurisdictional amount requirement taken by the Ninth Circuit a view not shared by the Fifth and Seventh Circuits.
Accordingly, the teaching of Goldberg applies with full force attorneys' fees may neither be attributed solely to the named plaintiffs nor treated as an undivided common fund to satisfy the jurisdictional minimum. Goldberg, 678 F.2d at 1367; see Gibson, 1998 WL 646659, at *3.
4. Certification to the Ninth Circuit
Defendants point out that the Ninth Circuit has not ruled on many of these issues, and that an order remanding this action would not be appealable, 28 U.S.C. § 1447(d). Because the circuits have split on these issues, defendants' request that the Court deny remand on this basis alone and certify the order to the Ninth Circuit for review.
This the Court cannot do. If the Court is without jurisdiction, it must remand. See 28 U.S.C. § 1447(c). Furthermore, because of the "strong presumption" against removal jurisdiction, all doubts must be resolved in favor of remand. See Gaus, 980 F.2d at 566; Ethridge, 861 F.2d at 1393. If appeals of these decisions are to be had, it is Congress that must provide for them.
5. Attorneys' Fees and Costs
Plaintiffs have requested that the Court order defendants to pay the attorneys' fees and costs plaintiffs incurred in connection with the removal of this action. The Court may, in its discretion, issue such an order under 28 U.S.C. section 1447(c); no finding of bad faith is required. See Moore v. Permanente Medical Group, Inc., 981 F.2d 443, 445-448 (9th Cir.1992). The purpose of such an award is not to punish defendants, but rather to reimburse plaintiffs for unnecessary litigation costs. See id. at 447 (citation omitted).
When last considering this issue in 1996, the undersigned declined to award fees and costs because the law regarding removal of this kind of case was "not entirely clear." Villarreal, 1996 WL 116832, at *4. Since that time, district courts in the Ninth Circuit have continued to reject the same arguments made here by defendants. See, e.g., Gibson, 1998 WL 646659, *3-4; Tortola Restaurants, 987 F.Supp. at 1189-1190. Because the remand orders issued by those courts are not appealable, however, the Ninth Circuit has not recently spoken on the issues. In the absence of a Ninth Circuit opinion, defendants have felt free to persist in removing these cases, each time raising arguments that have been consistently rejected by the district courts. Such tactics waste the time and resources of both plaintiffs and the courts in this circuit. Plaintiffs should be compensated for the cost of this unnecessary round of litigation. Accordingly, plaintiffs' request for attorneys' fees and costs is *1133 GRANTED. The Court will retain jurisdiction over the award of fees and costs, as detailed below, as a matter collateral to the order remanding this case to state court. See Moore, 981 F.2d at 445.
CONCLUSION
Because defendants have failed to carry their burden of showing that there is federal subject matter jurisdiction over this matter, it is REMANDED to the San Francisco Superior Court. Plaintiffs' request, under 28 U.S.C. section 1447(c), for attorneys' fees and expenses incurred as a result of the removal is GRANTED. Plaintiffs are ORDERED to submit, within seven days of this order, proof of those fees and expenses together with a proposed order. Defendants SHALL then have one week to object to the reasonableness of the fees and costs.
SO ORDERED.
NOTES
[1] All defendants joined the removal.
[2] Although the opposition brief was filed by defendant Pfizer, it was joined, and thereby endorsed, by all defendants. Accordingly, the Court treats it as a paper filed by all defendants.
[3] The cost to Ford of a single injunction would not have been $11.00. Mr. Snow sought "to enjoin Ford from continuing to sell the trailering special packages without a wiring connector kit." Snow, supra at 788. The Ninth Circuit observed that the injunction would have cost Ford more than $10,000 because a single injunction "would affect all of Ford's future trailer package sales to thousands of other individual consumers." Id. at 790. That is precisely the argument made by defendants in the case at bar.
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52 F. Supp. 2d 98 (1999)
Janet GREEN, Plaintiff,
v.
MAINE SCHOOL ADMINISTRATIVE DISTRICT # 77, et al., Defendants.
No. Civ. 99-9-B.
United States District Court, D. Maine.
May 6, 1999.
*99 *100 *101 Sandra Hylander Collier, Ellsworth, ME, for plaintiff.
Melissa A. Hewey, Drummond, Woodsum, Plimpton & MacMahon, Portland, ME, for defendants.
ORDER AND MEMORANDUM OF DECISION
BRODY, District Judge.
Plaintiff Janet Green ("Plaintiff") brings this action against Defendants Maine School Administrative District # 77 ("MSAD 77"), Betty Jordan ("Jordan"), and John Gardner ("Gardner"). Plaintiff asserts that Defendants' failure to hire her after two years of probationary teaching constituted (i) a violation of 42 U.S.C. § 1983 under a First Amendment theory (Count VIII); (ii) a violation of the Maine Whistleblowers' Protection Act, Me.Rev. Stat.Ann. tit. 26, §§ 831-40 ("MWPA") (Count I), (iii) a wrongful discharge (Count II), and (iv) a breach of an implied covenant of good faith and fair dealing (Count III). In addition, Plaintiff claims that Defendants are liable for (i) tortious interference with an economically advantageous relationship (Count IV), (ii) invasion of privacy (Count V), (iii) intentional infliction of emotional distress (Count VI), and (iv) defamation (Count VII). Before the Court are MSAD 77's Motion for Summary Judgment on all Counts of Plaintiff's Amended Complaint and Jordan and Gardner's Motion for Summary Judgment on all Counts of Plaintiff's Amended Complaint. For the reasons outlined below, MSAD 77's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART and Jordan and Gardner's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART.
I. SUMMARY JUDGMENT
Summary judgment is appropriate in the absence of a genuine issue as to any material fact and when the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). An issue is genuine for these purposes if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). A material fact is one that has "the potential to affect the outcome of the suit under the applicable law." Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993). Facts may be drawn from "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits." Fed.R.Civ.P. 56(c). For the purposes of summary judgment the Court views the record in the light most favorable to the nonmoving party. See McCarthy v. Northwest Airlines, Inc., 56 F.3d 313, 315 (1st Cir.1995).
II. BACKGROUND
Plaintiff worked as a probationary teacher at the Elm Street School ("Elm Street") in East Machias during the 1994-95 and 1995-96 school years. Plaintiff's area of expertise was math, though she also taught reading and served as a home-room instructor. During the time period in question, Gardner was the principal at Elm Street and Jordan was the superintendent of MSAD 77.
Under Maine law, teachers may be employed for a probationary period not to exceed two years before they may be considered for continuing contract status, commonly referred to as "tenure."[1] In *102 order to be considered for tenure, a probationary teacher initially must be nominated by the superintendent.
At the end of Plaintiff's two probationary years, Gardner recommended to Jordan that Plaintiff not be nominated for tenure, and Jordan did not nominate Plaintiff for tenure. At issue in this case is the reason for these two decisions. Plaintiff alleges that Gardner and Jordan failed to recommend and nominate her because she discussed alleged misconduct by Gardner with Jordan and with the police. Defendants, in contrast, claim that Gardner and Jordan decided as they did because Plaintiff exhibited problems with classroom management throughout her two probationary years and because she was unwilling to discuss or address this issue. The events leading up to the end of Plaintiff's employment relationship with MSAD 77 follow.
During Plaintiff's first probationary year, Gardner attended three different classes taught by Plaintiff.[2] In each of his three written reports, he recorded problems relating to classroom management. Gardner's October 18, 1994 observation report noted that students "were talking over and through each other" and were being "very loud and not really cooperative with each other," and that there was "always an amount of confusion during transition from unstructured to structured time frames." (Gardner Aff.Ex. 1.) In Gardner's January 13, 1995 post-observation report, he stated that "[some students] were very noisy it was difficult to follow the lesson," and suggested that Plaintiff should "work on keeping the students productively involved so that they aren't distracting others." (Gardner Aff.Ex. 2.) On March 23, 1995, Gardner wrote in his observation report that "[Plaintiff] had to interrupt herself several times to get other groups back on task," and that "the amount of off task behavior by `many' students is taking away from good lessons." (Gardner Aff.Ex. 3.)
Gardner completed Plaintiff's 1994-95 final comprehensive evaluation on March 28, 1995, and rated her "Outstanding" in three categories, "Strong" in eighteen categories, and "Good/Expected" in twelve categories, including "[m]aintains an atmosphere that promotes learning" and "[t]eaches and maintains classroom rules." (Gardner Aff.Ex. 4.) In the comments section, he wrote:
I have found Janet to be very willing to try new ideas and to put in place new programs. She has height [sic] expectations for herself and her students. She tries to get her students to work on a level that takes them beyond the basic components of learning. She works with numerous groups durning [sic] any class period in order to better meet the needs of her students. She has been very willing to work on issues of change for herself as well as the school. As she continues to grow I believe that she will develop into an excellent teacher. She needs to continue to work on how to make good effective use of herself and her materials in order to build a better program that will better meet the needs of all students. As she continues to grow in her ability to manage the classroom and the many activities that are going on, all at the same time, her program will also be improved.
I look forward to working with her and to be [sic] able to watch her continued growth and improvement. She has been and I am sure will continue to be an asset to the school and the students.
(Gardner Aff.Ex. 4.) Plaintiff does not contest the accuracy of the three observation reports or the final comprehensive evaluation *103 written by Gardner during her first probationary year.
Upon completing Plaintiff's 1994-95 final comprehensive evaluation, Gardner recommended to Jordan that Plaintiff be awarded a second probationary contract.[3] Jordan nominated Plaintiff for that contract, the School Board approved her nomination, and Plaintiff's contract was renewed on a probationary basis for the 1995-96 school year. Plaintiff alleges that around this time, Gardner told her she would not have to interview or appear before the School Board again in order to continue her employment with MSAD 77.
During the fall of Plaintiff's second probationary year, Gardner was involved in several controversial encounters with students. In September of 1995, the state police investigated a complaint that Gardner had physically abused a student on the first day of the 1995-96 school year. A portion of the incident in question, which involved Gardner forcibly carrying a student into a classroom and forcibly placing him in a seat, occurred in Plaintiff's classroom. (Gardner Dep. at 30-32; Green Dep. I at 60.) In addition, in mid-October 1995, some of Plaintiff's students told her that Gardner had hit a student on the head. (Green Dep. I at 58-59.)
On October 19, 1995, Gardner issued Plaintiff a written reprimand regarding her alleged failure to respond adequately to a student's verbal threat of violence. The reprimand letter, addressed to Jordan, stated that "[Plaintiff] is an excellent math teacher and has done an outstanding job ... in that area ... but if she doesn't seriously pay attention to [classroom management issues] we may in the end lose a good math teacher." (Green Dep. I Ex. 8.)
Plaintiff called Jordan the day she received Gardner's reprimand. The substance of their conversation is in dispute. Plaintiff contends she reported to Jordan that Gardner had physically abused students,[4] screamed at students, teachers, and parents,[5] lied to a parent about a student's behavior,[6] and generally lost control in a way that caused Plaintiff to be concerned about the safety of students and staff. Defendants, in contrast, allege that Plaintiff merely challenged the reprimand, complained to Jordan that she could no longer work with Gardner, and said that she could not attend a scheduled staff seminar the following day if Gardner was going to be there.
At Jordan's request, Plaintiff met with Jordan and Gardner in Gardner's office on October 30, 1995. The purpose of the meeting and the substance of the ensuing discussion are in dispute. Defendants assert that after Gardner expressed doubts about Plaintiff's classroom management abilities and after Plaintiff stated that Gardner could not objectively evaluate her teaching skills, it was agreed that Jordan would observe Plaintiff's teaching. Plaintiff, however, denies complaining about the fairness of Gardner's evaluations and denies agreeing to have Jordan observe her classes. She claims, rather, that at Jordan's instruction, she simply repeated the complaints about Gardner she allegedly had raised with Jordan during their October 19 phone conversation. After this, Plaintiff alleges, Jordan asked her not to *104 discuss what had been said with anyone and excused her.
Jordan observed classes taught by Plaintiff on two successive days, October 31 and November 1, 1995. Plaintiff claims she was surprised and upset on both occasions because it is not customary for the superintendent to participate in the observation process, and because she allegedly did not invite Jordan to observe. According to Plaintiff, there is no documentary record of Jordan conducting classroom observations of any other probationary teachers during the 1993-96 school years.
Jordan's notes from her October 31 observation of Plaintiff's seventh-grade math class mention a concern that the "Kids [were] not being actively engaged in the process." (Jordan Aff.Ex. 1.) She also made the following observations:
1 student got up put knapsack up
1 playing with straws
***
1 student reading
1 student got up to sharpen pencil
1 student moving desk
***
[Plaintiff] explaining up front
boys talking
girls talking
1 boy tipped back in chair
(Jordan Aff.Ex. 1.) Jordan alleges that she noticed similar problems relating to classroom management in the class she observed on November 1, and that her two observations of Plaintiff's teaching confirmed Gardner's assertion and her own suspicion that Plaintiff indeed had a classroom management problem. Plaintiff met with Jordan at the end of the day on November 1 and described the class Jordan had observed as "terrible." (Green Dep. II Ex. 11.) That same day, after school, Plaintiff and other Elm Street staff met with the local teachers' union president and discussed Plaintiff's complaints to Jordan about Gardner and Plaintiff's belief that Jordan had responded to her concerns in a retaliatory manner. Throughout the fall of 1995, Elm Street staff held meetings, which Plaintiff attended, to address concerns about Gardner's behavior toward students, staff, and parents.
Plaintiff did not go to work on November 2, 1995. She alleges that on that day, Jordan called her doctor, Steven Weisburger ("Weisburger"), and told him that she was going to fire Plaintiff. Defendants admit that Jordan had a phone conversation with Weisburger during which Weisburger raised the subject of Plaintiff, but deny that Jordan told him she planned to fire Plaintiff or that she disclosed any confidential information regarding Plaintiff to him. Plaintiff also alleges that on the same day, during a meeting with Elm Street staff, Jordan described Plaintiff as "the problem." Jordan denies making such a statement.
Jordan claims she attempted to meet with Plaintiff to discuss more fully the October 31 and November 1 observations and to offer some constructive criticism, but Plaintiff avoided such opportunities. On November 22, 1995, Plaintiff left a note for Jordan suggesting that they meet on November 28, 1995, and Jordan agreed. When Plaintiff arrived at the scheduled meeting with two union representatives, Jordan refused to meet with her. Sometime that day, Plaintiff presented Jordan with a note stating:
What you saw on November 1, 1995, was a very stressed-out teacher. I am what went wrong that day, as I was more concerned about your presence than my own behavior. My gut instinct was to escape that room as quickly as possible but I fought the urge and stay [sic] there. I had a difficult time keeping my emotions in control. I felt like crying and a couple of times I almost did.
(Green Dep. II Ex. 13.) On December 1, 1995, Jordan wrote a letter to Plaintiff "inviting and encouraging" her to talk with Jordan and stating that "[t]he only reason I would like to meet with you is to be helpful." (Green Dep. II Ex. 14.) The *105 two never met to discuss Jordan's observations.
Sometime in April 1996, Plaintiff gave statements to the police and to Jordan regarding a March 1996 incident in which Gardner allegedly had punched a student in the arm.[7] Gardner admits he was aware of Plaintiff's statement to the police at the time it occurred.
Gardner repeated the standard observation cycle during Plaintiff's second probationary year. His November 28, 1995 report noted that some students were doing an assignment when they should have been listening to Plaintiff's instructions, and that "[w]hen the structured lesson ended things started to become unorganized for many students." (Gardner Aff.Ex. 5.) His March 26, 1996 report noted that "some students ... didn't know where they were when called upon," and that "[Plaintiff] had to collect two watches that were being played with." (Gardner Aff.Ex. 6.) Gardner's April 23, 1996 observation report made no obvious reference to classroom management issues. (Gardner Aff.Ex. 8.)
Gardner completed Plaintiff's 1995-96 final comprehensive evaluation on April 25, 1996,[8] and he rated her "Strong" in seven categories, "Good/Expected" in twenty-two categories, and "Minimally Acceptable" in four categories, including "[m]aintains an atmosphere that promotes learning," and "[t]eaches and maintains classroom rules." (Gardner Aff.Ex. 8.) He went on to comment that despite "some growth in certain areas of [her] teaching ... [Plaintiff] is a low average teacher because of her inability to see classroom management issues that have come up. Her classes show a lack of structure, with little evidence of consistent rules of behavior...." (Gardner Aff.Ex. 8.) Plaintiff exercised her option to write her own comments on the evaluation form and stated, among other things, that "[t]he majority of the time the students followed the class rules and have had excellent behavior, except for the [eighth] grade class, which is a challenge for us all."[9] (Gardner Aff.Ex. 8.) Either that day or several days later, Gardner recommended to Jordan that Plaintiff not be nominated for tenure.
Jordan observed one of Plaintiff's classes, without notice, on April 30, 1996. On May 3, 1996, Jordan told Plaintiff she would not be nominating her for tenure. Plaintiff alleges Jordan refused to explain her decision and urged Plaintiff to resign, warning that unless she did, she would never teach again.
Plaintiff admits that she had classroom management problems with a particular group of students,[10] but contends that other more experienced teachers, including Gardner, also had difficulties with that group. She relies on the deposition testimony of two former colleagues to support this proposition. Plaintiff's designated mentor, teacher June Ashmore, testified that two other teachers had told her that this group of students presented difficulties, and teacher's aide Lisa Merritt testified that Plaintiff's classroom management problems were no worse than those experienced by other teachers. (Ashmore Dep. at 31; Merritt Dep. at 9-10, 37, 44.)
*106 Plaintiff also disputes Jordan's October 31 and November 1, 1995 assessments of her classroom management skills. She claims that October 31, 1995 was "a very difficult classroom management day for any teacher" and that the classes on both days "went well, although [she] was upset because of the unusual circumstance of [Jordan's] presence as an observer." (Pl.'s Stmt.Mat.Facts ¶¶ 23, 26.) Plaintiff relies on her deposition testimony that "[the November 1] class went well except I was a basketcase" and on her statement in a memo chronicling her version of events that "the students [in the October 31 class] were good and on task." (Green Dep. II at 14-15; Green Dep. I Ex. 6.) She also points to the deposition testimony of Merritt, who was present during both of Jordan's visits: "[a]s far as Janet being a problem teaching that day and the students acting up, I don't recall them I mean, there was incidents of like kids will do, but the kids were not were not badly misbehaved on either one of those days." (Merritt Dep. at 25, 30.)
Plaintiff alleges that because of her October 1995 conversation with Jordan, her April 1996 participation in the inquiries conducted by Jordan and the police, and other various consultations with peers and union representatives, all of which related to alleged misconduct by Gardner, Defendants failed to recommend or nominate her for tenure in violation of the First Amendment. Plaintiff also asserts that the circumstances surrounding her failure to be considered for tenure constituted a MWPA violation, a wrongful discharge, a breach of an implied covenant of good faith and fair dealing, a tortious interference with an advantageous relationship, and an intentional infliction of emotional distress. Finally, Plaintiff asserts that Jordan defamed her by stating that she was "the problem" at a staff meeting, that Gardner defamed her when he told parents she had a classroom management problem and later wrote in her 1995-96 final evaluation that she was a "low average teacher," and that Jordan invaded her privacy by discussing her employment with Weisburger. She claims that during her second probationary year, she suffered severe emotional distress, evidenced by weight loss, an inability to sleep, gastrointestinal difficulty, and strained relationships with her fiance and children. Her emotional distress continues today, she claims, as she has been unable to find a job in her chosen profession.
III. DISCUSSION
A. First Amendment
Plaintiff alleges that Defendants prevented her from getting tenure because she engaged in constitutionally protected speech.[11] In order to survive summary judgment on this claim, Plaintiff must demonstrate (i) that she engaged in protected speech and (ii) that the protected speech was a substantial or motivating factor in the adverse employment action taken against her. See Wytrwal v. Saco Sch. Bd., 70 F.3d 165, 170 (1st Cir.1995). If Plaintiff carries this burden, Defendants then have an opportunity to show "by a preponderance of the evidence that [they] would have reached the same decision ... even in the absence of the protected conduct." Wytrwal, 70 F.3d at 170 (quoting Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 287, 97 S. Ct. 568, 50 L. Ed. 2d 471 (1977)).
The Court first must identify that portion of Plaintiff's speech that was constitutionally protected. In order for speech to be protected, it must relate to a matter of public concern and the plaintiff's interest in her expression must outweigh the defendant's interest in promoting efficient service by its employees. Id. at 170. *107 Matters of public concern are those which can be "fairly considered as relating to any matter of political, social, or other concern to the community." Levinsky's, Inc. v. Wal-Mart Stores, Inc., 127 F.3d 122, 132 (1st Cir.1997) (quoting Connick v. Myers, 461 U.S. 138, 146-47, 103 S. Ct. 1684, 75 L. Ed. 2d 708 (U.S.1983)). "[I]ndividual personal complaints about working conditions" are not matters of public concern. Tang v. Rhode Island, Dep't of Elderly Affairs, 163 F.3d 7, 12 (1st Cir.1998). See also Broderick v. Roache, 751 F. Supp. 290, 293 n. 8 (D.Mass.1990) ("Criticism of internal workplace policies, which could be said to be of public concern when the employer is a public agency, is not protected speech when it is primarily intended to affect the internal workings of the agency.").
Defendants do not contest that Plaintiff's alleged statements during her October 1995 phone conversation with Jordan and her undisputed statements to Jordan and to the police in April 1996 constituted protected speech. They do, however, challenge Plaintiff's apparent contention that conversations she had with colleagues and union representatives about her employment qualify as constitutionally protected speech.
In her Amended Complaint, Plaintiff indicates that she "sought to consult with her peers regarding the situation between her and [Jordan and Gardner], which arose as a result of her initial complaints" and that "[Jordan and/or Gardner] instructed her to refrain from discussing the situation with anyone." (Pl.'s Am.Compl. ¶ 66.) Her Response to MSAD 77's Motion for Summary Judgment states that she "sought consultation with her peers and guidance from her union representatives regarding both the serious health and safety issues and the resulting retaliation by her supervisors." (Pl.'s Resp. MSAD 77's Mot.Summ.J. at 11). Plaintiff alleges that such consultations constituted protected speech.
In order to evaluate whether the speech in question relates to matters of public concern, the Court must identify the precise conversations at issue. Although Plaintiff does not offer much assistance in this regard, she appears to point to three possible instances: (i) Jordan's alleged October 30, 1995 verbal instruction to Plaintiff not to discuss her complaints about Gardner with anyone, (ii) a November 1, 1995 meeting attended by Plaintiff, Elm Street staff, and the local teacher's union president during which Plaintiff's complaints about Gardner and Jordan's allegedly retaliatory response to those complaints were discussed, and (iii) a series of Elm Street staff meetings held throughout the fall of 1995 and attended by Plaintiff during which concerns about Gardner's behavior toward students, staff, and parents were discussed.
The October 30, 1995 incident can be dismissed with little difficulty. Nowhere does Plaintiff assert that she engaged in protected speech. The other two instances, however, may implicate "matters of public concern" because Plaintiff alleges that she expressed concerns about Gardner's abuse of students during those interactions. Defendants assert that any discussions Plaintiff may have had with co-workers or union representatives concerned her personal employment situation, her personal relationships with Jordan and Gardner, or her personal opinions of how Jordan and Gardner were treating her and running Elm Street, and that therefore these conversations related to matters of personal, not public, concern. Because Defendants contest the content of these conversations, the Court concludes that there exists a genuine issue of material fact as to whether Plaintiff's speech on these two occasions related to a matter of public concern.
Defendants next argue that Plaintiff has not produced evidence supporting a prima facie showing that her protected speech was a substantial or motivating factor in the decisions not to recommend or nominate her for tenure. Jordan and Gardner assert that their recommendations of *108 Plaintiff for a second probationary year were accompanied by reservations about her classroom management skills, and note that Plaintiff was documented as having classroom management problems both before and after she engaged in protected conduct. The Court observes that Gardner's 1994-95 final comprehensive evaluation referenced classroom management issues "[a]s [Plaintiff] continues to grow in her ability to manage the classroom and the many activities that are going on, all at the same time, her program will also be improved" and that Gardner issued Plaintiff a written reprimand citing classroom management problems before she ever engaged in protected speech. Moreover, it is undisputed that Plaintiff told Jordan that the November 1 class Jordan had observed was "terrible" and later wrote Jordan a note explaining that she was "what went wrong that day."
Viewing the facts in Plaintiff's favor, however, the Court cannot conclude as a matter of law that Plaintiff has failed to make out a prima facie case because she has raised a genuine issue of material fact with respect to whether Jordan and Gardner were motivated to do what they did, in part or in whole, because of her protected speech. From a temporal standpoint, the record reflects that Plaintiff engaged in protected speech on October 19, 1995 and sometime during April 1996, if not on other occasions during the fall of 1995, and that Gardner told Plaintiff he would not recommend her in late April of 1996 and Jordan told Plaintiff she would not nominate her on May 3, 1996. While a suggestive sequence of events, considered alone, is not sufficient to support a prima facie case in this context, see Acosta-Orozco v. Rodriguez-de-Rivera, 132 F.3d 97, 101 (1st Cir.1997), Plaintiff's evidence is not limited to mere temporal proximity. The other circumstantial evidence follows.
First, Plaintiff notes that, for the most part, Jordan and Gardner led her to believe that she was doing a good job until the fall of 1995, when she made her first protected statement. It is undisputed that Gardner's 1994-95 final comprehensive evaluation was overwhelmingly positive and that Jordan nominated Plaintiff for a second probationary year based on Gardner's recommendation. Plaintiff also alleges that, around the time of her nomination, Gardner told her she would not have to interview or appear again before the School Board again in order to continue her employment with MSAD 77.
Second, Plaintiff asserts that her classroom management problems were not so great as to justify a denial of tenure and that Jordan and Gardner misrepresented her performance in order to provide a pretext for failing to hire her. With respect to Gardner, Plaintiff notes that since Gardner's 1995-96 observation reports make significantly less reference to classroom management problems than his 1994-95 observation reports, it is incongruous that Gardner's 1995-96 final comprehensive evaluation of Plaintiff would be so much more negative than the one from the prior year. With respect to Jordan's negative characterizations of her classroom management skills, Plaintiff points to Merritt's deposition testimony to the effect that there were no significant classroom management problems while Jordan was in Plaintiff's classroom.
Plaintiff also disputes Jordan's explanation for her visits to Plaintiff's classroom on October 31 and November 1, 1995, and asserts that the visits were a form of harassment and intimidation and also were intended to serve as an opportunity for Jordan to misrepresent her performance. Jordan observed Plaintiff's teaching two days in a row less than two weeks after Plaintiff complained to her about Gardner. Plaintiff alleges that it is not customary for the superintendent to participate in the observation cycle and that there is no documentary record of Jordan conducting classroom observations of any other probationary teachers during the 1993-96 school years. Furthermore, although Defendants contend that Jordan, Gardner, and Plaintiff *109 agreed at an October 30, 1995 meeting that Jordan would conduct these observations, Plaintiff disputes that this was ever discussed or that she ever invited Jordan to observe.
In light of the evidence outlined above, the Court is persuaded that Plaintiff has made out a prima facie case and that it is for a factfinder to determine whether Defendants would have taken the same action in the absence of Plaintiff's protected speech. MSAD 77's Motion for Summary Judgment on Count VIII is denied.
B. Maine Whistleblowers' Protection Act
Plaintiff alleges that she was treated adversely in violation of the Maine Human Rights Act, Me.Rev.Stat.Ann. tit. 5, § 4572(1)(A), for having exercised her rights under the MWPA. The analytical framework used in Title VII retaliation claims applies to MHRA retaliation claims. See Nakai v. Wickes Lumber Co., 906 F. Supp. 698, 703 n. 5 (D.Me.1995). Where there is no direct evidence of the defendant's retaliatory animus, courts rely on the McDonnell Douglas burden-shifting framework to allocate and order the parties' evidentiary burdens. See Fennell v. First Step Designs, Ltd., 83 F.3d 526, 535 (1st Cir.1996); Mesnick v. General Elec. Co., 950 F.2d 816, 827 (1st Cir.1991). To establish a prima facie case of retaliation, the plaintiff must show that: (1) she engaged in conduct protected by the MWPA; (2) she suffered adverse employment action; and (3) a causal connection existed between the protected conduct and the adverse action. See Fennell, 83 F.3d at 535; Hoeppner v. Crotched Mountain Rehabilitation Ctr., Inc., 31 F.3d 9, 14 (1st Cir.1994).
Once the plaintiff makes a prima facie showing, the burden shifts to the defendant to articulate a legitimate, non-retaliatory reason for its employment decision. See Fennell, 83 F.3d at 535. If the defendant does so, the ultimate burden falls on the plaintiff to demonstrate both that the proffered legitimate reason is in fact a pretext and that the job action was the result of the defendant's retaliatory animus. See id.
Plaintiff grounds her MWPA claim in Section 833(1)(A), which prohibits an employer from discriminating against an employee because "[she], acting in good faith ... reports orally or in writing to the employer or a public body what the employee has reasonable cause to believe is a violation of a law or rule adopted under the laws of this State, a political subdivision of this State or the United States." Me.Rev.Stat.Ann. tit. 26, § 833(1)(A) (West 1988). Defendants first contend, relying on Bard v. Bath Iron Works Corp., 590 A.2d 152 (Me.1991), that Plaintiff's allegations do not give rise to a MWPA claim because she reported a colleague's alleged violation, rather than a violation committed by her employer, MSAD 77.
Although the Maine Law Court has not addressed this precise question, the Court is persuaded that Defendants' argument misconstrues both the MWPA and Bard. No language in the MWPA specifies that an employee must report a suspected violation by her employer as an entity, as opposed to by an agent of the employer. Defendants urge the Court to adopt a narrow construction of the MWPA solely on the basis of a passage from Bard which states that the MWPA "requires an employee to prove that a reasonable person might have believed that the employer was acting unlawfully." Bard, 590 A.2d at 154-55 (emphasis added). This extracted passage, however, must be interpreted in context. Bard did not hold that an employee is protected under the MWPA only when he reports a suspected violation by his employer as an entity. In that case, the plaintiff claimed that his company's quality assurance processes violated the company's contract with the United States Navy and argued that the MWPA only required him to have a "good faith," as opposed to a "reasonable," belief that the company had *110 acted unlawfully. Id. at 154-54. In making the above-quoted statement, the Bard Court merely was responding to and rejecting the plaintiff's position as to the MWPA's state of mind requirement, id. at 155, and thus the weight given to the words "that the employer was acting unlawfully" by Defendants is unwarranted. In addition, in Bard, the plaintiff happened to be reporting alleged violations by his employer as an entity, and not by an agent of the employer, so the Court's use of the term "the employer" in that sentence is not necessarily meaningful. In the absence of any precedents or persuasive policy considerations, the Court declines to adopt Defendants' narrow interpretation of the MWPA and finds that the fact that Plaintiff reported suspected misconduct by Gardner, an agent of MSAD 77, rather than by MSAD 77 as an entity, does not defeat her claim.
Second, Defendants argue that Plaintiff lacked a reasonable belief that Gardner had violated any law with respect to one of the incidents she allegedly raised in her October 19, 1995 conversation with Jordan because she did not observe the incident and because she wrote a "letter of support" for Gardner regarding the incident at his request. Since the record indicates that at least part of the incident in question occurred in Plaintiff's classroom and since the record offers no indication that Plaintiff's written statement about the incident was in any way a "letter of support," the Court is persuaded that a genuine issue of material fact exists as to whether, with respect to this particular incident, Plaintiff had a reasonable belief that Gardner had committed a violation of a law or policy under the MWPA.
Finally, Defendants contend that Plaintiff's MWPA claim must fail because she has not produced evidence of a causal connection between the protected speech and the adverse employment action, and because she cannot show that their articulated legitimate, nondiscriminatory explanation is pretextual. For the reasons outlined in the above discussion of Plaintiff's First Amendment claim, the Court disagrees. MSAD 77's Motion for Summary Judgment as to Count I is denied.
C. Wrongful Discharge
While the Maine Law Court has not ruled out recognizing the tort of wrongful discharge "when the discharge of an employee contravenes some strong public policy," Larrabee v. Penobscot Frozen Foods. Inc., 486 A.2d 97, 100 (Me.1984), Defendants point out that it has yet to embrace the concept in the context presented here. See Bard v. Bath Iron Works Corp., 590 A.2d 152, 156 (Me.1991). Furthermore, Defendants note that the Law Court has held that "where a statutory right and remedy are provided, there is no need to recognize a redundant tort," Bard, 590 A.2d at 156, and assert that since Plaintiff is maintaining claims under both Section 1983 and the MWPA, recognition of a wrongful discharge claim would therefore be "redundant." See id. (finding that since "[MWPA] embodies a statutory public policy against discharge in retaliation for reporting illegal acts, a right to the discharged employee, and a remedial scheme to vindicate that right," there was no need to recognize cause of action for wrongful discharge).
Plaintiff counters that the Law Court's reluctance to recognize a cause of action for wrongful discharge exists only in the context of employment at will and that she was not an employee at will. Apparently analogizing wrongful discharge analysis to procedural due process analysis, Plaintiff claims she was not an employee at will because she had a "property interest" in continued employment with MSAD 77. As a preliminary matter, the Court is not convinced that constitutional "property interest" analysis is required for or even relevant to the evaluation of a wrongful discharge claim. Rather, the viability of a wrongful discharge claim "hinge[s] on the question whether [one's] employment was terminable at will." Staples v. Bangor *111 Hydro-Electric Co., 561 A.2d 499, 501 (Me. 1989). It is undisputed that Plaintiff was a probationary employee and that Defendants had no contractual or statutory obligation to renew her in a tenured position at the end of her second probationary year. As far as Plaintiffs candidacy for tenure, the Court is satisfied that she was the equivalent of an employee at will.
Even assuming that the "property interest" paradigm is relevant, this analysis cannot save Plaintiff's claim. The Law Court, ruling in the context of a procedural due process claim, recently reiterated that "a probationary teacher has no legitimate claim of entitlement to a contract renewal." Lynch v. Lewiston Sch. Comm., 639 A.2d 630, 632 (Me.1994) (rejecting probationary teacher's claim that failure to be hired in tenured position constituted procedural due process violation). In Lynch, the plaintiff had been nominated for tenure by the superintendent and elected to tenure by the school committee, but was fired before the tenure contract was signed. See Lynch, 639 A.2d at 632. She brought a procedural due process claim and argued that the facts of her nomination and election created both a statutory duty to hire her and a mutual understanding that she would be hired (in other words, a property interest in continued employment). See id. The Court rejected these assertions because the third step in the statutory hiring scheme, actual employment, had not been accomplished prior to her termination, and because the facts alleged did not support the existence of a mutual understanding that she would be employed. See id. at 633. In the case at bar, Plaintiff did not progress as far in the hiring process as the unsuccessful plaintiff in Lynch she was neither nominated for nor elected to tenure, let alone actually employed and Plaintiff's allegations that her job performance was satisfactory do not come close to demonstrating the existence of a "mutual understanding" giving rise to a "clear expectancy" that she would be awarded tenure.
In addition, even if Plaintiff had argued that her employee at will status does not foreclose a wrongful discharge action because she was treated adversely in violation of a public policy, her claim could not go forward. Plaintiff offers no reason why recognition of a wrongful discharge claim in this case would not be impermissibly "redundant" according to Bard in light of her surviving First Amendment and MWPA claims. MSAD's Motion for Summary Judgment as to Count II is granted.
D. Breach of an Implied Covenant of Good Faith and Fair Dealing
The parties' arguments with respect to this Count are largely repetitious of their positions on wrongful discharge, and this claim therefore is easily disposed of. Defendants observe that in Bard, the Law Court refused to recognize a cause of action for breach of an implied covenant of good faith and fair dealing in the context of employment at will, see Bard, 590 A.2d at 156, and further suggested that such a cause of action only would be appropriate where no other civil remedy was available. See id. Plaintiff responds that Bard does not foreclose such a claim in her case because she was not an employee at will. She again asserts that she had a property interest in continued employment with MSAD 77. For the reasons discussed above in the context of Plaintiff's wrongful discharge claim, the Court declines to recognize this particular cause of action in her case. MSAD 77's Motion for Summary Judgment as to Count III is granted.
E. Tortious Interference with an Economically Advantageous Relationship
In order to make out this claim, a plaintiff must demonstrate: (i) the existence of a valid contract or prospective economic advantage, (ii) interference with that contract or advantage through fraud or intimidation, and (iii) damages proximately caused by the interference. See Shaw v. Southern Aroostook Community *112 Sch. Dist., 683 A.2d 502, 503 (Me.1996). A showing of interference by fraud requires a demonstration that the defendant: "(1) [made] a false representation (2) of a material fact (3) with knowledge of its falsity or in reckless disregard of whether it is true or false (4) for the purpose of inducing another to act or to refrain from acting in reliance on it, and (5) the other person justifiably [relied] on the representation as true and [acted] upon it to the damage of the plaintiff." Grover v. Minette Mills. Inc., 638 A.2d 712, 716 (Me.1994). Defendants challenge Plaintiff's tortious interference with an economically advantageous relationship claim on several grounds.
First, Defendants argue that Plaintiff's claim with respect to Jordan fails as a matter of law because Jordan, the one individual who made the decision not to nominate Plaintiff for tenure, was a party to the prospective relationship being interfered with and therefore not a third party. In essence, Defendants contend that Jordan cannot be both the sole decisionmaker and the tortfeasor.
Plaintiff concedes that Jordan was the ultimate decisionmaker in her case, but nonetheless argues that this claim survives because MSAD 77 relied on Jordan, its agent, to evaluate and report about tenure candidates fairly and honestly, and Jordan defrauded MSAD 77 by fabricating a pretext not to nominate Plaintiff for tenure. Plaintiff urges the Court to resolve this question in light of a vexing policy problem: the fact that supervisors with influence over a decisionmaking process may transmit false information to the employer, thereby adversely affecting a plaintiff's employment.
Plaintiff's position might be persuasive in another factual context, but the facts presented here do not permit this cause of action to go forward. Plaintiff has not presented evidence demonstrating that Jordan interfered by fraud or intimidation with the decisionmaking process of another party such as MSAD 77 or the School Board. To the contrary, it is undisputed that the requisite first step in the tenure consideration process, nomination, is within the sole discretion of the superintendent, and that Jordan's decision not to nominate Plaintiff for tenure constituted the conclusion of the tenure consideration process. Jordan's undisputed status as the sole decisionmaker the only person who had the authority to make the nomination decision by virtue of the statutory hiring scheme eliminates the possibility of characterizing her as having interfered with the decisionmaking of another party.[12] As result, summary judgment for Jordan is appropriate.
Defendants next argue that Plaintiff has failed to produce any evidence that Gardner engaged in any interference by fraud or intimidation. The Court disagrees. The record reflects that Gardner recommended to Jordan, the decisionmaker, that Plaintiff not be nominated for tenure. The Court already has determined that a genuine issue of material fact exists as to Gardner's motivation in characterizing Plaintiff's teaching skills as deficient at that time. Specifically, the evidence reflects an oddly inverse relationship between the reports and evaluations prepared by Gardner with respect to Plaintiff over the course of her two years of teaching: while his 1995-96 observation reports make significantly less reference to classroom management problems than his 1994-95 observation reports, and his 1995-96 final comprehensive evaluation of Plaintiff was much more negative than the one from the prior year. The Court is satisfied that there exists a genuine issue of material fact with respect to whether Gardner interfered by fraud with Plaintiff's prospective employment relationship. *113 Jordan and Gardner's Motion for Summary Judgment on this claim is granted as to Jordan and denied as to Gardner.
F. Invasion of Privacy
In her Amended Complaint, Plaintiff asserts that Jordan "invaded [her] sphere of privacy by calling [her] chiropractor, Dr. Weisburger, and discussing things with him, including but not limited to, Plaintiff's employment." (Pl.'s Am.Compl. ¶ 55.) This allegation implicates two of the four distinct forms of invasion of privacy: public disclosure of private facts and publicity which places the plaintiff in a false light in the public eye.
Defendants Jordan and MSAD 77 argue that Plaintiff's claim must fail as a matter of law because she has not made a sufficient showing that an invasion of privacy occurred and because Plaintiff has not alleged that Jordan disclosed information about her to the public. Defendants' first argument is dispositive. Jordan admits that she had a phone conversation with Weisburger during which he raised the subject of Plaintiff, but denies having initiated the phone call and denies discussing any employment information about Plaintiff whatsoever with him. Plaintiff has produced no evidence only speculation to the contrary.
Plaintiff points to allegations in her Amended Complaint that "Dr. Weisburger explained that he had talked with [Jordan] regarding [Plaintiff] and that he needed to see her" and that during Plaintiff's visit, "[Weisburger] told [Plaintiff] that [Jordan] had informed [Weisburger] that she was going to fire [Plaintiff]." (Pl.'s Am.Compl. ¶¶ 19, 20.) Both Jordan and Weisburger, however, testified consistently at their depositions that Weisburger called Jordan to express concern about Plaintiff and that Jordan did not disclose any information to him about Plaintiff's employment situation. (Jordan Dep. at 29-30; Weisburger Dep. at 11, 16, 36-37.) Furthermore, Plaintiff herself testified at her deposition that upon her arrival at Weisburger's office, Weisburger merely "told [Plaintiff] that [Jordan] was going to fire [her]." (Green Dep. I at 93.) There is no evidence that Jordan told Weisburger that she was going to fire Plaintiff or that Jordan discussed any other issue relating to Plaintiff's employment with him.[13] Jordan and Gardner's Motion for Summary Judgment on Count V is granted.
G. Intentional Infliction of Emotional Distress
Plaintiff asserts that her allegations support a cause of action for intentional infliction of emotional distress. To state such a claim, a plaintiff must offer facts indicating that (i) the defendants intentionally or recklessly inflicted severe emotional distress or were certain or substantially certain that such distress would result from their conduct; (ii) the conduct was so extreme and outrageous as to exceed all possible bounds of decency and must be regarded as atrocious and utterly intolerable in a civilized community; (iii) the actions of the defendants caused the plaintiff's emotional distress; and (iv) the plaintiff suffered emotional distress so severe that no reasonable person could be expected to endure it. See Vicnire v. Ford Motor Credit Co., 401 A.2d 148, 154 (Me. 1979). Plaintiff alleges that Jordan's unprecedented classroom scrutiny of her, fabrication of reasons to justify a decision not to nominate her for tenure, and retaliatory decision not to nominate her for tenure, constituted "extreme and outrageous" conduct that exceeded the bounds of decency.[14] She claims that these actions *114 caused her severe emotional distress, evidenced by Dr. Weisburger's testimony that she seemed to him so upset about her employment situation as of November 2, 1995 that he prescribed an antidepressant for her. (Weisburger Dep. at 22, 36.) Plaintiff also alleges, in her Statement of Material Facts, that over the course of the 1995-96 school year, her emotional distress took the form of weight loss, an inability to sleep, gastrointestinal difficulties, and strained relationships with her fiancé and children.
Defendants argue that, even if true, Plaintiff's allegations cannot support a claim for intentional infliction of emotional distress. The Court agrees. The bar set by Vicnire is a high one, and the evidence does not support a finding that Jordan or Gardner engaged in conduct so extreme and outrageous as to exceed "all possible bounds of decency" or conduct that "must be regarded as atrocious and intolerable in a civilized society." Staples v. Bangor Hydro-Electric Co., 561 A.2d 499, 501 (Me. 1989) (quoting Vicnire, 401 A.2d at 154).
Viewing the evidence in a light favorable to Plaintiff, as the Court must, it indicates that Gardner and Jordan's decisions not to recommend or nominate Plaintiff for tenure, and other actions with respect to evaluating her teaching skills, may have been motivated by impermissible considerations. Consequently, as the Court indicated earlier in this opinion, Jordan and Gardner's roles in Plaintiff's failure to achieve tenure may provide bases for other causes of action. At the same time, however, evidence supporting a finding that a defendant may have violated a plaintiff's rights in the course of making an adverse employment decision does not necessarily support a finding that the defendant subjected the plaintiff to intentional infliction of emotional distress. See Krennerich v. Inhabitants of Town of Bristol, 943 F. Supp. 1345, 1352-57 (D.Me.1996) (denying summary judgment as to former employee's Section 1983 due process claim but granting summary judgment on intentional infliction of emotional distress claim); Braverman v. Penobscot Shoe Co., 859 F. Supp. 596, 601-07 (D.Me.1994) (denying summary judgment on former employee's ADEA and ADA claims, but granting summary judgment as to intentional infliction of emotional distress). Illegality alone is not the standard against which a defendant's conduct is measured in the context of an intentional infliction of emotional distress claim. See Restatement (Second) of Torts § 46 cmt. d (1965) ("It has not been enough that the defendant has acted with an intent which is tortious or even criminal, or that his conduct has been characterized by `malice' ...").
One purpose of an objective "outrageousness" requirement is to preserve this cause of action for a uniquely disturbing class of cases that defies easy categorization. The Court is convinced that the conduct implicated in the case at bar does not rise to the requisite level of "outrageousness" first articulated by the Law Court in Vicnire.[15] Jordan and Gardner's Motion for Summary Judgment on Count VI is granted.
H. Defamation
Plaintiff alleges that she was defamed by Jordan on one occasion and by Gardner on two occasions. In order to make out a prima facie case of defamation, a plaintiff must demonstrate: (i) a false and defamatory statement concerning the plaintiff; (ii) an unprivileged publication to a third party; (iii) fault amounting at least to negligence on the part of the publisher; and (iv) either actionability of the statement irrespective of special harm or the *115 existence of special harm caused by publication. See Lester v. Powers, 596 A.2d 65, 69 (Me.1991).
1. Jordan's alleged November 2, 1995 statement to staff that Plaintiff was "the problem" at Elm Street
Plaintiff asserts that Jordan defamed her by stating, at a November 2, 1995 staff meeting at which Plaintiff was not present, that Plaintiff was "the problem" at Elm Street. Jordan denies making this statement and Defendants argue, among other things, that Plaintiff has produced no evidence to support a finding that Jordan in fact made this statement. The Court agrees.
In her deposition, Plaintiff states that although she was not present at the meeting in question, several other staff members, including Lisa Merritt and June Ashmore, heard Jordan made the statement. (Green Dep. I at 95; Green Dep. II at 80.) As Defendants point out, however, while Merritt testified that at some point she heard someone suggest that Plaintiff was to blame for the tense atmosphere at Elm Street, Merritt also testified that she could not remember who made that statement. (Merritt Dep. at 35-36.) Moreover, Plaintiff has presented no evidence that Ashmore or anyone else heard Jordan make such a statement. In light of all this, the Court is persuaded that Plaintiff has failed to muster enough evidence to satisfy the first element of a prima facie case of defamation: a showing that Jordan made the allegedly defamatory statement in question. Jordan's Motion for Summary Judgment as to this first alleged defamatory statement is granted.
2. Gardner's alleged September 19, 1995 statement to parents that Plaintiff had a classroom management problem
Plaintiff alleges that during the course of a September 19, 1995 meeting attended by herself, Gardner, Merritt, and a group of parents, Gardner stated that Plaintiff had a problem with classroom management. While Gardner denies this allegation, Merritt testified at her deposition that she heard Gardner make a statement to this effect. (Merritt Dep. at 11-15.) Defendants argue that even assuming Gardner made the statement, it is not actionable because it is true. In assessing the truth or falsity of the statement, the only relevant evidence is that which came into existence prior to September 19, 1995, the date the statement in question allegedly was made. This evidence includes Gardner's three 1994-95 observation reports, his 1994-95 final comprehensive evaluation, his recommendation to Jordan that Plaintiff be nominated for a second probationary contract, Jordan's nomination of Plaintiff for a second probationary contract, and Plaintiff's allegation that Gardner said she would not have to interview or appear before the School Board again in order to continue her employment with MSAD 77.
The Court observes that all three of Gardner's 1994-95 observation reports documented classroom management problems, and that his 1994-95 final comprehensive evaluation of Plaintiff, while admittedly largely positive, did reference a need to improve classroom management skills. The fact that Gardner and Jordan recommended and nominated Plaintiff for a second probationary year is not evidence that she did not have a classroom management problem, particularly since they could have recommended and nominated Plaintiff for a tenured position at that time instead of another probationary position. In effect, all Plaintiff proffers to show that she did not have a classroom management problem as of September 19, 1995 is Gardner's alleged assurance regarding her future employment with MSAD 77. This is not sufficient to raise a genuine issue of material fact as to the truth of the statement, and therefore Gardner's Motion for Summary Judgment as to this second alleged defamatory statement is granted.
*116 3. Gardner's written comment in Plaintiff's 1995-96 final comprehensive evaluation that she was "a low average teacher"
Gardner wrote that Plaintiff was a "low average teacher" in her 1995-96 final comprehensive evaluation. (Gardner Aff. Ex. 8.) In her Amended Complaint, Plaintiff asserts that this statement was defamatory, that it was made with "ill will and malice ... and with knowledge, recklessness, or negligence as to the fact of [its] falsity," and that Gardner published this statement to "students, parents of students, other teachers, and perhaps others unknown to [Plaintiff]." (Pl.'s Am.Compl. ¶¶ 60-62.) Defendants argue that this statement cannot give rise to a defamation action because defamation requires publication by the defendant to a third party and there is no evidence that Gardner published the statement to a third party. Plaintiff does not address this argument or even reference this particular statement in her Response to Jordan and Gardner's Motion for Summary Judgment.
In order to support a claim of defamation, a plaintiff must produce evidence that the defendant published the defamatory statement to a third party, a person other than the plaintiff. See Withers v. Hackett, 714 A.2d 798, 801 (Me.1998). Plaintiff offers no such evidence in this case. To the contrary, Plaintiff's deposition testimony reveals that she has no evidence that Gardner showed the evaluation to anyone other than her. (Green Dep. II at 81-82.) Plaintiff's mere allegation that Gardner published this statement to third parties is not sufficient to withstand summary judgment.[16] Gardner's Motion for Summary Judgment with respect to this third allegedly defamatory statement is granted.
I. Respondeat Superior
Plaintiff contends that MSAD 77 not only is liable for Counts I (MWPA), II (wrongful discharge), III (breach of an implied covenant of good faith and fair dealing), and VIII (First Amendment), but also for any torts found to have been committed by its agents, Jordan and Gardner (Counts IV-VII).[17] MSAD 77 objects that Plaintiff did not plead this theory in her original or Amended Complaint, and argues that Plaintiff has presented no evidence that the alleged torts were committed within the scope of Jordan or Gardner's employment.
Bearing in mind that MSAD 77 does not claim to have been prejudiced in any way, a careful reading of Plaintiff's Amended Complaint reveals an assertion of respondeat superior.[18] As for the asserted lack of evidence that Jordan or Gardner acted within the scope of their employment, the Court is satisfied that Plaintiff's submissions are sufficient to raise a genuine issue of material fact on this issue. MSAD 77's Motion for Summary Judgment as to respondeat superior is denied.
IV. CONCLUSION
For the reasons stated above, MSAD 77's Motion for Summary Judgment on Count VIII is DENIED; on Count I is DENIED; on Count II is GRANTED; on Count III is GRANTED; and as to respondeat superior is DENIED. Jordan *117 and Gardner's Motion for Summary Judgment on Count IV is GRANTED as to Jordan and DENIED as to Gardner; on Count V is GRANTED; on Count VI is GRANTED; and on Count VII is GRANTED.
SO ORDERED.
NOTES
[1] In Maine, a "tenured" teacher's contract is automatically renewed each year unless the school district notifies the teacher in writing of her nonrenewal at least six months in advance. See Me.Rev.Stat.Ann. tit. 20-A, § 13201 (West 1993).
[2] In conducting these observations, Gardner was following the standard procedure according to which probationary teachers at Elm Street are evaluated: during the course of a probationary year, the principal conducts two pre-planned class observations, conducts one unannounced class observation, and completes a final comprehensive evaluation. (Gardner Dep. at 18-22.)
[3] It is customary for Jordan to request Gardner's recommendation with respect to a probationary teacher before she decides whether to nominate the teacher for a second probationary contract or for tenure. (Gardner Dep. at 25.)
[4] Plaintiff referenced one or both of the instances of alleged physical abuse noted above.
[5] Plaintiff alleges that during the course of a September 19, 1995 meeting with parents regarding a history of behavior problems with certain students, Gardner told the parents Plaintiff had a problem with classroom management, and when parents questioned this, he yelled at them. Gardner denies this allegation.
[6] Plaintiff claims that Gardner misrepresented the circumstances surrounding the incident which gave rise to her written reprimand to the mother of the student involved.
[7] Plaintiff had learned of the incident from students at the time it occurred and later noticed a red mark on the child's arm. A police investigation and an internal investigation were commenced after the child's parent filed a complaint with the police. Ultimately, the grand jury did not return an indictment against Gardner and the matter was dropped.
[8] This final comprehensive evaluation was completed after Plaintiff made her statement to the police.
[9] Plaintiff also contested or clarified in writing the comments contained in Gardner's October 19, 1995 reprimand and in his November 28, 1995 and March 26, 1996 observation reports.
[10] At some point during her second year, Plaintiff sought assistance with the issue of classroom management from her designated mentor, June Ashmore ("Ashmore"). Ashmore observed one of Plaintiff's classes and offered her some suggestions and written material on the subject.
[11] Plaintiff also alleges that she was subject to harassment and intimidation as a result of her protected speech. Although she does not specify which alleged actions constituted harassment or intimidation, the Court assumes she is referring to Jordan's allegedly unexpected and unprecedented visits to her classroom.
[12] The Court does not hold that an employee will never have a cause of action against a supervisor or co-worker for tortious interference with an economically advantageous relationship. Rather, the Court merely holds that on the facts of this case, Plaintiff cannot do so because Jordan was the sole decisionmaker.
[13] It is true that during her deposition, Plaintiff responded affirmatively when asked by Defendants' counsel if her "recollection [was] that Dr. Weisburger told [her] that [Jordan] had said that she was going to fire [her]." This exchange alone, however, is not sufficient to support Plaintiff's claim in the face of the overwhelming evidence to the contrary.
[14] Plaintiff includes Gardner in this claim, but does not specify any particular conduct on his part in either her Amended Complaint or her Response to Jordan and Gardner's Motion for Summary Judgment.
[15] Defendants also argue that Plaintiff cannot demonstrate that she suffered emotional distress so severe that no reasonable person could be expected to endure it. In light of the Court's disposition of this claim on an independent basis, it need not address this proposition.
[16] Defendants additionally contend, without citation to supporting authority, that since Plaintiff's performance evaluations are "confidential" under state law, see Me.Rev.Stat.Ann. tit. 20-A, § 6101(2)(B)(3) (West 1993), they cannot be deemed "published" for purposes of defamation. As the Court has disposed of this claim on an independent basis, it need not address this argument.
[17] In light of the Court's above disposition of Plaintiff's various tort claims, MSAD 77 could be liable under a respondeat superior theory only for Gardner's alleged tortious interference with an economically advantageous relationship.
[18] With respect to Counts IV-VII, Plaintiff's Amended Complaint states that she "demands judgment against the Defendants, jointly and severally ..." (Pl.'s Am.Compl. ¶¶ 53, 55, 58 & 63.)
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52 F. Supp. 2d 1330 (1999)
Jane WOLD, Plaintiff,
v.
HUNT OIL COMPANY, a Delaware corporation, Defendant.
No. 98-CV-196-J.
United States District Court, D. Wyoming.
June 11, 1999.
*1331 JN Murdock, Nick Murdock & Associates, Casper, WY, for Jane Wold, plaintiff.
Charles L Kaiser, Charles A Breer, Davis Graham & Stubbs, Denver, CO, for Hunt Oil Company, a Delaware corporation, defendant.
ORDER AND OPINION ON CROSS MOTIONS FOR SUMMARY JUDGMENT
ALAN B. JOHNSON, Chief Judge.
The parties' cross motions for summary judgment came before the Court for hearing and consideration. The Court, having considered the parties' motions and responses one to the other, the arguments of counsel at the hearing, the pleadings of record, the applicable law, and being fully advised in the premises, and in accordance with the Court's oral rulings from the bench at the hearing as enumerated more fully on the record of those proceedings, FINDS and ORDERS as follows:
Background
This is a case that was removed to federal court from state court. The parties have entered into a stipulation that resolves their outstanding dispute regarding the amount in controversy requirement. The pending motion to remand to state court for lack of subject matter jurisdiction is now MOOT.
Now at issue are the parties' cross motions for summary judgment. The legal issue the parties have agreed to submit to the Court is whether charges termed "gathering charges" by both Hunt Oil Company and the owner of the gathering lines are legally deductible under the provisions of Wyo.Stat. §§ 30-5-301 et seq. Plaintiff contends that her overriding royalty interest, an interest carved out of the leasehold, is one that is "free of the costs of production" and that pursuant to the applicable statute, "costs of production" include charges for gathering. She advocates that the Wyoming Royalty Payment Act expressly provides that costs for gathering cannot be deducted from her interest and that costs incurred that are necessary to get the gas to the market pipeline are not post-production costs that can be deducted from her overriding royalty interest. She asserts that costs of production are not deductible until after the product enters the regulated, open-access market pipeline.
The defendant contends that the gathering charges at issue here are post-production costs chargeable to the interest of the royalty owner, such as plaintiff. Defendant urges this Court to construe the Wyoming Royalty Payment Act in pari materia with the Wyoming taxation statutes relating to oil and gas and mineral production. As a result, the defendant contends that the cost of transporting gas downstream from the outlet of the dehydrator must be shared by all interest owners because those are "post-production transportation" costs and not costs of production. The defendant asserts Wyoming has adopted the marketable condition rule, which requires that the lessee bear all costs to put gas into marketable condition and that lessee and royalty owners share proportionately subsequent downstream costs. Defendant asserts no jurisdiction and no law requires that a lessee alone bear reasonable costs incurred after gas is put into marketable condition. In making this argument and advocating construction of the tax and royalty payment statutes in tandem, the defendant argues that the point of demarcation must be that where gas is in marketable condition which in *1332 this case is at the outlet of the dehydrator. Costs incurred after that point are post-production costs that should be shared.
Defendant argues that the Royalty Payment Act and the oil and gas production tax statutes have the same purpose i.e., determining when the production process for gas is complete and use many of the same terms, thus, making it appropriate to resort to the tax statutes to construe the royalty payment statute.
Standard of Review Fed.R.Civ.P. 56
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Allen v. Muskogee, Oklahoma, 119 F.3d 837, 839-840 (10th Cir. 1997). A disputed fact is material if it might affect the outcome of the suit under governing law, and the dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. The factual record and reasonable inferences therefrom are construed in the light most favorable to the nonmovant. Id., quoting Anderson v. Liberty Lobby, Ind., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986) and Gullickson v. Southwest Airlines Pilots' Assoc., 87 F.3d 1176, 1183 (10th Cir.1996). The moving party need not affirmatively negate the nonmovant's claim in order to obtain summary judgment, but instead bears the initial burden of showing that is, point out to the district court that there is an absence of evidence to support the nonmoving party's case. Id., quoting from Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 91 L. Ed. 2d 265.
Discussion
The Royalty Payment Act provides the following definitions:
§ 30-5-304. Definitions.
(a) As used in this act:
(i) "Lessee" means the person entitled under an oil and gas lease to drill operate wells, paying the lessor a royalty and retaining the remainder, known as the working interest. The lessee pays all costs of production out of his interest, the lessor's interest being free and clear of all those costs;
(ii) "Lessor" means the mineral owner who has executed a lease and who is entitled to the payment of a royalty on production, free and clear of the costs of production;
(iii) "Operator" means a person engaged in the business of drilling and producing wells for oil and gas;
(iv) "Other nonworking interest" means any interest in an oil and gas lease or well which is not a royalty, overriding royalty or working interest;
(v) "Overriding royalty" means a share of production, free of the costs of production, carved out of the lessee's interest under an oil and gas lease;
(vi) "Costs of production" means all costs incurred for exploration, development, primary or enhanced recovery and abandonment operations including, but not limited to ease acquisition, drilling and completion, pumping or lifting, recycling, gathering, compressing, pressurizing, heater treating, dehydrating, separating, storing or transporting the oil to the storage tanks or the gas into the market pipeline. "Costs of production" does not include the reasonable and actual direct costs associated with transporting the oil from the storage tanks to market or the gas from the point of entry into the market pipeline or the processing of gas in a processing plant;
(vii) "Royalty" means the mineral owner's share of production, free of the costs of production;
(viii) "Working interest" means the interest granted under an oil and gas lease, giving the lessee the right to work on the leased property to search for, develop and produce oil and gas and the obligation to pay all costs of production;
(ix) "This act" means W.S. 30-5-301 through 30-5-305.
(Emphasis supplied).
Defendant has relied heavily on the Colorado case, Garman v. Conoco, Inc., 886 *1333 P.2d 652 (Colo.1994). The case merits discussion. The Colorado Supreme Court held in Garman, applying Colorado law, the owner of an overriding royalty interest in gas production was required to bear a proportionate share of post-production costs. In Garman, Conoco held certain leases subject to the Garmans' overriding royalty interests. The leases were located in a unit and were in full force and effect by the production of gas. Conoco operated both the unit and the processing plant, which was located outside of both the lease and unit boundaries. From the wellhead, gas entered a gathering line for transportation to the plant. At the plant, gas from the unit was processed into (1) residue gas; (2) propane; and (3) a combined stream of butane and natural gasoline. Gross proceeds from the sale of the individual products were greater than the revenues that would have been obtained from the sale of raw, unprocessed gas at the wellhead. Garmans argued that post-production costs incurred to convert the raw gas into a marketable product should not be charged against the nonworking interest owners. They conceded, however, that costs incurred after the gas is made marketable, which actually enhance the value of the gas, were to be borne proportionately by all parties benefitted by those operations.
Conoco argued that all post-production costs incurred after the gas is severed from the ground and reduced to possession should be borne proportionately by royalty, overriding royalty and working interest owners. It argued severance occurs at the wellhead and all expenses after severance improve or enhance the value of the gas from its natural, unprocessed state.
The Colorado Court noted that both royalty and overriding royalty interests are non-risk and non-cost bearing interests. Responding to Conoco's objection that Garmans were getting a free ride on certain costs incurred after gas is brought to the surface, the Colorado court stated "that the relationship between the parties specifically provides for a `free-ride' on costs incurred to establish marketable production." Garman, 886 P.2d at 657.
That court then noted no consensus exists regarding the allocation of expenses incurred after discovery of gas. Two lines of thought have developed. The Texas and Louisiana Courts have "adopted the rule that nonoperating interests must bear their proportionate share of costs incurred after gas is severed at the wellhead." Garman, 886 at 657-58. Kansas and Oklahoma have adopted a contrary rule based on an operator's implied duty to market gas produced under an oil and gas lease. "The implied duty to market means a duty to get the product to the place of sale in a marketable form." It noted then that "Wyoming has codified the marketability approach." Id. at 658. It held:
Our answer is limited to those post-production costs required to transform raw gas into a marketable product ... As we explained at the outset, many different types of expenses may be involved in the conversion process. Upon obtaining a marketable product, any additional costs incurred to enhance the value of the marketable gas, such as those costs conceded by the Garmans, may be charged against the nonworking interest owners ... To the extent that certain processing costs enhance the value of an already marketable product, the burden should be placed upon the lessee to show such costs are reasonable, and that actual royalty revenues increase in proportion with the costs assessed against the nonworking interests.
Id. at 660-661 (footnotes omitted). Further, in a footnote, it stated "Marketable means `fit to be offered for sale in a market; being such as may be justly and lawfully bought or sold ... wanted by purchasers'." Id., 886 P.2d at 660, n. 26. It also cited with approval a treatise which stated "there is a distinction between acts which constitute production and acts which constitute processing or refining ... [a]fter a marketable product has been obtained, then further costs in improving or *1334 transporting such product should be shared by the lessor and lessee." Id., 886 P.2d at 661, n. 27, citing 3 Kuntz § 40.5. "Absent an assignment provision to the contrary, overriding royalty interest owners are not obligated to bear any share of post-production expenses, such as compressing, transporting and processing, undertaken to transform raw gas produced at the surface into a marketable product." Id. at 661.
The argument advanced by the defendant here is that the gas is marketable when it comes out of the outlet of the dehydrator and therefore, the marketable condition rule should apply at that point. The defendant contends further that the Wyoming court looks to other statutes with the same object and purpose when construing the meaning of language in dispute. Here, defendant argues, resort to the tax statutes is appropriate because there is a close connection between royalties and taxes and reliance on the requirements of one to construe the other is appropriate.
Defendant contends that under the Wyoming production tax statute, the costs at issue in this case are regarded as "post-production transportation costs." The tax statute values gas for tax purposes on the "fair cash market value of the product after the ... production process is completed." Wyo.Stat. § 39-2-208(a). Wyo. Stat. § 39-2-308(b) further provides:
(b) The ... production process is completed:
...
(ii) For natural gas, after extracting from the well, gathering, separating, injecting and any other activity which occurs before the outlet of the initial dehydrator. When no dehydration is performed, other than within a processing facility, the production process is completed at the inlet to the initial transportation related compressor, custody transfer meter or processing facility, whichever occurs first.
The tax statutes define "gathering" as "the transportation of crude oil or natural gas from multiple wells by separate and individual pipelines to a central point of accumulation, dehydration, compression, separation, heating and treating or storage." Wyo.Stat. § 39-2-208(m)(iii). The defendant argues the tax statute is consistent with and confirms that a lessee is obligated only to put gas into marketable condition and that after that point, costs are to be shared by all interest owners.
The plaintiff, on the other hand, argues that the Royalty Payment Act ("RPA") should not be construed in pari materia with the tax statutes and that it is a remedial, stand-alone, unambiguous statute. Plaintiff argues that the RPA specifically defines costs of production and expressly includes gathering costs. The documents filed in support of the plaintiff's motion clearly demonstrate that the parties, including plaintiff and Hunt, regarded the charges at issue here as gathering charges. After plaintiff's attorney brought to Hunt's attention the fact that gathering charges had been improperly withheld from the plaintiff's royalty payments, it refunded the gathering charges in question to her. A further letter from plaintiff's attorney noted that the refund was not complete and requested further refunds. About a month later, Hunt changed its mind, and stated:
Since making the refund payment to Ms. Wold, we have had the opportunity to completely research this matter. We have met with our production, marketing and accounting groups and have determined that charges are actually charges for "transportation."
Exhibit 1 to plaintiff's memo.
The properties at issue in this case consist of plaintiff's interest in the Boone Dome and Nitchie Gulch units in Natrona and Sublette Counties, Wyoming. Gas from the Nitchie Gulch Unit is gathered and then injected into a pipeline owned by Questar that then takes gas to market. Gas from the Boone Dome unit is gathered in a third-party gathering system and is then injected into a pipeline operated by *1335 Kansas Nebraska Energy ("KN") that brings the gas to market. The Questar and KN pipelines are FERC-regulated lines and tariffs are charged for the use of those pipelines. Plaintiff contends within the industry, these pipelines are referred to as market pipelines, which are open to all buyers of gas through KN and Questar and are subject to FERC review. Hunt's point of entry into the market pipeline is set by agreement.
To get the gas from the well to the entry points on the market pipeline, gas must be gathered and brought to the proper pressure necessary for injection into the market pipeline which is the gathering system. The Nitchie Gulch gathering system is owned by Questar and is not regulated by FERC. If a buyer other than Questar purchases from the Nitchie Gulch production, the buyer must pay the amount required by Questar for gathering or negotiate a contract with Questar for use of the gathering system.
KN's gathering system at Boone Dome involves various gathering agreements with third parties for gathering Boone Dome gas and injecting into the KN market pipeline. For both Nitchie Gulch and Boone Dome, various contracts for gathering and compression have been executed.
Plaintiff argues that the Royalty Payment Act does not allow gathering deductions. Plaintiff asserts that the common meaning of market pipeline is consistent with the legislative goal to be achieved i.e., an easily discernible physical point at which costs could burden the royalty owner's interest. She argues the provisions of the RPA were not displaced by the severance tax provisions enacted one year later which were designed to treat oil and gas equally with other minerals for taxation purposes. Plaintiff argues that production costs occurring prior to entry into the regulated, market pipeline is by terms of the statute a "cost of production" and not deductible from royalty. Plaintiff contends the RPA is not ambiguous and that resort to statutory construction is not required. If, however, the Court were to disagree with such contention, plaintiff argues that even statutory construction would not permit the deductions that have been claimed by Hunt.
The RPA was designed to protect royalty owners and permit them to determine if correct payment of royalties has been made. Producers were required to report/disclose permissible deductions and reporting penalties are imposed under the act if disclosures are not given. The Wyoming RPA is a remedial statute and the Wyoming Supreme Court construes its provisions liberally to achieve the Act's remedial purpose. See Independent Producers Mktg. Corp. v. Cobb, 721 P.2d 1106, 1110 (Wyo.1986); Moncrief v. Harvey, 816 P.2d 97 (Wyo.1991); Town of Moorcroft v. Enron Oil Trading & Transportation Co., 986 F.2d 1429 (Table) (Unpublished disposition), text at 1993 WL 34700 (10th Cir. 1993) (Wyo.law).
Our primary purpose in construing a statute is to determine the intent of the legislature. legislative intent should be ascertained, as nearly as possible, from the language of the statute viewed in the light of its object and purpose....
The Royalty Payment Act is a remedial statute. Such statutes are to be liberally construed to achieve their remedial purpose.... In Independent producers Marketing Corp. v. Cobb, we expressed the remedial purpose of this Act as follows:
"The district court's application of the Royalty Payment Act in this case is consistent with the legislature's obvious intent to stop oil producers from retaining other people's money for their own use."
Although there is no legislative history available for this statute, the language of the statute itself clearly demonstrates its remedial intent.
Moncrief v. Harvey, 816 P.2d at 105 (citations omitted).
Given this background of clear legislative intent and the rule that remedial *1336 statutes should be liberally construed, one must contrast this against the traditional construction of statutes imposing taxes. In construing tax statutes, the court does not attempt to accomplish a legislative intent. Instead, the court is precluded from imposing a tax unless the statute is clear and unambiguous on its face. Chevron U.S.A., Inc. v. State, 918 P.2d 980, 984-86 (Wyo.1996).
The organization and subject matter of the RPA reflects a clear legislative purpose of simplifying the computation of royalties and providing a mechanism by which the royalty owner is able to determine if royalties are paid correctly. The statutory definition of "costs of production" excludes all charges between the wellhead and the market pipeline except those specifically excluded from the definition. The very charges at issue in this case are included in the definition of charges that are not deductible: gathering, dehydration, compression and transportation to the market pipeline. Plaintiff has offered in support of her position the affidavit of Don Stinson, who opines that the usual industry meaning and use of "costs of production" includes gathering charges and that the market pipeline is the point of delineation for deductibility. After gas enters the market pipeline, deductions are permissible, but the royalty owner's interests are protected by regulatory oversight of FERC. If engrafting tax provisions onto royalty provisions is permitted, uncertainty and opportunity for manipulation by those in Hunt's position is continued and encourages further abuses that the RPA is designed to eliminate. The language of the RPA is unambiguous, and the Court finds that statutory construction, specifically construing the RPA in pari materia with the tax statutes as has been proposed by defendant, is unnecessary and impermissible.
The Court notes that there are no Wyoming cases that specifically address this particular section of the RPA. However, gathering charges are specifically included as nondeductible costs of production in express, unambiguous language in the RPA. Wyo.Stat. § 30-5-304. The Court finds it must apply the express language of statute and is not required to resort to statutory construction. The purposes of the applicable taxation statutes are clearly distinguishable from those of the RPA and are not necessarily harmonious with or designed to accomplish purposes similar to those of the RPA.
The Court is not convinced that the assessment of the Colorado Supreme Court, in Garman v. Conoco, is correct when it stated that "Wyoming has codified the marketability approach." The Wyoming statutory scheme, as embodied in the RPA, is unique. It is not particularly helpful to engraft upon that express statutory scheme the common law construction approach that is reflected in the Colorado court's Garman opinion. The Wyoming statutes must be read alone and without reference to the common law as it may have evolved in other states such as Colorado.
In this case, it is clear that until the instant dispute arose, Hunt Oil Company and the owner of the gathering lines in use regarded the charges at issue as gathering charges. Hunt has argued, without merit, that its change of terminology, calling what it unquestionably once regarded as gathering charges now transportation charges, works to move these charges out of statute's "costs of production" definition. Such an approach is a transparent attempt to convert non-deductible costs of production into a post-production costs and to pass those non-deductible costs of production onto non-risk and non-cost bearing interests, such as those of plaintiff. The RPA clearly precludes this and the Court will give effect to the express language of the statute as written. In reaching this conclusion, the Court does not need to express any opinion with respect to plaintiff's argument that the point of demarcation is entry of the gas into a FERC-regulated pipeline. The facts of this case support the conclusion that the gas at issue *1337 here, while it may indeed have been "marketable" at the outlet of the dehydrator as defendant has suggested, was placed into gathering lines for subsequent transportation into Questar's or KN's market pipelines. The gathering costs are not costs of production chargeable against the interest of overriding royalty interest owner.
Accordingly, and for the foregoing reasons, in accordance with the Court's oral rulings from the bench at the hearing, as enumerated more fully of the record of the hearing, it is therefore
ORDERED that plaintiff's motion for summary judgment shall be, and is, GRANTED. It is further
ORDERED that defendant's motion for partial summary judgment shall be, and is, DENIED.
PARTIAL JUDGMENT
The Court having entered its Order and Opinion on Cross Motions for Summary Judgment in favor of Plaintiff Jane Wold, in which the Court determined that the Wyoming Royalty Payment Act prohibits the gathering deductions claimed by defendant Hunt, and the parties' having stipulated to entry of judgment in favor of plaintiff in the event she prevailed on the motion, by separate stipulation filed March 24, 1999, it is therefore
ORDERED, ADJUDGED AND DECREED that plaintiff recover of defendant Hunt Oil Company the sum of $34,842.47, for claims for royalties due under Wyo. Stat. §§ 30-5-303 and 30-5-304, and statutory interest on such amounts claimed under § 30-5-303, 18% per annum, except those "amounts alleged by plaintiffs to be due under "flat rate" contracts" as identified in Paragraph 2 of the parties' Joint Motion for Scheduling Order fled March 22, 1999.
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52 F. Supp. 2d 205 (1999)
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
Emanuel PINEZ, Defendant,
Felix, Inc., and Lehman Brothers, Inc., Relief Defendants,
Gilboa Peretz, and P.G. Technologies, Respondents.
No. Civ.A. 97-10353-PBS.
United States District Court, D. Massachusetts.
May 25, 1999.
*206 Stuart P. Feldman, Carlos Costa-Rodriques, Linda Bridgeman, Securities and Exchange Commission, Boston, MA, John M. D'Amico, Juan Macel Marcelino, Grant David Ward, Securities & Exchange Commission, Boston, MA, Kimberly M. Zimmer, Boston, MA, Jeffrey W. Kobrick, U.S. Securities and Exchange Commission, San Francisco, CA, for Securities and Exchange Commission, plaintiff.
Francis J. DiMento, DiMento & Sullivan, Boston, MA, Kimberly M. Zimmer, Boston, MA, for P.G. Technologies, Intervenor-Plaintiff.
Valerie S. Carter, Law Office of Valerie Carter, Boston, MA, for Emanuel Pinez, defendant.
John C. Bartenstein, Robert K. Gad, Mark Szpak, Ropes & Gray, Boston, MA, for Lehman Brothers, defendant.
John J. Falvey, Jr., United States Attorney's Office, Boston, MA, for United States of America, interpleader.
James B. Adelman, Choate, Hall & Stewart, Boston, MA, for Paine Webber, Inc., interested party.
Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, for Centennial Technologies Inc., Special Committee of the Board of Directors, interested party.
Robert L. Ullman, Nutter, McClennen & Fish, Boston, MA, for Nutter, McClennen & Fish, interested party.
Vincent M. Amoroso, Robert A. McCall, Peabody & Arnold LLP, Boston, MA, Sarah R. Wolff, Sachnoff & Weaver, Chicago, IL, for Greg Goldsmith, Craig Anderson, Robert Wasserman, Timothy Werner and Lakota Trading, interested parties.
Glen DeValerio, Norman Berman, Matthew Miller, Berman, DeValerio & Pease, Boston, MA, for Investors in Centennial Technologies, Inc., interested party.
Dennis M. Kelleher, Thomas J. Dougherty, Skadden, Arps, Slate, Meagher & *207 Flom, Boston, MA, for Coopers & Lybrand, Partnership, interested party.
Marilyn D. Stempler, Andrew P. Strehle, Andrew Strehle, Brown, Rudnick, Freed & Gesmer, Boston, MA, for Felix, Inc., interested party.
Francis J. DiMento, DiMento & Sullivan, Boston, MA, for Gilboa Peretz, interested party.
MEMORANDUM AND ORDER
SARIS, District Judge.
I. Introduction
Plaintiff, Securities and Exchange Commission ("SEC"), has moved for an order holding respondents, Gilboa Peretz ("Peretz") and PG Technologies, Inc. ("PGT"), in civil contempt, for making intentionally false and misleading statements during a February 24, 1997, hearing before this court. After an evidentiary hearing, this Court holds respondents in civil contempt and orders the entry of judgment in the agreed-upon amount of $15,000.00.
II. Factual Background
This action arises out of the alleged illegal insider trading practices of the former Chairman and Chief Executive Officer of Centennial Technologies, Inc. ("Centennial"), Emanuel Pinez ("Pinez"). On February 14, 1997, the Securities and Exchange Commission ("SEC") filed a complaint against Pinez, alleging that he traded in options on the common stock of Centennial while in possession of material, nonpublic information regarding Centennial's true financial condition in violation of section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, and section 17(a) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. 77q(a). The SEC's complaint, and its accompanying ex parte motion for a temporary restraining order, requested that Pinez be restrained from committing further acts of securities fraud, and that any and all assets that are "in the name of, in the custody of, held for the benefit of, or subject to the control of" Pinez be frozen to prevent dissipation. This Court froze the assets in several accounts alleged to be under defendant Pinez's direct or indirect control.[1] Specifically, on February 14, 1997, this Court placed a freeze order on "any funds or other assets in the name, for the benefit, or under the direct or indirect control of [Mr. Pinez]."
Upon receiving the Asset Freeze Order, BayBank, N.A. froze PGT's account. Under the terms of that account, Pinez had some degree of control over the account because he was required to sign his name on any withdrawal over $5,000. On the date of the freeze order, the account contained $30,215.58. For reasons that are unclear in the record, PGT was not informed that the freeze order was put into effect, and it continued to write checks for a period of time.
On February 24, 1997, PGT filed a motion to modify the Asset Freeze Order because it stated it needed the funds to make its payroll and pay expenses in the ordinary course of business. Peretz, who was represented by counsel, testified in support of the motion. The SEC had refused to consent because it was unpersuaded that "none of this $30,000 is Mr. Pinez's money." (Tr. 26, ln.9). By the date of the hearing, Peretz had written over $15,000 in checks. In an effort to ascertain whether the funds remaining in a PGT bank account were tainted, the Court asked Peretz a series of direct questions:
The Court: Is any of the remaining $14,000, does any of it belong to Mr. Pinez?
The Witness: No.
The Court: Where is it from?
The Witness: From sales that we made.
*208 (Tr. 29, lns.5-9). Later, while being cross-examined by counsel for the SEC, Peretz admitted that Pinez had invested $400,000 in PGT, in early 1996, in exchange for shares. When asked if some of this $400,000 investment still remained in the account, Peretz responded: "The original $400,000 was long gone. We are running a lot of projects, a lot of developments, and we already spent this money." (Tr. 30, lns.10-12).
The court later followed up on its earlier line of questioning:
The Court: But you're telling me under oath that all $400,000 is gone and that [the remaining amount of funds in the account] comes from weekly sales?
The Witness: Not weekly. When we do sales, we do time to time and we do it's a few tens of thousands of dollars. It's not retail sales.
(Tr. 33, lns.2-7). Based on Peretz's sworn testimony, over the objection of the SEC, the Court dissolved the asset freeze order as to PGT. PGT spent all the money that had been frozen in the account. It is no longer a viable company.
On November 26, 1997, the SEC issued an investigative subpoena ad testificandum to Peretz. In January of 1998, Peretz invoked his Fifth Amendment right against self-incrimination when he was queried, under oath, by the SEC about the truthfulness of his testimony before this Court regarding the source of the frozen funds in the BayBank account.
In September of 1998, after learning more about the relationship between Pinez and the funds in PGT's account at the time of the February 24, 1997 hearing, the SEC moved this Court to hold a contempt hearing regarding Peretz's testimony. A hearing on the order to show cause was scheduled for November 18, 1998. However, because Peretz, who had moved to New York City to get consulting work, was not present at the hearing, it was continued until January 8, 1999. On that date, Peretz testified primarily about his dire financial condition.
The SEC submitted persuasive documentary evidence that Peretz intentionally misled this Court during the February 24, 1997, hearing, for example, PGT's Register of Financial Transactions (Exhibit 5), PGT's January, 1997, Bank Statement (Exhibit 12), and a January, 1997, cancelled check for $100,000 from Pinez to PGT (Exhibit 15). These exhibits support the conclusion that most of the funds in the account in January and February, 1997, derived from Centennial/Pinez and not from sales that PGT had made. PGT's account balance at BayBank on January 1, 1997, was $23,321.58. On January 8, 1997, Pinez provided $100,000 to PGT by a check drawn on Pinez's account at PaineWebber. On the following day, BayBank credited $100,000 to PGT's account. Other than Pinez's check for $100,000, PGT did not make any significant deposits to its BayBank account during January, 1997. However, during January, 1997, PGT spent $73,031.21. During February, 1997, there were no deposits or credits to PGT's account. On the date of the freeze order, February 14, 1997, $30,215.58 was in the account. As defendant concedes, under the best case scenario, at least $8,266.88 ($30,215.58 $23,321.58) in the account on February 14, 1997 can be attributed to the intervening deposit by Pinez. Because the funds were commingled, any attempt to argue that the remaining $14,000 came from the initial $23,000 in the account at the start of January would be futile.
The $100,000 check from Pinez to PGT was one of many. The SEC calculates that Pinez provided $795,000 to PGT during the period April 30, 1996, to January 9, 1997. Separately, Centennial also provided $496,500 to PGT in April, 1996, in exchange for a $100,000 promissory note from PGT and PGT stock for $396,500.
In May, 1997, PGT entered into a "settlement agreement" with Centennial. The agreement, signed by Peretz, recounts that, at the instruction of Pinez, PGT issued purchase orders to Centennial in November, *209 1996, for products that PGT did not need, at a purported cost to PGT of $500,000. Centennial thereafter shipped "blank," or bogus, computer cards to PGT, and indicated that its shipment constituted "satisfaction" of PGT's purchase orders. Additionally, in December, 1996, PGT made "full payment" for the bogus computer cards with $500,000 provided by Pinez from his personal account. PGT's check to Centennial in payment for the computer cards was signed by both Peretz and Pinez and drawn on the BayBank account subsequently frozen by this Court on February 14, 1997.
Peretz, through his counsel, claimed that when he testified that the funds were "from sales that he made," he meant the sale of PGT stock to Pinez as an investment. That interpretation strains credibility in light of the colloquy quoted above, which expressly distinguished between funds provided by Pinez for investment purposes and those derived from sales. Counsel also attempts to explain the misleading testimony by stating that Peretz, an Israeli, had a lack of proficiency in the English language. While Peretz did have a thick accent, he never requested an interpreter at the hearing and responded appropriately at both hearings. I do not attribute the misleading testimony to a language barrier. I find that Peretz gave intentionally false and misleading testimony about the source of the money in the BayBank account in order to interrupt and interfere with the Court's efforts to freeze Pinez' assets for the benefit of defrauded investors in Centennial. The Court would not have released the funds if it had been made aware of Pinez's involvement in PGT, particularly the January check for $100,000.
III. Discussion
Federal courts have the inherent power to impose submission to their lawful mandates and to achieve the orderly disposition of cases. See Chambers v. NASCO, Inc., 501 U.S. 32, 43-44, 111 S. Ct. 2123, 115 L. Ed. 2d 27 (1991). For example, "[a] court has the power to conduct an independent investigation in order to determine whether it has been the victim of fraud." Id. at 44, 111 S. Ct. 2123.
Courts have also rested the civil contempt power upon 18 U.S.C. § 401. Although 18 U.S.C. § 401 is a criminal statute, and, by its terms, gives federal courts the "power to punish," many courts have relied upon the statute as authority for civil contempt as well. See, e.g., Coleman v. Espy, 986 F.2d 1184, 1190 (8th Cir.1993) (citing United States v. Barco Corp., 430 F.2d 998, 1000 (8th Cir.1970)); In re Jaques, 761 F.2d 302, 305 (6th Cir.1985); KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1525 n. 3 (Fed.Cir. 1985); Petties v. District of Columbia, 897 F. Supp. 626, 629 (D.D.C.1995); Wella Corp. v. Wella Graphics, Inc., 874 F. Supp. 54, 56 (E.D.N.Y.1994); cf. United States v. Horn, 29 F.3d 754, 765 n. 13 (1st Cir. 1994) (discussing "fines for civil contempt under 18 U.S.C. § 401" in the context of abrogation of sovereign immunity); but see, e.g., MCI Telecommunications Corp. v. World Telecommunications, 1998 WL 85757 (S.D.N.Y.), at *1.
The contempt power is to be used sparingly, and only in such instances where it is necessary to preserve the authority of the court. See Chambers, 501 U.S. at 44, 111 S. Ct. 2123; In re Michael, 326 U.S. 224, 227-28, 66 S. Ct. 78, 90 L. Ed. 30 (1945) (discussing criminal contempt). A court is obliged to use the least possible power adequate to the end proposed in selecting contempt sanctions. See Spallone v. United States, 493 U.S. 265, 276, 110 S. Ct. 625, 107 L. Ed. 2d 644 (1990); Jones v. Clinton, 36 F. Supp. 2d 1118, 1125 (E.D.Ark.1999). A civil contempt fine can be used to compensate a complainant for losses suffered as a result of noncompliance with a court order. See International Union, UMWA v. Bagwell, 512 U.S. 821, 826-27, 114 S. Ct. 2552, 129 L. Ed. 2d 642 (1994) (quoting United States v. Mine Workers of America, 330 U.S. 258, 303-304, 67 S. Ct. 677, 91 L. Ed. 884 (1947)); *210 Hutto v. Finney, 437 U.S. 678, 690-91, 98 S. Ct. 2565, 57 L. Ed. 2d 522 (1978).
Civil contempt must be established by clear and convincing evidence. See Gemco Latinoamerica v. Seiko Time Corp., 61 F.3d 94, 98 (1st Cir.1995); United States v. Griffin, 641 F. Supp. 1556, 1558 (D.D.C.1986). The Supreme Court has held, in the context of criminal contempt, that perjury does not "constitute an obstruction of justice unless the perjury is part of some greater design to interfere with judicial proceedings." United States v. Dunnigan, 507 U.S. 87, 93, 113 S. Ct. 1111, 122 L. Ed. 2d 445 (1993) (citing In re Michael, 326 U.S. at 227-28, 66 S. Ct. 78, and Ex parte Hudgings, 249 U.S. 378, 383-84, 39 S. Ct. 337, 63 L. Ed. 656 (1919)).
An analysis of the Michael case is helpful in resolving the current dispute. Concluding that false testimony before a grand jury, without more, did not "clearly show" the obstruction element, the court explained:
All perjured relevant testimony is at war with justice, since it may produce a judgment not resting on truth. Therefore, it cannot be denied that it tends to defeat the sole ultimate objective of a trial. It need not necessarily, however, obstruct or halt the judicial process. For the function of trial is to sift the truth from a mass of contradictory evidence, and to do so the fact finding tribunal must hear both truthful and false witnesses.
In re Michael, 326 U.S. at 227-28, 66 S. Ct. 78. The Supreme Court cited Clark v. United States, 289 U.S. 1, 10, 53 S. Ct. 465, 77 L. Ed. 993 (1933), as an example of where the element of obstruction was "clearly shown." Id. There, "a prospective juror had testified falsely in order to qualify despite the fact that she was a partisan who would vote for a verdict of not guilty regardless of evidence of guilt." Id. at 228, 66 S. Ct. 78.
The question here is whether the obstruction element required by Michael and Hudgings in the criminal contempt context should be imported into the civil contempt arena. Although the case law in this area is sparse, I join two courts in concluding it should. See Matter of Kitchen, 706 F.2d 1266, 1274-75 (2d Cir.1983) (applying Michael in civil contempt context); Jones v. Lincoln Electric, 990 F. Supp. 1093, 1095 (N.D.Ind.1997) (holding that perjured expert testimony was not punishable by civil contempt sanction because of no added obstruction element).
The touchstone of Michael is that this Court should make sparing use of its contempt power, which should be confined to the "least possible power adequate to protect the administration of justice against immediate interruption of its business." Dunnigan, 507 U.S. at 93-94, 113 S. Ct. 1111 (quotations omitted). Here, the element of obstruction to the court in performance of its duty was demonstrated by clear and convincing evidence. Peretz gave intentionally false and misleading testimony concerning the source of his funds, which interfered with the ability of this Court to preserve the integrity of assets related to a SEC enforcement proceeding. The harm is quantifiable here because this Court had to hold two hearings, and the SEC had to expend considerable attorneys fees (which it estimates at amounting to $20,000) simply to recoup about half the amount frozen in the account. Because of Peretz's lack of financial assets, it is uncertain whether even that amount will ever be collected. See Def. Ex. 20, Summary Financial Disclosure Sheet Statement (indicating a negative net worth of $358,105.27).
The judgment in the amount of $15,000 represents an agreement between counsel for Peretz and PGT, and the SEC as to the appropriate amount for final judgment in this matter. The SEC has waived its request for attorneys fees and fines in light of Peretz's penurious circumstances. However, in order to vindicate the authority of the court, a finding of civil contempt by the Court is necessary.
*211 IV. ORDER
It is ordered, adjudged, and decreed that respondents, Peretz and PGT, are in civil contempt for having obstructed the administration of justice, by intentionally providing false and misleading testimony to the Court on February 24, 1997. Judgment is entered in the amount of $15,000.
NOTES
[1] For the background of the enforcement action, see Securities and Exchange Commission v. Lehman Brothers, Inc., 157 F.3d 2 (1st Cir.1998).
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52 F. Supp. 2d 511 (1999)
Paul WAIMBERG, Plaintiff,
v.
MEDICAL TRANSPORTATION OF AMERICA, INC., et al., Defendants.
Civil Action No. 99-1723.
United States District Court, E.D. Pennsylvania.
June 25, 1999.
*512 *513 Hillel Lewis, Pomerantz, Lewis & Associates, Philadelphia, PA, for Plaintiff.
Brian D. Sieve, Donna Welch, Kirkland & Ellis, Chicago, IL, Constantine T. Fournaris, Buchanan Ingersoll, Philadelphia, PA, for Defendants.
MEMORANDUM & ORDER
KATZ, Senior District Judge.
The three defendants in this breach of contract action move for dismissal based on lack of personal jurisdiction. Defendant Medical Transportation of America, Inc. also moves for dismissal for failure to state a claim upon which relief can be granted. Because plaintiff has met his burden of establishing the minimum contacts necessary for the court to exercise jurisdiction and because there are factual issues pertaining to the nature of the contract, all of the defendants' motions to dismiss will be denied.
Background[1]
Plaintiff Paul Waimberg, a citizen of Pennsylvania, brings claims for breach of contract and tortious interference of contract pursuant to the court's diversity jurisdiction. Defendant MTA is incorporated under the laws of Nevada and has its principal place of business in Nevada. Defendant Golder, Thomas, Cressey, Rauner Inc. (GTCR) is incorporated in Illinois and has its principal place of business in Illinois. Finally, defendant Joseph Nolan is a citizen of Illinois and is the principal owner of GTCR. GTCR itself is not an investor in MTA; however, its affiliate GTCR Golder Rauner, LLC is the indirect general partner of an equity fund that invested in *514 MTA, and at least one principal of GTCR was directly involved in the negotiations at issue in this case.
Waimberg was contacted in Pennsylvania in December 1997 by the Weiss Group, LLC, a headhunting firm, that asked whether Waimberg was interested in a position as CFO of a company being started by one of Weiss' clients. This new company was being formed to roll-up/consolidate local medical transportation companies across the United States and would eventually become MTA. Following this contact, Waimberg flew to San Diego on January 23, 1998, and met with Fir Geenen, the chair of the new company. He then interviewed with Robert Forbuss, the CEO of the new company. On February 19, 1998, Waimberg flew to Las Vegas and met with Forbuss and John Wilson, the vice-president of operations. At this time, Waimberg was told that the CFO position would require relocation to Las Vegas. On March 2, 1998, in a telephone call to Pennsylvania, Weiss, authorized on behalf of the new company, offered Waimberg the position of CFO. Plaintiff orally accepted the offer on March 10 while conversing with Forbuss and Weiss in a telephone call to Pennsylvania; and, on March 13, 1998, he accepted the written offer that was faxed to him in Pennsylvania. On the same day, he resigned from his then current job. However, following meetings with Joseph Nolan and Vincent Hemmer, who was an associate of GTCR and the director of MTA, the plaintiff was told on March 23, 1998, that MTA would not honor his contract because GTCR questioned his ability to do the job.
Plaintiff now sues MTA and GTCR for breach of contract and GTCR and Nolan for tortious interference with contract. All defendants challenge personal jurisdiction, alleging that none of them have established minimal contacts in Pennsylvania such that they can be sued in the courts of this state. MTA also argues that, even if jurisdiction exists, the plaintiff has failed to state a claim upon which relief can be granted.
Discussion
When a court sitting in diversity is faced with a challenge to personal jurisdiction by out-of-state defendants, it "must apply the relevant state long-arm statute to see if it permits the exercise of personal jurisdiction; then, the court must apply the precepts of the Due Process Clause of the Constitution." IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998). The Pennsylvania long-arm statute permits jurisdiction to be exercised "to the fullest extent allowed under the Constitution of the United States and may be based on the most minimum contact with the Commonwealth allowed under the Constitution of the United States." 42 Pa.C.S.A. § 5322(b); see also Grand Entertainment Group v. Star Media Sales, 988 F.2d 476, 481 (3d Cir.1993) (describing Pennsylvania long-arm statute).
As the defendants have raised jurisdictional defenses, the plaintiff "bears the burden of establishing either that the cause of action arose from the defendant's forum-related activities (specific jurisdiction) or that the defendant has `continuous and systematic' contacts with the forum state (general jurisdiction)." Mellon Bank (East) PSFS, N.A. v. DiVeronica Bros., 983 F.2d 551, 554 (3d Cir.1993) (citations omitted); see also Carteret Sav. Bank v. Shushan, 954 F.2d 141, 146 (3d Cir.1992) (noting that burden is by a preponderance of evidence). The plaintiff may meet this burden and present a prima facie case for exercising personal jurisdiction by "establishing with reasonable particularity sufficient contacts between the defendant and the forum state." Mellon Bank (East) PSFS v. Farino, 960 F.2d 1217, 1223 (3d Cir.1992) (citations omitted); see also DiMark Marketing, Inc. v. Louisiana Health Service & Indem. Co., 913 F. Supp. 402, 405 (E.D.Pa.1996) (plaintiff must only make prima facie showing and court must resolve factual doubts in favor of plaintiff).
*515 In this case, plaintiff alleges that this court has specific jurisdiction over the three defendants.[2] The Third Circuit has explained that a two-part test should be applied when specific jurisdiction is alleged. First, the plaintiff must show that the defendant had constitutionally sufficient minimum contacts with the forum. See IMO, 155 F.3d at 259. These contacts must be such that the defendant should "reasonably anticipate being haled into court there." DiVeronica Bros., 983 F.2d at 554 (internal punctuation omitted), quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980); see also Farino, 960 F.2d at 1221 (stressing need to inquire as to the relationship among the forum, the defendant, and the litigation). Moreover, the court should examine whether the defendant "purposefully established those minimum contacts.... A court must find that there was some act by which the defendant `purposefully avail[ed] itself' of the privilege of conducting activities within the forum." DiVeronica Bros., 983 F.2d at 554 (citations omitted). Second, the court must determine, in its discretion, that exercising jurisdiction would "comport with `traditional notions of fair play and substantial justice.'" IMO, 155 F.3d at 259, citing International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945) (other citations omitted).[3]
In analyzing whether such minimum contacts have occurred to meet the first part of the test, the court must engage in a factual examination of the contacts in question, and, while similar cases may be helpful to the court, "the minimum contacts test ... is not susceptible of mechanical application." Kulko v. Superior Court, 436 U.S. 84, 92, 98 S. Ct. 1690, 56 L. Ed. 2d 132 (1978) (citations, internal punctuation omitted); see also Farino, 960 F.2d at 1224-25 (stressing need for individualized inquiry in each case).
Merely contracting with a resident of the forum state does not necessarily establish the minimum contacts required to exercise personal jurisdiction. See, e.g., Grand Entertainment Group, 988 F.2d at 482; DiVeronica Bros., 983 F.2d at 557; Farino, 960 F.2d at 1223. "The requisite contacts, however, may be supplied by the terms of the agreement, the place and character of prior negotiations, contemplated future consequences, or the course of dealings between the parties." Farino, 960 F.2d at 1223; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985) (noting same). A single contact may be sufficient to subject a party to personal jurisdiction, particularly if the "contacts evaluated are those that give rise to the litigation." Grand Entertainment Group, 988 F.2d at 483. Mail and telephone contacts may count towards the minimum contacts with a forum. See id. Accordingly, a defendant need not physically enter a forum to be subject to its jurisdiction. See, e.g., Burger King, 471 U.S. at 476, 105 S. Ct. 2174.
The corporate defendants, MTA and GTCR, argue that this court has no specific personal jurisdiction over them. Plaintiff, however, points out that the Weiss Group, LLC, contacted him with respect to the CFO position at the behest of MTA and its investor's parent, GTCR. Plaintiff states that on March 10, 1998, he received a faxed letter from GTCR signed by Nolan confirming GTCR's investment in MTA. He received numerous phone calls pertaining to the offer of a job at MTA, and he *516 received a faxed and mailed offer letter in Pennsylvania. Waimberg orally accepted the job offer in Pennsylvania and signed the offer letter in Pennsylvania, thus making it the place in which the contract was formed. He also received numerous phone calls following the decision to rescind the job offer. See Aff. of Waimberg (detailing numerous contacts). He agrees, obviously, that no representative of MTA or GTCR personally visited him in Pennsylvania but stresses that the contract was negotiated and finalized in Pennsylvania and that this qualifies as sufficient minimal contacts. Also, with respect to GTCR and Nolan, Waimberg stresses that they are alleged to have committed intentional torts the harm of which was directed towards Pennsylvania.
In this case, the corporate defendants' actions confer personal jurisdiction because of the significance of their actions in Pennsylvania. Admittedly, several of the most important meetings between the parties occurred in California, Illinois, and Nevada, and the contract was to be performed in Nevada. However, the present litigation stems directly from the offer letter that was faxed to the plaintiff in Pennsylvania, discussed by telephone in Pennsylvania, and ultimately signed and accepted by the plaintiff in Pennsylvania. As the Supreme Court noted, "parties who reach out beyond one state and create continuing relationships and obligations with citizens of another state are subject to regulation and sanctions in the other State for the consequences of their activities." Burger King Corp., 471 U.S. at 473, 105 S. Ct. 2174 (internal punctuation, citations omitted). This is particularly true given that the present lawsuit pertains directly to the contacts discussed by the plaintiff. See Grand Entertainment Group, 988 F.2d at 483 (stating that a defendant who "voluntarily decided to negotiate" with the plaintiff "cannot now be heard to complain about answering a suit concerning the effect of negotiations in the jurisdiction in which some of those negotiations occurred"). Applying the "highly realistic" approach directed by the Third Circuit, see Farino, 960 F.2d at 1224, it cannot be said that the defendants have been unexpectedly haled into a Pennsylvania court. The plaintiff was contacted in Pennsylvania at the behest of GTCR and MTA; he received transmissions in Pennsylvania assuring him of GTCR's involvement in the project; the offer letter was faxed to him and signed by him in Pennsylvania.
This holding applies to both MTA and GTCR. MTA and GTCR, through the Weiss Group, contacted Waimberg in order to interview him for the position of CFO. GTCR faxed letters signed by Nolan to Waimberg reassuring him that GTCR would provide financial backing to the new venture. MTA representatives spoke with Waimberg several times in Pennsylvania regarding the terms of the offer and faxed him the offer in Pennsylvania, which Waimberg then signed in Pennsylvania. In short, none of these defendants can truly suggest that they could not anticipate that they might be called to answer in a Pennsylvania court for the agreement they had entered with a Pennsylvania citizen.[4]
*517 Nolan's motion to dismiss for lack of personal jurisdiction must also be denied at this stage. Defendant correctly points out that, in most cases, "individuals performing acts in a state in their corporate capacity are not subject to the personal jurisdiction of the courts of that state for those acts." Elbeco, Inc. v. Estrella de Plato Corp., 989 F. Supp. 669, 676 (E.D.Pa. 1997). However, there is at least one exception which states that a corporate agent may be held personally liable for torts committed in her or his corporate capacity. See id. (holding that personal jurisdiction existed over individual defendants because corporate defendants purposefully reached into forum and made a series of misrepresentations). Nolan is alleged to have engaged in tortious behavior by acting personally and purposefully to convince MTA to rescind its offer to Waimberg. Given that the court must resolve factual disputes in favor of the plaintiff, the court will deny the motion to dismiss at this stage.
Having found that sufficient minimal contacts exist, the court will turn to the question of whether the contacts comport with notions of substantial justice. "Once the plaintiff has made a prima facie case of jurisdiction, the defendant must show that an exercise of jurisdiction is unconstitutional." DiMark Marketing, Inc., 913 F.Supp. at 408, citing Farino, 960 F.2d at 1226; see also Carteret Savings Bank, 954 F.2d at 150. The defendants have not made any suggestion that jurisdiction would violate substantial justice, having rested solely on allegations that there are no minimum contacts. Because of this, and seeing no independent basis by which an exercise of jurisdiction would be unconstitutional or unjust, the court finds that due process is not violated by exercising jurisdiction in this district. See Farino, 960 F.2d at 1226-27 (declining to examine question of substantial justice when defendant did not raise the issue).
Failure to State a Claim upon which Relief can be Granted[5]
It would be premature to dismiss plaintiff's contractual claims at this early stage in the litigation. Even assuming that MTA correctly analyzes the law pertaining to the offer letter at issue, plaintiff could prove facts that would remove the presumption that his employment was at-will. See, e.g., Martin v. Safeguard Scientifics, Inc., 17 F. Supp. 2d 357, 368-69 (E.D.Pa. 1998) (discussing exceptions to the at-will doctrine).
Conclusion
Given that defendants contacted the plaintiff to offer him a position, negotiated with him by telephone and fax in Pennsylvania, *518 and that the signed offer letter was faxed to and executed in Pennsylvania, defendants should have reasonably anticipated being haled into a Pennsylvania court to defend themselves. Consequently, the court will deny the motion to dismiss for lack of personal jurisdiction. The alternative ground for dismissal, failure to state a claim on which relief may be granted, will also be denied because plaintiff could show facts that would entitle him to relief.
An appropriate Order follows.
ORDER
AND NOW, this day of June, 1999, upon consideration of Defendant Medical Transportation of America, Inc.'s Motion to Dismiss for Lack of Personal Jurisdiction and for Failure to State a Claim upon which Relief can be Granted; Defendants Golder, Thomas, Cressey, Rauner, Inc. and Joseph P. Nolan's Motion to Dismiss for Lack of Personal Jurisdiction; and the responses thereto, it is hereby ORDERED that the Motions are DENIED.
NOTES
[1] These background facts are taken from plaintiff's submissions.
[2] Plaintiff alleges general jurisdiction over GTCR but suggests that there is not yet enough information to demonstrate this fact and requests discovery. As the court rules that specific jurisdiction exists, there is not need to reach this question.
[3] The Third Circuit explained recently that while this "latter standard need only be applied at a court's discretion, we have generally chosen to engage in this second tier of analysis in determining questions of personal jurisdiction." Pennzoil Products Co. v. Colelli & Associates, 149 F.3d 197, 201 (3d Cir.1998).
[4] The court also agrees that the intentional tort alleged to have been committed by Nolan and GTCR successfully elevates the contacts described and reinforces the court's decision that specific jurisdiction over these two defendants exists. "Generally speaking, under Calder [v. Jones, 465 U.S. 783, 104 S. Ct. 1482, 79 L. Ed. 2d 804 (1984),] an intentional tort directed at the plaintiff and having sufficient impact upon it in the forum may suffice to enhance otherwise insufficient contacts with the forum such that the `minimum contacts' prong of the Due Process test is satisfied." IMO, 155 F.3d at 260. The Third Circuit has explained that the plaintiff must show the following factors under the Calder "effects test" to permit personal jurisdiction: "(1) the defendant committed an intentional tort; (2) the plaintiff felt the brunt of the harm in the forum such that the forum can be said to be the focal point of the harm suffered by the plaintiff as a result of that tort; and (3) the defendant expressly aimed [the] tortious conduct at the forum such that the forum can be said to be the focal point of the tortious activity." IMO, 155 F.3d at 265-66. To meet the third prong, the plaintiff must show that the defendant "knew that the plaintiff would suffer the brunt of the harm ... in the forum, and point to specific activity indicating that the defendant expressly aimed its tortious conduct at the forum." Id. at 266. In this case, an intentional tort is alleged and its effect were felt primarily by Waimberg in Pennsylvania, thus meeting the first two prongs of the test. The third prong is also met. GTCR's actions were aimed at a known resident of Pennsylvania to whom it sent letters and made phone calls. Assuming that plaintiff's allegations are true, when GTCR convinced MTA not to hire Waimberg, it acted knowing and intending that the brunt of its actions would be felt primarily in Pennsylvania rather than another forum.
[5] A motion to dismiss pursuant to Rule 12(b)(6) should be granted when there is a "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). In evaluating a motion to dismiss for failure to state a claim, the court must determine whether "under any reasonable reading of the pleadings, the plaintiffs may be entitled to relief" and the court must "accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn therefrom." Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996). The court should not inquire as to whether the plaintiff would ultimately prevail but only whether it is entitled to offer evidence to support its claims. See Nami, 82 F.3d at 65. A motion to dismiss should be granted only if the "plaintiffs could prove no set of facts that would entitle them to relief." Id.; see also Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir.1990).
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52 F. Supp. 2d 950 (1999)
Rodney PETTIS, Plaintiff,
v.
ALEXANDER GRAPHICS, LTD., d/b/a Alexander Press, Defendant.
No. IP 97-1969-C H/G.
United States District Court, S.D. Indiana, Indianapolis Division.
March 11, 1999.
*951 Denise K. LaRue, Lester H. Cohen, Bradley L. Wilson, Haskin Lauter Cohen & Larue, Indianapolis, IN.
Jack H. Rogers, Patricia L. Ogden, Barnes & Thornburg, Indianapolis, IN.
ENTRY ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S MOTION TO STRIKE
HAMILTON, District Judge.
This is a race discrimination case filed by plaintiff Rodney Pettis, an African-American who worked for defendant Alexander Graphics, Ltd., for a period of four months before he was terminated. At the heart of this case is a single incident that occurred on the morning of April 25, 1996. After both Pettis and a white co-worker, Duane Griffith, showed up for work at the usual time, instead of two hours early as they had been directed for mandatory overtime, there occurred a loud, angry, and vulgar exchange between Pettis and his supervisor. Pettis was terminated the following Monday. He alleges race discrimination in violation of 42 U.S.C. § 1981 and Title VII of the Civil Rights Act of 1964. Defendant Alexander Graphics has moved for summary judgment, and plaintiff Pettis has moved to strike portions of defendant's brief. The evidence submitted by the parties shows typically messy and contradictory testimony about the events of that morning and defendant's treatment of late employees the type of testimony that precludes resolution of this case on a motion for summary judgment.
Plaintiff's Motion to Strike
Pettis has moved to strike those portions of Alexander Graphics' brief in support of its motion for summary judgment that address some of his prior employment history. Pettis contends his employment history is irrelevant. Alexander Graphics did not respond to the motion to strike. The court agrees that Pettis' employment history is irrelevant, at least for purposes of summary judgment, and therefore strikes the challenged material at pages 4-5 of Alexander Graphics' brief.
Defendant's Motion for Summary Judgment
Defendant Alexander Graphics has moved for summary judgment on both counts of Pettis' complaint, under 42 U.S.C. § 1981 and Title VII of the Civil Rights Act of 1964. As explained briefly below, the court denies Alexander Graphics' motion for summary judgment on both of Pettis' claims.
I. 42 U.S.C. § 1981
Section 1981 addresses racial discrimination in contractual relationships. It provides in relevant part: "All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts *952 ... as is enjoyed by white citizens...." 42 U.S.C. § 1981(a). Alexander Graphics argues that Pettis cannot bring a § 1981 claim because he was an employee at-will, without a contract for employment for a specific term. Alexander Graphics relies on dicta from Gonzalez v. Ingersoll Milling Machine Co., 133 F.3d 1025 (7th Cir.1998), which stated: "In order to bring a section 1981 claim there must at least be a contract.... Arguably, since [plaintiff] was an employee at-will, and did not have any contractual rights regarding the term of her employment, she cannot claim that she was discriminated against with respect to [the] layoff." Id. at 1034-35. The Seventh Circuit made clear in Gonzalez that it was not basing its decision on the § 1981 claim on that argument: "However, we need not determine whether [plaintiff's] at-will status provided adequate support for her section 1981 claim because even if we were to allow [plaintiff's] section 1981 claim to stand ... it would fail for the same reasons as her Title VII claim." Id. at 1035.
Although this court gives careful consideration to dicta from the Seventh Circuit, it also has an obligation to give "most respectful consideration to the decisions of the other courts of appeals and [to] follow them whenever [it] can." Colby v. J.C. Penney Co., 811 F.2d 1119, 1123 (7th Cir. 1987). The Fifth Circuit addressed this issue a few months ago and held in Fadeyi v. Planned Parenthood Ass'n of Lubbock, Inc., 160 F.3d 1048 (5th Cir.1998), that an at-will employment relationship (under Texas law) is a contract for purposes of § 1981. Fadeyi represents a square holding by a United States Court of Appeals. Also, its decision is, in this court's view, in harmony with the relevant decisions of the Supreme Court of the United States and the indisputable legal proposition that there exists a contractual relationship between an employer and employee regardless of whether the relationship is at-will, for a specified term, or is terminable only for good cause.
The Fifth Circuit relied on the fact that the Texas Supreme Court has recognized that an at-will employment relationship is a contract by concluding that an at-will employee could maintain a cause of action for tortious interference with a contract. Id. at 1050. Similarly, the Supreme Court of Indiana has held that employment at-will involves a contractual relationship. In Bochnowski v. Peoples Federal Savings & Loan Ass'n, 571 N.E.2d 282, 285 (Ind. 1991), the court held that an at-will employee can state a valid cause of action for tortious interference with an employment contract. The court explained that while "a party to an at will contract may have a right to terminate the contract, `[u]ntil he has so terminated it, the contract is valid and subsisting, and the defendant may not improperly interfere with it.'" Id. at 284-85, quoting Restatement (Second) of Torts § 766 cmt. g (1979).
In Fadeyi the Fifth Circuit also relied on the Supreme Court's decision in Patterson v. McLean Credit Union, 491 U.S. 164, 109 S. Ct. 2363, 105 L. Ed. 2d 132 (1989), which assumed that an at-will employee is entitled to protection under § 1981 (although Patterson limited the scope of that protection on grounds effectively overruled by the Civil Rights Act Amendments of 1991). The court in Fadeyi also relied on the policy embodied in the amendments to § 1981 in the Civil Rights Act Amendments of 1991. See 160 F.3d at 1050, discussing Patterson, 491 U.S. at 185, 109 S. Ct. 2363. The Fadeyi court quoted Justice Stevens' separate opinion in Patterson which "appears to be the approach embraced by Congress when it overruled Patterson" by amending § 1981:
An at-will employee, such as petitioner, is not merely performing an existing contract; she is constantly remaking that contract.... [W]hether employed at will or for a fixed term, employees typically strive to achieve a more rewarding relationship with their employers. By requiring black employees to work in a hostile environment, the employer has denied them the same opportunity for advancement that is available *953 to white citizens. A deliberate policy of harassment of black employees who are competing with white citizens is, I submit, manifest discrimination in the making of contracts in the sense in which that concept was interpreted in Runyon v. McCrary, 427 U.S. 160, 96 S. Ct. 2586, 49 L. Ed. 2d 415 (1976).
491 U.S. at 221, 109 S. Ct. 2363, quoted in Fadeyi, 160 F.3d at 1050. The Fadeyi court concluded that to "hold that at-will employees have no right of action under § 1981 would effectively eviscerate the very protection that Congress expressly intended to install for minority employees...." 160 F.3d at 1050. The court continued:
None can contest that discriminating against an employee on the basis of race is illegal and against public policy. In amending § 1981, Congress was advancing such public policy concerns by providing a vehicle for every employee to remedy racial discrimination in the workplace. Congress could not have meant to exclude at-will workers from the reach of § 1981, as to do so would be to allow use of the ubiquitous at-will doctrine "as leverage to incite violations of our state and federal laws."
Id. at 1052 (citation omitted). These considerations, together with the fact that Indiana law plainly treats employment at-will as a contractual relationship, convince this court that an employee should not be precluded from bringing a cause of action under § 1981 solely because of his at-will status. Accordingly, the court denies Alexander Graphics' motion for summary judgment on Pettis' § 1981 claim.
II. Title VII
In analyzing an employment discrimination case, the "central question" is "whether the employer would have taken the same action had the employee been of a different race ... and everything else had remained the same." Carson v. Bethlehem Steel Corp., 82 F.3d 157, 158 (7th Cir.1996). Pettis claims that Alexander Graphics violated Title VII by singling him out for adverse treatment and by terminating his employment because of his race.
Pettis argues that he has established a prima facie case of race discrimination using the McDonnell Douglas indirect proof method. See McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-03, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973). To establish a prima facie case of discriminatory discharge, Pettis must come forward with evidence to show: (1) he belongs to a protected class (in this case, a racial minority); (2) he was performing his job satisfactorily; (3) he suffered an adverse employment decision; and (4) the employer treated similarly-situated white employees more favorably. Oates v. Discovery Zone, 116 F.3d 1161, 1171 (7th Cir.1997). If Pettis comes forward with evidence supporting these elements, the burden then shifts to Alexander Graphics to articulate a legitimate, non-discriminatory reason for its action. E.E.O.C. v. Our Lady of the Resurrection Med. Ctr., 77 F.3d 145, 149 (7th Cir.1996). If Alexander Graphics states a reason, the burden shifts back to Pettis to come forward with evidence sufficient to raise a genuine issue of fact as to whether defendant honestly believed in the articulated reason. Id. The parties contest whether Alexander Graphics treated similarly-situated white employees more favorably and whether Alexander Graphics' articulated, nondiscriminatory reason for firing Pettis is pretextual.
Defendant's theory on summary judgment is that Pettis has failed to demonstrate that white employees were involved in similar disputes with their supervisors and were treated more favorably. Defendant argues that Pettis' supervisor, David Jaco, questioned all employees who were late for work, but that Pettis was not similarly situated to other late employees because only Pettis had "engaged in disruptive, insubordinate behavior toward his or her supervisors." Def. Br. at 14. Defendant also argues that Pettis cannot show that its reason for terminating him that he engaged in "disruptive and insubordinate *954 behavior" was a pretext because Pettis admitted that he argued with his supervisors, admitted that he used profanity, admitted that his voice was loud, and later apologized for his conduct, and because several witnesses heard his "tirade," and the supervisor who fired him was the same one who hired him.
Pettis argues that he was similarly situated to white employees until Jaco "singled out Pettis for a verbal assault that he did not visit on white employees who were late for work." Pl.Br. at 11. Pettis further argues that a reasonable jury could conclude that the events giving rise to Pettis' termination were precipitated by Jaco, and not by Pettis, and that Jaco's "harangue" was motivated by Pettis' race. Id. In other words, Pettis argues that a jury could reasonably conclude that, but for Jaco's "verbal attack" on Pettis, Pettis never would have become "insubordinate." Id. Pettis also contends that a jury could reasonably conclude that Alexander Graphics' asserted reason for Pettis' termination was a "convenient and plausible excuse for purposes of this litigation," and points to the facts that Jaco did not terminate, or even reprimand Griffith (who is white) for being late, and that "everyone" at Alexander Graphics used vulgar language on a "normal everyday" basis. Pl. Br. at 14. Pettis also contends that even if defendant's general manager McClintic made the formal, final decision to fire Pettis, supervisor Jaco had so much influence over the decision that he is a relevant decisionmaker for purposes of Title VII.
The court has reviewed the parties' evidence and concludes that there is a genuine issue of material fact as to whether defendant would have fired plaintiff if he had been of a different race and everything else had remained the same. While summary judgment "is hardly unknown, or for that matter rare, in employment discrimination cases," courts must be careful "not to grant summary judgment if there is an issue of material fact that is genuinely contestable." Wallace v. SMC Pneumatics, Inc., 103 F.3d 1394, 1396 (7th Cir. 1997) (also describing that case as "push[ing] against the outer boundaries" of appropriate use of summary judgment). In deciding a motion for summary judgment the court may not, of course, weigh the credibility of conflicting evidence, nor may the court choose between competing but reasonable inferences to be drawn from circumstantial evidence of a person's intentions. Whether Alexander Graphics terminated Pettis because of his race is a question of fact for a jury to decide. The court therefore denies defendant's motion for summary judgment on Pettis' Title VII claim.
Conclusion
For the reasons set forth above, Pettis' motion to strike portions of defendant's summary judgment brief is GRANTED, and Alexander Graphics' motion for summary judgment is DENIED on both counts. After conferring with counsel in the near future, the court will set new dates for a final pretrial conference and trial.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522384/
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52 F. Supp. 2d 789 (1999)
Divaker R. KATTAR, Plaintiff,
v.
THREE RIVERS AREA HOSPITAL AUTHORITY, Brad Solberg, Ro Jong Park, Kalamazoo Emergency Associates, P.C. and Andrew W. Latham, Defendants.
No. 4:97-CV-147.
United States District Court, W.D. Michigan, Southern Division.
April 26, 1999.
*790 *791 *792 James L. Dyer, Vandervoort, Cooke, McFee, Christ, et al, Battle Creek, MI, for Divaker R. Kattar, plaintiff.
William M. Newman, Lague, Newman & Irish, Muskegon, MI, Mark D. Willmarth, Willmarth & Tanoury, Detroit, MI, for Three Rivers Area Hospital Authority, Brad Solberg, defendants.
William M. Newman, Lague, Newman & Irush, Muskegon, MI, for Ro Jong Park, defendant.
Charles E. Ritter, Miller, Canfield, Paddock & Stone, Kalamazoo, MI, for Kalamazoo Emergency Associates, P.C., Andrew W. Latham, defendants.
OPINION
QUIST, District Judge.
Plaintiff, Divaker Kattar ("Kattar"), a medical doctor, has sued Defendants, Three Rivers Area Hospital Authority ("TRAHA"), Brad Solberg ("Solberg"), and Ro Jong Park ("Park"), for violation of his procedural and substantive due process rights and his First Amendment free speech rights under 42 U.S.C.1983 and conspiracy to violate his civil rights under 42 U.S.C. § 1985, in connection with his removal as Medical Director of Three Rivers Area Hospital ("TRAH").[1] Kattar also seeks to invoke this Court's supplemental jurisdiction under 28 U.S.C. § 1367 over his state law claims for tortious interference with business relationship, retaliatory discharge in violation of public policy, civil conspiracy, and intentional infliction of emotional distress. Now before the Court is Defendants' Motion for Summary Judgment.
Facts
TRAH is an acute care general hospital located in Three Rivers, Michigan, which is operated by TRAHA, a public body created under Michigan law by the vote of residents of the City of Three Rivers, St. Joseph County, and the Townships of Constantine, Fabius, Lockport, and Park. TRAH entered into a written contract ("TRAH/ECS Agreement") with Emergency Care Services ("ECS"), a division of Borgess Health Alliance, to provide emergency medicine services to TRAH's patients. In turn, ECS subcontracted with Kalamazoo Emergency Associates, P.C. ("KEA") to provide emergency physician services to TRAH pursuant to the TRAH/ECS Agreement. In addition to providing for emergency medicine services, the TRAH/ECS Agreement specified the procedure for the appointment of TRAH's Emergency Services Medical Director ("ESMD"). Paragraph 8 of the TRAH/ECS Agreement, which contains the appointment procedure, provides:
[KEA] will designate to ECS, and ECS shall recommend to [TRAH], an Emergency Physician for the position of [ESMD]. The Emergency Physician designated by [KEA] and recommended by ECS must apply for and be appointed [ESMD] in accordance with [TRAH]'s Medical Staff Bylaws. The duties of the [ESMD] are delineated in Appendix A attached to this Agreement.
(TRAH/ECS Agreement ¶ 2.2(A)(8), Pl.'s Resp.Br.Ex. 16.)[2]
*793 On June 5, 1995, KEA entered into a written agreement with Kattar's wholly-owned medical professional corporation, Kattar, P.C. ("KEA/Kattar, P.C. Agreement"), which provided that Kattar, P.C. would provide emergency physician services at TRAH and other hospitals to which KEA furnished services. Under the KEA/Kattar, P.C. Agreement, Kattar, P.C. was an independent contractor and Kattar was recognized as an employee of Kattar, P.C. (See KEA/Kattar, P.C. Agreement ¶¶ 1,2, Defs.' Br.Supp.Ex. H.) On November 11, 1995, KEA and Kattar, P.C. amended the KEA/Kattar, P.C. Agreement to provide for additional compensation in anticipation of TRAH's appointment of Kattar to the ESMD position. At or about that time and pursuant to the TRAH/ECS Agreement, KEA recommended that Kattar be appointed ESMD. On November 15, 1995, TRAH made the appointment. Kattar served as the ESMD until March 21, 1997, when he was removed by Solberg, the Chief Executive Officer of TRAH, apparently without objection from KEA. During the time Kattar served as ESMD, he also held the position as Service Chief for Emergency Medicine, either as a separate position or as part of his responsibilities as ESMD.[3]
In February 1997, Kattar's relationship with TRAH began to deteriorate. Kattar alleges that the rift occurred because he raised concerns about inadequate medical care provided by Defendant Park, TRAH's Chief of Staff, to a patient known as Katherine I who died while admitted to TRAH.[4] Defendants assert that Kattar was removed from the position because of his failure to perform his duties as ESMD.
On March 6, 1997, Solberg sent a letter to Dr. Andrew W. Latham ("Latham"), the president of KEA, which detailed Solberg's concerns about Kattar's "ability to function within [the] emergency department, most notably as the medical director." (Letter from Solberg to Latham of 3/6/97, Ex. C to Solberg Aff., attached to Defs.' Br.Supp.) One week later, Solberg made a formal request to Latham that KEA remove Kattar from the ESMD position. Solberg indicated, however, that TRAH would have no objection to Kattar continuing in the regular call rotation. KEA did not act on Solberg's request, and Kattar requested that Solberg provide the reasons for seeking his removal from the position. On March 19, 1997, Solberg sent a memorandum to Kattar which outlined the reasons for the removal and asked Kattar to submit his resignation as ESMD by March 20. When Kattar refused to resign, Solberg sent Kattar a memorandum dated March 21, 1997, notifying Kattar that he was removed as ESMD effective that day.
Kattar was permitted to remain on staff as an emergency room physician after his removal. Shortly thereafter, KEA sent a notice to Kattar that KEA would be terminating the KEA/Kattar, P.C. Agreement as of July 16, 1997. However, on June 19, 1997, Solberg sent a written request to KEA that Kattar be removed from service immediately "[d]ue to recent concerns regarding care that [was] reported to [Solberg] by [TRAH's] Chief of Staff," Defendant Park. (Mem. from Solberg to Latham of 6/19/97, Pl.'s Resp.Br.Ex. 13.) KEA honored Solberg's request and terminated the KEA/Kattar, P.C. Agreement that day. Kattar did not work at TRAH after that time. Kattar contends that Solberg's request for Kattar's removal had nothing to do with Kattar's performance, but instead was intended to prevent Kattar from further discussing the Katherine I incident with TRAH staff and others.
*794 Summary Judgment Standard
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed. R.Civ.P. 56. The rule requires that the disputed facts be material. Material facts are facts which are defined by substantive law and are necessary to apply the law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A dispute over trivial facts which are not necessary in order to apply the substantive law does not prevent the granting of a motion for summary judgment. Id. at 248, 106 S. Ct. at 2510. The rule also requires the dispute to be genuine. A dispute is genuine if a reasonable jury could return judgment for the non-moving party. Id. This standard requires the non-moving party to present more than a scintilla of evidence to defeat the motion. Id. at 251, 106 S. Ct. at 2511 (citing Schuylkill and Dauphin Improvement Co. v. Munson, 81 U.S. 442, 14 Wall. 442, 448, 20 L. Ed. 867 (1871)).
A moving party who does not have the burden of proof at trial may properly support a motion for summary judgment by showing the court that there is no evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S. Ct. 2548, 2553-54, 91 L. Ed. 2d 265 (1986). If the motion is so supported, the party opposing the motion must then demonstrate with "concrete evidence" that there is a genuine issue of material fact for trial. Id.; Frank v. D'Ambrosi, 4 F.3d 1378, 1384 (6th Cir.1993). The court must draw all inferences in a light most favorable to the non-moving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir. 1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986)).
Discussion
I. Federal Claims
A. Due Process
In Count I of his complaint, Kattar alleges under 42 U.S.C. § 1983 that Defendants violated his right to be free from deprivations of his property without due process by removing him from the ESMD and/or Service Chief position without a hearing as required by the Medical Staff Bylaws.[5] Defendants contend that they are entitled to summary judgment on Kattar's due process claim because did not have a property interest in the ESMD position.[6]
Under the Fourteenth Amendment, no state actor may "deprive any person of life, liberty, or property, without due process of law." U.S. Const. amend. XIV. "The Fourteenth Amendment's procedural protection of property is a safeguard of the security of interests that a person has already acquired in specific benefits." Board of Regents of State Colleges v. Roth, 408 U.S. 564, 576, 92 S. Ct. 2701, 2708, 33 L. Ed. 2d 548 (1972). Thus, to be entitled to the protections of the Fourteenth Amendment, a plaintiff must show that he possesses a property interest which may *795 be afforded constitutionally guaranteed due process. See Bailey v. Floyd County Bd. of Educ., 106 F.3d 135, 141 (6th Cir. 1997); Vinyard v. King, 728 F.2d 428, 430 & n. 5 (10th Cir.1984).
Property interests are not defined by the Constitution but instead "are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." Roth, 408 U.S. at 577, 92 S. Ct. at 2709. A property interest must be based upon "rules or mutually explicit understandings that support [the plaintiff's] claim of entitlement to the benefit and that he may invoke at a hearing." Perry v. Sindermann, 408 U.S. 593, 601, 92 S. Ct. 2694, 2699, 33 L. Ed. 2d 570 (1972) (citing Roth). However, "an abstract need or desire" for or "a unilateral expectation of" a benefit is insufficient to create a property interest. Roth, 408 U.S. at 577, 92 S. Ct. at 2709. Typically, although not exclusively, property interests are created by express contract, implicit understandings supported by informal policies and procedures, or statute. See Perry, 408 U.S. at 601-03, 92 S. Ct. at 2699-2700; Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 538-39, 105 S. Ct. 1487, 1491, 84 L. Ed. 2d 494 (1985).
Defendants contend that Kattar had no property interest in the ESMD position because the provisions of the TRAH/ECS Agreement and the TRAH Medical Staff Bylaws, by which Kattar was appointed to and discharged from the position, did not create a legitimate expectation of a continuing right to hold the position or of protection from removal from the position. In particular, Defendants point out that Kattar was appointed to the ESMD position pursuant to paragraph 8 of the TRAH/ECS Agreement, which provides:
[KEA] will designate to ECS, and ECS shall recommend to [TRAH], an Emergency Physician for the position of [ESMD]. The Emergency Physician designated by [KEA] and recommended by ECS must apply for and be appointed [ESMD] in accordance with [TRAH]'s Medical Staff Bylaws. The duties of the [ESMD] are delineated in Appendix A attached to this Agreement.
(TRAH/ECS Agreement ¶ 2.2(A)(8), Pl.'s Resp.Br.Ex. 16.) Defendants contend that Kattar was removed from the ESMD position pursuant to section 9.3 of the TRAH Medical Staff Bylaws, which states in relevant part that:
Removal from office of a medico-administrative officer for grounds unrelated to his professional clinical capability and his exercise of clinical privileges may be accomplished in accordance with the usual personnel policies of the Hospital or the terms of such officer's employment agreement, if any....
(TRAH Medical Staff Bylaws § 9.3, Pl.'s Resp.Br.Ex. 12.) In turn, Defendants contend that Kattar was removed in accordance with section 9.3 of the bylaws because the removal was accomplished pursuant to paragraph 11 of the TRAH/ECS Agreement, which provides:
[TRAH] may request, in writing, upon reasonable grounds, to remove one or more Emergency Physician(s) from the lists of those who perform services pursuant to the agreement. In the event that ECS or [KEA] does not agree that there are reasonable grounds for such requests, ECS, [KEA], and/or the subject physician shall be entitled to exercise the hearing and appeal rights afforded to medical staff members under the Hospital's Medical Staff Bylaws. This subparagraph may be changed by ECS upon the renegotiation of the contract between ECS and [KEA].
(TRAH/ECS Agreement ¶ 2.2(A)(11), Pl.'s Resp.Br.Ex. 16.)
Defendants cite Bloom v. Hennepin County, 783 F. Supp. 418 (D.Minn.1992) (mem. op.), as support for their argument that Kattar did not have a property interest in the ESMD position. In Bloom, the plaintiff was a physician who was employed by a nonprofit corporation which *796 was the exclusive provider of physician services to a public hospital. As a member and employee of the nonprofit corporation, the plaintiff had staff privileges at the hospital. The plaintiff's employment was terminated by the nonprofit corporation and, consequently, the plaintiff's staff privileges at the hospital were also terminated. The plaintiff filed suit alleging, among other things, that the hospital and the nonprofit corporation deprived him of due process by terminating his staff privileges without a hearing as required by the hospital's medical staff bylaws. See id. at 436. The court rejected the plaintiff's arguments that staff privileges are ipso facto property interests under the Fourteenth Amendment and that the hospital bylaws, which required a hearing before the termination of staff privileges, gave rise to a protected property interest. See id. at 437. The court found that the plaintiff's relationship with the hospital was governed by both his contract with the nonprofit corporation and the hospital's bylaws. The court also noted that the plaintiff's contract with the nonprofit corporation provided that his employment could be terminated without cause upon sixty days notice and required the plaintiff to abide by the terms of the nonprofit corporation's contract with the hospital. The court concluded that because the plaintiff was aware that his staff privileges could be terminated if his employment was terminated by the nonprofit corporation or the nonprofit corporation lost its contract with the hospital, his "interest in his staff privileges was merely a unilateral expectation that they would continue, not a legitimate claim of entitlement giving rise to a protected property interest under Roth." Id. at 438.
Kattar argues that his status as Service Chief, which he obtained either by virtue of his appointment as ESMD or through a separate appointment, was subject to a separate removal provision under the TRAH Medical Staff Bylaws which was not limited by either the TRAH/ECS Agreement or the KEA/Kattar P.C. Agreement. In particular, Kattar points to section 10.2-1(b) of the bylaws, which provides that:
A Service Chief shall serve a one-year term commencing with his appointment. He may be eligible to succeed himself. Removal of a Service Chief may be done by the Authority Board acting upon its own recommendation, or upon the recommendation of the MEC or a two-thirds ( 2/3 ) majority vote of the members of the Medical Staff eligible to vote. Removal from office shall be accomplished pursuant to Section 9.3.
(TRAH Medical Staff Bylaws § 10.2-1(b), Pl.'s Resp.Br.Ex. 12.) Kattar contends that this section, which provides for a one-year term for the Service Chief position, is sufficient to create a property right because it details the proper removal procedure and gave him the opportunity to be heard by the Authority Board or the Medical Staff eligible to vote prior to being removed from that position.
Kattar also contends that Defendants' reliance on paragraph 11 of the TRAH/ECS Agreement as supporting his removal from the ESMD position is misplaced because that paragraph is limited to removal of "Emergency Physicians" who perform services for TRAH pursuant to the TRAH/ECS Agreement. Kattar argues that that paragraph was not applicable to his removal from the ESMD position because it does not cover situations where TRAH seeks to remove the ESMD or Service Chief.
The Court finds that regardless of whether the ESMD and Service Chief positions were the same or different positions, or whether Kattar actually held both positions, or whether paragraph 11 of the TRAH/ECS Agreement applied to the removal of Kattar from the ESMD position, Kattar's due process claim fails because even if all inferences are accepted in a light most favorable to Kattar, he has not shown that he held a property interest in either position that is protected under the Fourteenth Amendment. In analyzing the issue, it is important to bear in mind the contours of the relationship between TRAH and Kattar and exactly what rights *797 are at issue. First, unlike the large majority of cases which have determined whether a particular claim of entitlement to a benefit amounts to a property interest, this case does not involve public employment because Kattar was an employee of his professional corporation and not TRAH. Second, the case does not implicate contract rights because Kattar, whether individually or through his professional corporation, did not have a contractual relationship with TRAH. Thus, Kattar was not an independent contractor with TRAH. Finally, the case does not involve termination of staff privileges. Therefore, cases which have dealt with the issue of whether staff privileges constitute property interests are not particularly germane to the facts in this case.
One case which the Court finds analogous to this case in several respects is San Bernardino Physicians' Services Medical Group, Inc. v. County of San Bernardino, 825 F.2d 1404 (9th Cir.1987). The plaintiff in that case was a professional corporation owned by a group of doctors which had contracted with a county to provide emergency and burn care treatment and surgical services to a county-operated medical center. Prior to the expiration of the contracts, the county notified the plaintiff that it would be terminating the contract. The county rescinded its termination after the plaintiff filed an action in state court challenging the termination. However, after the recission but before the expiration of the contracts, the plaintiff sued the county in federal court alleging that threats and harassment by county employees violated the plaintiff's due process rights. See id. at 1406. In considering whether the plaintiff's contracts with the county gave rise to a protected property interest, the Ninth Circuit rejected the plaintiff's attempt to characterize the contracts as employment contracts on the grounds that the plaintiff could not be an employee and the individual physicians who provided the actual services were employees of the plaintiff professional corporation rather than the state. See id. at 1409. The court determined that the contract was a contract to supply medical services which was more akin to other types of commercial contracts. The court concluded that the plaintiff's contract did not give rise to a protected property interest, reasoning that "the farther the purely contractual claim is from an interest as central to the individual as employment, the more difficult it is to extend it constitutional protection without subsuming the entire state law of public contracts." Id. at 1409-10.
The facts in this case provide even less support for a protected property interest than the facts in San Bernardino Physicians' Services. Here, Kattar cannot even point to a contract with TRAR which arguably provides a basis for a property interest. Kattar's interest in the ESMD and Service Chief positions is perhaps best described as a naked appointment pursuant to the TRAH/ECS Agreement. Kattar did provide services, but those services were provided pursuant to TRAH pursuant to the KEA/Kattar, P.C. Agreement.
Kattar's best argument is that section 10.2-1(b) of the Medical Staff Bylaws gave rise to a property interest, because that provision is the only basis from which it could be argued that there was a mutual understanding that Kattar had a continuing right to the Service Chief position. However, contrary to Kattar's assertion, section 10.2-1(b) does not require a pretermination hearing or allow Kattar an opportunity to be heard before being removed. More importantly, that provision does not place substantive limits, such as "just cause," on the right to remove a Service Chief. The provision merely provides a process by which removal may be accomplished. Procedures, alone, do not create a legitimate claim of entitlement to a benefit. See Haron v. Board of Educ. of the City of New York, 411 F. Supp. 68, 71 (E.D.N.Y.1976) (stating that "[a] probationary teacher does not gain a `legitimate claim of entitlement' to a tenured position simply because the termination procedure becomes more complex and formal than it was previously" (citation omitted)). As the Tenth Circuit has stated,
*798 [b]y themselves ... procedural protections do not support a "legitimate claim of entitlement" to future employment. At best, they merely support a claim of entitlement to the procedural protections themselves. At least five circuits [,including the Sixth Circuit,] have adopted the view that procedural protections alone do not create a protected property right in future employment; such a right attaches only when there are substantive restrictions on the employer's discretion. For example, if a statute, regulation, or policy specifies the grounds on which an employee may be discharged, or restricts the reasons for discharge to "just cause shown," then the employee has a right to continued employment until such grounds or causes are shown.
Asbill v. Housing Auth. of Choctaw Nation, 726 F.2d 1499, 1502 (10th Cir.1984); see also S & D Maintenance Co. v. Goldin, 844 F.2d 962, 967 (2d Cir.1988) (finding lack of "for cause" provision in meter maintenance contract precluded finding that supplier had property interest in continuation of contract).
Because Kattar has not shown that there were substantive limitations upon his removal from his position as ESMD or Service Chief, the Court concludes that he did not possess a protected property interest in either the ESMD or Service Chief position. Therefore, Kattar's procedural due process claim will be dismissed.[7]
B. First Amendment Claim
In Count II of his complaint, Kattar alleges that Defendants violated his First Amendment free speech rights by removing him from the ESMD/Service Chief position in retaliation for statements which Kattar made regarding the treatment of Katherine I. To establish his retaliation claim, Kattar must show that his speech was protected by the Constitution and that the speech was a substantial or motivating factor in the adverse employment action. See Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 287, 97 S. Ct. 568, 576, 50 L. Ed. 2d 471 (1977); Dambrot v. Central Mich. Univ., 55 F.3d 1177, 1186 (6th Cir.1995). Defendants will prevail if they can show that the same action would have been taken even in the absence of the protected speech. See Dambrot, 55 F.3d at 1186.
Kattar's speech is entitled to protection only if it was a matter of public concern. See Waters v. Churchill, 511 U.S. 661, 668, 114 S. Ct. 1878, 1884, 128 L. Ed. 2d 686 (1994). If the speech does not present a matter of public concern, the plaintiff's claim must be dismissed. However, even if a court concludes that the speech involved a matter of public concern, it must nonetheless balance "the interests of the [employee], as a citizen, in commenting upon matters of public concern and the interest of the State, as an employer, in promoting the efficiency of the public services it performs through its employees." Pickering v. Board of Educ. of Township High Sch. Dist. 205, Will City, 391 U.S. 563, 568, 88 S. Ct. 1731, 1734-35, 20 L. Ed. 2d 811 (1968). "If the employee's free speech interests outweigh the efficiency interest of the government as employer, the employee's First Amendment rights have been violated." Dambrot, 55 F.3d at 1186.[8]
*799 The inquiry regarding whether speech addresses a matter of public concern is a question of law. See Williams v. Kentucky, 24 F.3d 1526, 1534 (6th Cir. 1994). "[M]atter[s] of political, social, or other concern to the community" are generally regarded as matters of public concern. Connick v. Myers, 461 U.S. 138, 146, 103 S. Ct. 1684, 1690, 75 L. Ed. 2d 708 (1983). However, words alone do not establish the nature of the speech. The "content, form, and context of a given statement, as revealed by the whole record," must be considered in evaluating whether the plaintiff's speech was of concern to the public. Id. at 147-48, 103 S. Ct. at 1690. In a recent opinion addressing a government employee's free speech claim, the Sixth Circuit noted that
[i]t is important ... to distinguish matters of public concern from internal office politics. Federal courts normally do not review personnel decisions reacting to an employee's behavior "when a public employee speaks not as a citizen upon matters of public concern, but instead as an employee upon matters of only personal interest" ... Jackson v. Leighton, 168 F.3d 903, 909-10 (6th Cir.1999) (quoting Connick, 461 U.S. at 147, 103 S. Ct. at 1690).
Kattar's claim is based upon statements that he made to TRAH employees and administrators regarding Park's treatment of Katherine I. In several cases, courts have held that statements by health care providers regarding patient care involved matters of public concern. For example, in Paradis v. Montrose Memorial Hospital, 157 F.3d 815 (10th Cir.1998), the court held that complaints made by nurses to hospital administrators regarding a doctor's conduct, which included, among other things, treating patients based upon their ability to pay and practicing medicine without a license were "self-evidently" matters of concern to the public. Id. at 818. The Ninth Circuit in Gillette v. Delmore, 886 F.2d 1194 (9th Cir.1989), held that a fireman's comments to police officers, other firemen, and the fire captain regarding the manner in which police and firemen handled a call involving a person suspected of overdosing on drugs presented a matter of public concern even though the statements were not directed to the public at large. See id. at 1197-98. In an unreported decision, the Tenth Circuit held that a pharmacist's statements to a state pharmacy board regarding filling of prescriptions for prisoners at a county jail "appear[ed] to be matters of public concern because they indicate[d] possible improper medical treatment of county jail inmates and because there [was] a public interest in ensuring that pharmacies are operated in accordance with federal and state regulations." Arnold v. Oklahoma County Bd. of County Comm'rs, 77 F.3d 492, 1996 WL 84125, at *4 (10th Cir.1996). In Teeters v. Scott, 733 F. Supp. 1279 (E.D.Ark.1990) (mem.op.), the court held that a licensed psychiatric technician nurse's statements made to the mother of a patient regarding the quality of care being given to the patient constituted a matter of public concern. See id. at 1282-83. See also DiMarco v. Rome Hosp. & Murphy Mem'l Hosp., No. 88-CV-1258, 1991 WL 336000, at *8 (N.D.N.Y. July 1, 1991) (mem.op.) (finding that physician's speech regarding his patients' well-being and general workings of the hospital were based upon physician's concern as a professional rather than his personal dissatisfaction and therefore presented matters of public concern).
Defendants argue that Kattar's statements did not involve a matter of public concern because Kattar made the statements in response to complaints that had been made about his performance as ESMD and the statements concerned internal *800 hospital procedures in connection with an investigation of the care provided to Katherine I. Defendants contend that this case is factually similar to Zaky v. United States Veterans Administration, 793 F.2d 832 (7th Cir.1986), in which the court held that statements made by a physician regarding patient care were not entitled to protection under the First Amendment because they were made during the course of an internal process of determining the policy that the hospital would follow in delivering patient care. See id. at 838-39. In addition, the court found that statements were made to advance the physician's personal interest because "the majority of the statements were made in defense of the numerous complaints lodged against [the physician]...." Id. at 839.
The Court finds Zaky distinguishable from the case at bar because there is no evidence that Kattar's statements were made as part of an internal process of policy determination. Rather, the evidence shows that Kattar made the statements sometime in early February to TRAH's Risk Manager, Mary Kistler, and on March 10, to Dr. Latham of KEA, out of concern for whether proper care was given to the patient. (See Compl. ¶¶ 45, 47; Kattar Dep. at 121, Pl.'s Resp. Br. Ex. 7.) In addition, although Defendants contend that Kattar made the statements in response to criticisms about his performance as ESMD and after he was removed from that position, Kattar's evidence shows that his statements to Mary Kistler in early to mid-February were made prior to the time Solberg first made known his "serious concerns" about "Kattar's ability to function within [the] emergency department ... as the [ESMD]." (Letter from Solberg to Latham of 3/6/97, Solberg Aff. Ex. C, attached to Defs.' Br. Supp.) Furthermore, Kattar has shown that he made the statements prior to his removal from the ESMD position.
In order to show that TRAH's concerns with Kattar's performance had been made known to Kattar prior to the time Kattar made the statements, TRAH offers a memorandum dated March 11, 1996, from Dr. Robert Hill to Dr. Latham of KEA regarding the results of an evaluation of Kattar's performance as ESMD. Dr. Hill indicated that there were "concerns [about Kattar's] leadership ability, understanding the proper progression of implementing policies, interaction with the ED Manager and lack of participation on the Medical Control Board," but noted that Kattar's performance "[i]n all other areas" was "satisfactory." (Mem. from Hill to Latham of 3/11/96, Defs.' Reply Br. Ex. C.) As Defendants concede, the memorandum was written almost one year prior to the date Solberg raised his concerns about Kattar's performance. Defendants have not presented any evidence that the concerns identified in the March 11, 1996, memorandum were not addressed or that they still presented a serious issue in terms of Kattar's ability to perform his duties as ESMD at the time he made his statements in February 1997. Furthermore, Kattar has shown that on December 6, 1996 only a few months before Solberg demanded that Kattar resign Kattar received a favorable evaluation from Dr. Latham which highlighted Kattar's abilities to "effectively interact with the medical staff members in general" and "investigat[e] physician issue and achiev[e] satisfactory resolutions to problems." (Letter from Latham to Kattar of 12/5/96, Pl.'s Resp. Br. Ex. 4.) Dr. Latham also informed Kattar that Solberg "indicated that [Kattar's] overall administrative performance ha[d] been good." (Id.) While the March 6, 1997, letter does show that TRAH had concerns with Kattar's performance at least as early as the beginning of March 1997, some of which might be considered to be the same concerns identified by Dr. Hill in his March 11, 1996, memorandum, the Court finds that a question of fact remains regarding whether Kattar's statements were made in response to such concerns.
The Court must also apply the Pickering balance test to determine whether TRAH's interest in delivering efficient *801 services outweighed Kattar's interest in the speech. Those factors include:
(1) the need for harmony in the office or work place; (2) whether the government's responsibilities require a close working relationship to exist between the plaintiff and co-workers when the speech in question has caused or could cause the relationship to deteriorate; (3) the time, manner, and place of speech; (4) the context in which the dispute arose; (5) the degree of public interest in the speech; and (6) whether the speech impeded the employee's ability to perform his or her duties.
Roberts v. Van Buren Pub. Sch., 773 F.2d 949, 954 (8th Cir.1985) (quoting Bowman v. Pulaski County Special Sch. Dist., 723 F.2d 640, 644 (8th Cir.1983)).
Because Defendants' arguments focused solely on the nature of the speech and not upon the Pickering balancing of competing interests, they have not presented any evidence specifically directed at the relevant factors. The Court has reviewed the evidence in the record to determine whether Kattar's speech impaired his ability to perform his duties or otherwise disrupted TRAH's ability to function effectively or deliver services in an efficient manner. Although the evidence shows that Kattar's statements regarding the care given to the patient may have caused some internal conflict in terms of how the issue should be addressed, the Court finds nothing which suggests that Kattar's comments were disruptive to TRAH's operations. Cf. Jackson, 168 F.3d at 912 (finding that medical college's interest in efficient and effective administration of programs outweighed physician's interests where physician's comments "created internal conflict resulting in a departmental upheaval'"). Thus, the Court concludes that TRAH's interests did not outweigh Kattar's interest.
Defendants also contend that they are entitled to summary judgment because Kattar has failed to produce any evidence which shows that Kattar's speech regarding the treatment of the patient was a substantial or motivating factor in the decision to remove him from the ESMD position. Defendants contend that Kattar was removed from the position for reasons unrelated to his comments. However, the Court finds that Kattar has presented sufficient evidence to create a genuine issue of material fact regarding the reason for Kattar's removal from the ESMD position. Although Defendants have shown that concerns were raised about Kattar's performance almost a year prior to his removal, Kattar has shown that a more recent evaluation indicated that Kattar was doing a satisfactory job and that TRAH, and in particular, Solberg, thought that Kattar's "overall administrative performance ha[d] been good." In addition, Solberg's criticisms of Kattar's performance came after Kattar first commented upon Park's treatment of the patient. Thus, a reasonable person could conclude that Kattar was removed because of his comments.[9]
C. Other Claims
The Court will dismiss Kattar's claim in Count V for conspiracy to violate his civil *802 rights under federal and state law as Kattar has conceded that dismissal of that claim is proper in light of the dismissal of KEA and Dr. Latham as defendants.
II. State Law Claims
A. Tortious Interference
In Count III, Kattar alleges a claim for tortious interference with business relationship. Specifically, Kattar claims that TRAH, Solberg, and Park intentionally interfered with his relationship with KEA by causing KEA to terminate the KEA/Kattar, P.C. Agreement.[10] (See Compl. ¶¶ 73-76.) To prove a tortious interference claim, a plaintiff must show that: (i) he had a valid business relationship; (ii) the defendant knew of the business relationship; (iii) the defendant intentionally interfered with and caused a breach of the relationship; and (iv) he suffered damage as a result of the termination of the relationship. Michigan Podiatric Med. Ass'n v. National Foot Care Program, Inc., 175 Mich.App. 723, 735, 438 N.W.2d 349, 354 (1989). In addition, a plaintiff must allege either "the intentional doing of a per se wrongful act or the doing of a lawful act with malice and unjustified in law for the purpose of invading the contractual rights or business relationship of another." Feldman v. Green, 138 Mich. App. 360, 378, 360 N.W.2d 881, 891 (1984) (per curiam). Where the plaintiff relies upon lawful acts, he "must demonstrate, with specificity, affirmative acts by the interferor which corroborate the unlawful purpose of the interference." Id. at 369-70, 360 N.W.2d at 886.
Kattar's claim, as set forth in his brief in response to Defendants' motion, is that Solberg acted for his and Park's benefit when Solberg sent his June 19, 1997, memorandum to Dr. Latham requesting Kattar's immediate removal from service at TRAH based upon "recent concerns regarding patient care...." (Mem. from Solberg to Latham of 6/19/97, Pl.'s Resp. Br. Ex. 13.) Specifically, Kattar alleges that Solberg and Park sought to have Kattar removed from TRAH in order to cover up Park's failure to remove a surgical sponge from Katherine I and to prevent Kattar from further disclosing his views on the improper treatment rendered to Katherine I.
Based upon the record, the Court finds that Kattar has failed to show that either Solberg or Park intentionally committed a wrongful act or a lawful act with malice and unjustified in law for the purpose of interfering with Kattar's relationship with KEA. Although Kattar alleges that Solberg acted outside the scope of his responsibilities as CEO of TRAH in sending the June 19, 1997, memorandum to Dr. Latham requesting that Kattar be immediately removed from service at TRAH, there is no evidence which shows that Solberg or Park were acting for their own personal benefit and not to further the interests of TRAH.
Kattar attempts to show that Solberg and Park acted with an improper purpose, namely, to silence Kattar regarding the Katherine I incident, by presenting evidence of an incident involving Kattar and Park regarding patient care in which Park threatened that he would take steps to prevent Kattar from obtaining privileges at other hospitals. (See Risk Management Report of 6/19/97, Pl.'s Resp. Br. Ex. 14.) Even if Solberg sent the memorandum because of the incident between Kattar and Park, the evidence does not give rise to an inference that Solberg's request to remove Kattar had anything to do with the Katherine I incident. It is undisputed that Kattar's statements regarding the Katherine I incident were made in February and March, 1997, but Kattar was permitted to remain on staff for three months after he was removed as ESMD. Kattar *803 has not offered any evidence to show that he made any statements during that period regarding the Katherine I incident or that Solberg or Park made any statements to him during that period from which it could be inferred that Solberg's June 19, 1997, request was connected in any way to the Katherine I incident. Therefore, Defendants are entitled to summary judgment on Kattar's tortious interference claim.[11]
B. Intentional Infliction of Emotional Distress
In Count VI of his complaint Kattar alleges a claim for intentional infliction of emotional distress. The Sixth Circuit recently addressed a claim for intentional infliction of emotional distress under Michigan law in Andrews v. Prudential Securities, Inc., 160 F.3d 304 (6th Cir. 1998). In Andrews, the court stated that while the Michigan Supreme Court has not recognized the tort of intentional infliction of emotional distress, the Sixth Circuit has assumed in previous opinions that the Michigan Supreme Court would recognize the tort. See id. at 309. The Andrews court summarized the proof required to sustain a claim of intentional infliction of emotional distress as follows:
To establish a prima facie case of intentional infliction of emotional distress, a plaintiff must establish four elements: (1) extreme and outrageous conduct; (2) intent or recklessness; (3) causation; and (4) severe emotional distress. The outrageous conduct requirement is satisfied only by conduct that is "so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community." Liability arises, moreover, only "where the distress inflicted is so severe that no reasonable man could be expected to endure it."
Id. (citations omitted) (quoting Roberts v. Auto-Owners Ins. Co., 422 Mich. 594, 608-09, 374 N.W.2d 905, 908-09 (1985)).
The Court finds that Defendants are entitled to summary judgment on Kattar's emotional distress claim because Defendants' conduct was not sufficiently outrageous as a matter of law. The conduct alleged cannot be characterized as the type of conduct require to "satisf[y] the strict standard for establishing the tort" of intentional infliction of emotional distress. Hartleip v. McNeilab, Inc., 83 F.3d 767, 777 (6th Cir.1996) (holding that the conduct of the plaintiff's co-worker in threatening her employment stability, applying pressure on her to engage in a non-business relationship, constantly calling and writing to her, and discussing his sexual fantasies about her with other employees was insufficient conduct to support an emotional distress claim); see also Norris v. State Farm Fire & Cas. Co., 229 Mich. App. 231, 240, 581 N.W.2d 746, 750 (1998) (holding that the plaintiff who asserted discrimination claim against her former employer failed to show that the employer's conduct was sufficiently extreme and outrageous); Meek v. Michigan Bell Tel. Co., 193 Mich.App. 340, 346-47, 483 N.W.2d 407, 410 (1991) (per curiam) (holding that the plaintiff's allegations that she was harassed by her supervisor on the basis of her gender and religion did not constitute extreme and outrageous conduct). In addition, although Kattar claims that he was upset by Park's comments during the June 19, 1997, incident, Kattar has failed to produce any evidence that he *804 suffered severe emotional distress in any form as a result of the alleged conduct. Therefore, summary judgment will be granted on Count VI.
C. Retaliatory Discharge In Violation of Public Policy
The Court will also grant summary judgment on Count IV, which alleges a claim of retaliatory discharge in violation of public policy because Kattar has failed to allege or prove any set of facts that could give rise to such a claim under the Michigan Supreme Court's decision in Suchodolski v. Michigan Consolidated Gas Co., 412 Mich. 692, 316 N.W.2d 710 (1982).[12]
Conclusion
For the foregoing reasons, the Court will grant Defendants' Motion for Summary Judgment on all claims except Kattar's First Amendment claim under Count II.
An Order consistent with this Opinion will be entered.
ORDER
In accordance with the Opinion filed on this date,
IT IS HEREBY ORDERED that Defendants' Motion for Summary Judgment (docket no. 33) is GRANTED IN PART. Counts I, and III through VI are DISMISSED WITH PREJUDICE.
This case will continue only as to Count II.
NOTES
[1] Kattar also sued Kalamazoo Emergency Associates and Andrew W. Latham but has since settled his claims with those Defendants.
[2] The Court notes that the TRAH/ECS Agreement referred to by the parties is dated July 1, 1996, subsequent to the occurrence of some of the relevant facts. However, because both parties refer to the same document in their briefs, the Court will assume that the same contractual provisions were in effect at all relevant times.
[3] Although Defendants denied in their Answer that Kattar held the position of Service Chief, they do not dispute this fact in any of their briefs. Moreover, Kattar has presented evidence produced by TRAH which demonstrates that Kattar was appointed Service Chief for the 1997 year. (See Pl.'s Resp. Br.Ex. 15.) Therefore, at least for purposes of this motion, the Court will take as true Kattar's allegations that he held the Service Chief position.
[4] Kattar apparently believed that the patient died because a surgical sponge was not removed from the patient's abdomen.
[5] Kattar also alleged in Count I that Defendants violated his due process rights by depriving him of his active staff privileges. (See Compl. ¶ 65.) However, the Court finds that Kattar has abandoned this aspect of his claim by failing to respond to Defendants' arguments and by his admission that "he continued to have Active Staff privileges as an Emergency Room Physician...." (Pl.'s Br. Opp'n at 8.) Moreover, Kattar has failed to rebut Defendants' evidence which shows that Kattar's staff privileges were not terminated. (See Chambers Aff. ¶¶ 2, 3, attached to Defs.' Br.Supp.)
[6] Defendants also argue that Kattar did not have a liberty interest in the ESMD position. Kattar only contends in his brief that he held a property interest in his appointed position and does not argue that he had a liberty interest. Therefore, the Court understands Kattar's claim to be only that he was deprived of a property interest.
[7] The heading on Count I also indicates that Kattar is alleging a violation of his right to substantive due process. The Court will treat that claim as abandoned because Kattar did not address it in his brief in response to Defendants' motion for summary judgment.
[8] Although the frameworks adopted in Mt. Healthy City Board of Education and Pickering apply to First Amendment claims of governmental employees, both parties agree that Kattar's claim is governed by the same analysis even though Kattar was not an employee of TRAH. The Court can discern no reason for not applying the same test to Kattar, because even though he was not an employee, his status was similar to that of an employee in that many of the same workplace considerations that apply to governmental employees' free speech rights also apply to Kattar's role as a provider of services to TRAH through ECS and KEA. This application is consistent with the Supreme Court's recent decision in Board of County Commissioners, Wabaunsee County, Kansas v. Umbehr, 518 U.S. 668, 116 S. Ct. 2342, 135 L. Ed. 2d 843 (1996), in which the Court found "no reason to believe that proper application of the Pickering balancing test cannot accommodate the differences between employees and independent contractors." Id. at 678, 116 S. Ct. at 2349.
[9] In their reply brief, Defendants raised for the first time the issue of whether TRAH can be held liable for Solberg's acts because Kattar is apparently attempting to assert liability against TRAH on the basis of respondeat superior. Although Defendants are correct that a municipal entity may not be held liable under a theory of respondeat superior, see Monell v. Department of Social Servs., 436 U.S. 658, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978), Solberg, as the President and CEO of TRAH, clearly had the authority to establish and carry out policy decisions on behalf of TRAH. See Malak v. Associated Physicians, Inc., 784 F.2d 277, 283 (7th Cir.1986) (stating that defendant, who acted as chief executive officer of hospital, was a "policymaker whose conduct [was] in effect that of the governmental entity"). Furthermore, the letter in which Solberg requested Kattar's removal shows that a copy was sent to Robert McDonough, the Authority Board Chairman. It thus appears that Solberg likely acted in conjunction with, or at the request of, the hospital's board. Thus, Kattar's claim against TRAH based upon Solberg's conduct does not depend upon respondeat superior liability.
[10] Kattar alleges in paragraph 75 of his complaint that Defendants caused the June 5, 1997 termination of the KEA/Kattar, P.C. relationship. The Court understands the June 5, 1997, date as actually intended as June 19, 1997, as there is no evidence in the record which relates to a June 5, 1997, termination of the KEA/Kattar, P.C. Agreement.
[11] Defendants also contend that they cannot be held liable on a tortious interference claim because KEA actually terminated the KEA/Kattar, P.C. Agreement effective July 16, 1997, by letter dated April 15, 1997. Thus, Kattar's relationship with KEA was to terminate less than one month after the date Solberg sent his memorandum to Dr. Latham. Because the Court has found that Kattar has failed to show that Solberg and Park engaged in a lawful act with malice and unjustified in law, the Court need not determine whether the impending termination of the KEA/Kattar, P.C. Agreement precludes a tortious interference claim.
[12] Defendants also contend that Kattar's settlement with KEA and Dr. Latham release them from all claims. The Court rejects this argument because Defendants were not vicariously liable for the acts of KEA and Dr. Latham or vice versa. See Theophelis v. Lansing Gen. Hosp., 430 Mich. 473, 480, 424 N.W.2d 478, 481 (1988). Moreover, neither KEA nor Dr. Latham could be liable for TRAH's alleged violation of Kattar's First Amendment rights because they are not state actors.
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52 F. Supp. 2d 471 (1999)
Gary C. TYLER
v.
George M. O'NEILL and Wm. M. Hendrickson, Inc.
No. Civ.A. 99-CV-0136.
United States District Court, E.D. Pennsylvania.
May 24, 1999.
*472 Bruce S. Marks, Ely Goldin, Egorov, Puginski, Afanasiev & Marks, LLC, Philadelphia, PA, for plaintiff.
Jeffrey B. McCarron, Anthony T. Febbo, Swartz, Campbell & Detweiler, Philadelphia, PA, for defendants.
MEMORANDUM AND ORDER
JOYNER District Judge.
By way of the motion which is now pending before this Court, Defendants seek to have Plaintiff's complaint dismissed in its entirety and with prejudice as barred by principles of res judicata. For the reasons which follow, Defendants' motion shall be granted.
Factual Background
Plaintiff filed this lawsuit on January 11, 1999 seeking an injunction compelling defendants to issue 400 shares of stock in *473 Hendrickson, Inc. which were purportedly never issued to him following his purchase of a 10% interest in the company in 1981 and to file amended income tax returns from 1987 to the present. Plaintiff also seeks compensatory and punitive damages from defendants for fraud, conversion, breach of fiduciary duty and breach of contract.
This action was filed not quite one month after Magistrate Judge Thomas Reuter issued his opinion granting the motion of George and Michelenia O'Neill for judgment as a matter of law and to vacate, alter or amend a civil judgment entered by a jury in a prior civil action between the same parties in this Court at No. 97-3353. That case, like the one now before us, also arose out of the plaintiff's 10% shareholder interest in William M. Hendrickson, Inc. and the individual defendants' alleged taking title to corporate property in their own name, failure to pay plaintiff the dividends to which he was entitled, mishandling of the corporation's financial affairs resulting in decreased shareholders' equity, refusal to produce corporate books and records as required by the Pennsylvania Business Corporations Law and failing to represent plaintiff as a 10% company owner on tax returns, loan applications and bankruptcy court filings. There, as here, Mr. Tyler asserted claims for breach of fiduciary duty and fraud, as well as for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et. seq. and conspiracy to violate RICO.
That action was tried on agreement of the parties before Magistrate Judge Reuter to a jury commencing on May 27, 1998 and resulted in a verdict on June 4, 1998 for plaintiff on his breach of fiduciary duty and fraud claims in the amount of $225,000 against George O'Neill only. On the other claims, the jury found in favor of the defendants. In response to special interrogatories on the issue of when plaintiff should have discovered he was harmed by the defendants, however, the jury found that plaintiff should have learned he was harmed in March, 1991. As this response indicated that the plaintiff's fraud and breach of fiduciary duty claims were barred by the two-year statute of limitations, judgment was entered in favor of defendants and against plaintiff as a matter of law pursuant to Fed.R.Civ.P. 50(b). That decision was appealed to and is now pending before, the U.S. Court of Appeals for the Third Circuit.
Defendants now argue in support of the instant motion to dismiss that since plaintiff could (and should) have challenged the corporation's failure to issue stock, failure to produce tax returns and refusal to file amended tax returns to reflect that the plaintiff did not participate in the 1987 decision to allow Hendrickson, Inc. to change its filing status from that of a regular corporation to that of a Subchapter S corporation, he is barred under the doctrine of res judicata (or claims preclusion) from pursuing these claims now. In response, Plaintiff contends: (1) that since he did not endeavor to compel the issuance of his stock or the amendment of the corporate income tax returns in the first action, he is not precluded from asserting these claims in a subsequent action and, (2) given that the refusal to issue stock and to re-file the returns is continuing, the statute of limitations with respect to the claims raised in this action has essentially been tolled. Alternatively, Mr. Tyler submits that the motion to dismiss should be denied because both res judicata and the statute of limitations are affirmative defenses which are properly pled in an Answer to his Complaint and which cannot be determined at this stage of the proceedings.
Standards Governing Rule 12(b)(6) Motions
Among the vehicles often used to challenge the sufficiency of a pleading is the filing of a motion to dismiss for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6) and res judicata, although an affirmative defense, *474 may be raised in a Rule 12(b)(6) motion. Rycoline Products, Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3rd Cir. 1997); Mack v. Municipality of Penn Hills, 547 F. Supp. 863, 868, note 9 (W.D.Pa.1982). Of course, in resolving a Rule 12(b)(6) motion, the court primarily considers the allegations in the complaint, although matters of public record, orders, items appearing in the record of the case and exhibits attached to the complaint may also be taken into account. Chester County Intermediate Unit v. Pennsylvania Blue Shield, 896 F.2d 808, 812 (3rd Cir. 1990). In so doing, the court must accept as true the facts alleged in the complaint, together with all reasonable inferences that can be drawn therefrom and construe them in the light most favorable to the plaintiff. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3rd Cir.1990); Hough/Loew Associates, Inc. v. CLX Realty Co., 760 F. Supp. 1141 (E.D.Pa.1991). Dismissal under Rule 12(b)(6) for failure to state a claim is therefore limited to those instances where it is certain that no relief could be granted under any set of facts that could be proved. Ransom v. Marrazzo, 848 F.2d 398, 401 (3rd Cir.1988); Angelastro v. Prudential-Bache Securities, Inc., 764 F.2d 939, 944 (3rd Cir.1985), cert. denied, 474 U.S. 935, 106 S. Ct. 267, 88 L. Ed. 2d 274 (1985).
Discussion
The doctrine of res judicata[1] is intended to ensure the finality of judgments and prevent repetitive litigation. Sendi v. NCR Comten, Inc., 624 F. Supp. 1205, 1206 (E.D.Pa.1986) citing Brown v. Felsen, 442 U.S. 127, 131, 99 S. Ct. 2205, 2209, 60 L. Ed. 2d 767 (1979). See Also: Montana v. United States, 440 U.S. 147, 99 S. Ct. 970, 59 L. Ed. 2d 210 (1979). Claim preclusion and issue preclusion are the currently accepted terms for two different applications of the doctrine of res judicata; issue preclusion has also been referred to as collateral estoppel. Venuto v. Witco Corp., 117 F.3d 754, 758 (3rd Cir.1997); Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 961, n. 1 (3rd Cir.1991), citing Gregory v. Chehi, 843 F.2d 111, 116 (3rd Cir.1988) and United States v. Athlone Industries, Inc., 746 F.2d 977, 983 n. 4 (3rd Cir.1984).
Under collateral estoppel or issue preclusion, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior cause of action. Mars, Inc. v. Nippon Conlux Kabushiki-Kaisha, 855 F. Supp. 673, 677 (D.Del.1994), aff'd, 58 F.3d 616 (Fed.Cir.1995), citing Montana v. U.S., 440 U.S. at 153, 99 S. Ct. at 973. Claim preclusion, on the other hand, provides that when a court has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound "not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose." Donahue v. Gavin, 1999 WL 165700 (E.D.Pa.1999) quoting, inter alia, Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597, 68 S. Ct. 715, 92 L. Ed. 898 (1948).
Thus, under the federal law of claim preclusion, a claim may not be asserted if a defendant can demonstrate that there has been (1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action. Arab African International *475 Bank v. Epstein, 10 F.3d 168, 171 (3rd Cir.1993); Lubrizol v. Exxon, 929 F.2d at 963; Lentz v. Mason, 32 F. Supp. 2d 733, 746 (D.N.J.1999). In this manner, the doctrine of claim preclusion prevents a party from prevailing not only on issues that were actually litigated in a prior suit, but also on issues it might have but did not assert in the first action. Mars v. Nippon, 855 F.Supp. at 677 citing Gregory v. Chehi, 843 F.2d 111, 116 (3rd Cir.1988). This is because a party may not split a cause of action into separate grounds of recovery and raise the separate grounds in successive lawsuits; a party must raise in a single lawsuit all the grounds of recovery arising from a single transaction or series of transactions that can be brought together. Mars, Inc. v. Nippon Conlux Kabushiki-Kaisha, 58 F.3d 616, 619-620 (Fed.Cir. 1995), citing Restatement (Second) of Judgments § 24(2) (1984) and Gregory v. Chehi, 843 F.2d at 117.
Given the difficulty in precisely defining the term "cause of action" for purposes of res judicata, the courts in the Third Circuit have noted that the question of whether two suits are based on the same cause of action turns on the essential similarity of the underlying events rather than on the specific legal theories invoked. Lubrizol, 929 F.2d at 963; Davis v. United States Steel Supply, 688 F.2d 166, 171 (3rd Cir.1982), cert. denied, 460 U.S. 1014, 103 S. Ct. 1256, 75 L. Ed. 2d 484 (1983). Thus, the focal point of the court's analysis should be "whether the acts complained of were the same, whether the material facts alleged in each suit were the same and whether the witnesses and documentation required to prove such allegations were the same." Mars, 855 F.Supp. at 677 quoting United States v. Athlone Industries, Inc., 746 F.2d 977, 984 (3rd Cir. 1984). see Also: Logan v. Fleming Foods of Pennsylvania, Inc., 138 B.R. 15 (E.D.Pa.1992).
In application of all of the foregoing principles to the motion pending in this case, we find that the plaintiff and the defendants in this action were parties in the earlier matter and that case was tried to verdict last year. Clearly then, the elements of identical parties and a final judgment on the merits are present here.
Additionally, the facts upon which this lawsuit is based are the same as those upon which Mr. Tyler brought Action No. 97-3353. Indeed, the first action was predicated upon the O'Neills' improper and fraudulent actions in refusing to permit Mr. Tyler access to the corporate books and records of Hendrickson, in not paying him the dividends to which he was entitled and in not disclosing his 10% ownership interest in the company in loan applications or income tax and bankruptcy court filings. The facts underlying the present action are no different. Plaintiff is again asserting that George O'Neill acted improperly and fraudulently in failing to disclose to the IRS that Mr. Tyler was a 10% owner in Hendrickson when he filed the subchapter S election forms and income tax returns for the corporation beginning in 1987 and in failing to provide plaintiff with K-1 forms and his stock certificates. This conduct pre-dated the filing of the first lawsuit and plaintiff obviously knew or should have known then that his stock certificates had not been issued and that the corporation had been filing its tax returns under Subchapter S since 1987. Plaintiff therefore had the causes of action which he raises in this suit available to him when he filed the first action in 1997. Inasmuch as Third Circuit law does not permit a plaintiff to split causes of action into separate or successive lawsuits, we can reach no other conclusion but that the doctrine of claim preclusion operates here to bar this, Mr. Tyler's second, lawsuit. For this reason, Defendants' motion to dismiss shall be granted pursuant to the attached order.
ORDER
AND NOW, this 24th day of May, 1999, upon consideration of the Defendants' Motion to Dismiss Plaintiff's Complaint and *476 Plaintiff's Response thereto, it is hereby ORDERED that the Motion is GRANTED and this case is dismissed with prejudice for the reasons set forth in the preceding Memorandum Opinion.
ORDER
AND NOW, this 24 day of May, 1999, upon consideration of Plaintiff's Motions for Summary Judgment, to Refile His Motion to Disqualify Schwartz, Campbell & Detweiler Nunc Pro Tunc and to Withdraw His Motion for Partial Summary Judgment Without Prejudice and in view of this Court's Memorandum and Order granting Defendants' Motion to Dismiss, it is hereby ORDERED that Plaintiff's Motions for Summary Judgment, to Refile Motion to Disqualify and to Withdraw Motion for Partial Summary Judgment are hereby DENIED and DISMISSED as MOOT.
NOTES
[1] For some time, there has been some confusion as to whether the state or federal law of res judicata should be applied where successive suits based upon diversity are involved. In this case, however, we note that Pennsylvania law of res judicata mirrors the federal law in this area. See, e.g.: Lubrizol v. Exxon, infra; Duquesne Slag Products Co. v. Lench, 490 Pa. 102, 415 A.2d 53 (1980); Banker v. Valley Forge Insurance Co., 401 Pa.Super. 367, 585 A.2d 504 (1991); Hebden v. Workmen's Compensation Appeal Board, 142 Pa. Cmwlth. 176, 597 A.2d 182 (1991). Accordingly, we need not address this issue.
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https://www.courtlistener.com/api/rest/v3/opinions/2522363/
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52 F.Supp.2d 11 (1999)
Eloise Pepion COBELL, et al., Plaintiffs,
v.
Bruce BABBITT, Secretary of the Interior,
Robert Rubin, Secretary of the Treasury, and
Kevin Gover, Assistant Secretary of the Interior, Defendants.
No. Civ. 96-1285 RCL.
United States District Court, District of Columbia.
June 7, 1999.
*12 *13 *14 Dennis M. Gingold, Washington, D.C., Thaddeus Holt, Point Clear, Alabama, Elliott H. Levitas, Atlanta, Georgia, Keith Harper, Lorna K. Babby, Washington, D.C., for plaintiffs.
Lois J. Schiffer, Assistant Attorney General, Tom C. Clark, II, Senior Counsel, Phillip A. Brooks, Senior Counsel, Charles Findlay, Assistant Chief, U.S. Department of Justice, Washington, D.C., for defendants.
MEMORANDUM OPINION
LAMBERTH, District Judge.
I. Introduction
This matter comes before the court on Defendants' Motion for Summary Judgment on Plaintiffs' Claims Based Upon a Common Law Breach of Trust Theory, Claims Based Upon Alleged Interference with the Office of Special Trustee, and Requests for a Mandatory Injunction[1]; and Defendant Secretary of the Treasury's Motion [262] for Summary Judgment. Upon consideration of these motions and *15 the applicable law, the court will DENY both motions.
This lawsuit involves the federal government's handling of the Individual Indian Money (IIM) trust.[2] The IIM trust has much in common with a standard common-law trust. Like other trusts, the IIM trust was created by the settlor with the intent to hold income generated by the trust corpus, in this case individual Native American land allotments, in trust for the benefit of its beneficiaries, who are all Native American individuals. In general terms, the trust income is generated from the mineral, agricultural, and timber leases of these land allotments. Federal law allows these monies to be deposited with the Department of the Treasury and requires these funds to be properly invested, at the discretion of the Secretary of the Interior. See 25 U.S.C. § 161; 25 U.S.C. § 161a(b); 25 U.S.C. § 162a.
The IIM trust also has several features that distinguish it from the standard common-law trust. First, the federal government acts as settlor and trustee of the trust. In 1887, Congress statutorily authorized the holding of Native American allotments in trust. See General Allotment Act § 5, 25 U.S.C. § 331 et seq. As described more fully below, this act marked the beginning of the government's pervasive federal control over Native American allotments and, more importantly for the purposes of this case, the funds that these allotments generated. Second, the creation of this trust and the inclusion of the trust corpus into the trust appear to have rested more upon the plenary power of the sovereign than the will of the beneficiaries, as can be seen from the unique history surrounding the establishment of the IIM trust relationship between Native Americans and the government.[3]
Around the turn of the 19th Century, the growth of the United States created a demand for territorial expansion. This demand ushered into government the original policy of the "voluntary" extinguishment of Native American title, usually accomplished through treaties. The original period of expansion eventually led to the removal of native tribes to the western territories and, shortly thereafter, to the reservation system. It goes without saying that this policy created serious disputes between the government and the Native American people. In the mid-1850s, the government shifted away from its policy of apportioning reservation lands to tribes and began to experiment with "allotment" of tribal lands, the mechanism by which tribal ownership would be converted into title equitably held by Native American tribe members. This experiment was the precursor to the trust policy that exists to this day.
In short, and most importantly for the purposes of this case, the federal government kept legal title of these individual allotments, in trust, for the benefit of the equitable owners who are the plaintiffs in this case. This period of limited trusteeship by the government was originally set for 25 years in the General Allotment Act. See 25 U.S.C. § 348. The period was later extended indefinitely by the Indian Reorganization *16 Act of 1934, 25 U.S.C. § 462. Although the government in the past four decades has moved toward a policy of self-determination, see 25 U.S.C. § 450 et seq., which is premised on the idea that Native American tribes are the basic governmental units of Native American policy, the IIM trust system of individual land allotments and proceeds therefrom still remains an area of pervasive and complete federal control.
Complete federal control over the IIM system is established by statute.[4] Among other duties, the Secretary of the Interior must collect trust income from the leases of the allotments, see 25 U.S.C. § 162a(d)(1), direct the investment of trust fund monies in public debt securities held by the United States Treasury, see 25 U.S.C. 162a(b), deposit and invest trust fund monies outside of the United States Treasury, see 25 U.S.C. § 162a(a) & (c), maintain and perform the accounting on the IIM accounts for the individual Indian beneficiaries, 25 U.S.C. § 162a(d)(3) & (5), provide periodic account statements to beneficiaries, see 25 U.S.C. § 162a(d)(5), and disburse funds to the beneficiaries, see 25 U.S.C. § 162a(d)(2). The Department of the Interior has "exercised its comprehensive responsibilities in issuing extensive regulations to complement this legislative scheme." Department of the Treasury's Motion at 17 (citing 25 C.F.R.Pt.115). In furtherance of the discharge of these fiduciary obligations, Congress has authorized the Secretary of the Interior to deposit IIM funds with the United States Treasury. See 25 U.S.C. § 161. The Secretary of the Treasury is authorized to invest these funds, at the discretion of the Secretary of the Interior, subject to certain statutory requirements. See 25 U.S.C. § 161a. In short, Congress has statutorily provided the Secretary of the Interior and, to a more limited extent, the Secretary of the Treasury, with several specific fiduciary duties that pertain to the IIM trust.[5]
The management of the Native American trusts, including the IIM trust, has been the subject of much public criticism from the beginning. It is reported that in 1828, Henry Rows Schoolcraft, a negotiator of Indian treaties and a novelist, said of the Native American trusts that "[t]he derangements in the fiscal affairs of the Indian department are in the extreme. One would think that appropriations had been handled with a pitchfork.... There is a screw loose in the public machinery somewhere." See H.R.Rep. No. 103-778 (1994).
Congress has not been impressed with defendants' handling of the IIM trust fund in the 171 years subsequent to Schoolcraft's comments. In the words of a 1992 congressional report of the Environment, Energy, and Natural Resources Subcommittee of the House of Representatives:
Scores of reports over the years by the Interior Department's inspector general, the U.S. General Accounting Office, the Office of Management and Budget, and others have documented significant, habitual problems in BIA's ability to fully and accurately account for trust fund moneys, to properly discharge its fiduciary *17 responsibilities, and to prudently manage the trust funds.
Misplaced Trust: The Bureau of Indian Affairs' Mismanagement of the Indian Trust Fund, H.R. No. 102-499 (1992). Congress was "particularly troubled by BIA's efforts undertaken only grudgingly to implement repeated congressional directives designed to provide a full and accurate accounting of the individual ... account funds." See id. In short, almost every entity, governmental or otherwise, tasked with the assessment of the IIM trust has found serious accounting and financial management problems.
In 1994, as a result of the BIA's failures in the management of this trust fund, Congress codified some of the government's duties with regard to this IIM trust system. Section 101 of the Indian Trust Fund Management Reform Act, 25 U.S.C. § 162a(d), provides a non-exclusive list of the Secretary of the Interior's obligations in properly discharging the United States' trust responsibilities to IIM beneficiaries:
(d) Trust responsibilities of Secretary of Interior
The Secretary's proper discharge of the trust responsibilities of the United States shall include (but are not limited to) the following:
(1) Providing adequate systems for accounting for and reporting trust fund balances.
(2) Providing adequate controls over receipts and disbursements.
(3) Providing periodic, timely reconciliations to assure the accuracy of accounts.
(4) Determining accurate cash balances.
(5) Preparing and supplying account holders with periodic statements of their account performance and with balances of their account which shall be available on a daily basis.
(6) Establishing consistent, written policies and procedures for trust fund management and accounting.
(7) Providing adequate staffing, supervision, and training for trust fund management and accounting.
(8) Appropriately managing the natural resources located within the boundaries of Indian reservations and trust lands.
25 U.S.C. § 162a(d). As can be seen from the face of this enactment, seven of the eight specific, statutorily mandated trust duties deal directly and unambiguously with providing the IIM beneficiaries an accounting of the IIM trust.
Section 162a was not the only statute passed placing trust duties on the federal government. 25 U.S.C. § 4011 also provides, under the caption "Recognition of Trust Responsibility," as follows:
§ 4011. Responsibility of Secretary [of the Interior] to account for the daily and annual balances of Indian trust funds.
(a) Requirement to account
The Secretary shall account for the daily and annual balance of all funds held in trust by the United States for the benefit of an Indian tribe or an individual Indian which are deposited or invested pursuant to [25 U.S.C. 162a].
(b) Periodic statement of performance
Not later than 20 business days after the close of a calendar quarter, the Secretary shall provide a statement of performance to each Indian tribe and individual with respect to whom funds are deposited or invested pursuant to [25 U.S.C. 162a]. The statement, for the period concerned, shall identify
(1) the source, type, and status of funds;
(2) the beginning balance;
(3) the gains and losses
(4) receipts and disbursements; and
(5) the ending balance.
25 U.S.C. § 4011 (Supp.1999). Thus, the federal government's trust duty to provide an accounting is provided for by statute and mandated by Congress in a detailed fashion.
*18 Congress did not believe that the Indian Trust Fund Reform Act was the original source of the government's fiduciary obligations under the IIM trust, and surely it was not. For example, the 1992 subcommittee report discussed above, which predated by two years the Indian Trust Fund Management Reform Act, stated:
The most fundamental fiduciary responsibility of the government, and the Bureau [of Indian Affairs], is the duty to make a full accounting of the property and funds held in trust for the 300,000 beneficiaries of the Indian trust funds. This function includes the continuing obligation to report to the tribes and individual account holders about the Federal Government's management of the trust funds.
See Misplaced Trust, H.R. No. 102-499. Congress passed the Indian Trust Fund Management Reform Act to further codify and solidify some of defendants' fiduciary obligations. Importantly, the act primarily codified the narrow issue involved in this case and the ultimate relief sought by plaintiffs an accounting of their trust fund money.
In its most recent attempt to force defendants to come into compliance with the law, Congress created another entity, placed outside of the BIA, to try to implement and oversee the trust administration process. See 25 U.S.C. § 4041 et seq. This entity, the Office of the Special Trustee for American Indians, was to be headed by the Special Trustee, a sub-cabinet level official appointed by the President and confirmed by the Senate. See 25 U.S.C. 4042(b)(1). The Special Trustee was given three statutory directives, all of which require him to ensure the effective management and discharge of the Secretary of the Interior's established trust responsibilities. Since the passage of this statute, the Secretary of the Interior has, without the approval of Congress, re-organized the Office of the Special Trustee, thereby forcing the Special Trustee to resign and prompting the reassignment of the Special Assistant to the Special Trustee. All of this action was taken by Secretary Babbitt and his highranking employees without conferring with the Special Trustee beforehand.[6] There is currently no Special Trustee in place, and, to the court's knowledge, the Acting Special Trustee, Thomas Thompson, does not meet the statutory requirements for the job. See 25 U.S.C. § 4042(b)(1). The court is not aware of any appointment that has been made to fill this position.
Despite the creation of the Office of the Special Trustee five years ago and repeated congressional directives for well over a half-decade, the government is still unable to provide plaintiffs with an accounting of their money. Plaintiffs have attempted to have their fiduciary duties enforced by Congress, but to no avail. Congress has not been able or willing to force defendants to come into compliance with their fiduciary obligations most fundamentally the statutory obligation to provide plaintiffs an accounting notwithstanding numerous hearings, codifications, and the creation of a special entity to help spur change in this regard. In plaintiffs' view, defendants have acted in derogation of their clear legal duties and have been allowed to remain above the law. The Native American beneficiaries of the IIM trust have now turned to the judicial branch for relief. Plaintiffs have brought suit to enforce their rights arising from the IIM trust. According to plaintiffs, these rights are provided for under an amalgam of the statutes already discussed and, to a certain limited extent, the common law.[7]
*19 The court has bifurcated the proceedings before it. The first phase of the case involves plaintiffs' claims for declaratory and injunctive relief. Each of these claims concerns prospective relief that would force defendants to meet their statutory obligations concomitant to their trust duty of providing an accounting. In this initial phase, plaintiffs first seek a declaration "construing the trust obligations of defendants to the members of the class [and] declaring that defendants have breached, and are in continuing breach of, their trust obligations to such class members." Plaintiffs' Complaint, Prayer for Relief ¶ 2. Second, plaintiffs request injunctive relief enjoining defendants from continuing to breach these duties and compelling defendants to perform these legally mandated obligations. See id. Third, plaintiffs ask for "a decree restraining and enjoining defendants ... from further hindrance or interference with the Special Trustee in the carrying out of his statutory duties, and directing them to cooperate with the Special Trustee and facilitate his performance of his statutory duty." Id. ¶ 3. The second phase of this suit concerns plaintiffs' claim for an accounting, which is their ultimate goal in this case and unambiguously provided for by statute. See id. ¶ 4. Plaintiffs have not stated a claim for money damages. See Cobell, 30 F.Supp.2d at 39-40.
It is the first phase specific, non-monetary relief that would prospectively force defendants to come into compliance with their obligations concomitant to their duty to render an accounting that is presently made the basis of defendants' motions for summary judgment.[8] To prevail on their motions, the competent summary judgment evidence must show that there is no genuine issue of material fact and that defendants are entitled to judgment as a matter of law. FED.R.CIV.P. 56(c). This standard has not been met as to any of plaintiffs claims. Accordingly, defendants' motions will be denied in all respects.
II. Defendants' Consolidated Motion for Summary Judgment
Defendants' Consolidated Motion for Summary Judgment seeks judgment as a matter of law on three items: (1) "common-law" breach of trust claims; (2) plaintiffs' claims that the Secretary of the Interior *20 has "obstructed" the Special Trustee's discharge of his duties; and (3) plaintiffs' requests for an injunction ordering defendants to carry out their trust duties. The court rejects all three of these contentions for the purposes of summary judgment.
A. "Common-Law" Breach of Trust
Defendants argue that Congress has not subjected federal agencies to actions seeking common law remedies for breaches of trust and, therefore, judgment must be granted against plaintiffs on these claims. Additionally, defendants contend that, even if such remedies were otherwise available, they would be precluded by the availability of a "Tucker Act damages remedy" for breach of trust. These arguments misconstrue the basis for plaintiffs' claims, misinterpret the controlling law, and are therefore without merit.
1. Introduction
To bring a claim against the United States or its officials, as a general matter, plaintiffs must show that Congress has waived sovereign immunity for plaintiffs' cause of action, that Congress has created substantive rights on which to base plaintiffs' claims, and that a proper remedy is available. See Hill v. United States, 571 F.2d 1098, 1102-03 (9th Cir. 1978). Congress has waived defendants' sovereign immunity for plaintiffs' breach of trust claims. The system at issue the IIM trust is indeed a statutorily created trust. As the controlling Supreme Court case law on point clearly provides, the establishment of this trust creates certain substantive rights in favor of its beneficiaries, the plaintiffs, and violations of these rights by actions taken or not taken by federal officials may be remedied by prospective relief. The rights and remedies at issue, viewed in light of the common law of trusts, are within the government's waiver of sovereign immunity. Therefore, plaintiffs have established substantive rights against the government, potentially appropriate remedies, and an applicable waiver of sovereign immunity. Defendants' arguments do not affect these conclusions and are, at any rate, without merit. For these reasons, defendants' legal grounds for summary judgment on plaintiffs' breach of trust claims must be rejected.
2. Section 702 Waiver of Sovereign Immunity[9]
Contrary to defendants' position, Congress has subjected defendants to the full range of relief that plaintiffs seek, in terms of sovereign immunity. Plaintiffs correctly point to 5 U.S.C. § 702 as the applicable waiver in this case. See Cobell, 30 F.Supp.2d at 31. Section 702 states:
An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States.
5 U.S.C. § 702. The case law from the Court of Appeals for the District of Columbia Circuit construing § 702 is clear. First, "issues of sovereign immunity in the context of injunctive relief against federal officers of the United States must be resolved with reference to § 702." Cobell, 30 F.Supp.2d at 31 (citing Schnapper v. Foley, 667 F.2d 102, 108 (D.C.Cir.1981)). Second, § 702 "retains the sovereign immunity defense in actions for injunctive relief only when another statute expressly or implicitly forecloses equitable relief," which is not the case in this lawsuit. Id. at 31 & n. 8 (citing Schnapper's recognition of the legislative history of § 702: "[T]he *21 time [has] now come to eliminate the sovereign immunity defense in all equitable actions for specific relief against a Federal agency or officer acting in an official capacity;" and that § 702 was intended "to eliminate the defense of sovereign immunity with respect to any action in a court of the United States seeking relief other than money damages and based on the assertion of unlawful action by a Federal officer." (quoting S.REP. No. 966, 94th Cong., 2d Sess., at 2, 7-8)). Third, "[t]he § 702 waiver of sovereign immunity in actions seeking relief other than money damages against the government also applies to claims brought outside the purview of the APA, such as some of the claims involved in the case at bar." Cobell, 30 F.Supp.2d at 31 (citing Chamber of Commerce v. Reich, 74 F.3d 1322, 1328 (D.C.Cir.1996); Clark v. Library of Congress, 750 F.2d 89, 102 (D.C.Cir.1984); Dronenburg v. Zech, 741 F.2d 1388, 1390 (D.C.Cir.1984); Schnapper, 667 F.2d at 108; Sea-Land Serv., Inc. v. Alaska R.R., 659 F.2d 243, 244 (D.C.Cir.1981); S.REP. No. 966, 94th Cong., 2d Sess., at 2).
After recounting these well-settled principles, the court went on to hold that plaintiffs' action for prospective relief, entirely declaratory and injunctive in nature, "is an action for relief `other than money damages.'" Cobell, 30 F.Supp.2d at 32. Thus, under the plain language of § 702, and in addition to the legislative history and case law interpreting § 702, the court found that plaintiffs' prospective claims could not be dismissed on sovereign immunity grounds.
In Blue Fox, the Supreme Court reaffirmed the proposition that "the crucial question under 702 is not whether a particular claim for relief is `equitable,' ... but rather what Congress meant by `other than money damages.'" Blue Fox, 119 S.Ct. at 691. As the Court explained, the answer to this determinative question depends upon whether plaintiffs' claims are for "specific relief" which would bring them within § 702's waiver or whether plaintiffs actually seek "compensatory, or substitute, relief," which would not fall under § 702 by its terms. Id. The Court ultimately held that the relief sought by plaintiffs in that case, an equitable lien, was compensatory in nature. Nonetheless, the Court confirmed that as long as plaintiffs seek relief other than money damages (and the rest of § 702 is satisfied), § 702 waives the government's sovereign immunity for such claims.
There can be no dispute that plaintiffs' claims for declaratory and injunctive relief are not claims for money damages or substitute, compensatory relief. The court has already so held, and defendants do not take issue with that basic proposition here. The overwhelming line of controlling case law on point holds that defendants' sovereign immunity in the context of this case is simply not an issue as long as plaintiffs do not seek money damages. As discussed above, § 702 has never been held to be further limited; by its terms, § 702 looks to the relief sought, not the substantive right creating the cause of action. Therefore, because plaintiffs seek relief other than money damages, the sovereign immunity analysis is finished.
Defendants refuse to acknowledge this basic and clear proposition. Instead, they attempt to spin snippets of language lifted from various cases to lead to their desired conclusion that § 702 "does not encompass a common law action to enforce trust duties, oversee management of the IIM system, appoint a receiver, or remove the agency trustee." Defendants' Consolidated Motion at 10. Defendants' argument misses the point. To the extent that defendants are complaining that plaintiffs are asserting a purely "common law" cause of action for breach of trust and that no such cause of action exists, this contention fails. See infra sections II(A)(3)-(4). But that argument should not be confused with the § 702 analysis. Section 702's only role in this litigation is that it serves as the applicable waiver of defendants' sovereign immunity. Section 702 "simply waives *22 sovereign immunity as to all non-monetary claims against government agencies, officers, or employees covered by the Administrative Procedure Act, but [it] does not purport to grant any substantive rights." Hill, 571 F.2d at 1102 n. 7. The § 702 analysis does not turn upon whether an action arises under the common law or from statutes, and no court has ever held to the contrary. The only question in terms of sovereign immunity, assuming plaintiffs' action states a claim that an agency officer acted in an official capacity, is whether plaintiffs seek relief "other than money damages." Defendants wish to somehow narrow this rule, thereby excluding themselves from the declaratory and injunctive, specific, non-substitute relief sought by plaintiffs. There is no support for such an approach. Plaintiffs seek relief allowed under § 702 and, therefore, defendants' interpretation of § 702 is rejected.
3. Establishment of IIM Trust Rights
Defendants next raise a panoply of arguments that boil down to the contention that plaintiffs cannot bring a "common law" action to compel compliance with fiduciary duties stemming from the IIM trust that would force defendants to come into compliance with their statutory duty to render an accounting. Defendants admit that non-statutory review, outside of the Administrative Procedure Act, encompasses violations of rights granted by statute. Defendants' Consolidated Motion at 12. Apparently it is the pure "common-law" component with which defendants quarrel. As explained below, plaintiffs' claims, as those in United States v. Mitchell ("Mitchell II"), 463 U.S. 206, 103 S.Ct. 2961, 77 L.Ed.2d 580 (1983), are based upon statutory law. Consequently, defendants' arguments on this point miss the mark.
Plaintiffs have substantive rights, and defendants have corresponding duties, arising from the establishment of the IIM trust. Those fiduciary duties arise from the full responsibility given to defendants by the statutes applicable to the IIM trust, in addition to the complete control given to defendants over the plaintiffs' money in the IIM system. The basic contours of defendants' fiduciary duties under this trust are established by the statutes and, as in Mitchell II, construed in light of the common law of trusts. There can be no dispute that the basic "contour" involved in this case is defendants' duty to render an accounting. See 25 U.S.C. § 162a(d). In this regard, the government's conduct, "as disclosed in the acts of those who represent it in dealings with the Indians[,] should ... be judged by the most exacting fiduciary standards." Seminole Nation v. United States, 316 U.S. 286, 296-97, 62 S.Ct. 1049, 86 L.Ed. 1480 (1942).
In terms of the creation of substantive rights, the case currently before the court is largely controlled by Mitchell II. In Mitchell II, individual allottees filed suit in the Court of Claims seeking to recover money damages from the United States for alleged breaches of trust. In that case, the trust relationship at issue was the management of timber lands on plaintiffs' reservation. Plaintiffs alleged that the government had failed to act as a reasonable trustee by not obtaining a fair market value for the timber the government sold, not managing timber on a sustained-yield basis, not obtaining any payment for some merchantable timber, not developing a proper system to access timber operations, not paying the proper interest on timber sales, and exacting excessive administrative fees from the beneficiaries. The government's waiver of immunity, because plaintiffs sought money damages in the Court of Claims, was based on the Tucker Act, 28 U.S.C. § 1491.
The Court ultimately held that the statutes and regulations before it "clearly [gave] the Federal Government full responsibility to manage Indian resources and land for the benefit of the Indians. They thereby establish[ed] a fiduciary relationship and define[ed] the contours of the United States' fiduciary responsibilities" *23 to the individual Native American plaintiffs. Mitchell II, 463 U.S. at 224, 103 S.Ct. 2961. In addition to this statutory basis, the Court went to great lengths to emphasize the role of comprehensive control over Indian monies and property:
[A] fiduciary relationship necessarily arises when the Government assumes such elaborate control over forests and property belonging to Indians. All of the necessary elements of a common-law trust are present: a trustee (the United States), a beneficiary (the Indian allottees), and a trust corpus (Indian timber, lands, and funds). [W]here the Federal Government takes on or has control or supervision over tribal monies or properties, the fiduciary relationship normally exists with respect to such monies or properties (unless Congress has provided otherwise) even though nothing is said expressly in the authorizing or underlying statutes (or other fundamental document) about a trust fund, or a trust or fiduciary connection.
Id. at 225, 103 S.Ct. 2961 (second alteration in original) (citation omitted). Based upon these findings, the court held that the fiduciary duties arising out the timber-trust were established, thereby providing the allottee-beneficiaries a cause of action and a remedy against the government. Id. at 224-28, 103 S.Ct. 2961.
The same statutorily based relationship of comprehensive control exists as to the IIM trust involved in this case. The court has already described the comprehensive control given to the federal government by statute over the IIM trust. See supra Part I. Plaintiffs ultimately focus on one of the government's well-established duties the duty to render an accounting. Setting aside for the moment all of the other statutes giving the federal government pervasive control of the IIM trust, the seven specific provisions of the 1994 amendments to § 162a provide the government with full responsibility for discharging its "trust responsibilit[y]" to render an accounting. 25 U.S.C. § 162a(d)(1) -(7). Although the court has bifurcated the proceedings in this case, and it is the prospective prong of plaintiffs' action that is now being examined, it must be remembered that the two halves are still connected. Plaintiffs' ultimately seek an accounting, which defendants are indebted by statute to give to plaintiffs. Plaintiffs' requests for injunctive relief are merely incident to this statutorily provided right and seek to prospectively force defendants into compliance with this obligation.
This court is certainly not the first to notice the comprehensive federal control over IIM moneys. The Supreme Court itself recognized this point in Mitchell II when it stated that "[t]he pattern of pervasive federal control evident in the area of timber sales and timber management applies equally ... to management of Indian funds." Mitchell II, 463 U.S. at 225 n. 29, 103 S.Ct. 2961 (emphasis added). The Court cited 25 U.S.C. § 162a, even before the enactment of 1994 amendments, as the emblem of pervasive federal control over the management of Indian funds. See id. at 222 n. 24, 103 S.Ct. 2961. Surely the 1994 amendments have done nothing but create clearer responsibilities on behalf of the federal government as to these funds. Even the government admits that: (1) "[b]y statute, the Secretary of the Interior is responsible for leasing the plaintiffs' land, collecting and managing the income, and distributing the income to the individual Indian beneficiaries." Department of the Treasury's Motion at 5.(2) "The comprehensive statutory scheme designates the Secretary of the Interior as trustee and assigns specific trust duties" to the government. Id. at 12.(3) "The Secretary of the Interior has `control or supervision' over IIM trust funds." Id. at 13.(4) "The overall statutory scheme gives `comprehensive' authority to the Secretary of the Interior." Id. at 14.(5) "The legislative history supports the statutory language assigning the trust responsibility of the United States with respect to the IIM trust fund to the Secretary of the Interior." *24 Id. at 15. Although defendant Rubin's statements incorrectly posit that it is only the Secretary of the Interior, as opposed to the federal government, that is burdened by these fiduciary responsibilities, the court agrees with defendant Rubin that comprehensive control has been given to the United States by statute.
In summary, the fiduciary relationship that serves as the basis of plaintiffs' breach of trust claims is grounded in and defined by statute and has arisen from the pervasive, complete federal governmental control of plaintiffs' IIM funds. As with any trust, the beneficiaries are entitled to an accounting. In the context of the IIM trust, because it is a statutory trust, this duty has been established by Congress. As discussed more fully below, incident to the trust relationship and their right to an accounting, plaintiffs are entitled to seek injunctive and declaratory relief to secure the rights given to them by Congress, viewed in light of the area of law in which Congress was legislating the common law of trusts.[10] For these reasons, defendants' motion for summary judgment on plaintiffs' breach of trust claims will be denied.
4. Breach of Trust Remedies
Defendants contend that plaintiffs are not entitled to common law remedies such as injunctive and declaratory relief because such an allowance would be tantamount to the creation of a new body of federal common law. Furthermore, defendants argue that such remedies cannot be allowed because they would conflict with the 1994 Indian Trust Fund Management Reform Act, 25 U.S.C. § 162a. Neither logic nor the case law supports defendants' position; to the contrary, both point toward the availability of these remedies. Accordingly, defendants' arguments on these points will be rejected.
With the exception of the removal of the government as trustee, plaintiffs are entitled to seek standard common law remedies for breach of their IIM trust rights.[11] The court has already explained that the IIM trust and the specific duty to render an accounting have been established by virtue of statute and complete federal control over the IIM fund. It naturally follows that certain concomitant fiduciary duties are created. The controlling case law clearly provides that plaintiffs may seek prospective redress for breaches of these duties through common law remedies such as an injunction and declaratory relief, with the ultimate goal being the rendering of an accounting.
The logic of Mitchell II shows that the common law remedies typically available in breach of trust cases are available to plaintiffs. Although in Mitchell II plaintiffs sought an entirely different remedy, money damages, the basic principles announced in that decision control this case. After finding the existence of a trust, the Supreme Court stated that the statutes and regulations before it could be "clearly interpreted" as providing a damages remedy. Mitchell II, 463 U.S. at 226, 103 S.Ct. 2961. More specifically, the Court held that:
[g]iven the existence of a trust relationship, it naturally follows that the Government should be liable in damages for the breach of its fiduciary duties. It is *25 well established that a trustee is accountable in damages for breaches of trust. See RESTATEMENT (SECOND) OF THE LAW OF TRUSTS §§ 205-212 (1959); G. BOGERT, THE LAW OF TRUSTS & TRUSTEES § 862 (2d ed.1965); 3 A. SCOTT. THE LAW OF TRUSTS § 205 (3d ed.1967).
Id.
Simply put, it is just as clear that a beneficiary of a trust may turn to injunctive and declaratory remedies, as opposed to money damages, to have the trustee compelled to carry out its trust duties.[12] Section 199 of the Restatement (Second) of Trusts summarizes the common law as providing for at least five equitable remedies, which include a declaratory action to establish the duties of the trustee, an injunctive action to enjoin a breach of trust, and an injunctive action for specific performance to compel compliance with trust duties:
The beneficiary of a trust can maintain a suit
(a) to compel the trustee to perform his duties as trustee;
(b) to enjoin the trustee from committing a breach of trust;
(c) to compel the trustee to redress a breach of trust;
(d) to appoint a receiver to take possession of the trust property and administer the trust;
(e) to remove the trustee.
RESTATEMENT (SECOND) OF TRUSTS § 199 (1957). Other treatises restating common-law trust doctrine universally provide for the availability of these remedies. See generally GEORGE T. BOGERT, TRUSTS §§ 153-160 (6th ed.1987); 3 AUSTIN WAKEMAN SCOTT, THE LAW OF TRUSTS § 199 (1967). Therefore, given the existence of the IIM trust relationship, it naturally follows that plaintiffs should be able to enforce through injunctive and declaratory relief standard fiduciary duties directly concomitant to the rights given to them by Congress.[13] It would indeed be an odd state of the law if the beneficiaries of this established trust could not seek legal redress to compel the trustee to act in accordance with the laws set out by Congress.
The idea of plaintiffs seeking prospective remedies against the government for breach of the IIM trust is not a novel proposition. In fact, it was mentioned by the Court in Mitchell II, apparently with the Court's and the government's approval:
Absent a retrospective damages remedy, there would be little to deter federal officials from violating [plaintiffs'] trust duties, at least until the allottees managed to obtain a judicial decree against future breaches of trust.... The Government contends that violations of duties imposed by the various statutes may be cured by actions for declaratory, injunctive or mandamus relief against the Secretary, although it concedes that sovereign immunity might have barred such suits before [the passage of APA § 702]. *26 Mitchell II, 463 U.S. at 227, 103 S.Ct. 2961 (emphasis added). Thus, it appears that both the Court and the government would have allowed the prospective remedies sought by plaintiffs in that case. Of course, the government had no problem accepting this position in Mitchell II because the equitable jurisdiction required for such prospective remedies did not lie in the Court of Claims, as it does with this court. See Lee v. Thornton, 420 U.S. 139, 140, 95 S.Ct. 853, 43 L.Ed.2d 85 (1975) (per curiam) (holding that the Tucker Act "allows the Court of Claims to award damages but not to grant injunctive or declaratory relief"); Richardson v. Morris, 409 U.S. 464, 465, 93 S.Ct. 629, 34 L.Ed.2d 647 (1973) (per curiam) (stating that the Court of Claims has no power to grant equitable relief). Once plaintiffs' case was filed before this court, where these prospective remedies could be sought without legitimate jurisdictional issue, the government took the position that only a retrospective remedy was available, and such a case would need to be brought in the United States Court of Federal Claims. See Co-bell, 30 F.Supp.2d at 38-39 & 39 n. 19. Despite the government's shifting defenses, the message from the Supreme Court is clear: prospective remedies such as injunctive and declaratory relief are allowed for breaches of an established trust with rights defined by statute, such as the IIM system.[14]
The conclusion that these remedies and their underlying rights must be construed in light of the common law of trusts is established by the applicable case law. First, as mentioned above, even the dissenting Justices in Mitchell II acknowledged that the general common law of trusts would apply to plaintiffs breach of trust claims under the reasoning of the majority opinion. See supra note 9. Second, Nevada v. United States, 463 U.S. 110, 103 S.Ct. 2906, 77 L.Ed.2d 509 (1983), decided three days before Mitchell II, strongly supports the proposition that although the government stands in a different position as a private fiduciary in some necessary respects, the common law of trusts must generally inform plaintiffs' breach of trust claims in this case.[15] In *27 Nevada, the issue before the court was whether an Indian tribe and a water-reclamation-project organization were bound under res judicata by a previous judicial decree. See id. at 134, 103 S.Ct. 2906. The prior judgment at issue involved a case in which the United States had brought suit on behalf of both the Indian tribe and the organization. The government took this action because it was bound to represent the rights of the Indian tribe and was also required to obtain water rights for reclamation projects. Id. at 128, 103 S.Ct. 2906. The court of appeals held that the government had compromised its duty of undivided loyalty, borrowed from the common law of trusts, and the tribe was therefore not bound by the judgment insofar as the interests of the tribe and the reclamation project's landowners were concerned. Id. at 141, 103 S.Ct. 2906. The Supreme Court reversed on this point, holding that this rule of common-law trust doctrine, the duty of undivided loyalty, could not apply in that context since "the Government is simply not in the position of a private litigant or a private party under traditional rules of common law or statute." Id. Specifically, the court held that the government was tasked with the duty of representing both the tribe and the water reclamation project. Id. at 128, 103 S.Ct. 2906. It would have been "simply unrealistic to suggest that the Government may not perform its obligation to represent Indian tribes in litigation when Congress has obliged it to represent other interests as well." Id. In short, one standard duty of a trustee under the common law of trusts did not logically apply to the government as trustee on that point. Importantly, however, the Court also discussed the consequences of Nevada for cases between the government and the tribe, which is closely analogous to the case now before the court. Specifically, the Court stated:
It may well be that where only a relationship between the Government and the tribe is involved, the law respecting obligations between a trustee and a beneficiary in private litigation will in many, if not all, respects, adequately describe the duty of the United States.
Id. at 142, 103 S.Ct. 2906. The scenario contemplated by the Court a lawsuit based upon the trust relationship between Native Americans and the government is now before this court. The Court's language points to the conclusion that the common law of trusts generally informs these breach of trust cases, as the Court so held three days later in Mitchell II.[16] Third, the idea of construing governmental fiduciary duties in light of the common law is not limited to Native American trust law. In Hughes Aircraft Co. v. Jacobson, ___ U.S. ___, 119 S.Ct. 755, 142 L.Ed.2d 881 (1999), the Court recognized that, in the context of ERISA litigation, "trust law may offer a `starting point' for analysis in some situations." Id. at 765. Although the court rejected the invocation of common law principles in that case and warned that such principles must "give way" if they are inconsistent with ERISA's language, structure, or purposes, see 29 U.S.C. § 1002, the Court nonetheless explicitly left open the possibility that common law principles may come into play with a statute as comprehensive as ERISA. Therefore, even aside from the clear mandate of Mitchell II, the court holds that it must view defendants' trust duties in light of the area of law governing *28 such relationships the common law of trusts.
The court's recognition of the availability of these substantive rights and remedies, created by statute and informed by the common law, does not create a new body of federal common law. Mitchell II clearly held that the Native American trust in issue, established by statute and the pervasive federal control over the Native American lands, placed certain fiduciary duties upon the government. The court looked to the common law of trusts in interpreting the statutes and regulations at issue to infer a money damages remedy. Other cases, as discussed, buttress such an approach. In this case, the establishment of the trust is just as clear as Mitchell II; indeed, the court even made reference to the equal applicability of their statements as to the government's handling of Native American monies. The ultimate remedy at issue is even clearer, for it is provided by statute. The prospective remedies that plaintiffs now seek are merely incidental to this ultimate remedy, and these remedies were clearly contemplated by the Court and advocated by the government, in that case. To imply that this court is somehow creating a new body of federal common law is simply incorrect.
Congress has not legislated in a manner inconsistent with the case law that has developed on these points, and it has not provided remedies contrary to those typically available under a common law breach of trust action, except to the extent that removal of the trustee is involved.[17] Congress has stated that defendants must provide plaintiffs with an accounting of the IIM trust. See 25 U.S.C. § 162a(d). Defendants point to that legislation and claim that it is the only remedy provided by Congress and any further remedy is therefore inconsistent. This argument fails. First, it is disingenuous to argue that the Indian Trust Fund Management Reform Act was intended to preclude other remedies. The language of the statute itself indicates that the fiduciary duties listed, such as the provision of an accounting, should not be taken as exhaustive. See 25 U.S.C. § 162a(d) ("The Secretary's proper discharge of the trust responsibilities of the United States shall include (but are not limited to) the following...."). Second, the prospective remedies sought by plaintiffs are merely tools to reach the end of the statutorily provided remedy. As defendants have shown over the course of history, Congress's simple demand of an accounting does not lead to that result. There are steps along the way that must be taken, such as the retention of trust documents, that are required to reach an accounting. Forcing the government to take basic measures to reach their legal duty of giving plaintiffs an accounting can hardly be said to be inconsistent with Congress's demand that an accounting be given.[18]
In conclusion, the controlling case law on point leads this court to find that plaintiffs have prospective remedies against the government. These remedies, as well as the underlying substantive rights, must be *29 construed in light of the common law of trusts. The court's recognition of these rights and remedies does not violate the doctrine of separation of powers or create a new body of federal common law. Therefore, defendants' arguments concerning plaintiffs' prospective remedies will be rejected.
B. Obstruction of the Special Trustee
In Count One of their Complaint, plaintiffs allege that they "are entitled to an order in the nature of a writ of mandamus" to prevent the Secretary of the Interior from obstructing the Special Trustee from discharging certain duties. Plaintiffs' Complaint ¶ 39. To receive a writ of mandamus, plaintiffs must show that defendants' "duty to be performed is ministerial and the obligation to act peremptory, and clearly defined. The law must not only authorize the demanded action, but require it; the duty must be clear and undisputable." U.S. ex rel. McLennan v. Wilbur, 283 U.S. 414, 420, 51 S.Ct. 502, 75 L.Ed. 1148 (1931). For such a ministerial duty to be found, it must be "so plainly prescribed as to be free from doubt and equivalent to a positive command." Wilbur v. U.S. ex rel. Kadrie, 281 U.S. 206, 218-19, 50 S.Ct. 320, 74 L.Ed. 809 (1930). The court will deny defendants' motion.
Plaintiffs have claimed seven acts of obstruction. In their Complaint, plaintiffs allege that the following actions provide them a basis for their cause of action: (1) defendants' failure to reprogram funds toward the discharge of the Special Trustee's duties; (2) defendants' refusal to request adequate funds for the Special Trustee's work; (3) defendants' interference with the Special Trustee's preparation of his Strategic Plan; (4) defendants' refusal to permit the Special Trustee to conduct the technology and use survey necessary to carry out his duties; (5) defendants' preclusion of meetings of the Advisory Board of the Special Trustee; and (6) defendants' refusal to permit the Special Trustee to employ adequate staff and expert consultants necessary to carry out his duties. Although plaintiffs have not yet amended their Complaint to formally include their seventh and final claim, they have charged defendant Babbitt repeatedly before this court and in their opposition to summary judgment with the "crowning act of obstruction" defendant Babbitt's re-organization of the Office of the Special Trustee. See Plaintiffs' Reply to Defendants' Consolidated Motion at 17-18; see also supra Part I & note 6 (discussing the re-organization of the Office of the Special Trustee by Secretary Babbitt).[19] Plaintiffs' third, fourth, and fifth claims are moot. The Special Trustee has prepared his plan, the Special Trustee has conducted the technology and use survey, and the Advisory Board has met regarding the Special Trustee's trust administration. Therefore, the court will not further address these claims. Thus, only three categories of claims remain: staffing claims, funding claims, and the charge arising out of the Office of the Special Trustee's reorganization.
The court will deny defendants' motion for summary judgment as to all of these claims. First, as is clear from the statute creating the Office of the Special Trustee and the legislative history behind it, Congress put OST in place to be independent from the problems plaguing the Department of the Interior and the officials that historically failed in bringing about the necessary changes. Put another way, the Office of the Special Trustee, and its congressionally created structure, was Congress's considered judgment as to how help try to solve the IIM administration problems. Defendant Babbitt's executive order which re-organized the OST, without the consent of Congress and without even conferring with the independent body that *30 Congress had created, raises genuine issues of material fact as to whether this reorganization was an act contrary to the statute passed by Congress. See 25 U.S.C. § 4041 et seq. (Supp.1999). Therefore, defendants' motion will be denied in this regard.
Second, as to plaintiffs' staffing and funding claims, the court is not persuaded that no genuine issue of material fact exists or that defendants are entitled to judgment as a matter of law. It is true that staffing and funding matters are often purely within the discretion of federal officials. See Lincoln v. Vigil, 508 U.S. 182, 192-93, 113 S.Ct. 2024, 124 L.Ed.2d 101 (1993) (addressing the spending of lumpsum appropriations); National Ass'n of Postal Supervisors v. United States Postal Serv., 602 F.2d 420, 432 (D.C.Cir.1979) (dealing with employee compensation rates). However, it is also true that federal officials cannot violate statutory directives, and surely the fact that these statutory directives implicate funding and staffing decisions does not allow federal officials to disregard statutory mandates. See Lincoln, 508 U.S. at 193, 113 S.Ct. 2024 ("Of course, an agency is not free simply to disregard statutory responsibilities."); National Ass'n of Postal Supervisors, 602 F.2d at 432 ("Courts can defer to the exercise of administrative discretion on internal management matters, but they cannot abdicate their responsibility to insure compliance with congressional directives setting the limits on that discretion.").
The statutory structure here is unique and distinguishable from a lump-sum appropriation scenario. First, it is not the spending of funds granted without congressional limitation that is in dispute. It is federal officials' failure to comply as a result of requesting inadequate funds that is at issue. Second, the statutory scheme specifically set-up by Congress placed several duties on the Special Trustee, including duties as to staffing and budgeting. See 25 U.S.C. §§ 4043(c)(5) & 4045(a). The allegations raised by plaintiffs clearly charge that defendant Babbitt's actions in relation to these congressionally mandated functions prevented these duties from being effectively discharged. Plaintiffs have raised genuine issues of material fact, as evidenced by testimony at the contempt trial in this case, that defendant Babbitt failed to request and provide, under any range of reasonable discretion, adequate funding for staffing and the discharge of the Special Trustee's duties. See Cobell, 37 F.Supp.2d at 29-30 (highlighting the claims from Office of the Special Trustee officials, in addition to plaintiffs' allegations, that OST was severely underfunded). Although significant questions concerning defendant Babbitt's authority and range of discretion remain, the court is not willing to grant summary judgment on these issues. Therefore, defendants' motion for summary judgment as to plaintiffs' claims of obstruction of the Special Trustee will be denied.
C. Mandatory Injunctive Relief
Defendants believe that they are entitled to summary judgment on "plaintiffs' requests for injunctive relief to impose particular changes in administration of the IIM system." This argument is based upon the application of basic "principles of equity jurisprudence." Defendants' Consolidated Motion at 42. Defendants contend that, based upon these principles that limit this court's equitable powers, it would be inappropriate to "grant the broad institutional relief" that plaintiffs seek. Id.
At the outset, it should be noted that defendants' contentions are grounded in the assumption that plaintiffs will ask this court, as the immediate result of the prospective trial, to announce what sorts of specific programmatic systems defendants must employ in order to reach their ultimate statutory duty of rendering an accounting. Defendants make this assumption based upon a comment made by *31 plaintiffs' counsel at a status hearing held over one year ago. But plaintiffs' Complaint does not, by its terms, seek such sweeping actions. Plaintiffs' Complaint, and nearly all of the discussion before this court, have involved their requests for an accounting, a declaratory judgment stating defendants' trust duties in relation to plaintiffs, an injunction enjoining defendants from breaching these specific duties, and a decree requiring defendants to come into compliance with their trust duties. The court has no present intention to entertain a request to sit as a pseudo-congressional oversight body that tells defendants everything that they must do to meet their obligations programmatically. That is a role that only Congress can fulfill. The court expects to declare the fiduciary obligations to plaintiffs and entertain requests for injunctive relief as they pertain to these broad duties arising under the statutes in light of the common law of trusts. This court has no choice but to recognize these limited, specific legal rights created by Congress in favor of plaintiffs and to enforce these rights accordingly. Although significant deference generally must be given to allow the executive branch to carry out its duties, the exercise of this discretion at a certain point is constrained by statutory limits and enforceable in the courts. See Nader v. Saxbe, 497 F.2d 676, 679 n. 19 (D.C.Cir.1974). "Just as the doctrine of the separation of powers forbids [the Court] to trespass on lawful agency discretion, so it requires the agency to carry out faithfully its legislative charter." Natural Resources Defense Council, Inc. v. Herrington, 768 F.2d 1355, 1433 (D.C.Cir.1985). Moreover, as the Supreme Court has recognized, courts will "ordinarily presume that Congress intends the executive to obey its statutory commands and, accordingly, that it expects the courts to grant relief when an executive agency violates such a command." Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 681, 106 S.Ct. 2133, 90 L.Ed.2d 623 (1986). The issue of whether defendants have complied with a congressional mandate, signed into law by the President, is not a nonjusticiable political question. See Covelo Indian Community v. Watt, 551 F.Supp. 366, 378-79 (D.D.C. 1982).
The principles defendants rely upon in their request for summary judgment as to injunctive relief are: (1) lack of an irreparable injury; (2) unsuitability of injunctive relief; (3) availability of APA review; and (4) availability of a damages remedy. These arguments fail. First, such a ruling would be premature for equitable reasons. If this court decides that granting plaintiffs equitable relief would be appropriate, then it must "mold each decree to the necessity of the particular case." Weinberger v. Romero-Barcelo, 456 U.S. 305, 313, 102 S.Ct. 1798, 72 L.Ed.2d 91 (1982). The court must have the full record before it to determine what equity requires.[20] It may come to pass *32 that mandatory injunctive relief would be inappropriate and that the court's orders would need to be fashioned in terms of negative injunctive and declaratory relief. See, e.g., Natural Resources Defense Council v. Lujan, 768 F.Supp. 870 (D.D.C. 1991) (holding that the issuance of a mandatory injunction against the Secretary of the Interior would be an unnecessarily "drastic" action on the facts of the case but granting declaratory judgment that Secretary failed to comply with legal duty and declaring that Secretary come into compliance on an "expedited basis"). Until the court knows the full range of facts and circumstances, however, such a ruling would be inappropriate. Second, defendants can point to no set of undisputed material facts that would support a ruling that injunctive relief would be inappropriate as a matter of law. The record clearly contains evidence that defendants cannot give plaintiffs an accounting and, relatedly, that they cannot account for many documents that would be required to perform such an accounting. Presumably plaintiffs will contend that these are breaches of fiduciary obligations. The prospective remedy for these breaches, if any, will depend on the necessity for injunctive relief, which will in turn depend on what is being done at the time of trial to remedy any breaches that are established. Thus, given these material facts that are, viewed even in the best light for defendants, disputed, defendants cannot point to a single set of undisputed facts that would support their request.
For these reasons, the court will deny defendants' request for summary judgment as to plaintiffs' requests for injunctive remedies. The requests made by plaintiffs in their Complaint and before this court are clearly in alignment with the rights that are available to them under the IIM trust. The court does not interpret plaintiffs' request to seek specific programmatic reforms. If plaintiffs request such relief, then they will be forced to contend with defendants' arguments at that time. Until then, however, summary judgment as to plaintiffs' current requests would be premature and unwarranted.
III. Defendant Secretary of the Treasury's Motion for Summary Judgment
Defendant Rubin moves for summary judgment based on his contentions that no material facts are in dispute and that he is entitled to judgment as a matter of law on plaintiffs' prospective breach of trust claims against him. The court disagrees. Therefore, defendant Rubin's motion will be denied.
Plaintiffs allege in their Complaint that defendant Rubin "is custodian of the monies in the IIM accounts, is responsible for maintaining certain records in connection therewith, and has certain investment responsibilities with respect thereto." Plaintiffs' Complaint ¶ 15. In terms of the prospective component of this case, and therefore in terms of defendant Rubin's motion for summary judgment, plaintiffs focus strictly upon "the government['s duty] as trustee ... to maintain accurate and accessible trust records so as to assure the beneficiaries that their accounts are correct." Plaintiffs' Opp. at 1.
In prosecuting their prospective breach of trust action, plaintiffs "cannot force the government to take a specific action unless a treaty, statute or agreement imposes, expressly or by implication, that duty." Shoshone-Bannock Tribes v. Reno, 56 F.3d 1476, 1482 (D.C.Cir.1995). "Without an unambiguous provision by Congress that clearly outlines a federal trust responsibility, courts must appreciate that whatever fiduciary obligation otherwise exists, it is a limited one only." Id. Exactly such a federal trust responsibility exists in this case, and it applies, to a *33 limited extent, to the Secretary of the Treasury.
Defendant Rubin, in his reply, concedes that genuine issues of material fact may exist as to his discharge of duties under the implementation of the limited payability statutes, 31 U.S.C. §§ 3328, 3334, & 3702(c). See Defendant Secretary of the Treasury's Reply at 2. Although this issue was brought to the attention of defendant Rubin a "few weeks" before his reply was filed, he did not "determine[ ] ... to seek an independent review of this matter" until the day before his reply was filed. Id. At any rate, the government concedes that it has such a duty under the statutes and that it cannot be said that no genuine issue of material fact exists as to the discharge of these duties. Accordingly, summary judgment must be denied on this point.
But the limited payability statutes are not the only sources of duty for the Secretary of the Treasury, in terms of handling IIM trust administration. Section 162a(d) of the Indian Trust Fund Management Reform Act clearly and unambiguously provides that the United States, through the Secretary of the Interior, must provide an accounting to plaintiffs. See 25 U.S.C. § 162a(d) (providing that, to "proper[ly] discharge ... the trust responsibilities of the United States," the Secretary of the Interior must, inter alia, (1) provide systems for accounting, controls over receipts and disbursements, and timely reconciliations; and (2) determine accurate cash balances). Congress has authorized the Secretary of the Interior to employ certain services of the Department of the Treasury in furtherance of carrying out the government's fiduciary obligations. See 25 U.S.C. §§ 161 & 161a. Section 161 allows "[t]he Secretary of the Interior ... to deposit ... all sums received on account of sales of Indian trust lands, and the sales of stocks lately purchased for temporary investment, whenever he is of the opinion that the best interests of the Indians will be promoted by such deposits ... in the United States Treasury." Section 161a provides that, as to "funds held in trust for individual Indians," "[a]ll funds held in trust by the United States and carried in principal accounts on the books of the United States Treasury to the credit of individual Indians shall be invested by the Secretary of the Treasury, at the request of the Secretary of the Interior." Thus, in carrying out the government's ultimate duty of managing the IIM trust fund and providing an accounting, the Secretary of the Interior may delegate certain functions namely, the holding and investment of certain funds to the Secretary of the Treasury.
In the process of carrying out these trust duties, the Department of the Treasury generates trust documents that are highly relevant to an accounting of the IIM system and, therefore, highly relevant to this litigation. The Department of the Treasury has demonstrated a clear inability to retain these documents, at least for the purposes of this litigation. See Report and Recommendation of the Special Master (filed this date). This problem, among other things, is what has led the Special Master to recommend the entry of a preliminary injunction against the Department of the Treasury to prevent the destruction of these important documents.
To the extent that the Department of the Interior has, with the authorization of Congress, delegated certain trust responsibilities to the Department of the Treasury, the Department of the Treasury cannot act contrary to Congress's mandate that plaintiffs be given an accounting of their trust funds monies. See 3 SCOTT, THE LAW OF TRUSTS, supra, § 224 (explaining that a beneficiary of a trust may sue a co-trustee for breaches of trust by that co-trustee). Plaintiffs allege that the Department of the Treasury has done just that by destroying these IIM-trust-related documents. Clearly there is evidence of this destruction in the record, as embodied by the Special Master's report discussed above and the Department of the Treasury's recent admissions that they "inadvertently" *34 destroyed a large set of potentially relevant documents. Therefore, there are genuine issues of material fact as to whether defendant Rubin has acted in contravention of a trust duty placed upon the United States, which was to be carried out by the Secretary of the Interior, which was in turn delegated for a limited purpose to the Secretary of the Treasury. The court holds that the Secretary of the Treasury, in his role as trustee of the IIM trust for limited purposes authorized by Congress, has a duty to act as a proper trustee with trust-related documents, at least until an accounting has been given to plaintiffs, as mandated by Congress. The exact contours of this duty will be the subject of the impending trial. Accordingly, defendants' motion for summary judgment must be denied.[21]
IV. Conclusion
For the reasons stated above, the court will order that:
1. Defendants' Motion for Summary Judgment on Plaintiffs' Claims Based Upon a Common Law Breach of Trust Theory, Claims Based Upon Alleged Interference with the Office of Special Trustee, and Requests for a Mandatory Injunction will be DENIED.
2. Defendant Secretary of the Treasury's Motion [262] for Summary Judgment as to plaintiffs' prospective claims for relief will be DENIED.
A separate order shall issue this date.
ORDER
For the reasons stated in the court's Memorandum Opinion issued this date, the court HEREBY ORDERS that:
1. Defendants' Motion for Summary Judgment on Plaintiffs' Claims Based Upon a Common Law Breach of Trust Theory, Claims Based Upon Alleged Interference with the Office of Special Trustee, and Requests for a Mandatory Injunction is DENIED.
2. Defendant Secretary of the Treasury's Motion [262] for Summary Judgment as to plaintiffs' prospective claims for relief is DENIED.
3. The pretrial conference shall proceed as scheduled at 2:00 p.m., Monday, June 7, 1999. Trial shall commence as scheduled at 10:00 a.m., Thursday, June 10, 1999.
SO ORDERED.
NOTES
[1] For ease of reference, the court will refer to this motion, which all defendants join, as "Defendants' Consolidated Motion for Summary Judgment."
[2] For a more exhaustive description of the facts in this case, see Cobell v. Babbitt, 37 F.Supp.2d 6 (D.D.C.1999) (adjudging and decreeing defendants to be in contempt of court); Cobell v. Babbitt, 30 F.Supp.2d 24 (D.D.C.1998) (addressing defendants' motion to dismiss).
[3] The court will not recount in depth the history of the relationship between Native Americans and the government. However, a brief rendition is warranted to provide a context for how this trust came into existence. This background has influenced the development of federal Indian law throughout this nation's history. See generally FELIX S. COHEN, HANDBOOK OF FEDERAL INDIAN LAW 47-206 (1982). In the words of one commentator, "the unique relationship between the United States and the Indians [reveals] the underpinnings of the government's fiduciary duty which are essential to an intelligent analysis of the breach of trust cases." Reid Peyton Chambers, Judicial Enforcement of the Federal Trust Responsibility to Indians, 27 STAN. L.REV. 1213, 1215 (1975)
[4] Primary responsibility for the discharge of the United States' general fiduciary obligations has been given to the Secretary of the Interior. Congress has, however, authorized the Secretary of the Interior to delegate a few of his responsibilities, including holding and investing certain funds, to the Secretary of the Treasury. It should be kept in mind that, unless otherwise specified by Congress, it is ultimately the United States that owes fiduciary duties to the Native Americans. As explained below, these fiduciary obligations arise in certain circumstances from statutes and regulations evincing the federal government's pervasive federal control over Native American affairs. These fiduciary obligations do not arise, at least at first instance, from any power originating with the Secretary of the Interior or the Secretary of the Treasury.
[5] The Bureau of Indian Affairs historically has been tasked by the Secretary of the Interior with the day-to-day management of the IIM trust. As discussed below, however, BIA was stripped of this responsibility in terms of financial management in 1994. BIA still manages the trust assets.
[6] Senator Ben Nighthorse-Campbell has offered an amendment to the Supplemental Appropriations Bill stating that no funds may be used to enforce defendant Babbitt's executive order, which restructured the Office of the Special Trustee. See Plaintiffs' Opposition o Defendants' Consolidated Motion, Ex. 1.
[7] The court has already held that plaintiffs state claims under the theories of "statutory" (i.e., under the Administrative Procedure Act, § 702 et seq.) and "non-statutory" (i.e., non-APA) review. See Cobell, 30 F.Supp.2d at 33. The APA provides for judicial review of agency action and the applicable waiver of sovereign immunity in actions for relief other than money damages that state claims that a federal officer acted or failed to act as required in an official capacity. Rowe v. United States, 633 F.2d 799, 801 (9th Cir.1980). The APA states that a reviewing court may "compel agency action unlawfully withheld" and "hold unlawful and set aside agency action ... found to be ... (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law" or action "short of statutory right." 5 U.S.C. § 706(1), (2)(A), & (2)(C). Section 706(1) clearly "applies to the situation where a federal agency refuses to act[,] in disregard of its legal duty to act." EEOC v. Liberty Loan Corp., 584 F.2d 853, 856 (8th Cir.1978). If a federal official has failed to discharge a duty that Congress intended the official to perform, then a court can compel performance of that duty and effectuate the mandate's purpose. Carpet, Linoleum, and Resilient Tile Layers, Local Union No. 419 v. Brown, 656 F.2d 564, 566 (10th Cir.1981). A claim for equitable, non-monetary relief that is based on a right conferred by statute may be heard in federal district court, as opposed to the United States Court of Federal Claims, under the APA. Megapulse, Inc. v. Lewis, 672 F.2d 959, 967 (D.C.Cir. 1982).
[8] An accounting cannot be performed, of course, without the pertinent underlying information. This information is contained in documents and computer files. Without the preservation and accessibility of these documents and files, defendants will not be able to render an accounting. See GEORGE T. BOGERT, TRUSTS § 140 (6th ed. 1987) ("In order that he may be able to present to the court and the beneficiaries an accurate history of his administration, the trustee is under a duty to retain trust documents, to secure and file vouchers for expenditures, and to keep records. Failure to perform his duties may cause the court considering his accounts to resolve doubts against him and otherwise to discipline him.")
[9] The court explained the doctrine of sovereign immunity in relation to plaintiffs' claims when it denied defendants' motion to dismiss. See Cobell, 30 F.Supp.2d at 30-32. As explained below, the legal grounds underlying that holding subsequently have been affirmed by a recent decision of the United States Supreme Court. See Department of the Army v. Blue Fox, Inc., ___ U.S. ___, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999).
[10] Even the dissenters from the majority's opinion in Mitchell II, Justices Powell, O'Connor, and (then-Associate Justice) Rehnquist, assumed that the majority's opinion mandated that "the law of trusts generally will control and that all defenses to actions on breaches of trust, such as consent by the beneficiary and laches, will be fully available to the United States." Mitchell II, 463 U.S. at 237 n. 11, 103 S.Ct. 2961 (Powell, Rehnquist, O'Connor, JJ., dissenting). It should be noted that the basis for this dissent turned on a disagreement about implying a money-damages remedy, which is not an issue in this case.
[11] These remedies are embodied in Restatement (Second) of Trusts § 199 (1957). Plaintiffs cannot (and do not) seek money damages in this court for jurisdictional reasons. Moreover, the appropriateness of any given remedy will depend upon the facts proved at trial.
[12] The availability of a money damages remedy does not preclude the beneficiaries from seeking equitable remedies for a continuing breach of trust. See RESTATEMENT (SECOND) OF TRUSTS §§ 198 ("Although the beneficiary can maintain an action at law against the trustee ... he has also equitable remedies against the trustee.") & 199 ("The beneficiary of a trust can maintain a suit to compel the trustee to perform his duties as trustee. It is immaterial that there is an adequate remedy at law.")
[13] Importantly, the case now before the court is much more straightforward than Mitchell II. In Mitchell II, the issue involved was whether a money damages remedy could be implied from the existence of the trust relationship and the statutes creating that relationship. In the case before this court, the ultimate remedy sought by plaintiffs an accounting is already provided for by statute. See 25 U.S.C. § 162a(d). The prospective remedies sought by plaintiffs would simply force the government to carry out their obligations in such a manner as to meet this ultimate obligation. Therefore, defendants' argument that the court would somehow be expanding existing law by allowing plaintiffs to seek injunctive and declaratory relief is unmeritorious.
[14] The government attempts to obfuscate this proposition by noting that the Court found plaintiffs' prospective remedies in Mitchell II to be "totally inadequate" on the facts of that case. The conclusion drawn by defendants is that this language somehow limited the prospective remedies available to plaintiffs. But a full reading of the case shows exactly to the contrary. The breach of trust complained of in Mitchell II was the mismanagement of timberlands, i.e., mismanagement of the trust corpus. There were two reasons that prospective relief would not have, in practice, remedied the mismanagement at issue in that context. First, "the Indian allottees were in no position to monitor federal management of their lands." Mitchell II, 463 U.S. at 227, 103 S.Ct. 2961. Second, "by the time government mismanagement [of the timber became] apparent, the damage to Indian resources may [have been] so severe that a prospective remedy [would have been] next to worthless." Id. In short, the Court was simply recognizing the reality of the situation as to the trust corpus management. The beneficiaries could not be expected to know when to file for prospective relief and, when they did, it would likely be too late because the land would have been logged. The Court, of course, could not have prospectively ordered that the laws of nature be reversed or that the trees be regrown at whatever rate it chose. In that context, the Court found prospective remedies to be inadequate. Thus, the government's argument that by its "inadequacy" comment the Court intended to narrow the scope of available prospective remedies is unpersuasive since that comment was based on a factor not at issue in this case natural resources management. Moreover, even if the Court's language could be stretched to embody defendants' interpretation, there is no reason to believe that the inadequacy of a prospective remedy is tantamount to the unavailability of such a remedy. For these reasons, defendants' interpretation of Mitchell II as to prospective remedies is rejected.
[15] Given the Court's holding in Nevada, plaintiffs' general theme in responding to defendants' summary judgment arguments is flawed. Plaintiffs cannot simply announce that this is a "trust case" and therefore conclude that the government owes all typical trust duties under the common law. Such an approach oversimplifies the role of the common law of trusts in this case and misconstrues Mitchell II, in light of Nevada. For this reason, the court does not conclude today that any given duty is placed on the government solely as a result of the establishment of the IIM trust, in the absence of express duties placed on the government by Congress or concomitant duties arising thereunder.
[16] The Court has looked to basic common law trust principles when analyzing other Indian breach of trust issues. See United States v. Dann, 470 U.S. 39, 48-50, 105 S.Ct. 1058, 84 L.Ed.2d 28 (1985); Seminole Nation v. United States, 316 U.S. 286, 296, 62 S.Ct. 1049, 86 L.Ed. 1480 (1942) (both recognizing the "traditional rule" that a debtor's payment to a fiduciary of the creditor satisfies the debt in the trust context, and both citing Bogert § 901 for this rule of law).
[17] Just as application of the common law "undivided loyalty" principle was unrealistic and inapplicable in Nevada, a request for the removal of the government as trustee would also be inapplicable. Congress has clearly provided that the government is to act as trustee for the IIM monies. This court does not have the power to encroach upon that decision, as such action would violate the doctrine of separation of powers. Congress has created this trust, and only Congress may alter it. This court's duty, as in all other cases, it to interpret and judicially enforce these laws.
[18] The court recognizes that one available remedy, putting the trustee into receivership, more clearly implicates separation of powers concerns. The court is well aware of this issue and intends to ensure that it does not overstep its bounds. There is case law pertaining to when it is appropriate to put a trustee or a governmental agency into receivership. Plaintiffs do not even make the receivership request at this time. It is simply too early to exclude the possibility of receivership at some point in the future, even if it would be currently inappropriate.
[19] The court will grant plaintiffs leave to amend their Complaint to properly include this charge, which is well-known to defendants and discussed at length in their memoranda.
[20] The court recognizes that "[a]n action purportedly requesting a mandatory injunction against a federal official is analyzed as one requesting mandamus." National Wildlife Federation v. United States, 626 F.2d 917, 918 n. 1 (D.C.Cir.1980); Cobell, 30 F.Supp.2d at 36 n. 13. Although the court exercised its discretion in dismissing plaintiffs' prospective mandamus claim at the motion to dismiss stage, the court will not rule today that plaintiffs are precluded as a matter of law from seeking a mandatory injunction against defendants. As discussed above, the equitable remedies of injunction and specific performance are standard remedies in the law of private trusts. It is simply too early to say that plaintiffs would not be entitled to these remedies no matter what is proven at the upcoming trial. General issues of material fact clearly exist as to whether defendants are in compliance with their trust duties, evidenced most easily by the fact that they cannot currently give plaintiffs an accounting. Of course, defendants are no doubt correct that a mandatory injunction against a federal official is an extraordinary, although not unprecedented, remedy. See e.g., Samaritan Health Ctr. v. Heckler, 636 F.Supp. 503, 518 (D.D.C.1985) (issuing mandamus against Secretary of Health and Human Services because "plaintiffs [had] a clear right to relief, the defendant [had] a clear duty to act, and there is no other adequate remedy available to plaintiffs.") Moreover, defendant Rubin admits that there is some genuine issue of material fact as to his performance of certain ministerial duties concerning limited payability statutes. See Defendant Rubin's Reply at 2.
[21] Even if the court were to accept defendant Rubin's argument that he owes no trust duties to beneficiaries in the handling of the trust fund monies, but the Secretary of the Interior owes all of these duties, under common-law principles, plaintiffs would be able to join the Secretary of the Treasury as a defendant at least in his capacity as agent of the Secretary of the Interior. See RESTATEMENT (SECOND) OF TRUSTS § 282 (1957); 4 SCOTT. THE LAW OF TRUSTS, supra, § 282.1, at 2339. But this issue need not be reached today because, as explained above, Congress has authorized and mandated that the Secretary of the Treasury take certain actions on behalf of the government in its role as trustee.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522365/
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52 F.Supp.2d 1310 (1999)
UNITED STATES of America, Plaintiff,
v.
John WICK, Defendant.
No. CR 98-663 MV.
United States District Court, D. New Mexico.
February 11, 1999.
*1311 *1312 Tara Neda, Assistant U.S. Attorney, Albuquerque, NM, for Plaintiff.
Susan Dunleavy, Assistant Public Defender, Albuquerque, NM, for Defendant.
MEMORANDUM OPINION AND ORDER
VAZQUEZ, District Judge.
THIS MATTER is before the Court on Defendant's Motion to Suppress [Doc. No. 12]. The Court held an evidentiary hearing on the Motion on January 13, 1999. Having considered the moving papers, relevant law, evidence presented at the hearing, and otherwise being fully informed, the Court finds that the Motion is well taken and will be GRANTED IN PART *1313 and DENIED IN PART, as explained below.
BACKGROUND
Defendant John Wick is charged by indictment with knowingly possessing parts designed and intended for use in converting a firearm into a fully automatic machine gun, in violation of 26 U.S.C. § 5845(b).
In the spring of 1998, Wick was serving in the U.S. Air Force, stationed at Canon Air Force Base in New Mexico. In March, employees at the Base post office noticed that Wick had received two UPS packages marked "ammunition" and two packages which "smelled like fertilizer." Agents with the Air Force Office of Special Investigation (OSI) determined that Wick did not have any weapons or ammunition stored at the Base armory. Air Force regulations prohibit service members from keeping guns or ammunition in their on-base homes and require that all personally owned guns or ammunition be stored in the Base armory. Wick lived on-base in a dormitory style room.
Based on the forgoing, a military magistrate approved of an "Authority to Search and Seize" form, the military equivalent of a search warrant, permitting OSI agents to search Wick's room. The warrant granted authority to search for and seize "ammunition and ammunition components" only.
On April 15, 1998, three OSI officers, Special Agent Michael Youngs, Special Agent Shilaikis, and Special Agent Carow, conducted the search of Wick's room. The search commenced at approximately 3:20 pm and concluded at approximately 5:30 pm. Wick was present in the room during the entire search. Later that evening, the agents returned to Wick's room a second time after they discovered that they failed to seize five rounds of ammunition which they discovered during their search. Wick allowed them back into his room in order to retrieve the ammunition.
In addition to the five rounds of ammunition, the OSI agents seized numerous items not listed in the search warrant. Specifically, the complete search inventory lists the following items:
1. Two issues of Shotgun News.
2. Six videocassettes from American Gunsmithing Institute as follows:
a. MAKAROV Armorer's Course Maintenance and Technical Manual
b. H & K Armorer's Course Maintenance and Technical Manual
c. Browning Hi-power Armorer's Course Maintenance and Technical Manual
d. AR15 Armorer's Course Maintenance and Technical Manual
e. AKS and MAK90 Type Armorer's Course Maintenance and Technical Manual
f. Colt-1911 .45 Auto, Armorer's Course Maintenance and Technical Manual
3. Two drilling fixtues as follows:
a. One AR-15/M-16 Drilling Fixture with Instructions
b. One AKS to AK-47 Drilling Fixture with Instructions
4. Four cloth hand gun cases with zipper.
5. Twenty-nine Gun Tests Buying Guide Magazines.
6. Four books as follows:
a. Marine Sniper
b. One Shot One Kill
c. Hunters and Shooters
d. Army Officers Guide
7. "Fifteen various magazines relating to books, Hunting & Military Gear, Weapons & Ammunition."
8. Three books as follows:
a. Rune Magic
b. Circle of Intrigue
c. Revelations
9. Five videocassettes titled Cold Steele Proof, described at the evidentiary hearing as instructional videos on the use of knives.
10. Two books as follows:
*1314 a. Carl Von Clausewitz
b. Unconditional Freedom
11. Five order invoices for the following items:
a. Bolt carrier with gas piston and 19 piece repair kit
b. AKS fixture and blueprint for drop-in Auto Sear for AR-15
c. AK compensator and AK compensator AK 74 Type
d. AK compensator US slant and AK compensator AK 74 type
e. Armorer's Course Videos.
12. One blue-print and instructions for Drop-in-Auto Sears for AR-15's.
13. Five photocopies of map of Amarillo, TX, one with red markings at various locations "to include adjacent to The Civic Center and City Hall."
14. Lease contract for A-Key Storage, Clovis, NM.
15. Letter from A1C [Airman First Class] Draisen.
16. Flashpoint Newsletter and envelope, described as "about TEXE MARRS religious beliefs."
17. Seventeen photographs as follows:
a. Nine photos of individual firing "what appears to be an AK-47 assault rifle"
b. Six photos of open land
c. Two photos of ground
d. Four strips of negatives
18. Five AK-47 bullets (referred to above).
19. Two videocassettes as follows:
a. AKS to AK-47 Conversion
b. AR-15 to M-16 Conversion
20. "Sixty-one photographs and fourteen negatives," identified at the hearing on this Motion as an undeveloped roll of film.
Agent Youngs testified at the evidentiary hearing that the two drilling fixtures and the four video tapes on conversion of firearms were all seized as evidence that Wick was engaged in illegally converting firearms to fully automatic fire. Agent Youngs testified that most of the other unlisted items were seized because the agents became suspicious that Wick was "actively participating" in a hate group. Air Force service members are prohibited from "active participation" in supremacist and hate groups. Air Force Instruction 51-903, March 4, 1994, "Dissident and Protest Activities." Active participation is defined as "publicly demonstrating or rallying, fund raising, recruiting and training members, organizing or leading." Id. Passive membership in such groups is permitted.
After the agents completed the search of Wick's room, Agent Youngs contacted the Bureau of Alcohol, Tobacco and Firearms. Agent Youngs also contacted the A-Key Storage Facility and verified that the lease for storage unit F-9 was made to Wick and that the payments were current. ATF agents determined that the drilling fixtures and instructions seized from Wick's room were specifically manufactured to convert semi-automatic firearms into fully automatic machine guns. ATF agents then searched the National Firearms Registration and Transfer Record and determined that Wick did not own any registered firearms and was not listed as a manufacturer. Agent Youngs investigated a series of UPS packages sent to Wick and determined that he had received nine packages from firearms parts and accessory distributors between March 19, and April 14, 1998. Agent Youngs further determined that Wick accessed his storage locker at A-Key Storage on five occasions between March 19, and April 5, 1998, on or near dates when he received UPS packages.
Based on the foregoing, a U.S. Magistrate issued a search warrant for Wick's storage unit at A-Key Storage Facility. The search warrant authorized the agents to search for and seize the following items:
Any machineguns; any semi-automatic firearms which appear to be evidence of, or possessed with the intent to, convert to fully-automatic fire; diagrams, books, video tapes, or other media in whatever form, on how to convert semiautomatic *1315 weapons for fully-automatic fire; parts (including but not limited to: triggers, hammers, sears, disconnectors, selector switches, bolts and receivers) associated with or manufactured for weapons capable of fully-automatic fire; tools, to include machine tools, which may be evidence of and associated with the conversion of semi-automatic firearms into machineguns; receipts for the purchase or sale of the above-listed items; and records in whatever form, that establish that the person or persons who have control, possession, custody or dominion over the property to be searched, or who have dominion and control over a particular area of the property to be searched, and from which evidence, if any, is seized, including but not limited to: personal mail; checkbooks, deposit slips, canceled checks, ATM receipts, etc.; personal identification; letters, notes or other correspondence; utility bills or statements; rent or other payment receipts; financial documents; keys; photographs (developed or undeveloped); leases, mortgages, or mortgages statements; vehicle registration information or ownership warranties or other related documents or literature; receipts for vehicle parts and repairs; gasoline or toll receipts; and telephone answering machine introductions.
The search of the storage locker revealed five semi-automatic rifles and the additional parts necessary to complete conversion of firearms to fully-automatic weapons. In addition, agents seized various items of evidence, the specifics of which are not here relevant, but which generally demonstrated that Wick had been using an alias.
Wick now moves for suppression of all of the evidence seized in both searches.
ANALYSIS
Defendant Wick argues that all of the evidence seized during the search of his dormitory room must be suppressed because the search and seizure so exceeded the scope of the warrant that it deteriorated into a "general search," tainting the seizure of even the five bullets authorized by the warrant. Further, Wick asserts that because the warrant for the storage locker was based on this illegally seized evidence, all of the evidence seized in the second search must also be suppressed as fruit of the poisonous tree. The government responds that the seizure of items not listed in the warrant for Wick's room was permissible based on the plain view doctrine and that all of the evidence is therefore admissible.
The Court will first address whether blanket suppression is appropriate in this case. Concluding that it is not, the Court will next determine, item by item, whether the unlisted objects which were seized fall within the plain view exception to the warrant requirement. The Court finds that only the drilling fixtures, the video tapes on firearm conversion and the five video tapes on knife fighting were legally seized under the plain view doctrine. Having concluded that the rental agreement for the storage locker was improperly seized, the Court must also suppress all evidence seized in the search of the storage locker as fruit of the poisonous tree. Finally, the Court addresses whether the items found in the search of the storage locker are admissible under the inevitable discovery doctrine, an argument which the government failed to raise. The Court holds that because the record does not provide a solid evidentiary foundation for concluding that the items in the storage locker would inevitably have been found by law enforcement agents, the Court cannot sua sponte admit these items under the inevitable discovery doctrine.
1. Blanket Suppression
As a general rule, when law enforcement officers seize items beyond the scope of a search warrant, "only the improperly seized evidence, not all of the evidence, must be suppressed ...." United States v. $149,442.43 in U.S. Currency, 965 F.2d 868, 875 (10th Cir.1992) (quoting *1316 United States v. Medlin, 798 F.2d 407, 411 (10th Cir.1986) (Medlin I)); United States v. Abram, 830 F.Supp. 551, 554 (D.Kan. 1993). However, if officers "deliberately and flagrantly" disregard the terms of the warrant, using it as a general grant of authority to search and seize whatever they like, blanket suppression of all items seized is appropriate, including those items listed in the search warrant or those which might have been admissible under the plain view doctrine. United States v. Medlin, 842 F.2d 1194, 1199-1200 (10th Cir. 1988) (Medlin II); United States v. Foster, 100 F.3d 846, 850-51 (10th Cir.1996). In the seminal case of Medlin II, federal officers were executing a federal search warrant which authorized the search and seizure of only illegally possessed weapons and related materials. 842 F.2d at 1195-96. State law enforcement officers investigating a series of burglaries accompanied the federal officers and, with the assistance of the federal agents, seized 667 items which they believed to be stolen but which were beyond the scope of the warrant. Id. at 1196. Reviewing cases from other Circuits in which all evidence had been excluded as a consequence of a search beyond the scope of the warrant, the Medlin II court observed,
[t]he basis of those decisions which hold that blanket exclusion is appropriate when a search warrant is executed with "flagrant disregard" for its terms is found in our traditional repugnance to "general searches" which were conducted in the colonies pursuant to writs of assistance. To protect against such invasive and arbitrary searches, the Fourth Amendment mandates that search warrants "particularly describ[e] the place to be searched and the persons or things to be seized." As the Supreme Court stated in Marron v. United States, 275 U.S. 192, 196, 48 S.Ct. 74, 76, 72 L.Ed. 231: "The requirement that warrants shall particularly describe the things to be seized makes general searches under them impossible and prevents the seizure of one thing under a warrant describing another. As to what is to be taken, nothing is left to the discretion of the officer executing the warrant."
Id. at 1196. The court then held,
[w]hen law enforcement officers grossly exceed the scope of a search warrant in seizing property, the particularity requirement is undermined and a valid warrant is transformed into a general warrant thereby requiring suppression of all evidence seized under that warrant.
Id.
Likewise, in Foster, supra, 100 F.3d 846, state law enforcement officers executed a warrant permitting the search and seizure of only marijuana and three specified firearms. Id. at 848. Drug Enforcement Officers were called to the scene and assisted in the search. The DEA agents seized 35 items, "including various firearms, ammunition, videotapes, marijuana, drug paraphernalia, and other miscellaneous items." Id. "For their part, the state officers seized anything of value in the house," including electronic equipment, lawn equipment, various tools, coins, and jewelry, Id. The district court, in suppressing everything seized in the search, stated that,
[w]hile it is true that a limited number of items listed in the sheriff's return can be classified as contraband or other incriminating evidence inadvertently found during the execution of the warrant, it is abundantly clear from the testimony of Martin, as well as the testimony of Wilson and Cowart, that there was a wholesale seizure of Foster's property amounting to a fishing expedition for the discovery of incriminating evidence. In fact, upon cross-examination by defense counsel, Martin admitted that the officers "took anything of value" and that this was standard procedure in the execution of a Sequoyah County search warrant. Other than the readily observable firearms, marijuana, and assorted contraband ... no attempt was made to substantiate a connection between the *1317 seizure of the majority of the seized items and the terms of the warrant. As candidly admitted by Martin, the officers simply "took anything of value" and did not adhere to the specific terms of the warrant.
Id. at 850. The Tenth Circuit upheld the blanket suppression, stating that "it is abundantly clear that the officers' disregard for the terms of the warrant was a deliberate and flagrant action taken in an effort to uncover evidence of additional wrongdoing." Id. at 851. The court emphasized that "blanket suppression should only be imposed in the most `extraordinary' of cases." Id. at 852.
Although neither Medlin II nor Foster specifically state that blanket suppression requires a showing of bad faith or improper motive on the part of the executing officers, both explicitly require something more than a mere failure of judgment. The Medlin II court condemned "flagrant disregard" for the terms of the warrant and law enforcement officers "grossly exceeding" the scope of the warrant. Medlin II, 842 F.2d at 1198-99. Foster arguably went even further, requiring "deliberate and flagrant" disregard for the terms of the warrant. Foster, 100 F.3d at 851. Moreover, the Foster majority specifically rejected the dissent's proposition that blanket suppression was appropriate only if bad faith had been shown both in obtaining and executing the warrant, concluding instead that Medlin II was concerned with only "the actual execution of the warrant rather than the mental state of the officers at the time they obtained the warrant." Id. "The evil that this circuit addressed in Medlin [II] ... was the use of an otherwise valid warrant to conduct a general search." Id.
Moreover, other courts applying the holdings of Medlin II and Foster have specifically applied a good faith standard and evaluated the officers' motives in conducting the search. See United States v. Hargus, 128 F.3d 1358, 1363 (10th Cir. 1997) (considering the motivation of officers in seizing whole file cabinets rather than specific files named in the warrant); $149,442.43 in U.S. Currency, 965 F.2d at 875 (applying good faith standard); Abram, 830 F.Supp. at 556 ("The court can only conclude that the IRS agents conducting the search were motivated by sheer laziness, a desire to harass the [the defendants], or a desire to engage in a fishing expedition among the documents indiscriminately seized from the [defendants'] home. Any of these three motives cannot be condoned by the court and can only be characterized as flagrant disregard for the terms of the search warrant."); United States v. Turley, 830 F.Supp. 547, 549 (D.Kan.1993) (applying good faith standard); United States v. Larson, 1995 WL 716786 *7 (D.Kan.1995) ("Medlin's rule of excluding all evidence seized in a general search is designed to combat the very mindset displayed by [the officer in this case]. The belief that a search warrant gives an officer free rein to search and seize cannot be tolerated.").
Thus, blanket suppression is only appropriate when the officers "deliberately and flagrantly" disregard the terms of the warrant; in other words, when the officers, in bad faith, use the warrant as a general grant of authority to search and seize whatever they like. See Hargus, 128 F.3d at 1363. This places the Court in the position of having to distinguish between a search in which officers seized unnamed items as a result of a good faith but possibly erroneous belief that the items fall within the plain view doctrine and a search in which officers "flagrantly and deliberately" disregarded the terms of the warrant in order to conduct a "fishing expedition" for potential evidence.
In the present case, military officers conducting the search of Wick's room were entitled to search for and seize only "ammunition and ammunition components." Wick was suspected of no crime other than storing ammunition in his on-base room. In addition to the five rounds of ammunition found, the officers also seized 181 other items, including books, *1318 magazines, newsletters, photographs, negatives, personal letters and other personal papers. Indeed, it is some what ironic that when the officers first left Wick's room they took with them "many bags" of material but forget to take the five rounds of ammunition, the only items which the warrant specifically allowed them to seize. It is particularly disturbing that much of the material seized is personal and political in nature, raising serious First Amendment concerns.
There is ample reason to believe that the officers lost sight of the limited reason they were permitted to enter Wick's room. At a minimum, the officers were operating with a serious misunderstanding as to what they were authorized to do in Wick's room and with a frighteningly broad vision of what amounted to incriminating evidence. Undoubtedly, the officers "grossly exceeded" the terms of the warrant.
Nevertheless, the Court concludes that the officers did not "deliberately and flagrantly" disregard the terms of the warrant. The Court concludes that the officers did not intentionally use the warrant as a ruse to search for other items nor did they simply seize everything of value in the room. Rather, Agent Youngs testified that the officers chose not to seize hunting knives because the knives were within Air Force regulations, even after finding videocassettes which apparently described knife fighting techniques. Evidence was also presented that the officers chose not to seize posters with Nazis insignia even though they found the posters indicative of Wick's involvement with something suspicious. Thus, the officers did attempt to use at least some discretion in seizing only those items which the officers concluded were indicative of possible wrongdoing. Although the Court concludes below that the officers incorrectly and illegally seized numerous items which do not fall within the plain view exception to the warrant requirement, the Court concludes that the officers were attempting in good faith to follow the law as they understood it. The fact that the officers did not comprehend the limited nature of the plain view exception demonstrates a lack of training but not a lack of good faith. Thus, because the officers did not "deliberately and flagrantly" disregard the terms of the warrant, blanket suppression of all of the evidence seized in both searches is not warranted. Foster, 100 F.3d at 851-52; Hargus, 128 F.3d at 1363.
2. The Plain View Exception
It remains the case, however, that the officers were permitted to seize only those unlisted items which fall within the plain view exception to the warrant requirement. As the Supreme Court recently reiterated,
[u]nder that doctrine, if police are lawfully in a position from which they view an object, if its incriminating character is immediately apparent, and if the officers have a lawful right of access to the object, they may seize it without a warrant. If, however, the police lack probable cause to believe that an object in plain view is contraband without conducting some further search of the object i.e., if its incriminating character is not immediately apparent, the plain-view doctrine cannot justify its seizure.
Minnesota v. Dickerson, 508 U.S. 366, 375, 113 S.Ct. 2130, 124 L.Ed.2d 334 (1993) (quotation marks and citations omitted); see also Arizona v. Hicks, 480 U.S. 321, 324-25, 107 S.Ct. 1149, 94 L.Ed.2d 347 (1987); Horton v. California, 496 U.S. 128, 136-137, 110 S.Ct. 2301, 110 L.Ed.2d 112 (1990).
As the Supreme Court stated in Dickerson, "the Fourth Amendment's requirement that the officer have probable cause to believe that the item is contraband before seizing it ensures against excessively speculative seizures." Dickerson, 508 U.S. at 376, 113 S.Ct. 2130. Thus, in Dickerson, the Court upheld the suppression of crack cocaine seized during a pat-down search because the officer testified that he did not immediately recognize that the item was contraband, but had to manipulate the item further to discover its identity. *1319 Id. at 378, 113 S.Ct. 2130. The court stated,
[w]here, as here, an officer who is executing a valid search for one item seizes a different item, this Court rightly has been sensitive to the danger that officers will enlarge a specific authorization, furnished by a warrant or an exigency, into the equivalent of a general warrant to rummage and seize at will.
Id. (quotation marks and citation omitted). "Here, the officer's continued exploration of respondent's pocket after having concluded that it contained no weapon was unrelated to the sole justification of the search under Terry .... It therefore amounted to the sort of evidentiary search that Terry expressly refused to authorize and that we have condemned in subsequent cases." Id. (citations and quotation marks omitted). Because the "the incriminating character of the object was not immediately apparent to" the officer but was only revealed after a further, unauthorized search, the evidence had to be suppressed. Id. at 379, 113 S.Ct. 2130.
Likewise, in the now classic case of Arizona v. Hicks, supra, 480 U.S. 321, 107 S.Ct. 1149, 94 L.Ed.2d 347, the Supreme Court held that a stolen stereo was not admissible under the plain view doctrine where the officer, lawfully on the premises due to exigent circumstances, moved the stereo in order to view the serial number to determine if it was stolen. Id. at 324-35, 107 S.Ct. 1149. The court held that,
the mere recording of the serial numbers did not constitute a seizure.... Officer Nelson's moving of the equipment, however, did constitute a "search" separate and apart from the search for the shooter, victims, and weapons that was the lawful objective of his entry into the apartment. Merely inspecting those parts of the turntable that came into view during the latter search would not have constituted an independent search, because it would have produced no additional invasion of respondent's privacy interest. But taking action, unrelated to the objectives of the authorized intrusion, which exposed to view concealed portions of the apartment or its contents, did produce a new invasion of respondent's privacy unjustified by the exigent circumstance that validated the entry.
Id. (citations omitted).
Thus, the plain view doctrine, as articulated by the Supreme Court in Arizona v. Hicks and Minnesota v. Dickerson, places two important constraints on the searching officers conduct: (1) the officer may not conduct a more intrusive or extensive search of an item than is necessary to determine whether it falls within the scope of the officer's authority to search and seize; and (2) the officer may not seize anything beyond his or her granted authority whose incriminating character is not immediately apparent. See United States v. Soussi, 29 F.3d 565, 570 (10th Cir.1994). It must be remembered that the plain view doctrine is an exception to the Fourth Amendment's particularity requirement; the doctrine "may not be used to extend a general exploratory search from one object to another until something incriminating at last emerges." Id. (quoting Coolidge v. New Hampshire, 403 U.S. 443, 466, 91 S.Ct. 2022, 29 L.Ed.2d 564 (1971)).
Special problems arise in cases such as this one in which the law enforcement officers inspect and seize personal papers. In this case, the officers were entitled to search for and seize ammunition and ammunition components. Under this grant of authority, were the officers entitled to read personal papers and books that they encountered during their search? As in Dickerson, the officers would have been immediately alerted to the fact that the papers were not ammunition and ammunition components. Were they entitled to inspect them further in order to determine whether they were incriminating? And what makes a document, book or photograph incriminating?
As to the scope of the permitted inspection, in cases pre-dating Dickerson, and most pre-dating Hicks as well, several *1320 courts have held that officers may "briefly peruse" documents which they encounter during a search even when the terms of the search warrant explicitly exclude all documents per se. See United States v. Tolerton, 669 F.2d 652, 653-54 (10th Cir. 1982); United States v. Gentry, 642 F.2d 385, 387 (10th Cir.1981); See United States v.. Barnes, 909 F.2d 1059, 1070 (7th Cir. 1990); United States v. Issacs, 708 F.2d 1365, 1369 (9th Cir.1983); United States v. Heldt, 668 F.2d 1238, 1267 (D.C.Cir.1981) (per curium), cert. denied, 456 U.S. 926, 102 S.Ct. 1971, 72 L.Ed.2d 440 (1982); United States v. Crouch, 648 F.2d 932, 933 (4th Cir.1981); United States v. Damitz, 495 F.2d 50, 56 (1974). Thus, in Tolerton. supra, 669 F.2d 652, the Tenth Circuit upheld under the plain view doctrine the seizure of a pawn ticket found in a drawer while the officer was searching under a warrant that permitted the seizure of keys. Id. at 653-54. Because the officer knew that the potential murder weapon had been recently pawned, the Tenth Circuit found that the incriminating nature of the pawn ticket was immediately apparent, even without reading the document. Id. at 654.
In the Tenth Circuit case of Gentry, supra, 642 F.2d 385, the search warrant permitted the officers to search for drugs. In the course of this search, the officers opened a brief case and discovered papers describing the sale and manufacture of methamphetamine. Id. at 387. The court concluded that because "[i]t is logical and reasonable" that the drug might be contained in the brief case, the officers were entitled to inspect the contents of the case to determine if drugs were inside. Id. The court did not address whether the officers were entitled to read the documents in the case and, if they were, how closely. However, another Tenth Circuit case recently described Gentry as upholding "the plain view seizure of documents even when the police only learned of the documents' incriminating nature by perusing them during a lawful search for other objects." Soussi, 29 F.3d at 570 (emphasis added). In Soussi, the search warrant permitted the officers to seize certain specified documents, thus necessarily requiring them to inspect all of the documents they encountered. The Tenth Circuit upheld the seizure of documents not named in the search warrant but cautioned that the courts must remain "mindful of the grave dangers to privacy interests" inherent in searches which encompass personal papers. Id. (quoting Andresen v. Maryland, 427 U.S. 463, 482, 96 S.Ct. 2737, 49 L.Ed.2d 627 (1976)).
As did the Tenth Circuit in Gentry, other circuits have permitted the brief inspection of books, papers and envelopes when the officers were searching for drugs that could have been hidden inside these items. See Barnes, 909 F.2d at 1070; Crouch, 648 F.2d at 933; Damitz, 495 F.2d at 56. As the Seventh Circuit stated in a typical case,
[a]lthough the search warrant is limited to cocaine, it is beyond dispute that cocaine is commonly distributed as a powder in small vials and envelopes and, thus, is easily concealable in confined areas, such as notebooks, hollowed-out books and human body cavities. In their search for cocaine, the agents were authorized to search any and all areas and items where the narcotic might readily be concealed. We therefore hold that the agents' examination of the spiral notebook to ascertain whether some form of cocaine was concealed therein was proper.
Barnes, 909 F.2d at 1069-70. Each of these cases has emphasized, however, that the incriminating nature of the documents was apparent without extensive inspection. In Crouch, supra, 648 F.2d 932, for example, the Fourth Circuit stated that a "brief perusal," short of "reading," revealed the incriminatory nature of the letters seized. Id. at 933.
This Court has been able to locate only two cases discussing the permissible scope of the inspection of documents during a search under the precedents of Hicks and Dickerson. See United States v. Rude, 88 *1321 F.3d 1538, 1552 (9th Cir.1996); United States v. Padilla, 986 F.Supp. 163, 170-71 (S.D.N.Y.1997). In the Ninth Circuit case Rude, supra, 88 F.3d 1538, the search warrant permitted the officers to seize certain documents dated after May, 1992. The officers seized at least 18 documents which pre-dated the search warrant cutoff. Id. at 1552. In reviewing the defendant's contention that the officers were not permitted to inspect or seize these documents, the court observed,
[j]ust as the officer in Hicks could not, absent probable cause, upon glancing at a stereo, move it and look for a serial number it may be argued that neither may an officer, upon glancing at a document noticeably beyond a search warrant, peruse it and look for incriminating evidence.
Id. The court continued, quoting from a D.C. Circuit case decided before Hicks,
[t]he incriminating character limitation necessarily permits a brief perusal of documents in plain view in order to determine whether probable cause exists for their seizure under the warrant. If in the course of that perusal, their otherwise incriminating character becomes obvious, they may be seized. Otherwise, the perusal must cease at the point at which the warrant's inapplicability to each document is clear.
Id. (quoting Heldt, 668 F.2d at 1267). The Ninth Circuit noted that, "[t]his is not a case in which the officers merely perused the documents to determine whether they fell within the scope of the search as specified by the search warrant; their immediate observation of the contested documents revealed that the documents fell outside the warrant." Id. The court then assumed that the documents did not fall within the plain view doctrine but held that their admission at trial was harmless error. Id. at 1553.
On the other hand, the District Court for the Southern District of New York recently suppressed several documents which it concluded were not "incriminatory on their face." Padilla, 986 F.Supp. at 170-71. In Padilla, the defendant had consented to a search of her apartment for drugs and guns. Again, harkening back to Hicks, the court stated,
[j]ust as officers may not, upon glancing at a stereo, move it to look for a serial number unless they have probable cause to believe it was stolen, neither may officers, upon glancing at documents noticeably beyond the scope of the consent, peruse them in search of incriminating evidence.
Id. at 170. The court observed that in cases such as Soussi, where the officers are permitted to search and seize some documents, a more thorough inspection of all documents is necessary. Id. "But," the court continued,
in this case, the agents were only authorized to search for guns and drugs. All documents were beyond the scope of the lawful consent. [The searching officer] did not have license to cursorily peruse the documents to determine if they were incriminatory because all documents were beyond the scope of her lawful search.
Id. Accordingly, the court ordered suppressed all documents which were not "incriminatory on their face," including a phone bill, an address book, a spiral-bound notebook, business cards and assorted papers. Id. at 170-71. The court did permit the admission of two items which named a co-defendant and related to an address also under investigation as these documents linked the defendant to other individuals known by the officer to be involved in a conspiracy to distribute drugs. Id.
As to the kinds of documents which are "immediately" or "inherently incriminating," courts have found the following documents to be incriminatory on their face: papers related to the sale or manufacture of drugs (Barnes, 909 F.2d at 1070; Crouch, 648 F.2d at 933; United States v. Pugh, 566 F.2d 626, 627-28 (8th Cir.1977); Damitz, 495 F.2d at 56); loansharking ledger sheets (United States v. Ochs, 595 F.2d 1247, 1256 (2nd Cir.1979)); gambling *1322 records (United States v. Gargotto, 476 F.2d 1009, 1013 (6th Cir.1973)); fake identification cards (United States v. Maude, 481 F.2d 1062, 1069 (C.A.D.C.1973)); documents which link the defendant to known co-defendants (Padilla, 986 F.Supp. at 171); and documents showing that the defendant lived in the house where illegal drugs were found (United States v. Smith, 462 F.2d 456, 461 (8th Cir.1972)).
On the other hand, in the recent Tenth Circuit case of United States v. Robertson, 21 F.3d 1030 (10th Cir.1994), the court of appeals upheld the suppression of traffic tickets and photos which it found were not inherently incriminatory. In Robertson, the officers entered a home pursuant to a search warrant permitting the seizure of the fruits and/or instrumentalities of a car-jacking. Id. at 1035. Among several unlisted items, officers seized "a camel head container with ammunition inside," traffic tickets issued to an unknown individual, and photographs of the defendant and others displaying gang signs. Id. at 1032. The Tenth Circuit upheld the seizure of the camel head container with ammunition "because its `incriminating character' was `immediately apparent.'" Id. at 1035. "However," continued the court,
when the agent came across the traffic tickets and the gang photos, he did not then have probable cause to seize them. He did not even know who the person named on the tickets was. He may have had a reasonable suspicion that the gang photos were evidence of crime, but he did not have the required probable cause. See Arizona v. Hicks, 480 U.S. 321, 326-27, 107 S.Ct. 1149, 94 L.Ed.2d 347 (1987).
Id.; see also United States v. Bonitz, 826 F.2d 954 (10th Cir.1987) (discovery of automatic rifle case, sears kits, M-16 bolt carrier and cans of gunpowder during the course of in-home arrest provided basis for officers to seek a search warrant from a magistrate but did not provide basis for officers themselves to conduct broad search of home nor to seize items which were not in plain view and which, although suspicious, were lawfully owned).
Applying these holdings to the present case would be difficult in even the best of circumstances. The task is further hampered here by the complete failure of the parties to argue the issues to the Court. Specifically, the government argues that the plain view exception applies here because the officers were conducting a lawful search for a small item that could have been anywhere in the room. The government then makes the blanket assertion that the items seized were "clearly incriminating." Citing the Air Force regulation which prohibits service members from "actively participating" in supremacist organizations and hate groups, the government is apparently arguing that the agents had probable cause to seize most of the unlisted items as evidence that Wick had violated this regulation, though the government has failed to even reference the probable cause standard. The government makes no attempt to justify the seizure of any of the individual items other than the drilling fixtures and, indeed, objected twice when the defense counsel attempted to ascertain why each item had been seized.
This is wholly insufficient to justify the seizure of 181 items not listed in the search warrant, including books, religious and political literature, and personal letters and papers. True, the officers were searching for a small object; but they were searching for a small hard object. This is not a case in which the sought after item could be hidden between pieces of paper or pages of a book or in an envelope, nor is it a case in which officers were authorized to search for specific documents, permitting them to closely inspect all papers in the home. The search warrant did not grant the officers blanket authority to carefully inspect every magazine, book, paper or video tape that they encountered. Their actions must therefore be explained. Moreover, the vast majority of the items seized are not "clearly incriminating." Specifically, the Court fails to see what is "clearly incriminating" about books with titles like "Rune Magic" and "Unconditional Freedom," nor what is *1323 "clearly incriminating" about a personal letter from another serviceman. Indeed, it is disturbing to note that the officers seized from Wick's room items such as these which would not even fall within the scope of the much broader search authority granted for the storage locker. "Had a search warrant been issued authorizing such a broad seizure, it would have failed to meet the requirement under the Fourth Amendment that warrants particularly describe the things to be seized." Abram, 830 F.Supp. at 556. The government failed to even bring the majority of these items to the evidentiary hearing in order for the Court to ascertain whether they are "clearly incriminating." The government's attempt to justify this large scale seizure of unlisted items in one fell swoop falls far short of meeting its burden of proof.
Because the government has failed to specify which items it will actually seek to use as evidence in trial, the Court is compelled to go through each item individually to determine if it was properly seized and therefore admissible. The Court will begin with those items it concludes do fall within the plain view exception: (1) the two drilling fixtures; (2) the videocassettes on conversion of firearms to automatic fire; and (3) the five videocassettes entitled Cold Steele Proof.
Agent Youngs testified that he was searching the top shelf of the wardrobe in Wick's room when he encountered the drilling fixtures and stacks of videocassettes. Specifically, he stated that he was unable to see the contents of the shelf fully and that he was therefore removing the items on the shelf in order to view its contents. This was well within the permitted scope of the search for ammunition. Agent Youngs stated that he picked up the drilling fixtures from the top shelf and was able to read the instructions which identified the items through the plastic bags containing the fixtures. The Court concludes that this too is well within the permitted scope of inspection or "perusal" to determine whether an item discovered during a lawful search is contraband. Because the drilling fixtures have no other purpose but for the conversion of firearms to fully automatic fire, the incriminating nature of the items was immediately apparent. Thus, the drilling fixtures are admissible under the plain view exception.
Likewise, Agent Youngs testified that while searching the wardrobe shelves, he removed the stacks of videocassettes. As he was moving the cassettes out of the way in the search for ammunition, Agent Youngs stated that he was able to read the titles of the tapes without further manipulating the items. The Court finds that Agent Youngs encountered these tapes within the scope of his lawful search for ammunition and that his brief persual of the tape titles was permisable. The titles of four of the tapes indicate that they provide instructions on the conversion of firearms to fully automatic fire. Thus, these four videocassettes were incriminating on their face, warranting their seizure.
Finally, Agent Youngs also encountered five identical videocassettes entitled Cold Steele Proof. Agent Youngs stated that he decided to seize these items after reading the description on the back of the videos which indicated that they provided instruction on the use of knives, possibly for fighting. It is not entirely clear that reading the back of these video tapes falls within the limited scope of perusal permitted to identify the item. However, the Court holds that under Arizona v. Hicks, reading the backs of the videocassettes encountered during a lawful search does not constitute a further invasion of Wick's privacy, just as simply reading serial numbers encountered during a search did not further invade Hick's privacy. Hicks, 480 U.S. at 324, 107 S.Ct. 1149. Because Agent Youngs was entitled to move the tapes in the course of his search for ammunition, he had legitimate access to the information contained on the back of the tapes. Id. at 325, 107 S.Ct. 1149. Further, the fact that Wick owned five identical videocassettes which may have provided instruction on knife fighting could be *1324 considered incriminating evidence that Wick had violated the Air Force regulation against active participation in hate groups. "Active participation" is defined to include recruitment and training of members. Although Agent Youngs did not fully articulate this reason when testifying, the Court believes the "gist" of his testimony on this matter indicates that the agent concluded that owning five identical video tapes of this nature was indicative of Wick recruiting or training members for a hate group. Although, based on this evidence, it is a close question, the Court concludes that the five videocassettes were incriminating on their face and that Agent Youngs had probable cause to seize the tapes as evidence that Wick was recruiting or training members of a hate group.
The Court now turns to the items which it concludes do not fall within the plain view exception: (1) all of the books, magazines, and catalogs; (2) all the photographs and negatives; (3) the remaining videocassettes; (4) the cloth hand gun cases; and (5) all of the documents including the order invoices, the maps, the blueprint and instructions, the letter, and the rental contract for the storage locker.
Beginning with the books, magazines and catalogs, the government failed to provide the testimony of the OSI agent who found and seized most of these items. The record thus does not reflect how or where these items where encountered except that they were near Wick's bed and/or bookcase. The Court will assume, however, that the agents encountered these items in the course of their legitimate search for ammunition which could have been stored under the bed, behind books on a shelf, or in hollowed out books. Further, the Court concludes that the agents were entitled to briefly pursue the outside of the books and magazines in the course of their search and were entitled to open the books to determine if they had been hollowed out to hide ammunition.
However, the government has failed to establish that these items are inherently incriminatory. With regard to the nine books which were seized, the only explanation given as to the incriminatory nature of the books was that one had a swastika on the cover, three referred to shooting in the title, and one, the Army Officers' Guide, contained a phone number for a firearms part distributor written on the inside. The government failed to even proffer an explanation for the seizure of four of the books. Further, the Court finds that the explanations given for the seizures fall far short of establishing probable cause to seize the items. Specifically, it is unfortunately true that several popular works of fiction have swastikas on the cover; simply owning a paperback book with such a cover should not even rise to the level of "reasonable suspicion." Likewise, owning books about shooting and hunting is both perfectly legal and incredibly common. Similarly, while the phone number of the parts distributor inside the Army Officers' Guide might be deemed suspicious, it is not immediately or inherently incriminatory on its face. As with the 46 magazines and catalogs about guns and hunting which the agents seized, it must be recalled that gun ownership is still legal in this country and that an interest in guns and hunting is hardly surprising for someone serving in the armed forces. All of these items are on their face innocent, not incriminatory, even if they might be described as creating a suspicion in the officers' minds about Wick's activities. The Court emphasizes that the agents were not entitled to seize anything suspicious or anything which might help them in later investigations but only those items for which they had probable cause to conclude that the item was inherently incriminatory. Robertson, 21 F.3d at 1035.
In this vein, the government has also failed to provide a reasonable explanation for the seizure of the "Flashpoint Newsletter."[1] Agent Youngs testified that the *1325 newsletter touched on Timothy McVeigh and Theodore Kazinsky in some manner which Agent Youngs perceived as positive and therefore suspicious. The government argues that this is evidence of Wick's active participation in a hate group. However, as noted, the Air Force defines "active participation" to include only such actions as protesting, rallying, recruiting, fund-raising and training. Agent Youngs, when asked on cross-examination, specifically stated that the he did not consider the Newsletter or any of the other books or magazines seized as evidence of active participation. Thus, at most, the Newsletter may be considered suspicious and indicative that Wick is sympathetic with supremacist causes. But, on its face it is not inherently incriminatory. Rather, on its face it is politically oriented literature, the seizure of which greatly offends the First Amendment.
Because The agents lacked probable cause to seize any of the books, magazines or catalogs taken from Wick's room, all of these items must be suppressed. Id.
As to the photographs, the Court will again assume that these items were encountered within the legitimate scope of the search for ammunition and that the agents were permitted to briefly peruse them in the course of their search. However, the government has again failed to demonstrate that the items are incriminatory on their face. With regard to the "sixty-one photographs and fourteen negatives," Agent Youngs testified that this was in fact a single roll of undeveloped film seized from Wick's room. It should be obvious that a roll of undeveloped film is not inherently incriminating. With regard to the 17 other photos seized, the only photos which might even be deemed suspicious are the nine photos of an individual shooting an assault rifle. However, Agent Youngs testified that the agents did not know who the individual in the photos was and that he could not tell from the photos whether the rifle had been altered to fully automatic fire. If the photos of individuals displaying known gang signs in Robertson were not inherently incriminating but merely suspicious, then these photos as well fall short of the standard for seizure under the plain view doctrine. Robertson, 21 F.3d at 1035. Therefore, all of the photographs and negatives must be suppressed. Id.
Turning to the remaining videocassettes, the Court again assumes that the tapes were encountered within the scope of the legitimate search for ammunition and that the Agents were entitled to briefly peruse the titles of the tapes. Agent Youngs testified that the four remaining tapes were maintenance and technical manuals for certain firearms. Neither the videos nor the firearms they referred to are illegal to own. Again, while the tapes may have stirred suspicion in the officers' minds, the government has not established probable cause to conclude that they are in any manner incriminating. Therefore, the remaining four videocassettes must be suppressed. Robertson, 21 F.3d at 1035.
With regard to the four cloth hand gun cases, the Court finds that the cases were encountered during the course of the legitimate search for ammunition and that the agents were entitled to open and inspect the cases to determine if they contained ammunition. Agent Youngs testified that the cases were seized based on Agent Shilaikis' conclusion that the cases showed the impression of guns, indicating that the cases recently contained guns. The government has failed to explain what is incriminating about this. No guns were in fact found in Wick's room and again, the Court observes that it is still legal for Wick to own guns as long as they were not stored in his on-base room. Further, *1326 there has been no evidence presented that hand guns can be altered to fully automatic fire or that hand gun parts can be used to alter assault rifles to fully automatic fire. Thus, the government has failed to establish that the hand gun cases are inherently incriminating and the items must be suppressed. Robertson, 21 F.3d at 1035.
Finally, and most significant to this case, are the individual documents seized from Wick's room: the five order invoices, the blueprint and instructions for the Drop-in-Auto Sears, the five maps of Amarillo, TX, the letter from Airman First Class Draisen, and the lease contract for A-Key Storage. With regard to the order invoices, the government failed to provide the testimony of the agent that discovered and seized these documents. Defense counsel suggested that the documents were found in a stack of loose papers, but no evidence on this point was presented. Because the agents' authority to search was limited to ammunition and ammunition parts, the agents were not entitled to leaf through pieces of paper which could not have hidden a bullet. Further, the agents were not entitled to closely inspect these documents beyond what was necessary to determine that they were not ammunition. See Dickerson, 508 U.S. at 378, 113 S.Ct. 2130; Padilla, 986 F.Supp. at 170-71. Here, the Court simply has insufficient information to determine whether the order invoices were encountered within the legitimate scope of the agent's search for ammunition or whether the agent went beyond the permitted scope of search, leafing through personal papers which could not have hidden a bullet. Thus, the government has failed to carry its burden of proof in establishing that the invoices were discovered in plain view. See Dickerson, 508 U.S. at 378, 113 S.Ct. 2130; Padilla, 986 F.Supp. at 170-71.
On the other hand, Agent Youngs testified regarding his seizure of the blueprint and instructions for the Drop-in-Auto Sears. Agent Youngs testified that he found both the blueprint and the instructions folded on a shelf in the wardrobe. As soon as Agent Youngs picked up these papers, it must have been immediately apparent that they were not ammunition and did not contain ammunition. In order to determine what the these documents were, Agent Youngs had to unfold and further inspect the documents. In so doing, Agent Youngs exceeded the permissible scope of the search for ammunition and further invaded Wick's privacy. See Dickerson, 508 U.S. at 378, 113 S.Ct. 2130; Hicks, 480 U.S. at 324, 107 S.Ct. 1149. Accordingly, these documents were not found in plain-view, were not inherently incriminating, and should not have been seized.
The same conclusion is compelled regarding the five maps of Amarillo, TX. Agent Youngs testified that when the maps were found they were folded. Again, it must have been immediately apparent that they were not ammunition and did not contain ammunition. To identify the documents, the agents had to unfold and further inspect them. In so doing, the agents again exceeded the permissible scope of the search for ammunition and further invaded Wick's privacy. See Dickerson, 508 U.S. at 378, 113 S.Ct. 2130; Hicks, 480 U.S. at 324, 107 S.Ct. 1149. Accordingly, these documents were not found in plain-view, were not inherently incriminating, and should not have been seized.
As to the letter from Airman Draisen, the government failed to present any evidence regarding the circumstances of its discovery. The letter may have been folded and may have been in an envelope, but Agent Youngs could not recall. Thus, the Court concludes that the government has failed to establish that this document was encountered in plain-view. More importantly, however, the proffered "incriminatory" nature of the letter is nothing more than the fact that it showed that Airman Draisen was an "acquaintance" of Wick's. This, the Court must observe, is one of the most egregious violation of the *1327 Fourth Amendment imaginable. Law enforcement officers entering a person's home under the guise of a narrowly drawn warrant, reading through the individual's personal letters, and then seizing one of those letters solely because it demonstrated that the writer was an "acquaintance" of the suspected man is the very evil which the Fourth Amendment's particularity requirement is intended to guard against. Dickerson, 508 U.S. at 376, 113 S.Ct. 2130; Andresen, 427 U.S. at 482, 96 S.Ct. 2737. In the words of the Supreme Court, this is an "excessively speculative seizure," the likes of which should not be seen. Dickerson, 508 U.S. at 376, 113 S.Ct. 2130. The letter should not have been seized, in all likelihood should not have been read, and will be suppressed.
Finally, the Court turns to perhaps the single most important document seized from Wick's room: the rental agreement for the storage locker. Agent Youngs testified that he discovered the rental agreement inside a plastic tuperware-style container as he was searching for ammunition. He stated that when he opened the container, the document was laying on top, folded in such a manner that he could read the title of the document and the name and address of John Wick without further manipulating the document. Based on this testimony, the Court finds that the document was discovered within the scope of the legitimate search for ammunition and that this brief perusal was permitted to identify the document once it was discovered. However, the document is not inherently incriminatory. Undoubtedly, the rental agreement would be useful in pursuing further investigation of Wick. But the agents were not entitled to seize anything that might be useful to them. And undoubtedly, a reasonably competent officer would suspect that a storage locker might contain incriminatory materials. But this does not amount to probable cause to believe that the document itself is inherently incriminatory. Indeed, in the present case, the fact that Wick rented a storage locker was highly exculpatory. Wick was suspected of storing ammunition in his on-base room in violation of Air Force regulations. If, however, Wick was storing the ammunition in an off-base storage locker, that would establish that he was in fact innocent of the alleged offense. Moreover, the Court does not find it unusual or suspicious that a service member, living in a small dormitory style room, would rent a storage locker. Again, there is nothing inherently incriminating about simply renting a storage locker, though undeniably it is a useful investigative lead. But, absent probable cause to conclude that the document itself was inherently incriminating, the agents could not seize the rental agreement. Robertson, 21 F.3d at 1035.
Accordingly, all of the documents seized must be suppressed as the government has not established that they were discovered within the scope of the legitimate search for ammunition or because they are not inherently incriminating. Id.
3. Fruit of the Poisonous Tree
Having concluded that many of the items seized from Wick's room were taken in violation of the Fourth Amendment, the Court must now determine the effect this has on the subsequent search of Wick's storage locker. The central question is whether, in light of the fact that the agents were not entitled to seize the rental contract for the storage locker, the entire second search is tainted.
The Court is compelled to conclude that it is. Although Agent Youngs legitimately encountered the rental agreement and thus legitimately gained knowledge of the existence of the storage locker, he was not entitled to seize the agreement itself. The law enforcement agents in fact used the agreement in order to obtain the second search warrant for the storage locker. Thus, the conclusion is inescapable that the officers exploited the illegally seized document in obtaining the search warrant for the storage locker. See Wong Sun v. United States, 371 U.S. 471, 487-88, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963). Because *1328 all of the evidence from the storage locker "has been come at by exploitation of [the] illegality," all of the items seized must be suppressed unless an exception to the exclusionary rule applies. Id.[2]
4. Inevitable Discovery
Even if evidence has been acquired through law enforcement exploitation of illegality, the evidence may nevertheless be admitted if it falls within the inevitable discovery exception to the exclusionary rule. Nix v. Williams, 467 U.S. 431, 444, 104 S.Ct. 2501, 81 L.Ed.2d 377 (1984). "Under this rule, the government has the burden of proving by a preponderance of the evidence that the evidence in question would have been discovered in the absence of the Fourth Amendment violation." United States v. Eylicio-Montoya, 70 F.3d 1158, 1165 (10th Cir.1995); Nix, 467 U.S. at 444 n. 5, 104 S.Ct. 2501; United States v. Griffin, 48 F.3d 1147, 1150 (10th Cir.1995); United States v. Maestas, 2 F.3d 1485, 1491 (10th Cir.1993). "Accordingly, as long as it can be shown by `demonstrated historical facts' that an independent and untainted discovery would inevitably have occurred, the evidence will be admissible." Griffin, 48 F.3d at 1150 (citation omitted); see also United States v. Polanco, 93 F.3d 555, 562 (9th Cir.1996) ("the government must prove that the fact or likelihood that makes the discovery inevitable arose from circumstances other than those disclosed by the illegal search itself.") The impetus behind the doctrine is to place "the police in the same, not a worse, position that they would have been if no police error or misconduct had occurred." Nix, 467 U.S. at 443, 104 S.Ct. 2501. The Tenth Circuit recently clarified that the independent investigation need not be underway at the time of the illegality. United States v. Larsen, 127 F.3d 984, 986 (10th Cir.1997). Rather, the rule applies "whenever an independent investigation would have led to discovery of the evidence, whether or not the investigation was ongoing at the time of the illegal police conduct." Id. at 986.
The doctrine of inevitable discovery has its most sensible application in situations where officers conduct an illegal search but would have been permitted to lawfully search the same area on a different theory, such as an inventory search or a search incident to arrest. See United States v. Haro-Salcedo, 107 F.3d 769, 773 (10th Cir. 1997); Eylicio-Montoya, 70 F.3d at 1165-66; United States v. Romero, 692 F.2d 699, 704 (10th Cir.1982). On the other hand, in United States v. Owens, 782 F.2d 146, 152-53 (10th Cir.1986), the Court of Appeals rejected as "too speculative" the argument that drugs would have been found inevitably when the hotel staff cleaned the defendant's room. The court observed, "we are reminded of our cautionary statement in Romero: `We recognize the danger of admitting unlawfully obtained evidence on the strength of some judge's speculation that it would have been discovered legally anyway.'" Id. (quoting United States v. Romero, 692 F.2d 699, 704 (10th Cir.1982)). Indeed, in Romero, the court stated that illegally seized evidence was admissible under the inevitable discovery doctrine "if there is no doubt that the police would have lawfully discovered the evidence later." Romero, 692 F.2d at 704 (emphasis added).
The Court believes that inevitable discovery might apply to the evidence seized from the storage locker. Specifically, because the agents legitimately encountered *1329 the information that Wick did in fact have a storage locker, there is reason to believe that they would have pursued this lead, even if they did not illegally seize and use the rental agreement itself. Alternatively, it is not difficult to imagine that reasonable officers, in the normal course of their investigation, would have determined whether Wick rented a storage locker near the base.
However, the government failed to raise the inevitable discovery exception and failed to present any evidence on this point. The Court has been unable to find any authority, published or not, on whether the Court may even consider inevitable discovery sua sponte. Cf. Polanco, 93 F.3d at 560-62 (court does not decide if trial could admit evidence sua sponte under inevitable discovery because admission of statement under the doctrine was error regardless); United States v. Marez, 19 F.3d 31, 1994 WL 83383 (9th Cir.1994) (reversing sua sponte admission of evidence under inevitable discovery because there was no evidence in the record to support admission under the doctrine). When the argument is raised for the first time on appeal and not supported by the record, the Tenth Circuit generally declines to entertain it. United States v. Moore, 91 F.3d 96, 99 (10th Cir.1996); Eylicio-Montoya, 70 F.3d at 1166.
Even if the Court were to conclude that it could consider admissibility under the inevitable discovery doctrine absent argument to such effect by the government, the Court finds that in the present case there is no evidence in the record which would demonstrate that the officers would have inevitably discovered and searched the storage locker. The Court cannot admit "unlawfully obtained evidence on the strength of [it's own] speculation that it would have been discovered legally anyway." Owens, 782 F.2d at 152-53; Romero, 692 F.2d at 704. Because the government has failed to produce facts sufficient to support the inference of inevitable discovery by a preponderance of the evidence, the Court holds that the evidence seized from the search of the storage locker must be suppressed. Eylicio-Montoya, 70 F.3d at 1165; Griffin, 48 F.3d at 1150; Owens, 782 F.2d at 152-53.
As noted above, the Court believes that the officers in this case were acting in good faith, attempting to seize only those items which they found indicative of something suspicious. But, the Court must also conclude that the officers' sense of restraint was overcome by their fears and suspicions. Agent Youngs testified many times at the evidentiary hearing that the search of Wick's room occurred only a few days prior to the anniversary of the bombing of the Oklahoma Federal Building and the destruction of the Waco compound, and that this fact influenced their impressions of what they saw in Wick's room. This is one of the very reasons the Fourth Amendment requires the intervention of a neutral, detached magistrate, to insure that any invasion of an individual's privacy is guided by reason and judgment not merely by fear and suspicion. While the officers may have had good cause to seek a warrant for the seizure of additional items from Wick's room, they were not free to use their own discretion to decide what should be seized. We cannot let this become a society in which law enforcement officers are free to seize books, photographs and personal papers at will based on vague suspicions that an individual is involved in a political movement which may be dangerous. We cannot sacrifice our freedom to our fear.
CONCLUSION
IT IS THEREFORE ORDERED that Defendant's Motion to Suppress [Doc. No. 12] is hereby GRANTED IN PART. The following items are hereby suppressed:
1. All books, magazines and catalogs seized from Wick's room (search inventory tag numbers 1, 5, 6, 7, 8, 10 and 16).
2. All photographs, negatives and undeveloped film seized from Wick's room (search inventory tag numbers 17 and 20).
3. The following videocassettes:
*1330 a. MAKAROV Armorer's Course Maintenance and Technical Manual (search inventory tag number 2);
b. H & K Armorer's Course Maintenance and Technical Manual (search inventory tag number 2);
c. Browning Hi-power Armorer's Course Maintenance and Technical Manual (search inventory tag number 2); and
d. Colt-1911 .45 Auto, Armorer's Course Maintenance and Technical Manual (search inventory tag number 2).
4. The four cloth hand gun cases (search inventory tag number 4).
5. The five order invoices (search inventory tag number 11).
6. The blueprint and instructions for Drop-in-Auto Sears (search inventory tag number 12).
7. The five maps of Amarillo, TX (search inventory tag number 13).
8. The lease contract for A-KEY Storage (search inventory tag number 14).
9. The letter from A1C Draisen (search inventory tag number 15).
10. All items seized in the search of the A-KEY Storage unit leased to Wick.
The following items are not suppressed:
1. The two drilling fixtures and instructions (search inventory tag number 3).
2. The following videocassettes:
a. AR15 Armorer's Course Maintenance and Technical Manual (search inventory tag number 2);
b. AKS and MAK90 Type Armorer's Course Maintenance and Technical Manual (search inventory tag number 2);
c. The five video cassettes titled Cold Steele Proof (search inventory tag number 9);
d. AKS to AK-47 Conversion (search inventory tag number 19); and
e. AR-15 to M-16 Conversion (search inventory tag number 19).
3. The five AK-47 bullets (search inventory tag number 18).
NOTES
[1] The Court also notes that the Newsletter was apparently found inside an envelope. The Court greatly doubts that, pursuant to Dickerson, the agents were entitled to open an envelope that they immediately would have known did not contain ammunition. The Court doubts even more that the agents were entitled to remove the papers inside and then read them. However, given that the Court finds that the document is not incriminatory on its face, the Court does not reach this issue here.
[2] In the interest of creating a clear record for appellate review, the Court notes that if the officers were entitled to use the rental contract in obtaining the second warrant, the Court would conclude that the second warrant was supported by probable cause, even if the Court were to exclude from the assessment all of the other items illegally seized from Wick's room which are mentioned in the affidavit. Specifically, the Court finds that the drilling fixtures, instructional videocassettes on weapons conversion, and ammunition found in the room, combined with the information regarding the UPS packages received by Wick from firearms parts distributors, would have provided probable cause to support the issuance of the second search warrant.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522573/
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286 F.Supp.2d 523 (2003)
Warren CHASE
v.
Phlonda PEAY, et al.
No. CIV.A. CCB-98-2367.
United States District Court, D. Maryland.
September 30, 2003.
*524 J Joseph Curran, Jr, Baltimore, MD, Angela M Eaves, State of Maryland Office of the Attorney General, Baltimore, MD, Sharon Stanley Street, State of Maryland Office of the Attorney General, Environmental Crimes Unit, Baltimore, MD, for defendants.
James Edward Weaver, Venable Baetjer and Howard, LLP, Baltimore, MD, for plaintiff.
MEMORANDUM
BLAKE, District Judge.
The defendants, Phlonda Peay, et al. ("defendants"), have moved for summary judgment against the plaintiff, Warren Chase ("plaintiff" or "Chase").[1] The issues in this motion have been fully briefed and no hearing is necessary.[2] Local Rule 105.6. For the reasons stated below, the motion for summary judgment will be granted.
BACKGROUND
Chase alleges that the defendants, employees of the Maryland Division of Correction, subjected him to cruel and inhuman conditions and used excessive force against him during Chase's confinement at the Maryland Correctional Adjustment Center ("MCAC"), the state's Super-Maximum facility in Baltimore, Maryland. (Am.Compl.) Chase commenced this suit pursuant to 42 U.S.C. § 1983, alleging that the defendants' conduct violated his Eighth and Fourteenth Amendment rights. (Id.) Chase sought monetary and punitive damages and costs, naming the various defendants in their individual capacities.[3] (Id.)
*525 Chase's allegations focus on two incidents, the first occurring on March 1, 1998, while Chase was housed in cell # 2 of the B-pod housing unit at the MCAC. (Pl.'s Opp. Mem. at Ex. 1, Chase Aff., at ¶ 2.) On the morning of March 1, Chase alleges that he was subjected to a strip search and a search of his cell. (Id. at ¶ 5; see also id. at Ex. 2, Thompson Dep., at 16, 251-53.) Chase states that he then was placed in a three-piece restraint, which remained on him for almost eight hours. (Id. at Ex. 1, Chase, Aff., at ¶ 5, 8; see also id. at Ex. 2, Thompson Dep., at 19, 114-15.) The three-piece restraint consisted of a chain around Chase's waist, connected to leg irons and handcuffs via a heavy black box. (Id. Ex. 1, Chase Aff., at ¶ 6; id. at Ex. 2, Thompson Dep., at 19.)
Chase states that he complained to correctional staff that the restraints were too tight and asked that the restraints be removed so that he could go to the bathroom, but the staff did not respond. (Id. at Ex. 1, Chase Aff., at ¶¶6, 10; see also id. at Ex. 2, Thompson Dep., at 16-17, 20, 118-22, 144-45, 150-51, 190, 255-57.) Chase charges that the restraints were so tight that they cut off the circulation in his wrists and ankles, causing numbness, pain, and discomfort in his hands and feet. (Id. at Ex. 1, Chase Aff., at ¶ 10.) Chase states that around 2:00 p.m. he was forced to defecate on himself, and that he remained in the restraints with feces on him for almost four more hours. (Id. at Ex. 1, Chase Aff., at ¶ 13; see also id. at Ex. 2, Thompson Dep., at 187-88.) Chase also states that on this same day the correctional staff on the B-pod refused to give him breakfast, although serving food trays to all of the other prisoners on the unit, on the orders of the officer in charge of the unit. (Id. at Ex. 1, Chase Aff., at ¶¶ 3-4, 9, 11; see also id. at Ex. 2, Thompson Dep., at 15-17, 100-01, 243-44, 250-51, 259-61, 280-84.)
Chase alleges similar conduct by correctional staff during a second incident, covering June 1 through June 8, 1998. Chase attempted to commit suicide on the evening of June 1, by ingesting a large number of pills.[4] (Id. at Ex. 1, Chase Aff., at ¶ 15.) Official records from the MCAC indicate that Chase expressed suicidal thoughts to several doctors at the prison during this period. (Defs.' Mem. at Ex. 1, at 12-14, 47-48, 49-52.) Chase was examined by psychiatrists on June 1 and then taken to the cadre isolation area, where he was stripped, dressed in a full-length gown, and placed in a restraint consisting of handcuffs, a black box, a waist chain, a padlock, and leg irons. (Pl.'s Opp. Mem. at Ex. 1, Chase Aff., at ¶¶ 16-17.) Chase remained in the cadre isolation area for eight days, until June 8. (Id. at ¶ 17.) Dr. Joseph S. Fuhrmaneck, a psychologist at the MCAC, testified that placing Chase in the cadre isolation area was a behavioral management strategy to prevent Chase from destroying property or otherwise acting out aggressively. (Defs.' Mem. at Ex. 3, Fuhrmaneck Dep., at 61-63.) Dr. Edouard, a psychologist at the MCAC, similarly testified that patients would be placed in restraints in the cadre isolation unit in order to prevent them from harming themselves or others. (Defs. Mem. at Ex. 6, Edouard Dep., at 49.)
During his time in isolation, Chase alleges that he was forced to defecate on himself three times, because correctional staff would not remove the restraints to allow Chase to use the bathroom. (Pl.'s Opp. Mem. at Ex. 1, Chase Aff., at ¶¶ 19, 21, 28, 31.) Chase states that on multiple occasions during this eight-day period he was unable to eat his food, because the correctional *526 staff did not bring him a food tray at meal times, or refused to remove his restraints to allow him to eat his food. (Id. at ¶¶ 20-26, 28-32.) Chase also alleges that he was told on several occasions between June 1 and June 8 that he had to remain in full restraints all the time while he was in the cadre isolation unit. (Id. at ¶¶ 24, 27.) James Kavangh, formerly the Warden at MCAC, testified that it would be inappropriate to leave a prisoner in restraints all day long, and that restraints generally must be loosened or removed for a prisoner to eat or go to the bathroom. (Defs.' Mem. at Ex. 5, Kavanagh Dep., at 35, 36-37, 73-75.)
Official records from the MCAC show that Chase was disciplined for an incident on the morning of March 1, 1998, in which he refused to remove his arm from his feeding slot, and disobeyed an officer's order to remove his arm. (Defs.' Mem. at Ex. 1, at 1-5.) These records also show that Chase made several complaints during the period of June 1998 that members of the prison staff were putting things in his food and trying to poison him. (Defs.' Mem. at Ex. 1, at 12, 18, 47; see also id. at Ex. 3, Chase Dep., at 42-43; id. at Ex. 5, Kavanagh Dep., at 16.) Notes from the cadre unit for Chase's confinement between June 1 and June 8, 1998 include notations that he was using the bathroom at various times, that his restraints were removed at various times, and daily notations that he was eating his meals. (Id. at Ex. 4, Willis Dep., at Ex. 3.) The notes also indicate that on three occasions Chase refused to have his restraints removed so that he could eat, and that on one occasion he refused to accept his food. (Id. Chase testified that he never refused meals or refused to have restraints removed while he was in isolation. (Id. at Ex. 3, Chase Dep., at 41.) Finally, the cadre unit notes indicate that Chase was visited by medical and psychological staff while in isolation, and that Chase continued to express suicidal thoughts. (Id.)
Chase filed this suit on July 22, 1998, at which time he remained a prisoner at MCAC. (Pl.'s Opp. Mem. at Ex. 1, Chase Aff., at ¶ 1.) Chase was released from his term of incarceration on or about July 8, 2002, after completing his ten-year sentence. (Id.)
ANALYSIS
I.
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment
shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
The Supreme Court has clarified that this does not mean any factual dispute will defeat the motion:
By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis in original).
"The party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials of [its] pleading, but must set forth specific facts showing that there is a genuine issue for trial." Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 240 (4th Cir.1988). The court must "view the facts and draw reasonable inferences *527 in a light most favorable to the nonmoving party," Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.), cert, denied, 513 U.S. 813, 115 S.Ct. 67, 130 L.Ed.2d 24 (1994), but it also must abide by its affirmative obligation to ensure that factually unsupported claims and defenses do not proceed to trial. Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1128 (4th Cir.1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
II.
The Prison Litigation Reform Act ("PLRA") generally requires prisoner plaintiffs to exhaust administrative remedies before filing suit in federal court:
No action shall be brought with respect to prison conditions under § 1983 of this title, or any other Federal law by a prisoner confined in any jail, prison, or other correctional facility until such administrative remedies as are available are exhausted.
42 U.S.C. § 1997e(a). The Supreme Court has interpreted the language of this provision broadly, holding that the phrase "prison conditions" encompasses "all inmate suits about prison life, whether they involve general circumstances or particular episodes, and whether they allege excessive force or some other wrong." Porter v. Nussle, 534 U.S. 516, 532, 122 S.Ct. 983, 152 L.Ed.2d 12 (2002). Thus, the exhaustion provision plainly extends to Chase's allegations of excessive force and cruel and inhuman conditions.
It is undisputed that Chase was confined in MCAC when he filed his original complaint in this case, on July 22, 1998, and when he filed his amended complaint on May 25, 2000. On both of these dates, therefore, Chase was a "prisoner" within the meaning of 42 U.S.C. § 1997e(a), and was subject to the PLRA's exhaustion requirement. It also is undisputed that Chase was released from MCAC on or about July 8, 2002.[5] In his memoranda, Chase now argues that the PLRA no longer applies to his lawsuit, because he no longer is a prisoner within the meaning of 42 U.S.C. § 1997e(a). (Pl.'s Opp. Mem. at 18; Pl.'s Suppl. Opp. Mem. at 2-4.)
Although the Fourth Circuit has not yet considered this question, other circuits of the Court of Appeals have held that the administrative exhaustion requirement under the PLRA continues to apply when a prisoner is released while his lawsuit still is pending in federal court. See Cox v. Mayer, 332 F.3d 422, 425 (6th Cir.2003); Ahmed v. Drogovich, 297 F.3d 201, 210 (3d Cir.2002); Dixon v. Page, 291 F.3d 485, 488-89 (7th Cir.2002); cf. Page v. Torrey, 201 F.3d 1136, 1140 (9th Cir.2000) (applying § 1997e(a) to the plaintiff's status at the time of filing and holding that a former prisoner is not subject to the exhaustion requirement if he has been released at the time of filing); Greig v. Goord, 169 F.3d 165, 167 (2d Cir.1999) (per curiam) (same).[6] In an en banc opinion, the Eleventh Circuit has held that nearly identical language under the PLRA's physical injury requirement, *528 42 U.S.C. § 1997e(e),[7] continues to apply in situations in which the prisoner plaintiff has been released from prison after filing suit. See Harris v. Garner, 216 F.3d 970, 973-74 (11th Cir.2000) (en banc), cert. denied, 532 U.S. 1065, 121 S.Ct. 2214, 150 L.Ed.2d 208 (2001); cf. Kerr v. Puckett, 138 F.3d 321, 323 (7th Cir.1998) (applying § 1997e(e) to the plaintiff's status at the time of filing and holding that a former prisoner is not subject to the physical injury requirement if he has been released at the time of filing). These rulings are consistent with the plain language of the PLRA, which focuses on the time that a lawsuit is "brought" in federal court, indicating that the applicability of the exhaustion requirement must be determined at the time of filing. See Cox, 332 F.3d at 424-25 (concluding that a suit is "brought" under 42 U.S.C. § 1997e(a) when it is filed); cf. Harris, 216 F.3d at 973-74 (concluding that the term "brought" under a similar provision of the PLRA refers to the timing of bringing a suit, which means the action of filing the suit). Chase's subsequent release from prison therefore has no bearing on his obligation to exhaust administrative remedies.[8]
For the same reasons, Chase is also incorrect to suggest that the administrative exhaustion requirement cannot be applied to his case, because he no longer falls under the jurisdiction of the Maryland Division of Correction, and therefore the state's prisoner grievance processes are no longer "available" to him as required under the PLRA. (Pl.'s Opp. Mem. at 18.) The critical question is not whether the Maryland prisoner grievance process currently is available to Chase, but rather whether those remedies were available to him on July 22, 1998, at the time when he filed this suit in federal court. See Cox, 332 F.3d at 424-25 (focusing on the administrative remedies that were available to the plaintiff before he filed suit); Dixon, 291 F.3d at 488-89 (affirming the dismissal of a suit by a prisoner who had since been released, though conceding that administrative remedies were not currently available to him). When Chase filed this suit in federal court on July 22, 1998, he was confined at MCAC and the administrative remedies provided through Maryland's Division of Correction were available to him. Consequently, Chase's claims must be dismissed, unless he can show that he has satisfied the administrative exhaustion requirement under the PLRA, or that the defendants have forfeited their right to raise non-exhaustion as a defense.
Chase has not presented any evidence to demonstrate that he has fulfilled the PLRA's exhaustion requirement with respect to the incidents that he alleges occurred on June 1 through June 8, 1998.[9]*529 Therefore, all claims related to the incidents occurring between June 1 and June 8, 1998 must be dismissed for failure to exhaust.
With regard to the March 1, 1998 incident, Chase argues that he has satisfied the exhaustion requirement, and therefore is entitled to proceed on this claim. (Pl.'s Opp. Mem. at 19-20.) On March 3, 1998, Chase filed a request for administrative remedy with the Warden of MCAC regarding an incident that occurred on February 28, 1998, as well as the incident described above that occurred on March 1, 1998. (Pl.'s Mem. at Ex. 1, Chase Aff., at Ex. A.) On March 11, the MCAC's Institutional Coordinator dismissed Chase's request, pending resubmission, because Chase had failed to submit separate complaint forms for each incident, as the "Instructions to Inmates for Completing Request for Administrative Remedy" that were attached to the form had instructed him to do. (Id.) On April 7, Chase filed an Appeal of Administrative Dismissal with the Commissioner of Correction, challenging the March 11 dismissal. (Id. at Ex. B.) On April 15, the Maryland Division of Correction Headquarters Coordinator summarily denied the appeal, stating simply that Chase had failed to follow the prior instructions for resubmission. (Id.)
When Chase received the April 15 denial of his appeal, it appears that there were at least two administrative options still available to him. Chase could have resubmitted his request for an administrative remedy for the March 1 incident to the Warden of the MCAC, this time complying with the requirement to submit a separate remedy for each incident. (Id. at Ex. B.) Alternatively, Chase could have appealed the Commissioner of Correction's decision to the Inmate Grievance Office ("IGO"), the final level of appeal within Maryland's administrative grievance system for prisoners. See Md.Code Ann. Corr. Serv. § 10-206 (describing the process for submitting grievances to the IGO and the administrative exhaustion requirement); id. & 10-210 (allowing judicial review of a final decision from the IGO in state courts); Md. Regs. Code tit. 12 § 07.01.03 (stating that prisoners must exhaust available administrative remedies within the Division of Correction before appealing to the IGO).[10] Instead, Chase chose not to pursue further relief through the administrative remedy process.
*530 The exhaustion requirement under the PLRA has been interpreted to require prisoners to pursue administrative grievances until they receive a final denial of their claim, appealing through all available stages in the administrative process. See, e.g., Gibbs v. Bureau of Prison Office, 986 F.Supp. 941, 943-44 (D.Md.1997) (dismissing a federal prisoner's lawsuit for failure to exhaust, where the plaintiff did not appeal his administrative claim through all four stages of the Bureau of Prisons' grievance process); Booth v. Churner, 532 U.S. 731, 735, 121 S.Ct. 1819, 149 L.Ed.2d 958 (2001) (affirming dismissal of prisoner's claim for failure to exhaust because he "never sought intermediate or full administrative review after the prison authority denied relief"); Thomas v. Woolum, 337 F.3d 720, 726 (6th Cir.2003) (noting that a prisoner must appeal administrative rulings "to the highest possible administrative level") (internal quotations omitted); Pozo v. McCaughtry, 286 F.3d 1022, 1024 (7th Cir.) (stating that a prisoner must follow all administrative steps to meet the exhaustion requirement, but need not seek judicial review), cert. denied, 537 U.S. 949, 123 S.Ct. 414, 154 L.Ed.2d 293 (2002). To satisfy this requirement, Chase would need to demonstrate that he appealed his grievance all the way to the IGO, either directly following the denial of his administrative complaint, or after having resubmitted his complaint to the Warden of the MCAC and pursued the claim through all three steps in the administrative process. Because Chase has offered no evidence in support of such a demonstration, he has not satisfied his obligation to go beyond "mere allegations" and "set forth specific facts showing that there is a genuine issue for trial." Rivanna Trawlers, 840 F.2d at 240. The court must conclude that Chase failed to exhaust "such administrative remedies as are available," as required under the PLRA. 42 U.S.C. § 1997e(a).[11]
In addition to his statutory arguments, Chase argues that reading the PLRA to require him to exhaust administrative remedies violates his right to seek redress for Eighth Amendment violations. Because decisions by the IGO have preclusive effect, he contends, requiring Maryland prisoners to exhaust their administrative remedies through the IGO deprives them of a federal forum for their claims. (Pl.'s Opp. Mem. at 19-20.) The history and plain language of the PLRA, however, suggest that decreasing the number of federal suits is precisely the kind of result that Congress intended. The administrative exhaustion requirement serves an important function by preserving for state correctional systems the initial opportunity to redress problems within their own institutions. As the Supreme Court noted in Porter, "the PLRA's dominant concern [was] to promote administrative redress, filter out groundless claims, and foster better prepared litigation of claims aired in court." 534 U.S. at 528, 122 S.Ct. 983.[12]
Chase also argues that the defendants already have forfeited their right to *531 invoke the PLRA exhaustion requirement. The defendants first raised the plaintiff's failure to exhaust his administrative remedies as an affirmative defense in their Answer to the Amended Complaint, filed on July 24, 2000.[13] (Answer at 5.) The defendants did not raise this issue in their original Motion to Dismiss, or in the Alternative, Motion for Summary Judgment, filed on January 29, 1999, the first dispositive motion filed by the defendants in this case. In his memorandum, Chase argues that allowing the defendants to raise the non-exhaustion defense in their second Answer, some two years after Chase originally filed suit, and in their Motion for Summary Judgment, some two years after that, would result in unfair surprise and prejudice to the plaintiff.[14] (Pl.'s Opp. Mem. at 18-19.)
The main defect in Chase's forfeiture argument is that it overlooks the Amended Complaint Chase himself filed on May 25, 2000. As the Seventh Circuit explained in another prisoner suit where the defendants failed initially to plead the exhaustion defense, "[b]ecause a plaintiff's new complaint wipes away prior pleadings, the amended complaint opens the door for defendants to raise new and previously unmentioned affirmative defenses." Massey v. Helman, 196 F.3d 727, 735 (7th Cir.1999), cert. denied, 532 U.S. 1065, 121 S.Ct. 2214, 150 L.Ed.2d 208 (2001); see also Sidari v. Orleans County, 174 F.R.D. 275, 283 (W.D.N.Y.1996) ("The plaintiff's filing of the Amended Complaint gives the defendants a new opportunity to respond to the amended complaint, to assert new affirmative defenses ...."). The amendments to Chase's complaint in this case were hardly insubstantial. Chase's initial complaint was filed pro se and included a single four-page handwritten factual narrative, whereas the amended version was prepared by counsel and clearly specifies two distinct counts. The original version, it should also be noted, alleged that the plaintiff had filed a prison grievance and administrative appeal (Compl. at 2), whereas the amended version does not. To allow the plaintiff to make such significant revisions without granting the defendants the same opportunity would not comport with Rule 15(a)'s command that leave to amend pleadings "shall be freely given when justice so requires." Fed. R.Civ.P. 15(a). Indeed, that result "would, in essence, enable plaintiffs to change their theory of the case while simultaneously locking defendants into their original pleading." Massey, 196 F.3d at 735.
Chase's argument also conflicts with the "ample authority" in the Fourth Circuit "for the proposition that absent unfair surprise or prejudice to the plaintiff, a defendant's affirmative defense is not waived." Brinkley v. Harbour Recreation Club, 180 F.3d 598, 612 (4th Cir.1999) (citing numerous cases). Over two years elapsed between the filing of the defendants' Answer to the Amended Complaint *532 and the present Motion for Summary Judgment, yet Chase never sought to strike the defendants' § 1997e(a) defense. Nor is there any evidence that Chase attempted to complete the administrative process after receiving the defendants' Answer asserting non-exhaustion as a defense. Under these circumstances, Chase cannot have been "surprised" by the defendants' motion, and the court can find no unfair prejudice in allowing the defendants to proceed with the non-exhaustion defense.[15]
III.
In sum, the defendants have set forth a valid defense under § 1997e(a) based on Chase's failure to exhaust available administrative remedies, and that defense was not forfeited by the defendants' failure to raise it in their initial pleadings, considering that it was raised in an Answer to an Amended Complaint filed well within the statute of limitations. Accordingly, the defendants' Motion for Summary Judgment will be GRANTED in a separate Order following this Memorandum.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby Ordered that:
1. the Defendants' Motion for Summary Judgment in the above-captioned matter shall be GRANTED;
2. the Amended Complaint is Dismissed without prejudice for failure to exhaust available administrative remedies;
3. copies of this Order and the accompanying Memorandum shall be mailed to counsel of record; and
4. the clerk of the court shall CLOSE this case.
NOTES
[1] The defendants filing for summary judgment are Benson Bell, George Braxton, Eness Brown, Rodney Byrd, Thomas Carter, Thomas Corcoran, Frank Delbridge, Amahl Foster, Charles Graham, Keith Harris, Bernard Jones, Jack Kavanagh, Nicole Knox, Samuel Lee, David McKoy, Vincent Moore, Eric Nelson, Phlonda Peay, Ernest Potee, Jr., Jehu Ragins, David Roane, Daryl Robinson, Deborah Shifflett, William Sondervan, Ronald Tolbert, Denise White, and Vanessa Willis.
[2] The court sincerely appreciates the pro bono work done by appointed counsel.
[3] The plaintiff's Amended Complaint also sought injunctive relief, naming the same individuals, as well as Thomas R. Corcoran and William W. Sondervan, in their official capacities. (Am. Compl. at ¶ 5) In his memorandum, Chase clarified that he is no longer pursuing injunctive relief, and therefore he will not contest dismissal of Corcoran and Sondervan as defendants. (Pl.'s Opp. Mem. at 29.)
[4] Chase's suicide attempt was in reaction to learning that a man whom he had considered a brother, Orlando Jenkins, had died. (Pl.'s Opp. Mem. at Ex. 1, Chase Aff., at ¶ 15.)
[5] Counsel for the plaintiff has informed the court that Chase has been confined again on new charges. Because the applicability of the PLRA turns on the date of the filing of the plaintiff's lawsuit rather than his present status of confinement, this change in circumstances does not affect the analysis in this case.
[6] The Fourth Circuit has held the special provisions under the PLRA for a prisoner proceeding in forma pauperis no longer apply once a prisoner plaintiff is released, and that the plaintiff then may proceed under the in forma pauperis provisions applicable to non-prisoners. See DeBlasio v. Gilmore, 315 F.3d 396, 398-99 (4th Cir.2003). This issue is distinguishable because the in forma pauperis provisions involve a continuing obligation, whereas the plain language of the exhaustion requirement indicates that it is to be applied and determined at the time of filing.
[7] That provision reads: "No Federal civil action may be brought by a prisoner confined in a jail, prison, or other correctional facility, for mental or emotional injury suffered while in custody without a prior showing of physical injury." 42 U.S.C. § 1997e(e).
[8] In his supplemental memorandum, Chases cites two unpublished district court opinions and an unpublished Magistrate Judge's Report and Recommendation that have reached the opposite result on this same question: Dennison v. Prison Health Services, No. 00-266-BS, 2001 WL 761218 (D.Me. July 6, 2001), Murphy v. Magnusson, No. 98-439-PC, 1999 WL 615895 (D.Me. July 27, 1999), and, Report and Recommendation of Magistrate Judge Charles B. Day, Talal v. Murray, No. Civ. 99-432-AW (D.Md. May 24, 2002). (Pl.'s Suppl. Opp. Mem. at 2-3). While these opinions may well represent a sensible and practical approach to this issue, unfortunately they are against the clear weight of current published authority. I agree with Judge Day, however, that the issues of unfair surprise and prejudice must be considered in connection with the timing of the defendants' assertion of the non-exhaustion defense.
[9] Chase states that he recalls filing a request for an administrative remedy regarding this incident, but he believes that his only copy was filed with the court in a predecessor action. (Pl.'s Opp. Mem. at Ex. 1, Chase Aff., at ¶ 34.) Without additional evidence or more specific facts, this generalized allegation is insufficient to demonstrate administrative exhaustion under the PLRA and avert summary judgment. In any event, filing the initial request without proceeding to the other levels of review would not be sufficient.
[10] The grievance forms attached to the plaintiff's memorandum indicate that filing a Request for Administrative Remedy with the Warden of the Institution where the prisoner is incarcerated is the first of three steps in the administrative remedies process provided by the Maryland Division of Correction to its prisoners. (Pl.'s Mem. at Ex. 1, Chase Aff., at Ex. A.) If this Request is denied, it appears that the prisoner has ten calendar days to file an appeal with the Commissioner of Correction. (Id. at Exs. A, B.) If this Appeal is denied, it appears that the third and final option available to the prisoner is to file an appeal within 30 days with the Executive Director of the Inmate Grievance Office ("IGO"). (Id.)
Neither party introduced any further evidence about the administrative remedy procedures available within the Division of Correction. It is clear, however, that under Maryland law the prisoner's final option is to file a complaint with the IGO, which can be done only after all administrative remedies available within the Division of Correction have been exhausted. See Md.Code Ann. Corr. Serv. §§ 10-206, 10-210; Md. Regs.Code tit. 12 § 07.01.03.
[11] I do not reach the question of whether administrative remedies are "available" when the plaintiff attempts to exhaust his remedies, but is frustrated in doing so by the actions of prison officials. See Taylor v. Barnett, 105 F.Supp.2d 483, 486 (E.D.Va.2000).
[12] Because the preclusive effect of IGO proceedings is not at issue here, the court expresses no opinion regarding Chase's suggestion that "[IGO] proceedings are not as full and fair as is an action brought in a federal forum." (Pl.'s Opp. Mem. at 20 n.4.) The court simply notes that in another District of Maryland case cited by Chase, Batts v. Lee, 949 F.Supp. 1229 (D.Md.1996), the court concluded that IGO proceedings, and the subsequent right to challenge the IGO's factual findings, legal conclusions, and any alleged procedural irregularities in the state Circuit Court, provided sufficient process.
[13] As of July 24, 2000 the three-year statute of limitations on Chase's claims had not yet run.
[14] Chase's argument presumes that non-exhaustion is a waivable affirmative defense to § 1983 claims, rather than a jurisdictional prerequisite. Though the weight of authority indeed favors this view, see, e.g., Arnold v. Goetz, 245 F.Supp.2d 527, 534 (S.D.N.Y.2003) (joining the "chorus of voices concluding that an inmate's failure to exhaust administrative remedies in accordance with the PLRA does not divest federal courts of jurisdiction"), and the defendants' Answer to the Amended Complaint in fact pleads non-exhaustion as a defense, the Fourth Circuit has not yet ruled on the characterization of the PLRA's exhaustion requirement. The court need not decide the issue here. As will be explained below, even if non-exhaustion is an affirmative defense that must be pleaded to be preserved, the defendants have not in fact waived or forfeited the argument.
[15] This is not a case where a dispositive affirmative defense is raised only after the statute of limitations has run.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522593/
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286 F.Supp.2d 847 (2003)
Bretton BARBER, a Minor, Through his Mother and Next Friend, Patricia A. BARBER Plaintiff,
v.
DEARBORN PUBLIC SCHOOLS and Judith Coebly, in her official and individual capacities Defendants
No. 03-CV-71222-DT.
United States District Court, E.D. Michigan, Southern Division.
September 30, 2003.
*848 Andrew A. Nickelhoff, Sachs Waldman, Kary L. Moss, and Michael J. Steinberg, Detroit, MI, for plaintiff.
George P. Butler, III, Dickinson Wright, Detroit, MI, for defendants.
*849 OPINION
DUGGAN, District Judge.
Plaintiff Bretton Barber, by his mother as next of friend, seeks a preliminary injunction pursuant to 42 U.S.C. Sections 1983 and 1988 and the First and Fourteenth Amendments to the United States Constitution. Plaintiff asks the Court to restrain Defendants from prohibiting him from wearing a particular t-shirt to Dearborn High School in violation of his rights to free speech and political expression. A hearing on Plaintiff's motion was held on September 17, 2003.
I. Factual Background
When this action was filed in March 2003, Plaintiff Bretton Barber ("Barber") was a junior at Dearborn High School ("Dearborn High"). Defendant Judith Coebly ("Coebly") is, and was at all times relevant to this lawsuit, the principal of Dearborn High.
Dearborn High has approximately 1,500-1,550 students. Reflecting Dearborn's population, which has the largest concentration of Arabs anywhere in the world outside of the Middle East, approximately 31.4% of Dearborn High's students are Arab. Many of those students' families immigrated to the United States from Iraq. According to Coebly, these families left Iraq because of former Iraqi President Saddam Hussein's regime.
Coebly has been an employee of Dearborn Public Schools ("DPS") since 1966. After serving as a social studies teacher and counselor, Coebly served as an assistant principal at Edsel Ford High School ("Edsel Ford") from 1985 through 1995 and as an assistant principal at Dearborn High from 1995 through 2002. Coebly has been Dearborn High's principal since the beginning of the 2002-2003 school year. She has two assistant principals, Michael Shelton ("Shelton") and Charles Baughman. Shelton has spent six years as an administrator during his thirteen years of employment with DPS. He became Dearborn High's assistant principal prior to the start of the 2001-2002 school year. Among his duties, Shelton is responsible for supervising Dearborn High's three lunch periods.
On February 17, 2003, Barber wore a t-shirt to school, the front of which displayed a photograph of President George W. Bush with the caption "International Terrorist" ("Barber's shirt" or "the t-shirt"). According to Barber, he wore the t-shirt to express his feelings about President Bush's foreign policies and the imminent war in Iraq.
Barber wore the t-shirt to his first class, Advanced Placement Language and Composition, which began at 7:30 a.m., and he continued to wear the t-shirt during his remaining morning classes. After his third hour class, Barber walked through the hallway to the lunchroom for the 10:30-11:00 a.m. lunch period.
After arriving at the lunchroom, Barber proceeded to the lunch line to see what was being served. In the meantime, at approximately 10:45 a.m., Shelton arrived at the lunchroom to supervise the lunch period. Three to five minutes after Shelton arrived, a student approached him and (in Shelton's words) told Shelton he was "angry" about Barber's shirt, thought "it was inappropriate" or "disrespectful," and wanted Shelton "to do something about it" or that "someone should take care of Brett for wearing that shirt." Shelton claims that he believed the student was angry because he was "kind of tense" and because of the "tone of his voice." Shelton explains, however, that it was not his impression at the time that the student intended to attack or harm Barber. Rather, Shelton believed the student wanted Shelton to do something about the t-shirt. In fact, Coebly states that when Shelton described *850 the incident to her a few hours later, he did not convey that the student posed a serious threat of imminent harm to Barber.
A few minutes after Shelton spoke with the student, William George ("George"), a teacher assigned to supervise the lunchroom, approached Shelton and asked him if he had seen Barber's shirt. Shelton told George that he had not seen the t-shirt, but had heard about it. George told Shelton that he thought Barber's shirt "may be inappropriate." Shelton then attempted to locate Barber in the lunchroom.
Approximately five minutes later, Shelton saw Barber making his way back to his table from the lunch line. After observing Barber's shirt, Shelton approached Barber and told him that it was inappropriate and that Barber had to turn it inside out or remove it.[1] When Barber refused, Shelton told him to go call his father.[2] Barber then proceeded to the school office, called his father, and left school for the remainder of the day.
During his deposition, Shelton attempted to explain why he asked Barber to turn the t-shirt inside out. According to Shelton, the student's and George's comments indicated to him that Barber's shirt already had created a disruption and possibly could create even more of a disruption in the school. Shelton also claims that he made his decision partly to protect Barber. Shelton acknowledges, however, that aside from the student's and teacher's comments in the lunchroom, he was unaware of any other unusual commotion or disruption in the lunchroom or throughout the school as a result of Barber's shirt. Shelton does not believe that the t-shirt violated the Student Code of Conduct; and he does not believe that the t-shirt advocated drugs or alcohol or promoted terrorism.
According to Shelton, if Barber were to wear the t-shirt to school again, he would require Barber to turn it inside out or call home. Coebly informed Barber over the telephone a few hours after he left school on February 17, that Shelton deemed his t-shirt to be inappropriate because it already created a disruption or had the possibility of being disruptive and therefore he would not be allowed to wear it at school. According to Coebly, if Barber returned to school wearing the t-shirt and refused to remove it or turn it inside out, he would be sent to the office and would be written up for insubordination.
When asked whether she had any reasons aside from those set forth by Shelton for concluding that Barber's shirt was inappropriate, Coebly testified that the student who approached Shelton in the lunchroom also spoke with her a few days later and stated that "he really want[ed] to get Brett" because of the t-shirt, particularly because he had a relative in the military being sent to Iraq and at least one of his family members served in each of the country's prior wars. After talking to the student for a while, however, Coebly determined that he did not pose a threat to Barber.
*851 Coebly also claims that she felt Barber's shirt was inappropriate because many Dearborn High students or their families left Iraq because of Saddam Hussein's regime and she believes those students support what the United States is doing for their homeland. Coebly therefore believes that Barber's shirt would be "almost a personal attack on the Iraqi students." While Coebly acknowledges that no Iraqi students manifested disruptive behavior in response to the t-shirt, she fears a possibility of disruption based on her experience at Edsel Ford in 1991 during "Operation Desert Storm" (or "Desert Storm").[3]
According to Coebly, during Desert Storm, Yemenese students at Edsel Ford wore t-shirts or carried items (e.g. pictures in notebooks or in their lockers) with Saddam Hussein's picture. Coebly describes these items as "pro-Hussein" and she explains that many of the these students were angry about the United States' actions in Iraq at that time because they supported Saddam Hussein. Coebly claims that when other Edsel Ford students saw these items, fights broke out, students protested, a hundred students walked through the school with flags, and the police had to be summoned to the school to calm the situation.
Coebly believes that there is a potential for the reverse situation at Dearborn High-Barber's shirt may create a disruption among Iraqi students who support the United States' involvement in Iraq. As Coebly explains, the risk of disruption from Barber's shirt was particularly likely on February 17 due to the tense atmosphere at Dearborn High as a result of the imminent war in Iraq and the government's raising of the domestic terror alert level ten days earlier to indicate a high risk of terrorist attack. Coebly acknowledges, however, that under the same circumstances she would not find a "no war" button or "I hate Bush" t-shirt inappropriate.
II. Preliminary Injunction Standard
This Court must consider four factors in deciding whether to issue a preliminary injunction: (1) whether the movant has a strong likelihood of success on the merits; (2) whether the movant would suffer irreparable harm without the injunction; (3) whether issuance of the injunction would cause substantial harms to others; and (4) whether the public interest would be served by issuance of the injunction. Bonnell v. Lorenzo, 241 F.3d 800, 809 (6th Cir.2001). None of these four factors is a prerequisite to the issuance of a preliminary injunction; rather the Court must balance all four factors. Neveux v. Webcraft Tech., Inc., 921 F.Supp. 1568, 1570-71 (E.D.Mich.1996)(citing Performance Unlimited v. Questar Publishers, Inc., 52 F.3d 1373, 1381 (6th Cir.1995)). Before a preliminary injunction may issue, however, a plaintiff must always demonstrate some irreparable injury that necessitates the injunction. Id. at 1571 (quoting Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d 100, 104 (6th Cir.1982)).
The primary purpose of a preliminary injunction is to maintain the status quo until a final decision on the merits can be reached. Id. (citing Univ. of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981)). In cases where the plaintiff seeks a preliminary injunction not to maintain the status quo but rather to alter it, the plaintiff must "satisfy an even heavier burden of showing *852 that the four factors listed above weigh heavily and compellingly in [his or her] favor." Id. (quoting SCFC ILC, Inc. v. Visa USA, Inc., 936 F.2d 1096, 1098 (10th Cir.1991)). "Like all equitable remedies, a preliminary injunction will not issue unless the right to relief is clear." Id. In determining whether to issue a preliminary injunction, the Court is not required to resolve "`doubtful questions of law or disputed questions of fact.'" Id. (quoting Cincinnati Sub-Zero Prod. v. Augustine Med., Inc., 800 F.Supp. 1549, 1557 (S.D.Ohio 1992)).
III. Applicable Law and Analysis
A. Likelihood of Success on the Merits
The Supreme Court has made it clear that public school students do not "shed their constitutional rights to freedom of speech or expression at the schoolhouse gate." Tinker v. Des Moines Indep. Cmty. Sch. Dist., 393 U.S. 503, 507, 89 S.Ct. 733, 21 L.Ed.2d 731 (1969). Quoting from one of its earlier opinions, the Tinker Court explained the importance of protecting students' First Amendment rights:
"The Fourteenth Amendment, as now applied to the States, protects the citizen against the State itself and all of its creatures Boards of Education not excepted ... That they are educating the young for citizenship is reason for scrupulous protection of Constitutional freedoms of the individual, if we are not to strangle the free mind at its source and teach youth to discount important principles of government as mere platitudes."
Id. (quoting West Virginia State Bd. of Educ. v. Barnette, 319 U.S. 624, 637, 63 S.Ct. 1178, 87 L.Ed. 1628 (1943)). Students' First Amendment rights extend beyond the classroom: "When he is in the cafeteria, or on the playing field, or on the campus during the authorized hours, he may express his opinions, even on controversial subjects like the conflict in Vietnam ..." Id. at 512-13, 89 S.Ct. 733. The Tinker Court recognized, however, that students' First Amendment rights have to be balanced against "the need for affirming the comprehensive authority of the States and of school officials ... to prescribe and control conduct in the schools." Id.
The Court resolved these sometimes conflicting interests by holding that school officials may prohibit a particular expression of opinion if they can show that their "action was caused by something more than a mere desire to avoid the discomfort and unpleasantness that always accompany an unpopular viewpoint." Id. at 509, 89 S.Ct. 733. School officials must demonstrate that "the forbidden conduct would `materially and substantially interfere with the requirements of appropriate discipline in the operation of the school.'" Id. (quoting Burnside v. Byars, 363 F.2d 744, 749 (5th Cir.1966)). The Court warned, however, that school officials' fear of material and substantial interference must be based on something identifiable in the school setting, rather than on an unsubstantiated fear that a minority viewpoint will engender opposition:
[I]n our system, undifferentiated fear or apprehension of disturbance is not enough to overcome the right to freedom of expression. Any departure from absolute regimentation may cause trouble. Any variation from the majority's opinion may inspire fear. Any word spoken in class, in the lunchroom, or on the campus, that deviates from the views of another person may start an argument or cause a disturbance. But our Constitution says we must take that risk ... and our history says that it is this sort of hazardous freedom this kind of openness that is the basis of our national strength and of the independence and vigor of Americans who grow up and live *853 in this relatively permissive, often disputatious, society.
Id. at 508-09, 89 S.Ct. 733 (internal citation omitted).
Tinker arose during one of the most controversial times in this Nation's history, the Vietnam War. Upon learning that students planned to wear black armbands to school to exhibit, in part, their disapproval of the Vietnam hostilities, school officials adopted a policy that students wearing armbands to school would be asked to remove them, and if they refused, would be suspended until they returned without armbands. Tinker, 393 U.S. at 504, 89 S.Ct. 733. The Supreme Court struck down the ban, finding that it prohibited a "`symbolic act' ... closely akin to `pure speech' which, we have repeatedly held, is entitled to comprehensive protection under the First Amendment." Id. at 505-06, 89 S.Ct. 733. The Court found no evidence that the armbands "materially and substantially interfere[d] with the requirements of appropriate discipline in the operation of the school[s]" as there was "no indication that the work of the schools or any class was disrupted" and "[o]utside the classrooms, a few students made hostile remarks to the children wearing armbands, but there were no threats or acts of violence on school premises." Id. at 508-09, 89 S.Ct. 733.
The Tinker Court found it relevant that the school officials did not ban the wearing of all symbols that expressed controversial views. In fact, the record showed "that students in some of the schools wore buttons relating to national political campaigns, and some even wore the Iron Cross, traditionally a symbol of Nazism." Id. at 510, 89 S.Ct. 733. As the Court explained, "the prohibition of expression of one particular opinion, at least without evidence that it is necessary to avoid material and substantial interference with schoolwork or discipline, is not constitutionally permissible." Id. at 511, 89 S.Ct. 733. In other words, as the Sixth Circuit Court of Appeals subsequently held, "viewpoint-specific speech restrictions are an egregious violation of the First Amendment" absent evidence that such speech causes or threatens material and substantial interference with a school's educational environment. Castorina v. Madison County Sch. Bd., 246 F.3d 536, 540 (6th Cir.2001)(citing Rosenberger v. Rector and Visitors of Univ. of Virginia, 515 U.S. 819, 828-29, 115 S.Ct. 2510, 132 L.Ed.2d 700 (1995) and R.A.V. v. St. Paul, 505 U.S. 377, 391-92, 112 S.Ct. 2538, 120 L.Ed.2d 305 (1992)).
Since Tinker, the Supreme Court has decided at least two significant cases addressing public school students' First Amendment rights: Bethel School District No. 403 v. Fraser, 478 U.S. 675, 106 S.Ct. 3159, 92 L.Ed.2d 549 (1986) and Hazelwood School District v. Kuhlmeier, 484 U.S. 260, 108 S.Ct. 562, 98 L.Ed.2d 592 (1988). Defendants contend that the Supreme Court more clearly defined its Tinker standard in these cases; they argue that a standard incorporating language from all three cases should be applied to evaluate the present case. Some courts in fact have viewed Fraser and Kuhlmeier as casting "some doubt" on the holding in Tinker that students retain Free Speech rights in the school setting. See, e.g., Boroff v. Van Wert City Bd. of Ed., 220 F.3d 465, 468 (6th Cir.2000)(quoting Baxter v. Vigo County Sch. Corp., 26 F.3d 728, 737 (7th Cir.1994)). Other courts, however, account for the Supreme Court's application of different standards in Fraser and Kuhlmeier to the factual distinctions between those cases and Tinker. See, e.g., Castorina, 246 F.3d at 540; McIntire v. Bethel Sch., Indep. Sch. District No. 3, 804 F.Supp. 1415, 1426 (W.D.Okla.1992).
*854 In Fraser, the Supreme Court held that a school district acted within its permissible authority in disciplining a student who gave an offensive, lewd, and indecent speech at a school assembly. Delivering the speech to nominate a fellow student for elective office, the student made several subtle and not-so subtle references to the nominee's genitals. Fraser, 478 U.S. at 687, 106 S.Ct. 3159 (Brennan, J., concurring). The Court distinguished the student's "sexually explicit monologue" in Fraser from the political message of the armbands in Tinker, finding that the former type of conduct has been historically curtailed in our Nation. Id. at 681-82, 106 S.Ct. 3159 (citing as an example, Thomas Jefferson's Manual of Parliamentary Practice prohibiting lawmakers from using "impertinent" speech during debates and "indecent language against the proceedings of the House"). The Fraser Court concluded that "it is a highly appropriate function of public school education to prohibit the use of vulgar and offensive terms in public discourse." Id. at 683, 106 S.Ct. 3159 (emphasis added).
But in reaching this conclusion, the Court did not limit its holding in Tinker that public school students' First Amendment rights are coextensive with those of adults provided their exercise of those rights does not materially disrupt the school setting or involve substantial disorder or invasion of the rights of others. Rather, the Fraser Court merely was delineating certain forms of speech sexually explicit or vulgar and offensive language that in particular can be said to be "wholly inconsistent with the `fundamental values' of public school education." Id. at 685, 106 S.Ct. 3159. As the Court recognized, its "First Amendment jurisprudence has acknowledged limitations on the otherwise absolute interest of the speaker in reaching an unlimited audience where the speech is sexually explicit and the audience may be children." Id. at 684, 106 S.Ct. 3159 (emphasis added)(citing Ginsberg v. New York, 390 U.S. 629, 88 S.Ct. 1274, 20 L.Ed.2d 195 (1968))(upholding New York statute banning the sale of sexually oriented material to minors). The Court also pointed to its prior recognition of "an interest in protecting minors from exposure to vulgar and offensive spoken language." Id. (emphasis added)(citing FCC v. Pacifica Found., 438 U.S. 726, 98 S.Ct. 3026, 57 L.Ed.2d 1073 (1978))(upholding FCC's regulation of a radio broadcast described as "indecent but not obscene.")
Further indication that the Fraser Court did not intend to limit Tinker, is its decision to uphold the school district's imposition of sanctions "in response to [the student's] offensively lewd and indecent speech." Id. at 685, 106 S.Ct. 3159. As the Court explained, "[u]nlike the sanctions imposed on the students wearing armbands in Tinker, the penalties imposed in this case were unrelated to any political viewpoint." Id.
Almost two years later in Kuhlmeier, the Court held that school officials possess greater authority to limit student speech which is or appears to be school-sponsored. In reaching this conclusion, the Kuhlmeier Court reiterated that "the First Amendment rights of students in the public schools `are not automatically coextensive with the rights of adults in other settings,' and must be `applied in light of the special characteristics of the school environment.'" Kuhlmeier, 484 U.S. at 265, 108 S.Ct. 562 (internal citations omitted).
Kuhlmeier involved a high school principal's decision to excise two pages from a student newspaper published in connection with a journalism class. The principal decided to edit the pages because they contained two articles which he deemed inappropriate in a school-sponsored newspaper: a story describing three students' *855 experiences with pregnancy and an article discussing the impact of divorce on students at the school.[4] In holding that the principal's actions did not violate the students' First Amendment rights, the Court focused on the fact that the newspaper was not a "public forum," but rather was reserved by the school "as a supervised learning experience for its journalism students." Id. at 270, 108 S.Ct. 562.
The Kuhlmeier Court distinguished Tinker, explaining that the students' exercise of their First Amendment rights in Tinker merely happened on school grounds; whereas in the case before it, the students' expressive activities occurred in a school-sponsored forum:
The question whether the First Amendment requires a school to tolerate particular student speech the question that we addressed in Tinker is different from the question whether the First Amendment requires a school affirmatively to promote particular student speech. The former question addresses educators' ability to silence a student's personal expression that happens to occur on the school premises. The latter question concerns educators' authority over school-sponsored publications, theatrical productions, and other expressive activities that students, parents, and members of the public might reasonably perceive to bear the imprimatur of the school These activities may fairly be characterized as part of the school curriculum, whether or not they occur in a traditional classroom setting, so long as they are supervised by faculty members and designed to impart particular knowledge or skills to student participants and audiences.
Id. at 270-71, 108 S.Ct. 562. The Kuhlmeier Court concluded that when speech is or appears to be sponsored or endorsed by the school, educators have a greater responsibility "to assure that participants learn whatever lessons the activity is designed to teach, that readers or listeners are not exposed to material that may be inappropriate for their level of maturity, and that the views of the individual speaker are not erroneously attributed to the school." Id. at 271, 108 S.Ct. 562.
For those reasons, the Kuhlmeier Court held that school officials are entitled to exercise greater control over school-sponsored speech:
A school must be able to set high standards for the student speech that is disseminated under its auspices standards that may be higher than those demanded by some newspaper publishers or theatrical producers in the "real" world- and may refuse to disseminate student speech that does not meet those standards. In addition, a school must be able to take into account the emotional maturity of the intended audience in determining whether to disseminate student speech on potentially sensitive topics, which might range from the existence of Santa Claus in an elementary school setting to the particulars of teenage sexual activity in a high school setting.
Id. at 271-72, 108 S.Ct. 562. In this regard, school officials have the authority to refuse to sponsor speech that it perceives as advocating drugs, alcohol, or "conduct otherwise inconsistent with `the shared values of a civilized social order,'" or that *856 sends the message that the school agrees with one particular side of a controversial political matter. Id. at 272, 108 S.Ct. 562.
The Kuhlmeier Court clearly announced that it was not overruling Tinker and that its holding only applies to school-sponsored expressive activities, not all student expression that happens to occur at school:
[W]e conclude that the standard articulated in Tinker for determining when a school may punish student expression need not also be the standard for determining when a school may refuse to lend its name and resources to the dissemination of student expression. Instead, we hold that educators do not offend the First Amendment by exercising editorial control over the style and content of student speech in school-sponsored expressive activities so long as their actions are reasonably related to legitimate pedagogical concerns.
Id. at 272-73, 108 S.Ct. 562 (emphasis added). The Court also clarified that its earlier decision in Fraser did not modify Tinker, explaining that its holding in Fraser "rested on the `vulgar,' `lewd,' and `plainly offensive' character of a speech delivered at an official school assembly rather than on any propensity of the speech to `materially disrup[t] classwork or involv[e] substantial disorder or invasion of the rights of others.'" Id. at 272 n. 4, 108 S.Ct. 562 (citations omitted).
It is this Court's belief that this case is controlled by the standard set forth in Tinker. Fraser is inapplicable as Barber's shirt did not refer to alcohol, drugs, or sex. Furthermore, it was neither obscene, lewd, nor vulgar; in fact, nothing in the record suggests that Coebly and/or Shelton viewed it this way. Kuhlmeier also is inapplicable as Barber's conduct clearly was not school-sponsored activity. Defendants contend that if they were prohibited from banning Barber's shirt, it would appear as if the school were endorsing his political message; however, no reasonable person could conclude that a school endorses the messages on its students' clothing. See Castorina, 246 F.3d at 543 (rejecting argument that school could be seen as endorsing student's display of the Confederate flag if it failed to ban t-shirt with flag on it). Accordingly, Defendants' decision to ban Barber's shirt only can withstand constitutional scrutiny if they show that the t-shirt caused a substantial disruption of or material interference with school activities or created more than an unsubstantiated fear or apprehension of such a disruption or interference.[5] Based on the evidence presently before this Court, it does not appear that Defendants can meet their burden.
Shelton found Barber's shirt inappropriate based upon one student's and one teacher's comments. Shelton claims that the student was angry and "threatened Barber." Shelton then admits, however, that he believed the student only wanted Shelton to take care of the t-shirt and did not intend to harm Barber. George's only comment to Shelton was that he felt Barber's shirt was inappropriate. Even when considered together, these comments do not constitute a material and substantial disruption of the school's activities. Furthermore, there is no evidence that the t-shirt created any disturbance or disruption *857 in Barber's morning classes, in the hallway between classes or between Barber's third hour class and his lunch period, or during the first twenty-five minutes of the lunch period. Thus Defendants cannot show that a disruption already had occurred.
Shelton states that he told Barber to turn the t-shirt inside out or remove it because he believed the t-shirt could create a disruption and could even endanger Barber. The record however, does not reveal any basis for Shelton's fear aside from his belief that the t-shirt conveyed an unpopular political message. As stated earlier, however, to justify prohibition of a particular expression of opinion, school officials must be able to show that their action was caused by "something more than a mere desire to avoid the discomfort and unpleasantness that always accompany an unpopular viewpoint." Tinker, 393 U.S. at 509, 89 S.Ct. 733.
The Court, however, must also consider Coebly's reasons for prohibiting Barber from wearing the t-shirt to school. Coebly fears the t-shirt will materially and substantially interfere with Dearborn High's operations based on her prior experience at Edsel Ford during Desert Storm. The Court is not presently persuaded that that incident which occurred more than ten years earlier at a different high school warranted the action taken by Coebly.
To support her decision, Coebly also points to the number of Iraqi students at Dearborn High, the fact that there was a threat of war, and the fact that the government increased the terrorist alert level to "high" or "orange" ten days prior to February 17. However, even taking these factors into consideration, the Court is not presently persuaded that Defendants' decision to prohibit Barber from wearing the t-shirt to school on the day in question was justified. Nor does the evidence presented thus far persuade the Court that Defendants are justified in prohibiting Barber from returning to school wearing the t-shirt.
While Defendants are correct that the demography of Dearborn High is relevant, see Hill v. Lewis, 323 F.Supp. 55, 58 (E.D.N.C.1971), they only have established that 31.4% of the school's students are Arabic. Defendants fail to indicate what percentage of these students are Iraqi.[6] But even if the majority or a large number of Dearborn High's Arab students are Iraqi, nothing in the present record suggests that these students were or would be offended by Barber's shirt which conveys a view about President Bush. More importantly, there is nothing in the record before this Court to indicate that those students, or any students at Dearborn High, might respond to the t-shirt in a way that would disrupt or interfere with the school environment. As Plaintiff's counsel noted at oral argument, it is improper and most likely detrimental to our society for government officials, particularly school officials, to assume that members of a particular ethnic group will have monolithic views on a subject and will be unable to control those views.
As the circumstances surrounding the conduct in Tinker suggest, Coebly's reliance on the fact that war in Iraq was imminent is not persuasive. Clearly the tension between students who support and those who oppose President Bush's decision to invade Iraq is no greater than the tension that existed during the United States' involvement in Vietnam between supporters of the war and war-protestors. Furthermore, and contrary to Defendants' counsel's assertion at oral argument, the courts have never declared that the school *858 yard is an inappropriate place for political debate. In fact, as the Tinker Court and other courts have emphasized, students benefit when school officials provide an environment where they can openly express their diverging viewpoints and when they learn to tolerate the opinions of others. As one court has stated:
Our schools, like our communities at large, are invaluably improved by the diversity of their members. All students benefit from the respectful and thoughtful exchange of ideas and sharing of beliefs and practices. Schools, in particular, are vital environments that can provide an education of both the substance of diversity and the responsible manner with which such diversity is approached and expressed. It is incumbent upon the school, the parents, the students, and the community ... to work together so that divergent viewpoints, whether they be political, religious, or social, may be expressed in a civilized and respectful manner.
Chambers v. Babbitt, 145 F.Supp.2d 1068, 1073 (D.Minn.2001). As the Chambers court further noted, maintaining a school community of tolerance includes the tolerance of even the most intolerant or disagreeable viewpoints. Id.
For the reasons set forth above, and based on the record presently before the Court, the Court concludes that Plaintiff has a substantial likelihood of succeeding on the merits.
B. Irreparable Harm
The Supreme Court has repeatedly held that the loss of First Amendment freedoms, even temporarily, constitutes irreparable injury. Elrod v. Burns, 427 U.S. 347, 373, 96 S.Ct. 2673, 49 L.Ed.2d 547 (1976); see also G & V Lounge, Inc. v. Michigan Liquor Control Comm'n, 23 F.3d 1071, 1078 (6th Cir.1994)(holding that "even minimal infringement upon First Amendment values constitutes irreparable injury sufficient to justify injunctive relief.") Defendants argue that Barber "inappropriately relies" on Elrod and G & V. Lounge because both cases involve adults, not students, and neither case takes into consideration the Supreme Court's pronouncement in Hazelwood that the "First amendment rights of students in public schools are not automatically coextensive with the rights of adults in other settings."
Defendants cite no case law, however, to support their contention that students do not suffer irreparable harm when school officials wrongfully violate their First Amendment rights. Thus even if Defendants are correct that school officials possess greater authority to curtail students' rights, they offer no support for the notion that students do not suffer irreparable harm if those school officials exceed that authority. In fact, at least one court has held in a similar situation that students suffered irreparable harm when their First Amendment rights to Free Speech were violated. McIntire, 804 F.Supp. at 1428 (W.D.Okla.1992)(granting students' motion for preliminary injunction against school board superintendent and enjoining superintendent from prohibiting students from wearing particular t-shirt, reasoning that students would suffer irreparable harm as a result of the loss of their First Amendment rights, even for a minimal period of time).
Defendants also argue that Barber has not suffered irreparable harm because they are providing him alternative forums in which to express his views, for example, the classroom and the press. For this purpose, Defendants suggest that Shelton and Coebly are only prohibiting Barber from wearing the t-shirt in the cafeteria. But this claim is contrary to the record. Likewise, Defendants suggest that Shelton only asked Barber to turn the t-shirt inside *859 out or remove it while in the cafeteria, but that Barber had been free to wear the t-shirt up until that time and presumably would be permitted to wear it upon returning to his classroom. This claim also is not supported by the record. As Shelton and Coebly indicate, Barber is prohibited from wearing the t-shirt to school at this time. Such absolute prohibition in this Court's opinion, may well constitute irreparable harm.
C. Substantial Harm to Others and the Public Interest
Barber argues that the public interest is served when free expression is protected. As the McIntire court stated, "The public has an interest in the protection and preservation of First Amendment rights. `Vindication of constitutional freedoms and protection of First Amendment rights is in the public interest.'" McIntire, 804 F.Supp. at 1429.
Defendants contend, however, that allowing Barber to wear the t-shirt to school will force the school to cease normal "beginning of the school year" operations, pointing to the "media frenzy" spawned by the incident on February 17.[7] But while some of Barber's fellow students may have expressed anger about the attention the school received as a result of the February 17 incident, Shelton testified that the students in fact "have handled it pretty well." As Shelton acknowledges, there has not been any kind of demonstration, disruption, or commotion as a result of the media's presence. Thus this Court is not persuaded that Defendants' concern is presently justified.
Defendants also argue that issuance of an injunction will undermine school officials' authority to regulate student behavior and preclude officials from exercising their legal discretion to react to Barber's (and presumably other students') "future free exercise when circumstances warrant it." While considering the present matter, the Court has remained mindful that in order for schools to effectively serve their purpose it is necessary that students respect school officials' authority. As the Court stated at oral argument, authority figures sometimes make mistakes, but students cannot be led to believe that it is proper for them to respond by saying "you're wrong and I am not going to do what you say." Nothing in this opinion, therefore, should suggest that school officials may not exercise their authority and prohibit students from exercising their First Amendment rights within the parameters of the Constitution and according to the Supreme Court's relevant First Amendment jurisprudence. For example, when student speech is school-sponsored, or lewd, obscene, or vulgar (including related to alcohol or drugs), school officials may curtail that speech. Furthermore, if school officials are justified in their belief in other words, if there is an objective basis for their beliefthat "speech" has "materially and substantially interfere[d]" with school operations or if they are reasonably justified in believing that there is a substantial basis for concluding that it will do so, school officials may take appropriate action to curtail that speech.
Finally, Defendants argue that the public interest will be best served by maintaining the status quo, which they define as "[l]eaving to the discretion of state elected and appointed school officials the decision of what to do, if anything, should Barber, come the commencement of school, again express himself in a manner which, under the particular circumstances presented, *860 would legally permit or justify a response." Whether the public interest in fact is served by this status quo depends on Defendants' understanding as to what "circumstances" permit them to prohibit Barber from wearing the t-shirt to school. If Defendants believe that the circumstances thus far presented are sufficient, circumstances which the Court finds do not provide a constitutionally permissible rationale for Defendants' decision, it cannot be said that the status quo benefits the public. As the Court stated in Chambers v. Babbitt, 145 F.Supp.2d 1068 (D.Minn.2001),
[T]he Court's decision to grant injunctive relief serves to reinstate the status quo as of [the date the clothing was banned], which is that a student's freedom of expression is protected in the school environment to the extent that a school does not otherwise have a reasonable belief that such expression could lead to substantial disruption of the school environment or material interference with school activities.
Chambers, 145 F.Supp.2d. at 1072-73. Thus if Barber chooses to wear the t-shirt to school again and other circumstances are presented that lead Defendants to reasonably believe that the t-shirt is substantially disrupting or interfering with school activities or that it could lead to a substantial disruption of the school environment or material interference with school activities, the Court then will entertain a request to dissolve the preliminary injunction.
For the reasons set forth above, Barber's Motion for a Preliminary Injunction shall be GRANTED.
NOTES
[1] Shelton gave Barber the option of removing the t-shirt because Barber was wearing another shirt underneath it.
[2] It was Barber's impression that Shelton gave him the choice of turning the t-shirt inside out or calling his father to go home, although Barber could not recall specifically whether Shelton told him he needed to go home. Defendants spend a considerable time arguing that Shelton in fact only told Barber to call his father and Barber went home voluntarily; and therefore Defendants claim Barber was not suspended for wearing the t-shirt. These factual disputes are immaterial, however, to the issue of whether Defendants violated Barber's First Amendment rights by prohibiting him from wearing the t-shirt. Barber is not seeking relief for any alleged suspension.
[3] "Operation Desert Storm" is the term used to refer to the United States' and United Nations' involvement in Iraq in 1990 and 1991 following Iraq's invasion of Kuwait on August 2, 1990. See "www.pbs.org/wgbh/pages /frontline/gulf/cron."
[4] In addition to finding the subject matter of the pregnancy story inappropriate, as it contained references to the students' sexual activity and birth control, the principal also was concerned that the stories did not protect the identities of the students involved. With respect to the story related to divorce, the principal's primary criticism was that the author failed to interview one of the parties involved in the story and thus that individual neither had the opportunity to respond to remarks about him nor consented to the publication.
[5] There does not appear to be any question that Barber's shirt constituted the type of symbolic act that is protected by the Free Speech Clause of the First Amendment. See Castorina, 246 F.3d at 539 (quoting Texas v. Johnson, 491 U.S. 397, 404, 109 S.Ct. 2533, 105 L.Ed.2d 342 (1989)). Barber intended to convey a particularized message by wearing the t-shirt. Furthermore, the likelihood was great that Barber's message would be understood by those who viewed it. If this were not the case, Shelton's and Coebly's reasons for banning the t-shirt would make little sense.
[6] As discussed supra at 5-6, Coebly's primary reason for prohibiting Barber from wearing the t-shirt, is her belief that it will incite Dearborn High's Iraqi students.
[7] After Barber returned home on February 17, he notified two local television stations and two local newspapers about the incident. Thereafter, news crews and reporters came to Dearborn High's campus.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2926444/
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NUMBERS 13-08-00406-CR
13-08-00407-CR
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
CHARLES DAVIS, JR., Appellant,
v.
THE STATE OF TEXAS, Appellee.
On appeal from the 130th District Court
of Matagorda County, Texas.
MEMORANDUM OPINION
Before Justices Yañez, Rodriguez, and Benavides
Memorandum Opinion by Justice Rodriguez
Appellant Charles Davis, Jr. appeals from his convictions for sexual assault of a
child in appellate cause number 13-08-00407-CR, and for tampering with a witness in
appellate cause number 13-08-00406-CR. (1) See Tex. Penal Code Ann. § 22.011(2)
(Vernon Supp. 2008), § 36.05 (Vernon 2003). After a trial on the merits, a jury found Davis
guilty and sentenced him to fifty years' imprisonment for the assault charge and two years'
imprisonment for the tampering charge and assessed a $10,000 fine for each offense.
Davis appeals his convictions by seven issues, arguing that: (1) the evidence was legally
and factually insufficient to support his sexual assault conviction; (2) the evidence was
legally and factually insufficient to support his tampering conviction; (3) the trial court erred
in failing to admit evidence that the victim had been thrown out of her father's home; (4)
the trial court erred in overruling objections to improper jury argument; and (5) the trial court
erred when it refused to include certain language in the jury charge related to law of the
parties. We affirm.
I. BACKGROUND
In December 2006, fifteen-year-old B.W. had sexual intercourse with Jesse Romero,
an adult, on several occasions. (2) At the time, B.W. lived with her mother and Davis, her
mother's boyfriend; B.W.'s mother, Romero, and Davis often "partied" together on the
weekends.
In early 2007, B.W. confided in her school friends about her sexual encounters with
Romero. Her friends informed the school nurse who, in turn, notified Charlotte Brown, a
Matagorda County Sheriff's Department investigator. Brown interviewed B.W. At this first
meeting with Brown, B.W. described what had happened between her and Romero.
However, at subsequent interviews, Brown noted that B.W. was increasingly unwilling to
discuss the incidents. Brown eventually learned that Davis had threatened to kick B.W.
out of his house if B.W. did not renege her allegations against Romero. As a result of her
interviews with B.W., Brown obtained two statements from B.W. describing several
incidents of sexual intercourse between B.W. and Romero occurring throughout December
2006.
Brown contacted Romero regarding B.W.'s allegations, and Romero signed a written
statement admitting to the sexual encounters with B.W.. It was at this time that Brown
learned of Davis's involvement. Romero informed Brown that Davis had arranged for
Romero to have sex with B.W. in exchange for Romero providing Davis with crack cocaine.
Davis was then indicted for (1) sexual assault by facilitating the sex between Romero and
B.W. and (2) tampering with a witness by threatening to kick B.W. out of the house unless
she dropped the charges against Romero. Davis pleaded not guilty and was subsequently
convicted by a jury on both charges. The jury assessed punishment, sentencing Davis to
fifty years' confinement for sexual assault and two years' confinement for witness
tampering and imposed a $10,000 fine for each offense. Davis appealed from each
conviction.
II. DISCUSSION
A. Legal and Factual Sufficiency
1. Standard of Review
In conducting a legal sufficiency review, we view the relevant evidence in the light
most favorable to the verdict to determine whether a rational trier of fact could have found
the essential elements of the crime beyond a reasonable doubt. Hooper v. State, 214
S.W.3d 9, 13 (Tex. Crim. App. 2007) (citing Jackson v. Virginia, 443 U.S. 307, 318-19
(1979)); Escamilla v. State, 143 S.W.3d 814, 817 (Tex. Crim. App. 2004). We do not
reevaluate the weight and credibility of the evidence, and we do not substitute our own
judgment for the trier of fact. King v. State, 29 S.W.3d 556, 562 (Tex. Crim. App. 2000)
(en banc); Beckham v. State, 29 S.W.3d 148, 151 (Tex. App.-Houston [14th Dist.] 2000,
pet. ref'd). Instead, we consider whether the jury reached a rational decision. Beckham,
29 S.W.3d at 151.
In a factual sufficiency review, we view all of the evidence in a neutral light in order
to determine whether a jury was rationally justified in finding guilt beyond a reasonable
doubt. Watson v. State, 204 S.W.3d 404, 414-15 (Tex. Crim. App. 2006). Evidence may
be factually insufficient if: (1) it is so weak as to be clearly wrong and manifestly unjust, or
(2) the jury's verdict is against the great weight and preponderance of the available
evidence. Id. "Although authorized to disagree with the jury's determination even if
probative evidence exists which supports the verdict, a reviewing court must give due
deference to the fact finder's determinations concerning the weight and credibility of the
evidence and will reverse the fact finder's determination only to arrest the occurrence of
a manifest injustice." Swearingen v. State, 101 S.W.3d 89, 97 (Tex. Crim. App. 2003).
Unless we can say with some objective basis in the record that the great weight and
preponderance of the evidence contradicts the jury's verdict, we will not reverse the
judgment as factually insufficient. Watson, 204 S.W.3d at 417.
Both legal and factual sufficiency are measured by the elements of the offense as
defined by a hypothetically correct jury charge. Malik v. State, 953 S.W.2d 234, 240 (Tex.
Crim. App. 1997); Adi v. State, 94 S.W.3d 124, 131 (Tex. App.-Corpus Christi 2002, pet.
ref'd). Such a charge is one that accurately sets out the law, is authorized by the
indictment, does not unnecessarily restrict the State's theories of liability, and adequately
describes the particular offense for which the defendant was tried. Gollihar v. State, 46
S.W.3d 243, 253 (Tex. Crim. App. 2001); Malik, 953 S.W.2d at 240.
2. Sexual Assault (Cause No. 13-08-00407-CR)
In his first and second issues, Davis challenges the sufficiency of the evidence
supporting his conviction for sexual assault of a child. Davis concedes that Romero
sexually assaulted B.W. but denies that the evidence proves he was a party to the offense.
To obtain a conviction for sexual assault of a child, the State must prove that the defendant
intentionally or knowingly "cause[d] the penetration of the anus or sexual organ of a child
by any means . . . ." Tex. Penal Code Ann. § 22.011(a)(2)(A). Relevant to this case, "[a]
person is criminally responsible as a party to an offense if the offense is committed . . . by
the conduct of another for which he is criminally responsible . . . ." Id. § 7.01(a) (Vernon
2003). A defendant "is criminally responsible for the conduct of another if[,] . . . acting with
intent to promote or assist the commission of the offense, he solicits, encourages, directs,
aids, or attempts to aid the other person to commit the offense . . . ." Id. § 7.02(a)(2)
(Vernon 2003). If the defendant is physically present at the commission of the offense and
encourages its commission by words or other agreement, the evidence is sufficient to
convict under the law of parties. Moreno Denoso v. State, 156 S.W.3d 166, 173 (Tex.
App.-Corpus Christi 2005, pet. ref'd) (citing Ransom v. State, 920 S.W.2d 288, 302 (Tex.
Crim. App.1994)). "The jury may look to events occurring before, during, and after the
commission of the offense in determining whether the accused participated as a party."
Id.
Here, the jury was presented with evidence that Romero, Davis, and B.W.'s mother
were friends who often drank and did drugs together. The evidence showed that B.W. was
present on many of these occasions. The jury heard testimony from Brown that Romero
admitted to having sex with B.W. Brown testified that, in Romero's statement, he revealed
that Davis and B.W.'s mother arranged for Romero to have sex with B.W. in exchange for
Romero providing them with crack cocaine. In his testimony at trial, Romero confirmed this
statement and further stated that he had told Davis on prior occasions that he was
attracted to B.W. Romero also testified that Davis was in the apartment while Romero had
sex with B.W.; Romero stated that, after he and Davis made the sex for drugs deal, Davis
and B.W.'s mother went to the apartment bedroom while Romero stayed in the living room
and had sex with B.W. there. B.W. testified that, on the night of the assault, Davis and
Romero gave her wine to drink and that she became slightly intoxicated; however, B.W.
insisted that she was still sufficiently lucid to understand what was happening around her.
B.W. testified that, on that night, she overheard Davis making the arrangement with
Romero that Romero could have sex with B.W. if Romero would supply Davis with crack
cocaine. B.W. testified that she was embarrassed by her sexual encounters and that she
was too ashamed to tell anyone that her mother and her mother's boyfriend had traded her
for drugs.
At trial, the jury also heard the following evidence contrary to the verdict: B.W. did
not mention the arrangement made between Romero and Davis in her statements to
Brown; Romero testified that he believed Davis bore no responsibility for his sexual
encounters with B.W.; Romero also gave inconsistent testimony regarding his prior
convictions for driving while intoxicated, which defense counsel attempted to use to
impeach Romero's statements regarding the sexual assault; B.W. gave somewhat
conflicting accounts of whether her mother was present on the night of the assault and had
trouble recalling the exact dates of her sexual encounters with Romero.
Based on this evidence, the jury could have rationally concluded that Davis assisted
Romero in the commission of sexual assault of a child. See Moreno Denoso, 156 S.W.3d
at 173; Beckham, 29 S.W.3d at 151. That B.W. did not initially inform Brown of the sex-for-drugs exchange is explained by B.W.'s embarrassment regarding the situation. Moreover,
the evidence contrary to the verdict is primarily based on contradicting or inconsistent
witness testimony. It is not our place, however, to second guess the determinations made
by the jury regarding the credibility of the witnesses and the weight given to evidence. See
Tex. Code Crim. Proc. Ann. art. 38.04 (Vernon 1979) (stating that the jury is the sole judge
of the facts, the credibility of the witnesses, and the weight given to testimony). We will not
disturb the verdict on account of conflicts in the testimony, an issue which the jury was best
situated to resolve. See Beckham, 29 S.W.3d at 151-52 (holding that conflicts in testimony
"do not destroy the sufficiency of the evidence" and that it is the exclusive duty of the jury
to resolve contradicting evidence and testimony).
Thus, viewing the evidence in the light most favorable to the verdict, we conclude
that there was legally sufficient evidence to prove that Davis committed sexual assault by
encouraging Romero to have sex with B.W. See Tex. Penal Code Ann. § 7.02(a)(2);
Moreno Denoso, 156 S.W.3d at 173; Hooper, 214 S.W.3d at 13. Furthermore, we cannot
say that the evidence was so weak that Davis's conviction was against the great weight
and preponderance of the evidence or manifestly unjust. See Watson, 204 S.W.3d at 414-15. Therefore, we conclude that the evidence was factually sufficient, as well. See id.
Davis's first and second issues are overruled.
3. Witness Tampering (Cause No. 13-08-00406-CR)
By his third and fourth issues, Davis contends that the evidence was both legally
and factually insufficient to support his conviction for tampering with a witness. To convict
Davis of tampering, the State must have proven that, with the intent to influence B.W.,
Davis coerced her to withhold information in an official proceeding. See Tex. Penal Code.
Ann. § 36.05(a)(2). At trial, the jury heard testimony from Brown that B.W. fully cooperated
with Brown at the beginning of her investigation. Brown testified further that, after B.W.
informed her mother and Davis about her report of sexual assault, B.W. would no longer
speak with Brown in detail about the incidents. When Brown confronted B.W. about the
situation, B.W. broke down and started sobbing; Brown testified that B.W. then revealed
to her that Davis had threatened to kick B.W. out of the house if she did not drop the
charges against Romero. In her testimony, B.W. confirmed that Davis had made that
threat.
Davis concedes that he threatened to kick B.W. out of the house but argues that he
did so not because he wanted her to drop the charges against Romero but because he
believed B.W. was lying about her sexual encounters with Romero. Davis also contends
that B.W. refused to follow the rules of his house and that he had warned B.W. previously
that he would kick her out if she ever became pregnant or if, in general, her allegedly bad
behavior continued. As evidence that B.W. is not a credible witness, Davis points to B.W.'s
testimony at trial that she did not remember making a statement regarding tampering.
Nonetheless, Davis directs the Court to no evidence that his true intention to kick B.W. out
of the house was not motivated by his desire to see the sexual assault charges against
Romero dropped. And as previously discussed, it is the jury's role, not ours, to judge the
credibility of the witnesses and weigh the evidence. See Tex. Code Crim. Proc. Ann. art.
38.04. Therefore, in light of the testimony by Brown regarding B.W.'s distraught condition
and B.W.'s own testimony regarding Davis's threats, we conclude that the jury acted
rationally in determining that Davis intended to coerce B.W. into dropping the charges
against Romero by threatening to kick her out of the house. See Tex. Penal Code. Ann.
§ 36.05(a)(2); Beckham, 29 S.W.3d at 151. Viewing the evidence in the light most
favorable to the verdict, we hold that there was legally sufficient evidence to convict Davis
of witness tampering. See Hooper, 214 S.W.3d at 13. Moreover, we conclude that the
evidence was factually sufficient because it was not so weak as to render the verdict
manifestly unjust. See Watson, 204 S.W.3d at 414-15. Accordingly, we overrule Davis's
third and fourth issues.
B. Admission of Evidence
1. Standard of Review
A trial court's decision to admit or exclude evidence is reviewed for abuse of
discretion. Martin v. State, 173 S.W.3d 463, 467 (Tex. Crim. App. 2005). Under an abuse
of discretion review, we will uphold the decision of the trial court unless it lies outside the
zone of reasonable disagreement. Id.
2. Analysis
In his fifth issue, Davis argues that the trial court erred in excluding evidence that
B.W.'s father had recently kicked her out of his house. Without any detailed analysis,
Davis simply contends that the evidence was relevant, specifically, that the evidence was
more probative than prejudicial in establishing that B.W. had motive for making false
accusations against Davis. "'Relevant evidence' means evidence having any tendency to
make the existence of any fact that is of consequence to the determination of the action
more probable or less probable than it would be without the evidence." Tex. R. Evid. 401.
Irrelevant evidence is not admissible and, thus, properly excluded by the trial court. Tex.
R. Evid. 402. Rule 403 further provides that relevant evidence may nonetheless be
excluded "if its probative value is substantially outweighed by the danger of unfair prejudice
. . . or needless presentation of cumulative evidence." Tex. R. Evid. 403.
The State contends that Davis failed to connect the actions taken by B.W.'s father,
if any, (3) to B.W.'s alleged motive to make false accusations against Davis. We agree.
Without more, we fail to see how the threats made or actions taken by a third-party had
any bearing on B.W.'s motive in relation to Davis. See Tex. R. Evid. 401. And regardless,
we afford the trial court "very substantial deference in balancing probative value on the one
hand and unfair prejudice on the other" and will not reverse the court's decision just
because we might have "decided the matter otherwise." See Powell v. State, 189 S.W.3d
285, 288 (Tex. Crim. App. 2006) (citation omitted). Moreover, we note that this evidence
is cumulative of other evidence adduced at trial. See Tex. R. Evid. 403. It is uncontested
that Davis had previously threatened to kick B.W. out if she became pregnant. This
evidence serves to establish a motive, if any, for B.W. to make false accusations against
Davis; the additional evidence regarding B.W.'s father's decision to kick her out, if true,
does not lend any additional weight to this theory.
Therefore, we conclude that the trial court did not abuse its discretion in excluding
Davis's purported evidence. See Tex. R. Evid. 402; Martin, 173 S.W.3d at 467. Davis's
fifth issue is overruled.
C. Improper Jury Argument
By his sixth issue, Davis complains that the trial court erred in overruling his
objection to improper jury argument by the State. In particular, Davis argues that the
prosecution's use of the word "rape" in its closing argument improperly inflamed and
prejudiced the jury. The record shows that the prosecution first used the word "rape" in its
opening statement. However, Davis did not object to improper jury argument until the
prosecution's later use of the word in its closing statement.
Additionally, Davis's objection at trial does not match his issue on appeal. See
Resendiz v. State, 112 S.W.3d 541, 547 (Tex. Crim. App. 2003) (holding that where an
appellant's trial objection "does not comport with" the issue he raises on appeal, he has not
preserved the issue for review). At trial, Davis objected to the prosecution's use of the
word "rape" on the basis that it has no statutory definition; whereas on appeal, Davis
argues that the use of the word inflamed and prejudiced the jury.
Because he waited until the end of trial to make any objection, we conclude that
Davis waived this issue by failing to timely object. See Tex. R. App. P. 33.1(a)(1) (stating
that a timely objection is a prerequisite to maintaining a complaint on appeal). We also
conclude that Davis failed to preserve this issue for our review because his objection at trial
did not comport with his issue on appeal. See Resendiz, 112 S.W.3d at 547. Accordingly,
we overrule Davis's sixth issue.
D. Charge Error
In his seventh and final issue, Davis argues that the trial court erred in denying his
request for certain language to be included in the sexual assault jury charge. Davis
complains that he was harmed when the trial court declined to include this language from
the following law-of-the-parties provision of the penal code: "Each party to an offense may
be charged with commission of the offense." See Tex. Penal Code. Ann. § 7.01(b). The
relevant portion of the jury charge read as follows:
All persons are parties to an offense who are guilty of acting together
in the commission of the offense. A person is criminally responsible as a
party to an offense if the offense is committed by his own conduct, by the
conduct of another for which he is criminally responsible, or both.
A person is criminally responsible for an offense committed by the
conduct of another if, acting with intent to promote or assist the commission
of the offense, he solicits, encourages, directs, aids, or attempts to aid the
other person to commit the offense. Mere presence alone will not constitute
one a party to an offense.
(emphasis added).
"Our first duty in analyzing a jury-charge issue is to decide whether error exists."
Ngo v. State, 175 S.W.3d 738, 743 (Tex. Crim. App. 2006). If error exists, we then inquire
whether the error harmed the defendant. Id. A jury charge that tracks the language of the
relevant statute is sufficient and, therefore, not erroneous. Riddle v. State, 888 S.W.2d 1,
8 (Tex. Crim. App. 1994); Escobar v. State, 28 S.W.3d 767, 778 (Tex. App.-Corpus Christi
2000, no pet.) ("A charge provision that tracks the relevant statute is sufficient."). Here, the
language of the charge given to the jury at Davis's trial, in particular the emphasized
language outlined above, states the penal code's law-of-the-parties language verbatim.
See Tex. Penal Code Ann. §§ 7.01-.02. Davis does not explain to the Court why inclusion
of the requested sentence--"Each party to an offense may be charged with commission
of the offense"--was also necessary to the charge, and we conclude that it was not.
Because the jury charge directly tracked the language of the statute, we conclude there
was no error in the charge, and the trial court did not err in denying Davis's request for
inclusion of superfluous language. See Riddle, 888 S.W.2d at 8 (holding that "[a] jury
charge which tracks the language of a particular statute is a proper charge on the statutory
issue"). Davis's seventh issue is overruled.
III. CONCLUSION
The judgments of trial court are affirmed.
NELDA V. RODRIGUEZ
Justice
Do not publish.
Tex. R. App. P. 47.2(b).
Memorandum Opinion delivered and
filed this 26th day of August, 2009.
1. Because our consideration of Davis's issues in each appeal will be dispositive of both appeals, we
have consolidated the appeals into this one opinion. See Tex. R. App. P. 47.1.
2. Romero later pled guilty to the charge of sexual assault of a minor and was convicted.
3. Davis's interpretation of the facts surrounding B.W.'s move from her father's to her mother's house
is disputed. B.W. testified at trial that she chose to leave her father's house. B.W. testified that she missed
being around her mother and that, as a teenage girl, she felt her mother would be a more understanding and
sympathetic parent.
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52 F. Supp. 2d 195 (1999)
Franklyn MATHEWS, Petitioner,
v.
Janet RENO, Attorney General; Doris Meissner, Commissioner of the Immigration and Naturalization Service; Immigration and Naturalization Service; Department of Justice; and Steven Farquharson, District Director, Immigration and Naturalization Service, Respondents.
Pasqualino Turavani, Petitioner,
v.
Janet Reno, Attorney General; Steven Farquharson, District Director, Immigration and Naturalization Service; and Any Other Persons Having the Petitioner in Custody, Respondents.
Pedro Olavo Gomes, Petitioner,
v.
Janet Reno, Attorney General; Doris Meissner, Commissioner of the Immigration and Naturalization Service; Immigration and Naturalization Service; Department of Justice; and Steven Farquharson, District Director, Immigration and Naturalization Service, Respondents.
Fausto Abreu-Santana, Petitioner,
v.
Janet Reno, Attorney General; Doris Meissner, Commissioner of the Immigration and Naturalization Service; Immigration and Naturalization Service; Department of Justice; and Steven Farquharson, District Director, Immigration and Naturalization Service, Respondents.
Nos. Civ.A. 97-12071-PBS, Civ.A. 98-11066-PBS, Civ.A. 98-11183-PBS, Civ.A. 98-11251-PBS.
United States District Court, D. Massachusetts.
May 18, 1999.
*196 Randy Olen, Providence, RI, for Fausto Abreu-Santana, plaintiff.
Randy Olen, Providence, RI, Robert J. Caron, Providence, RI, for Pedro Olavo Gomes, plaintiff.
Prasant D. Desai, Desai & Graves, Boston, MA, for Pasqualino Turavani, plaintiff.
John A. Canavan, III, Dorchester, MA, for Franklyn Mathews, petitioner.
Karen Ann Hunold, U.S. Department of Justice, Office of Immigration Litigation, Washington, DC, Frank W. Hunger, John J. Andre, Office of Immigration Litigation, Civil Division, U.S. Department of Justice, Washington, DC, Frank Crowley, Immigration and Naturalization Special Assist. U.S. Atty., Boston, MA, David S. Merson, U.S. Atty., Boston, MA, for Janet Reno, Attorney General, Doris Meissner, Immigration & Naturalization Service, U.S. Dept. of Justice, Steven J. Farquharson, defendants.
Frank Crowley, Immigration and Naturalization Special Assist. U.S. Atty, Boston, MA, for Jean R. Oullette, Acting District Director, defendant.
MEMORANDUM AND ORDER
SARIS, District Judge.
INTRODUCTION
Petitioners are legal permanent residents ("LPRs") of the United States who have been ordered deported because of their criminal conduct. They challenge determinations by the Board of Immigration Appeals ("BIA") that they are statutorily ineligible for discretionary relief from deportation due to section 440(d) of the Antiterrorism and Effective Death Penalty Act of 1996 ("AEDPA"), Pub.L. No. 104-132, Tit. IV, Subtit. D, § 440(d), 110 Stat. 1214, 1277 (Apr. 24, 1996). Petitioners seek writs of habeas corpus pursuant to 28 U.S.C. § 2241 on the ground that Congress did not intend AEDPA § 440(d) to apply retroactively to aliens in pending deportation proceedings at the time of its enactment.
For the reasons set forth below, the petitions for habeas corpus in the above-captioned cases are ALLOWED to the extent of remanding the cases to the BIA for consideration on the merits of whether petitioners are entitled to discretionary relief from deportation.
FACTS AND PROCEDURAL HISTORY
A. Franklyn Mathews
Petitioner Franklyn Mathews has been a LPR since 1975, when he arrived in the *197 United States from Trinidad at age sixteen. In August 1994, he pled guilty to cocaine trafficking under Massachusetts law, an offense for which he was sentenced to three years to three years and one day in state prison. On March 9, 1995, while Mathews was serving his sentence, the Immigration and Naturalization Service ("INS") issued an Order to Show Cause ("OSC") charging him with deportability pursuant to then-sections 241(a)(2)(B)(i) and 241(a)(2)(A)(iii) of the Immigration and Nationality Act ("INA"), 8 U.S.C. § 1251(a)(2)(B)(i), (a)(2)(A)(iii) (1994).[1] Under former INA § 241(a)(2)(B)(i), an alien was deportable if, after entry, he was "convicted of a violation of ... any law or regulation of a State, the United States, or a foreign country relating to a controlled substance." 8 U.S.C. § 1251(a)(2)(B)(i) (1994). Former INA § 241(a)(2)(A)(iii) made an alien deportable if, after entry, he was "convicted of an aggravated felony." Id. § 1251(a)(2)(A)(iii). Under INA § 101(a)(43)(B), a drug trafficking crime is an aggravated felony. See 8 U.S.C. § 1101(a)(43)(B).
At a hearing before an immigration judge ("IJ") on April 9, 1996, Mathews conceded deportability. The IJ indicated, as she had at a prior hearing on November 14, 1995, that Mathews was eligible for relief from deportation under then-section 212(c) of the INA, 8 U.S.C. § 1182(c) (1994), and allowed him until November 29, 1996, to file a section 212(c) application and supporting documentation. Mathews ultimately submitted his application in compliance with the deadline. On April 24, 1996, however, Congress passed the AEDPA. On January 15, 1997, the IJ ordered Mathews deported and, citing AEDPA § 440(d), pretermitted his section 212(c) application on the ground that he was statutorily ineligible for the relief. The BIA affirmed and entered a final order of deportation on August 18, 1997.
B. Pasqualino Turavani
Petitioner Pasqualino Turavani, a native and citizen of Italy, has been a LPR of the United States since he entered the country in 1966. He has one United States citizen child. In September 1990, he was convicted in federal district court of possession of cocaine with intent to distribute in violation of 21 U.S.C. § 841(a)(1) and § 841(b)(1)(C). The record does not indicate the length of his sentence. On December 11, 1991, the INS issued an OSC charging him with deportability under then-sections 241(a)(2)(B)(i) and 241(a)(2)(A)(iii) of the INA. At a hearing before an IJ on December 20, 1991, Turavani conceded deportability and requested an opportunity to apply for section 212(c) relief. The IJ granted him until January 31, 1992, to file an application. On February 13, 1992, finding that Turavani's section 212(c) application had been abandoned because it had never been filed, the IJ ordered Turavani deported.
Turavani appealed the IJ's decision to the BIA on July 7, 1992, arguing, among other things, that the IJ had failed to provide him with sufficient time to obtain counsel prior to the application deadline. On October 26 of that year, he also filed a motion to reopen to apply for section 212(c) relief (which the BIA treated as a motion to remand) and attached a completed 212(c) application. The AEDPA was enacted while Turavani's appeal and motion were pending before the BIA. On April 7, 1997, the Board dismissed the appeal, denied the motion, and entered a final order of deportation. Determining that Turavani was statutorily ineligible for relief from deportation due to AEDPA § 440(d), the BIA expressly declined to decide the abandonment issue. Although *198 the Board stated that it was "unnecessary to decide the issue of abandonment," however, it noted as follows:
We have noted your argument that the Immigration Judge erred when he failed to inquire whether you wanted legal representation upon the withdrawal of your previous counsel. The record reveals that the Immigration Judge granted the motion to withdraw a month before your application was due. We find that you had ample time to obtain counsel prior to the filing deadline of your application. The Immigration Judge properly proceeded when the application was not filed.
Apr. 7, 1997, BIA Decision.
In May 1997, Turavani filed a motion to reopen with the BIA pursuant to the Attorney General's decision in Matter of Soriano, Int. Dec. 3289, 1996 WL 426888 (BIA June 27, 1996) (beginning at *16) (allowing aliens who had conceded deportability prior to the AEDPA's enactment "in reliance on the availability of section 212(c) relief" to move to reopen proceedings for the "limited purpose" of contesting deportability). The BIA reopened and remanded his case in June 1997. Turavani failed to appear at his hearing, and on February 10, 1998, the IJ entered an in absentia order of deportation. Turavani then filed a motion to reopen to challenge this order. An IJ denied his motion on May 6, 1998.
C. Pedro Olavo Gomes
Petitioner Pedro Gomes arrived in the United States from Cape Verde in 1982. In March 1992, he was convicted in a Rhode Island court of second-degree child abuse of his four-week-old infant. In August 1994, he was convicted under Rhode Island law for receiving stolen goods under $500 in value. The record fails to specify the nature or length of Gomes's sentences. The INS issued an OSC dated November 10, 1994, and later amended, charging Gomes with deportability under then-sections 241(a)(2)(A)(ii) and 241(a)(2)(A)(iii) of the INA, 8 U.S.C. § 1251(a)(2)(A)(ii), (a)(2)(A)(iii) (1994). Former INA § 241(a)(2)(A)(ii) made an alien deportable if, after entry, he committed "two or more crimes involving moral turpitude, not arising out of a single scheme of criminal misconduct, regardless of whether confined therefor." 8 U.S.C. § 1251(a)(2)(A)(ii) (1994). Under section 101(a)(43)(F) of the INA, 8 U.S.C. § 1101(a)(43)(F), child abuse is a "crime of violence" constituting an aggravated felony. See 18 U.S.C. § 16(a) (defining "crime of violence" as "an offense that has as an element the use ... of physical force against the person ... of another"); R.I. Gen. Laws § 11-9-5.3(2) (defining second-degree child abuse as the infliction upon a child of any "serious physical injury").
Gomes first appeared before an IJ on December 27, 1995, but his case was ultimately scheduled to be heard on September 30, 1996. While he was waiting for his hearing, the AEDPA was enacted. At the hearing on September 30, Gomes conceded deportability and expressed a desire to apply for a section 212(c) waiver of deportation. The government moved to pretermit his application on the basis of AEDPA § 440(d), but the IJ denied the government's motion. In December 1996, however, the IJ denied Gomes's section 212(c) application on the merits and ordered him deported. On April 21, 1998, the BIA dismissed Gomes's appeal on the ground that he was statutorily ineligible for the relief under AEDPA § 440(d), and entered a final order of deportation.
D. Fausto Abreu-Santana
Petitioner Fausto Abreu-Santana entered the United States from the Dominican Republic in 1983, as a LPR. He was convicted in March 1995 of possession of cocaine with intent to distribute in violation of Massachusetts law. The record does not reflect the length of his sentence. On June 5, 1995, the INS issued an OSC listing then-sections 241(a)(2)(B)(i) and *199 241(a)(2)(A)(iii) of the INA as the bases for deportation.
At a hearing before an IJ on January 9, 1996, Abreu-Santana contested his deportability and indicated his intention to apply for a section 212(c) waiver. Finding Abreu-Santana deportable as charged, the IJ set May 31, 1996, as the deadline for the section 212(c) application and scheduled a hearing on the merits. In the meantime, the AEDPA was enacted. Abreu-Santana nonetheless submitted his application on May 28, 1996, in compliance with the IJ's deadline. On April 22, 1997, the IJ ordered him deported and pretermitted his application on the ground that he was no longer statutorily eligible for a waiver. The BIA affirmed the IJ's decision and entered a final order of deportation on June 8, 1998.
DISCUSSION
A. The Section 212(c) Waiver
Prior to the passage of AEDPA § 440(d), INA § 212(c) authorized the Attorney General to waive deportation for a LPR alien who had a "lawful unrelinquished domicile of seven consecutive years" in the United States, as long as he had not been "convicted of one or more aggravated felonies" for which he had served "a term of imprisonment of at least 5 years." 8 U.S.C. § 1182(c) (1994).[2] Among the favorable equities to be considered by the IJ in determining whether to grant a waiver were the alien's family ties in the United States, his employment history and property or business ties, his record of service to the community, the length and inception of his residence in this country, and evidence of hardship to the individual and his family likely to result from deportation. See generally, e.g., Matter of Marin, 16 I. & N. Dec. 581, 584-85 (BIA 1978) (citing numerous decisions).
AEDPA § 440(d) amended INA § 212(c) to restrict significantly the availability of the waiver to criminal aliens:
[Section 212(c) relief is unavailable to an alien who] "is deportable by reason of having committed any criminal offense covered in [INA] section 241(a)(2)(A)(iii) [aggravated felonies, without regard to sentence served], (B) [controlled substance violations], (C) [certain firearm offenses], or (D) [miscellaneous national security offenses], or any offense covered by section 241(a)(2)(A)(ii) [multiple crimes of moral turpitude] for which both predicate offenses are, without regard to the date of their commission, otherwise covered by section 241(a)(2)(A)(i) [crimes of moral turpitude]."
AEDPA § 440(d)(2), 110 Stat. at 1277 (as amended by the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 ("IIRIRA"), Pub.L. No. 104-208, Div. C, Tit. III, Subtit. A, § 306(d), 110 Stat. 3009-546, 3009-612 (Sept. 30, 1996)).[3] Petitioners claim that the Board's application of AEDPA § 440(d) to their cases constitutes *200 improper retroactive elimination of discretionary relief from deportation, and ask this Court to require the BIA to consider their section 212(c) applications on the merits. The government does not dispute that petitioners would have been eligible for such relief under the pre-AEDPA section 212(c).
B. Jurisdiction
The government initially opposed the petitions on the ground that this Court lacks subject matter jurisdiction under the judicial review provisions of the IIRIRA, §§ 306(a), (c), 309(c)(4), 110 Stat. at 3009-607 to 3009-612, 3009-626 to 3009-627, amended by Act of Oct. 11, 1996, Pub.L. No. 104-302, § 2, 110 Stat. 3656, 3657.
However, under the caselaw in this circuit, this Court has jurisdiction under the IIRIRA's judicial review provisions[4] to consider the "pure issue of law" presented by these petitions. Goncalves v. Reno, 144 F.3d 110, 113 (1st Cir.1998) (holding that, under the IIRIRA's judicial review provisions, federal district courts retain habeas jurisdiction pursuant to 28 U.S.C. § 2241 to resolve the issue of "whether Congress intended to make a particular provision of a statute retroactive"), cert. denied, ___ U.S. ___, 119 S. Ct. 1140, 143 L. Ed. 2d 208 (1999).[5] Petitioners are all "in custody" for the purposes of § 2241 because they are subject to final orders of deportation. See, e.g., Almon v. Reno, 13 F. Supp. 2d 143, 144 n. 2 (D.Mass.1998).
C. Retroactivity of AEDPA § 440(d)
1. Goncalves and Its Progeny
The more difficult issue is to what extent Congress intended AEDPA § 440(d) to operate retroactively to preclude aliens like petitioners from applying for section 212(c) relief. The First Circuit has held that Congress did not intend to eliminate section 212(c) relief for aliens whose 212(c) applications were pending on the date of the AEDPA's enactment. See Goncalves, 144 F.3d at 113, 126, 133-34. Goncalves leaves many unanswered questions in its wake. The petitions before this Court require a determination as to whether AEDPA § 440(d)'s restrictions on eligibility for section 212(c) relief are applicable to aliens who were in deportation proceedings on the effective date of the AEDPA, April 24, 1996, but who had not yet filed their section 212(c) applications.
Goncalves determined that retroactive application of AEDPA § 440(d) to aliens whose section 212(c) applications were already pending on April 24, 1996, would "plainly" and impermissibly impair the statutory right to apply for waivers of deportation and "impose [ ] additional burdens on past [criminal] conduct." Id. at 130 (citing Hughes Aircraft Co. v. United *201 States ex rel. Schumer, 520 U.S. 939, 946-47, 117 S. Ct. 1871, 138 L. Ed. 2d 135 (1997), and Landgraf v. USI Film Prods., 511 U.S. 244, 269, 114 S. Ct. 1483, 128 L. Ed. 2d 229 (1994)). Other courts have concurred. See, e.g., Henderson v. INS, 157 F.3d 106, 129 (2d Cir.1998) (holding, in the context of an alien in Goncalves's position, that AEDPA § 440(d) "does not apply to cases initiated before the date of its enactment" (citing Goncalves, 144 F.3d at 126)), cert. denied, ___ U.S. ___, 119 S. Ct. 1141, 143 L. Ed. 2d 209 (1999); Farquharson v. INS, 31 F. Supp. 2d 403, 414 (D.N.J.1999) (finding that "AEDPA § 440(d) should not be applied to criminal aliens who filed applications for waivers before the statute was enacted" (citing cases)); Perez v. Reno, 18 F. Supp. 2d 674, 682 (W.D.Tex.1998) (adopting Goncalves). But c.f. LaGuerre v. Reno, 164 F.3d 1035, 1041 (7th Cir.1998) (summarizing in dicta the Seventh Circuit's holdings that AEDPA § 440(d) applies retroactively except when an alien has "conceded deportability in reliance at having a good shot at a waiver of deportability" (citing cases)).
Petitioners' cases are not directly governed by the Goncalves decision, which the First Circuit cautioned was a "narrow" holding applicable to "persons in Goncalves' position," Goncalves, 144 F.3d at 133. The government argues that Goncalves should be strictly limited to its facts and not extended to protect aliens whose cases the AEDPA interrupted before they reached the advanced stage of Goncalves. However, every other court in this district to consider this issue has concluded otherwise.
One approach has been to construe Goncalves to extend to aliens who did not file section 212(c) applications before April 24, 1996, but who nonetheless did, prior to the AEDPA's enactment, give the INS "unmistakable notice of their intention to seek such relief either in a writing or in a transcribed proceeding before an Immigration Judge." Almonte v. Reno, 27 F. Supp. 2d 106, 109 (D.Mass.1998) (Stearns, J.) ("[C]onfining Goncalves strictly to its facts, making section 212(c) relief available only to aliens whose petitions had been perfected as of [the] AEDPA's effective date, exalts form over substance, and is susceptible to an inequitable result...."). The petitioner in Almonte told an IJ at a hearing in January 1996 that he planned to apply for a section 212(c) waiver; the IJ set May 31, 1996, as the application deadline, and the alien filed his application on May 29. See id. at 106; see also Ranglin v. Reno, 27 F. Supp. 2d 262, 268 (D.Mass.1998) (Young, J.) (remanding to the BIA for a merits determination a case in which the IJ authorized the petitioner to apply for a section 212(c) waiver in January 1996 and gave him until April 26, 1996, to file the application).
Other courts have taken a more expansive view and applied the Goncalves retroactivity analysis to "all persons against whom INS [had] commenced deportation proceedings, i.e., filed Orders to Show Cause, by the time of AEDPA's enactment," even though they had not yet filed or expressed an intent to file section 212(c) applications. Machado v. INS, 33 F. Supp. 2d 88, 91-92 (D.Mass.1999) (Lasker, J.); see also, e.g., Mattis v. Reno, 44 F. Supp. 2d 379, 381-384 (D.Mass.1999) (Young, J.); McKenzie v. Reno, No. 97-CV-11285-DPW, slip op. at 5 (D.Mass. Dec. 10, 1998) (Woodlock, J.). Two circuits have drawn a similar line in reliance on the reasoning in Goncalves. See Sandoval v. Reno, 166 F.3d 225, 241-42 (3d Cir.1999) (concluding that Congress did not intend AEDPA § 440(d) to apply to cases pending on the date of enactment); Henderson, 157 F.3d at 129-30 (broadly construing Goncalves to hold that AEDPA § 440(d) "does not apply retroactively to aliens whose deportation or exclusion proceedings were pending on the date of its enactment" (emphasis added)).
Another court took an even broader view, Wallace v. Reno, 24 F. Supp. 2d 104 (D.Mass.1998) (Gertner, J.), when it held that the "presumption against retroactivity *202 ... applies to bar the application of § 440(d) to aliens whose deportability rests on guilty pleas, entered prior to April 24, 1996." Id. at 112.
2. The Petitioners
The emerging consensus is that the presumption against retroactivity applies at least to all aliens who were in deportation proceedings on the effective date of the AEDPA. With these guiding principles in mind, I now turn to the petitioners here.
Mathews and Abreu-Santana, like the petitioners in Almonte and Ranglin, had clearly manifested their intention before April 24, 1996, to apply for discretionary relief from deportation, and they had received permission to do so. Relying on the deadlines proposed by their IJs, they filed their applications after the AEDPA's enactment. To avoid disrupting these petitioners' settled expectations simply on the basis of a technicality, I remand their cases to the BIA.
Petitioner Turavani is in a more difficult procedural position. He too was granted an opportunity to apply for section 212(c) relief before April 24, 1996, but the IJ considered his application abandoned because it was not filed in compliance with the deadline. Turavani's motion to remand on the abandonment issue had been pending before the BIA for three-and-a-half years when the AEDPA was enacted. In April 1997, the Board denied the motion on the ground that AEDPA § 440(d) rendered Turavani statutorily ineligible for section 212(c) relief.
In Lee v. Reno, 15 F. Supp. 2d 26 (D.D.C.1998), the court extended the reasoning in Goncalves to cover a similarly situated petitioner whose 1994 motion to reopen to apply for section 212(c) relief was still pending before the BIA on April 24, 1996. See id. at 44-46 & n. 26 (holding that, although Lee's section 212(c) application had neither been "filed [n]or ... partially adjudicated" at the time of the AEDPA's enactment, Congress did not intend AEDPA § 440(d) "to apply retroactively to motions to reopen and applications for waivers of deportation provided by pre-AEDPA § 212(c)"); cf. Sandoval, 166 F.3d at 228, 242 (holding that AEDPA § 440(d) did not apply retroactively to an alien who had not yet applied for section 212(c) relief and whose appeal of an IJ's denial of a stay of deportation to allow him to do so was pending before the BIA when the AEDPA was enacted).
The First Circuit's recent holding in Wright v. Ouellette, 171 F.3d 8 (1st Cir. 1999), does not change this conclusion. In Wright, the alien had already had "full agency consideration of his § 212(c) application" on the merits by both an IJ and the BIA, id. at 10-11, and the court rejected his argument that application of AEDPA § 440(d)'s cutoff of section 212(c) relief to his motion to reopen presented a retroactivity problem, see id. at 11-12 (explaining that because Wright's deportation order, which was "issued after full BIA consideration of [his] application, was final, the motion to reopen is more akin to starting a new proceeding" than to extending the original one). Because there has been no agency consideration of the section 212(c) relief, I remand to the BIA to address squarely the motion to remand, including the issue of abandonment.
Lastly, petitioner Gomes was in deportation proceedings prior to April 24, 1996. Permitting Gomes to be evaluated for discretionary relief from deportation pursuant to the pre-AEDPA section 212(c) answers the charge that hinging the retroactivity analysis on the date of a section 212(c) application penalizes aliens for "random acts of administrative scheduling." Wallace, 24 F.Supp.2d at 113. Although INS regulations appear to allow an alien to file an application for section 212(c) relief "at any time," id. at 113 n. 11 (citing 8 C.F.R. § 212.3(b)), "the far more ordinary course is for the recipient of an Order to Show Cause to wait until the deportation hearing before an IJ to *203 notice his intent to apply for, and/or lodge, an actual application," Machado, 33 F.Supp.2d at 90 n. 4; cf. Wallace, 24 F.Supp.2d at 113 & n. 11 (noting that, in 1994, the INS interpreted 8 C.F.R. § 212.3(b) to prohibit aliens from requesting section 212(c) waivers "prior to the actual institution of deportation proceedings" (quoting 71 Interpreter Releases 949 (July 18, 1994)) (internal quotation marks omitted)).
Given this practice, it would be unfair to hold that Gomes, who was in deportation proceedings in 1994, is ineligible for a waiver of deportation simply because his first substantive hearing before an IJ his first real opportunity to apply for section 212(c) relief was scheduled after the enactment of the AEDPA. See id. at 113 (finding that, at least in 1994, "[t]he date on which a permanent resident filed for § 212(c) relief was usually determined by a random set of facts outside the resident's control"); see also Almonte, 27 F.Supp.2d at 109 (acknowledging that the holdings in Goncalves and Almonte are subject to the "criticism that the likelihood of an alien's [having applied for relief or] having made his intention to seek relief known is largely dependent on the vagaries of the commencement of a deportation proceeding"). I therefore remand his case to the BIA for a merits determination.
D. Equal Protection Clause
Petitioners also contend that AEDPA § 440(d) violates the Equal Protection Clause because it applies by its terms only to "deportable" aliens and preserves section 212(c) relief for aliens in exclusion proceedings. Because I hold that AEDPA § 440(d) does not apply to any of the petitioners, I need not reach their equal protection claim.
ORDER
The petitions for writs of habeas corpus (Docket Nos. Mathews 1, Turavani 1, Gomes 1, & Abreu-Santana 1) are ALLOWED. The above-captioned cases are remanded to the BIA.
NOTES
[1] Section 241 of the INA was redesignated as section 237 of the INA by the Illegal Immigration Reform and Immigrant Responsibility Act of 1996, Pub.L. No. 104-208, Div. C, Tit. III, Subtit. A, § 305(a)(2), 110 Stat. 3009-546, 3009-598 (Sept. 30, 1996), and has since been transferred by the compilers of the United States Code to 8 U.S.C. § 1227, see 8 U.S.C.A. §§ 1251, 1227 (1999).
[2] Although former INA § 212(c) appeared by its language to reach only aliens in exclusion proceedings, it had been held to apply to aliens in deportation proceedings as well. See Francis v. INS, 532 F.2d 268, 269, 273 (2d Cir.1976) (finding a literal interpretation of section 212(c) to violate the Equal Protection Clause); Matter of Silva, 16 I. & N. Dec. 26, 30 (BIA 1976) (adopting Francis nationwide).
[3] The IIRIRA abolished the former distinction under the INA between exclusion and deportation proceedings and "combin[ed] the two into a new proceeding known as a `removal proceeding.'" Goncalves v. Reno, 144 F.3d 110, 115 n. 2 (1st Cir.1998), cert. denied, ___ U.S. ___, 119 S. Ct. 1140, 143 L. Ed. 2d 208 (1999). It has eliminated section 212(c) relief altogether for aliens in removal proceedings that commenced after April 1, 1997. See IIRIRA § 304(b), 110 Stat. at 3009-597 (repealing INA § 212(c), 8 U.S.C. § 1182(c)); id. § 309(c), 110 Stat. at 3009-625 to 3009-627 (providing generally that the IIRIRA does not apply in proceedings initiated prior to April 1, 1997). The IIRIRA replaced section 212(c) with a new form of discretionary relief called "cancellation of removal." See id. § 304(a)(3), 110 Stat. at 3009-587, 3009-594 to 3009-596 (adding new INA § 240A, 8 U.S.C. § 1229b). Petitioners' proceedings all began before April 1, 1997.
[4] Petitioners' cases are governed by the IIRIRA's transitional judicial review provisions, because the INS initiated their deportation proceedings prior to April 1, 1997, and because each of their deportation orders became administratively final after October 30, 1996. See IIRIRA § 309(c)(4), 110 Stat. at 3009-626 to 3009-627; Henderson v. INS, 157 F.3d 106, 117 (2d Cir.1998), cert. denied, ___ U.S. ___, 119 S. Ct. 1141, 143 L. Ed. 2d 209 (1999).
[5] A circuit split exists on this question. See Sandoval v. Reno, 166 F.3d 225, 238 (3d Cir. 1999) ("[B]ecause neither AEDPA nor IIRIRA contains a clear statement that Congress sought to eliminate habeas jurisdiction ..., we conclude that § 2241 survives the 1996 amendments [to the immigration laws, at least for certain statutory claims]."); Henderson, 157 F.3d at 122 (holding that statutory claims "affecting the substantial rights of aliens of the sort that the courts have secularly enforced," such as retroactivity claims, continue to be cognizable on habeas review); Lee v. Reno, 15 F. Supp. 2d 26, 32 (D.D.C.1998). But see LaGuerre v. Reno, 164 F.3d 1035, 1040 (7th Cir. 1998) ("We conclude that for the class of [criminal] aliens encompassed by [the transitional judicial review provisions and delineated in section 440(d) of the AEDPA], judicial review by means of habeas corpus did not survive the enactment of [those provisions]."); Richardson v. Reno, 162 F.3d 1338, 1378 (11th Cir. 1998) (holding that the IIRIRA "repeal[ed] § 2241 habeas jurisdiction over immigration decisions"), petition for cert. filed, 67 U.S.L.W. 3561 (U.S. Feb. 23, 1999) (No. 98-1361).
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959 N.E.2d 784 (2011)
355 Ill. Dec. 370
The PEOPLE of the State of Illinois, Plaintiff-Appellee,
v.
Derrick D. WILLIAMS, Defendant-Appellant.
No. 3-10-0142.
Appellate Court of Illinois, Third District.
December 1, 2011.
*785 Jacqueline L. Bullard (Court-appointed), Office of the State Appellate Defender, Springfield, for Derrick D. Williams.
Terry A. Mertel, Deputy Director, State's Attorneys Appellate Prosecutor, Albert G. Algren, State's Attorney, Dawn D. Duffy, State's Attorneys Appellate Prosecutor, for People.
OPINION
Justice LYTTON delivered the judgment of the court, with opinion.
¶ 1 The defendant, Derrick D. Williams, was sentenced to concurrent prison terms of 35 years for attempted first degree murder (720 ILCS 5/8-4(a), 9-1(a)(1) (West 2006)), 15 years for home invasion (720 ILCS 5/12-11(a)(2) (West 2006)), and 6 years for armed robbery (720 ILCS 5/18-2(a)(2) (West 2006)). The defendant appeals the dismissal of his successive postconviction petition. He argues that the trial court erred when it did not apply his $5-per-day custody credit toward his $200 deoxyribonucleic acid (DNA) analysis. 730 ILCS 5/5-4-3(j) (West 2006). We affirm.
¶ 2 Following the defendant's convictions, he was ordered to pay a $200 DNA analysis fee. The defendant was in custody from July 22, 2006, until he was sentenced on November 9, 2006. After sentencing, the defendant filed a direct appeal. While the defendant's direct appeal was pending, he filed a postconviction petition. The trial court dismissed the defendant's postconviction petition. Thereafter, we issued our order on the defendant's direct appeal. People v. Williams, No. 3-06-0838 (2008) (unpublished order under Supreme Court Rule 23).
¶ 3 On November 2, 2009, the defendant filed a successive postconviction petition without leave of the court. The court denied the petition, and the defendant appealed.
¶ 4 On appeal, the defendant argues that the trial court should have applied his $5-per-day credit toward his $200 DNA assessment.
¶ 5 The State argues that we should not grant the defendant's request because he failed to seek leave of the court to file a successive postconviction petition and he does not meet the cause and prejudice requirements. Further, the State urges us to adopt the reasoning in People v. Tolliver, 363 Ill.App.3d 94, 299 Ill.Dec. 821, 842 N.E.2d 1173 (2006), which held that the $200 DNA analysis fee is not a fine and therefore is not compensable by the presentencing credit.
¶ 6 A defendant is allowed $5 for each day he is incarcerated but does not supply bail before sentencing. 725 ILCS 5/110-14 (West 2006). "[A] claim for per diem monetary credit conferred by section 110-14 of the Code of Criminal Procedure *786 of 1963 is a statutory right [citation] and is not cognizable under the Post-Conviction Hearing Act." People v. Caballero, 228 Ill.2d 79, 87, 319 Ill.Dec. 364, 885 N.E.2d 1044 (2008). However, section 110-14 does not specify the time frame or procedural stage during which an application for credit can be made. Granting the credit on the appeal of a postconviction petition is "`a simple ministerial act that will promote judicial economy by ending any further proceedings over the matter.'" People v. Woodard, 175 Ill.2d 435, 456-57, 222 Ill. Dec. 401, 677 N.E.2d 935 (1997) (quoting People v. Scott, 277 Ill.App.3d 565, 566, 214 Ill.Dec. 367, 660 N.E.2d 1316 (1996)). Therefore, defendant may raise his claim for monetary credit on the appeal of his postconviction petition because the basis for granting the relief is clear and available from the record. See Caballero, 228 Ill.2d 79, 319 Ill.Dec. 364, 885 N.E.2d 1044.
¶ 7 Next, we look to whether the DNA assessment was a fee or a fine, as the credit may be levied against a fine but not a fee. 725 ILCS 5/110-14 (West 2006). A fine "`is a part of the punishment for a conviction, whereas a "fee" or "cost" seeks to recoup expenses incurred by the State * * * in prosecuting the defendant.'" People v. Long, 398 Ill.App.3d 1028, 1032, 338 Ill.Dec. 305, 924 N.E.2d 511 (2010) (quoting People v. Jones, 223 Ill.2d 569, 582, 308 Ill.Dec. 402, 861 N.E.2d 967 (2006)). Our supreme court explained in People v. Marshall, 242 Ill.2d 285, 296, 351 Ill.Dec. 172, 950 N.E.2d 668 (2011), that the DNA analysis fee "is intended to cover the costs of the DNA analysis[.]" From Marshall, the Second District reasoned that the DNA analysis fee is not imposed on a defendant as punishment, but is used to "cover the costs incurred in collecting and testing a DNA sample that is taken from a defendant convicted of a qualifying offense." People v. Guadarrama, 2011 IL App (2d) 100072, ¶ 13, 353 Ill.Dec. 148, 955 N.E.2d 615. We agree with the Second District that the DNA analysis fee is better characterized as a fee and not a fine. Thus, we find that the defendant could not apply his presentencing credit to satisfy his $200 DNA analysis fee.
¶ 8 The judgment of the circuit court of Warren County is affirmed.
¶ 9 Affirmed.
Justice HOLDRIDGE specially concurred, with opinion.
Justice WRIGHT dissented, with opinion.
¶ 10 Justice HOLDRIDGE, specially concurring:
¶ 11 I agree with the majority's judgment and analysis. I write separately to further clarify why I believe the $200 DNA analysis assessment required by section 5-4-3(j) of the Unified Code of Corrections (Code) is a fee rather than a fine. 730 ILCS 5/5-4-3(j) (West 2006). First, it is labeled a "fee" in the statute. Id. Although the supreme court has ruled that the label used by the legislature is not necessarily controlling (People v. Graves, 235 Ill.2d 244, 250, 335 Ill.Dec. 881, 919 N.E.2d 906 (2009)), it has noted that the legislature's label is "strong evidence" of whether a particular charge is a fee or a fine. (Internal quotation marks omitted.) Id. Thus, where the "actual attributes" of the charge do not suggest that the legislature's label is mistaken, I believe we should assume that the legislature meant what it said. (Internal quotation marks omitted.) See id.
¶ 12 Here, nothing about the DNA analysis assessment suggests that it is a fine. As the majority notes, a fine is punitive, whereas a fee is compensatory. See supra ¶ 7; see also Graves, 235 Ill.2d at 250, 335 Ill.Dec. 881, 919 N.E.2d 906. Thus, a *787 charge is a fee if it "seeks to compensate the state for any costs incurred as the result of prosecuting the defendant." (Emphasis added.) Id. The DNA analysis charge is a "cost incurred as the result of" the defendant's prosecution and conviction. Every person convicted of certain qualifying offenses is required to submit specimens of blood, saliva, or tissue for DNA analysis. 730 ILCS 5/5-4-3(a)(1) (West 2006). The statute does not require all citizens to submit DNA for analysis. Rather, only those charged with and convicted of qualifying offenses must do so. Thus, the cost of analyzing and cataloguing the defendant's DNA in this case was incurred as a result of this prosecution and conviction. See, e.g., People v. Anthony, 408 Ill.App.3d 799, 809, 351 Ill.Dec. 423, 951 N.E.2d 507 (2011) (holding that the DNA analysis charge is a fee rather than a fine because it "reimburses the State for the expense of operating a system under which this defendant's DNA profile was required to be processed and analyzed as a result and collateral consequence of this prosecution and conviction").
¶ 13 In People v. Long, 398 Ill.App.3d 1028, 338 Ill.Dec. 305, 924 N.E.2d 511 (2010), our appellate court held that the DNA analysis assessment is a fine. However, in my view, Long is not persuasive. Long ruled that the DNA assessment is not a fee because section 5-4-3(k)(3) provides that money from the DNA analysis assessment may be used "to form, maintain, and improve a DNA database of Illinois criminals" and because that section "contains no language indicating the DNA-analysis assessment is to be used to pay for the analysis of the specimen of the particular defendant required to submit a specimen." Long, 398 Ill.App.3d at 1034, 338 Ill.Dec. 305, 924 N.E.2d 511. However, the fact that the legislature allows the funds collected through the imposition of the DNA analysis fee to be used to finance the entire DNA database (rather than merely to fund the cost of analyzing the defendant's DNA) does not change the compensatory nature of the fee. As noted above, the fee "reimburses the State for the expense of operating a system under which this defendant's DNA profile was required to be processed and analyzed as a result * * * of this prosecution and conviction." Anthony, 408 Ill.App.3d at 809, 351 Ill.Dec. 423, 951 N.E.2d 507. Those expenses were incurred as the result of the defendant's conviction and the convictions of all others who were convicted of qualifying offenses. Moreover, even if the State is overcharging convicted felons for the cost of analyzing their DNA, that fact would not change the nature of the fee.
¶ 14 In any event, as the majority notes, the supreme court's recent decision in People v. Marshall, 242 Ill.2d 285, 296, 351 Ill.Dec. 172, 950 N.E.2d 668 (2011), has resolved this issue. In Marshall, the supreme court stated that the DNA analysis assessment is intended to cover the costs of analyzing a defendant's DNA and held that a trial court may order a defendant to submit a DNA sample and pay the $200 assessment "only where [the] defendant is not currently registered in the DNA database." Id. at 296, 303, 351 Ill.Dec. 172, 950 N.E.2d 668. Although Marshall did not explicitly decide whether the DNA assessment is a fine or a fee, the supreme court's reasoning in Marshall compels the conclusion that it is a compensatory fee rather than a punitive sanction. Thus, in my view, Long is no longer good law. See People v. Stuckey, 2011 IL App (1st) 092535, ¶ 36, 355 Ill.Dec. 326, 959 N.E.2d 740 (declining to follow Long in light of Marshall).
¶ 15 Justice WRIGHT, dissenting:
¶ 16 In this case, defendant did not request leave of the court to file his successive *788 postconviction petition, despite the fact that a defendant is required to do so. 725 ILCS 5/122-1(f) (West 2008); People v. LaPointe, 227 Ill.2d 39, 42, 316 Ill.Dec. 208, 879 N.E.2d 275 (2007). Even if the court had granted defendant leave to file this successive postconviction petition, the record reveals that the issues raised in that postconviction petition related to claims of ineffective assistance of counsel and did not challenge the amount of monetary credit defendant received toward court ordered fines, including the DNA analysis fee.
¶ 17 This issue was not included in defendant's successive postconviction petition and was not addressed by the trial court when dismissing that petition. Therefore, this court should not consider whether defendant is entitled to receive monetary credit toward his DNA analysis fee as the issue has been waived. See People v. Jones, 213 Ill.2d 498, 508, 290 Ill.Dec. 519, 821 N.E.2d 1093 (2004). I would affirm the trial court's decision.
¶ 18 For these reasons, I respectfully dissent.
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286 F. Supp. 2d 976 (2003)
John H. HARKINS, Peter Stofcik, Jr., Wallie Del Toro, Ofelia Cuevas, Howard Cannon, David A. Williams, Lakesa Hill-Hunter, Lisa Hill, Michael S. Metevia, Daniel T. O'Brien, Louis E. Kelly, Darrin Benton, Shayn Keeton, Dennis Arnold, Tammie Jablonski, Plaintiffs,
v.
RIVERBOAT SERVICES, INC., Showboat Marina Casino Partnership, and Harrah's Operating Company, Inc., Defendants.
No. 99 C 123.
United States District Court, N.D. Illinois, Eastern Division.
October 8, 2003.
*977 *978 Ernest T. Rossiello, Ernest T. Rossiello & Assoc., Chicago, IL, Jac A. Cotiguala, Luanne M. Galovich, Jac A. Cotiguala & Assoc., Chicago, IL, for Plaintiffs.
Julia D. Mannix, Davis, Mannix & McGrath, Chicago, IL, Nicholas Anaclerio, Ungaretti & Harris, Chicago, IL, for Defendants.
*979 MEMORANDUM OPINION AND ORDER
DENLOW, United States Magistrate Judge.
I. INTRODUCTION
Defendants Riverboat Services, Inc., ("RSI"), Showboat Marina Casino Partnership, and Harrah's Operating Company, Inc., (collectively "Showboat") prevailed at trial by obtaining a jury verdict in their favor. RSI and Showboat submitted two separate Bills of Costs. Plaintiffs have filed no objection.
A. RSI's Bill of Costs
RSI submits its Bill of Costs requesting the sum of $12,529.47. Specifically, it claims $10,752.90 in court reporter fees for all or any part of the transcript necessarily obtained for use in the case; $80.00 in witness fees; $1,152.09 in copying fees of papers necessarily obtained for use in the case; and $544.48 in fees for Westlaw research.
B. Showboat's Bill of Costs
Showboat submits its Bill of Costs requesting the sum of $13,523.07. Specifically, it claims $445.45 in fees for service of summons and subpoena; $8,484.12 in court reporter fees for all or any part of the transcript necessarily obtained for use in the case; $1,593.92 in witness fees; $1,894.32 in fees for exemplification and copies of papers necessarily obtained for use in the case; and $1,105.66 in attorney's travel expenses.
II. DISCUSSION
Although Plaintiffs have not filed any objections to the Bills of Costs, RSI and Showboat are not automatically awarded costs because this Court may impose costs upon the Plaintiffs only if RSI and Showboat claim expenses that are reasonable, both in amount and necessity to the litigation. Shah v. Vill. of Hoffman Estates, No. 00 C 4404, 2003 WL 21961362, at *1 (N.D.Ill. Aug.14, 2003). This Court is vested with the discretion to decide whether and to what extent costs may be awarded to prevailing parties. Barber v. Ruth, 7 F.3d 636, 644 (7th Cir.1993).
Pursuant to Federal Rule of Civil Procedure 54(d)(1) ("Rule 54(d)(1)"), "costs other than attorney's fees shall be allowed as of course to the prevailing party unless the court otherwise directs." Fed.R.Civ.P. 54(d)(1); see also Local R. 54.1. The costs recoverable under Rule 54(d)(1) are enumerated in 28 U.S.C. § 1920. The following are recoverable costs:
(1) Fees of the clerk and marshal;
(2) Fees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case;
(3) Fees and disbursements for printing and witnesses;
(4) Fees for exemplification and copies of papers necessarily obtained for use in the case;
(5) Docket fees under section 1923 of this title;
(6) Compensation of court appointed experts....
28 U.S.C. § 1920. There is a strong presumption that a prevailing party may recover these costs. See Weeks v. Samsung Heavy Indus. Co., 126 F.3d 926, 945 (7th Cir.1997). This Court must award costs unless there are good reasons for denying them. Id.
A. Fees for Service of Summons and Subpoena
Prevailing parties may not recover service costs in excess of the United States Marshal's fees. Haywood v. Evergreen Motor Cars, Inc., No. 02 C 6408, 2003 WL 22220121, at *1 (N.D.Ill. Sept.25, *980 2003). The United States Marshal's fees are $45.00 per hour and $0.365 per mile. Menasha Corp. v. News Am. Marketing Instore, Inc., No. 00 C 1895, 2003 WL 21788989, at *3 (N.D.Ill. July 31, 2003).
Showboat requests $445.45 in costs for the service of subpoenas upon four parties. In support of its request, it has submitted coded invoices regarding the service of subpoena and the production of records. These costs appear reasonable. Therefore, the Court grants Showboat's request for costs associated with service of subpoenas: $445.45. RSI does not request an award for this type of cost.
B. Court Reporter and Transcript Fees
Generally, court reporter and transcript fees are recoverable. 28 U.S.C. § 1920. Local Rule 54.1(b) mandates that "the costs of the transcript or deposition shall not exceed the regular copy rate as established by the Judicial Conference of the United States and in effect at the time the transcript or deposition was filed unless some other rate was previously provided for by order of court." Local R. 54.1(b). This Court has ordered no other rate. Thus, the rate allowed for original deposition transcripts by the Judicial Conference of the United States, which is $3.00 per page, governs. VI Judicial Conference of the United States, Guide to Judiciary Policies & Procedures, Court Reporters' Manual, ch. 20, pt. 20.3 [hereinafter "Court Reporters' Manual"]. When the costs can not be obtained reasonably by reference to supporting documentation, the costs as requested can not be awarded. See Shah, 2003 WL 21961362, at *1.
1. Showboat's Request for Costs Associated with Court Reporter and Transcript Fees
Showboat requests $8,484.12 in fees of the court reporter for all or any part of the transcript necessarily obtained for use in the case. Specifically, Showboat submits twenty-nine different itemized invoices. The invoices include the following total costs: $830.00 for ASCII disks; $209.95 for copies of deposition exhibits; $280.00 for "minuscript"; $135.00 for "multi-page"; $95.50 for delivery/shipping/handling; $310.00 for "binding and delivery"; and $6,623.67 for deposition transcripts. The Court will discuss each item in turn.
a. ACSII Disks
ASCII disks that are for Showboat's convenience are not recoverable. Canal Barge Co. v. Commonwealth Edison Co., No. 98 C 0509, 2003 WL 1908023, at *3 (N.D.Ill.2003); Jones v. Bd. of Trs. of Cmty. Coll. Dist. No. 508, 197 F.R.D. 363, 364 (N.D.Ill.2000). Because each of the ASCII disks purchased by Showboat is duplicative of paper copies of certain transcripts, this Court finds that the ASCII disks are for Showboat's convenience. The costs associated with those disks, therefore, are not recoverable. Consequently, this Court denies Showboat's request for costs associated with the ASCII disks: $830.00.
b. Deposition Exhibits
This Court can award to Showboat costs associated with essential deposition exhibits. See Menasha Corp., 2003 WL 21788989, at *2 (quoting Fait v. Hummel, No. 01 C 2771, 2002 WL 31433424, at *2 (N.D.Ill. Oct.30, 2002)). The Court finds that the deposition exhibits in this case were essential. Therefore, the Court grants Showboat's request for costs associated with deposition exhibits: $209.95.
c. "Minuscript" and "Multi-Page"
A "minuscript" is not recoverable as a second copy. Hardy v. Univ. of Ill., Chi., No. 00 C 7639, 2002 WL 2022602, at *2 (N.D.Ill.2002) (citing Winery v. City of Chicago, 2000 WL 1222152 (N.D.Ill. *981 Aug. 22, 2000)). Each invoice that includes a fee for a "minuscript" also includes a fee for a certified copy of a transcript. Therefore, the "minuscripts" in this case are second copies and are not recoverable as such. This Court consequently denies Showboat's request for costs associated with "minuscripts": $280.00.
In this case, "multi-page" refers to a feature that allows four original pages to be reproduced onto one copied page, making it the same as a "minuscript." Therefore, the same standard applies where a regular deposition copy was also received. Consequently, this Court denies Showboat's request for costs associated with "multi-page": $135.00.
d. Delivery/Shipping/Handling
Costs associated with delivering, shipping, or handling transcripts are ordinary business expenses and are not recoverable. Court Reporters' Manual, ch. 20, pt. 20.9.4; Franzoni v. Hartmarx Corp., No. 99 C 4898, 2003 WL 21397743 (N.D.Ill. June 16, 2003). Consequently, this Court denies Showboat's request for costs associated with delivering, shipping, and handling the transcripts: $95.50.
e. "Binding & Delivery"
Thirteen invoices submitted by Showboat for the Court's review lump the fees for binding together with the fees for delivery. As discussed above, delivery costs are not recoverable. Binding costs, however, may be recoverable. First City Securities, Inc. v. Shaltiel, No. 92 C 2620, 1993 WL 408370, at *2 (N.D.Ill. Oct.8, 1993); see also Canal Barge Co., 2003 WL 1908032, at *5 (allowing the recovery of costs for bates stamping because the numbering was "reasonably necessary to the ordered production and use of those documents in th[e] litigation").
Although binding costs may be recoverable, the fact that recoverable binding costs and unrecoverable delivery costs are lumped together concerns this Court because a reasonable fee for binding is difficult to obtain. Obtaining a reasonable rate is not impossible, however. Based on the invoices from other vendors used by Showboat, this Court accepts $7.50 as a reasonable rate for delivery alone. Therefore, each of the thirteen invoices that lumped binding and delivery charges together should be reduced by $7.50, for a total reduction of $97.50. Consequently, this Court grants Showboat's request for the costs associated with binding only: $212.50.
f. Deposition Transcripts
In support of its request for costs associated with deposition transcripts, Showboat submitted reasonable and acceptable invoices. The invoices show that Showboat paid no more than $2.25 per page, which is within the range set by the Judicial Conference of the United States. The Court consequently grants Showboat's request for costs for deposition transcripts: $6,623.67.
For the reasons stated above, the total amount awarded to Showboat for costs associated with court reporter and transcript fees is $7,046.12.
2. RSI's Request for Costs Associated with Court Reporter and Transcript Fees
RSI requests $10,752.90 in costs associated with court reporter and transcript fees for twenty depositions. In support of its request, RSI has not submitted copies of original invoices for transcribing services but rather copies of its invoices from its attorney. Although the Court recognizes that RSI incurred substantial deposition costs, it did not break out the *982 various components. In the interest of justice, the Court awards RSI the same amount it awards Showboat for costs associated with court reporter and transcript fees: $7,046.12.
C. Witness Fees
Pursuant to § 1920(3), prevailing parties may recover witness fees. The statutory limit for payment to a deponent is $40.00 per day plus reasonable travel and subsistence expenses. 28 U.S.C. § 1821(b), (c). Both the request by RSI and the request by Showboat are proper.
RSI deposed one witness for two days and requests $40.00 per day, with no travel or subsistence expenses. The Court, therefore, grants RSI's request for costs associated with its witness fees: $80.00.
Showboat deposed five witnesses for one day each and requests $40.00 per day per witness. Additionally, Showboat requests $1,433.52 for round trip coach airfare and one night of lodging, meals, local transportation, and parking in Oakland, California, for one witness. These expenses appear reasonable. Consequently, the Court grants Showboat's request for costs associated with its witness fees: $1,593.52.
D. Fees for Exemplification and Copies of Papers Necessarily Obtained for Use in the Case
To recover copy costs, the prevailing parties are "not required to submit a bill of costs containing a description so detailed as to make it impossible economically to recover photocopying costs." Northbrook Excess & Surplus Ins. Co. v. Procter & Gamble Co., 924 F.2d 633, 643 (7th Cir.1991). Instead, they must "provide the best breakdown obtainable from retained records." Id.
Copy fees between $0.10 and $0.20 per page are reasonable. Grayson v. City of Chicago, No. 97 C 0558, 2003 WL 22071479, at *2 (N.D.Ill. Sept.3, 2003). Costs for copies used "solely for attorney convenience," and not for "use in the case," are not recoverable. Alexander v. CIT Tech. Fin. Svcs., Inc., 222 F. Supp. 2d 1087, 1089 (N.D.Ill.2002).
1. RSI's Request for Copy Fees
The Bill of Costs submitted by RSI requests an award of $1,152.09 for copy costs. In support of its request, RSI has submitted summary sheets explaining its copying costs. These summaries indicate the date or month the copying charges were incurred, the total amount of the charges, a rate of $0.15 per page for in-house copying, and that a portion of the documents were copied by a copying service. The charges are grouped into four categories: (1) preparing and filing motions to dismiss and for a more definite statement; (2) documents for discovery; (3) exhibits for depositions and trial; (4) and motions for summary judgment. These categories are appropriate. Accordingly, this Court grants RSI's request for costs associated with copy fees: $1,152.09.
2. Showboat's Request for Copy Fees
This Court finds that Showboat has met its burden by providing the Court with a detailed description of copied documents that are reasonable and necessary to the case, the number of pages copied, the number of copies made, and the copy rate per page. Furthermore, Showboat's copy rate per page, $0.18, is within the range of reasonable rates.
Showboat requests $1,894.32 in fees for exemplification and copies of papers necessarily obtained for use in the case. Showboat, however, has indicated that it made four copies of each document. Generally, prevailing parties are permitted to recover the cost for making three copies only because § 1920 allows recovery for *983 materials actually prepared for use in the litigation and delivered to the court and opposing counsel. Franzoni v. Hartmarx Corp., No. 99 C 4898, 2003 WL 21397743, at *3 (N.D.Ill. June 16, 2003). Typically, litigation requires one copy for the defendant, one copy for the plaintiff, and one copy for the court. Id. In this case, the four copies Showboat made for each document are reasonable, however, because the Plaintiffs had two sets of counsel. This Court consequently grants Showboat's request for copying costs: $1,894.32.
E. Showboat's Request for Costs Associated with Attorney Travel Expenses
Showboat requests costs associated with attorney travel expenses. Attorney travel expenses to attend a deposition are not recoverable as costs because such expenses are not listed as a recoverable cost in § 1920. Amerisure Ins. Co. v. Roll Srvc., Inc., No. 01 C 5292, 2003 WL 21518549, at *2 (N.D.Ill. July 2, 2003) (citing Wahl v. Carrier Mfg. Co., 511 F.2d 209, 217 (7th Cir.1975)). This Court consequently denies Showboat's request for costs associated with attorney travel expenses: $1,105.66.
F. RSI's Request for Costs Associated with Westlaw Research
RSI requests costs associated with Westlaw research. Computerized research fees are not recoverable as costs under § 1920 or the case law of the Seventh Circuit. Computer research costs such as Westlaw "are more akin to awards under attorney's fees provisions than under costs." Haroco, Inc. v. Am. Nat'l Bank & Trust Co. of Chi., 38 F.3d 1429, 1440 (7th Cir.1994) (quoting McIlveen v. Stone Container Corp., 910 F.2d 1581, 1584 (7th Cir.1990)). Accordingly, computer research fees are not recoverable as costs. Id. at 1441. The Court consequently denies RSI's request for costs associated with Westlaw research fees: $544.48.
III. CONCLUSION
Prevailing parties RSI and Showboat are entitled to recovery of court costs. For the reasons set forth in this opinion, the Bills of Costs submitted by RSI and Showboat are granted in part and denied in part. The Court awards RSI $8,278.21 in court costs against Plaintiffs. The Court awards Showboat $10,979.41 in courts costs against Plaintiffs.
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286 F.Supp.2d 325 (2003)
Noel MITCHELL, Plaintiff,
v.
AMERICA ONLINE, INC.
Nos. 01 CIV. 8557 CMGAY, 02 CIV. 3658 CMGAY.
United States District Court, S.D. New York.
October 9, 2003.
*326 Paula Johnson Kelly, Goodstein & West, New Rochelle, NY, for Noel Mitchell, Plaintiff.
Jennifer L. Gillman, Littler Mendelson, NY, for American Online, Inc., Defendant.
DECISION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
MCMAHON, District Judge.
Plaintiff Noel Mitchell ("Plaintiff" or "Mitchell") filed a complaint with this Court on September 21, 2001, alleging that Defendant America Online Inc. ("Defendant" or "AOL") retaliated against him in violation of Title VII of the Civil Rights Act of 1964 and the New York State Human Rights Law. Plaintiff filed a second complaint against AOL on May 14, 2002, based upon the same facts, this time alleging failure to promote and retaliation in violation of 42 U.S.C. Section 1981, and retaliation in violation of the New York State Human Rights Law. The two cases have been consolidated for all purposes.
Following discovery, defendant has moved for summary judgment. For the reasons stated below, the motion is denied, except as to one relatively insignificant claim asserted by plaintiff.
As plaintiff notes, there are four issues in this case: whether the defendant discriminated against plaintiff on the basis of his race when (1) it failed to promote him to the position of Inventory Supervisor in February and March 2000; (2) it required him to complete a 90 days training program before considering him for promotion to the position of Inventory Supervisor; and whether defendant retaliated against plaintiff for complaining of racial discrimination when it (1) changed his title from Inventory Coordinator to shipping and receiving clerk; and (2) terminated plaintiff's employment in January 2001.
With regard to plaintiff's claim that he was discriminated against in connection with promotion to the position of Inventory Supervisor, almost every material fact from who hired plaintiff in the first place to whether or not he had sufficient educational and supervisory qualifications for the position of Inventory Supervisor is hotly disputed. The only undisputed facts are that a Caucasian Peter Bury was hired for the position but left less than a month later (under circumstances that are *327 disputed) and that AOL offered plaintiff an opportunity to train for the Inventory Supervisor position (an undisputed fact that raises a disputed issue of fact about whether the educational and experiential prerequisites for the job that plaintiff allegedly lacked were really necessary). There are also disputes between the parties about plaintiff's performance during the training period, and even about the reasons why plaintiff was required to undergo this additional training (plaintiff, needless to say, disagrees with AOL's claim that it was trying to help him overcome his lack of qualifications for the job he wanted, Inventory Supervisor, when it invented a special training program just for him). In short, as to plaintiff's claims of racially discriminatory failure to promote, summary judgment is manifestly inappropriate.
As for plaintiff's claim that he was the victim of retaliatory termination: while I recognize that plaintiff was terminated as part of a company-wide reduction in force that affected fully 25% of the employees at his location and many others nationwide, there is a disputed issue of fact about why plaintiff was chosen to be part of the group that was fired. While the persons who made that decision may not have known about plaintiff's last round of complaints to senior management (made by letter dated December 27, 2000), they were well aware that plaintiff had complained to senior management ABOUT THEM in a virtually ceaseless barrage since March of 2000. AOL's view of the relevant evidence on this charge is far too confined.
Plaintiff's claim that he was retaliated against when his title was changed from Inventory Coordinator Shipping and Receiving Clerk must be dismissed. To prove retaliation, a plaintiff must establish that he was engaged in a protected activity; that he suffered an adverse employment action; and that defendant acted out of a retaliatory motive in taking the adverse employment action against plaintiff. Reed v. A.W. Lawrence and Co., 95 F.3d 1170 (2d Cir.1996). As plaintiff himself admits, the only thing that changed in or about March 2000 (the time he began complaining about the failure to promote him, which constitutes protected activity) was his job title. (Pl.Dep. pp. 261-2). A change in job title without any change in duties, compensation, benefits or reporting structure, is not an "adverse employment action." McGuire v. United States Postal Service, 749 F.Supp. 1275, 1282-3 (S.D.N.Y.1990); Stutler v. Illinois Dept. of Corrections, 263 F.3d 698, 703 (7th Cir. 2001); Burrows v. Chemed Corp., 743 F.2d 612, 617 (8th Cir.1984). That said, plaintiff will be permitted to introduce evidence about the change in his job title at the trial, since it is relevant to the issue of defendants' motives.
Thus, except to the extent noted above, the motion for summary judgment is denied. The parties are now on notice for trial, although I can assure them that they are unlikely to be called during the fourth quarter of 2003.
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368 So.2d 629 (1979)
WILSHIRE CONDOMINIUM ASSOCIATION, INC., Appellant,
v.
Lize KOHLBRAND, Appellee.
No. 78-59.
District Court of Appeal of Florida, Fourth District.
March 14, 1979.
*630 William J. Bosso, of Bosso & Bosso, Riviera Beach, for appellant.
Dean J. Rosenbach and Michael A. Blank, of Lewis, Vegosen, Koeppel & Rosenbach, Palm Beach, for appellee.
MOORE, Judge.
The sole question presented on this appeal is the enforceability of the following regulation contained in appellant's Declaration of Condominium:
"Dwelling unit owners of dwelling units who own dogs (commonly known as lap dogs) at the time of purchase of such dwelling unit, shall be permitted to keep and harbor them in the condominium, provided, however, such dog shall not be replaced upon death or otherwise. In no event shall any pet of any kind be permitted in the swimming pool area or in any of the common elements of the condominium unless on a leash or carried."
Appellant is the condominium association formed pursuant to a Declaration of Condominium. The above-quoted regulation appears as Article XII, Section E, of the Declaration of Condominium. Appellant commenced this action to permanently enjoin appellee from violating this regulation. Relying upon another section of the Declaration of Condominium pertaining to nuisances the trial court found that appellee's replacement dog was not a nuisance and therefore determined the regulation to be an unreasonable restriction on the rights of appellee to enjoy her condominium unit. We respectfully disagree with the able trial judge.
Neither the appellant nor the appellee raises any other issue than that concerning the paragraphs of the Declaration dealing with pets and nuisances. We have not been furnished with the complete Declaration of Condominium or the By-laws of the Association. Our opinion is therefore limited to the sole issue of the enforceability of the restriction against replacing dogs upon the latter's death or otherwise.
This court has previously addressed the scope of permissible condominium regulations in Hidden Harbour Estates, Inc. v. Norman, 309 So.2d 180 (Fla. 4th DCA 1975) where Judge Downey, speaking for the court, said:
"... It appears to us that inherent in the condominium concept is the principle that to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub-society of necessity more restrictive as it pertains to use of condominium property than may be existent outside the condominium organization... .
Certainly, the association is not at liberty to adopt arbitrary or capricious rules bearing no relationship to the health, happiness and enjoyment of life of the various unit owners. On the contrary, we believe the test is reasonableness. If a rule is reasonable the association can adopt it; if not, it cannot. It is not necessary that conduct be so offensive as to constitute a nuisance in order to justify regulation thereof. Of course, this means that each case must be considered upon the peculiar facts and circumstances thereto appertaining." At 181-182.
In the instant case appellee admits knowledge of the restriction at the time she purchased her condominium unit. Her sole argument is the invalidity of the restriction. This case is unlike Winston Towers 200 Association, Inc. v. Saverio, 360 So.2d 470 (Fla. 3d DCA 1978) where a condominium association amended its by-laws to give retroactive effect to a similar restriction. Here, each of the owners purchased his unit knowing of, and accepting, the restriction imposed and in consideration of each other accepting the same restriction. The ultimate effect of this restriction will be a community living arrangement wherein no one will be permitted to keep or harbor a dog in his individual unit. We feel that such a restriction is not only reasonable but *631 contractually sound in light of the circumstances in this case. As stated in Pepe v. Whispering Sands Condominium Ass'n., 351 So.2d 755, 757 (Fla. 2d DCA 1977):
"A declaration of a condominium is more than a mere contract spelling out mutual rights and obligations of the parties thereto it assumes some of the attributes of a covenant running with the land, circumscribing the extent and limits of the enjoyment and use of real property... ."
Several New York cases have held that a cooperative association can prohibit the keeping and harboring of dogs as a matter of law. See, Knolls Cooperative Section No. II, Inc. v. Cashman, 14 N.Y.2d 579, 248 N.Y.S.2d 875, 198 N.E.2d 255 (1964), aff'g. App.Div., 243 N.Y.S.2d 182; Hilltop Village Cooperative # 4 Inc. v. Goldstein, 43 Misc.2d 657, 252 N.Y.S.2d 7 (1964); Luna Park Housing Corp. v. Besser, 38 A.D.2d 713, 329 N.Y.S.2d 332 (1972); Kingsview Homes, Inc. v. Jarvis, 48 A.D.2d 881, 369 N.Y.S.2d 201 (1975). We adopt the view that a restriction against the replacement of dogs is reasonably consistent with principles that promote the health, happiness and peace of mind of unit owners living in close proximity.
Accordingly, the judgment appealed from is reversed and remanded with instructions to enter judgment for the appellant, condominium association.
REVERSED and REMANDED.
BERANEK, J., and FARRINGTON, OTIS, Associate Judge, concur.
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286 F.Supp.2d 190 (2003)
The HOME INSURANCE COMPANY, Plaintiffs,
v.
PAN AMERICAN GRAIN & MANUFACTURING COMPANY, INC., Defendant.
No. CIV. 00-1184(JAG).
United States District Court, D. Puerto Rico.
September 30, 2003.
*191 William A. Graffam, Jimenez, Graffam & Lausell, San Juan, PR, for plaintiff.
Antonio Moreda-Toledo, Moreda & Moreda, San Juan, PR, Derek A. Walker, Ivan M. Rodriguez, Chaffe, McCall, Phillips, *192 Toler & Sarpy, LLP, New Orleans, LA, Mario Pabon-Rosario, Hato Rey, PR, for defendants.
OPINION AND ORDER
GARCIA-GREGORY, District Judge.
Pending before the Court are plaintiff The Home Insurance Company's (hereinafter "The Home") objections as well as the response to these objections by defendant Pan American Grain & Manufacturing Company, Inc.'s (hereinafter Pan American), to a United States Magistrate-Judge Justo Arenas' Report and Recommendation (Docket No. 72) on the parties motion and cross-motion for summary judgment referred by the Court. The Home filed a motion for summary judgment for on its claim for (1) breach of a settlement agreement it executed with Pan American and (2)for dismissal of Pan American's claim for fraud in the inducement of the settlement agreement. Pan American in turn filed a cross motion for summary judgment seeking dismissal of the (1) The Home's claim of breach of the settlement agreement and (2) in support of its claim for fraud in the inducement of the settlement agreement. Magistrate-Judge Arenas in his Report and Recommendation recommended that the Court grant Pan American's motion for summary judgment dismissing The Home's claim for breach of the settlement agreement, and grant The Home's motion for summary judgment seeking dismissal of Pan American's counterclaim. The Home's objects to the Magistrate-Judge's Report and Recommendation because: (1) he erroneously interpreted the agreement and the legal basis used to support his conclusion, (2) he erroneously concluded that a settlement is the equivalent of an award, and (3) he erroneously concluded that the so-called Ochoa settlement was one for the loss of use. Pan American responded to The Home's objections, but it did not object to that portion of the Magistrate-Judge's Report and Recommendation recommending the dismissal of its counterclaim against The Home. Inasmuch as Pan American waived any objections it may have had to the Report and Recommendation, we will only discuss The Home's objections and summarily adopt here those portions of the report recommending dismissal of Pan American's counterclaim. See, e.g. Davet v. Maccarone, 973 F.2d 22, 30-31 (1st Cir.1992);. Latin American Mechanical Rights Collection Agency, Inc. v. Marti, Flores, Prieto & Wachtel Advertising, Inc., 204 F.Supp.2d 270 (D.P.R.2002). For the reasons stated below, the Court ADOPTS the Report and Recommendation.
Factual Background
The present cause of action arises out of a settlement agreement alleged to have been breached by one of the parties involved. The Home had issued a policy of hull insurance to Pan American for the vessel "ITB ZORRA." The ZORRA caught fire, causing severe damage to the vessel. The hull insurers investigated the event. They ultimately concluded that the fire and the damage were caused by the lack of seaworthiness of the vessel and that Pan American was not entitled to the insurance proceeds they were claiming from The Home for the alleged total loss of the ZORRA.
The insurance controversy between the parties was ultimately resolved through a settlement agreement executed between The Home and Pan American. The present case involves a hotly disputed interpretation of certain clauses of this settlement agreement. Pursuant to the agreement, The Home paid Pan American $3,333,000 at the time of its execution. When the agreement was executed, Pan American had an ongoing arbitration proceeding under *193 way in New York, and a number of other court actions pending, which sought recovery of damages. Pan American agreed, as part of the settlement agreement, that The Home would be allowed participation in any future amounts that Pan American could recover from the ZORRA incident, up to the original $3,333,000 that had been paid by The Home.
Approximately one (1) year elapsed after Pan American and The Home had executed the settlement agreement, when The Home learned that Pan American had settled a claim with Ochoa Fertilizer, Inc. (from here on the "Ochoa settlement") for $800,000. Ochoa and Pan American had reached a settlement whereby Pan American agreed to release and discharge Ochoa from all claims by Pan American. The release included all actions, judgments, costs and demands in connection with the incident that had occurred on April 24, 1995 and which caused the loss of use of property and damage to property of Pan American and the ITB Zorra. Indeed, Pan American and Ochoa labeled their settlement as one for "loss of use." The Home now claims that Pan American breached the settlement agreement it had executed with The Home because Pan American had to request The Home's consent or approval before entering into any kind of settlement with any third party on account of the damages arising out of the ITB Zorra casualty, and Pan American failed to do so. Moreover, the Home claims that it is entitled to receive one third of the gross aggregate recovery made by Pan American when it settled its claims against Ochoa.
Standard of Review
A district court may, on its own motion, refer a pending matter to a United States Magistrate-Judge for a report and recommendation. See 28 U.S.C. § 636(b)(1)(B); Fed.R. Civ.P. 72(b); Rule 503, Local Rules, District of Puerto Rico. Pursuant to Federal Rule of Civil Procedure 72(b) and Local Rule 510.2, the adversely affected party may contest the report and recommendation by filing written objections "within ten days of being served" with a copy of the order. 28 U.S.C. § 636(b)(1). The Court must then make a de novo determination of those portions of the report or specified proposed findings or recommendation to which objection is made. See United States v. Raddatz, 447 U.S. 667, 673, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980); Lopez v. Chater, 8 F.Supp.2d 152, 154 (D.P.R. 1998). The Court may accept, reject, or modify, in whole or in part the Magistrate-Judge's recommendations. "Failure to raise objections to the report and recommendations waives that party's right to review in the district court and those claims not preserved by such objections are precluded on appeal." Davet v. Maccarone, 973 F.2d 22, 30-31 (1st Cir.1992) (citations omitted). See, ante, at 2-3. (Pan American's failure to raise objections to the Report and Recommendation that its counterclaim be dismissed results in summary adoption of that portion of the Report.)
Discussion
This court will now address the issues raised by The Home's objections to the Report and Pan American's Response thereto.
I. Legal Basis for the Interpretation of the Contract
The Home objects to the literal reading of the settlement agreement made by the Magistrate-Judge and to the legal basis he used to support his conclusion. "A court may state the meaning of a contract on summary judgment if the agreement *194 is clear on its face." Adria Int'l Group, Inc. v. Ferre Dev., Inc., 241 F.3d 103, 111 (1st Cir.2001); Torres Vargas v. Santiago Cummings, 149 F.3d 29, 33 (1st Cir.1998).
Puerto Rico Civil Code Article 1233 is applicable to the dispute arising in this case. The settlement agreement between The Home and Pan American expressly incorporates Puerto Rican law. This, of course, includes the Puerto Rico Civil Code Rules on interpretation of contracts. See, Docket No. 38, Exhibit D, Clause 10. Article 1233 states: "If the terms of a contract are clear and leave no doubt as to the intentions of the contracting parties, the literal sense of its stipulations shall be observed. If the words should appear contrary to the evident intention of the contracting parties, the intention shall prevail." 31 P.R. Laws Ann. § 3471 (1991). This Article mandates that courts enforce the literal sense of a written contract, unless the words are somehow contrary to the intent of the parties. Fernandez-Fernandez v. Municipality of Bayamon, 942 F.Supp. 89, 94 (D.P.R. 1996); Hopgood v. Merrill Lynch, Pierce, Fenner & Smith, 839 F.Supp. 98, 104 (D.P.R.1993). When the agreement is clear and unambiguous, the court should ignore parole evidence and enforce the terms of the contract. Borschow Hosp. & Med. Supplies, Inc. v. Cesar Castillo, Inc., 96 F.3d 10, 15-16 (1st Cir.1996). For article 1233 purposes, a term is considered "clear" when it is sufficiently lucid to be understood to have one particular meaning, without room for debate. Fernandez-Fernandez v. Municipality of Bayamon, 942 F.Supp. 89, 94 (D.P.R.1996); Hopgood v. Merrill Lynch, Pierce, Fenner & Smith, supra, id. Therefore once a court determines that the terms of a contract are sufficiently clear so that only one meaning is possible, the court cannot dwell on the "alleged" intent of the parties at the time they entered into the contract. Velez Cajigas v. Order of St. Benedict, 115 F.Supp.2d 246, 251 (D.P.R.2000); see also Nike Int'l, Ltd. v. Athletic Sales, Inc., 760 F.Supp. 22, 24 (D.P.R.1991) ("Where contract terms and clauses are clear and unambiguous courts should abstain from speculating about possible intentions of parties and should interpret them according to their will expressed at the time of its execution.").
The law governing the interpretation of contracts is clear and well-established. Upon a careful review of the record and the settlement agreement in question, as well as of applicable law, this Court finds that the legal basis for the Magistrate-Judge's decision is correct.
II. The Settlement Agreement
The Magistrate-Judge in his Report and Recommendation found that the settlement agreement is unambiguous and open only to one plausible interpretation. This Court will in turn analyze the disputed clauses of the settlement agreement in light of the contract interpretation rules found in the Civil Code. The pertinent clauses read as follows:
(6) Pan American and/or the ZORRA and/or Zorra Transport Inc. "Zorra Transport" will pay The Home the lesser of $1,333,000 or one-third of the gross aggregate recovery made, whether obtained by way of suit, arbitration, claim, verdict, award, settlement, or otherwise, from or against any and all person(s) for damage to Pan American and/or the ZORRA and/or Zorra Transport arising out of or relating to the Fire, excluding only that portion, if any, of any verdict or award in favor of Pan American that specifically and separately award(s) Pan American a recovery for punitive damages and/or loss of use. If Pan American *195 and/or the Zorra and/or Zorra Transport make a gross aggregate recovery, whether obtained by way of suit, arbitration, claim, verdict, award, settlement, or otherwise, in excess of $10,000,000, (excluding any recovery for punitive damages and/or loss of use as described above) then Pan American and/or the Zorra and/or Zorra Transport will pay The Home one-third of any gross amount in excess of $10,000,000, up to $2,000,000, in addition to the above $1,333,000.
(7) The Home's written approval of any settlement by Pan American and/or the ZORRA and/or Zorra Transport of any claim against any person for damage arising out of or relating to the Fire, out of which The Home is to receive all or part of the above amount of $1,333,000 is a condition precedent to any agreement to any such settlement. The Home agrees that it will not unreasonably withhold said written approval. The Home's approval is not a condition precedent to any settlement out of which The Home is not to receive any part of the above amount of $1,333,000.
(8) Prior to requesting any required approval from The Home of any settlement, and prior to agreeing to any settlement or satisfaction of any judgment or award out of which The Home is to make a recovery under this agreement, Pan American will advise the prospective settling or paying party that The Home has an economic interest in the settlement or satisfaction if Pan American and The Home jointly agree that such information will maximize the recovery or will obtain some other mutually advantageous result. The payment of any such settlement or satisfaction shall be made by check(s) or bank draft(s) made payable to both Pan American and The Home. In the event the information is not disclosed, Pan American agrees and undertakes that payment of any settlement or satisfaction shall be made by check(s), bank draft(s), or wire transfer(s) to Chaffe, McCall, Phillips, Toler & Sarpy, L.L.P., as attorneys for Pan American Grain Manufacturing Co., Inc., and that such funds will be held in trust or escrow by Chaffe McCall, to be disbursed pursuant to the terms and conditions of this agreement only after disbursement has been agreed to, approved, and authorized in writing to Chaffe McCall by Pan American and The Home.
(Dockets No. 38 and 41, Exhibits D and 1, Settlement Agreement, at 4-5.)
The Home argues that Pan American breached the settlement agreement between the two parties when Pan American settled its legal claims against Ochoa and failed to pay plaintiff a portion of the recovery. Under the settlement agreement, Pan American was to pay The Home a portion of any recovery made by the "way of suit, arbitration, claim, verdict, award, settlement, or otherwise, from or against any and all person(s) for damage to Pan American and/or the Zorra Transport arising out of or relating to the Fire." According to paragraph (6), The Home could be excluded from "only that portion, if any, of any verdict or award in favor of Pan American that specifically and separately award(s) Pan American a recovery for punitive damages and/or loss of use." The Home avers that Pan American's settlement with Ochoa is not covered by the exclusion provisions in the settlement agreement, which solely pertains to recovery from a verdict or award. The Home reads verdict or award as excluding a settlement agreement. Thus, because Pan American failed to pay The Home a portion of the recovery from its settlement with Ochoa, the Home claims that Pan American breached the settlement agreement. *196 In order to reach a conclusion, this Court has to determine whether the settlement agreement is comprised within the terms put forth by the exclusionary clause.
It is uncontested that the settlement agreement reached between Ochoa and Pan American was the outcome of a civil litigation between them. According to Black's Law Dictionary, 132 (7th Ed.1999), a settlement is defined as: "a final judgment or decision, esp. one rendered by an arbitrator or a jury assessing damages". The meaning of award, therefore, is not limited to a judgment rendered by an arbitrator, though that may be a common usage. An award is also a final decision, such as that agreed upon through a settlement agreement. Moreover, while the word award may be used as a verb meaning "to grant", it may also be used to signify the grant itself, especially of damages in a civil action. Finally, the use of the terms "verdict" or "award" signal a distinction between the two terms that would be rendered meaningless by The Home's particular reading of the terms.
In addition, the exclusionary clause must conform to the rules of contract interpretation envisioned by Puerto Rico law, as well as any applicable substantive legal provisions found in Puerto Rico's Civil Code. In this sense, Article 1709 of the Civil Code of Puerto Rico establishes that: "A compromise is a contract by which each of the parties in interest, by giving, promising, or retaining something, avoids the provocation of a suit, or terminates one that has already been instituted." This section operates in conjunction with Article 1715 of the Civil Code of Puerto Rico, that further provides that: "A compromise has, with regard to the parties, the same authority as res adjudicata ...". (Emphasis ours.) The word "compromise" is synonymous to "agreement" See Webster's Third New International Dictionary at 467 (Merriam Webster 1993) (compromise means a "formal agreement").
It is clear from articles 1709 and 1715 that a settlement agreement reached in a pending court case operates and has the same binding effect as a final judgment. In addition, case law has established that a "stipulation" in court that settles a claim is essentially a "compromise". See, Sucesion Roman v. Shelga Corp., 111 D.P.R. 782 (1981).
The Home's narrow, unilateral understanding of the exclusionary clause is a futile attempt to find ambiguity where none exists. The settlement agreement between Ochoa and Pan American specifically and separately awarded Pan American a recovery for loss of use. Therefore, the court finds that the agreement between Pan American and Ochoa is covered by the exclusionary clause contained in Paragraph six (6) of the Home's settlement agreement with Pan American. The Home is therefore not entitled to recover any amounts from Pan American on the basis of Pan American's agreement with Ochoa. Inasmuch as the settlement agreement between Pan American and The Home was not breached by Pan American when it "compromised" its claim against Ochoa, Pan American is not entitled to claim for fraud in the inducement of the settlement agreement it executed with The Home.
III. Loss of Use
Finally, The Home argues that the settlement agreement between Pan American and Ochoa cannot be considered one for loss of use. To support its argument, The Home avers that Pan American made no claims for loss of use to Ochoa and submits a copy of the complaint filed by Pan American against Ochoa, as well as a copy of the settlement agreement between the parties in that litigation. A careful reading of *197 both documents does not provide this Court with sufficient evidence to determine that said agreement was not for loss of use. On the contrary the settlement agreement specifically states that it is in settlement of "claims or future claims for loss of use of property" (Docket No. 38, Exhibit E).
In addition, The Home argues that in cases of total loss, there is a bar to recovery for any loss of use. However, The Home fails to submit any evidence that there was a determination of total loss in this matter. The Home cites Exhibits M and O of its Motion for Summary Judgment to support its contention; however, while the documents reference damages and losses sustained, neither one of those documents establish or even hint at total loss of the vessel. Therefore, this Court finds that The Home has provided no basis to support its claim that there may not be a recovery for loss of use.
The Home simply disagrees with the Magistrate-Judge's findings. Its objections merely recast the arguments made before and rejected by the Magistrate-Judge. This Court finds that The Home's forced, unilateral understanding of the settlement agreement provisions is not consistent with applicable Puerto Rican law. Furthermore, its argument on the issue of loss of use is unfounded and unpersuasive.
Conclusion
For the foregoing reasons, the Court ADOPTS in toto Magistrate-Judge Justo Arenas' Report and Recommendation. Hence, Pan American's motion for summary judgment seeking dismissal of The Home's claim of breach of the settlement is hereby GRANTED. Additionally, The Home's motion for summary judgment seeking dismissal of Pan American's counterclaim based on fraudulent inducement is also GRANTED. Judgment shall be entered accordingly.
IT IS SO ORDERED.
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286 F.Supp.2d 31 (2003)
UNITED STATES of America,
v.
Edward BAUER, Defendant.
No. CR.03-400-01(JMF).
United States District Court, District of Columbia.
October 2, 2003.
*32 Marc Rothenberg, U.S. Attorney's Office, Washington, DC, for U.S.
Erica Hashimoto, Federal Public Defender for D.C., Washington, DC, for defendant.
MEMORANDUM OPINION
FACCIOLA, United States Magistrate Judge.
The defendant was presented on a charge of threatening to kill the President on July 28, 2003. Magistrate Judge Robinson ordered that the defendant be examined by the Legal Services Division to ascertain whether the defendant was presently incompetent and should be transferred to a hospital for further examination and treatment. Order of July 28, 2003.
*33 On July 30, 2003, Dr. Robert Benedetti of the Legal Services Division reported to Judge Robinson that, in his opinion, the defendant was incompetent to stand trial and should be transferred to a mental hospital for evaluation and treatment. After Judge Robinson found probable cause to believe that the defendant committed the crime charged, she issued an order dated July 31, 2003 that provided, in pertinent part,:
ORDERED, in accordance with the provisions of 18 U.S.C. § 4241(b) and LCrR 57.17(a), that Defendant is committed to the custody of the Attorney General of the United States for placement in a suitable facility for a period not to exceed thirty days for a determination of whether the Defendant is presently suffering from a mental disease or defect rendering him mentally incompetent to the extent that he is unable to understand the nature and consequences of the proceedings against him.
The same order directed that a report of this examination be filed by September 16, 2003 and that a status hearing be held on September 23, 2003. That hearing was held before me and unfortunately we learned for the first time that the defendant had not been transferred to a facility for the examination. Instead, he had remained at the D.C. Jail.
The United States then conducted a commendably thorough investigation of what occurred. It learned that Judge Robinson's order was never delivered to the United States Marshal Service who was, therefore, unaware of its obligation to transfer the defendant to a "suitable facility" for the evaluation.
The United States pronounces itself ready to now comply with the order but the defendant moves to dismiss the case pursuant to the Speedy Trial Act because more than 30 days have transpired since his arrest and he has yet to be indicted.
The government first insists that the Speedy Trial Act excludes from that 30-day requirement "[a]ny period of delay resulting from the fact that the defendant is mentally incompetent ... to stand trial." 18 U.S.C. § 3161(h)(4).[1] But, as the defendant points out, Judge Robinson never determined that the defendant was incompetent. Had she done so, she would have committed the defendant to the Attorney General pursuant to 18 U.S.C. § 4241(d)(1). That determination would have compelled the defendant's detention not for a time certain but "for such a reasonable period of time, not to exceed four months," to ascertain whether there was a likelihood that the incompetent defendant will become competent "in the foreseeable future." Instead, Judge Robinson committed the defendant for the purposes of an evaluation to determine his competency. She certainly did not intend to determine whether or not the defendant was competent until the report was submitted to her for the September hearing. Indeed, it is the common practice of this court to avail itself of the facilities of the mental health professionals who are performing competency screenings in the Superior Court when confronted with defendants who may be incompetent. Upon receipt of a report stating that a defendant appears to be incompetent, the judge may either find that the defendant is incompetent pursuant to 18 U.S.C. § 4241(d) and commit him for the indefinite period I have just described or postpone any determination *34 of competency until a more detailed evaluation is done. It is clear to me that Judge Robinson never determined that the defendant was incompetent. Instead, she sought the more detailed evaluation. Hence, the exclusion upon which the government relies does not apply here.
The government tries a different tack, insisting upon the exclusion under the Speedy Trial Act for "any proceeding, including any examinations, to determine the mental competency ... of the defendant." 18 U.S.C. § 3161(h)(1)(A). Under that interpretation, the period from July 28, 2003 to today would have to be described as a "proceeding." A proceeding is defined as "[t]he instituting or carrying on of an action at law; a legal action or process; any act done by authority of a court of law; any step taken in a cause by either party." Oxford English Dictionary. The noun "proceeding" is, according to that dictionary, "[t]he action of the verb PROCEED." It is impossible for that word, that connotes action and movement from one point to another, to be used to be describe a circumstance where nothing happened. Defendant's sitting in a jail cell waiting to be transported cannot possibly be described as a proceeding and, therefore, invoke this exclusion.
Finally, there is an exclusion under the Speedy Trial Act for "delay resulting from transportation of any defendant from another district, or to or from places of examination or hospitalization." 18 U.S.C. § 3161(h)(1)(H). But, the delay encountered here did not result from transporting the defendant; it resulted from his not being transported. In any event, Congress has indicated that a delay greater than ten days is presumed to be unreasonable. 18 U.S.C. § 3161(h)(1)(H). While no one questions the good faith of anyone involved, it is nevertheless true that there is no explanation for Judge Robinson's order not traveling from the courtroom, where I presume it was signed, to the office of the United States Marshal, only a few feet away. An inexplicable failure to comply with a court order cannot be described as reasonable. Hence, the congressional presumption operates to condemn it as unreasonable.
Since none of the Speedy Trial Act exclusions apply, the defendant's motion must be granted. In determining whether the case should be dismissed with or without prejudice, the Speedy Trial Act requires the court to consider (a) the seriousness of the offense; (b) the facts and circumstances of the case which led to the dismissal; and (c) the impact of a reprosecution on the administration of the Speedy Trial Act and the administration of justice. 18 U.S.C. § 3162(a)(1).
First, it is hard to exaggerate the seriousness of the offense, a threat to kill the President. Second, as all are agreed, the failure to comply with Judge Robinson's order was not willful or malicious and the government has not sought and certainly has not gained any tactical advantage by the delay. Third, the seriousness of dismissal with prejudice of case involving a threat to the President might have the salutary effect of forcing the United States Attorney's Office, the Marshal Service, and the Clerk's Office to create a system that would prevent what happened here from ever happening again. That draconian remedy might be appropriate if this was a common, endemic problem. But, I had responsibility for criminal cases involving mental health issues as a government lawyer for several years and this is the first time I have encountered this problem as a lawyer or a judge. If, as all hope, what happened here is unique, dismissal with prejudice is a remedy out of all proportion to the error committed. I will, therefore, dismiss the case without prejudice because *35 in my view a dismissal with prejudice is too extreme a remedy considering the seriousness of the offense and the inadvertent, uncommon nature of the error committed. I will stay my order until close of business on Friday, Oct. 3, 2003.
An Order accompanies this Memorandum Opinion.
ORDER
In accordance with the accompanying Memorandum Opinion, defendant's oral motion to dismiss for violation of the Speedy Trial Act is, hereby,
GRANTED without prejudice.
It is further, hereby,
ORDERED that my ORDER be stayed until close of business on Friday, October 3, 2003, to permit a government appeal.
SO ORDERED.
NOTES
[1] All references to the United States Code are to the electronic versions that appear on Westlaw and Lexis.
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286 F.Supp.2d 469 (2003)
Chris Gisto NMA Petitioner,
v.
Tom RIDGE, Hon., Secretary, Homeland Security, et al., Respondents.
No. CIV.A. 03-3446.
United States District Court, E.D. Pennsylvania.
October 3, 2003.
*470 Chris Gisto Nma, Berks County Prison, Leesport, PA, pro se.
Matthew D. Baxter, Law Offices of Bespalov & Avrutsky, P.C., Huntingdon Valley, PA, for Chris Gisto Nma, Petitioner.
Paul G. Shapiro, U.S. Attorney's Office, Philadelphia, PA, for Tom Ridge, Hon., Secretary, Homeland Security, William F. Riley, Jr., Interim District Director, Bureau of Immigration & Customs, Respondents.
MEMORANDUM
EDUARDO C. ROBRENO, District Judge.
INTRODUCTION
The petitioner, Chris Gisto Nma, is a citizen of Liberia who arrived in New York in October of 1990 as a stowaway. Petitioner is currently detained pending deportation from the United States to Liberia pursuant to a final order of removal. Defendants are the Honorable Tom Ridge, Secretary of the Department of Homeland Security, and William F. Riley, Jr., Interim District Director of the Bureau of Immigration and Customs[1] (the "Government"), who are responsible for petitioner's detention. Presently before the court is petitioner's request for a writ of habeas corpus challenging the Government's authority to detain him in aid of his removal from the United States. For the reasons that follow, the request for the issuance of the writ will be denied.
I. BACKGROUND
Petitioner filed an Application for Asylum and Withholding of Deportation with the Immigration and Naturalization Service ("INS") in April of 1992. On May 17, 1995, while the Application for Asylum was pending, Nma was arrested for conspiracy to obtain fraudulent immigration documents. Nma later pled guilty to the conspiracy charge and was sentenced to 5 months/time served. On December 29, 1995, Nma was returned to INS custody after completing his federal sentence.
*471 On August 1, 1995, the INS charged Nma with having entered the U.S. unlawfully and having been convicted of a felony. Based on the charge, the INS sought Nma's removal from the United States. On August 25, 1996, an Immigration Judge denied the petitioner's Asylum Application and ordered Nma deported to Liberia. The Immigration Judge also denied Nma's request for bond, concluding that Nma was a flight risk and a danger to the community at large. On April 24, 1997, the Board of Immigration Appeals (BIA) dismissed Nma's appeal of the Immigration Judge's denial of his petition for asylum and the order for Nma's removal became administratively final on that date.
On June 2, 1997, a travel document for Nma's removal was issued by the Liberian authorities.[2] However, although the Government was authorized to deport the petitioner at that time (because there was no stay of removal in place), in light of Nma's appeal to the BIA to reopen its dismissal of his previous appeal, the Government made an administrative decision not to do so at that time, and Nma remained in INS custody. On August 17, 1999, after all of his appeals were exhausted, petitioner was released under an order of supervision on a $7500 bond.
On October 24, 2002, Nma reported to INS offices in New York for a review of his status as required under supervised release. On November 14, 2002, he received a letter asking him to surrender to custody at INS offices in New York City. Pursuant to the request, petitioner voluntarily surrendered and was detained for removal from the U.S. On January 24, 2003, Nma was again informed that he was being considered for release and was asked to submit documents in support of his release. Although Nma supplied supporting documentation as requested, he was not released.
On or about May 20, 2003, while in custody, Nma wrote to the INS asking for a custody review and to be released on bond pending his removal. A custody review of Nma's case completed on July 3, 2003 concluded that Nma would not be released "until he provide[d] documentation as to his identity and citizenship or cooperate[d] fully with Embassy personnel." (See Government's Exhibit "G" at 6.)
Since Nma's return to INS custody in November of 2002, the Government has attempted to procure a travel document for Nma from the Liberian government. At first, the Liberian government refused to supply the document without proof that Nma is a Liberian citizen (i.e. a birth certificate or other proof of citizenship or nationality). Later, on August 18, 2003, the Liberian Consulate informed the government that it would, indeed, issue the travel document for Nma. In fact, by a letter dated August 26, 2003, Officer William S. Salley, Consul to the Liberian Embassy, informed the petitioner that a travel document for Nma would be issued after the Interim Government was installed in Liberia, reportedly on October 14, 2003.
Petitioner filed this petition for habeas corpus relief on June 2, 2003 along with a motion for a preliminary injunction ordering his release pending the adjudication of the writ of habeas corpus. In his petition, Nma argues that because he has been detained more than six months under a final order of removal (after the expiration of the 90-day period during which release is not permitted under the statute), and *472 there is no significant likelihood of his removal in the foreseeable future, he should be released from detention pending his eventual removal, pursuant to the Supreme Court's opinion in Zadvydas v. Davis, 533 U.S. 678, 121 S.Ct. 2491, 150 L.Ed.2d 653 (2001).
Petitioner bases his argument that there is no significant likelihood in the reasonably foreseeable future on the current civil unrest in Liberia. Petitioner contends that because Liberia is currently in chaos, despite the representations by the Liberian Consulate that it will issue a travel document for Nma, the issuance of a travel document in the near future is unlikely, especially considering how long it has taken for action thus far. Petitioner argues that in light of the fact that he has been detained for almost 4 years altogether awaiting removal (counting both his previous and current detention), the uncertainty of when, if ever, Liberia will issue the travel document cannot support a finding that there is a "significant" likelihood that he will be removed in the reasonably foreseeable future.
The Government responds, in the first instance, that the Supreme Court's decision in Zadvydas v. Davis, recognizing certain constitutional protections for admitted aliens against indefinite detention, does not apply to Nma because he arrived in the U.S. as a stowaway, and hence is not an "admitted" alien. Further, the Government argues that even if the protections in Zadvydas do apply to Nma, petitioner cannot meet his burden under Zadvydas because he has not been detained for six full months within which he has provided complete cooperation in obtaining a travel document, and, most importantly, because petitioner's removal is reasonably foreseeable since the Liberian government has stated that they intend to issue a travel document to the petitioner in the near future.
II. Analysis
A. Jurisdiction
The court has jurisdiction to hear this federal habeas corpus petition pursuant 28 U.S.C. § 2241 (1994). Jurisdiction extends to questions of law but does not extend to factual or discretionary determinations of the government. See 8 U.S.C. § 1252(a)(2)(B)(ii)(1994) ("[N]o court shall have jurisdiction to review" any decision or action "specified ... to be in the discretion of the Attorney General."). In his petition, Nma challenges the government's legal authority to keep him detained under the laws of the United States.
The legal question before the court is whether the Supreme Court's decision in Zadvydas v. Davis applies when an alien detainee's country of origin has agreed to take the detainee back but it is uncertain when the removal can be effectuated due to political unrest in the country of origin. The specific task at hand is to determine whether, under these circumstances, the future length of petitioner's detention in aid of removal from the U.S. may be deemed reasonably foreseeable so as to avoid the constitutional implications of indefinite or possibly permanent detention.
B. The Merits
1. Is Zadvydas applicable to Nma's detention?
In Zadvydas, the Supreme Court addressed the constitutional implications of the detention of two aliens, who had been "admitted to United States"[3] but were to *473 be deported based on criminal convictions. Zadvydas, 533 U.S. at 684-85, 121 S.Ct. 2491. Because no country would accept the aliens' repatriation, their detention by the INS in aid of removal from the U.S. was indefinite and potentially permanent. Id. at 685-86, 691, 121 S.Ct. 2491. Finding the aliens' indefinite detention constitutionally problematic, the Court construed the relevant immigration statute authorizing post-removal-period detention, 8 U.S.C. § 1231(a)(6), to require that detention in those situations be limited to a period reasonably necessary to secure removal. Id. at 699, 121 S.Ct. 2491. For the sake of uniform administration, the Court recognized that a 6-month post-removal-period detention would be presumptively reasonable under the statute. Id. According to the Court, permitting indefinite detention of aliens, would raise "a serious constitutional problem." Id. at 690, 121 S.Ct. 2491.
Zadvydas involved admitted aliens. The petitioner in this case is not an admitted alien, but rather was found illegally in this country. The threshold issue is thus, does the Zadvydas teachings apply equally to aliens illegally found in the United States.
Courts are divided on the issue of whether Zadvydas is limited to admitted aliens. The majority of courts have construed the constitutional protections in Zadvydas to apply only to aliens that have been properly admitted into the United States. See, e.g., Borrero v. Aljets, 325 F.3d 1003 (8th Cir.2003); Rios v. INS 324 F.3d 296 (5th Cir.2003) (per curiam); Hoyte-Mesa v. Ashcroft 272 F.3d 989 (7th Cir.2001); Pan v. Ashcroft, No. 02-2712, 2002 WL 1497115, at *2 (E.D.Pa. July 8, 2002).
A few courts have come to the opposite conclusion, finding that the constitutional protections mandated in Zadvydas are applicable to all aliens, whether present in the U.S. legally or not. See, e.g., Rosales-Garcia v. Holland, 322 F.3d 386 (6th Cir. 2003) (finding that the Due Process Clause of the Fifth and Fourteenth Amendment applies to all aliens, including excludable aliens, and citing Yick Wo v. Hopkins, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220 (1886), for the proposition that all persons within the territorial jurisdiction of the U.S. are entitled to equal protection of the laws); Xi v. INS, 298 F.3d 832 (9th Cir.2002) (finding that, because the statute at issue does not make exceptions for inadmissible aliens and the Supreme Court has interpreted that statute to prohibit indefinite detentions without qualification, the protections of Zadvydas must apply to inadmissible aliens); Lin v. Ashcroft, 247 F.Supp.2d 679, 684 (E.D.Pa.2003). The Third Circuit Court of Appeals has yet to address this issue.[4]
The court need not decide that issue because, even if the court assumes that Zadvydas is applicable here, the petitioner has failed to meet his burden under Zadvydas.[5]
*474 2. The removal statute and Zadvydas
Under the immigration statutory scheme, once an alien is ordered to be removed from the United States, the Attorney General must remove the alien within ninety (90) days after the order for removal becomes "administratively final." 8 U.S.C. § 1231(a)(1)(B)(i) (Supp V 1999). During those ninety days, known as the "removal period," detention of the alien is mandatory. § 1231(a)(2). At the conclusion of the removal period, if an alien has not been removed, the Attorney General may continue to detain any alien who is inadmissable under 8 U.S.C. § 1182, who has violated criminal laws, who threatens national security, or who is deemed by the Attorney General to be "a risk to the community or unlikely to comply with the order for removal."[6] § 1231(a)(6).
The Supreme Court, in Zadvydas v. Davis, construed § 1231(a)(6) to require that any alien detained beyond the removal period should only be detained for a period reasonably necessary to effectuate that alien's removal from the United States. Zadvydas, 533 U.S. at 689, 121 S.Ct. 2491. The Court found that detention up to six months from the end of the removal period is presumptively reasonable under the statute. Id. at 700-01, 121 S.Ct. 2491. In order for a court to find that detention beyond the six month period after the removal period has lapsed is unreasonable, the alien must provide "good reason that there is no significant likelihood of removal in the reasonably foreseeable future"; [and] the government must then provide "evidence sufficient to rebut [the detainee's] showing". Id. at 701, 121 S.Ct. 2491 (emphasis added). Therefore, an alien may be detained "until it has been determined that there is no significant likelihood of removal in the reasonably foreseeable future." Id. Applying Zadvydas, the court must decide whether Nma has met his burden of providing "good reason" that there is no significant likelihood of his removal to Liberia in the reasonably foreseeable future.
3. Application of Zadvydas to Nma's Petition[7]
The petitioner has been in INS custody since November 14, 2002, a period of 9 months, well past the 6-month threshold for the presumption of reasonableness *475 to apply.[8] The court finds, however, that under the circumstances of the case, petitioner has failed to show that there is no significant likelihood of removal to Liberia in the reasonably foreseeable future.
First, petitioner's contentions in this case that removal is at best uncertain run counter to the affirmation of the Liberian Consulate that it intends to issue a travel document to the petitioner. That, as a practical matter, the Consulate cannot do so until the Interim Government is in place in Liberia on October 14, 2003, does not negate Liberia's stated intention to repatriate petitioner. Second, the bona fides of the Consulate's repatriation representation is underscored by the fact that the Liberian government has twice issued a travel document to petitioner in the past.
Courts that have addressed the issue of whether there is a significant likelihood removal of a detainee in the reasonably foreseeable future have found "no significant likelihood of removal" in four types of cases. One, where no country will accept the detainee, see, e.g., Habtegaber v. Jenifer, 256 F.Supp.2d 692, 697 (E.D.Mich. 2003), two, where the detainee's country of origin refuses to issue a travel document for the detainee, see e.g., Rajigah v. Conway, 268 F.Supp.2d 159, 166 (E.D.N.Y. 2003); Shefqet v. Ashcroft, No. 02-C7737, 2003 WL 1964290, *3 (N.D.Ill. April 28, 2003), three, where there is no removal agreement between the detainee's country of origin and the U.S., see, e.g., Jardines-Guerra v. Ashcroft, 262 F.Supp.2d 1112, 1115 (S.D.Cal.2003), and four, where there was no definitive answer from the target country after several months as to whether it would issue travel papers for a detainee, see Kacanic v. Elwood, No. 02-8019, 2002 WL 30520362, *10-11 (E.D.Pa. November 8, 2002). All four cases are distinguishable in that here, Liberia has stated an intention to repatriate petitioner and, in fact, has issued documents to that effect on two prior occasions. Cf. Seretse-Khama v. Ashcroft, 215 F.Supp.2d 37, 46-48 (D.D.C. 2002) (holding that there was no significant likelihood of removal of detainee to Liberia in a case in which (1) the alien had been detained over 3 years; (2) the INS had no success in obtaining a travel document in that time; and (3) the Liberian embassy had specifically expressed its refusal to send detainee back to Liberia because detainee had no ties to Liberia, i.e. family or ability to speak the language).
Petitioner, however, urges the court to look beyond the bald representations made by the Liberian Consulate and examine for itself the political situation in Liberia. Because of the civil unrest in Liberia at this time, petitioner urges the court to find that the Liberian government will not be stable enough in the near future to issue a travel document at any time in the reasonably foreseeable future. That Liberia is currently in turmoil is uncontroverted and, of course, there is no guarantee that the interim government will take over in Liberia on October 14, 2003, or that even if it does so on schedule, it will have the power or the inclination at the time to repatriate petitioner. For the court to conclude that repatriation is not significantly likely in the reasonably foreseeable future because of these uncertainties, however, would be speculation. Should this grim scenario crystalize, petitioner may return to the U.S. immigration authorities or to this court at a later date for a renewed application *476 for relief upon a supplemental record.[9]
The court thus concludes that petitioner has not met his burden under Zadvydas to show that there are institutional and/or individual barriers to his removal. See, e.g., Fahim v. Ashcroft, 227 F.Supp.2d 1359 (N.D.Ga.2002).
III. CONCLUSION
Based on the foregoing analysis, the court concludes that the plaintiff has failed to satisfy his burden under Zadvydas to provide good reason that there is no significant likelihood of removal in the reasonably foreseeable future. Accordingly, the petitioner's writ of habeas corpus shall be denied.
An appropriate order follows.
ORDER
AND NOW, on this 3rd day of October, 2003, upon consideration of Chris Gisto Nma's petition for writ of habeas corpus pursuant to 28 U.S.C. § 2241 (doc. no. 1), the Government's memorandum in opposition thereto (doc. no. 8), petitioner's reply to the Government's response (doc. no. 9), and additional evidence presented by the parties at a hearing on the merits of petitioner's petition, it is hereby ORDERED that petitioner's petition for habeas corpus relief under 28 U.S.C. § 2241 (doc. no. 1) is DENIED.
AND IT IS SO ORDERED.
NOTES
[1] Effective March 1, 2003, the INS ceased to exist as an independent agency within the United States Department of Justice, and its functions were transferred to the newly formed United States Department of Homeland Security ("DHS"). As of that date, the Bureau of Immigration and Customs Enforcement ("BICE"), a subordinate agency within the DHS, assumed the enforcement functions of the former INS. Beshli v. Department of Homeland Security, 272 F.Supp.2d 514, 516 (E.D.Pa.2003). Since the transition is irrelevant for the purpose of evaluating Nma's habeas petition, the court shall refer to the INS instead of the BICE throughout this memorandum.
[2] Apparently, this was the second travel document issued for the petitioner's removal. According the Government, the first travel document was issued before Nma was in INS custody and the government is unable to explain the circumstances under which it was issued. (Transcript page 4.)
[3] 8 U.S.C. § 1101(13)(A) defines an "admitted" alien as an alien who has effected lawful entry into United States after inspection and authorization by an immigration officer. 8 U.S.C. § 1101(13)(A) (Supp V.1999).
[4] Although the Third Circuit has not addressed the issue as of yet, a district court case finding that Zadvydas applied to an alien that entered the country illegally, Lin v. Ashcroft, 247 F.Supp.2d 679, 684 (E.D.Pa.2003), is currently on appeal to the Third Circuit. Previously, another district court in the Eastern District of Pennsylvania had held that Zadvydas had no application to an illegal alien with a criminal record. Pan v. Ashcroft, No. 02-2712, 2002 WL 1497115, at *2 (E.D.Pa. July 8, 2002). That case was affirmed by the Third Circuit in an non-precedential decision. Pan v. Ashcroft, 64 Fed. Appx. 851 (3rd Cir. March 18, 2003).
[5] However, if the Zadvydas case is not applicable to aliens who are not "admitted" into the United States, assuming Nma is an inadmissable alien, then the constitutionality of Nma's continued indefinite detention is controlled by the Third Circuit's pre-Zadvydas opinion in Ngo v. INS, 192 F.3d 390 (3rd Cir.1999). The Third Circuit's decision in Ngo essentially allows for the indefinite detention of an alien that is not presently removable unless there is no possibility of removal. Id. at 397.
[6] Under § 1182(a)(6)(D), any alien who is a stowaway is inadmissible, i.e. ineligible for admission into the United States. Under § 1227(a)(2)(A)(ii) any alien that has been convicted of a crime for which a sentence of one (1) year or more may be imposed is deportable. Because Nma arrived in the U.S. as a stowaway and plead guilty to conspiracy to obtain fraudulent immigration documents, a crime punishable by up to 25 years imprisonment, he falls under the umbrella of aliens that may be detained by the Attorney General beyond the 90-day removal period under 1231(a)(6). (See Govt Ex. "C" at 3-4.)
[7] The Government contends that this Court should find that, in the event that Zadvydas does apply to Nma, he has not passed the 6-month mark of presumptively reasonable detention because has not been cooperative with the Government in obtaining a travel document from Liberia. Because the Court finds that Nma has failed to meet his burden of proving that there is no significant likelihood of removal in the reasonably foreseeable future, and because the Liberian government, in any event, has agreed to issue a travel document to petitioner, the issue of whether there is a need for equitable tolling of the 6-month period in this case is now moot. Thus, the court will assume that Nma's detention has surpassed the 6-month threshold.
[8] Under 8 U.S.C. § 1231(a)(1), the 90-day period in which the statute bars the release of aliens subject to removal was satisfied during petitioner's confinement from April 24, 1997 to August 17, 1999, given that both the earlier detention and the latest one are pursuant to the same administrative order of removal.
[9] The petitioner further argues that the court should find Nma's possible deportation in the future not "reasonably foreseeable," because of the length of his detention. The petitioner reminds the Court that, in Zadvydas, the Supreme Court stated that "for detention to remain reasonable, as the period for confinement grows, what counts as the `reasonably foreseeable future' conversely would have to shrink." Zadvydas, 533 U.S. at 701, 121 S.Ct. 2491. In that vain, petitioner urges the Court not to look at Nma's most recent detention in a "vacuum" but rather consider the four (4) years Nma was previously detained before the INS released him on a order of supervision in 1999. (Tr. at 3.) Since there is no indication when Liberia will be functional enough to issue the travel document, petitioner contends that the seemingly indefinite time that Nma will continue to be detained while waiting is not reasonable in light of how long he has been detained already.
It is not clear to the court, nor does the court necessarily agree, that the length of the petitioner's detention should be aggregated to include time he was detained prior to his release on an order of supervision. Each detention had its own particular set of circumstances. However, even assuming that the court aggregates the length of petitioner's detention and finds that petitioner has been detained for more than four years, that would not help the petitioner's case, a case in which Liberia has stated that it intends to issue a travel document to petitioner (as of August 26, 2003) and one in which the court finds that the petitioner has failed to put forth good reason that there is no significant likelihood of removal in the reasonably foreseeable future. Of course, should Liberia's representations as to petitioner's repatriation prove to be illusory, then the total length of his detention may become relevant to the court's calculation of whether removal is significantly likely in the reasonably foreseeable future.
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82 F.Supp.2d 464 (2000)
THE PINEY RUN PRESERVATION ASSOCIATION
v.
COUNTY COMMISSIONERS OF CARROLL COUNTY, MARYLAND.
No. CIV. Y-98-3124.
United States District Court, D. Maryland.
February 10, 2000.
*465 G. Macy Nelson, Towson, MD, for Plaintiff.
Linda S. Woolf, Baltimore, MD, Michael B. MacWilliams, Baltimore, MD, for Defendant.
MEMORANDUM OPINION
YOUNG, Senior District Judge.
I.
The Piney Run Preservation Association ["the Association"] is a non-profit citizens' group whose activities include the protection of a stream known as Piney Run in Baltimore County, Maryland. Members of the Association reside in Baltimore County in the vicinity of the stream. The Maryland Department of the Environment ["MDE"] has designated Piney Run a Class III-P stream, which signifies that it supports the growth and propagation of trout and serves as a source of public drinking water. The Defendant, the County Commissioners of Carroll County ["the County"], operates a sewage treatment plant ["the Plant"] in Hampstead, Carroll County, Maryland. The Plant discharges treated sewage into Piney Run pursuant to a National Pollution Discharge Elimination System ["NPDES"] permit issued by MDE. The permit allows the County to discharge certain listed pollutants into Piney Run, but heat is not one of the pollutants listed in the permit.
In 1991, the County sought to modify its permit to increase the amount of effluent it discharged into Piney Run. After MDE determined that the increased effluent would comply with all applicable requirements, several landowners challenged the determination and requested an administrative hearing. They asserted that the Plant's current level of discharge violated the maximum temperature criterion for a Class III-P stream and contended that an increased flow would continue the thermal pollution of the stream. The temperature criterion at issue is found in the Maryland Administrative Code ["COMAR"], which under the heading "Criteria for Use III Waters Natural Trout Waters," contains the following provision: "The maximum temperature outside the mixing zone ... may not exceed 68° F (20° C) or the ambient temperature of the surface waters, whichever is greater." COMAR § 26.08.02.03-3E.
The Circuit Court for Baltimore County affirmed MDE's decision in 1997. The landowners appealed to the Court of Special Appeals, which reversed the Circuit Court on August 17, 1998, and remanded the case to MDE for further factual findings. *466 Specifically, the court instructed MDE to determine: (1) with respect to the Plant and its discharge of effluent, where to measure the ambient temperature of Piney Run; (2) what the ambient temperature is in this case; (3) whether, at the current level of discharge, the temperature outside the mixing zone exceeds 20° C or the ambient temperature of the surface waters, whichever is greater; and (4) whether, with the proposed increase in effluent, the temperature outside the mixing zone will exceed 20° C or the ambient temperature of the surface waters, whichever is greater. MDE has not yet made its determination.
The Association filed this suit on September 16, 1998, alleging that the County violated the terms of its permit by discharging heat into Piney Run. On May 20, 1999, the Court granted partial summary judgment to the Association, finding that the County had violated the Clean Water Act ["CWA"]. Piney Run Preservation Ass'n v. County Commissioners of Carroll County, 50 F.Supp.2d 443 (D.Md.1999)(hereinafter "Piney Run I"). This ruling followed the Ninth Circuit in holding that citizens have standing to bring suit under the CWA to enforce water quality standards that have not been reduced to specific quantitative limitations in a NPDES permit. See id. at 445 (following Northwest Environmental Advocates v. City of Portland, 56 F.3d 979, 985-90 (9th Cir.1995)).
The Court also found that the Association established 183 CWA violations by the County. Id. at 446-47. Specifically, the Association provided undisputed temperature readings indicating that on 183 occasions, the County discharged waste water with a temperature exceeding the greater of either 68° F (20° C) or the ambient temperature of Piney Run. See COMAR § 26.08.02.03-3E. In reaching its decision, the Court interpreted the term "ambient" in the Maryland Administrative Code to mean "encompassing," "atmospheric" or "surrounding on all sides." See Letter from the Court, Dec. 15, 1999. In this case, therefore, "ambient temperature" meant the temperature of the waterway into which the County made its discharges. Because the temperature of the Plant's effluent exceeded either 68° F or the temperature of Piney Run upstream of the Plant on 183 separate days, the Court found 183 violations of the CWA. The issue of damages was set for trial.
The County filed a motion for reconsideration with this Court and a petition for leave to file an interlocutory appeal with the Fourth Circuit. Both were denied. On October 27, 1999, the County again moved for reconsideration. The Court denied that Motion by marginal order on December 15, 1999.
Between June 1 and November 4, 1999, the County collected and recorded temperature data from four locations on Piney Run: two locations upstream of the Plant's outfall and two locations downstream. The County also recorded the temperature of the Plant's effluent. These temperature readings were automatically taken by fixed "temperature loggers" every fifteen minutes, twenty-four hours a day, seven days a week. The parties agree that these temperature data are reliable, but differ as to the proper interpretation of the data and the conclusions the Court should draw from it. The Association argues that the County has violated the CWA because the Plant's effluent has exceeded the upstream temperature of Piney Run or 20° C, whichever was higher, during at least one reading on 107 separate days.[1] In contrast, the County points out that the temperature of the Plant's effluent infrequently exceeded the highest upstream temperature of Piney Run on any given calendar day. The County argues, therefore, that *467 something other than the Plant is heating Piney Run.
On November 12, 1999, the Association moved for summary judgment, seeking the Court's ruling on alleged CWA violations from June 1, 1999, through August 12, 1999. The County opposed the Motion and filed a Cross-Motion for Summary Judgment on November 29, which the Association opposed. The Court denied both Motions on December 15, 1999, due to disputed issues of material fact. A three-day non-jury trial was held on January 20, 21, and 24, 2000.
II. Discussion
A. Standing
In Piney Run I, the Court held that the Association had standing to bring this CWA citizen suit to enforce state water quality standards for heat, even though heat is not listed as a pollutant in the Plant's permit. 50 F.Supp.2d at 445. The County now argues, however, that the Association lacks standing to bring this suit under Article III of the Constitution. Specifically, the County claims that the Association's members have not suffered a "particularized" injury that is traceable to the CWA violations involved in this case.
The Court disagrees. To meet the "case or controversy" standing requirements under Article III, a plaintiff[2] must show "(1) that it has suffered an `injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be addressed by a favorable decision." Friends of the Earth, Inc. v. Laidlaw Envtl. Services (TOC), Inc., ___ U.S. ___, 120 S.Ct. 693, 703, 145 L.Ed.2d 610 (2000). In Friends, an environmental group filed a citizens suit under the CWA seeking damages and injunctive relief related to pollution of the North Tyger River. Members of the group provided testimony and affidavits stating that they lived within several miles of the polluting facility and saw and smelled the contaminated river. See id. at 704. They also stated that they desired to use the area near the river for fishing, camping, and hiking, as they once had, but were prevented from doing so by concerns about pollution. See id. The Supreme Court held that the group had standing because the members' affidavits and testimony alleged that the discharges to the river and "reasonable concerns about the effects of those discharges" directly affected the members' "recreational, aesthetic, and economic interests." Id. at 705.
In light of the standards enunciated in Friends, the Association clearly has standing to bring the present suit. To begin, the Association presented the testimony of two landowners whose property is crossed by Piney Run. Perhaps no person is more likely to have Article III standing in a CWA citizen suit than a landowner whose land abuts or surrounds the water body at issue. Such a landowner undoubtedly suffers injury "in fact" from the reasonable fears of pollution on the borders of his or her property. Moreover, the landowner must cope with the loss of recreation, aesthetics, and economic value that the polluted waterway once brought to the land. Provided that the effects are real and traceable to the violations at issue, it would be hard to imagine a more "particularized" injury.
In this case, the Association provided the testimony of Dorothy Rowland, who stated that Piney Run bisects her property, which she purchased more than 30 years ago and uses to raise horses. She testified that, at one time, her horses took water from Piney Run, she enjoyed the stream as a source of recreation, and her children ice-skated on it in cold weather. In recent years, however, Ms. Rowland *468 has seen Piney Run turn green with algae, and her fears about the stream's condition have caused her to stop watering horses from it. Furthermore, the stream no longer freezes, even during periods of very cold weather. Because these allegations present a clear instance of particularized injury in fact, the Court holds that Ms. Rowland has standing to bring the present suit.
Two other members of the Association provided similar testimony. Victoria Woodward owned property along Piney Run. She described the expanding algae in the river and her belief that the stream's pollution reduced the economic and recreational value of her property. Edward Halle testified that he can see Piney Run from his house and would like to use it for fishing and for recreation with his children, but will not do so because of the stream's condition. Mr. Halle decided to keep his children from playing in the stream after he noticed that Piney Run was green with algae, in contrast to the other clear streams that join Piney Run downstream from the Plant. Given that both Ms. Woodward and Mr. Halle alleged that they use Piney Run and are persons "for whom the aesthetic and recreational values of the area [have been] lessened" by the Plant's heat discharges, they have standing under Article III and, therefore, the Association is entitled to bring a citizens suit on their behalf. See id. at 705.
B. Motion to Strike the Testimony of Dr. Stauffer[3]
The County moved at trial and filed a post-trial motion to strike the testimony of Dr. Stauffer an expert witness proffered by the Association insofar as it concerns the effects of water temperatures below 68°F (or 20° C) on brown trout. This testimony, contends the County, is irrelevant because the Association is seeking damages for CWA violations relating to discharges that exceeded Maryland regulatory limits of 68° C.
The Court agrees, but only in part. The regulation at issue prohibits discharges that exceed the higher of 68° F (20° C) or the ambient temperature of the surface waters. Because most of the violations in this case involve discharges at temperatures over 68° F, the portion of Dr. Stauffer's testimony relating to lower temperatures has only minor significance. At the same time, however, the Association proved that on various occasions the Plant discharged effluent at a temperature that was lower than 68° F but higher than the ambient temperature of Piney Run. Dr. Stauffer's disputed testimony is relevant to these discharges. The Court, therefore, refuses to strike Dr. Stauffer's testimony on this issue, but has considered it in accordance with these findings.
The County also argues that Dr. Stauffer's testimony should be stricken because his opinions on brown trout populations in Piney Run "are based upon critical unsubstantiated assumptions that are not supported by any factual evidence in the case nor grounded in established scientific theory or reasoning." In particular, the County is concerned about the absence of conclusive evidence that Piney Run above Trenton Road does not currently contain brown trout or that it ever did contain brown trout.[4]
The Court refuses to strike the testimony. Although numerous factors come into play when a district judge makes the "gatekeeping" determination on a proffer of expert testimony, the Court's *469 evaluation is flexible and seeks primarily to ensure that the testimony is relevant and reliable. See Oglesby v. General Motors Corp., 190 F.3d 244, 250 (4th Cir. 1999). Here, the evidence of damage to brown trout is not conclusive,[5] but the testimony presented by Dr. Stauffer is supported by facts in the record and, therefore, is admissible. The record shows that Piney Run supports brown trout at Trenton Road and downstream from that location. MDE has classified the stream as a Class III-P waterway, indicating that it is capable of supporting the growth and propagation of trout. Based on his examination of the stream and his expertise as an ichthyologist experienced in waters of the region, Dr. Stauffer agreed with this classification. He also testified that typical spring-fed streams in the region support trout upstream in the colder locations, but trout populations generally diminish downstream because of natural warming. Piney Run, in contrast, contains trout downstream, but not upstream in the vicinity of the Plant. In addition, Dr. Stauffer testified that high stream temperatures inhibit the growth of trout and discourage trout migration, and the record shows that the Plant has added heat to Piney Run.
Given this factual scenario, Dr. Stauffer opined that Piney Run once supported brown trout in the vicinity of the Plant, but the Plant's effluent could be inhibiting trout migration or propagation in the areas of Piney Run upstream from Trenton Road. The Court finds that this opinion, like many expert opinions, was based on an assumption, but that assumption is supported by evidence in the record. See Tyger Constr. Co. v. Pensacola Const. Co., 29 F.3d 137, 142-43 (4th Cir.1994). Moreover, although one may doubt whether Dr. Stauffer's conclusions are ultimately correct, the Court finds that the underlying reasoning and methodology of the testimony was reliable, scientifically valid, and applicable to the facts in this case. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 590-93, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). The Court finds that Dr. Stauffer's opinions would be helpful to the trier of fact in determining the damage caused to Piney Run by the Plant's added heat. See id. at 591, 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469.
C. Liability
In Piney Run I, the Court held that the Plant violated the CWA by discharging effluent into Piney Run with a temperature exceeding the higher of 20° C or the ambient temperature of Piney Run. The undisputed temperature data for the period between July 1, 1999, and November 4, 1999, indicate that the temperature of the Plant's effluent violated this standard on 107 additional days. Adding this sum to the 183 violations identified in Piney Run I, the Court finds a total of 290 CWA violations.
The Association argues that United States v. Smithfield Foods, Inc., 191 F.3d 516, 527 (4th Cir.1999), requires the Court to impose a penalty for each instance that the Plant's effluent exceeded the heat standard on the same day. The Court disagrees. Under Smithfield, courts should impose damages on a parameter-by-parameter basis for any given day. In other words, if a polluter's discharge exceeds two separate permit limitations on the same day, then each excess qualifies as *470 a separate infraction, even if caused by the same waste stream. See id. at 528 n. 6. However, in the present case, the Association has proved that the Plant violated only one parameter heat though it may have done so various times on a given day. Although imposing a penalty for multiple violations of the same effluent limit may be appropriate in some circumstances, the Court is not prepared to do so under the facts of this case. The penalty structure of the CWA gives courts "considerable flexibility to tailor penalties to the unique facts of each case." Id. at 527. As discussed more fully below, this case involves several important mitigating factors that compel the Court to impose only one penalty for any day the Plant violated State thermal pollution limits.
D. Monetary Damages
Courts have the authority to impose a maximum civil penalty of $25,000 per day for each violation of the CWA. See 33 U.S.C. § 1319(d); Smithfield Foods, 191 F.3d at 527. In determining the amount of any civil penalty under the CWA, however, the Court must consider six factors: "the seriousness of the violation or violations, the economic benefit (if any) resulting from the violation, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalty on the violator, and other such matters as justice may require." § 1319(d).
When calculating damages, courts generally employ either a "top-down" or "bottom-up" method. See Smithfield, 191 F.3d at 528. Courts following the "top-down" method first calculate the maximum penalty based on the $25,000 per day figure, then adjust the figure down, as necessary, to account for the six factors listed in § 1319(d). See id. at 528 n. 7. In contrast, the "bottom up" method requires the Court to determine the economic benefit the defendant derived by violating the Act, and then adjust that figure upward or downward using the remaining five factors in § 1319(d). See id. at 528. Because the Act does not prescribe a particular method, the Court has discretion to choose. See id. The "highly discretionary calculations necessary to assess penalties [under the CWA] are particularly within the purview of trial judges" and, therefore, are granted wide deference. Id. at 529 (citing Tull v. United States, 481 U.S. 412, 426-27, 107 S.Ct. 1831, 95 L.Ed.2d 365 (1987)).
Considering all the circumstances in the present case, a bottom-up approach is most appropriate. The starting point under this approach is the economic benefit the County gained by delaying compliance with the CWA. Because precise economic benefit is difficult to prove, "reasonable approximations ... will suffice." Smithfield, 191 F.3d at 529. The trial testimony indicated that the County has considered as many as four options to address its thermal pollution issues. Much of the testimony focused on a method of cooling the Plant's discharge by means of air-cooled "chillers." When the County undertook a feasibility study to evaluate options for cooling the Plant's effluent, it determined, based on a consultant's report, that the air-cooled chillers were the preferred option. Although this method involved lower initial costs than the other alternatives considered by the County,[6] it also required higher operational costs due to electricity demand. As such, the Court finds that the air-cooled chillers option provides a fair estimate of the County's "avoided cost" or economic benefit.
Furthermore, the Court determines that this cost should be calculated from November 1998, the date of the County's feasibility study. Although the County may have been aware of its thermal pollution at an earlier date, the feasibility study is the clearest indicator of the time the County recognized it as a problem. Using this later date also accounts for the months, if not years, of permit applications and approvals the County would have needed to install the chillers. Evidence introduced *471 by the Association indicates that the initial cost of installing the chillers would have been $967,500 and annual costs, including operating expenses, would have been approximately $208,000 per year.[7] Because this case covers violations through November 1999, the Court will add one year's annual cost to the initial cost figure, rounding upward to approximate the shift from 1998 dollars to 1999. This adjustment brings the "reasonable approximation" of the County's economic benefit to $1.2 million.
Once the Court determines the defendant's economic benefit, the total penalty should be adjusted up or down, as necessary, considering the remaining five factors in § 1319(d). See Smithfield, 191 F.3d at 528. The Court makes the following findings with regard to those five factors:
1. Seriousness of the Violations
To determine the seriousness of the County's violations, the Court should consider the frequency and severity of the violations as well as their effect on the environment. See United States v. Smithfield Foods, Inc., 972 F.Supp. 338, 343 (E.D.Va.1997). Although the Association has established 290 violations and has proved that the County added heat to Piney Run, the extent of damage caused by these violations is far from clear. The Association provided expert testimony to demonstrate that thermal pollution may induce algae growth and hamper brown trout development and propagation. At the same time, the County established that the heating of Piney Run, the growth of algae, and the diminution of brown trout could be linked to a variety of factors, including nutrients from agricultural activities, runoff from development, or stormwater collection activities. Moreover, on certain occasions, even though the Plant's effluent exceeded regulatory limits, it was cooler than upstream temperature readings in Piney Run. In short, although the Association proved that the Plant added heat and that thermal pollution has had a deleterious effect on Piney Run, it did not prove the extent of harm attributable to the Plant or even that the Plant is the major factor in the demise of Piney Run as a trout stream.
Nevertheless, the Court acknowledges that a significant penalty may be appropriate even absent proof of actual negative effect. See id. at 344 (citing cases). The Court is convinced that the Plant adds heat to Piney Run and that continued addition of heat will preclude the relevant portion of Piney Run from attracting brown trout in the future. In addition, any damage to Piney Run is exacerbated because it is identified not only as a trout stream, but also as a source of public drinking water. In spite of these considerations, however, the Court finds that this factor weighs in favor of a lower penalty for the County.
2. History of Violations
In determining the County's history of violations, the Court considers not only similar violations in the past, but also the duration and continuity of the County's present violations. See Smithfield Foods, 972 F.Supp. at 349. Testimony at trial indicated that the County recognized thermal discharges as a potential problem beginning as early as 1992. The County also established, however, that it did not consider these discharges to be permit violations, and the Court finds that this interpretation was not unreasonable. As discussed more fully below, the County believed, based on its own colorable legal determinations and experience with MDE, that it was in compliance with its permit provided that its discharges remained within explicit limitations in the permit. The Court is aware that the CWA is a *472 strict liability statute, see id. at 342 (citing Stoddard v. Western Carolina Reg'l Sewer Auth., 784 F.2d 1200, 1208 (4th Cir.1986)), but courts have discretion to adjust damages based on culpability, see 33 U.S.C. § 1319(d); Smithfield Foods, 972 F.Supp. at 353. In the present case, this factor justifies a downward adjustment in the County's penalty.
3. Good-Faith Efforts to Comply
Although significant efforts to mitigate negative environmental effects or to decrease the number of violations may justify a reduced damages award, see Smithfield Foods, 972 F.Supp. at 349-50, the Court finds the evidence in this area to be inconclusive. In short, the record shows that the County took several initial steps e.g., studying options, submitting permit applications to address its thermal pollution problems. Although the County may have experienced delays in obtaining the necessary permits, due in some part to factors beyond its control, it made no notable effort to expedite the process. The County's leisurely pace, the Court finds, cancels out its earlier efforts to come into compliance.
The record also shows that the County attempted to improve the Piney Run ecosystem by removing the concrete channel in favor of a naturally-meandering stream. The County did not undertake this project with the aim of reducing thermal pollution, but the Court acknowledges that the improvement of Piney Run would make it more likely to support brown trout populations, thus reducing the harm alleged in this case. The final damages determination, therefore, will reflect a credit for the County's effort.
4. Economic Impact of the Penalty on the County
The central purpose of CWA penalties is to deter the defendant, and others, from committing future violations. See Smithfield Foods, 972 F.Supp. at 352. A damage award that is limited to economic benefit, therefore, is no deterrent at all because the violator would be no worse off than if it had complied in the first place. See id. In this context, municipalities such as Carroll County are distinct from private actors. Whereas a large penalty passed on to consumers in the form of higher prices may have a significant effect on a private polluter, a municipal polluter merely passes the costs on to its taxpayers who, in turn, have no option other than to pay the tax. Moreover, the testimony at trial showed that the County has already applied to install chillers and has allocated the necessary funds. In other words, the County is poised to remedy its violations. Cf. id. at 350. As such, it appears that the years of litigation on this matter, in concert with the injunction to be issued by this Court, will be sufficient to halt the Plant's violations. Additional deterrent in the form of a large penalty, therefore, is not necessary and would not serve a useful function at this time.
5. Other Such Matters as Justice may Require
Courts may adjust CWA penalties to account for the bad-faith conduct of the violator and its attitude towards achieving compliance. See id. at 353. The particular circumstances of this case deserve special attention under this factor. Until recently, the County believed that compliance with its permit was tantamount to compliance with the CWA a doctrine known as the "permit shield." Although the Court has found that this belief was mistaken and an improper interpretation of existing law, the Court also finds that the County's position was not unreasonable. Moreover, this interpretation relied, in part, on prior experience and interaction with State permit authorities. Because the law was unclear and the County had a good faith belief in the permit shield doctrine, the Court finds that a downward adjustment of the penalty would be appropriate.
6. Conclusion
Based on an evaluation of the factors above, the Court will adjust the penalty *473 figure downward to $400,000. This calculation accounts, in particular, for the Defendant's municipality status and its prior understanding of the permit shield doctrine, as well as a credit for removing the concrete channel on Piney Run.
E. Injunctive Relief
The CWA authorizes district courts to enter injunctions in citizen suit proceedings. See 33 U.S.C. § 1365(a); Friends, 120 S.Ct. at 700. Considering the Court's findings that (a) the Plant continues to violate the CWA, (b) the Plant continues to add heat to Piney Run, and (c) these activities have a deleterious effect on Piney Run and members of the Association, injunctive relief is appropriate. Therefore, the Court will issue an injunction to address the specific injuries at issue. The Court's order will enjoin the Plant from discharging effluent into Piney Run at temperatures that exceed the higher of 20° C or the ambient stream temperature until MDE modifies the existing permit or issues a new permit to account for the unique aspects of Piney Run as a Class III-P stream and to comply with all relevant federal and state standards. To ensure compliance with this injunction, the Court will maintain jurisdiction over the case.
F. Costs and Fees
In addition to monetary and injunctive relief, the CWA provides that a court "may award costs of litigation (including reasonable attorney and expert witness fees) to any prevailing or substantially prevailing party, whenever the court determines such award is appropriate." 33 U.S.C. § 1365(d). In consideration of the Association's efforts in this case, and its success in proving 290 violations of the CWA, the Court will award costs and reasonable attorneys fees to the Association. As noted at the trial, the Association must file its petition for costs and fees within ten days of judgment.
III. Conclusion
Based on the foregoing analysis, the Court finds that the County is liable for 290 violations of the CWA. The Court will order the County to pay a penalty of $400,000 to the United States Treasury in accordance with the CWA, plus costs and reasonable attorneys fees to the Association. The Court will also issue an injunction to protect Piney Run from further thermal pollution.
ORDER
In accordance with the attached Memorandum, it is this 10th day of February 2000, by the United States District Court for the District of Maryland, ORDERED:
1. That the Defendant IS LIABLE for 290 violations of the Clean Water Act and SHALL PAY to the U.S. Treasury the sum of $400,000, plus all costs and reasonable attorneys fees to the Plaintiff; and
2. That the Defendant SHALL CEASE any and all discharges of effluent into Piney Run at temperatures that exceed the higher of 20° C or the ambient temperature of Piney Run until such time as the Maryland Department of the Environment either: (a) modifies the existing permit to account for the unique aspects of Piney Run as a Class III-P stream and to comply with all relevant federal and state standards as set forth in this Court's decisions; or (b) issues a new permit that accounts for the unique aspects of Piney Run as a Class III-P stream and complies with all relevant federal and state standards as set forth in this Court's decisions.
3. That JUDGMENT BE ENTERED in favor of the Plaintiff; and
4. That copies of this Memorandum and Order be mailed to counsel for the parties.
NOTES
[1] The Association has also asked the Court to find that the County violated the CWA on every day that the Plant's effluent exceeded the upstream temperature of Piney Run. In Piney Run I, however, the Court made clear that a violation occurs only where the Maryland water criterion is violated, i.e., when the effluent temperature exceeds 68° F (20° C) or the ambient temperature of the surface waters, whichever is greater.
[2] An association may bring suit on behalf of its members when the members have standing as individuals. See United Food & Commercial Workers Union v. Brown Group, Inc., 517 U.S. 544, 116 S.Ct. 1529, 134 L.Ed.2d 758 (1996).
[3] The County also moved after trial to exclude the opinion testimony of Dr. Bouwer, the Association's other expert witness. The Court permitted the County to file its opposition to Dr. Stauffer's testimony in a post-trial memorandum, but because no serious dispute was raised with regard to the bulk of Dr. Bouwer's testimony during trial, the Court refuses to address the broad relevance issues now raised by the County.
[4] Evidence such as this is relevant not to liability, but only to damages, for a violation of the state regulation is a violation of the CWA, whether or not brown trout populations were affected.
[5] In its Motion, the County focuses on Dr. Stauffer's assumption that there are no brown trout in Piney Run above Trenton Mill. The County points out that although this assumption forms the basis for all of Dr. Stauffer's testimony, he cannot be absolutely sure that the assumption is accurate. The Court notes, however, that there is no evidence in the record to indicate that trout do currently reside in Piney Run upstream of Trenton Mill. Indeed, the only evidence is to the contrary. If there are trout in Piney Run near the Plant, the County had the means to find them and present evidence thereof. It has not. To argue that the assumptions behind Dr. Stauffer's opinions "are not ... subject to objective, scientific validation," Def.'s Renewed Mot. to Strike Testimony at 17, therefore, is somewhat disingenuous.
[6] The other alternatives were geothermal chillers and night cooling.
[7] These costs appear in Plaintiff's Exhibit No. 38, the Hampstead Wastewater Treatment Plant Effluent Temperature Reduction Study, Carroll County Project No. S-306 (Nov.1998), which was prepared by an engineering consultant. The sums are in 1998 dollars and the annual cost figure is based on a 7% interest rate on the initial cost, spread over ten years, plus operational cost.
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82 F.Supp.2d 1338 (1999)
Henry Willen SANCHEZ, Plaintiff,
v.
CATHOLIC FOREIGN SOCIETY OF AMERICA, Defendant.
No. 97-1060-CIV-J-10C.
United States District Court, M.D. Florida, Jacksonville Division.
October 21, 1999.
*1339 Leslie P. Holland, Law Office of Leslie P. Holland, Coral Gables, FL, for Henry Willen Sanchez, plaintiff.
J. Patrick Fitzgerald, Roberto J. Diaz, J. Patrick Fitzgerald, P.A., Coral Gables, FL, for Catholic Foreign Mission Society of America, aka Maryknoll Catholic Foreign Mission Society of America, defendant.
ORDER
HODGES, District Judge.
This Age Discrimination in Employment Act case comes before the Court for consideration of the Defendant's motion for summary judgment (Doc. 41). The Plaintiff has filed a motion (Doc. 48) requesting that his response be accepted as timely filed.[1] Upon due consideration, the Plaintiff's motion (Doc. 48) is GRANTED and the Plaintiff's response shall be deemed timely filed.
I. Background
The Plaintiff initiated this action by filing a complaint in this Court on August 26, 1997. The facts, as established in the original complaint, are as follows. The Defendant, Catholic Foreign Mission Society of America, also known as Maryknoll Catholic Foreign Mission Society of America (the "Society"), is a non-profit religious organization with offices throughout Florida, including Jacksonville. The Plaintiff, a sixty-eight (68) year old ordained Roman Catholic priest, was formerly employed by the Society from 1963 until 1967.
In 1996, the Plaintiff sought re-employment with the Society as a Catholic priest. The Plaintiff alleges that the Society responded by sending him a letter, advising him that it was the Society's practice to deny reemployment to individuals who had been previously employed with the Society and who subsequently experienced a lengthy separation from its service. Consequently, the Society denied the Plaintiff's request.
The Plaintiff then filed a charge of age discrimination with the Equal Employment Opportunity Commission and received a notice of right to sue letter. On August 26, 1997, the Plaintiff filed the original two-count Complaint, charging the Society with disparate impact age discrimination and intentional discrimination in employment based on age in violation of the Age *1340 Discrimination in Employment Act, 29 U.S.C. § 621, et seq. ("ADEA"). Specifically, the Plaintiff alleged in Count I that former employees of the Society who have experienced protracted periods of separation from the Society's employment are more likely to be over forty years of age and, therefore, the Society's policy has a discriminatory impact on the precise category of individuals protected by the ADEA. The Plaintiff further alleged in Count II that the Society deliberately and willfully refused to rehire him based solely on his age. The Plaintiff sought declaratory relief, reinstatement, back pay, compensatory and/or liquidated damages, punitive damages, and attorney's fees and costs.
The Society responded to the Plaintiff's Complaint by filing a motion to dismiss on May 19, 1998, arguing that any inquiry into its internal policies concerning the hiring of a Roman Catholic priest is impermissible under the First Amendment of the United States Constitution. According to the Society, in order to determine whether it has violated the ADEA, the Court would have to interpret the Society's internal church policies and practices, which would constitute excessive government entanglement with religion, thereby violating the First Amendment. The Court agreed and concluded that any further progress of the litigation would violate the Free Exercise Clause of the First Amendment, stating that "Congress did not intend for the ADEA to apply to clergy positions in a Roman Catholic Church." (Doc. 29). Accordingly, the Court dismissed the Plaintiff's claim with prejudice in its entirety. (Doc. 29).
The Plaintiff then filed a motion for rehearing and argued that in addition to seeking employment with the Defendant as a priest, he had also sought employment as a "brother," which he contends is a lay, non-clerical position. (Doc. 32). During the course of a telephonic hearing held on the Plaintiff's motion for rehearing, the Court set aside the judgment which had been entered on February 18, 1999, and granted the Plaintiff leave to file an amended complaint. (Doc. 39).
In accordance with the Court's order, the Plaintiff filed an amended complaint on July 6, 1999, which is identical to the original complaint in all respects except that the amended complaint includes the following statement: "plaintiff sought reemployment with defendant and requested consideration for, inter alia, a lay, nonclerical position as a brother." (Doc. 40). The Defendant responded by filing the motion for summary judgment that is presently before the Court. (Doc. 41).
II. Standard for Summary Judgment
The entry of summary judgment is appropriate only when the Court is satisfied 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). In applying this standard, the Court must examine the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits and other evidence in the record "in the light most favorable to the non-moving party." Samples on Behalf of Samples v. Atlanta, 846 F.2d 1328, 1330 (11th Cir.1988). The moving party bears the initial burden of establishing the non-existence of a triable fact issue. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the movant is successful on this score, the burden of production shifts to the non-moving party who must then come forward with "sufficient evidence of every element that he or she must prove." Rollins v. TechSouth, 833 F.2d 1525, 1528 (11th Cir.1987). The non-moving party may not simply rest on the pleadings, but must use affidavits, depositions, answers to interrogatories, or other admissible evidence to demonstrate that a material fact issue remains to be tried. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.
*1341 III. Discussion
In its motion for summary judgment (Doc. 41), the Defendant argues that fundamental First Amendment law precludes a civil court from deciding whether a religious entity violated the Age Discrimination in Employment Act in employment decisions regarding its ministerial employees. See Motion for Summary Judgment at 3 (Doc. 41). At the center of the Defendant's argument is the contention that a brother in the Society performs duties which are "clearly ministerial," such as adhering to an oath of celibacy, obeying religious superiors, and participating in evangelical and outreach efforts of the Roman Catholic Church. See id. at 4. In support of its motion, the Defendant offers the affidavit of Bernadette Kenny, an attorney who exclusively represents Roman Catholic religious congregations and their sponsored ministries in all aspects of civil law. See Affidavit of Bernadette Kenny (Doc. 46).
According to Kenny, she is thoroughly familiar with the requirements for membership in a religious order or society of apostolic life, including the rights and obligations of individual members under both church law and civil law. See id. at 2. As Kenny explains,
[a] religious brother's qualifications to be a member of a religious society is purely a question of Church law and not a civil law employment issue. In addition to their [sic] being no civil law right to membership in a religious society, regardless of whether it be a clerical or lay society, The Code of Canon Law of the Roman Catholic Church refers to these societies, orders and institutes generally as forms of consecrated life which in itself is neither clerical nor lay.
See id. at 3, citing Canon 588 § 1. Kenny further states that a lay institute does not include the exercise of sacred orders and that
[t]he commentaries to the 1983 Code of Canon Law state that a society which is basically clerical may also include in its membership brothers who have not been ordained to sacred orders.
See id. at 3.
Regarding the Defendant's organization, Kenny explains that the primary function of both Maryknoll priests and brothers is participation in religious worship, pastoral work and "spiritual duties." See id. Both Maryknoll priests and brothers "are committed by perpetual oath to celibacy and obedience and to preaching the Gospel message in lands and in languages throughout the world." See id. at 4. As Kenny describes, Maryknoll brothers help in outreach efforts of the Roman Catholic Church, including the following tasks: evangelizing; spreading the Catholic teachings in twenty seven (27) countries around the world; helping to build "communities of faith"; ministering to the spiritual needs of the sick, elderly, orphans, refugees, and people with AIDS; and "translat[ing] the Gospel of God's love into different languages and cultures." See id. at 4.
As Kenny further elaborates, Canon 642 requires religious superiors
to exercise a vigilant care to admit only those who, besides being of required age, are healthy, have a suitable disposition and have a sufficient maturity to undertake the way of life which is proper
to societies such as the Maryknoll Society. See id. Canon 739 obliges members of societies of apostolic life to obey their superiors, the Bishop of the Diocese, and the Pope, maintain celibacy, and to refrain from inappropriate activities. See id. Kenny adds that
Canon 732 applies Canon 602 to Societies of Apostolic Life such as the Maryknoll Society so that the fraternal life *1342 proper to each society unites all the members into one family in Christ and by their fraternal union, rooted and based in charity, the members are to be an example of universal reconciliation in Christ.
See id. In conclusion, Kenny states that the canons she cites apply to Maryknoll priests and brothers "regardless of whether the individual is a clerical or lay member and regulate the priests' and the lay brothers' conduct, mission and apostolic service." See id. at 6.
Based on the facts presented by Kenny's affidavit, the Defendant argues that the duties of a brother in the Society are "clearly ministerial," and that the Court cannot adjudicate the Plaintiff's claim without violating the First Amendment to the Constitution. See Motion for Summary Judgment at 4 (Doc.41).
In support of its argument, the Defendant begins by citing Minker v. Baltimore Annual Conference of United Methodist Church, which held that the maintenance of a minister's claim pursuant to the Age Discrimination in Employment Act would violate the free exercise of religion. See 894 F.2d 1354, 1358 (D.C.Cir.1990). Defendant adds that the function of selecting a minister is a matter of church administration and government. See id. at 2, citing McClure v. Salvation Army, 460 F.2d 553, 559 (5th Cir.1972), cert. denied, 409 U.S. 896, 93 S.Ct. 132, 34 L.Ed.2d 153 (1972).[2] The Defendant further argues that the ministerial exception has not been limited to members of the clergy, but also to employees whose duties include "teaching, spreading the faith, church governance, supervision of a religious order, or supervision or participation in religious ritual and worship." See id. at 2, citing EEOC v. Catholic University of America, 83 F.3d 455, 461 (D.C.Cir.1996).
Defendant argues that Kenny's affidavit attests to the fact that a Maryknoll brother is a member of a religious society whose primary functions involve participation in religious worship, pastoral work, and spiritual duties. See Motion for Summary Judgment at 3 (Doc. 41). The duties of a brother, which include adhering to an oath of celibacy, obeying religious superiors, and participating in evangelical and outreach efforts, as the Defendant contends, "permeate every aspect of his employment." See id. at 4. Therefore, the Defendant asserts that the Plaintiff cannot demonstrate a genuine issue of material fact and asks the Court to enter summary judgment in its favor. See id. at 1, 2.
In response, the Plaintiff characterizes the Defendant's motion as raising a single issue of fact whether a brother in the Catholic Church is a member of the clergy. See Response at 1. Plaintiff offers the Code of Canon Law, Chapter II, Canon 266, which states, "[b]y the reception of the diaconate a person becomes a cleric." See id. Similarly, the Plaintiff notes that the Modern Catholic Dictionary, defines clerics to include those specially ordained such as deacons, priests or bishops. See id. Thus, the Plaintiff argues that as a basic matter of construction, brothers are not considered clergy because they are excluded from the list. On the basis that a brother is not a cleric, the Plaintiff therefore argues that the Court can assert its jurisdiction over the Defendant's failure to hire the Plaintiff as a brother. See id.
The Defendant, however, has not asserted that Maryknoll brothers are members of the clergy. See Motion for Summary Judgment at 4 (Doc. 41). Instead, the crux of the Defendant's argument for summary judgment is that there is no material issue regarding the fact that a Maryknoll brother performs ministerial duties, and *1343 that the Court is precluded from exercising jurisdiction over employment decisions regarding ministerial employees. See id. at 3. Consequently, the question of whether or not a brother is a member of the clergy need not be decided by the Court in order for it to address the issues raised on the Defendant's motion.[3]
In response to the Defendant's motion for summary judgment, the Plaintiff has presented no evidence which contradicts the evidence offered by the Defendant regarding the duties of a Maryknoll brother. As established by the Defendant through the statements of Bernadette Kenny, a Maryknoll brother's duties include participation in religious worship, pastoral work and spiritual duties. See Kenny Affidavit at 3 (Doc. 46.). As Kenny stated, Maryknoll brothers evangelize, spread Catholic teachings, and minister to spiritual needs in twenty seven (27) countries around the world. See id. at 4. As has already been summarized, Kenny also explained the essence of the Maryknoll brotherhood and the devotion of its members to a life of celibacy, obedience, and preaching "the Gospel message in lands and languages throughout the world." See id. at 4.
Given this uncontroverted version of the facts regarding the duties of a Maryknoll brother, the Court now turns to the legal inquiry of whether its exercise over the Plaintiff's claim would violate the First Amendment. As was noted in the Court's previous order,[4] for more than a century the Supreme Court has followed a rule of deference to church authority in "religious or ecclesiastical disputes." Watson v. Jones, 13 Wall. 679, 80 U.S. 679, 727-29, 20 L.Ed. 666 (1871). In Kedroff v. St. Nicholas Cathedral, 344 U.S. 94, 107, 73 S.Ct. 143, 150, 97 L.Ed. 120 (1952), the Supreme Court recognized the Constitutional concerns raised by interference with administrative control of churches, stating that "legislation that regulates church administration, the operation of churches or the appointment of clergy ... prohibits the free exercise of religion."
The Defendant attempts to invoke the "ministerial exception," a principle which has grown out of the Supreme Court's reluctance to interfere with a church's selection of its clergy. See Gonzalez v. Roman Catholic Archbishop of Manila, 280 U.S. 1, 16, 50 S.Ct. 5, 7-8, 74 L.Ed. 131 (1929) ("it is the function of the church authorities to determine what the essential qualifications of a chaplain are and whether the candidate possesses them"); Serbian Eastern Orthodox Diocese v. Milivojevich, 426 U.S. 696, 717, 96 S.Ct. 2372, 2384, 49 L.Ed.2d 151 (1976) ("questions of church discipline and the composition of the church hierarchy are at the core of ecclesiastical concern"). The ministerial exception precludes civil courts from adjudicating employment discrimination suits between ministers and the church or religious organization employing them. See EEOC v. Catholic University of America, 83 F.3d 455, 461 (D.C.Cir. 1996).[5]
*1344 The Eleventh Circuit also follows this doctrine of non-interference. The former Fifth Circuit addressed this issue in McClure v. Salvation Army, when a female officer in the Salvation Army (the "Army") brought suit against the Army for discrimination on the basis of her gender pursuant to Title VII. See 460 F.2d at 560. The court held that, because the relationship at issue was similar to the relationship between a church and its ministers, the plaintiff's action would "result in an encroachment by the State into an area of religious freedom which it is forbidden to enter by the principles of the free exercise clause of the First Amendment." See id. The court declined to inject itself into "substantive ecclesiastical matters" such as investigating and reviewing decisions regarding church administration. See id. In deciding to affirm the district court's decision to dismiss the complaint, the court noted that such a review "could only produce by its coercive effect the very opposite of that separation of church and State contemplated by the First Amendment." Id.[6]
Application of the ministerial exception, however, has not been limited to members of the clergy. See EEOC v. Catholic University of America, 83 F.3d 455, 461 (D.C.Cir.1996). The exception has also been extended to lay employees of religious institutions "whose primary duties consist of teaching, spreading the faith, church governance, supervision of a religious order or participation in religious ritual and worship." See id. citing Rayburn v. General Conference of Seventh-day Adventists, 772 F.2d 1164, 1169 (4th Cir. 1985) cert. den. 478 U.S. 1020, 106 S.Ct. 3333, 92 L.Ed.2d 739 (1986). The Rayburn court held that employees whose role is "important to the spiritual and pastoral mission of the church ... should be considered clergy." See Rayburn, 772 F.2d at 1169.[7]
In Rayburn, the Plaintiff applied for two positions within the General Conference of Seventh-day Adventists (the "Conference"): an associateship in pastoral care and an internship in pastoral care. See id. *1345 at 1165.[8] After she was not awarded either position, the Plaintiff brought a claim against the Conference pursuant to Title VII. See id. Undisputed evidence revealed that the associateship in pastoral care entailed teaching baptismal and Bible classes, "pastoring" the singles group, occasional preaching, as well as "other evangelical, liturgical, and counseling responsibilities." See id. The District Court held that the Plaintiff's Title VII claim involving the selection of an associate in pastoral care was exempt from Title VII. See id.
On appeal, the Fourth Circuit recognized that the duties of an associate in pastoral care included introducing children to the church, leading small congregational groups, and serving as "a liaison between the church as an institution and those whom it would touch with its message." See id. at 1168. The court reasoned that
[a]ny one of these functions so embodies the basic purpose of the religious institution that state scrutiny of the process for filling the position would raise constitutional problems; when all functions are combined the burden of potential interference becomes extraordinary.
Id. The court further explained that "[t]he `ministerial' exception ... does not depend upon ordination but upon the function of the position." Id. (citations omitted). Thus, the court affirmed the district court's decision, determining that the Constitution required that it decline review of the Conference's decision not to hire the Plaintiff in an associate pastoral position.
As demonstrated by the uncontroverted facts established by the Defendant, Maryknoll brothers perform ministerial duties substantially equivalent to the duties at issue in Rayburn. As explained by Bernadette Kerry, Maryknoll brothers "spread the Catholic teachings," and, in fact, "minister to the spiritual needs" of those afflicted with illness or misfortune. See Kerry Affidavit at 4 (Doc. 46). Maryknoll brothers must commit to an oath of celibacy, obedience, and to "preaching the Gospel message in lands and in languages throughout the world." See id. at 4. Like the associates in pastoral care addressed in Rayburn, a Maryknoll brother preaches, advises, counsels, and serves as a liaison between the church and the public. See id. Because the primary functions of a Maryknoll brother involve teaching, ministering, and "spreading the faith," in more than twenty seven (27) countries around the world, it is the opinion of the Court that a Maryknoll brother is the functional equivalent of a minister for the purposes of the ministerial exception. See EEOC v. Catholic University of America, 83 F.3d at 461, Rayburn, 772 F.2d at 1168-69.
Moreover, the Court remains particularly persuaded by the D.C. Circuit's decision in Minker v. Baltimore Annual Conference of United Methodist Church, 894 F.2d 1354, 1355 (D.C.Cir.1990).[9] In Minker, the plaintiff was a sixty-three year old Methodist minister who brought an age discrimination claim against his employer, the United Methodist Church. See id. at 1355. Although the plaintiff argued that his suit would not require the court to interfere with the church's religious policies or beliefs, the court disagreed. See id. at 1356. In holding that the court could not adjudicate the claim without violating the First Amendment, the court stated, "whose voice speaks for the church is per se a religious matter." See id. at 1356 (internal quotations omitted).
Certainly the Maryknoll brothers, who "preach[] the Gospel message in lands and in language throughout the world," and *1346 "translate the Gospel of God's love into different languages and cultures" serve as voices for the Catholic church during their missions. Though the Plaintiff argues that the determinative factor is simply the fact that a Maryknoll brother is not a member of the clergy, the Court disagrees. Instead, the Court finds that because a Maryknoll brother is the functional equivalent of a minister for the purposes of the ministerial exception, the Court is barred by the First Amendment from reviewing the Defendant's decision not to hire the Plaintiff. For the forgoing reasons, the Court declines to adjudicate the Plaintiff's employment discrimination claim and finds that the Defendant's motion for summary judgment is due to be Granted.
IV. Conclusion
Accordingly, upon due consideration:
(1) The Plaintiff's motion to file a response to the Defendant's motion for summary judgment out of time (Doc. 48) is GRANTED and the Defendant's response shall be deemed timely filed. The Clerk is directed to file the Defendant's response.
(2) The Defendant's motion for summary judgment (Doc. 41) is GRANTED.
(3) The Clerk is directed to enter judgment accordingly, terminate all pending motions, and close the file.
IT IS SO ORDERED.
NOTES
[1] The United States Magistrate Judge previously granted the Plaintiff's motion (Doc. 47) for an enlargement of time in which to respond to the motion for summary judgment. The Plaintiff was then required to file a response by September 10, 1999. The Plaintiff did not file a response within the time required and filed a second motion (Doc. 48) on September 29, 1999 requesting that the Court accept his attached response as timely filed.
[2] Decisions by the Fifth Circuit prior to September 30, 1981 are binding upon the Eleventh Circuit Court of Appeals and on this Court. Bonner v. City of Prichard 661 F.2d 1206, 1207 (11th Cir.1981).
[3] Although, "it is clear to the Court that all matters involving members of the clergy, particularly those involving the employer-employee relationship, are presumptively ecclesiastical and therefore protected by the First Amendment." See Order at 9 (Doc. 29).
[4] See Order at 3 (Doc. 29).
[5] See, e.g., Minker v. Baltimore Annual Conference of the United Methodist Church, 894 F.2d 1354, 1358 (D.C.Cir.1990) (adjudication of minister's Age Discrimination in Employment Act claim against his church would violate the Free Exercise Clause); McClure v. Salvation Army, 460 F.2d 553, 558, 560 (5th Cir.1972) (recognizing that "[t]he relationship between an organized church and its ministers is its lifeblood" and that application of Title VII to this relationship would encroach on religious freedom); Young v. Northern Illinois Conference of United Methodist Church, 21 F.3d 184 (7th Cir.1994), cert. den. 513 U.S. 929, 115 S.Ct. 320, 130 L.Ed.2d 281 (1994) (Free Exercise Clause bars Title VII action by probationary minister against her church); Scharon v. St. Luke's Episcopal Presbyterian Hospitals, 929 F.2d 360 (8th Cir.1991) (religion clauses bar application of Title VII and Age Discrimination in Employment Act claims of chaplain against church-affiliated hospital); Natal v. Christian and Missionary Alliance, 878 F.2d 1575 (1st Cir.1989) (Free Exercise Clause bars wrongful termination action brought by clergyman against not-for-profit religious corporation).
[6] The former Fifth Circuit restated this principle again in Simpson v. Wells Lamont Corp., 494 F.2d 490, 493 (5th Cir.1974) (holding that the court was barred from determining "ecclesiastical questions" such as a religious organization's decision to remove its pastor).
[7] See also Scharon 929 F.2d at 362-63 (finding that a hospital chaplain is "primarily a `ministerial' position"); EEOC v. Southwestern Baptist Theological Seminary, 651 F.2d 277, 283 (5th Cir.1981), reh'g den. 659 F.2d 1075 (5th Cir.1981), cert. den. 456 U.S. 905, 102 S.Ct. 1749, 72 L.Ed.2d 161 (1982) (non-ordained faculty at Baptist seminary qualify for the ministerial exception where no course has "a strictly secular purpose"); Powell v. Stafford, 859 F.Supp. 1343, 1346-47 (D.Colo. 1994) (theology teacher at Catholic high school falls within exception). As this court has already recognized, however, the exception has not necessarily been applied to secular employment decisions at religious schools:
prohibitions against race, gender, and national origin discrimination contained within Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., have frequently been applied to religious institutions. See, e.g., EEOC v. Mississippi College, 626 F.2d 477 (5th Cir.1980), cert. denied, 453 U.S. 912, 101 S.Ct. 3143, 69 L.Ed.2d 994 (1981) (holding that Title VII properly applies to a church-approved school's secular employment decisions relating to one of its teachers); EEOC v. Southwestern Baptist Theological Seminary, 651 F.2d 277 (5th Cir. 1981) cert. denied, 456 U.S. 905, 102 S.Ct. 1749, 72 L.Ed.2d 161 (1982) (Title VII applicable to administrative and support staff at a seminary).
See Order at 4 (Doc. 29).
[8] As the Court noted, the position of associate in pastoral care was available to non-ordained individuals. See id. at 1165.
[9] In the previous decision on the Defendant's motion to dismiss, this Court noted that it was "particularly persuaded" by the D.C. Circuit's opinion in Minker. See Order at 8 (Doc. 29).
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/480335/
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806 F.2d 1070
Morganv.Wainwright
85-3542
United States Court of Appeals,Eleventh Circuit.
11/14/86
M.D.Fla., 803 F.2d 1183
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01-03-2023
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08-23-2011
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https://www.courtlistener.com/api/rest/v3/opinions/2522802/
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109 F. Supp. 2d 819 (2000)
NORCOLD, INC., Plaintiff,
v.
GREG LUND PRODUCTS LTD., Defendant.
No. C-3-99-442.
United States District Court, S.D. Ohio, Western Division.
April 25, 2000.
*820 Charles H. Brown, III, Dinsmore & Shohl, Cincinnati, OH, James Wynne, Detroit, MI, Rosalie B. Harrison, Butzel Long PC, Detroit, MI, for Plaintiff.
Todd Swatsler, Brian Selden, Jones Day Reavis & Pogue, Columbus, OH, for Defendant.
DECISION AND ENTRY OVERRULING DEFENDANT'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION AND FORUM NON CONVENIENS (DOC. # 4)
RICE, Chief Judge.
This litigation arises out of the termination of a long-term business relationship between Norcold, Inc. ("Norcold"), a Delaware corporation with its principal place of business in Sidney, Ohio,[1] and Greg Lund Products, Limited, ("Lund"), a Canadian corporation with its principal place of business in Oakville, Ontario. Norcold is a leading United States manufacturer of recreational vehicle gas and electric refrigeration units. Since the 1970's, Lund has been the distributor of Norcold refrigerators in Canada. By letter dated March 8, 1999, Lund was informed that the distribution arrangement between the parties would be terminated, effective July 1, 1999. According to Norcold, since the time that Defendant was informed that it would no longer distribute Norcold products, *821 Lund has failed to pay for merchandise that it had ordered in the past and for products subsequently ordered and sold. The balance due on Norcold's statement of account for Lund is $566,958.00 (Doc. # 1). Norcold initiated this litigation on August 10, 1999, seeking a judgment for the account stated.[2]
Pending before the Court is Lund's Motion to Dismiss for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2), and under the doctrine of forum non conveniens (Doc. # 4). As discussed below, this Court concludes that it may exercise personal jurisdiction over Defendant, and that forum non conveniens does not warrant dismissal of this action. Accordingly, for the reasons assigned, Defendant's Motion to Dismiss for Lack of Personal Jurisdiction or Forum Non Conveniens (Doc. # 4) is OVERRULED.
I. Motion to Dismiss for Lack of Personal Jurisdiction (Doc. # 4)
In its Motion, Lund contends that this Court lacks personal jurisdiction over it, because it is a foreign defendant and the exercise of such jurisdiction would violate due process. In support of its argument, the company asserts that it lacks any significant contacts with Ohio. According to Kris L. Oakes ("Oakes"), the Chief Executive Officer of GL Products, a division of Lund, Lund is the primary Canadian distributor of heating and refrigeration/freezer units for recreational vehicles, manufactured housing, portable buildings and the communications industry, and has been the exclusive distributor in Canada of Norcold refrigerator/freezer units for over thirty years (Oakes Decl. ¶ 2). Lund does not advertise or operate its business in the United States and derives no revenue from this country (id.). Lund has approximately twenty employees, all of whom reside in Canada. Oakes further states:
Greg Lund does not own, possess, use or have any interest in real property in the State of Ohio. Greg Lund has no office and no employees in Ohio. Greg Lund has no mailing address in Ohio, is not registered to do business in Ohio, pays no taxes in Ohio, and holds no license of any kind from Ohio. Greg Lund has never solicited business in Ohio, never contracted to provide services in Ohio, and never provided services in Ohio. Greg Lund derives no revenue from business operations in Ohio.
(Id. ¶ 4). With regard to its relationship with Norcold, Oakes states that the agreements between Lund and Norcold were negotiated with Norcold's corporate parent, the Thetford Corporation ("Thetford"), located in Ann Arbor, Michigan, and that Thetford operates all of the sales and distribution aspects of the Norcold business out of its Michigan offices (id. ¶ 5). No Lund employees have entered Ohio for the purpose of negotiating an agreement with Thetford or Norcold (id. ¶ 6). Defendant receives all of its promotional literature and advertising literature from Thetford's offices in Ann Arbor (id. ¶ 7). Lund's contacts with Norcold's manufacturing facility in Ohio have solely consisted of placing orders by facsimile once per month, sending payment to Sidney by mail once per month, and contracting with a private shipping company to pick up Norcold's products when they are available (id. ¶ 8). Based upon these assertions, Lund contends that the Court may not exercise personal jurisdiction over it.
When considering a motion to dismiss for lack of in personam jurisdiction prior to trial, the court can determine the motion on the basis of affidavits alone or by conducting an evidentiary hearing. Serras v. First Tennessee Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir.1989). Furthermore, the court may permit discovery to aid it in deciding the motion, whether based on affidavits, International Techs. Consult., Inc. v. Euroglas, 107 F.3d 386 *822 (6th Cir.1997) (plaintiff was ordered to respond to motion challenging personal jurisdiction after completion of discovery on jurisdictional issues; no evidentiary hearing held), or by conducting an evidentiary hearing, Serras, 875 F.2d at 1214 (court may "order discovery of a scope broad enough to prepare the parties for [the evidentiary] hearing"). The court has discretion to select which method to follow, and will only be reversed for abuse of that discretion. Michigan Nat'l Bank v. Quality Dinette, Inc., 888 F.2d 462, 466 (6th Cir.1989); Serras, 875 F.2d at 1214.
If the court determines that the motion can be decided without a hearing, it "must consider the pleadings and affidavits in the light most favorable to the plaintiff." Welsh v. Gibbs, 631 F.2d 436, 439 (6th Cir.1980), cert. denied, 450 U.S. 981, 101 S. Ct. 1517, 67 L. Ed. 2d 816 (1981). The plaintiff, however, bears the "relatively slight" burden of establishing a prima facie case of personal jurisdiction. American Greetings Corp. v. Cohn, 839 F.2d 1164, 1168-69 (6th Cir.1988). If the plaintiff demonstrates the existence of a prima facie case of personal jurisdiction over the defendant, after reading the pleadings and the affidavit(s) so construed, the defendant's motion will be denied, notwithstanding contrary allegations made by the defendant. Serras, 875 F.2d at 1214.[3]
In the present case, Norcold has provided the Court with affidavits and other materials to support its argument that the exercise of personal jurisdiction over Lund is proper. In the exercise of its discretion, the Court has chosen to resolve the jurisdictional issue on the basis of the pleadings, affidavits, and other evidence before it. Consequently, the Court will construe the parties' evidence in a light most favorable to Norcold (the party against whom the motion is directed) and against Lund. With the foregoing guidelines in mind, the Court turns now to its analysis of the in personam jurisdiction issue.
In deciding whether this Court may exercise personal jurisdiction over Lund, the Court must look to the law of the forum state. E.g., Southern Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 376 n. 2 (6th Cir.1968). If the forum state's long-arm statute reaches the defendant, the court must then decide whether the defendant's due process rights would be infringed by the exercise of jurisdiction over him. E.g., Nationwide Mut. Ins. Co. v. Tryg Int'l Ins. Co., 91 F.3d 790, 793 (6th Cir.1996).
The Ohio Long-Arm Statute, Ohio Rev. Code Ann. § 2307.382, provides in pertinent part:
(A) A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person's:
(1) Transacting any business in this state;....
(C) When jurisdiction over a person is based solely upon this section, only a cause of action arising from acts enumerated in this section may be asserted against him.
The Ohio Supreme Court has stated that Ohio Rev.Code Ann. § 2307.382 does not extend personal jurisdiction to the extent permitted under the Due Process Clause of the Fifth and Fourteenth Amendments. See Goldstein v. Christiansen, 70 Ohio St. 3d 232, 238 n. 1, 638 N.E.2d 541, 545 (1994). The Sixth Circuit, however, has concluded that where Ohio is the forum state, personal jurisdiction exists as long as it comports with due process.[4]E.g., *823 Nationwide, 91 F.3d at 794 (Ohio long-arm statute's reach "extends to the constitutional limits of Due Process Clause"); CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir.1996); Cole v. Mileti, 133 F.3d 433 (6th Cir.1998). Consequently, the Sixth Circuit has merged the long-arm statute analysis with the due process analysis. See Nationwide, 91 F.3d at 793. In other words, the Sixth Circuit has held that because Ohio's long-arm statute is conterminous with due process, compliance with due process satisfies the long-arm statute (and vice versa).
The Sixth Circuit has established a three-part test for determining whether a court can exercise specific personal jurisdiction over a nonresident defendant.[5]Southern Machine Co., 401 F.2d at 381; Nationwide, 91 F.3d at 794. First, "the defendant must purposefully avail himself of the privilege of conducting activities within the forum state;" second, "the cause of action must arise from the defendant's activities there;" and third, the acts by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant fundamentally fair. Southern Machine Co., 401 F.2d at 381.
1. Purposeful Availment
First, for this Court to exercise personal jurisdiction over Lund, the Court must find that Defendant purposefully availed itself of the privilege of conducting activities within the forum state, namely Ohio. The "purposeful availment" requirement ensures that defendants are not subjected to jurisdiction based solely upon random or attenuated contacts, or the unilateral activity of another party. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct. 2174, 85 L. Ed. 2d 528 (1985). "Jurisdiction is proper under the purposeful availment requirement where `the contacts proximately result from actions by the defendant himself that create a substantial connection with the forum state.'" Reynolds v. International Amateur Athletic Fed'n, 23 F.3d 1110, 1116 (6th Cir.), cert. denied, 513 U.S. 962, 115 S. Ct. 423, 130 L. Ed. 2d 338 (1994)(quoting Burger King, 471 U.S. at 475, 105 S. Ct. 2174). The mere fact that a defendant entered into a contract with the plaintiff in the forum state does not constitute purposeful availment. Kerry Steel, Inc. v. Paragon Indus., Inc., 106 F.3d 147 (6th Cir.1997). "[T]he defendant's conduct and connection with the forum must be of a character that he or she `should reasonably anticipate *824 being haled into court there.'" Id. (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980)).
Lund argues that this Court cannot exercise jurisdiction over it merely because Norcold's manufacturing facility happens to be located in Ohio. It argues that Plaintiff's decisionmaking authority rests exclusively in Michigan, not Ohio, and that Lund negotiated its distribution agreement in Canada with Thetford employees in Michigan. Thus, Defendant argues that its "infrequent faxes to Ohio cannot constitute `purposeful availment.'"
In its memorandum, Plaintiff takes issue with a number of Defendant's factual predicates. Norcold asserts that its relationship with Lund was not characterized by sporadic, infrequent facsimiles to Ohio. Rather, it argues that the contact between them was frequent and regular, consisting of meetings, telephone calls, letters and facsimiles, often emanating from Ohio, over a thirty year period. According to Ronald Riethman ("Riethman"), current President of Norcold and its former Vice President and General Manager, during the parties' entire relationship, Lund's officers and employees have had routine business dealing with Norcold, and they occasionally visited Sidney, Ohio, for meetings, negotiations, and marketing and distribution work (Riethman Decl. ¶ 4).[6] He adamantly disputes statements in Oakes' Declaration, stating:
It is absolutely untrue, as stated and implied by Oakes at paragraph 6 of his declaration, that all sales and distribution negotiations between Lund and the owners of the Norcold business have involved only the states of Michigan and the province of Ontario. Lund was negotiating, conducting distribution related business and meeting persons from and in Sidney, Ohio[,] since before Thetford bought the business in 1997. Contrary to the lack of memory of Oakes, I remember numerous telephone calls, facsimiles and correspondence between Lund and the people in Sidney, Ohio[,] from 1980 through 1998. Since the late 1970's Lund personnel have been to Sidney, Ohio[,] to conduct business with personnel of Norcold on an occasional basis. In fact, until early 1999, there was routine contact and communication between Norcold and Lund regarding a number of issues including but not limited to, reimbursement for warranty work, payment of receivables and the placement of orders for products.
(Id. ¶ 5). Mr. Riethman states that Thetford has never been a party to any contract with Lund for the distribution of Norcold products (id. ¶ 6). Construing the evidence in the light most favorable to Plaintiff, the declaration of Mr. Riethman establishes a prima facie case that Lund purposefully availed itself of the privilege of conducting business in Ohio.
In addition, the cases cited by Defendant, most notably LAK, Inc. v. Deer Creek Enters., 885 F.2d 1293 (6th Cir. 1989), cert. denied, 494 U.S. 1056, 110 S. Ct. 1525, 108 L. Ed. 2d 764 (1990), are inapposite to the present circumstances. In LAK, 885 F.2d 1293 (6th Cir.1989), cert. denied, 494 U.S. 1056, 110 S. Ct. 1525, 108 L. Ed. 2d 764 (1990), the plaintiff, a Michigan corporation, contacted the defendant, an Indiana company, in Florida to discuss the purchase of property in Florida. Negotiations included conversations via telephone and facsimile to Michigan; however, defendant never traveled to Michigan during negotiation of the contract, did not do business in Michigan, and had no agent for service of process in Michigan. The Sixth Circuit further found that no continuous relationship was contemplated by the *825 agreement. Accordingly, the Sixth Circuit found that the defendant had not purposefully availed itself of the privilege of conducting business in the forum state.
Similarly, in Kerry Steel, supra, also cited by Defendant, the court held that there was no personal jurisdiction in Michigan, where the defendant had no employees or offices in Michigan, no employee had been to Michigan to conduct business, the plaintiff had contacted defendants in Oklahoma, and there was no indication that the purchase orders sent to Michigan represented more than an isolated transaction.
More recently, however, the Sixth Circuit has found that personal jurisdiction existed over an out-of-state defendant where the agreement was executed without the defendant's direct involvement in Ohio, but where a continuing obligation was created. In Cole, a case cited by Plaintiff, an Ohio resident sued, in Ohio, a California resident for breach of a surety agreement. 133 F.3d 433. The agreement was negotiated through telephone conversations between California and Ohio, and the agreement was executed by sending the agreement through the mail between Ohio and California and back. Id. The Sixth Circuit found that by negotiating and executing a contract via telephone calls and letters to an Ohio resident, the nonresident defendant had purposefully availed himself of the privilege of conducting activities in Ohio by creating a continuing obligation in this state. Id.
The major distinguishing factor between LAK and Kerry Steel and this litigation is the extent of the relationship between the parties involved. In LAK and Kerry Steel, each of the arrangements at issue was an isolated agreement; the transactions contemplated were essentially "one-shot deals." In contrast, the evidence presented by the parties herein indicates that they maintained a relationship for over thirty years, and that Lund purchased products from Norcold for distribution in Canada via purchase orders sent to Ohio. The accounts receivable report submitted by Plaintiff indicates numerous receivables due from Lund as of August 4, 1999, with payment due dates between June 27, 1999, and September 5, 1999, representing countless transactions. Construed in the light most favorable to Plaintiff, Norcold's evidence that Lund employees had routine business dealings with it; that Defendant's employees occasionally visited Sidney, Ohio, for meetings, negotiations, and marketing and distribution work; and that Defendant sent requests for products and payment to Ohio on a monthly basis indicates that Lund's contact with Norcold in Ohio was not isolated or attenuated but, rather, substantial and continuous. Accordingly, Plaintiff has presented a prima facie case that Lund has purposefully availed itself of the privilege of conducting activities in Ohio.
2. Cause of Action Arises From Defendant's Activities in Ohio
Second, for personal jurisdiction to exist, the cause of action also must arise from Lund's activities in the forum state. Defendant states that the only injury alleged herein is an injury to Norcold's "purse." Citing to LAK and Kerry Steel, supra, Lund argues that Sixth Circuit authority has established that "the location of a plaintiff's purse is irrelevant to the jurisdictional inquiry." In particular, Defendant cites to the court in LAK, which stated: "Because the plaintiff was domiciled in Michigan, to be sure, the claimed injury to its purse might be said to have been suffered there but the locus of such a monetary injury is immaterial, as long as the obligation did not arise from `a privilege the defendant exercised in [the forum state].'" 885 F.2d at 1302-3. Defendant also cites to Kerry Steel, wherein the Sixth Circuit stated:
We are not persuaded that Kerry Steel has shown that its cause of action "ar[o]se from the defendant's activities" in Michigan. At its most basic level, the claim arose out of Paragon's failure to *826 pay the full purchase price, based on the purported non-conformity of the goods with the specifications of the contract. The refusal to pay occurred in Oklahoma.
106 F.3d at 152. Defendant argues that the facts herein are analogous to those in LAK and Kerry Steel, thus warranting a finding that Plaintiff's injury did not arise from its activities in Ohio.
The present case is similar to Kerry Steel in that Plaintiff's claims arise from Lund's failure to pay for goods received. However, other material facts are distinguishable. In Kerry Steel, the plaintiff, a Michigan steel service center, sought out the defendant, an Oklahoma pipe fabricator, and the two parties entered into a single contract whereby the defendant purchased $300,000 worth of steel coils. Although that contract was arranged by telephone conversations and facsimile transmissions and the purchase orders were sent to Michigan, the defendant took possession in Illinois and there was no evidence that the coils were ever in the state of Michigan. In contrast, the evidence presented herein, viewed in the light most favorable to Plaintiff, demonstrates that, although the alleged failure to pay the purchase price occurred in Canada, the parties repeatedly and over an extended period of time entered into contracts whereby Lund would purchase Norcold's products to distribute in Canada. The evidence further demonstrates that Plaintiff's principal place of business is located in Ohio, Defendant's purchase orders were sent to Ohio, Plaintiff's manufacturing plant and products were located in Ohio, and Plaintiff arranged for the shipment of its goods from Ohio to Defendant in Ontario. Thus, the evidence supports a prima facie case that Defendant's actions created the obligations to Norcold, at issue in this litigation, in the state of Ohio. Furthermore, Lund's alleged failure to pay for goods received under those contracts negatively impacted Norcold in Ohio. Accordingly, Plaintiff's causes of action stemming from Lund's alleged breach of those obligations arise from Defendant's actions in Ohio. See Cole, 133 F.3d at 436 (stating that if the cause of action is for breach of a contract which was created in Ohio, the cause of action naturally arises from the defendant's activities in Ohio).
3. Fundamental Fairness
Finally, to exercise personal jurisdiction, the acts of Defendant or consequences caused by Defendant must have a substantial enough connection with the forum state to make its exercise of jurisdiction over Lund fundamentally fair. When a court finds that a defendant has purposefully availed itself of the privilege of conducting activities within Ohio and the cause of action arose from that contact, it is presumed that the assertion of personal jurisdiction is proper. Cole, 133 F.3d 433; see American Greetings Corp., 839 F.2d at 1170 (when first two elements met, an inference arises that the third is also met). A court must consider several factors in this context, including "the burden on the defendant, the interest of the forum state, the plaintiff's interest in obtaining relief, and the interest of other states in securing the most efficient resolution of controversies." American Greetings Corp., 839 F.2d at 1169-70.
Lund has argued that litigating this matter in Ohio is unreasonable, because the dispute arises from a distribution agreement that is, in both form and practice, between Lund and Thetford. It further argues that this Court would be required to interpret and apply Canadian law, and that litigation concerning the purported termination of the distributorship agreement is currently pending in an Ontario court. Other than noting that an inference of fairness arises under the circumstances presented, Plaintiff has not directly addressed Defendant's arguments with regard to the fundamental fairness prong of the due process analysis. However, it indirectly responds to each of Lund's fundamental fairness assertions in *827 discussing Defendant's forum non conveniens arguments. The Court will therefore draw upon those arguments, as well.
Although Lund has asserted that the distribution agreement is between Lund and Thetford, Plaintiff has provided substantial evidence that Lund's agreement was with it, not Thetford. Mr. Riethman, President of Norcold, states that Norcold is an independent subsidiary of Thetford and that Thetford has never been a party to any contract with Lund for the distribution of Norcold products. He further states that Norcold personnel have continued to play a "significant" role in the business dealings with regard to the distribution relationship with Lund, and that the resolution of any disagreement in the relationship would require execution and implementation by Norcold. In addition, the March 8, 1999, correspondence which terminated the distribution agreement between the parties appears to be from Norcold, not Thetford. It is written on Norcold letterhead, references an agreement between Norcold and Lund, and is signed by Norcold's President, Mr. Riethman. Moreover, this dispute arises solely from Defendant's alleged failure to pay for products sent to Defendant from Norcold in Ohio. Thus, litigation in the state where Norcold maintains its principal place of business appears to be fundamentally fair.
In addition, Defendant's assertion that Ontario courts are the proper forum due to the application of Ontario law and the pending litigation therein does not render litigation in Ohio unfair. Defendant has stated that litigation is currently pending in Ontario against Thetford, not Norcold, and that the Canadian action is for breach of the distribution agreement, arising substantially out of the termination of that agreement. Defendant has not shown that Plaintiff's claims for account stated cannot be litigated separately in this forum (there is no indication that either parties' conduct regarding the actual distribution of goods in Canada is at issue), nor has it demonstrated that it would be prejudiced by this Court's application of the relevant law.[7] In addition, because Lund allegedly breached contracts created in Ohio, this state has an interest in this matter as does Norcold, a company with its principal place of business in this state. Advanced Polymer Sciences, Inc. v. Phillips Indus. Servs., 34 F. Supp. 2d 597, 602 (N.D.Ohio 1999)("Ohio has a strong interest in this case because it involves goods manufactured in Ohio and shipped from Ohio."). Moreover, although resolution of this matter may not be as expeditious as in an Ontario court, there is no indication that litigation in this forum would be inefficient. Accordingly, the litigation of this action in the present forum does not violate traditional notions of fair play and substantial justice. Thus, the Court finds that, viewing the Complaint and evidence in the light most favorable to Plaintiff, Norcold has established a prima facie case that this Court has personal jurisdiction over Lund. Defendant's Motion to Dismiss for Lack of Personal Jurisdiction (Doc. # 4) is OVERRULED.
II. Forum Non Conveniens
Lund also requests that this Court dismiss this litigation under the doctrine of forum non conveniens.[8] The Supreme Court recognized, in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S. Ct. 839, 91 L. Ed. 1055 (1947), that federal courts have discretion to dismiss actions for damages, in narrow circumstances, under the doctrine of forum non conveniens. Pursuant to the common-law doctrine of forum non conveniens, a district court is empowered to dismiss an action over which it has jurisdiction when trial in the chosen forum *828 would "establish ... oppressiveness and vexation to a defendant ... out of all proportion to plaintiff's convenience," or when the "chosen forum [is] inappropriate because of considerations affecting the court's own administrative and legal problems." Koster v. Lumbermens Mut. Casualty Co., 330 U.S. 518, 524, 67 S. Ct. 828, 91 L. Ed. 1067 (1947); Tantus Prods., Inc. v. Lloyd, 848 F.2d 194, 1988 WL 48511 at *2 (6th Cir. May 16, 1988). In American Dredging Co. v. Miller, 510 U.S. 443, 449 n. 2, 114 S. Ct. 981, 127 L. Ed. 2d 285 (1994), the Supreme Court noted that the common law forum non conveniens doctrine applies only "where the alternative forum is abroad."
A necessary prerequisite to dismissal under the doctrine of forum non conveniens is the existence of an adequate alternative forum. Gulf Oil, 330 U.S. at 506-7, 67 S. Ct. 839. Once that prerequisite has been satisfied, the district court must balance various private and public interest factors in considering a forum non conveniens motion for dismissal. Dowling v. Richardson-Merrell, Inc., 727 F.2d 608, 612 (6th Cir.1984) (quoting Gulf Oil, 330 U.S. at 508-09, 67 S. Ct. 839) (citations omitted). The defendant bears the burden of proof on all elements of the forum non conveniens analysis. Stalinski v. Bakoczy, 41 F. Supp. 2d 755, 758 (S.D.Ohio 1998)(Dlott, J.). The doctrine leaves much to the discretion of the district court, and the court's decision will be upheld absent a clear abuse of discretion. Dowling, 727 F.2d at 616.
A. Adequate Alternative Forum
Lund has stated that the Canadian court system provides an adequate alternative forum for this litigation. Plaintiff has not refuted this assertion, and the Court finds that Defendant is correct. As stated by Lund, it is a Canadian corporation, subject to Canadian law and subpoena power. A number of courts in the Sixth Circuit have acknowledged that the Canadian courts afford litigants the same fundamental procedures and remedies as are available in American courts. Aristech Chem. Internat'l Ltd. v. Acrylic Fabricators Ltd., 138 F.3d 624, 629 (6th Cir.1998)("[A] Canadian defendant litigating in the United States finds a judicial system `rooted in the same common law traditions' as that of Canada."); Southern Sys., Inc., v. Torrid Oven Ltd., 58 F. Supp. 2d 843, 852 (W.D.Tenn. 1999); see Ensign-Bickford Co. v. ICI Explosives USA, Inc., 817 F. Supp. 1018, 1031 (D.Conn.1993)("Moreover, the unfairness of forcing a foreign party to litigate in an unfamiliar legal system is alleviated here by the fact that the Canadian legal system is similar in many respects to the legal system in the United States."). Accordingly, Defendant has satisfied the first requirement of the forum non conveniens analysis.
B. Public Factors
The Supreme Court has identified relevant public interest factors, to wit: administrative difficulties of courts with congested dockets; the burden of jury duty on people of a community having no connection with the litigation; desirability of holding a trial near those most affected by it; and the appropriateness of holding a trial in a diversity case in a court which is familiar with governing law. Gulf Oil, 330 U.S. at 508-9, 67 S. Ct. 839. Lund argues that these factors weigh heavily in favor of trying this matter in a Canadian forum. First, Defendant argues that this Court has a heavy docket and, therefore, a Canadian forum could likely provide a more expeditious resolution.[9]Second, it argues that this controversy involves a Canadian agreement, and that the "localized" interests should be adjudicated there. Third, Lund asserts that the distribution agreement is governed by Canadian law and, *829 therefore, the matter is best adjudicated by a Canadian tribunal.
Plaintiff argues that the public interests do not warrant dismissal. Specifically, Norcold asserts that the aggrieved party is located in Ohio, and that there is a strong interest in resolving this controversy in this forum. It further contends that the distribution agreement is silent as to the applicable law. In addition, it states, in a conclusory fashion, that the argument that this Court would be overburdened by this litigation is without merit.
As to Defendant's first two arguments, although resolution of this matter may not be as expeditious as in the Superior Court of Justice in Toronto, there is no indication that litigation in this forum would be inefficient such that the parties would be prejudiced by being required to litigate in this District. In addition, although Defendant's relationship with Plaintiff primarily involved the distribution of Norcold's goods in Canada, this litigation concerns its failure to pay for goods manufactured in Ohio and sent to Canada, not Defendant's distribution activities once those goods arrived in that country. Accordingly, Ohio has a strong interest in this case.
Defendant's most persuasive argument, i.e., that a case which is to be governed by Canadian law should be adjudicated in a Canadian forum, also does not warrant dismissal, based on the evidence before the Court. Lund has repeatedly argued that the distribution agreement between the parties is governed by Canadian law. However, the sole distribution agreement before the Court (which Defendant claims is inapplicable to the present dispute) was agreed upon while Norcold was a division of Stolle Corporation and is silent as to choice of law. The parties have not presented any other relevant agreement to the Court,[10] nor have they provided any evidence that they had previously agreed that their relationship would be governed by Canadian law. Furthermore, neither party has provided the Court with specific evidence to enable it to embark upon the complex choice of law analysis. In addition, Plaintiff's claims involve only Defendant's alleged failure to pay for goods sold and delivered and, therefore, they implicate only the terms regarding payment. Neither party has specified how Canadian law would impact the Court's interpretation of those terms.[11] Based on the foregoing, the Court concludes that Defendant has not established that this litigation is governed by Canadian law, or that this Court will be required to interpret Canadian law in resolving this dispute. Moreover, Plaintiff disputes that the agreement is governed by Canadian law. See Southern Sys., 58 F.Supp.2d at 853 (accepting Plaintiff's factual averment that it did not agree that its contract with Defendant would be governed by Canadian law, even though Defendant argued that Canadian law applied, during forum non conveniens analysis). The Court therefore concludes that the evidence before it concerning the applicable law does not warrant dismissal of this lawsuit. Accordingly, an evaluation of the public factors does not weigh strongly in favor of dismissal.
C. Private Factors
In Gulf Oil, the Supreme Court also identified important private interest *830 considerations, including "the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive." 330 U.S. at 508, 67 S. Ct. 839. The district court must also consider problems in enforcing a judgment if one is obtained and relative advantages and obstacles to a fair trial, if any. Id.
Lund argues that the private factors also weigh in favor of a Canadian forum, because all of Lund's employees, its potential witnesses, reside and work in Canada and all of its documents are located there. It further states that any necessary testimony by former Lund employees would be more accessible in Canada, where most, if not all, reside. In addition, Defendant emphasizes that the parties are currently engaged in litigation in Canada, as Lund filed suit in the Superior Court of Justice in Toronto on August 25, 1999, in response to the termination of the distribution relationship.
"There is no question that the `factors to be considered in ruling upon a forum non conveniens motion should include the availability of compulsory process to obtain the attendance of unwilling witnesses, and the costs of obtaining attendance of willing witnesses'." Mead Data Central v. West Publishing Co., 679 F. Supp. 1455, 1466 (S.D.Ohio 1987)(Rice, J.) (quoting AMF, Inc. v. Computer Automation, Inc., 532 F. Supp. 1335, 1341 (S.D.Ohio 1982)). As to the anticipated witnesses that are employees, both parties have the power to compel those witnesses to testify, regardless of the location of this litigation. Id. Although the Court does not have the power to compel the testimony of former employees, Defendant has not identified those potential witnesses and has not indicated whether those former employees would likely be unwilling, as opposed to willing, witnesses, thereby requiring the availability of compulsory process. See AMF, Inc. v. Computer Automation, Inc., 532 F. Supp. 1335, 1341 (S.D.Ohio 1982)(Rice, J.). In addition, Plaintiff has presented evidence that it has numerous witnesses in Ohio, whose transportation would be required at its expense if the litigation of Plaintiff's claims were to occur in Canada. In addition, although Lund has stated that it would cost thousands of dollars to transport witnesses from Ontario to Ohio, "only a short plane flight separates Ontario from [Ohio]." Aristech, 138 F.3d at 628. Defendant's arguments regarding the inconvenience of transporting witnesses due to transportation difficulties applies equally to Plaintiff. Accordingly, the evidence suggests that dismissal of this action and requiring Plaintiff to defile in Ontario would merely shift the inconvenience of litigating from Defendant to Plaintiff.
Nor does Defendant's argument that litigation is currently pending in Toronto weigh in favor of dismissal of this action. As stated above, the litigation pending in the Superior Court of Justice in Toronto has been brought by Lund against Thetford for breach of the distribution agreement. In that Canadian lawsuit, Lund has alleged that Thetford wrongfully terminated the distribution agreement, and that Thetford breached the distribution agreement by failing to provide Lund with marketing materials related to the Norcold product line, in order to facilitate the distribution of Norcold products. That litigation does not involve Norcold, the plaintiff in this action. In addition, the litigation before this Court does not involve issues of wrongful termination of the distribution agreement. The instant action is limited to the allegation that Lund failed to pay for products manufactured by and delivered by Norcold to Defendant; it is simply an action for account stated. Accordingly, the Court sees no reason why Plaintiff's action should be dismissed, with the requirement that it refile in and seek to enter a Canadian lawsuit to which it is not *831 a party. Upon an evaluation of the private factors, the Court concludes that the in-convenience of litigating in Ohio is not so substantial as to warrant dismissal of Plaintiff's lawsuit.
For the foregoing reasons, Defendant's Motion to Dismiss for Lack of Personal Jurisdiction and Forum Non Conveniens (Doc. # 4) is OVERRULED.[12]
NOTES
[1] Since its inception, Norcold has undergone a number of corporate changes. Norcold began in 1959 as a closely held business. In 1964, it was purchased by Stolle Corporation, a majority of which was owned by Alcoa. After Alcoa acquired the balance of Stolle Corporation in 1973, Norcold continued as a division of Stolle. In 1996, Alcoa formed Norcold, Inc., from the assets of the Stolle division. In February of 1997, Thetford Corporation purchased the stock of Norcold, Inc., and since that time, Norcold has operated as a fully independent corporate subsidiary of Thetford. (Riethman Decl. ¶¶ 2-3)
[2] Plaintiff brought this litigation in the Shelby County Court of Common Pleas. Defendant removed the action to this Court on September 9, 1999 (Doc. # 1).
[3] It is axiomatic that the use of materials outside the pleadings, in ruling on a motion to dismiss for alleged lack of in personam jurisdiction, is permissible and does not convert the motion into one directed to the merits of the litigation.
[4] Since Goldstein, the Sixth Circuit has had numerous opportunities to amend its viewpoint regarding the scope of Ohio's long-arm statute. E.g., Nationwide, 91 F.3d 790. Although it has recognized Goldstein, the Sixth Circuit has not explicitly adopted it. See Cole, 133 F.3d 433 ("Although the Ohio Supreme Court recently held [Ohio Rev.Code Ann. § 2307.382(A)(1)] does not reach to the limits of the Due Process Clause, ... our central inquiry is whether [defendant] established certain minimum business contacts with Ohio so that the ... exercise of personal jurisdiction over him did not offend `traditional notions of fair play and substantial justice.'"). But see Vorhis v. American Med. Sys., Inc., No. 96-3525, 124 F.3d 201, 1997 WL 476527 (6th Cir. Aug. 19, 1997).
However, even if this Court were to resolve the instant Motion under the narrower Ohio Supreme Court approach (requiring this Court to determine the applicability of the Ohio long-arm statute and then, if applicable, to separately determine whether the exercise of in personam jurisdiction would satisfy due process), the result would not differ. The Ohio Supreme Court has interpreted "transact" broadly, saying "it is a broader term than the word `contract' and may involve business negotiations which have been either wholly or partly brought to a conclusion." Kentucky Oaks Mall v. Mitchell's Formal Wear, Inc., 53 Ohio St. 3d 73, 75, 559 N.E.2d 477, 480 (1990)(quoting Black's Law Dictionary 1341 (5th ed.1979)(emphasis omitted)), cert. denied, 499 U.S. 975, 111 S. Ct. 1619, 113 L. Ed. 2d 717 (1991). For more than thirty (30) years, Lund placed orders with Norcold in Ohio and arranged for the shipment of Norcold products to Canada. Such conduct falls within "transact" as defined by Ohio case law. Therefore, even if the Sixth Circuit had adopted Goldstein, Ohio's long-arm statute would reach Lund.
[5] Defendant states that federal courts recognize both general and specific personal jurisdiction, and it argues that this Court lacks general personal jurisdiction over it. Ohio's long-arm statute precludes general personal jurisdiction in this forum. Smith v. Turfway Park, Case No. 3:97-145, Doc. # 13 (Mar. 13, 1998)(Rice, J.). Accordingly, the Court need not address that issue.
[6] In his Second Declaration, Mr. Oakes states that Lund employees have visited Norcold's facilities in Ohio a total of six times since 1970, the most recent occurring in 1989 (Oakes 2d Decl. ¶ 2). He also states that two meetings held in early 1999, regarding Lund's distribution arrangement for Norcold products, involved only Thetford and Lund employees, and that no Norcold employees were present (id. ¶ 4-5).
[7] The Court makes no determination at this time as to which law Ohio, Michigan, or Canadian is applicable to the present litigation.
[8] The Court notes that 28 U.S.C. § 1404(a) does not apply in this litigation, because Defendant is seeking to litigate in a foreign forum.
[9] Defendant notes that as of August, 1999, this Court's civil docket included more than 450 cases.
[10] Both parties have submitted the March 8, 1999, correspondence, which terminates the distribution agreement between the parties. Although that letter states that "[t]his letter agreement shall be governed by and construed in accordance with the laws of Ontario," this litigation is not concerned with whether Norcold rightfully and properly terminated the distribution agreement. Accordingly, the choice of law provision in that letter is irrelevant to the present dispute.
[11] In its Complaint, Norcold alleged that under the terms of the distribution agreement, payment was to be made pursuant to a 2%, 30 days, net 60 arrangement, whereby Lund was to receive a 2% discount for payments made within 30 days of the invoice date. It further alleged that, following its notice to Defendant that it was terminating the agreement, Defendant continued to order goods but ceased paying on the open account for purchases made in the past and never paid for goods newly ordered.
[12] In footnote 3 of its Memorandum (Doc. # 4), Defendant requests dismissal of Plaintiff's Complaint, pursuant to Fed.R.Civ.P. 12(b)(5), stating that Plaintiff has failed to serve it in accordance with the Hague Convention. Plaintiff has responded (in footnote 1 of its memorandum) that Defendant was served by certified mail, in accordance with the Ohio Rules of Court and the local rules, and by hand delivery of the Complaint to Kris Oakes. Defendant has replied that the United States Postal Service cannot certify mail to Canada, that the Ohio Rules of Civil Procedure cannot trump the Hague Convention, and that service by hand delivery to Oakes is insufficient as a matter of law. Defendant's challenge to Plaintiff's service on that foreign defendant raises questions regarding the interplay between state, federal, and international law. Such issues are more properly raised in a fully briefed motion, rather than as a paragraph in a footnote. Accordingly, Defendant's motion to dismiss, pursuant to Rule 12(b)(5), is OVERRULED, without prejudice to renewal as a fully briefed, separately filed motion.
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109 F. Supp. 2d 285 (2000)
In re CENDANT CORPORATION SECURITIES LITIGATION
No. CIV. 98-1664(WHW).
United States District Court, D. New Jersey.
August 16, 2000.
*286 Dennis J. Block, Cadwalader, Wickersham & Taft, New York City.
James E. Lyons, Thomas Stevens, Skadden, Aps, Slate, Meagher & Flom, LLP, San Francisco, CA.
Carl Greenberg, Budd Larner Gross Rosenbaum Greenberg & Sade P.C., Short Hills, NJ.
Steven S. Radin, Mattew S. Hawkins, Sills Cummis Radin Tischan Epstein & Gross, Newark, NJ.
Greg A. Danilow, Weil, Gothshal & Manges LLP, New York City.
Richard J. Schaeffer, Dornbhush Mensch Mandelstam & Schaeffer, New York City.
Donald A. Robinson, Robinson Lapidus & Livelli, Newark, NJ.
Gary P. Naftalis, Kramer Levin Naftalis & Frankel, New York City.
Samuel Kadet, Skadden, Arps, Slattes, Meagher & Flom LLP, New York City.
Herbert Jay Stern, Stephen M. Greenberg, Stern & Greenberg, Roseland, NJ.
James G. Kreissman, Jacob S. Pultman, Simpson Thacther & Barlett, New York City.
Dennis P. Orr, Mayer Brown & Platt, New York City.
Douglas S. Eakeley, Lowenstein Sandler PC, Roseland, NJ.
Alan N. Salpeter, Caryn L. Jacobs, Mayer, Brown & Platt, Chicago, IL.
Robert G. Cohen, William P. Hammer, Jr., Ernst & Young LLP, New York City.
James M. Altman, George B. Yankwitt, Robinson, Silverman, Pearce, Aronsohn & Berman, New York City.
William F. Maderer, Saiber Schlesinger Staz & Goldstein, Newark, NJ.
Helen Gradd, Daniel E. Reynolds, Lankler Siffert & Wohl LLP, New York City.
Thomas G. Griggs, Edwards & Caldwell, Hawthorne, NJ.
Ronald L. Bernstein Gretchen Baumgardner, Douglas W. Greene, Perkins Coie LLP, Seattle, WA.
Daniel J. Beller, Paul, Weiss, Rifkind, Wharton & Garrison, New York City.
Max W. Berger, Daniel L. Berger, Jeffrey N. Leibell, Bernstein Litowitz Berger & Grossmann LLP, New York City.
*287 Charles H. Landesman, Kearney, NJ.
I. Walton Bader, Bader and Bader, White Plains, NY.
James N. Benedict, Clifford Chance Rogers & Wells, New York City.
Robert J. Fettweis, Roth & Fettweis, Newark, NJ.
Edward J. Dauber, Greenberg Dauber Epstein & Tucker, Newark, NJ.
Eric Tunis, Orange, NJ.
James A. Plaisted, Walder Sondak & Brogan, P.A., Roseland, NJ.
Henry D. Gradstein, Joel M. Kozberg, Eileen M. Cohn, Gradstein, Luskin & Van Dalsem, P.C., Los Angeles, CA.
James C. Gulotta, Jr., Stone, Pigman, Walther, Whittman & Mutchinson, New Orleans, LA.
Margaret E. Haering, Hurwitz & Sagarin, LLC, Milford, CT.
Michael J. Pucillo, Burt & Pucillo, West Palm Beach, FL.
George Vuoso, Gordon, Altman, Butkowsky, Weitzen, New York City.
Bruce E. Gerstein, Barry S. Taus, Brett Cebulash, Garwin, Bronzaft, Gerstein & Fisher, New York City.
David M. Taus, Francis J. Devito, P.A., Hackensack, NJ.
Elwood S. Simon, John P. Zuccarini, Elwood S. Simon & Associates, P.C., Birmingham, MI.
Michael H. Schaalman, Paul D. Bauer, Quarles & Brady LLP, Milwaukee, WI.
D.Greg Durbin, McCormick Barstow Sheppard Wayte & Carruth LLP, Fresno, CA.
James Moyle Clifford, Chance Rogers & Wells, New York City.
Gerald J. Rodeos, Leonard Barrack, Barrack, Rodos & Bacine, Philadelphia, PA.
Robert A. Hoffman, Barrack, Rodoes & Bacine, Haddonfield, NJ.
Seth R. Lesser, Bernstein Litowitz, Berger & Grossman, Hackensack, NJ.
Joel M. Leifer, Joel M. Leifer & Associates, New York City.
Arthur N. Abbey, Jill S. Abrams, Abbey, Gardy & Squitieri, LLP, New York City.
Allyn Z. Lite, Joseph J. DePalma, Lite DePalma Greenberg & Rivas, LLC, Newark, NJ.
Andrew L. Barroway, Schiffrin Craig & Barroway, LLP, Bala Cynwyd, PA.
Joseph Sacca, Jonathan J. Lerner, Skadden, Arps, Slates, Meagher & Flom, New York City.
Lisa C. Cohen, Schindler Cohen & Hochman, New York City.
Jonathan D. Thier, Cahill Gordon & Reindel, New York City.
Andrew R. Jacobs, Michael E. Coslet, Fitzsimmons Ringle & Jacobs, P.C., Newark, NJ.
Melvin Brosterman, Lawrence Greenwald, Stroock Stroock & Lavan, LLP, New York City.
David Sorokoff, Deloitte & Touche, New York City.
James J. McGuire, White & Case, New York City.
Richard L. Klein, Wilkie Farr & Gallagher, New York City.
Thomas G. Shapiro, Shapiro, Iiaber & Urmer, Boston, MA.
Myron D. Rumeld, Proskauer Rose LLP, New York City.
Steven Pontell, Verde Steinberg & Pontell, Fort Lee, NJ.
Howard Sirota, Sirota & Sirota, New York City.
Gerald Palmer, Ricky Shackelford, Jones Day, Los Angeles, CA.
C. Benjamin Nutley, Kendrick & Nutley, San Diego, CA.
Stuart Wechsler, New York City.
Paul Rothstein, Gainesville, FL.
*288 Lawrence Schonbrun, Berkeley, CA.
Corporation Counsel City of N.Y. Law Dept., New York City.
WALLS, District Judge.
Lead Counsel, the law firms of Bernstein Litowitz Berger & Grossman LLP ("BLBG") and Barrack, Rodos & Bacine ("BRB"), petition the Court for an award of attorneys' fees in the amount of 8.275% of the total settlement fund (after deducting costs and expenses of litigation); a total fee award of $262,468,857. One of three co-Lead Plaintiffs, the New York City Pension Fund ("NYCPF"), and three other class members object to the request. The requested fee is awarded and expenses in the amount of $14,623,806 are allowed.
A. Background
On April 15, 1998, Cendant announced that it had discovered accounting irregularities in a former CUC business unit and that Cendant's financial statements for 1997, and possibly earlier years, would be restated. Thereafter, a number of purchasers of Cendant securities filed class actions against Cendant and other defendants. On May 29, 1998, this Court consolidated all of the actions then pending against Cendant under In re Cendant Corporation [Securities] Litigation, Civ. No. 98-1664(WHW).
On August 4, 1998, the Court appointed the New York State Common Retirement Fund ("NYSCRF"), the California Public Employees' Retirement System ("Cal-PERS"), and NYCPF as co-Lead Plaintiffs for the class action against Cendant Corporation filed by those who held Cendant stock other than PRIDES, another form of security issued by Cendant.
At that time, this Court announced the procedure it would use to select lead counsel to represent the plaintiff class. The Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. §§ 77k, 77l, 77z-1, 77z-2, 78j-1, 78t, 78u, 78u-4, & 78u-5, attempts to protect the plaintiff class to ensure that total attorneys' fees and expenses awarded by a court to counsel for the plaintiff class do not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class. 15 U.S.C. §§ 77z-1(a)(6); § 78u-4(a)(6). To implement the objectives of the PSLRA, this Court determined that the selection of counsel should be the subject of competitive, adversarial bidding. In re Cendant Corp. Litig., 182 F.R.D. 144 (D.N.J.1998).
The Court invited any attorney who wanted to be lead counsel for the class of shareholders excluding the PRIDES-holders to submit a sealed bid to the Court.[1] Fifteen law firms from around the country submitted twelve separate bids which, among other requirements, described their professional qualifications and ability to undertake and maintain all costs of the litigation. The Court reserved the right to reject any bid which it deemed not to have been made in good faith or which was contrary to the interests of either plaintiff class. Id. Recognizing that the PSLRA gives Lead Plaintiffs the statutory opportunity to choose their counsel, subject to Court approval, the Court gave Lead Plaintiffs' original counsel the right of first refusal: if plaintiffs' original counsel was qualified and had not submitted the lowest qualified bid, it would be given the opportunity to agree to the terms of what the Court had found to be the lowest qualified bid. Bidders BLBG and BRB, the original counsel for co-Lead Plaintiffs, exercised that right and accepted the terms and fee bid schedule which the Court had determined to be the lowest qualified bid to represent the class. On October 13, 1998, the Court appointed BLBG and BRB as Lead Counsel for the class.
Lead Counsel assert that the 8.275% request "adheres precisely to the market-established fee grid, which the Court determined *289 was the lowest qualified bid." Lead Counsel seek fees under the second column of the fee grid, because settlement was reached during discovery after motions to dismiss and before the summary judgment stage. They further seek the sum of $14,623,806 (plus interest) as reimbursement of costs and expenses incurred during prosecution. The amount includes a $13,208,151 fee of Lazard Frères & Co., an investment banking firm hired by Lead Counsel for its expertise; $271,560 charged by the damages expert, Forensic Economics, Inc.; $349,881 to compensate an accounting firm, Marks Paneth & Schron LLP; $250,000 to another investment banking expert, Arthur S. Ainsberg; and $528,812 in law firm expenses.
B. Lead Counsel's Analysis of Fees in Large Class Actions
Lead Counsel state "[t]he Supreme Court has ... consistently held that the percentage [of settlement fund] approach is the correct method for determining attorneys' fees in common fund cases." LC Brf. at 9 (citing Blum v. Stenson, 465 U.S. 886, 900 n. 16, 104 S. Ct. 1541, 79 L. Ed. 2d 891 (1984)). They rely, in part, on the conclusions of a report issued by the Third Circuit Task Force which analyzed court-awarded attorneys' fees (the "Task Force Report"). See Court-Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237, 255-56 (Oct. 8, 1985). That report criticized the lodestar method of awarding fees and recommended:
that in the traditional common-fund situation and in those statutory fee cases that are likely to result in a settlement fund from which adequate counsel fees can be paid, the district court, on motion or its own initiative and at the earliest practicable moment, should attempt to establish a percentage fee arrangement agreeable to the Bench and to plaintiff's counsel....
In 1995, the Third Circuit expressly determined that a percentage of recovery approach was the most appropriate method of fee calculation in common fund cases. See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768 (3d Cir.), cert. denied, 516 U.S. 824, 116 S. Ct. 88, 133 L. Ed. 2d 45 (1995); see also In re Prudential Ins. Co. of Am. Sales Practices Litig., 148 F.3d 283, 332 (3d Cir.1998), cert. denied, 525 U.S. 1114, 119 S. Ct. 890, 142 L. Ed. 2d 789 (1999).[2] Courts approve of the percentage recovery fee award because it "more accurately reflects the economics of litigation practice" and is "result-oriented." Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1269 (D.C.Cir.1993).
Importantly, Congress, by the PSLRA, adopted the percentage of recovery method. 15 U.S.C. § 78u-4(a)(6) states: "Total attorneys' fees and expenses awarded by the court to counsel shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class." This admonition was recognized by this Court at the time it adopted the auction process "To seek the requisite reasonableness of costs for such talent which is to be borne by the entire plaintiff's group in this case in the event of recovery, it is my judgment that legal fees also be the subject of adversarial competition." Transcript of August 4, 1998 Hearing at 109-114 (emphasis added).
Lead Counsel ask the Court to adhere to the bid resulting from the auction. They quote from the transcript of the August 4, 1998 Hearing and the Court's "auction opinions" issued September 8, 1998 and October 2, 1998. Then the Court said that the lowest qualified bid would be the "benchmark of reasonableness" for determining an eventual award of fees. As to *290 lodestar, the Court declared "under no circumstances will I permit lodestar to be used in this litigation." Tr. at 26. It continued, "I have known people who, given a problem, could solve it in 45 minutes. Whereas I might take two hours. And some other person might take two and a half hours. And in that sense I'm an elitist because I feel as though the person who is able to settle the case, settle the problem in 40 minutes should not be penalized." Tr. at 44-45. This reasoning was later clarified at the fairness hearing of June 28, 2000. See Fairness Hearing Tr. at 143 (June 28, 2000), quoted in n.9.
The "lowest qualified bid," determined by the Court, provides for fees ranging from 2%-9% of recovery. As the recovery rises, the fee percentage increases. Lead Counsel support this methodology and refer to Professor John C. Coffee, Jr.'s declaration submitted to the Court in August 1998:
My point is that the first dollars in any settlement are easy, while the marginal dollars become progressively harder. An optimal fee formula should reward the attorney for working harder and gaining more for the class. This does not mean that the attorneys will necessarily receive more money. A fee formula that starts low (at 5% to 10% and ascends to 25%) may produce the same (or lesser) compensation as one that starts at 25% and then descends to 5% but it will clearly work better to discourage "cheap" early settlements....
Coffee Decl. at ¶ 18. Lead Counsel further assert that the structure adopted by auction should not now be "renegotiated."
Lead Counsel argue that irrespective of the auction process, 8.275% of the recovery, net of expenses, is reasonable in relation to other awards in class action cases. The General Motors court noted that "fee awards have ranged from nineteen percent to forty-five percent of the settlement fund." 55 F.3d at 822. Counsel also surveyed fees awarded by judges within the districts of the Third Circuit which routinely were between 30-35% of the settlement. Brf. at 23-24, 23 n.8. A study by the National Economic Research Associates ("NERA") done in 1994, and updated in 1996, concluded "[r]egardless of case size, fees average 32 percent of the settlement. This finding holds even for cases with settlements in excess of $50 million." See Denise Martin et al., National Econ. Research Ass'n, Recent Trends IV: What Explains Filings and Settlements in Shareholder Class Actions? 10-11 (NERA 1996).
Lead Counsel focus first on fees awarded in larger securities class actions cases where the class recoveries ranged from $62-$220 million. Awards for these cases ranged from a low of 20% in the case with a $200 million recovery to a high of 33.3% for cases with recoveries of $77.5 million and $110 million. Brf. at 24-25 (chart).
They also survey recoveries in what they label "mega-fund" cases billion dollar plus recoveries: In re NASDAQ Market-Makers Antitrust Litigation, 187 F.R.D. 465 (S.D.N.Y.1998) ($1.027 billion recovery); Shaw v. Toshiba America Information Systems, Inc., 91 F. Supp. 2d 942 (E.D.Tex.2000) (estimated $1.1 billion); and various cases against tobacco companies brought by certain states ($17.3 billion in Texas, $13 billion in Florida, and $4 billion in Mississippi). The NASDAQ fee was 14%, plus expenses of the recovery; the Toshiba fee was approximately 15% of recovery; five firms litigating in Texas on behalf of the state against the tobacco industry will receive 19% of the state's recovery; eleven firms in Florida will receive approximately 25% of the recovery; and thirteen firms in Mississippi, 35% of the recovery. The Toshiba court noted that in "mega-fund cases, where recoveries are very large, fees in the neighborhood of fifteen percent (15%) are common." 91 F. Supp. 2d at 989.
As additional support that the fee is justified, counsel rely on many of the arguments offered in favor of settlement such *291 as the risks of establishing liability and damages and other Girsh factors. See Companion Opinion, No. 98-1664, slip. op. at 34-49 (D.N.J. August 2000) (evaluating settlement).
C. Objectors:
NYC
Co-Lead Plaintiff, NYCPF ("the city"), objects to the fee request. This objection arises from events of June 1998. The fund alleges that during that month, it, together with co-Lead Plaintiffs CalPERS and NYSCRF, entered into a detailed retainer agreement with BLBG and BRB. The fourth section of that agreement contains a fee grid. Fees were based on a percentage of the amount recovered with the fee percentage decreasing as the recovery increased. The percentages set in this agreement were maximum awards or "fee caps": "The fee will be a function of both the timing and size of the recovery but, unless agreed to by the Funds, will, in no event exceed the following: ..." Retainer at 2 (emphasis added). The agreement further states: "In any event [Lead Counsel] will not submit any fee application to the Court without the prior approval of the Funds...." Retainer at 2.
At the hearing on August 4, 1998, Max Berger of BLBG referenced the retainer agreement to argue that Lead Plaintiffs rightly and responsibly selected BLBG and BRB as counsel "not only did they [plaintiffs] engage in an extensive process in the selection of best counsel ... but in addition, your Honor, have negotiated the best fee probably ever negotiated in advance .... the hardest bargain ever driven in a security fraud class action case." Tr. at 8, 12. On August 4, the three funds were appointed co-Lead Plaintiffs and the auction was instituted. The Court stated "[s]uch [auction] will probably result in reduced costs for the entire group or groups." Tr. at 110. (The city now argues that the anticipated "reduced costs" were not realized but rather resulted in "an increased cost to the class of $76 million." Brf. at 5.)
According to the city, "Lead Plaintiffs were extremely disturbed by [the auction]" and "even discussed pulling out of the case." Pugh Decl. at ¶ 15. The city now argues that it wrote to the Court on August 17, 1998 to suggest "several considerations that we believe are crucial to obtaining the best representation at the lowest price." Letter at 1. In a footnote they added "we recommend that any numbers/percentages in the grid be established as fee caps only, with the actual fee subject to approval by Lead Plaintiffs before submission to the Court."
As noted, BLBG and BRB, although bidders, were not the lowest bidders, but agreed to match the lowest bid of a qualified bidder.[3] The city has since reviewed the bids placed and maintains that "[i]t does not appear that lead counsel bid the same percentages as the mileposts it had agreed to in the Retainer." Brf. at 6; Pugh Decl. ¶¶ 10, 19. It is clear that the city's fee grid decreased the percentage-of-recovery allocated as fees as the recovery increased, while the auction-set fee increases with the size of recovery. The city now alleges that post-auction it made an off-the-record objection to the use of the Court's fee schedule because of the existing retainer agreement. Pugh. Decl. ¶ 19. "To the best of Mr. Pugh's [the Assistant Corporation Counsel, City of New York] recollection, the Court agreed that the Retainer was in full force and effect except as to the grid for which the results of the auction would take precedence. The Court acknowledged that the grid represented a cap." Brf. at 7. The Court denies that recollection of Mr. Pugh. When asked by Mr. Pugh, who, with others, was walking out of chambers at the time, if the auction bid prevented Lead Plaintiffs from negotiating a lower fee in the future, the *292 Court remarked "go ahead, if you can." (And Mr. Pugh never reported back to the Court.) That is altogether different from Court approval of a retainer agreement made before the auction, the details of which had not been revealed.
The city now asks the Court to reject the fee sought and set a "reasonable" fee; or to hold an evidentiary hearing to determine the appropriate fee; or to reinstate the retainer agreement and ask Lead Counsel to negotiate a fee with Lead Plaintiffs pursuant to the terms of the retainer.
The city states that it agrees with the percentage-of-recovery fee method of fee calculation but argues that In re Prudential Insurance Co. of America Sales Practices Litigation, 148 F.3d 283, 334 (3d Cir.1998), cert. denied, 525 U.S. 1114, 119 S. Ct. 890, 142 L. Ed. 2d 789 (1999), limits the acceptable percentage. There, the Third Circuit reversed an award of 6.7% of an approximately $1.352 billion settlement and remanded the fee determination to the district court judge to "set forth a reasoned basis and conclusion regarding the proper percentage applicable in this case ... in light of the magnitude of recovery." 148 F.3d at 340. The city cites the Prudential district court, which noted that "percentage awards generally decrease as the amount of the recovery increases." See In re Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 572, 580 (D.N.J.1997), vacated and remanded, 148 F.3d 283 (3d Cir.1998), cert. denied, 525 U.S. 1114, 119 S. Ct. 890, 142 L. Ed. 2d 789 (1999). On appeal, the Third Circuit agreed with this premise, but "question[ed] whether the `reduction' implemented adequately adjusted the fee in relation to the size of the settlement." 148 F.3d at 339. The Circuit Court found that the 6.7% fee represented a higher percentage of recovery than fees in cases with smaller recoveries examined by the trial court for example a 4.1% fee with a recovery of $183.8 million (In re Baldwin-United); a 5.5% fee of $180 million (Agent Orange); and 7% of a $205 million settlement (MGM Grand). See id. at 339 n. 118 (citing cases).
The city also claims that lodestar must be used as a "cross-check" on the reasonableness of a percentage fee in common fund cases. It contends that Lead Counsel's lodestar indicates that an 8.275% recovery is clearly unreasonable. Here, according to the city, the requested fee is 32.7 times lodestar or $10,861 per hour. "The highest multiplier the City Pension Funds have been able to find in the Third Circuit is 9.3 times lodestar." Brf. at 14 (citing In re Prudential, 148 F.3d at 340 (referencing Weiss v. Mercedes-Benz, 66 F.3d 314 (3d Cir.1995))). (Time records through December 31, 1999 show that counsel had spent 20,208 hours, a $6,701,557 lodestar. Lead Counsel now estimate that to date lodestar is approximately $8 million.[4])
The city contends that such a high fee award/lodestar multiplier is also unreasonable where, as here, "[l]iability ... was a foregone conclusion." They cite to the (recently unsealed) bid opinion of October 1998 which states: "Basic liability in this case has been conceded by the major corporate defendant. No one needs to be reminded that it was Cendant's public admission on April 15, 1998 that spawned this litigation." In re Cendant Corp. Litig., 191 F.R.D. 387 (D.N.J.1998). Scrutiny of this case, argues the city, "reveals no justification for an enhancement of attorneys' fees in light of the low contingency risk in this case." Brf. at 16. Moreover, the city attributes at least some of the recovery not to counsel but to experts' input for which the class will pay dearly. See In re Oracle Securities Litig., 136 *293 F.R.D. 639, 644 (N.D.Cal.1991); Pugh Decl. ¶ 22.
The city then argues that the results of the auction are not set in stone: "There is nothing in the Court's orders that requires lead counsel to apply for fees in accordance with the Court's auction grid and we would have expected our attorneys to honor the terms of the Retainer and to have sought our approval before submitting their fee application." See 182 F.R.D. at 152 ("The auction will not obviate the Court's final review of fees and costs pursuant to Rule 23(e).").
The city addresses the auction process. "[A]nother way of looking at the Court's non-binding auction is to view it as a process to determine which counsel will work for the lowest fee; and not as establishing precisely what that fee will be. As it turned out, the counsel chosen by lead plaintiffs agreed to work at the fee determined by the Court to be the `lowest' fee. We now know that the `lowest' fee is that specified in the Retainer."
Finally, the city argues that the auction was an unnecessary intrusion into the rights and duties of Lead Plaintiffs under the PSLRA. The PSLRA specifies that the party "most capable of adequately representing the interests of class members" should serve as Lead Plaintiff. 15 U.S.C. §§ 77z-1(a)(3)(B)(i), 78u-4(a)(3)(B)(i). Usually this means the party or parties with the largest financial stake in the litigation. §§ 77z-1(a)(3)(B)(iii)(I)(bb), 78u-4(a)(3)(B)(iii)(I)(bb). The act further provides that "the most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class." §§ 77z-1(a)(3)(B)(v); 78u-4(a)(3)(B)(v). The city reads this to mean that "the only time lead counsel's right to choose class counsel should be interfered with is when the court deems that choice adverse to the interests of the plaintiff class." See In re Milestone Scientific Securities Litig., 187 F.R.D. 165, 176 (D.N.J. 1999). Here, it asserts, it had already selected counsel in a competitive manner, thus the Court had no right to intervene. In fact, Lead Plaintiffs signed the retainer agreement with BRB and BLBG after conducting their own bidding process. Moreover, the retainer agreement safeguarded the rights of plaintiffs by mandating that Lead Plaintiffs pre-approve all fee requests.
In conclusion, "[b]y substituting an auction and its own fee grid, the court, in effect, nullified lead plaintiffs arm's-length negotiations .... [i]n doing so the Court not only unnecessarily interfered with lead plaintiff's attorney-client relationship with lead counsel ... but ran counter to the policies at the heart of the Reform Act."
Aboff/Sirota
The Joanne A. Aboff Family Trust ("the trust"), represented by the law firm of Sirota & Sirota LLP, objects to the fee request on the grounds that "it is grossly excessive and seeks unprecedented compensation."
First, the trust argues that the settlement documents do not contained sufficient information regarding the lodestar figure "based on the information provided, class members have no way to compare the fee with the amount of work actually performed since the number of hours worked was not stated in the [Settlement] Notice or in the fee application." (The trust estimates that the fee sought is 33 times lodestar.)
Second, the trust contends that it should have been provided with information on competing bids in order to make an informed objection to the fee request.
Third, the trust argues that the fee is "excessive" and "outrageous." The trust cites to In re Prudential that percentage of recovery fee awards should decrease as the size of the recovery increases. 148 F.3d at 339. Here the percentage increases with the recovery. For many of the same reasons presented by the city, the trust states that 8.275% is far above other mega-fund recoveries.
*294 The trust further argues that once the fee request is cross-checked against lodestar, the "magnitude of the windfall sought by lead counsel becomes clear." Aboff Brf. at 9.
Schonbrun
Lawrence Schonbrun objects to the fee request on behalf of his 80-year-old aunt. He asks that before awarding attorneys' fees, the Court (1) require class counsel to file their complete time records and (2) appoint a legal auditor to review the records. Schon. Brf. at 2. He remarks that Professor Coffee, one of plaintiffs' experts, recommends that lodestar records be part of the evidentiary record of all fee determinations, even where a percentage-of-recovery approach is used.
He also takes issue with the statement in the Notice of Settlement that the fee requested "is well below the 25-33% that is customarily sought" as misleading. According to him, many large-fund cases award fees below 30%. He further asks the Court to consider the concept of economies of scale inherent in class actions with many plaintiffs "Obviously it is not 10 times as difficult to prepare, try, or settle, a $10 million case as it is to try a $1 million case." In re Union Carbide Corp. Consumer Prods. Bus. Securities Litig., 724 F. Supp. 160 (S.D.N.Y.1989). He, like the city and the Aboff trust, relies heavily on the Third Circuit's In re Prudential decision.
Throenle
This objector relies primarily on the argument that, compared to lodestar, Lead Counsel's fee represents a "windfall."
D. Response
Lead Counsel respond to the objections first by stating "[e]ach of the fee objectors asks this Court to conduct precisely the type of post hoc fee determination that the Court sought to avoid in setting a percentage-based fee at the outset of the case." Fee Reply at 3. They then address two arguments common to all objectors: (1) given the recovery in the case, the percentage sought is "excessive" and (2) the Court should employ a lodestar "cross-check" to evaluate the reasonableness of the fee request.
Lead Counsel refer to arguments presented in their initial brief, now supported by the declarations of Professors John C. Coffee, Jr., Arthur R. Miller (Reporter for the Third Circuit Task Force on Court-Awarded Attorneys' Fees) and Samuel Issacharoff. Counsel maintain that the requested fee is reasonable compared to other fees awarded in large class action settlements, particularly securities settlements. The NERA[5] study, for example, found that total fees and expenses awarded in securities class cases averaged 34.74% of settlement amounts. See Coffee Decl. ¶¶ 20-23; Miller Decl. ¶¶ 41-44. An additional study by the Law and Economics Consulting Center conducted between 1993 and 1996 found that average fee awards to counsel in securities cases was 32% of recovery. See Coffee Decl. ¶ 27 (citing Vincent E. O'Brien, A Study of Class Action Securities Fraud Cases). Lead Counsel also cite one of the most recent large securities class action settlement in this circuit, In re Ikon Office Solutions, Inc. Securities Litigation, 194 F.R.D. 166 (E.D.Pa.2000). There, Judge Katz approved a 30% fee on a $111 million partial settlement and had the following to say about the size of the fee:
It is difficult to discern any consistent principle in reducing large awards other than an inchoate feeling that it is simply inappropriate to award attorneys' fees above some unspecified dollar amount, even if all of the other factors ordinarily considered relevant in determining the percentage would support a higher percentage. Such an approach also fails to appreciate the immense risks undertaken by attorneys in prosecuting complex cases in which there is a great risk of no *295 recovery. Nor does it give sufficient weight to the fact that "large attorneys' fees serve to motivate capable counsel to undertake these actions."
Id. at 196. Judge Katz also distinguished the unapproved fee request of 6.7% in In re Prudential, a case heavily relied on by objectors here:
In re Prudential does not require a contrary result. The district court there awarded $90 million in attorneys' fees on a settlement estimated to be worth more than $1 billion. While the Third Circuit's decision reversing this award did note that larger settlements usually receive smaller attorneys' fees percentages, much of its concern was case specific. In particular, the court questioned such a large fee when much of the settlement resulted from a Task Force and the work of state regulators. See In re Prudential, 148 F.3d at 342.
Id. at 205 n. 35; see also Miller Decl. ¶ 50.
Lead Counsel contend that there is no merit to the objectors' arguments that the fee should be reduced based on lodestar evaluation. They maintain that injecting lodestar at this stage would result in an unnecessary "renegotiation" of the counsel fee. See Miller Decl. ¶ 45; Task Force Rep., 108 F.R.D. at 257-258 ("By establishing the fee agreement early in the litigation, any and all inducement or inclination to increase the number of Lindy [lodestar] hours will be reduced, since the amount of work performed will not be permitted to alter the contingent fee."). Lead Counsel stress that a lodestar cross-check is not mandatory, as suggested by some objectors, but rather is used where a percentage recovery is not set in advance and the Court has qualms about the settlement's valuation (General Motors) or counsel's contribution to the total recovery (In re Prudential). Coffee Decl. ¶¶ 37-39.
Professors Coffee and Miller also criticize the policies behind lodestar-based fee analyses. Professor Miller states the a pre-determined fee gives the attorney "an incentive to press for the best recovery for the class" as early as possible. Miller Decl. ¶ 51-54. As discussed by the Third Circuit Task Force, lodestar: (1) wastes judicial resources on billable hour calculations; (2) creates a risk of inflated billings; (3) increases conflict between attorney and client; and (4) maximizes unpredictability. See generally 108 F.R.D. at 246-49; Miller Decl. ¶¶ 34-38.
Professor Coffee premises his argument on then Judge, now Chief Judge Posner's theory that:
The object in awarding a reasonable attorney's fee, as we have been at pains to stress, is to give the lawyer what he would have gotten in the way of a fee in an arm's length negotiation, had one been feasible. In other words the object is to simulate the market where a direct market determination is infeasible. ... A recent study finds that "the federal courts appear to have applied, at least implicitly, principles parallel to the market's in determining and awarding attorney fees" in class actions. William J. Lynk, "The Courts and the Market: An Economic Analysis of Contingent Fees in Class-Action Litigation," 19 J. Legal Stud. 247, 260 (1990).
In re Continental Illinois Securities Litig., 962 F.2d 566, 572 (7th Cir.1992) (emphases added).
Professor Coffee builds on this analysis: "By definition, the successful bidder has already offered the lowest price in a competitive market; thus to further reduce its return will frequently be to impose a below-market, uneconomic price on it that it would not have accepted in advance." Decl. at ¶ 43. He adds that the lodestar analysis and the market-based analysis are "fundamentally antithetical." While the auction approach is a market mechanism that works ex ante to induce competing teams of attorneys to charge the lowest fee that will return them an acceptable profit, the lodestar formula is an ex post mechanism of judicial review.
*296 Counsel next justify this Court's imposition of a fee grid that provides for an increasing percentage of recovery as the size of the recovery increases as opposed to setting a decreasing percentage. Aboff and the city suggest that the decreasing fee grid is preferable.
Lead Counsel respond that the increased percentage "properly incentivized" them to seek the largest recovery possible. Professor Issacharoff adds "[in] every settlement, it is always the easiest dollars that come first." He adds that the American Bar Association Rules ("ABA Rules") allow percentages to remain constant or increase as the recovery grows:
[M]any would say that this [increasing percentage] form of contingent fee agreement more closely rewards the effort and ability the lawyer brings to the engagement than does a straight percentage fee arrangement, since everyone would agree that it is the last dollars ... of recovery that require the greatest effort and/or ability on the part of the lawyer.
ABA, Formal Opinion 94-389 § J; see also John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L.Rev. 669, 725-26 (1986) (suggesting "the use of an increasing percentage of the recovery fee formula"). Judge Katz, in Ikon, while awarding a flat percentage recovery of 30%, also criticized decreasing percentage scales:
[T]he court is well aware that most decisions addressing similar settlement amounts have adopted some variant of a sliding fee scale, by which counsel is awarded ever diminishing percentages of ever increasing common funds. This court respectfully concludes that such an approach tends to penalize attorneys who recover large settlements.
In re Ikon, 194 F.R.D. at 196.
Lead Counsel state that objectors' reliance on cases which use or suggest decreasing fee percentages, see In re First Fidelity Bancorp. Sec. Litig., 750 F. Supp. 160 (D.N.J.1990) (Sarokin, J.), ignores the overriding concept of using fee scales set in advance, regardless of the percentage scale: "The percentage of recovery should be negotiated and fixed while the risks and amount of recovery are still unknown." Id. at 163 (emphasis added).
Lead Counsel recognize "[w]hile the outcome of the auction was designed to serve as the benchmark of reasonableness for counsel's fee request, the auction does not obviate the Court's final review of fees and costs pursuant to Rule 23(e) and or 15 U.S.C. § 77z-1(a)(6)." See In re Cendant Corp. Litig., 182 F.R.D. 144, 151 (D.N.J. 1998). Here they suggest no reason to deviate from the "benchmark" set by auction, (1) no part of the recovery can be attributed to the efforts of others, as in In re Prudential; (2) counsel have negotiated a guaranteed cash recovery, cf. General Motors; (3) counsel have acted only in the best interests of the class; (4) the auction was entirely fair no collusion among bidders occurred; and (5) deviating from the auction to make a post hoc determination of reasonableness will affect future auctions: "deviating from the fee grid for the reasons postulated by objectors would cause prospective class counsel to alter their bidding strategies and, in the end, disserve the classes that such auctions are meant to protect."
E. Responses to Specific Objectors
Aboff
Lead Counsel argue that the Aboff trust's objections should be disregarded in light of its counsel's prior involvement in the case. First, Aboff's counsel wrote to the Court in June 1998 and offered to represent the class for a fee "not to exceed 15% of the first $100 million and 10% of any amount recovered in excess of $100 million plus costs." Second, that same counsel, by letter dated June 15, 1998, approved of an auction process. He wrote, *297 "[a] court employing competitive bidding will not be presented with the oft-derided Herculean task of retrospectively setting `fair' compensation for class counsel" and added "a determination of attorneys' fees after the resolution of litigation disserves the class."
In the interests of completeness, this Court must disclose that Mr. Sirota's original offer of a 10%-15% fee was replaced by his auction bid which ranged between 1% and 2% of recovery, and rejected by the Court because Sirota's proposed fee schedule was "unrealistic and against the interests of the class."[6] And because "the circumstance of [the firm] having accused a lead plaintiff of wrongdoing, if not criminal activity" might present an ethical problem.[7]In re Cendant Corp. Litig., 191 F.R.D. 387, 391 (D.N.J.1998).
Lead Counsel also reply to the trust's objections to the adequacy of notice: lodestar need not be required in a settlement notice, the PSLRA only requires a statement of the fees and expenses sought by counsel and an explanation in support of the application. 15 U.S.C. §§ 77z-1(a)(7)(C), 78u-4(a)(7)(C). Nor does the objector provide support for its allegation that losing bids should have been disclosed in the notice.
That said, because Aboff's objections echo those of the other objectors, the Court will discuss them below.
The City
Lead Counsel argue that the City's own submissions and the text of the retainer agreement demonstrate that the fee set at auction should stand:
Roger Pugh's declaration, ¶ 19, concedes that the city was informed that the Retainer Agreement "was in full force and effect except as to the grid, for which [the Court] would substitute the results of the court auction."
Only after the proposed settlement was negotiated (Fall 1999) did the city seek to re-impose the fee terms of the Retainer Agreement on Lead Counsel. *298 Goodman Decl. ¶ 3. It was at this time that it became clear that because of the extraordinary recovery that Lead Counsel had obtained for the Class, the fee under the Court's grid exceeded the fee that would have been allowed under the retainer agreement.
The city failed to seek any appellate review of the bid process or the fee set by auction. Professors Coffee and Issacharoff opine that this is because the city anticipated a settlement only in the low $1 billion range, which would have resulted in a higher fee under the retainer agreement than the auction grid. For support, Professor Issacharoff (¶ 40) relies on a November 1998 e-mail sent by City Counsel Roger Pugh to Class Counsel which suggested they aim for a recovery of $1.2-1.3 billion, half stock half cash. (A recovery below $1.2 million results in a lower fee under the auction grid; a recovery above that amount yields a lower fee under the retainer agreement.)
The city admits that it "underestimated the possible recovery," Pugh Decl. ¶ 21, and "only in hindsight do we know that the Court's grid did not produce the lowest fee structure." Pugh Decl. ¶ 23.
Only the city, out of three co-Lead Plaintiffs, opposes the fee. The Retainer Agreement provided that the prosecution was to proceed "on an equal basis." Professor Coffee hypothesizes that this phrase established a joint venture, where decisions are controlled by the majority. Here, two out of three do not object. Coffee Decl. ¶¶ 72-77.
F. Analysis of Fee Request and Objections
Before analysis of the fee and objections, the Court notes the updated status of In re Prudential, relied upon by both Lead Counsel and objectors. The Third Circuit had vacated and remanded the fee request to the district court after it rejected the 6.7% fee or, at the time, $90 million. See 148 F.3d 283 (3d Cir.1998). On remand, Judge Wolin addressed the changed circumstances of the case and reiterated approval of a $90 million fee award. In re Prudential Ins. Co. of Am. Sales Practice Litig., 106 F. Supp. 2d 721 (D.N.J.2000). In doing so, he found that the recovery was due in large part to efforts of class counsel and not to the work of a related state task force examining Prudential's sales practices. See id. at 733-34.
The Fee
To iterate, the fee sought represents 8.275% of the net class action settlement (expenses deducted) or approximately $262 million.
Following established Third Circuit law and the directive of the PSLRA, the Court will award fees by a percentage-of-recovery method. See In re Prudential, 148 F.3d at 333-34; General Motors, 55 F.3d at 822; In re Prudential, 2000 WL 1009691, at *10; Task Force Report 108 F.R.D. at 255-56; see also 15 U.S.C. §§ 77z-1(a)(6), 78u-4(a)(6) ("Total attorneys' fees and expenses awarded ... shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.").
To evaluate the fee requires a valuation of the benefit to the class. See In re Prudential, 148 F.3d at 333-34 (requiring the court to make a "reasonable estimate" of the settlement's value). This Court wrote when evaluating the settlement:
Before proceeding to the Girsh factors, General Motors directs the Court to determine the value of the settlement to the class. The element of uncertainty in the valuation of the Cendant settlement is the contingent payments to the class by Cendant and the HFS directors from any recovery against E & Y. The Court previously refused to rule the HFS contribution "illusory" or "de minimis" but placed no concrete value on it. In their *299 action against E & Y, the HFS directors claim losses of over $1 billion. Lead Plaintiffs state that these two potential contributions "may prove significant given the extent of damages Cendant and the Individual HFS Defendants are seeking to recover against E & Y." The Court recognizes that this recovery is inchoate but once again affirms that it is not "illusory." This does not mean that valuation is impossible, but only difficult.
Because of this difficulty, the Court used a total settlement amount of $3,186,500.00.[8]See Settlement Opinion, slip. op. at 33-34 (citations omitted). This value will similarly be used to evaluate the fee request. From this amount, the requested expenses of $14,623,806, see Section G below, are deducted, leaving a settlement valued at $3,171,876,194. See In re Cendant, 182 F.R.D. at 151 ("Bidders shall indicate how costs are to be deducted").
The Court must then determine what portion of this recovery should be allocated to the efforts of class counsel. See In re Prudential, 148 F.3d at 335-38; see also In re Prudential, 2000 WL 1009691, at *3. New York City is the only objector to intimate that other factors contributed to the recovery. The city suggests that both the efforts of Lead Plaintiffs and experts hired by Lead Counsel also contributed to class recovery. Pugh Decl. ¶¶ 14, 19; City Brf. at 8, 17-18 ("The results achieved in this case were a function of the efforts of others in addition to lead attorneys") (citing In re Oracle Securities Litig., 136 F.R.D. 639, 644 (N.D.Cal.1991)). In re Oracle, however, was concerned with the imposition of a cap on expenses to prevent their being a proxy for attorney efforts. The city's reliance on Oracle is misplaced because it does not object to requested expenses. It seems instead that the city objects to the traditional use of experts by counsel. The Court finds that argument to be unjustified. Are not experts expected to assist counsel? That is their time-honored purpose in any litigation, whether inter alia, contract, products liability, intellectual property or securities fraud matters.
Nevertheless, the Court cannot award counsel a percentage of the full recovery unless their efforts were "a material factor in bringing about the entire settlement." In re Prudential, 2000 WL 1009691, at *2; In re Prudential, 148 F.3d at 336-38 ("[N]umerous courts have concluded that the amount of the benefit conferred logically is the appropriate benchmark against which a reasonable common fund fee charge should be assessed.").
Unlike In re Prudential, where the Third Circuit opined that a portion of the settlement may have been brought about by a state task force rather than class counsel's efforts, there is no other catalyst for the present settlement than the work of Lead Counsel. See In re Prudential, 148 F.3d at 338. It was Lead Counsel who hired, supervised and worked with the investment banking and accounting experts to whose efforts the city now attributes part of the settlement amount. The city's other alleged catalyst is the work done by itself and co-lead plaintiffs. (This argument was advanced by the city's counsel at the fairness hearing.) Lead Plaintiffs' efforts, however, were those of any other responsible lead plaintiff with a significant stake in the litigation. See 15 U.S.C. §§ 77z-1(a)(3)(B)(iii), 78u-4(a)(3)(B)(iii) (presumption that lead plaintiff in securities action "has the largest financial interest in the relief sought by the class"). This Court will not countenance what amounts to an automatic reduction in attorneys' fees merely because Lead Counsel represented attentive clients. This Court, and no other judicial officer, has maintained direct supervision over the parties from the outset of litigation to the present time. In addition to necessary motion practice, the parties regularly met with and reported to the Court every five or six *300 weeks during this period about the status of negotiations between them. At no time did New York City (or anyone else) represent to the Court that the city was doing (or had done) anything to effect settlement: its demonstrated role has always been that of client an interested one but still a client. Consequently, the Court has no reason to attribute a portion of the Cendant settlement to others' efforts; Lead Counsel were the only relevant material factors for the settlement they directly negotiated.
Appropriate Percentage
The Court looks to a number of factors to evaluate whether the fee requested is an appropriate percentage of recovery. First is "what the market pays in similar cases." In re RJR Nabisco, Inc. Securities Litig., No. 88-7905, 1992 WL 210138, at *7 (S.D.N.Y.); see also In re Continental Ill. Securities Litig., 962 F.2d 566, 572 (7th Cir.1992) ("The object in awarding a reasonable attorney's fee ... is to simulate the market"); Kirchoff v. Flynn, 786 F.2d 320, 324 (7th Cir.1986) ("When the `prevailing' method of compensating lawyers for `similar services' is the contingent fee, then the contingent fee is the `market rate'"); Toshiba, 91 F.Supp.2d at 964-65 (citing Continental and the Third Circuit's task force report on attorneys' fees).
Here this Court need not speculate as to what fee percentage the relevant market would have set for a case of this size. No "simulation" of the market is necessary when the open legal market has actually defined the lowest responsible fee: 8.275% of the settlement. Twelve auction bids, most from law firms national in practice and prominent in the field, reflected the force of market activity to determine appropriate costs. The lowest qualified bid is the result of that market competition. Such result will be accorded weight by this Court as a "benchmark of reasonableness" where a large number of firms, some fifteen many national in practice and reputation bid to provide legal services to the class. In the absence of demonstrated collusion, or even a hint of it, among these bidders, the Court has no reluctance to accept and find the auction's lowest qualified bid as representative of the market.
Another factor considered is the quality of representation, a shorthand reference to "the quality of the result achieved, the difficulties faced, the speed and efficiency of the recovery, the standing, experience and expertise of the counsel, the skill and professionalism with which counsel prosecuted the case and the performance and quality of opposing counsel." In re Ikon, 194 F.R.D. at 194 (citing In re Computron Software, Inc., 6 F. Supp. 2d 313, 322 (D.N.J.1998)).
The quality of result, measured by the size of settlement, is very high. See, e.g., In re NASDAQ, 187 F.R.D. at 487. The Cendant settlement amount alone is over three times larger than the next largest recovery achieved to date in a class action case for violations of the securities laws, and approximately ten times greater than any recovery in a class action case involving fraudulent financial statements. See generally In re Ikon, 194 F.R.D. at 194 (settlement of $111 million "is one of the largest, if not the largest, securities fraud settlement in this district [E.D. Pa.]."). The E & Y settlement is the largest amount ever paid by an accounting firm in a securities class action. The Court also notes that New York City, the fee objector with the largest Cendant holdings, calls the settlement amount a "spectacular number," "substantially more than the parties had anticipated." City Brf. at 11, 8.
Counsel also faced risks of establishing liability and damages against all parties. These risks are discussed in detail in the companion opinion assessing the settlement. They include: establishing liability for Section 10(b) violations against all settling parties, especially E & Y; establishing liability for Section 11 violations against all defendants with due diligence defenses; apportioning liability among Cendant, E & Y, the 28 individual defendants, *301 and other non-defendants; and establishing the amount of damages in the aggregate. See Companion Opinion, 109 F. Supp. 2d 235, 259-62 (D.N.J. 2000).
The settlement was achieved expeditiously, within the one-year unofficial deadline suggested by this Court when it met with all counsel after Lead Counsel had been appointed. Also, Lead Counsel negotiated this settlement in the face of the government's attempt to stay the entire civil action.
Finally, "the standing, experience and expertise of the counsel, the skill and professionalism with which counsel prosecuted the case and the performance and quality of opposing counsel" were and are high in this action. Lead Counsel are experienced securities litigators who ably prosecuted the action: submitted an amended class action complaint, defended the complaint against motions to dismiss, certified the class, noticed the class of pendency of the action, conducted official and unofficial discovery, negotiated settlement, hired and supervised experts, and have defended the settlement. Similarly, defense counsel lived up to their established reputations and vigorously defended their respective clients. As Judge Katz observed in Ikon:
Of particular note in assessing the quality of representation is the professionalism with which all parties comported themselves. The submissions were of consistently high quality, and class counsel has been notably diligent in preparing filings in a timely manner even when under tight deadlines. This professionalism was also displayed in class counsel's willingness to cooperate with other counsel when appropriate.... This co-operation enabled the parties to focus their disputes on issues that mattered most and to avoid pointless bickering over more minor matters.
Id. at 194.
Another method of analysis looks to fees awarded in similar cases. Judge Katz wrote "[a] recent Third Circuit discussion suggested that very large recoveries have generally yielded fees from 4.1 percent to 17.92 percent, but the cases cited in that decision were all decided at least thirteen years ago." He instead followed a more recent analysis of mega-fund recoveries contained in the Toshiba decision. 91 F. Supp. 2d at 972. The Toshiba summary reveals "that awards of fifteen percent (15%) of the recovery or more are frequently awarded in [mega-fund] cases." Id. (listing fee awards in cases between 1993 and 1999).
The Court does not find compelling reliance on In re Prudential to support an argument that mega-fund fees "ought to be" between 4 and 6% of recovery. In re Prudential has been appropriately distinguished by Lead Counsel: When decided by the Third Circuit, both the aggregate recovery and the amount of recovery attributable to class counsel's efforts were unknown. 148 F.3d at 336-40. And there had been no court-conducted auction at the outset of that litigation.
Instead, this Court is impressed by the surveys of securities class action settlements; Third Circuit settlements, particularly Ikon; and mega-fund settlements contained in Lead Counsel's supporting papers. Securities settlements average 32% of settlement, see, e.g., Recent Trends IV: What Explains Filings and Settlements in Shareholder and Class Actions, supra, at 7; settlements in the Third Circuit between 30% and 35% of settlement, see, e.g., cases cited in Lead Counsel's Brf. at 23 & 23 n.8; and mega-fund settlements range from the low of 4.1% the lodestar-based award in In re Baldwin-United Corp. Litig., 1986 WL 12195, cited by the Third Circuit in In re Prudential to the 35% accorded to tobacco firms in Mississippi (of $4 billion settlement). The Court accepts Toshiba's conclusion that fee awards in mega-fund settlements, while below those of conventional class action settlements, fall "in the neighborhood of *302 fifteen percent." Toshiba, 91 F.Supp.2d at 972, 989.
This Court finds from the factors considered (1) the fee set by the "market"; (2) the quality of result and representation; and (3) awards in other settlements 8.275% to be an appropriate and reasonable request.
Cross-Check
Traditionally, the "appropriate" percentage is then subjected to a cross-check. See General Motors, 55 F.3d at 820. This takes the form of a lodestar analysis to determine whether the contemplated fee is reasonable in comparison to the hours expended on the case. Id. The Court finds no need to do this.
Another, more accurate and more realistic benchmark of reasonability exists the fee set by competitive bids in the Court's September 1998 auction. Chief Judge Posner has written, "The object in awarding a reasonable attorney's fee ... is to give the lawyer what he would have gotten in the way of a fee in an arm's length negotiation .... the object is to simulate the market." In re Continental, 962 F.2d at 572. The paragon of reasonableness is the lowest qualified fee available on the open market. The auction process embodies this concept by moving the market-based analysis from the theoretical to the actual. See In re Cendant Corp. Litig., 182 F.R.D. 144, 150 (D.N.J.1998) ("[T]he most effective way to establish reasonable attorney fees is through marketplace (which this Court terms, adversarial) competition."). The winner (whose bid was matched by Lead Counsel) "has already offered the lowest price [for his or her services] in a competitive market." See Coffee Decl. at ¶ 43. Absent circumstances of bid collusion, bad faith, inadequate numbers of qualified bidders or some other infirmity in the auction process, no cross-check is warranted.
To reduce the fee award set by auction would be antithetical to the Task Force's recommendation that a fee agreement be reached early in the litigation and not later re-adjusted once recovery is known. 108 F.R.D. at 257-58 ("the amount of work performed will not be permitted to alter the [pre-determined] contingent fee"). Such is consistent with this Court's reasoning that attorneys should not be rewarded for taking longer to solve a problem nor penalized for expending shorter time.[9]
Recently, the Third Circuit repeated its approval of pre-determined fees. See Gunter v. Ridgewood Energy Corp., 2000 WL 1038142, at *11 n. 6 (3d Cir. July 27, 2000) (Becker, J.) ("We note that the district courts can avoid many of the complications associated with fee awards by setting fee guidelines and ground rules early in the litigation process. Such ground rules may include: developing means of record keeping that facilitate judicial review.... Another approach is for the district court to determine the fee arrangement in advance through competitive bidding. This device appears to have worked well, and we commend it to district judges within this circuit for their consideration." (citing, inter alia, In re Cendant) (emphasis added)); see also In re Cendant Corp. Litig., 182 F.R.D. 144, 151 (D.N.J.1998) ("The Court need not be compelled to learn by hindsight to be told at the end of months or years of litigation, `this is what we seek for services rendered.'").
*303 Consequently, this Court will not adjust the pre-set fee award nor will it abandon this approach because the fee scale used provided for an increasing, rather than decreasing, percentage of settlement. In the past, certain courts have operated on the assumption that "economies of scale" warrant reducing fee awards as the size of a recovery increases. See, e.g., In re Prudential, 148 F.3d at 339. As stated by the Third Circuit: "The basis for this inverse relationship is the belief that `[i]n many instances the increase [in recovery] is merely a factor of the size of the class and has no direct relationship to the efforts of counsel.'" Id.; see also In re NASDAQ, 187 F.R.D. at 486 ("It is generally not 150 times more difficult to prepare, try and settle a $150 million case than it is to try a $1 million case."). It is respectfully suggested that this analysis fails to account for the fact that, realistically, the first dollars offered in settlement are the simplest to achieve; the difficulty lies in getting a defendant to increase its initial offer. E.g., ABA, Formal Opinion 94-389 § J ("it is the last dollars ... of recovery that require the greatest effort and/or ability on the part of the lawyer"). Moreover, the increase in fee percentage as recovery increases was designed to stimulate counsel to strive for ever-increasing recovery. See In re Cendant Corp. Litig., 191 F.R.D. 387, 390 (D.N.J.1998) (the chosen bidder's fee schedule should "represent[] a realistic incentive to pursue a determined resolution of the plaintiffs' cause at a reasonable cost"); see also id. (lowest qualified bid, bidder 9 of 12, "represents a fee calculated to engender and maintain counsel's pursuit of the optimum recovery for the plaintiffs"). The amount of settlement here surprised all of the class, including present objectors. The Court is also unwilling to sanction "economies of scale" timidity. Rather, the Court is of like mind with Judge Katz's pragmatic observations:
[T]he court is well aware that most decisions addressing similar settlement amounts have adopted some variant of a sliding fee scale, by which counsel is awarded ever diminishing percentages of ever increasing common funds. This court respectfully concludes that such an approach tends to penalize attorneys who recover large settlements. More importantly, it casts doubt on the whole process by which courts award fees by creating a separate, largely unarticulated set of rules for cases in which the recovery is particularly sizeable. It is difficult to discern any consistent principle in reducing large awards other than an inchoate feeling that it is simply inappropriate to award attorneys' fees above some unspecified dollar amount, even if all of the other factors ordinarily considered relevant in determining the percentage would support a higher percentage.
In re Ikon, 194 F.R.D. at 196 (emphasis added).
To repeat, this Court finds no need whatsoever to ignore or modify the "benchmark of reasonableness" the September 1998 auction result. Not one objection was made then to the actual process, the number and quality of the bidders, their bids, and the Court-specified conditions. True, New York City comes now to object to the legal underpinnings of the auction but does not challenge the breadth and quality of those who participated in it.
The City
The Court, in September 1998, decided that under the PSLRA, the Court is charged with ensuring that Lead Plaintiff is capable of pursuing the class's claims with vigor and that qualified counsel is chosen who will charge "the best rates for the class." See In re Cendant Corp. Litig., 182 F.R.D. 144, 145-46, 150-52 (D.N.J. 1998) (citing 15 U.S.C. § 77z-1(a)(3)(B)(iii)(I) (lead plaintiff presumption is rebuttable) & § 77z-1(a)(3)(B)(v) (selection of counsel subject to court approval)). The Court therefore set an auction framework for determining the lowest attorneys fees obtainable in the Cendant action. As *304 of the auction, the city was on notice that the "lowest qualified bidder" determined by the Court would be appointed Lead Counsel, unless counsel previously chosen by the co-Lead Plaintiffs "matched" the bid. Neither the city nor other co-Lead Plaintiffs raised an objection to that ruling when issued even after the Court allegedly informed the city that the auction results would supersede any other previous fee arrangement. See Pugh Decl. at ¶ 19 (retainer agreement would be "in full force and effect except as to the [fee] grid, for which [the Court] would substitute the results of the court auction").
The city now appears as a fee objector. Its other co-Lead Plaintiffs, the New York State Common Retirement Fund and the California Public Employees' Retirement System, make no objection. The city argues that given the $3.1 billion recovery, the fee set in the retainer agreement signed by Lead Counsel is lower than the fee set by auction. See Pugh Decl at ¶ 17. The retainer fee set a decreasing percentage-of-recovery fee as recovery increased; the fee set by the Court escalates. The "crossover point" the amount of recovery where the fee set by auction exceeds than that set by retainer agreement is $1.263 billion. Weiss Aff. at ¶ 27(e)(v); Pugh Aff. Ex. D (grid comparing auction and retainer agreement fees). It is only now that the actual recovery is known that the two fee schedules can be evaluated to see which one results in the lowest fee. At a $3.1 billion settlement, the fee set by auction is $262 million; by retainer $186 million.
The city states: "Only in hindsight do we know that the Court's grid did not produce the lowest fee structure." Pugh Decl ¶ 19. This argument is off-target. The purpose of the auction was to obtain the legal market's lowest qualified bid through adversarial competition at the onset of litigation. And it did. The city's fee analysis is precisely the after-the-fact reevaluation of the fee that the Court sought to prevent by setting the fee scale while the size of recovery was unknown. See, e.g., In re First Fidelity Bancorp. Securities Litig., 750 F. Supp. 160 (D.N.J.1990) ("The percentage of recovery should be negotiated and fixed while the risks and amount of recovery are still unknown"); Task Force Rep. at 255-56 ("the district court, on motion or its own initiative and at the earliest practicable moment, should attempt to establish a percentage fee arrangement"). The post hoc comparison advanced by the city, in the words of Judge Sarokin, is "akin to placing a wager after the outcome of the event is known or playing poker with everyone's cards face up." First Fidelity, 750 F.Supp. at 163.
Here the city did not attempt to enforce the grid set out in the retainer agreement anytime before "the outcome of the event [was] known." This objection based entirely on the benefit of 20-20 hindsight will not be accepted. The Court again notes that neither of the other two co-Lead Plaintiffs seeks to enforce the retainer agreement. This lends credence to Lead Counsel's argument that co-Lead Plaintiffs understood that the fee set by auction superseded any earlier fee arrangement.
The city's remaining arguments use of lodestar to cross-check the fee; its reliance on In re Prudential; and the role of Lead Plaintiff have been addressed. This Court affirms its use of an auction process to set attorneys' fees under the PSLRA:
As mentioned, the Court acknowledges lead plaintiffs' statutory opportunity [to choose counsel]. However, whether under the present statute or earlier discipline, the Court is the final arbiter of fees sought by successful plaintiffs' lawyers in this action. See Fed.R.Civ.P. 23(e); 15 U.S.C. § 77z-1(a)(6). The mechanism of an auction gives to the Court a measure of needed foresight to meet its obligations to members of the group. The Court need not be compelled to learn by hindsight to be told at the end of months or years of litigation, "this is what we seek for services rendered."
*305 The Court is required to protect the interests of all members of the class. If Congress had intended otherwise with its PSLRA, it could have easily permitted lead plaintiff to designate and retain counsel without judicial approval. It did not.
In re Cendant, 182 F.R.D. at 151.
Throenle and Schonbrun
Throenle's objection that the fee request is premature ignores the clear statement in the settlement notice that "[a]t the conclusion of the Settlement Hearing ... Lead Counsel will apply" for fees. Notice ¶ 38.
Her objection that Cendant and E & Y should pay the fees ignores the provision in the settlement agreement that all sides are to bear their own legal costs. Notice ¶¶ 23-25.
Schonbrun's assertion that detailed time records should be filed has been addressed in the Court's discussion of lodestar. In re Prudential held that a district court does not abuse its discretion to not require the submission of detailed time records. 148 F.3d at 342. Finally, his objection to the Lazard Frères fee is rejected because the investment bank provided needed services to the class. See Garner Decl; Section G, below.
G. Expenses
Lead Counsel have submitted affidavits which set out their own expenses and those incurred by experts they hired to facilitate litigation and settlement negotiation. The experts have also supplied the Court with declarations which detail their efforts on behalf of the class. Counsel's use of the experts, particularly Lazard Frères, is also set out in the companion opinion assessing settlement. "There is no doubt that an attorney who has created a common fund for the benefit of the class is entitled to reimbursement of ... reasonable litigation expenses from that fund." Lachance v. Harrington, 965 F. Supp. 630, 651 (E.D.Pa.1997).
The bulk of counsel's expenses relate to the use of Lazard Frères, whose fee correlates to the amount of recovery in the Cendant settlement. This investment bank was selected by Lead Counsel using an auction process to find the best expert at the lowest cost to the class. Joint Decl. at ¶ 152. Lead Counsel discussed the necessity for and retention of such experts informally with the Court early on. The Court had no objection then and none now. It expected competent counsel to seek competent assistance, if required, in a case of this magnitude. According to Lead Counsel, the analysis prepared by Lazard Frères "assisted significantly in settlement negotiations ... and were significant in Lead Plaintiffs' decision to agree to the Cendant settlement." Joint Decl. ¶ 120, ¶¶ 112-19, 151-54 (detailing efforts of experts); see also Garner Aff. The expertise of Forensic Economics, Marks Paneth, and Arthur S. Ainsberg also were necessary to the successful negotiation.
The Court concludes that the expenses are reasonable and were necessary to the class. This case, this class, required and demanded quality evaluation and prosecution of the claims against the defendants. The outstanding result justifies the expenditures for expert advice. Usually one gets what one pays for; here significant help in negotiating this colossal settlement from qualified experts. This Court does not recognize "reasonable" as a synonym for "cheap." Reasonableness of price reflects the force of market competition by qualified providers of requested services. Lead Counsel are also entitled to be reimbursed $528,812 in law firm costs which include such expenses as photocopying and electronic research.
"Class Counsel has provided adequate accountings of litigation expenses which tie the purported expenses to a specified legal product." NASDAQ, 187 F.R.D. at 489-90; Joint Decl. ¶ 151. The requested allowance of expenses is approved.
*306 However, the circumstances and timing of the settlement do not warrant the grant of interest on fees and costs sought by Lead Counsel.
H. PRIDES Counsel's Fee Request
PRIDES Lead Counsel has petitioned for counsel fees because of an issue discussed by him regarding post-April 15, 1998 claims. However, Lead Counsel also raised and discussed that issue. The Court is constrained to find such duplication coincidental; an award of fees in this action would not be warranted.
I. Conclusion
In calling for a fee auction in September 1998, the Court said that "this is not an invitation for cheapness of costs resulting from cheapness of quality" and anticipated "that professional skills of high order will be forthcoming by this procedure." In re Cendant, 182 F.R.D. at 152. That confidence has been realized by excellent settlements of uncommon amount engineered by highly skilled counsel with reasonable cost to the class. And effected within a pragmatic timetable. Attorneys' fees in the amount of $262,468,857 and expenses of $14,623,806 are awarded.
NOTES
[1] Those who wanted to be Lead Counsel to PRIDES holders made separate bids.
[2] In In re Prudential, the Third Circuit affirmed approval of the settlement but vacated the fee award and remanded for further consideration. While Lead Counsel's fee request was before this Court, the district court issued a new fee opinion, In re Prudential Ins. Co. of Am. Sales Practice Litig., 106 F. Supp. 2d 721 (D.N.J.2000).
[3] It should be recorded that BLBG and BRB's fee grid submitted as their auction bid was not identical to the fee grid set in the retainer agreement.
[4] Conversely, according to the city, "[s]hould the Court honor the Retainer negotiated by Lead Plaintiffs and lead counsel, and should lead plaintiff opt not to consider the retainer grid fees as a cap, lead counsel would realize a fee of $186 million. This is 23.2 times lodestar or $7710 per hour."
[5] NERA acted as Cendant Corporation's damages expert during litigation.
[6] In detail:
It does not appear that this bidder has a history of actual trial litigation, although it has obtained significant settlements for its clients. The Court accepts counsel's representation that it would post a performance bond in any amount which the Court directs. The proposed fee schedule, which begins at 1% and escalates to 2% in the event of a $500 million settlement during the discovery period, and a flat 2% for settlement in any amount during trial activity, is not, upon examination, professionally sound. One must view this "magnanimous" offer against the realities of the cost of litigation, the deployment and commitment of experienced counsel and support personnel of several firms, and the required expenses and expenditures associated with such commitment. Unless the eventual monetary recovery in this case is in the billions, such an apparently "cheap" fee schedule does not make professional sense. In addition, this quasi-philanthropic effort does not auger well as a realistic incentive to pursue a determined resolution of the plaintiffs' cause. The Court is constrained to conclude that the bid schedule is unrealistic and against the interests of the class.....
191 F.R.D. at 391.
[7] In September 1998, Aboff's counsel charged:
that counsel for the CalPERS group had made substantial contributions to the campaign of the New York State Comptroller, who, as sole trustee of the [New York State Common Retirement Fund], has substantial influence over the decisions of the fund. This, they argued, created an appearance of impropriety because the contributions may have played a role in the selection of the group's counsel a practice known as "pay-to-play."
In re Cendant Corp. Litig., 182 F.R.D. 144, 148-149 (D.N.J.1998). When asked to present any proof of this alleged wrongdoing "put up or shut up" they admitted they could not, and the allegation was dismissed by the Court. Id. at 149. In October 1998, the Court noted:
that among the factors which disqualified one bidder was the circumstance of its having accused a lead plaintiff of wrongdoing, if not criminal activity. Under those circumstances, it would be contrary to good practice and ethically dubious to permit that bidder to serve as lead counsel to that plaintiff.
191 F.R.D. at 391.
[8] Lead Counsel do not seek fees on the benefit to the class conferred by corporate governance changes negotiated as a settlement provision.
[9] Court: The point is this, I said something months ago which I'm afraid, I hope, when I said it I regretted that I said it that way upon reflection. I take it back to an extent. I said in discussing something similar, I said something along the lines that if it took a smart person 45 minutes to do something and it took me two hours to do it and it took somebody else two and a half hours, I said something about ... be[ing] an elitist to say I have no problems with the person who did it in 45 minutes. He or she should be rewarded. And the more I think about it I misspoke. It's not a question of elitism. Not at all. It's just a question of recognition of talent.
Fairness Hearing Tr. at 143 (June 28, 2000).
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2522827/
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109 F. Supp. 2d 902 (2000)
(SUPPRESSED), Plaintiff,
v.
(SUPPRESSED), Defendants.
No. 00 C 4590.
United States District Court, N.D. Illinois, Eastern Division.
July 28, 2000.
MEMORANDUM CONCERNING ISSUANCE OF TEMPORARY RESTRAINING ORDER
KENNELLY, District Judge.
On July 28, 2000, this Court, sitting as Emergency Judge, issued an ex parte temporary restraining order against the defendants in this case.[1] The purpose of this Memorandum is to explain the Court's decision not to enter certain aspects of the order requested by plaintiff.
*903 The plaintiff operates cable television systems throughout the United States. To secure its product, which consists mainly of copyrighted works, plaintiff encodes or scrambles the premium and pay-per-view programming services that it transmits and provides subscribers who purchase these services with a converter that is programmed to descramble only those programming services that the customer has purchased.
In December 1999, plaintiff began an investigation of defendants, a corporation and its suspected principals, after learning that they were selling descrambling devices. Plaintiff conducted an undercover investigation, which included purchases of the devices from defendants. It then tested the devices and determined that they were designed to descramble all of the scrambled premium and pay-per-view programming services offered by plaintiff. The manufacturer of the devices analyzed the devices purchased from defendants and determined that they had been altered to permit them to receive without authorization all of plaintiff's scrambled premium and pay-per-view services.
The Communications Act provides that no person shall intercept or receive, or assist in intercepting or receiving, any communications services offered over a cable television system unless authorized to do so by the cable operator. 47 U.S.C. § 553(a)(1). "Assisting" is defined as including the manufacture and sale of equipment intended for unauthorized reception of cable television service. Id. § 553(a)(2). The legislative history of the statute indicates that § 553(a)(2) was intended to prevent the manufacture and distribution of unauthorized descrambling devices like those allegedly offered by defendants. H.R.Rep. No. 934, 98th Cong., 2d Sess. 84 (1984), reprinted in 1984 U.S.Code Cong. & Admin.News 4655, 4721.
Section 553(c)(1) permits a person aggrieved by a violation of § 553(a)(1) to bring a civil action in federal court. Section 553(c)(3) allows the plaintiff to recovery actual damages as well as the defendant's profits, as well as a penalty. Section 553(c)(2) permits the issuance of a temporary injunction to prevent violation of § 553(a)(1). On July 27, plaintiff filed this action against the defendants seeking damages, disgorgement of profits, and penalties, and it also filed an ex parte motion for a temporary restraining order. As indicated earlier, the motion for temporary restraining order came before this Court, sitting as Emergency Judge.
In the motion, plaintiff sought an ex parte order to: 1) restrain defendants from offering or selling descrambling devices; 2) restrain them from destroying their books and records, including financial records; 3) freeze their assets; 4) direct them to identify within one day all their assets, including any held within the prior year; 5) grant plaintiff expedited discovery from the defendants, their accountants, and others acting on their behalf; 6) direct defendants to provide, within two days, an accounting of all sales and purchases of descrambling devices from 1995 to the present, including profits, transfers, and withdrawals of assets; 7) authorize and direct the United States Marshal to enter defendants' business premises (using force if necessary) and seize all of their records, including computer hard drives, servers, disks, and tapes, as well as examples of the descrambling devices; 8) direct defendants to disclose, at the time of the seizure, any other location where they have records or descrambling devices; and 9) authorize and direct the United States Marshal to go to the places identified by defendants, enter them (using force if necessary) and seize any records located there.
Plaintiff's request for ex parte consideration of the motion was amply supported, as required by Fed.R.Civ.P. 65(b), by affidavits indicating that if plaintiff were required to give notice of the order, there would be a significant risk that defendants would destroy or conceal the descrambling devices, their books and *904 records, and/or their assets. The Court likewise concluded that plaintiff had demonstrated all of the factors necessary to obtain a temporary restraining order barring defendants from selling the devices; permitting plaintiff, via the United States Marshal, to enter defendants' premises and seize records; and to freeze defendants' assets for a brief period until a full hearing could be held. See Fed.R.Civ.P. 65(b) (temporary restraining order issued ex parte may last no more than ten days).[2]
The Court declined, however, to enter several aspects of the ex parte order requested by plaintiff, specifically, the proposed provisions directing defendants to disclose their assets, to make an accounting of their purchase and sales of the descrambling devices, and to disclose locations other than the one already known to plaintiff where defendants might have records or more of the devices. The purpose of this Memorandum is to explain why the Court declined to do these things.
As disclosed by plaintiff in its ex parte motion, the sale of decoding devices like those defendants are claimed to have offered and sold is prohibited by federal criminal statute, see 47 U.S.C. § 553(b), as well as by Illinois criminal statute, see 720 ILCS 5/16-10(a)(4). Under the circumstances, information disclosing defendants' purchases and sales of the devices, the revenues obtained from those sales, the assets they now have that may have been derived from those sales, and the locations where they keep their records and other descrambling devices is, without question, information that might tend to incriminate the defendants. See, e.g., FTC v. H.N. Singer, Inc., 668 F.2d 1107, 1114 (9th Cir. 1982) (recognizing that preliminary injunction requiring defendant to disclose records might implicate Fifth Amendment); SEC v. Rehtorik, 755 F. Supp. 1018, 1019 (S.D.Fla.1990) (order compelling accounting in civil case "would directly impinge [defendant's] right against self-incrimination"); SEC v. College Bound, Inc., 849 F. Supp. 65, 67 (D.D.C.1994) (compelled accounting implicates defendants' Fifth Amendment privilege); In re Interbanque, Inc., No. 95-364, 1996 WL 762330, at *5-6 (Bankr.D.D.C.1996) (same). See generally United States v. Hubbell, ___ U.S. ___, 120 S. Ct. 2037, 147 L. Ed. 2d 24 (2000) (Fifth Amendment protects individual from responding to subpoena for broad categories of business records absent grant of immunity).
There is no question that an accounting is an equitable remedy traditionally available in cases in which the defendant holds or held an asset in which the plaintiff has an interest. Here, however, plaintiff sought a road map to locate potentially incriminating evidence. And it sought this remedy ex parte. Had the Court granted the order plaintiff sought, the United States Marshal would have sent his deputies to defendants' place of business, and at the same time the Deputy Marshals were seizing the defendants' records, computers, and descrambling devices (by force if necessary), they would have served defendants with a court order, signed by a federal judge, requiring the defendants to disclose potentially incriminating information. Though an accounting is a remedy that has long been available in courts of *905 equity, the potential for criminal prosecution and the circumstances under which an ex parte order of this type is obtained and would have been served make what plaintiff sought different in kind, and not simply in degree, from an accounting ordered at a more advanced stage of litigation, after the adversary process has run its course.
It is difficult for this Court to imagine how an ex parte court order compelling the individual defendants[3] to provide such information can coexist with the Fifth Amendment. When the Court posed this issue to plaintiffs' counsel at the time they presented their motion, counsel initially responded that the defendants, upon service of the order, certainly would have the right to decline to provide the information if they chose to do so. But as indicated above, the order is designed to be served in conjunction with a forced entry upon defendants' premises conducted by federal law enforcement agents an inherently coercive encounter. It is highly unlikely that an ordinary citizen, confronted with such a show of force and served with a federal court order directing him to provide information (some of it immediately), would have the faintest idea that he had the right to refuse to do so. Certainly nothing within the order proposed by plaintiff directed the agents to advise the defendants of their constitutional right to refuse to provide the information, and even if such a provision were added (an option the Court also considered), the same ordinary citizen might not be expected to understand such advice from a law enforcement agent as trumping a judge's order directing disclosure.
The Court has also examined the authorities cited by plaintiffs to support the proposition that expedited discovery is appropriate in a "cable piracy" case like this one; none of these cases address the Fifth Amendment implications of ordering an individual, as part of an ex parte restraining order, to provide potentially incriminating information. See Time Warner Cable of New York City v. M.D. Electronics, Inc., 101 F.3d 278 (2d Cir.1996); Time Warner Cable of New York City v. Freedom Electronics, 897 F. Supp. 1454 (S.D.Fla.1995); Century ML Cable Corp. v. Carrillo Diaz, 43 F. Supp. 2d 166 (D.P.R. 1998); Intermedia Partners Southeast v. QB Distributors, 999 F. Supp. 1274 (D.Minn.1998); TKR Cable Co. v. Cable City Corp., No. 96-2877, 1996 WL 465508 (D.N.J. July 29, 1999). If plaintiff serves discovery requests seeking the information that the Court refused to compel, the individual defendants will at least have time to consider the requests, consult with counsel, and determine whether they ought to assert their privilege against self-incrimination.
NOTES
[1] The Court also granted plaintiff's request to file the case under seal pending service of the restraining order.
[2] In Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 119 S. Ct. 1961, 144 L. Ed. 2d 319 (1999), the Supreme Court held that a district court has no authority to issue a preliminary injunction to prevent a defendant from disposing of its assets pending adjudication of the plaintiff's claims for monetary damages. The Court acknowledged, however, that in a suit seeing equitable relief, a restraint on transfer of assets may be appropriate to preserve the status quo. Id. at 1971-72. Section 553(c)(3)(A)(i) provides for "damages" consisting of disgorgement of the defendant's profits, an equitable remedy, making a temporary asset freeze permissible under the law. See CSC Holdings, Inc. v. KDE Electronics Corp., No. 99 C 1556, 2000 WL 284005, at *2 (N.D.Ill. Mar. 13, 2000) (Pallmeyer, J.); see also, e.g., United States ex rel. Rahman v. Oncology Associates, P.C., 198 F.3d 489, 498 (4th Cir. 1999).
[3] A corporation does not have a Fifth Amendment privilege. See, e.g., Braswell v. United States, 487 U.S. 99, 106-07, 108 S. Ct. 2284, 101 L. Ed. 2d 98 (1988). An individual who serves as the corporation's custodian of records may be compelled, consistent with the Fifth Amendment, to produce the corporation's records, but no evidentiary use of the act of production may be made against that individual. Id. at 117-18, 108 S. Ct. 2284.
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109 F. Supp. 2d 732 (2000)
UNITED STATES of America, Plaintiff,
v.
Lawrence M. KAIGLER and Patsy D. Kaigler, Defendants.
No. 1:99CV1345.
United States District Court, N.D. Ohio, Eastern Division.
May 31, 2000.
Annette G. Butler, Office of the U.S. Attorney, Cleveland, OH, Joseph L. Meadows, Department of Justice Tax Division, Washington, DC, for United States of America, plaintiff.
Lawrence M. Kaigler, Bratenahl Village, OH, for defendants.
*733 MEMORANDUM OF OPINION AND ORDER RE: DENYING DEFENDANTS' MOTION TO RETURN FUNDS
MATIA, Chief Judge.
The within matter is before the Court on defendants' motion to return funds wrongfully seized from a third party (Doc. 17). The Court has considered defendants' motion, the materials in support of the motion, and the reply memorandum (Doc. 20). The Court has also considered plaintiff's memorandum in opposition (Doc. 19). For the reasons set forth below, the Court will DENY defendants' motion.
I. Background
Beginning in 1989, the Internal Revenue Service ("IRS") made assessments against Lawrence and Patsy Kaigler for joint federal income tax liabilities, related penalties, and interest. All told, the IRS made four assessments against the Kaiglers, showing tax liabilities in four separate fiscal years.[1] With each assessment the IRS issued notice and demands for payment to the Kaiglers. Despite these notices, the Kaiglers failed to pay. On June 3, 1999, the United States filed this action to reduce the assessments of federal tax liabilities to judgment pursuant to 26 U.S.C. § 7401.
Unfortunately for the Kaiglers, their financial problems did not end with federal taxes. In 1997, residential property once owned by Lawrence Kaigler became the subject of a foreclosure action in state court. Upon notice of the foreclosure, the IRS placed a federal tax lien on the property to recoup the Kaiglers' tax debt. The foreclosed property sold via sheriff's sale on November 8, 1999. In accord with the tax lien, the IRS seized proceeds from the sale and applied that amount to the assessments. At the status hearing in the instant case, the IRS proposed dismissing this action because the levied funds satisfied the Kaiglers' tax obligations in full.
The Kaiglers declined the United States' offer to end this suit. Not only did Lawrence Kaigler refuse to stipulate to a dismissal,[2] but he charged the IRS with wrongfully seizing funds from the foreclosure sale. Mr. Kaigler explained that his mother, Edith Kaigler, owned the foreclosed property due to a quit-claim deed executed in 1987. (Mot. to Return Funds (Doc. 17) Ex. B) As such, Mr. Kaigler believed that the IRS improperly applied proceeds from the sale of his mother's property to the tax assessments involved in this suit.
While Mr. Kaigler's desire to resolve his mother's property rights is understandable, the manner in which he sought resolution was unusual. Rather than assisting his mother with a possible claim for relief,[3] Mr. Kaigler urged the Court to allow him to resolve the issue in this action an action where Edith Kaigler was not a party. Further, Mr. Kaigler argued that a "motion to return funds" was the most appropriate course of action. Notwithstanding the fact that the motion appeared to be asserting a new claim, the United States questioned the Court's ability to hear the motion within the confines of this action. At the status hearing, Mr. Kaigler assured the Court that he had authority supporting his position and was granted leave to file the motion.[4]
*734 II. Discussion
For the reasons that follow, the Court finds that the "motion to return funds" is not the appropriate mechanism to achieve a remedy for Edith Kaigler. First, the motion is not a motion at all; rather, it clearly raises new claims out of rule. More important, the plain language of the tax code and the cases interpreting that language weigh against granting the motion. While Mr. Kaigler prudently acknowledges that his request is unusual, he fails to cite anything that would indicate this Court's ability to deviate from staunch precedent. In short, Mr. Kaigler's assertion that the IRS illegally collected funds from Edith Kaigler cannot overcome both the procedural and substantive obstacles facing his motion.
A.
Procedurally, Mr. Kaigler's filing appears to be more amended pleading than motion. The Court can only conclude that the document is pleading a new cause of action under 28 U.S.C. § 1346(a)(1) or 26 U.S.C. § 7426. Not only does the motion cite these statutes as bases for relief, but claims under those statutes are the only avenue to the refund Mr. Kaigler seeks. While mistakenly calling a pleading a motion will not bar Mr. Kaigler's claim, the form and timing of the motion prevent the Court from treating it as an amended pleading.
First, the motion runs afoul of the pleading requirements detailed in Fed. R.Civ.P. 7(a) and 8. Simply put, the form of the motion does not satisfy the minimal standards for federal pleadings. More important, even if the Court were to ignore form and treat the motion as a pleading, Mr. Kaigler's claims are untimely. As counsel for the United States correctly raised at the status hearing and in his memorandum, the period for amending the pleadings expired prior to Kaigler's claim for relief.
Fed.R.Civ.P. 15(a) prohibits parties from amending the pleadings without obtaining leave from the Court.[5] This matter, however, has progressed beyond the point where the Court would grant leave to amend the pleadings and add parties. Not only does the Court find Mr. Kaigler's motion to be an amended pleading filed without leave in violation of Fed.R.Civ.P. 15(a), but it is worth noting that the motion goes against this Court's Case Management Plan. The Case Management Plan specifically ordered the parties to complete all amended pleadings and joinder of parties by January 26, 2000. (Case Management Plan (Doc. 12) at 2.) Mr. Kaigler filed his motion on February 14, 2000. Given that the motion contravenes both the federal rules and an Order, the Court declines to treat Kaigler's motion as an amended pleading at this late stage.
B.
Even assuming that a motion is procedurally correct in this instance, the Court lacks jurisdiction to grant the relief Mr. Kaigler seeks. Although his motion cites two potential jurisdictional threads, Mr. Kaigler cannot tie either to this case. First, he asserts that this Court has original jurisdiction to hear the matter under 28 U.S.C. § 1346(a)(1). This is not wholly untrue. Section 1346(a)(1) grants district courts concurrent jurisdiction with the Court of Claims over civil actions to recover tax revenue "alleged to have been erroneously or illegally assessed or collected." It is well established, however, that *735 § 1346(a)(1) does not apply until the claimant satisfies 26 U.S.C. § 7422.[6] Section 7422 requires taxpayers to file a refund claim with the IRS prior to any suit to recover tax assessments. In the Sixth Circuit, "a refund claim filed with the I.R.S. is a jurisdictional prerequisite to a refund action in the federal district court." Firsdon v. United States, 95 F.3d 444, 446 (6th Cir.1996). There is no record, or mention, of a refund claim being made in the instant action. Thus, Mr. Kaigler's attempt to secure a remedy under § 1346(a)(1) must be denied because the predicates of § 7422 have not been satisfied.
As an alternative to § 1346(a)(1), Mr. Kaigler argues that this Court has jurisdiction pursuant to 26 U.S.C. § 7426(a)(1). Unlike § 1346(a)(1), § 7426 allows a third person to file suit for wrongful levy of funds without filing a refund claim with the IRS.[7] The problem in this action is that the relevant third party, Edith Kaigler, did not file this claim. Instead, Mr. Kaigler is attempting to avail himself of § 7426 on his mother's behalf. Section 7426 expressly prohibits this course of action. In relevant part § 7426(a) reads:
If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary (emphasis added). Thus, while Mr. Kaigler correctly states that Edith Kaigler may have a wrongful levy action under § 7426, the remainder of the statute makes it clear that he is barred from filing that claim.
Despite these jurisdictional problems, Mr. Kaigler contends his claim should be an exception to the rule. Kaigler acknowledges that "the literal language of these pertinent statutes adhere [sic] to the general principle that a party taxpayer is prohibited from challenging the tax liabilities of others." (Mot. to Return Funds (Doc. 17) at 3.) He argues, however, that the "significant mischiefs by the IRS are sufficient to mitigate the burden on the principle that a party may not challenge the tax liability of another." (Mot. to Return Funds (Doc. 17) at 4.) Mr. Kaigler asserts that by [1] failing to name Edith Kaigler to this lawsuit, and by [2] failing to give her notice of the tax deficiency before filing a lien, the IRS disregarded the tax code. According to Mr. Kaigler, these alleged violations warrant an exception to the statutory language and sovereign immunity.
The Court disagrees. Nothing in the record indicates that the IRS "recklessly and intentionally disregarded the Internal Revenue Codes." Although Mr. Kaigler charges the IRS with violating two specific statutes, the Court finds that neither provision applies in this case. More important, even if the alleged violations occurred, they do not supplant the doctrine of sovereign immunity in favor of Mr. Kaigler. In short, there is no justification for treating Mr. Kaigler's motion as a special exception to clear statutes.
First, the IRS did not act recklessly in failing to name Edith Kaigler a party to this case. Citing 26 U.S.C. § 7403(b), Mr. *736 Kaigler argues that Edith Kaigler should have been a party, and the IRS's failure to do so constitutes reckless violation of the tax laws. Section 7403(b), however, does not apply to the instant case. Rather, that section operates only in actions brought by the Attorney General under 26 U.S.C. § 7403(a) to enforce a tax lien. Here, the United States filed suit to reduce tax assessments to a judgment under § 7401, not to enforce a lien. Clearly, the IRS had no obligation to make Edith Kaigler a party to this action when the assessments in question were not made against her.
Alternatively, Mr. Kaigler argues that Edith Kaigler should have been served tax delinquency notices under 26 U.S.C. § 6212(a). Section 6212(a) authorizes the IRS to "send notice of such deficiency to the taxpayer by certified mail or registered mail." Because Edith Kaigler is not the deficient taxpayer in this case, the IRS was not authorized to serve her notice. The IRS certainly could not have "recklessly and intentionally disregarded the Internal Revenue Codes" by failing to serve Edith Kaigler pursuant to § 6212(a); they followed the tax code to the letter.
Lastly, Mr. Kaigler's allegations do not surmount the United States' best defense sovereign immunity. It is axiomatic that "(t)he United States, as sovereign, is immune from suit save as it consents to be sued ..., and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Mitchell, 445 U.S. 535, 538, 100 S. Ct. 1349, 63 L. Ed. 2d 607 (1980) (quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S. Ct. 767, 85 L. Ed. 1058 (1941)).
Mr. Kaigler fails to cite any authority showing that the United States waived sovereign immunity for the claims he raises. Regardless of the conduct of the IRS, the Court cannot imply a waiver of sovereign immunity from Mr. Kaigler's allegations. See Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96, 111 S. Ct. 453, 112 L. Ed. 2d 435 (1990).[8] Absent citing a specific statutory waiver of sovereign immunity, this Court is without jurisdiction to grant the remedy requested in Mr. Kaigler's motion. The combination of the exacting standard required to escape sovereign immunity and the absence of authority waiving immunity in favor of Mr. Kaigler leave this Court with no option but to also deny the motion for want of subject matter jurisdiction.
III. Conclusion
The Court finds that the relief sought by Mr. Kaigler's motion is barred for the reasons detailed above. Accordingly, the Court DENIES the motion to return funds wrongfully seized from a third party (Doc. 17).
IT IS SO ORDERED.
NOTES
[1] The IRS made assessments in 1989, 1991, 1995 and 1996, for tax years 1988, 1990, 1994 and 1995, respectively. The Kaiglers owed approximately $51,357.96. (Compl.(Doc.1) at 2.)
[2] The parties entered into a stipulation of judgment on April 5, 2000 (Doc. 21). While the parties reached an agreement as to the tax assessments, the stipulation did not address the Kaiglers' motion and counterclaim.
[3] Lawrence Kaigler is a member of the Ohio bar and has represented his own interests throughout this matter.
[4] While Mr. Kaigler has clearly controlled the course of this litigation for defendants, it is worth noting that he does not represent his wife, Patsy Kaigler. Citing a potential conflict of interest, the Court disqualified Mr. Kaigler from representing his wife. (Order Disqualifying Counsel of 10/4/99 (Doc. 13).) Mrs. Kaigler chose to proceed in this action pro se. Nevertheless, by signing a concurrence attached to each of Mr. Kaigler's filings, she has adopted the content of those documents as her own.
[5] Procedurally, Mr. Kaigler could have avoided these form and timing defects by filing a motion for supplemental pleadings under Fed.R.Civ.P. 15(d). This solution, however, would only have solved the procedural failings of the motion. As discussed below, the substance of Mr. Kaigler's motion prevents this Court from hearing the claim.
[6] See, e.g., Jorrie v. Imperial Inv. Co., 355 F. Supp. 1088, 1091 (W.D.Tex.1973) ("Section 7422 of the Internal Revenue Code of 1954 (26 U.S.C. § 7422) lists the requirements necessary before a civil suit for refund under the authority of Section 1346(a)(1) may be maintained. These statutory pronouncements must be taken in conjunction and are not, as plaintiffs would urge, separate waivers of sovereign immunity, each with different requirements.").
[7] Section 7426(f) reads: "The provisions of section 7422(a) (relating to prohibition of suit prior to filing claim for refund) shall not apply to actions under this section."
[8] Cf. United States v. Tenn. Air Pollution Control Bd., 185 F.3d 529, 531 (6th Cir.1999) ("Any waiver of sovereign immunity must be `unequivocally expressed in statutory text'" (quoting Lane v. Pena, 518 U.S. 187, 192, 116 S. Ct. 2092, 135 L. Ed. 2d 486 (1996))). In fact, "a waiver of the Government's sovereign immunity will be strictly construed, in terms of its scope, in favor of the sovereign." Lane, 518 U.S. at 192, 116 S. Ct. 2092; Tenn. Air Pollution Control Bd., 185 F.3d at 531.
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109 F. Supp. 2d 142 (2000)
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
CREDIT BANCORP, LTD., et al., Defendants.
No. 99 CIV. 11395 RWS.
United States District Court, S.D. New York.
June 15, 2000.
*143 Salt Lake City, UT (Thomas M. Melton, of counsel), S.E.C., New York City (Robert Blackburn, of counsel), for Plaintiff.
Morrison & Foerster, New York City by Carl H. Loewenson, Receiver and Fiscal Agent, for Receiver.
McCambridge, Deixler & Marmaro, Los Angeles, CA (Richard Marmaro, of counsel), for Defendant Richard Jonathan Blech.
Milbank, Tweed, Hadley & McCloy, New York City (Andrew Tomback, of counsel), for Defendant Thomas Michael Rittweger.
Getty, Keyser & Mayo, Lexington, KY (Richard A. Getty, of counsel), for Defendant Douglas C. Brandon.
Rosenman & Colin, New York City (Joel W. Sternman, of counsel), Stoel Rives, Portland, or (Joel A. Mullin, Scott J. Kaplan, of counsel), for Intervenor Robert Praegitzer.
Barger & Wolen, New York City (Michael J. Levin, of counsel), for Intervenor Centigram Communications Corp.
Lambos & Junge, New York City (Armand P. Mele, of counsel), for Intervenors.
Stephen J. Cole-Hatchard, Cole-Hatchard Family Limited Partnership, Nicko Feinberg and Michael Olbermann, Sheldon A. Weiss, Mountainside, NJ, for Intervenor Robert Praegitzer.
Hogan & Hartson, New York City (Lyndon M. Tretter, of counsel), for Intervenor Gene W. Ray.
MEMO OPINION
SWEET, District Judge.
By Notice of Motion dated April 10, 2000, the law firm of Baker & McKenzie moved for clarification concerning ownership of the retainer paid to Baker & McKenzie for services rendered prior to the November 17, 1999 asset freeze order in this action. This motion is opposed by Carl H. Loewenson, Jr. (the "Receiver"). Oral argument was held on May 3, 2000, at which time the matter was deemed fully submitted.
Facts
Prior to the commencement of this action, in January 1998, Baker & McKenzie was retained by Credit Bancorp, Ltd. ("Credit Bancorp") to perform certain legal services. Pursuant to the engagement letter of May 21, 1999, Credit Bancorp deposited funds into a client trust account (the "Trust Account") at Baker & McKenzie (the "Trust Funds").
The relevant paragraph of the engagement letter from Baker & McKenzie to Credit Bancorp states:
As agreed, you are providing us as initial fee in the amount of $100,000, to be delivered as soon as practicable (account details will follow upon acceptance of these terms). This amount will be held in our Trust Account, and we will apply all or a part of that advance in payment of our monthly billing. Subsequent developments in the matter may warrant an appropriate increase or decrease in the amount of the retainer. Upon conclusion of our work for you, we will credit the balance in out Trust Account to our final invoice, and we will return any excess amount to you.
*144 On June 29, 1999, Baker & McKenzie billed Credit Bancorp for legal services, and on or about the same date caused that amount to be transferred from the initial deposit by Credit Bancorp of $100,000 being held in the Trust Account. Subsequently, Credit Bancorp "replenished" the amount in the Trust Account with two payments of $100,000 each on July 7, 1999 and July 29, 1999.
Due to an unspecified "clerical error," Baker & McKenzie did not send any further invoices to Credit Bancorp until November 16, 1999, hours before the asset freeze was entered in this action. Due to a further unspecified clerical error, Baker & McKenzie did not draw down the Trust Funds to pay any of these invoices prior to the imposition of the asset freeze. As of the asset freeze order, the amount held in this account was $201,144.99. These funds had not been drawn down on or about November 19, 1999, which is when Baker & McKenzie asserts that it became aware of the existence of this action and the asset freeze. Baker & McKenzie further states that it determined in good faith not to draw down the funds at that point pending clarification by this Court.
Discussion
Baker & McKenzie Did Not Own The Funds As Of The Asset Freeze
Baker & McKenzie requests that this Court clarify that the Trust Funds are a Baker & McKenzie asset in which Credit Bancorp has no interest. If Credit Bancorp has no interest in these funds then the funds are not part of the receivership estate and are not subject to the asset freeze. Baker & McKenzie seeks this clarification so that it may transfer those funds from the client trust account to the firm's account and apply them to its outstanding Credit Bancorp invoices totalling more than $302,532.79.
The question of whether Baker & McKenzie is entitled to draw down the Trust Funds turns on whether those funds were still the property of Credit Bancorp as of the imposition of the asset freeze or whether instead they were already the property of Baker & McKenzie. Baker & McKenzie contends that it obtained ownership of the funds at the time that it rendered services to Credit Bancorp. The Receiver responds that there was no change in ownership unless and until Baker & McKenzie actually transferred any funds in the Trust Account and, therefore, that it cannot claim ownership of the funds in the account as of November 17, 1999.
Generally speaking, funds held in an escrow account, such as an attorney trust account, are considered to be funds owned by the client and held by the attorney in a fiduciary capacity. See Gala Enters., Inc. v. Hewlett Packard Co., 970 F. Supp. 212, 217 (S.D.N.Y.1997). In Securities and Exch. Comm'n v. Princeton Economic Int'l Ltd., 84 F. Supp. 2d 443 (S.D.N.Y.2000), the court also had to determine whether funds deposited by a company into client trust accounts at its three law firms were subject to an asset freeze imposed pursuant to a Securities and Exchange Commission ("SEC") investigation and a receivership. The court held that any funds that were still held in the client trust accounts "at the hour of the signing of the freeze order" were still owned by the client company, rather than by the law firms, and therefore were subject to the freeze order. Id. at 446.
Baker & McKenzie seeks to distinguish Princeton on the ground that the law firms in that case knew or should have known that the monies put into the client trust accounts could be subject to forfeiture because the firms were hired in connection with the SEC investigation itself. Princeton, 84 F.Supp.2d at 446-47. While this circumstance did provide additional support for attaching the funds, however, it was not a necessary condition to the holding in Princeton. See Princeton, 84 F.Supp.2d at 446. Nor is it in the instant case. The fact remains that here, as in Princeton, the Trust Funds were still held *145 in the Trust Account "at the hour of the signing of the freeze order," and were the property of the client Credit Bancorp at that moment. Id.
Baker & McKenzie also contends that it is entitled to the Trust Funds because it had already rendered the services which would have entitled it to draw down the Trust Account prior to the freeze order, although it had not actually done so. Baker & McKenzie relies primarily on Securities and Exch. Comm'n v. Interlink Data Network of Los Angeles, Inc., 77 F.3d 1201 (9th Cir.1996) for the general proposition that ownership of a retainer passes to the law firm at the time services are rendered. The court in Interlink confronted a somewhat different factual situation than the one herein. In Interlink, the law firm contended that under its retainer agreement it became the owner of funds paid in advance at the time of payment. See Interlink, 77 F.3d at 1204. The court analyzed the retainer agreement and concluded, based on the terms of that agreement, that the firm was entitled to the portion of the funds for which services had been rendered prior to the freeze order rather than based on the date of payment. See id. at 1204-06. Interlink does not stand for a general proposition of law dictating that this Court conclude that ownership of the Credit Bancorp Trust Fund passed to Baker & McKenzie at the time services were rendered.[1]
The terms of the fee agreement at issue in the instant case support the conclusion that the Trust Funds did not become the property of Baker & McKenzie until a transfer from the Trust Account to the firm's general account was actually effectuated. In this agreement, Baker & McKenzie states that the retainer funds "will be held" in the Trust Account and that Baker & McKenzie "will apply all or a part of that advance in payment of [its] monthly billing." The agreement does not provide that funds automatically become the property of Baker & McKenzie as services are rendered but, instead, requires that Baker & McKenzie take affirmative steps to "apply" the Trust Funds to its own account. These steps were above and beyond those involved in generating and sending out invoices. The agreement provides for an element of discretion on the part of Baker & McKenzie both as to whether to apply the funds in this manner and the timing thereof. In addition, as Baker & McKenzie notes in its legal memorandum, under the terms of the engagement letter Baker & McKenzie obtained payment for legal services either from the retainer or in the form of direct payment from Credit Bancorp. Finally, the agreement provides that any monies remaining in the Trust Account at the end of the engagement will be refunded to Credit Bancorp.
Thus, the terms of the fee agreement indicate that the transfer of ownership over the Trust Funds was not automatic upon the rendering of services nor even when invoices were rendered. Therefore, the monies remaining in the Trust Account at the time of the freeze order were still the property of Credit Bancorp.
Finally, Baker & McKenzie also cites to Singapore law in support of its contention that it owned the Trust Funds as of the asset freeze. Assuming arguendo that Singapore law applied a proposition for which Baker & McKenzie does not provide legal authority it would not change the result herein. Singapore Legal Profession *146 Rule 7(1)(a) permits attorneys pursuant to certain kinds of fee arrangements to draw funds from a client account after presentation of a bill to the client. See Singapore Legal Prof. R. 7(1)(a) (funds "may be drawn" from client account); see also Chia Ah Sim v. Ronny Chong & Co., 1993 SLR LEXIS 535, at *17 (High Court, Feb. 2, 1993) (client account funds "can be withdrawn" after bill delivered). Permission to withdraw such funds, however, does not mean that transfer of ownership over those funds occurs automatically.
Entitlement To A Set Off
The conclusion that the Trust Funds are owned by Credit Bancorp and therefore, by the Receivership estate rather than by Baker & McKenzie, does not mean that Baker & McKenzie may not assert a claim like any other creditor. In this regard, the Court notes that Baker & McKenzie has raised the argument that, even if the Trust Funds are a Credit Bancorp asset, it is entitled to "preferential treatment" over other Credit Bancorp creditors in the form of an offset for Credit Bancorp's indebtedness for unpaid legal services. The value of those unpaid services, according to Baker & McKenzie, is more than $302,532.79.
It would be premature at this juncture for the Court to determine whether Baker & McKenzie is entitled to be treated differently from other creditors. Two proposed plans for a partial distribution of the receivership estate, one submitted by the SEC and one submitted by counsel for certain intervenors, are presently before the Court for consideration. The Court is accepting customer comments on these proposals through June 28, 2000. The Court will also accept comments from Baker & McKenzie by that date regarding any entitlement to raise its offset claim in relation to the proposed partial distribution and how the Court should treat such a claim.
It is so ordered.
NOTES
[1] Baker & McKenzie also relies on Gala, 970 F. Supp. 212. That case did not arise in the context of an SEC action and receivership estate, but did concern the extent to which a law firm had rights over retainer funds deposited with the firm where the client's assets subsequently became subject to attachment by a judgment creditor. See Gala, 970 F.Supp. at 214-15. The court analyzed the terms of the three different retainer agreements before it. See id. at 219-221. Pursuant to its interpretation of these agreements, the court permitted certain funds to be exempted from attachment, including monies for expenses incurred by the firm prior to the attachment order. See id. at 221. However, as discussed herein, the terms of the Baker & McKenzie engagement letter do not support such a holding here.
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https://www.courtlistener.com/api/rest/v3/opinions/2524029/
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421 F. Supp. 2d 226 (2006)
INCASE, INC., Plaintiff,
v.
TIMEX CORPORATION, Defendant.
No. CIV.A. 02-40022-FDS.
United States District Court, D. Massachusetts.
February 10, 2006.
*227 *228 J. Christopher Allen, Jr., Stephen M Larose, Timothy W. Mungovan, Nixon Peabody LLP, Boston, MA, for Timex Corporation, Defendant.
Stephen G. Morte, Marlborough, for Incase Incorporated, Plaintiff.
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON CLAIM UNDER MASS. GEN. LAWS CH. 93A
SAYLOR, District Judge.
This case involves a dispute between Timex Corporation, a manufacturer of wristwatches, and Incase, Inc., a manufacturer of plastic packaging. It was tried before a jury over six days in October 2005. The jury heard three claims: *229 breach of contract, misappropriation of trade secrets, and implied contract/unjust enrichment. The Court reserved to itself plaintiff's claim under Mass. Gen. Laws ch. 93A, which alleged that Timex engaged in unfair and deceptive acts in the course of its business dealings regarding the design and manufacture of the packaging. The following sets forth the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52 on the chapter 93A claim.
Background
The procedural history of this case is as follows: Incase filed suit against Timex in Worcester Superior Court in 2002. The complaint alleged six counts: (1) breach of a contract to purchase watch packaging and breach of a contract to purchase heart monitor packaging; (2) conversion; (3) misappropriation of trade secrets; (4) unjust enrichment; (5) fraud and misrepresentation; and (6) unfair and deceptive trade practices under Mass. Gen. Laws. ch. 93A, § 11. The complaint sought $2,288,500 in damages on the breach of contract claims; treble damages, costs, and attorneys' fees on the chapter 93A claim; and costs, attorneys' fees, and an unspecified amount of monetary damages on the remaining claims.
Timex removed the action to this Court based on diversity of citizenship. It then filed a motion to dismiss the fraud and misrepresentation count, which was granted by the Court (Gorton, J.). Timex next moved for summary judgment as to all remaining claims. The Court (Saylor, J.) granted that motion on the breach of contract claim insofar as it involved packaging for heart rate monitors and plastic containers for wristwatchesthat is, the base and cover, as opposed to the plastic wristwatch holders within those containers. The Court denied summary judgment as to the rest of the claims. Before trial, Incase voluntarily dismissed its claim for conversion.
The jury trial on the remaining claims, and the bench trial on the chapter 93A claim, commenced on October 11, 2005. The jury was instructed on Incase's breach of contract, trade secret misappropriation, and implied contract/unjust enrichment claims. It returned a verdict for Incase on each, as follows: for trade secret misappropriation, $139,191; for breach of contract for watch holders, $267,750; and for implied contract/unjust enrichment, $246,261.
Timex filed motions for judgment as a matter of law as to each of these three counts pursuant to Fed.R.Civ.P. 50 and for a new trial. The Court heard argument on December 12, 2005, and, for the reasons stated in open court, granted the motion for judgment as a matter of law with respect to the trade secret misappropriation and implied contract/unjust enrichment claims, and denied the motion with respect to the breach of contract claim. The Court also denied the motion for a new trial. Finally, the Court indicated that it intended to find for Incase on the chapter 93A claim and directed Incase's counsel to file an affidavit concerning its attorneys' fees and costs.
Findings of Fact[1]
The Parties and the Nature and Scope of their Relationship
1. Incase is a designer and manufacturer of injection-molded plastic *230 packaging products located in Hopedale, Massachusetts. Transcript ("Tr.")[2] 1:30, 47, 53, 63; Tr. 3:30.
2. Timex, through its affiliate, manufactures watches and other electronic and consumer goods. It has corporate offices in Middlebury, Connecticut, and distribution operations in Shelton, Connecticut. See, e.g., Answer ¶ 4; Tr. 3:120-21; Tr. 4:82; Exhibit ("Ex.") 8.
3. The parties first met in late 1997, and then had a series of meetings in January 1998 to discuss the possibility of a business relationship. During these meetings Timex described its wristwatch packaging needs and design challenges, and Incase proposed ideas to address those issues. See, e.g., Tr. 1:30, 32-33; Tr. 3:132-34.
4. Timex's primary packaging for watches at that time was what was called the general holder, or the "3." The G-3 comprised a plastic base on which a "C" shaped plastic holder[3] stood on a display stand. Attached was a small piece of plastic, on which a price tag could be placed, that swivelled into two positions. This was known as a "price flag."[4] A wristwatch could be placed on the holder to be displayed to retail customers. Tr. 1:31-32; Tr. 3:9; Ex. 131.
5. In addition to its plastics manufacturing capabilities, Incase also performs design work for its clients. The design work is ancillary to Incase's manufacturing business and is intended to support its efforts to sell plastic-molded products to the client. While it does not charge separately for its design work, Incase expects that if the client wishes to use the design Incase will retain the rights to manufacture the product. See, e.g., Tr. 1:47-48; Tr. 2:77.
6. From January 1998 until approximately June 1999, Timex repeatedly solicited Incase to help it solve various packaging challenges. See generally testimony of Zanghi, Gursky, and Shelton; Exs. 1, 2, 6, 45. Incase responded by attempting to design packaging products that Timex would want to use so that Timex would then contract with it to manufacture the products.
7. During this time, the parties met approximately every two weeks to discuss various packaging designs that Incase was developing for it and how well they met Timex's needs. See, e.g., Tr. 3:25-26; Tr. 2:37, 42; Exs. 21, 26, 45.
8. Participating in these meetings for Timex were Richard Gursky, a packaging engineer responsible for worldwide packaging design, and usually Gerry DiMarco, the person responsible for packaging design needs from the point of view of sales, marketing, and distribution. Tr. 3:21, 49, 59; Tr. 4:27-28. At times Berit Watson, a *231 Timex purchasing agent, was also present. Tr. 4:27, 82.
9. Participating in these meetings for Incase were Frank Zanghi, its Vice President, and generally Bob Shelton, its head designer, and Walter Frick, its President. See generally testimony of Zanghi, Shelton, and Gursky.
10. Throughout the relationship with Timex, Incase provided design services without charge. Mr. Zanghi, however, explained to Mr. Gursky and Mr. DiMarco that Incase expected that if Timex liked the designs and wanted to use them, it would contract with Incase to manufacture the product. E.g., Tr. 3:30. Although Timex representatives understood that this was Incase's expectation, no formal agreement to that effect was ever entered into by the parties.
11. During the course of their relationship, Incase worked on a number of packaging concepts for Timex. Two are particularly relevant to the chapter 93A claim: first, the development and manufacture of a "security package" for Timex's sport watch program, which became known as the "4" package; and second, the development of a "universal" removable and adjustable price flag to fit a holder that could be used for all of Timex's watches. This latter concept was sometimes referred to as the development of the "next generation" general holder, or the development of the G-4 holder. Mr. Gursky and others at Timex contemplated that if the design proved successful, it would largely or completely displace the G-3 general holder.
The Development and Manufacture of the S-4 Holder
12. Beginning in January 1998, the parties began negotiating the development and purchase of a package for Timex's sport watch program. E.g., Tr. 1:49; Tr. 3:71-72.
13. Timex wanted a "security" or "self-service" package so that customers could handle the package without the need for a sales clerk to remove the package from a display case. Tr. 3:130-31.
14. Between January and May 1998, Incase designed such a package, which the parties referred to as the "S-4" package. Tr. 1:49. The packaged consisted of a black, square plastic base; a "C" shaped plastic watch holder and display stand on which a wristwatch could be displayed; and a clear plastic box that covered the holder and was attached to the base. E.g., Tr. 2:56; Ex. 80; Ex. 143.
15. A small plastic price flag was affixed to the rear of the watch holder in the S-4 package. The purpose of the price flag was to permit labels with pricing information to be applied to the flag during Timex's automated labeling process. The price flag on the S-4 collar was stationary and could not be moved or removed. E.g., Tr. 1:79-80; Tr. 4:58.
16. By May 1998, the S-4 design was basically complete. Timex approved the concept, and expressed a desire to have the injection molds and other tooling created so that Incase could start manufacturing the S-4 package. Tr. 1:48-49; Tr. 2:89-90.
17. Incase does not create tooling for its products. Instead, it engages outside contractors to create such tooling. See Tr. 1:46-47, 53-54.
18. Around this time, Incase and Timex agreed that the tooling expenses for the S-4 package would be passed through to Timex. However, Mr. DiMarco *232 asked that Incase pay the tooling costs up front, with Timex reimbursing it the following year. Mr. Zanghi stated that he would not agree to pay for the tooling up front unless Timex committed to purchasing a certain number of manufactured units. Tr. 1:49-51; Tr. 3:73-74.
19. Accordingly, the parties met at Incase's facility in Hopedale in May 1998 to discuss an agreement as to a production number. Tr. 1:53.
20. Incase and Timex reached an oral agreement during the parties' meeting in May 1998 to conclude a contract for S-4 watch holders,[5] on which the parties shook hands. E.g., Tr. 1:53-54; Tr. 5:12; see also Tr. 4:33.
21. The parties had agreed to at least the following terms by the conclusion of the May 1998 meeting:
(a) Incase would manufacture two million S-4 watch holders per year for three years. Tr. 1:53; Tr. 4:83-85; see also Exs. 8, 102.
(b) Incase would pay for the tooling of the holders up front, with Timex reimbursing it in the following year. Tr. 1:49-52; Tr. 4:35-36; Tr. 5:10.
(c) Timex would follow up with a purchase order to Incase for the tooling for the holder, and the six million units that Timex had committed to buy. Tr. 1:55; see also Ex. 8.
22. With respect to the cost of the tooling, the parties either agreed that the cost to Timex of the tooling for the holders would not exceed $133,000, or that the parties would negotiate towards an agreement on that cost. See e.g., Tr. 2:88; Tr. 3:74-77; Ex. 8. For these purposes, the Court need not resolve the issue.
23. With respect to the price of the units, the parties agreed that the price of the holders per unit was $0.1100 for large units and $0.1075 for small units. The parties agreed, however, that the purchase was contingent upon Incase's prices remaining competitive. Tr. 5:90-92; Ex. 8. If Incase's price was not competitive, Timex could purchase the units from a competitor so long as it first notified Incase and gave it the opportunity to price its units competitively. Tr. 5:90-92. The parties also agreed that the price could be adjusted as necessary to meet future changes.
24. The parties' subsequent course of dealings reflected this agreement. For example, when Timex later wanted to change the material from polystyrene to a more expensive "Denka" plastic, the parties understood that the price of the units would adjust accordingly, and Incase did make the adjustment. Tr. 2:37; Ex. 21. Timex also asked Incase to work toward making the S-4 package lighter in weight and adding logos to it; although this change was never made, the parties expected that the price would change if these design modifications were implemented. Tr. 2:42; Exs. 26, 45.
*233 25. Timex paid approximately 12.4 cents for holders during part of the term of the contract. Tr. 5:119. By 2000, Timex was paying as much as 14.75 cents for holders under the contract. See Exs. 86, 149. Timex never told Incase that it was not pricing S-4 holders competitively. Tr. 5:92.
26. On July 6, 1998, Timex faxed a purchase order to Incase. The purchase order stated in part as follows: Timex will purchase six million holders between January 1, 1999 and December 31, 2000. However, this purchase is contingent upon Incase remaining competitive with the industry. The current piece prices are as follows: Large $0.1100, Small $0.1075.
Ex. 8.
27. The purchase order used the term "holders," rather than "packages." As described above, in this context, a "holder" is part of the entire package; an S-4 package is made up of a base, a holder, and a cover.
28. Also included on the purchase order were the following specifications: The concept, design, and tooling for the holders are the property of Timex. The first 50% of tooling costs is due the first quarter of 1999 and the remaining 50% is due the second quarter of 1999.
Injection molding tool for the large watch holder (XXX-XXXXX) and the small watch holder (XXX-XXXXXX). Tooling cost not to exceed $133,000. Ex. 8.
29. Although the purchase order was faxed on July 6, the "date of order" was described as May 4, 1998. The total price of the purchase order was $133,000. The "delivery date" on the order was September 1, 1998. The purchase order was numbered 63480 and signed by Berit Watson on behalf of Timex. Ex. 8.
30. Mr. Zanghi understood as of the May 1998 meeting that he needed to have a purchase order or other documentation signed by Timex in order to have a binding contract. Tr. 2:85. However, he understood that an oral agreement had been reached at the meeting and that Timex had agreed that a purchase order would follow. Tr. 2:84-86.
31. Incase engaged a tool and die manufacturer in Michigan to create the tooling used for the S-4 package. See Tr. 1:54; Tr. 2:32.
32. Changes to the tooling costs occurred after Timex sent its first purchase order. Ex. 8. Timex initiated these changes. Tr. 1:60; Tr. 2:30, 103. One of these changes reflected a decision by Timex to have the S-4 package designed so that it could be manufactured in two ways: with a stationary price flag, and without a price flag. Tr. 2:103-104.
33. The cavitation of the toolingthat is, the number of cavities in which a plastic part can be moldeddetermines how many units can be produced in a given period of time. Tr. 1:51, 62. Timex requested that Incase procure tooling for the S-4 package with sufficient cavitation to produce approximately 3 million units per year. Tr. 1:62.
34. The parties did, in fact, negotiate, and ultimately agree, that the cost of the tooling for the holders would be $126,000. Incase also procured tooling to manufacture the entire S-4 package, including the box base and cover, as well as spare cavitation. Therefore, the final tooling costs for the entire S-4 package was $402,100, *234 which included the $126,000 for the tooling for the holder. This did not include a $27,000 contribution that Incase agreed to make toward the total cost. The tooling for the S-4 package was completed in early October 1998, and likely in transit to Incase's facility by the time that Timex sent the final purchase order for the tooling, Exhibit 16. Tr. 2:31, 33-34, 90, 96-97; Tr.3:76-78; Tr. 4:36; Exs. 15, 16.
35. On October 26, 1998, Ms. Watson faxed another Timex purchase order to Incase. On the fax cover page, Ms. Watson typed the following note to Mr. Zanghi:
I have been informed that this is the final, approved purchase order.
If there are any issues, please let me know right away.
It has been a pleasure working with you so far!!
Ex. 16.
36. Prior to having Ms. Watson send this purchase order to Incase, Mr. Gursky asked Ms. Watson to change the quantity in the purchase order from six million to two million units. Ms. Watson did not think it was right to change the number. She had been at a number of the meetings with Incase and had discussed the matter both with Mr. Gursky and Mr. DiMarco, and she understood that the deal was for six million units over three years. Tr. 4:83-84, 88. She nonetheless changed the number from six million to two million at Mr. Gursky's request. Tr. 4:88.
37. The first page of the revised purchase order states as follows:
Timex will purchase two million holders between January 1, 1999 and December 31, 2001. However, this purchase is contingent upon Incase remaining competitive within the industry. The current piece prices area as follows: Large $0.1100, Small $0.1075.
Ex. 16.
38. Incase never countersigned the October 1998 purchase order.
39. Incase expected that Timex would order S-4 units at a rate of approximately 200,000 per month. Tr. 2:59. This expectation was reasonable, based on the promise of two million holders per year and the manufacturing capacity of the tooling given the cavitation that Timex ordered.
40. At orders of quantities much smaller than approximately 200,000 units per month, Incase incurred additional costs associated with the smaller material purchases and did not achieve the economies of scale that it expected on its manufacturing costs. Tr. 5:26-27.
41. Timex's orders for the S-4 package began dropping off sometime in late 1999. Tr. 2:53.
42. Timex ordered and paid for approximately 300,000 S-4 packages from Incase from October to December 1998 and 1,500,000 in 1999. From January to August 2000, Timex ordered and paid for only 375,000 S-4 packages. Tr. 2:59; Ex. 86.
43. Ultimately, Incase shipped, and Timex accepted and paid for, 2,731,500 S-4 watch packages. Tr. 5:40. Therefore, 3,268,500 holders remained unfulfilled under the contract.
The Design of the Next Generation General Holder
44. As early as January 1998, Timex discussed with Incase changes that it wanted made to its general holder. At that time, Timex's general holder, the G-3, included a price flag that *235 swivelled into two positions. Mr. Gursky told Incase that Timex had a need for a large volume of general holders, roughly 20-25 million per year. E.g., Tr. 1:46; Tr. 3:52-56; Exs. 1, 2, 131.
45. Mr. Gursky told Incase that if Incase could design a new price flag and watch holder that would work for all of Timex's applications, Incase could possibly become the supplier for Timex's "next generation" general holder. See, e.g., Tr. 1:45; Tr. 3:17, 53-56.
46. Mr. Zanghi believed that if Incase could develop a design that Timex liked and wanted to use as its "next generation" general holder, Incase would be granted the rights to manufacture it. Tr. 3:28-30
47. Incase began creating drawings and prototypes for concepts that were a part of the "next generation" general holder as early as January 1998. By May 1998 or so, the project was full blown. See, e.g., Tr. 1:75-78; Tr. 3:26-27; Tr. 4:10; Ex. 2.
48. The parties referred to the "next generation" general holder concept as the "G-4" and the "G3/S4 universal" design. E.g., Tr. 2:51. Incase called its final design the "Universal C Clip." E.g., Tr. 2:60-63; Ex. 97. (For convenience, the Court will refer to Incase's design on this project, which developed and changed over time, as the "Universal" design).
49. To establish the parameters of the project, Timex provided Incase with certain specifications for the design; these specifications derived from Timex's marketing and automation needs. Mr. Gursky of Timex also supplied various concepts and ideas to Incase. E.g., Tr. 3:9, 12-13; 15, 20-22; Tr. 4:20-21.
50. Incase designed numerous versions of the "Universal" design, including new price flag and holder prototypes, and created numerous drawings. It provided these items to Timex, which then provided its feedback. After receiving input from Mr. Gursky as to how well those designs met Timex's needs, Incase modified the designs and resubmitted them for Timex's comments and approval. See, e.g., Tr. 3:114; Tr. 4:108-109. Incase made dozens of modifications to the "Universal" design as a result of this process. Tr. 3:25.
51. As a part of that process, Incase worked on modifying the S-4 watch holder design so that it would work for each of the five or six different Timex packaging applications. Incase also worked on integrating a removable price flag into the S-4 design. Tr. 3:15, 53-55, 136, 142-43; Ex. 45.
52. The parties continued to work on the concept of a "Universal" design, and by November 1998, the parties' discussions regarding Incase becoming the "next generation" general holder supplier had become "serious." Tr. 3:141.
53. By December 1998, Incase had developed a "Universal" design for a movable, three-position price flag. At the same time, it submitted a cost summary to Incase detailing the cost of the tooling to manufacture the product. Tr. 2:36, 39-41; Exs. 18, 19, 24, 51, 52.
54. This process ultimately resulted in a final design of a new price flag and holder that appeared to meet Timex's needs. This final "Universal" design was complete in May or June 1999. E.g., Tr. 3:26.
55. Over the approximate 18-month period during which Incase worked on the "Universal" design, it expended *236 significant resources the project, as follows:
(a) It developed at least 20 prototypes and created numerous drawings Ex. 79; Tr. 2:36; Tr. 3:13.
(b) It procured tooling for the purpose of testing one of the prototypes. Ex 147; Tr. 3:46-47.
(c) It proposed a number of budgets to Timex for the manufacture of the product. Exs. 3, 4, 12, 14, 18, 19, 51, 52; Tr. 2:27, 30-31, 44-45. These budgets reflected production numbers ranging up to tens of millions of units.
(d) Incase employees attended numerous meetingsat least some of which were described as "marathon" meetings that began early in the morning and ended late at nightand communicated with Timex officials on a regular basis to discuss the project. Exs. 45, 75; Tr. 2:33; Tr. 4:15.
56. The final design for the price flag for the "Universal" holder included a three-position "L shape" removable plastic flag with slots so that it could slide into three different positions on the holder. It was designed so that it would work with Timex's automated pricing system so that the stock keeping unit ("SKU") and price information could be affixed to the flag automatically. It was also designed so that Timex could use just one watch holder for all of its watches. The price flag was comprised of just one plastic piece. Tr. 2:51; Tr. 3:15-16, 26; see Ex. 144.
57. Timex and Incase never entered into a contract for manufacturing any product using the three-position price flag or any other aspect of the "Universal" design, nor did Timex ever place any order for such a product.
58. The three-position price flag was not patented by Incase. Nor did Incase take the necessary steps to protect its design as a trade secret. For example, although Mr. Zanghi testified that he regarded the designs as confidential between Incase and Timex, Incase did not mark any of its documents concerning the design as confidential. Tr. 2:55; Tr. 3:33-34. Mr. Zanghi testified that he did not share the "Universal" design with other companies. Tr. 2:55. But other than that minor restriction, there was no evidence that the "Universal" design was the subject of any precautions to preserve its secrecy or limit its distribution. Further Mr. Shelton, Incase's head designer, testified that he did not regard the "Universal" design as secret. Tr. 4:124.
59. Unknown to Incase, by August 1999, Timex was engaging in discussions with a company in the Philippines called Yuhing regarding the production of an "S-5" watch holder package. Tr. 3:102-103; Exs. 55, 56; 64. Timex initially referred to the 5 package as an "S-4 revision." Exs. 55, 56, 64. Mr. Gursky was a part of these discussions.
60. Timex decided to give the S-5 manufacturing work to Yuhing. It is not clear when precisely Timex made this decision. However, it was in detailed technical discussions with Yuhing regarding the S-5 mold build by, at the latest, August 1999.
61. Incase was not made aware that Timex had decided to give the S-5 manufacturing work to Yuhing. Tr. 2:47; Ex. 55, 56, 64. Mr. Zanghi testified that as late as August 1999, Incase was still working with Timex on prototypes and designs related to *237 the "Universal" design. Tr. 2:49-50; Tr. 3:102-105; Ex. 64.
62. The S-5 holder was based in substantial part on Incase's design and development work. Tr. 2:51; Tr. 3:143; Exs. 43, 79, 144.
63. Mr. Gursky used dimensions from Incase's mold drawings and prototypes in order to have drawings made for the S-5 holder and price flag. Tr. 3:90; Tr. 4:8-9; Ex. 22 (revision dated June 4, 1999).
64. The differences between Incase's "Universal" design and the S-5 holder were relatively minor. The S-5 package had a four-position price flag while Incase's design was for a three-position flag. Tr. 3:53. The S-5 price flag had a 45-degree angulation. Tr. 2:51-52; Tr. 3:55, 60; Tr. 4:109. The S-5 package may also have been a little bit lighter in weight. Tr. 2:72.
65. Mr. Gursky and others at Timex had substantial input into the "Universal" designin fact, Timex had used a movable price flag on its G-3 holder. But the price flag design that was ultimately used by Timex on its S-5 holder was substantially different from the G-3 design, and was developed, at least in substantial part, by Incase. See Tr. 3:12-13, 24, 26; Tr. 4:109-110, 117-119.
66. The S-4 and the S-5 packages served the same purpose, and were fungible products from a marketing perspective. See, e.g., Tr. 2:72; Tr. 3:52-53, Tr. 4:101-102; Ex. 112.
67. By May 2000, Yuhing had begun shipping S-5 packages to Timex. Ex. 118.
68. Approximately a year later, Yuhing was shipping S-5 packages at a rate of 15,000 per day. Ex. 112.
69. By August 2001, Timex needed more S-5 packages than Yuhing could produce. Timex ordered S-4 packages from Incase in an attempt to satisfy the shortfall. Tr. 2:72; Tr. 4:101-102; Ex. 111. Timex therefore viewed the S-4 package as a substitute for the S-5 package for at least some purposes.
70. Mr. Gursky did not agree with Timex's decision to move the manufacturing from Incase to a supplier overseas. Tr. 3:109. Mr. Gursky felt that his job would be in jeopardy if he openly disagreed with a corporate decision of Timex. See Tr. 3:109-110.
71. Mr. Gursky testified that he believed that Timex would have to use Incase to manufacture the product if it took Incase's design, or at least pay for the design before using it. E.g., Tr. 3:57. Timex knew this before it engaged Yuhing to manufacture the S-5 package with the design developed in substantial part by Incase.
72. Timex offered to pay Incase for the "Universal" design, but Incase refused payment. According to Mr. Frick, the company did not do business that way. E.g., Tr. 5:17.
73. Timex claims that it paid Incase for the "Universal" design. Mr. Gursky testified that he believed that Timex paid $5,000 for the design through a purchase order numbered 95440. Ex. 49; Tr. 3:57-58. Mr. DiMarco, on the other hand, testified that he believed that Timex paid $2,500 for the mold for the price flag that Incase developed through a Timex purchase order numbered 65910. Tr. 4:60-63, Tr. 6:114-115; Exs. 146, 147. However, these purchase orders do not purport to relate to the "Universal" design. Exhibit 49 purports to relate to an "S4 box cover cavity." Exhibit 146 purports to relate to the "prototype mold to manufacture security ring." *238 Mr. Zanghi testified that neither of these purchase orders had anything to do with the price flag Incase developed. Tr. 2:43-44; Tr. 6:117-18. No Timex purchase order purports to purchase the "Universal" design. Although Exhibit 147 included a letter quoting a price for the "C-Clip Prototype" at $2,500, the Incase invoice attached to that letter stated that the $2,500 was for the "tooling charge for prototype." According to Mr. Zanghi, this was for the procurement of the tooling, not for the "Universal" design. Tr. 3:45-48. Mr. Zanghi clearly testified that Incase was never paid for its "Universal" design. Tr. 2:44. The Court finds Timex's explanation inconsistent and unclear, and credits Mr. Zanghi's testimony in this regard.
74. Incase would not have granted Timex the rights to manufacture the "Universal" design's price flag separately from the holder in which it fit. Tr. 2:77.
75. Incase presented its designs informally. Incase gave Timex "Universal" design prototypes, which Timex did not return. Tr. 2:54-55.
76. Incase never asserted that it had a contract with Timex to manufacture the "Universal" design. The parties never formed such a contract. However, Incase told Timex that it expected to have the manufacturing rights if Timex decided to use its designs. E.g., Tr. 3:30.
77. Incase first discovered that Timex was using the "Universal" design when Mr. Zanghi saw a Timex package incorporating the design when he was shopping in a Target store in approximately March 2001. Tr. 2:60. He then initiated a meeting with Timex officials to relate his concern that Timex was using the "Universal" design without authorization. Exs. 97, 100.
78. Timex purchased a total of 3,569,000 S-5 packages from Yuhing. Ex. 118. At least 2,848,000 of those were manufactured in 2000 and 2001.
CONCLUSIONS OF LAW
A. Whether Timex Violated Chapter 93A
Chapter 93A prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." Mass. Gen. Laws ch. 93A, § 2(a); Commercial Union Ins. Co. v. Seven Provinces Ins. Co., 217 F.3d 33, 40 (1st Cir.2000). For a claim brought by a business plaintiff, § 11 authorizes private suit only where the plaintiff suffers "any loss of money or property, real or personal" as a result.[6] Mass. Gen. Laws ch. 93A, § 11.
As a threshold matter, the parties do not dispute that the dealings between Incase and Timex occurred in the conduct of trade or commerce. The transactions at *239 issue in this case center around the sale of goods and attendant design services. See Mass. Gen. Laws ch. 93A, § 1(b).
1. Whether Timex Engaged in Unfair or Deceptive Conduct
Whether conduct is unfair or deceptive is a question of fact that focuses on "the nature of challenged conduct and on the purpose and effect of that conduct as the crucial factors." Commercial Union Ins., 217 F.3d at 40. Incase's principal argument under chapter 93A is two-fold: it asserts that Timex engaged in unfair or deceptive acts because (1) it never intended to honor its contractual obligations to purchase six million holders and (2) it enticed Incase to develop and disclose to it the "Universal" design, which Incase claims is a trade secret, by holding out the possibility of Incase winning the contract to become Timex's "next generation" general holder supplier.
Although each case requires an individualized inquiry, some common themes have emerged from the case law. Two are potentially relevant here. The first is that a party who breaches a contract in deliberate attempt to obtain the benefits of the contract, and to avoid fulfilling its own obligations under it, may have committed an unfair or deceptive act under chapter 93A. See, e.g., id., at 40-41 (violation where reinsurer's "pattern of evasiveness and obstructionism" to avoid its contractual obligations included deliberately avoiding coming to a decision on whether to pay; constantly shifting its defenses and objections to payment; and allowing almost two and one-half years to elapse from receipt of proof of the reinsurance until trial); Ecological Fibers, Inc. v. Kappa Graphic Bd. B.V., 345 F. Supp. 2d 13, 15-16 (D.Mass.2004) (plaintiff stated 93A claim where defendant entered into an agreement and never intended to carry out the terms of the agreement for the full five-year term, but rather entered into it for the purpose of obtaining information about and soliciting plaintiff's customers); Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 475, 583 N.E.2d 806 (1991) (violation where owner withheld approval of development plan in an attempt to force developer to increase compensation to owner beyond what contract required); Wang Laboratories, Inc. v. Business Incentives, Inc., 398 Mass. 854, 857-59, 501 N.E.2d 1163 (1986) (violation where employee of company made a false report of the performance of a consultant with whom the company had a contractual relationship in the hopes of terminating the contract and advancing the employee's own interests at the company). The chapter 93A violation in this line of cases generally involves the use of the breach of contract as a lever or wedge to enhance a party's bargaining power or exact control over other party. See PepsiCola Metropolitan Bottling Co. v. Checkers, Inc., 754 F.2d 10, 18 (1st Cir.1985). Put another way, these cases involve "commercial extortion or a similar degree of culpable conduct." Commercial Union Ins., 217 F.3d at 40 (citing Anthony's Pier Four, 411 Mass. at 474-75, 583 N.E.2d 806). On the other hand, "a mere breach of contract," without more, does not constitute an unfair or deceptive act or practice. Commercial Union Ins., 217 F.3d at 40; see Stonehill College v. Massachusetts Comm'n Against Discrimination, 441 Mass. 549, 582, 808 N.E.2d 205 (2004) (dictum) (describing category of cases "based on a breach of contract, with some egregious circumstance surrounding that breach providing the further ingredient of `unfairness' to make out a G.L. c. 93A claim").
The second potentially relevant line of case law is that the misappropriation of *240 the intellectual property of another to obtain a competitive or other advantage may also be an unfair or deceptive act. See, e.g., Massachusetts Eye and Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 229, 238, 242-43 (1st Cir.2005) (jury could find that defendant violated chapter 93A by disclosing plaintiffs confidential information to a third partywhich the plaintiff alleged constituted trade secret misappropriation and breach of a non-disclosure agreementin an attempt to do business with the third party); Jillian's Billiard Club of America v. Beloff Billiards, Inc., 35 Mass.App.Ct. 372, 377, 619 N.E.2d 635 (defendant violated chapter 93A by using trade secret consisting of plaintiff's financial information to establish competing billiard parlor).
As to Incase's first argument, it is true that Timex breached the contract to purchase six million S-4 holders. But it is not at all clear that it "never" intended to see the contract through to the end, as Incase alleges. Nor is it clear that Timex breached the contract to obtain the advantage of the contract without fulfilling its obligations. There was no evidence, for example, that Timex ordered S-4 packages and then refused to pay for them in had faith. Rather, Timex simply stopped ordering 4 packages. It did not refuse to pay for those that it had already ordered.
As to the second, it is not true that Timex misappropriated any trade secrets belonging to Incase. Because of Incase's inadequate steps to protect the secrecy of its design, among other reasons, the Court entered judgment as a matter of law for Timex on the trade secret claim. A chapter 93A claim cannot succeed merely upon the unauthorized use, disclosure, or infringement of information developed by one party where that information does not rise to the level of protected intellectual property. Put simply, chapter 93A does not create new intellectual property rights. See Skinder-Strauss Assoc. v. Massachusetts Continuing Legal Educ., Inc., 914 F. Supp. 665, 680 (D.Mass.1995) (where the information that plaintiff alleged that defendant used in publishing its competing legal directory were non-copyrightable facts, plaintiff's chapter 93A claim on this basis must fail because plaintiff could not "achieve through ch. 93A what it [could not] through the federal copyright laws gaining a monopoly on the publication of certain factual information and insulating its work from competitors as a potential source of information"). Intellectual property lawincluding the laws concerning patents, trademarks, copyright, and trade secretshas developed painstakingly over the centuries, with careful attention to the difficult balance between the competing values of free dissemination of ideas and protection of the rights of inventors and other creators. See I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 35 (1st Cir.1998) (quoting DeCosta v. Viacom Int'l, Inc., 981 F.2d 602, 605 (1st Cir.1992)) (assessing the purposes of trademark protection and stating, generally, that the different laws protecting intellectual property "balance the conflicting interests in protection and dissemination differently in different contexts through specific rules that determine just who will receive protection, of just what kind, under what circumstances and for how long"). A party cannot be permitted to achieve intellectual property rights through chapter 93A that it could not achieve by more traditional means.
Thus, neither a simple claim for breach of contract nor a claim for misappropriation of unprotected intellectual property, standing alone, can support a claim for violation of chapter 93A. In this case, however, the whole is greater than the sum of its parts. Through a unique *241 set of circumstances, Timex was able to obtain design services for free, which it used to obtain a lower-cost contract from another supplier, which then led directly to the breach of contract with Incase. Under these circumstances, Timex's acts were unfair and deceptive within the meaning of chapter 93A.
That finding is based on the precise facts and circumstances of the case. As described above, Timex engaged Incase to design and manufacture the S-4 package. In 1998 it entered into an enforceable contract to purchase six million S-4 units: two million per year over three years. Incase began manufacturing S-4 units for Timex at the end of 1998. At the same time as the S-4 program was being developed and then launched, Timex asked Incase to design the next generation general holder. Timex communicated to Incase, in substance, that if it could develop a holder that would hold all of Timex's watches, and develop a price flag that could be removable and fit into three different positions, Timex was likely to reward Incase with a contract to manufacture as many as 25 million per year.
Incase pursued this opportunity by conducting extensive design work, and expending substantial resources, over a period of roughly 18 months. Timex strongly encouraged Incase's efforts. Although Timex offered to pay for the design services, Incase made it clear that it did not seek to be compensated for its design work, but expected to have the manufacturing rights if it developed a design that Timex wished to use.
A design that met Timex's needs was substantially completed in May or June 1999. Timex then took the design and gave it to Yuhing, a lower-cost manufacturer, effectively asserting ownership over the design. The evidence does not clearly establish when Timex decided to use Yuhing to manufacture the S-5 package; by August 1999, the manufacture of the S-5 tools was well underway, and Timex began purchasing S-5 packages from Yuhing in the first half of 2000. Timex never told Incase of that decision; indeed, Incase did not learn of it until after Mr. Zanghi discovered a variation on Incase's design on a shelf at a Target store. In fact, Incase may have continued to work on the "Universal" design after Timex made the decision to go with Yuhing.
Those actions, in turn, either caused or substantially contributed to Timex's decision to breach its contract with Incase for S-4 holders. The S-5 package was, in effect, a substitute for the S-4. It does not appear to have been a coincidence that Timex procured 2,848,000 S-5 units from Yuhing during 2000 and 2001, while at the same time falling 3,268,500 units short of its contractual obligations for S-4 units; the creation of the S-5 largely eliminated demand for the S-4.
As noted, there is no evidence that Timex expressly promised that it would select Incase to manufacture its next generation holder. Nor is there evidence that Incase took steps to protect its design as a trade secret. Nonetheless, it was unfair or deceptive for Timex to engage Incase to develop a design by holding out the promise of a lucrative manufacturing deal; for Timex to then use that information to have an Incase competitor manufacture a similar product, which Timex could presumably obtain for lower cost because it did not have to pay the competitor to develop the design; and for Timex to then breach its contract with Incase for the original product based on a lack of demand. Those actions had the "degree of culpable conduct" required to prove a violation of Chapter 93A. See Commercial Union Ins., *242 217 F.3d at 40.[7]
2. Whether Incase Suffered a Loss of Money or Property
As mentioned above, a business plaintiff proceeding under § 11 has the burden of showing that it suffered "any loss of money or property, real or personal" as a result of the unfair or deceptive act. Mass. Gen. Laws ch. 93A, § 11. The First Circuit has stated that "`[m]oney' means money, not time, and . . . `property' means the kind of property that is purchased or leased, not such intangibles as a right to a sense of security, to peace of mind, or to personal liberty." Arthur D. Little, Inc. v. Dooyang Corp., 147 F.3d 47, 56 (1st Cir.1998). As described above, the unfair or deceptive act in this case was Timex's breach of the contract to purchase S-4 holders while procuring at least some substitutes from a competitor with information that Incase developed in response to Timex's solicitations. Therefore, Incase has proved that it suffered a loss of money.
B. Incase's Damages, Attorney's Fees, and Costs
1. Damages
Incase is entitled to recover its actual damages caused by Timex's unfair and deceptive act. Mass. Gen. Laws ch. 93A, § 11. Here, Incase's actual damages are the lost profits on the S-4 holders that Timex would have purchased from Incase had it not procured substitutes from Yuhing, plus any costs Incurred by Incase in connection with development of the "Universal" design after the time that Timex knew it was highly unlikely that it would award the S-5 work to Incase. As to the former, any amount of lost profit would be duplicative of the recovery on Incase's contract claim. See, e.g., Grand Pacific Finance Corp. v. Brauer, 57 Mass.App.Ct. 407, 422 n. 10, 783 N.E.2d 849 (2003). As to the latter, no evidence was presented at the trial. Indeed, no evidence was presented of the development costs Incase incurred in connection with its work on the "Universal" design, let alone the portion of these costs that were incurred after Timex knew it was highly unlikely that it would not award the work to Incase. Therefore, any amount of damages would be speculative and not grounded in the evidence.
If the violation is knowing or willful, Incase may recover at least two but no more than three times such damages. Mass. Gen. Laws ch. 93A, § 11. Although the Court has found a violation, it does not find that Timex's conduct was knowing or willful within the meaning of the statute. Cf. Anthony's Pier Four, 411 Mass. at 475, 583 N.E.2d 806.
2. Attorney's Fees and Costs
Because it proved that Timex engaged in unfair or deceptive conduct under § 93A, Incase is entitled to its "reasonable attorneys' fees and costs incurred" in connection with its action. Mass. Gen. Laws ch. 93A, § 11. "What constitutes a reasonable fee is a question that is committed to the sound discretion of the judge." Berman v. Linnane, 434 Mass. 301, 302-03, 748 N.E.2d 466 (2001). In determining a reasonable award, a court is to consider: (1) the nature of the case and the issues; (2) the required time spent; (3) the amount of damages; (4) the result; (5) the attorney's experience, reputation, and ability; (6) the usual price charged for similar *243 services by other attorneys of the same area; and (7) the amount of awards in similar cases. Twin Fires Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411, 429-30, 837 N.E.2d 1121 (2005) (citing Linthicum v. Archambault, 379 Mass. 381, 388-89, 398 N.E.2d 482 (1979)). "No one factor is determinative, and a factor-by-factor analysis, although helpful, is not required." Berman, 434 Mass. at 303, 748 N.E.2d 466.
a. Attorney's Fees
Plaintiff's submission in support of its fee request suffers from insufficient detail, including a dearth of itemized time records.[8] Detailed time recordswith the individual task performed, the time spent, and the date on which the task was accomplishedwould have given the Court more information to evaluate the reasonableness of "the hours spent on particular aspects of the case or the precise nature of the work." Twin Fires, 445 Mass. at 428, 837 N.E.2d 1121. It is likewise clear that a successful plaintiff under chapter 93A should not be able to benefit from poor record-keeping on the part of counsel. Nevertheless, the Court can make a reasonable award based on the submissions and its own observations.
The case was (or at least should have been) a relatively straightforward commercial contract dispute that included a claim for theft of trade secrets.[9] Neither the documents nor the witness testimony were extensive. The number of hours claimed to have been spent by plaintiff's counsel on the case-580.5 hours[10]is not entirely unreasonable given the motion practice, length of trial, and claimed damages at stake in the litigation. The plaintiff prevailed on the breach of contract portion of its case, and the Court let stand the jury's damages award on that count in the not-insubstantial sum of $267,750.
*244 The chapter 93A claim was brought together with a number of other claims. Under such circumstances, an award of fees and costs under chapter 93A should generally include an amount only for those fees and costs that were incurred in connection with the chapter 93A portion of the case. Incase contends that the unfair or deceptive acts that formed the factual basis for its chapter 93A claim also formed the factual basis for its other claims. As a result, Incase contends that it cannot, to any reasonable degree of certainty, excise the amount of time its counsel spent developing the other claims. The Court agrees that the facts underlying the other claims were essentially the same as those underlying the chapter 93A claim. Because the facts substantially, if not completely, overlapped, it would be impossible to apportion the time spent pursuing the chapter 93A claim alone with any degree of precision.
The Supreme Judicial Court has recently acknowledged that, where the chapter 93A claim and accompanying common law claims are largely based on identical facts, it may not be feasible to apportion the attorneys' fees between the two types of claims. Twin Fires, 445 Mass., at 430, 837 N.E.2d 1121; see also Arthur D. Little Int'l, Inc. v. Dooyang Corp., 995 F. Supp. 217, 221-22 (D.Mass.1998). The Court will not, in the exercise of its discretion, attempt to cull out the time that plaintiff's counsel spent to develop and prove the non-93A claims.
The Court must, however, deduct an amount that approximates the time spent developing expert testimony, conducting legal research, or drafting of pleadings, or otherwise spent in trial preparation, on items wholly unrelated to proving the chapter 93A portion of the case. This includes, among other things, the time spent on developing jury instructions, developing and arguing motions related to the expert testimony (which concerned only damages and which was never used at trial), and participating in the jury charge conference. See Wasserman v. Agnastopoulos, 22 Mass.App.Ct. 672, 682, 497 N.E.2d 19 (1986) (excising a nominal portion to account for the non-chapter 93A aspects of the case).
As noted, counsel's submissions do not have sufficient detail to allow the Court to account for such time accurately, and the Court is concerned that plaintiff should not derive a benefit from counsel's poor record-keeping. In the absence of better proof, the Court estimates those tasks to have taken 100 hours, and will deduct an amount from the award accordingly.
The Court finds plaintiffs attorney's hourly rates reasonable$195 at the commencement of the case and then $245 as of January 2003 and until the presentin light of his experience and geographic location. Plaintiff asks the Court to use an hourly rate higher than plaintiffs counsel normal rate because he took the case on contingency and the belief that the market rate for an attorney of his skill and experience level is higher. The Court declines to do so; no evidence of the amount of awards in similar cases was submitted and the Court has no basis for making such a comparison.
b. Costs and Expenses
Defendant argues that plaintiff's expenses on its expert witness should not be recovered. These expenses exceeded $16,000. The witness was retained solely to testify as to damages on the breach of contract and misappropriation of trade secret claims. Defendant argues that these expenses should be excluded because they were not intertwined with plaintiff's effort to prove the chapter 93A claim. The *245 Court does not agree that expert expenses should be excluded on that basis; the proper measure of actual damages for the 93A claim is the lost profits on the S-4 holders that Timex would have purchased from Incase had it not procured substitutes from Yuhing, plus any costs incurred by Incase in connection with development of the "Universal" design after a certain point in time. Had the expert testified at trial, it may well have been the case that his testimony would have been relevant to chapter 93A damages, and the expenses therefore recoverable. See Maillet v. ATF-Davidson Co., 407 Mass. 185, 194, 552 N.E.2d 95 (1990) ("As far as costs are concerned, reasonable expert witness fees should normally be recovered in a c. 93A case in order to vindicate the policies of the act.") (internal quotation removed).
The Court will exclude the expert expenses, however, for a different reason. Plaintiff did not call the expert to testify, and admits that the expert "provided little, if no value to the case." Furthermore, in its post-trial opposition to defendant's motion for a new trial, plaintiff stated that the expert relied on incorrect facts and that his report was plainly "wrong." Under the circumstances, the Court does not see how it would reasonable to include in its award the costs attributable to this expert.
Finally, although not set forth clearly in the supporting affidavit, Incase has submitted what appears to be a copy of the ledger of expenses associated with this case. While much of the text is not legible, it appears to include the filing fee, costs for deposition transcripts, and expert fees. In the absence of clearer information, the Court will award $1,000 for the filing and service fees, and costs associated with duplication, deposition transcripts, and the like.
Therefore, the Court determines that an attorneys' fee (and costs) award of $115,545 is appropriate in this case.[11]See Twin Fires, 445 Mass. at 430, 837 N.E.2d 1121 (fee award of over ten times the actual chapter 93A damages allowed to stand as reasonable).
Order of Judgment
For the reasons stated in the foregoing memorandum, judgment will enter for plaintiff, Incase, Inc., on Count 6 of the complaint, alleging a violation of Mass. Gen. Laws ch. 93A, § 11. Actual damages would be duplicative with the jury's award on the breach of contract claim; therefore, no additional damages award will enter. Plaintiff is awarded the amount of $115,545 for its reasonable attorneys' fees and costs.
So Ordered.
NOTES
[1] The Court is not bound to find facts consistent with the jury's findings. "A judge may make independent and, therefore, different, findings on the c. 93A aspect of a case that arises from the same facts which gave rise to parallel common law claims." Poly v. Moylan, 423 Mass. 141, 151, 667 N.E.2d 250 (1996) (internal brackets omitted) (citing Wyler v. Bonnell Motors, Inc., 35 Mass.App.Ct. 563, 567, 624 N.E.2d 116 (1993)); accord Wallace Motor Sales, Inc. v. American Motors Sales Corp., 780 F.2d 1049, 1063-67 (1st Cir. 1985).
[2] Transcript references contain a first number indicating the day of testimony (from the first to the sixth day), followed by a colon and a number indicating the specific page(s) of that transcript on which the referenced testimony can be found.
[3] Throughout the trial, the parties also used the terms "collar" and "C" to refer to the holder. E.g., Tr. 1:52-53; Tr. 3:125-26.
[4] The parties also used the term "price clip" or "clip" to refer to the price flag. E.g. Tr.1 80-81; Tr. 3:88-89.
[5] As stated above, the Court granted, in part, Timex's motion for summary judgment insofar as Incase's contract claim included a contract for plastic containers for wristwatches the box base and coverleaving only the portion of the contract claim concerning the holders for trial. However, for background purposes, Incase was allowed to present evidence relating to its work on and the composition of the entire S-4 packagenot just the S-4 holder. E.g., Tr. 1:37-38. The Court did not allow Incase to argue from such testimony that a contract for the entire package, or other sub-parts of the package, was formed. E.g., Tr. 1:36. The jury charge on the contract claim related only to S-4 holders.
[6] Section 11 also states that "[n]o action shall be brought or maintained under this section unless the actions and transactions constituting the alleged . . . unfair or deceptive act or practice occurred primarily and substantially within the commonwealth." It goes on to state that the burden is on the party seeking to establish that the challenged conduct did not occur primarily and substantially in Massachusetts. Id. Therefore, establishing the location of the alleged unfair or deceptive conduct is not a jurisdictional prerequisite, but a defense to liability on which the defendant bears the burden of proof. See Clinton Hospital Ass'n v. Corson Group, Inc., 907 F.2d 1260, 1263 (1st Cir.1990); Arthur D. Little Int'l, Inc. v. Dooyang Corp., 979 F. Supp. 919, 925-26 (D.Mass.1997). The defense was not raised or proved; therefore, the Court need not determine the location of the challenged conduct.
[7] The Court emphasizes, however, that its finding is not based solely or even substantially on Timex's mere use of the design that Incase developed. That design was not protected by the law of patent, copyright, trademark, or trade secrets, and chapter 93A does not create new intellectual property rights beyond those traditional areas.
[8] Plaintiff's counsel's affidavit contains date ranges for tasks, instead of specific dates for each task, and provides only the aggregate time spent during the date range. To cite an example: "From September 1, 2005 to September 30, 2005, I spent time reviewing and summarizing all depositions; I reviewed the Exhibit List; I prepared for argument on the Defendant's Motion to Exclude Expert Testimony; I filed a Motion to Exten[d] Time to File an Opposition; I filed a Trial Brief and Opposition to Defendant's Motion to Exclude; I prepared special questions and jury instructions for the Court; I reviewed the Motion in Limine to exclude speculative proposals for purchases of units. The total amount of time spent was 110.50 hours."
[9] The case was not without complexities; among other things, they arose from the plaintiff's attempt to rely on unreliable expert testimony as its primary damages evidence, and the parties' confusion as to the proper law to be applied to the dispute (whether Massachusetts or Connecticut, and whether the common law of contracts or the Massachusetts version of the UCC). However, the Court does not believe that these sort of complexities are relevant to the award of attorneys' fees in this case.
[10] Plaintiff's submission in support of its motion for attorney's fees came in two parts. Its first submission, on January 3, 2006, included a Motion for Attorney's Fees, a memorandum in support, and an affidavit by Stephen G. Morte, plaintiff's counsel. Attorney Morte's affidavit concluded that he "computed the time involved for this action to be no less than 580.5 hours." On January 17, 2005, the Court ordered that plaintiff submit more detailed information of its fees and expenses. On January 26, 2005, plaintiff submitted a supplemental memorandum and a supplemental affidavit by Attorney Morte. His second affidavit concludes that he has "performed no less than 654.50 hours of service in litigating this case." The Court cannot determine why the computations are different; certainly, it is not that Mr. Morte expended 74 additional hours on this case responding to the Court's January 17, 2005 order. The Court will not hazard a guess and need not determine the precise number because it has determined that 580.5 is the more reasonable number.
[11] The Court arrives at this sum as follows: by (1) using data supplied by counsel, dividing 580.5 hours into two groupsthose spent before January 1, 2003 (76.75) and those spent on or after that date (503.75); (2) determining the proportionate number of hours each group represents of 580.5 (13.2% and 86.8%, respectively); (3) subtracting from each group the number of hours that represents its pro rata share of 100 hours (13.2 hours and 86.8 hours, respectively, for a remainder of 63.55 and 416.95, respectively); (4) multiplying the remainder by the applicable hourly rate ($195 multiplied by 63.55 and $245 multiplied by 416.95); (5) adding the product of each calculation ($12,392.25 and $102,152.75, respectively) to determine the attorneys' fees to be awarded; and (6) adding $1000 to this amount as costs.
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2525520/
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220 P.3d 709 (2009)
John Vernon FIELDS, Appellant,
v.
The STATE of Nevada, Respondent.
No. 50497.
Supreme Court of Nevada.
December 10, 2009.
*711 Frederick B. Lee Jr., Public Defender, and Roger H. Stewart, Deputy Public Defender, Elko County, for Appellant.
Catherine Cortez Masto, Attorney General, Carson City; Gary D. Woodbury, District Attorney, and Troy C. Jordan, Deputy District Attorney, Elko County, for Respondent.
Before the Court En Banc.
OPINION
By the Court, PICKERING, J.
This is an appeal from a judgment of conviction of first-degree murder with the use of a deadly weapon and conspiracy to commit murder, asserting evidentiary and instructional error and improper argument by the prosecutor. We find no error or abuse of discretion and therefore affirm.
FACTS
A jury convicted John Vernon Fields (Fields) of murder and conspiracy to commit murder in connection with the death of Jaromir Palensky, whose fully clothed body was found floating in the Jordan River in Utah on January 14, 2004. Forensic evidence showed that Palensky had been dead for days, maybe weeks, and that he did not drown but died as a result of blunt force blows to the back of his head. Palensky did not have a car, current driver's license, or phone. He was last seen alive on December 19, 2003, at the ranch outside Elko leased by Fields and his wife, Linda Walker Fields (Linda). For the six weeks before he disappeared, Palensky had been living in a trailer on the ranch and working for the Fieldses as a ranch hand.
Palensky was an alcoholic. In 2002, he was convicted of DUI and sentenced to an 18-month prison term, which he had just finished serving when he moved into the trailer on the Fieldses' leased ranch. Linda befriended Palensky before he went to prison, and in late January of 2002, he gave her a general power of attorney. While Palensky was in prison, Linda used the power of attorney to liquidate a number of his assets, including two parcels of land, a savings account, a credit union account, and a pension plan benefit. Linda transferred these assets or their proceeds into joint accounts she held with Fields.
*712 Some time after Palensky's body was discovered, a $300,000 Life insurance policy naming Linda as Palensky's beneficiary surfaced, as did a handwritten will, naming Linda and Fields as the beneficiaries of Palensky's estate. The will recited that it had been written out for Palensky by a man named Sherman Butts, who died in 2004. Trial testimony established the writing wasn't that of Butts but a forgery by Fields.
Fields was tried separately from Linda, who was also charged with, and convicted of, murdering Palensky. In addition to first-degree murder and its lesser included offenses, Fields was charged with conspiring with Linda to murder Palensky "for the purpose of acquiring money either through the payout of a life insurance policy on the victim, the beneficiary being Linda Walker Fields, the spouse of the Defendant, or by acquiring the assets of the victim through a purported Will naming the Defendant and Linda Walker Fields, his spouse, as the primary beneficiaries."
Fields defended the case on the basis that he didn't murder Palensky, someone else didprobably a stranger but perhaps Linda, in concert with the man she later had an affair with, or another friend or associate of hers. Even if Linda arranged Palensky's death, Fields argued, he still should be acquitted: the evidence did not show that he knew about the alleged scheme to murder Palensky; he was not named with Linda on Palensky's life insurance policy; and being married to Linda didn't mean that he conspired with her to kill Palensky.
DISCUSSION
Prior bad act evidence
Fields principally challenges the district court's admission of prior bad act evidence concerning the Fieldses' dealings with one Roy Mobert. Specifically, Fields challenges the district court's admission of: (1) testimony from Mobert's lawyer, Gregory Corn, and documents Corn authenticated, about the Fieldses' debts to Mobert and Mobert's foreclosure proceedings against them, which were imminent in December of 2003; and (2) a tape recording that captured Fields, Linda, and Billy Wells discussing a proposal for Wells to kill Mobert and make it look like an accident. The district court conducted a full Petrocelli hearing, Petrocelli v. State, 101 Nev. 46, 692 P.2d 503 (1985), and gave the jury the limiting instructions required by Tavares v. State, 117 Nev. 725, 30 P.3d 1128 (2001), before and after admitting this evidence. The issue thus is not process but, purely, admissibility.
"A district court's decision to admit or exclude [prior bad act] evidence under NRS 48.045(2) rests within its sound discretion and will not be reversed on appeal absent manifest error." Ledbetter v. State, 122 Nev. 252, 259, 129 P.3d 671, 676 (2006). Our already deferential review is even more limited than usual in this case. The parties did not include the trial exhibitsincluding the Corn documents and the Wells tapein the record on appeal. And, although the Wells tape was played at trial, it was not transcribed.
As the appellant, Fields had the "responsibility to provide the materials necessary for this court's review." Jacobs v. State, 91 Nev. 155, 158, 532 P.2d 1034, 1036 (1975). Under NRAP 30(d), the required appendix should include "[c]opies of relevant and necessary exhibits," or "[i]f the exhibits are too large or otherwise incapable of being reproduced in the appendix, the parties may file a motion requesting the Supreme Court to direct the district court clerk to transmit the original exhibits." Neither was done here. See Thomas v. State, 120 Nev. 37, 43 & n. 4, 83 P.3d 818, 822 & n. 4 (2004) ("Appellant has the ultimate responsibility to provide this court with `portions of the record essential to determination of issues raised in appellant's appeal.'" (quoting NRAP 30(b)(3)). While the Corn testimony and the pretrial and trial transcripts, which include the closing arguments, permit us to review the challenge to the Mobert evidence, not having the trial exhibits or a transcript of the Wells tape limits its scope.
NRS 48.045(2) prohibits the use of "other crimes, wrongs or acts . . . to prove the character of a person in order to show that he acted in conformity therewith." Such *713 evidence "may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident." NRS 48.045(2). "To be deemed an admissible bad act, the trial court must determine, outside the presence of the jury, that: (1) the incident is relevant to the crime charged; (2) the act is proven by clear and convincing evidence; and (3) the probative value of the evidence is not substantially outweighed by the danger of unfair prejudice." Tinch v. State, 113 Nev. 1170, 1176, 946 P.2d 1061, 1064-65 (1997). In assessing "unfair prejudice," this court reviews the use to which the evidence was actually put whether, having been admitted for a permissible limited purpose, the evidence was presented or argued at trial for its forbidden tendency to prove propensity. See Rosky v. State, 121 Nev. 184, 197-98, 111 P.3d 690, 699 (2005). Also key is "the nature and quantity of the evidence supporting the defendant's conviction beyond the prior act evidence itself." Ledbetter, 122 Nev. at 262 n. 16, 129 P.3d at 678-79 n. 16.
The district court correctly found the Mobert evidence relevant to motive, intent, knowledge, and identity. Corn testified that, in November of 2003, the Fieldses had lost a three-year court battle with Mobert. Lying at the heart of the battle was the Fieldses' part interest in the Silver Dollar Bar in Elko, on which Mobert held a note secured by a deed of trust. Mobert was elderly and in ill health. Shortly before undergoing a hospital procedure in 2000, Mobert had given Linda a power of attorney and revised his will to include her and Fields as beneficiaries. Linda used the power of attorney to sell a bar Mobert owned in Jarbidge and to transfer the proceeds from that sale and money Mobert held in a brokerage account to accounts she and Fields jointly held. When Mobert recovered, he sued (and revoked his will), and the Fieldses countersued. To settle the suit, the Fieldses returned to Mobert what money of his they had left, with a note secured by a deed of trust on the Silver Dollar Bar for the rest. The Fieldses defaulted on the note and in 2002, they filed bankruptcy to delay foreclosure. In November of 2003, shortly before Palensky disappeared, Mobert obtained an order lifting the bankruptcy court stay against foreclosure on the Silver Dollar Bar.
The taped conversation between the Fieldses and Billy Wells occurred in June of 2001, after the litigation with Mobert began. From the pretrial Petrocelli arguments, it appears the three discussed Wells arranging Mobert's death by having his car go over a cliff with Mobert in it. In return, the Fieldses would cancel a debt Wells owed them and pay Wells $1,000. Fields reportedly asks Wells on the tape whether a handshake would seal the agreement. The State argued that this conversation was similar to one Fields and Linda had with Palensky's fellow ranch hand, Ralph Mackley, not long before Palensky disappeared, in which Linda suggested, in Fields's presence, that Mackley run over Palensky with the front end loader and push his body into the river. An oddly jarring note: In the conversation with Wells and a later one with Mackley, Linda falsely accused Mobert and Palensky, respectively, of being child molesters, for no apparent reason except to devalue their worth as human beings.
The Corn testimony was properly admitted to establish that the Fieldses had a shared monetary motive to kill Palensky. The existence of their earlier litigation with Mobert, the debt owed on the Silver Dollar Bar, and the state of the bankruptcy lift-stay proceedings were not contested. In December of 2003, when Palensky disappeared, the Fieldses did not have enough money to pay their ranch hand, Mackley, and could no longer buy hay on credit. The Fieldses stood to lose their interest in the Silver Dollar Bar unless they immediately paid Mobert a significant sum of money. Linda receiving Palensky's $300,000 life insurance benefit, or the two of them inheriting his estate, would help solve their problem with Mobert. It would also eliminate the brewing dispute they faced with Palensky over the asset transfers Linda had made while Palensky was in prison.[1]
*714 A similar issue came before the court in Felder v. State, 107 Nev. 237, 810 P.2d 755 (1991). Felder, like Fields, appealed his murder conviction on the basis that the State violated the rule against using bad act evidence to prove criminal propensity by introducing evidence of the defendant's "desperat[e]" financial condition to establish motive and identity. Id. at 241, 810 P.2d at 757. The evidence Felder challenged showed he "was in financial distress and took money from bank accounts without permission, forged signatures to obtain credit cards, and wrote a large check to his attorney, which bounced," in the eight months preceding the murder. Id. at 240, 810 P.2d at 757. This evidence had multiple implications, some legitimate and others forbidden by NRS 48.045(2). Although it impugned Felder's character, the evidence was also relevant to establish that Felder was in financial straits and invented a ransom demand after killing the victim as part of a scheme to obtain $100,000 from a third person. Felder argued that the forgery and unauthorized transfers from other people's bank accounts should have been excluded as improper bad act evidence under NRS 48.045(2); the State countered that "the testimony was needed to demonstrate motive and that the prior acts were closely connected to Felder's apparent scheme to obtain ransom money." Felder, 107 Nev. at 240, 810 P.2d at 757.[2] The court agreed with the State and held the unauthorized bank account transfers and forgery "may indicate desperation and [were] therefore properly admitted to prove motive." Id. at 241, 810 P.2d at 757.
Not only did it tend to establish financial motive, as in Felder, the Mobert evidence also had relevance to knowledge and intent. It tended to show that Fields was not an innocent or ignorant bystander to Linda's alleged murderous scheme, as he claimed. A defendant's knowing participation in prior bad acts with alleged coconspirators may be admitted in a proper case to refute claims that the defendant's acts were "nothing more than innocent acts of a friend [or here, a husband], and not a knowing participation in a conspiracy," and to show that "[d]efendant was not an innocent pawn taken by surprise" in the conspiracy charged. United States v. Mercado, 573 F.3d 138, 141 (2d Cir.2009) (Calabresi, J.) (applying Fed.R.Evid. 404(b), the counterpart to NRS 48.045(2), and Fed.R.Evid. 403). See United States v. Tse, 375 F.3d 148, 155-56 (1st Cir.2004) (canvassing and applying cases holding that, "[i]n a conspiracy case, the district court may admit evidence of other bad acts if they tend to suggest a criminal association between the alleged conspirators. . . [and to] rebut a defendant's claim that his association with the alleged conspirators was innocent"); United States v. Pipola, 83 F.3d 556, 566 (2d Cir.1996) (noting that, "One legitimate purpose for presenting evidence of extrinsic [prior bad] acts is to explain how a criminal relationship developed; this sort of proof [can] furnish[] admissible background information in a conspiracy case . . . [and] help the jury understand the basis for the co-conspirators' relationship of mutual trust"); United States v. Cross, 308 F.3d 308, 322 (3d Cir.2002) (upholding admission of evidence of other bad acts to refute claims that the defendants acted unwittingly and in good faith in connection with the events giving rise to the conspiracy charged); cf. Homick v. State, 108 Nev. 127, 139, 825 P.2d 600, 608 (1992) (upholding admission of testimony about prior bad acts to explain the relationship that led the defendant to give the murder weapon to an associate to use to commit another crime).
Last, the Mobert evidence tended to prove identity, a central disputed issue in this case. "`[E]vidence of prior criminal behavior may only be admitted to prove identity when its prejudicial effect is outweighed by the evidence's probative value and when that prior behavior demonstrates characteristics of conduct which are unique and common to both the defendant and the perpetrator *715 whose identity is in question.'" Canada v. State, 104 Nev. 288, 292-93, 756 P.2d 552, 554 (1988) (quoting Coty v. State, 97 Nev. 243, 244, 627 P.2d 407, 408 (1981)). The district court did not abuse its discretion when it found the Mobert and Palensky facts sufficiently similar to permit the Mobert evidence to be used to show identity. Both scenarios involved grifting an older man (Palensky was in his sixties, Mobert in his seventies) who, facing loss of control of his life through hospitalization or prison, gave Linda a power of attorney, which she then used to transfer assets into accounts held by her and Fields; when the man recovered his autonomy and protested his missing money and property, Linda and Fields spoke to third parties about arranging the man's death, making it look accidental; she even went so far, in Fields's presence, as to falsely accuse each man of being a child molester, in conversation with their prospective killers.
The fact the Mobert solicitation did not lead to his death, while Palensky ended up murdered, weakens but does not eliminate the probative worth of the Mobert evidence. United States v. Robinson, 177 F.3d 643 (7th Cir.1999), is analogous. Robinson challenged the admission to prove identity of a conversation he had with his girlfriend months before the bank robbery he was accused of. In it, he asked her to help him rob a different bank and outlined his thoughts on how to accomplish this. According to Robinson, this conversation showed only "the daydreams of a frustrated youth" and was too dissimilar from the robbery charged to be admitted. 177 F.3d at 647. Writing for the panel, Judge Wood found "no error, plain or otherwise" in admitting the girlfriend's testimony. Id. Whether or not the "daydream" and the robbery shared a common "modus operandi," they were similar enough "to show that Robinson had developed a plan for robbing a bank that he believed could be carried out quickly and easily. . . . It also supplies a motive for bank robbery: Robinson thought this was a quick and easy way to solve his financial problems." Id.
In sum, the Mobert evidence had probative value on issues besides propensitymotive, intent, knowledge, and identitywhich satisfies the first prong of Tinch's three-part test. Although the dissent argues otherwise, the facts relating to Mobert were sufficiently proved to satisfy Tinch's second prong as well. The Corn testimony, as noted, addressed the fact of the Fieldses' dispute with Mobert and Mobert's imminent foreclosure of their interest in the Silver Dollar Bar. And as the district court found, the Wells "tape is what the tape is." It was properly authenticated. The jury did not have to believe or like Wells. See Wade v. State, 114 Nev. 914, 917-18, 966 P.2d 160, 162-63 (1998) (upholding admission of tape-recorded conversation with an informant for the defendant's statements, not the informant's). Its significance lay in what Fields and Linda said on the tape. Whether they meant their words seriously was for the jury to decide. The words themselves were not contested.
The close question arises under Tinch's third prong, in the district court's determination that the risk of unfair prejudice did not substantially outweigh the probative value of the evidence. On the record we have, we cannot say that the district court manifestly abused its discretion in deciding this question, especially in view of the fact that the State charged Fields with conspiracy to commit murder. The court gave proper limiting instructions, and the State did not offer or argue the evidence to prove propensity. Presenting the Mobert evidence took less than a half day of the two-week trial in this case. We do not have a transcript of opening statements, but the transcript of closing arguments shows that the State did not put the Mobert evidence to improper use. In closing, the State made minimal mention of the Mobert evidence, addressing it once, briefly, in regard to the Fieldses' financial straits and the financial motive their problems with Mobert gave them to kill Palensky, and a second time addressing the conspiracy charge against Fields.[3] Finally, we have *716 carefully reviewed the record and find there was sufficient proof, independent of the Mobert evidence, to convict Fields of both murder and conspiracy to commit murder, given the forged will, Fields's statements to Mike Wilson, Mike Walker, and others about Palensky's death and "dump[ing] the body," his taped inculpatory conversations with Linda from the jail, and the Fieldses' impending dispute with Palensky over his missing money and property. On this record, we therefore reject Fields's NRS 48.045(2) challenge to the admission of the Mobert evidence.
Excluded testimony
Next, Fields challenges the district court's exclusion of testimony from two witnesses, Wilson and Grondona, about statements nontestifying third parties made to them concerning Linda's brother, Mike Walker. We review a district court's determination of whether proffered evidence fits an exception to the hearsay rule for abuse of discretion. See Harkins v. State, 122 Nev. 974, 980, 143 P.3d 706, 709 (2006).
Fields sought to establish through Mike Wilson that Wilson once found Linda crying, covered in blood from a head wound for which she blamed her brother, Mike Walker, "not that Mike Walker did it, but it was tied to Mike Walker, to people tied to an act of his." Walker testified at Fields's trial about a conversation he overheard between Fields and Linda about Palensky's life insurance benefit being paid into court and their fear of what would happen "if they find out we dumped the body." Walker was impeached with a prior conviction and other bases for bias against his sister, but he was not asked about the episode sought to be introduced through Wilson. The district court properly excluded Wilson's testimony about Linda's accusations against her brother as improper collateral impeachment of a witness under NRS 50.085(3).
The Claire Grondona testimony was the subject of an offer of proof outside the jury's presence. Grondona testified that she is a former reserve police officer, currently working as a Catholic lay minister and helping rehabilitate drug abusers. In July of 2007, a woman named Leah Rand came to Grondona's home and broke down in tears describing how, in 2003, she had come to Nevada from California with a group of people, including Mike Walker, gotten drunk, and seen Walker hit "Jerry . . . the Polack" in the head with an object. Rand said she did not report this to the police then or later, because in the summer of 2004, Walker threatened to kill her and her children. Nor did Grondona report her conversation with Rand to anyone until Grondona testified at the Fields trial. Rand was not shown to be unavailable; her statements to Grondona thus did not even arguably qualify for admission as statements against penal interest. NRS 51.345(1)(b). They also did not qualify as excited utterances, given that more than three years elapsed between the event and her telling Grondona about it. See Browne v. State, 113 Nev. 305, 313, 933 P.2d 187, 192 (1997) (noting that "the timing of the event precipitating [the declarant's] fear . . . is often the determining factor for an excited utterance"). The district court did not abuse its discretion in excluding the Grondona/Rand evidence as hearsay.
Citing Chia v. Cambra, 360 F.3d 997 (9th Cir.2004), Fields argues he had a due process right to present Grondona's testimony because, if accepted as true, Rand's statements to Grondona exonerated him by implicating Walker. Fields overreads Chia. Relying on Chambers v. Mississippi, 410 U.S. 284, 93 S. Ct. 1038, 35 L. Ed. 2d 297 (1973), Chia held that "when a hearsay statement bears persuasive assurances of trustworthiness and is critical to the defense, the exclusion of that statement may rise to the level of a due process violation." Id. at 1003. Rand's statements to Grondona, unlike the declarant's statements in Chia, bore no particular indicia of trustworthiness. To the contrary, according to Grondona, Rand said she was drunk when the fight she witnessed occurred; both Grondona and Rand reportedly had a prior history of bad blood with Walker, giving them motive to falsely inculpate Walker. Unlike the declarant in Chia, whose statements to detectives were recorded and close in time to the event (one was made as the declarant was being prepared for surgery and under fear of impending death), Rand's *717 statements to Grondona were made more than three years after the event. Most important of all, the declarant's statements in Chia inculpated the declarant while exonerating the defendant, thus contributing to their reliability. The statements at issue here, by contrast, did not inculpate the declarant (Rand) but merely placed her at the scene as a witness against a third person (Walker). With no assurances of trustworthiness, Chia does not apply. Id. at 1008.
"Although a criminal defendant has a due process right to `introduce into evidence any testimony or documentation which would tend to prove the defendant's theory of the case,' that right is subject to the rules of evidence." Rose v. State, 123 Nev. 194, 205 n. 18, 163 P.3d 408, 416 n. 18 (2007) (quoting Vipperman v. State, 96 Nev. 592, 596, 614 P.2d 532, 534 (1980)). Grondona's testimony about what Rand said to her did not carry sufficient assurances of trustworthiness to justify admission despite its hearsay status.
Jail telephone conversations
Fields spoke to Linda on the telephone while she was in jail and their conversations were recorded. Although the record on appeal includes neither the tape recordings nor transcripts of the calls played for the jury, the pretrial hearing transcript establishes that both Linda, as the inmate, and Fields, as the outside caller, would automatically be warned that the call was being recorded. This defeats the expectation of confidentiality required to sustain Fields's claim of marital privilege under NRS 49.295 for these calls. Foss v. State, 92 Nev. 163, 167-68, 547 P.2d 688, 691 (1976).
Jury instruction on intent
Fields next complains that the jury instruction on specific intent was inadequate because the court did not add the following underscored language to its instructions that "murder is a specific intent crime" and that "[s]pecific intent means the intent or active desire to accomplish a precise act or forbidden objective, not merely the intent to do an act." However, in addition to the instructions just quoted, the jury was instructed that, "[b]ecause murder is a specific intent crime, the Defendant cannot be found guilty of murder merely because it was a natural and probable consequence of the conspiracy unless he had a specific intent to commit the murder," that "[m]urder in the first degree" must be perpetrated by means of "willful, deliberate and premeditated killing," and that "[w]illfulness is the intent to kill." This adequately conveyed the information Fields sought to add to the specific intent instruction. See Powell v. State, 113 Nev. 258, 262-63, 934 P.2d 224, 227 (1997).
Comment in closing argument
When Linda spoke to Fields on the jail phone, she apparently complained to Fields that she was in jail because of what Fields did. During closing, the State commented on Fields's silence in the face of these accusations. Fields objected and the court sustained his objection to the extent this could be interpreted as a comment on Fields's not testifying. The court overruled his objection to the extent Fields's silence on the accusatory calls with Linda were adoptive admissions. While the State's comment should have been more narrowly tailored, this ruling comported with Maginnis v. State, 93 Nev. 173, 561 P.2d 922 (1977), and does not constitute reversible error.
CONCLUSION
Fields was charged with and convicted of both murder and conspiracy to commit murder. The district court did not abuse its discretion in making the evidentiary rulings it did or commit instructional error. Accordingly, we affirm.
We concur: HARDESTY, C.J., and PARRAGUIRRE, DOUGLAS, and GIBBONS, JJ.
CHERRY, J., with whom SAITTA, J., agrees, dissenting:
I respectfully dissent from my colleagues in the majority. As a former public defender, special public defender, and a trial judge, I fear that the majority's reasoning in affirming the murder conviction of appellant emasculates NRS 48.045. I hope that our trial *718 judges in the State of Nevada will continue to follow the general rule that "proof of a distinct independent offense is inadmissible" during a criminal trial, Nester v. State of Nevada, 75 Nev. 41, 46, 334 P.2d 524, 526 (1959), and only permit the introduction of said prior bad act evidence if the trial court determines that: "(1) the incident is relevant to the crime charged, (2) the act is proven by clear and convincing evidence, and (3) the probative value of the evidence is not substantially outweighed by the danger of unfair prejudice." Tinch v. State, 113 Nev. 1170, 1176, 946 P.2d 1061, 1064-65 (1997).
In the instant matter, John Vernon Fields was convicted of one count of first-degree murder with the use of a deadly weapon and one count of conspiracy to commit murder. He now appeals those convictions primarily on the basis of the district court's admission of evidence of a prior bad act in the form of a prior uncharged conspiracy. Fields argues that such evidence was inadmissible for two reasons. First, Fields contends that the evidence did not fall within the common-plan-or-scheme exception to the general rule excluding bad act evidence because the crime charged was not similar enough to the prior conspiracy. Second, Fields contends that even if the bad act evidence was relevant as proof of a common plan or scheme, such evidence should not have been admitted because its probative value was substantially outweighed by the danger of unfair prejudice.
I conclude that the district court abused its discretion in admitting this bad act evidence because the prior conspiracy was not similar enough to the crimes charged to be relevant as proof of a common plan or scheme. I also conclude that the probative value of the bad act evidence was substantially outweighed by the danger of unfair prejudice. As such, I conclude that a new trial is warranted because the admission of the bad act evidence was not harmless.
FACTS
Relationship between the Fieldses and Palensky
In April 2002, Jaromir Palensky went to prison for a felony DUI conviction. Prior to going to prison, Palensky contacted Linda Marie Walker Fields (Linda) and gave her power of attorney so she could take care of his affairs while he was in prison. In addition, Linda took out a new life insurance policy on Palensky's life with Linda as the beneficiary.
More than a year after his conviction, Palensky completed his term of incarceration. Approximately three months before his release, the Nevada Division of Parole and Probation contacted Linda to organize Palensky's early release. After meeting with Palensky's parole officer, Fields and Linda arranged to move Palensky's trailer onto their property. Palensky then worked and lived on the Fieldses' ranch until his disappearance in December 2003. The Fieldses alleged that, prior to his disappearance, Palensky made a will that made the Fieldses his heirs.
A month after Palensky's disappearance, on January 14, 2004, his body was found floating face down in the Jordan River near Salt Lake City, Utah, by the Salt Lake County Sheriffs Department. Dr. Edward Leis, employed by the Utah State Medical Examiner's Office, performed an autopsy of Palensky's body and concluded that Palensky died of a combination of four blows to the back of his head inflicted by a blunt instrument. Dr. Leis testified that he could not be certain how long Palensky was in the water, but he could not deny that the body could have been in the water up to 24 days given the water temperature.
Detective Brent Adamson, a detective with the Salt Lake County Sheriffs office, was in charge of identifying Palensky's body and the subsequent investigation into Palensky's murder. Adamson did not receive any leads regarding Palensky's death. The only people to contact Adamson were people Palensky knew many years prior when he lived in Carbon County, Utah. In Palensky's wallet, there was a phone number for the Fieldses, which Adamson called. Fields answered, and told Adamson that Palensky was a former employee who left the ranch a month prior. Fields told Adamson to call Linda for more information. A few days after the *719 phone call, Adamson traveled to Elko and to the Fieldses' ranch where he spoke to the Fieldses in person. Fields and Linda provided Adamson with all of Palensky's documents in their possession, including his trailer registration and the business documents between Linda and Palensky. Linda also provided Adamson with an agreement between her and Palensky in which Linda agreed to pay off five debts for Palensky. Fields was present when Linda gave this document to Adamson. Adamson and the Fieldses discussed that on December 19, 2003, Palensky was so intoxicated during work that the Fieldses had to send him to his trailer. Later that evening, lights were on in Palensky's trailer, but he was not there, and the Fieldses told Adamson that was the last time they saw Palensky. Adamson looked at Palensky's trailer but did not see anything suspicious. Kevin McKinney, a detective with the Elko County Sheriffs Department, began investigating Linda after he was contacted by her brother, Mike Walker, and her sister-in-law, Niqua Walker, in September 2006.
Mike and his wife, Niqua, moved onto the Fieldses' ranch in the summer of 2006. Prior to moving in with Linda, Mike was estranged from his sister for many years. Mike never met Palensky and only heard the Fieldses discuss Palensky oncewhen they were going to Utah to receive money from the life insurance policy taken out by Linda on Palensky's life. Late one night when Mike got out of bed to go to the bathroom, he overheard a conversation between Fields and Linda wherein Fields said, "[w]hat if they find out we dumped the body." Linda reacted to Fields's statement with profanity and told Fields never to talk like that again. Thereafter, Mike and Niqua were evicted from the Fieldses' property for alleged drug use.
In late July 2006, Linda told Niqua that she caught Palensky molesting her grandson in the shed and that she killed Palensky by hitting him in the head with a pipe. Niqua discussed this admission with Mike, and they decided to alert the police. Fields was not around when Linda allegedly confessed to Niqua that she killed Palensky.
Mike and Niqua contacted McKinney with information that Linda was involved in Palensky's murder. They told McKinney about Linda's confession to Niqua, and that Linda stated that she used the insurance money from Palensky's death to pay his molestation victims. Niqua told McKinney she did not believe Linda because Linda lies a lot. Thereafter, McKinney inquired into the prior police investigation in Salt Lake City. In October 2006, McKinney and the Elko County Sheriffs Department took over as primary investigators on the Palensky murder, with McKinney as lead investigator. McKinney set up a confrontation between Mike and Linda on November 22, 2006, by putting a body wire on Mike and instructing him to confront the Fieldses about Palensky's murder. As soon as Mike entered the property, Fields told him to leave, and Mike left.
In November 2006, McKinney spoke to Fields at the sheriffs office regarding the death of Palensky. Fields told McKinney that he did not know about the death of Palensky but told McKinney that Patricia Grenz, a friend of the Fieldses, now owned the trailer Palensky lived in when he worked on the Fieldses' ranch. Grenz bought Palensky's trailer from its original owner after Palensky's disappearance. Thereafter, the police came to Grenz and took the trailer in which Palensky once lived in order to search it. The Fieldses also sold a red Toyota pickup to Grenz sometime before 2004. Previously, Mike and Niqua told McKinney that this pickup was used by the Fieldses to transport Palensky's body. McKinney conducted a search of Palensky's trailer and the red Toyota pickup. In each search, McKinney found no evidence related to Palensky's death.
After Linda was charged with open murder and convicted by a jury of murder in the first degree in the death of Palensky, Fields was separately charged with open murder and convicted of murder in the first degree with use of a deadly weapon and conspiracy to commit murder.
Bad act evidenceMobert conspiracy
At trial, in an attempt to establish a possible motive linking Fields to Palensky's murder, *720 the State introduced evidence of a prior uncharged conspiracy involving the Fieldses and Roy Mobert. Mobert and the Fieldses were friends who later developed a business partnership when Mobert assigned power of attorney to Linda. Mobert was elderly and in poor health, and Linda sold his property for him and arranged other affairs with the power of attorney. The business relationship soon soured, and the Fieldses filed a civil suit against Mobert, who filed a counterclaim. Mobert and the Fieldses settled this suit in 2000. Mobert died of natural causes in 2007, when Linda no longer held rights of survivorship or any other potential for pecuniary gain from Mobert.
At a hearing on pretrial motions in the instant case, the State put on Gregory Corn as its first witness. Corn was Mobert's attorney in the civil suit between Mobert and the Fieldses, wherein the Fieldses claimed that Mobert did not follow through on a promissory note to sell the Silver Dollar to them. However, Corn was not Mobert's attorney when Linda obtained power of attorney for Mobert. Corn testified that the Fieldses used Mobert's power of attorney "substantially" after Mobert inherited $95,000 from his mother. Corn also wrote a will for Mobert, revoking a prior will where Mobert left his entire estate to the Fieldses. The court ruled that the will could be admitted into evidence.
At the same pretrial hearing, the State called James Pitts, a detective with the Elko County Sheriffs Department. Pitts worked an investigation involving Fields, Linda, and Billy Wells, a regular police informant, after Wells told the police that the Fieldses had solicited him to murder Mobert. In 2001, Pitts rigged Wells with a microphone and instructed him to meet with Fields and Linda about the possible murder for hire in an attempt to record Fields and Linda soliciting Wells to murder Mobert. Consequently, the State sought to admit the recorded conversations under the motive exception to hearsay because it showed Fields's involvement in a prior murder solicitation. Fields objected to the admission of the tape on the basis of relevancy and prejudicial value. The court ruled that it would admit the tape at trial with a cautionary instruction.
Before Corn testified at trial, a limiting instruction pursuant to Tavares v. State[1] was given regarding the bad act evidence to be given by Corn and Pitts. At trial, Corn testified that Linda sold Mobert's bar in Jarbidge, Nevada, and that she took the proceeds from this sale, as well as proceeds from the sale of a house for Mobert, and opened a checking account in her own name. Linda then used this money to buy a vehicle for her daughter and to make improvements on the Silver Dollar. On behalf of Mobert, Corn prepared a counterclaim against the Fieldses, claiming that Linda defrauded Mobert and misused the power of attorney against Mobert. Eventually, the civil suit settled, and Corn testified that Fields returned "substantial cash and property" to Mobert.
Also at trial, and after the district court gave the Tavares instruction, Larry Kidd, Jr., a police officer with the City of Elko, testified that Wells told him that Wells had been contracted by the Fieldses to kill Mobert in 2001. Kidd helped Pitts set up Wells's audio surveillance to record the meeting between Wells and the Fieldses. After the investigation and audio surveillance, no charges were filed against Fields. Kidd testified that the audio surveillance failed to provide substantial evidence and that Wells was "playing both ends against the middle," meaning that he was telling the police one thing and telling the Fieldses the opposite to evade suspicion from either side. Thereafter, excerpts from the conversation were played.[2] Wells was a paid informant for the narcotics task force, but there was no testimony regarding whether Wells was paid for this specific task. By introducing evidence of this uncharged prior conspiracy involving *721 Mobert, the State sought to convey to the jury that with both Palensky and Mobert, the Fieldses, and John Fields in particular, planned to take advantage of elderly people by obtaining a power of attorney, using that power of attorney to get money and assets, and then murdering the elderly men for their estates.
Fields rebutted this testimony by not only pointing out Wells's propensity for untruthfulness but also the lack of physical evidence in the case. Specifically, Fields pointed out the State's inability to display a murder weapon or any evidence to suggest he was at the scene of Palensky's murder, as well as the inefficient investigation by the Elko County Sheriffs Department. After deliberating for three days, the jury returned a guilty verdict on all counts. The district court sentenced Fields and entered a judgment of conviction. This appeal followed.
DISCUSSION
Admission of bad act evidence
We defer to the district court's discretion in admitting or excluding evidence of prior bad acts. Braunstein v. State, 118 Nev. 68, 72, 40 P.3d 413, 416 (2002). We will not reverse such determinations absent manifest error. Id.
In analyzing the propriety of admitting evidence of prior bad acts, we have instructed trial courts to follow the parameters of NRS 48.045(2). Id. at 75, 40 P.3d at 418. Under NRS 48.045(2), such evidence is not admissible to prove the character of a person in order to show that he acted in conformity therewith but may be admissible to show "proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident." Before admitting evidence of prior bad acts, the district court must, outside the presence of the jury, determine whether: (1) the evidence is relevant, (2) the prior bad act is proven by clear and convincing evidence, and (3) the danger of unfair prejudice substantially outweighs the evidence's probative value. Meek v. State, 112 Nev. 1288, 1292-93, 930 P.2d 1104, 1107 (1996). Here, although I focus on the relevance of the bad act evidence and whether its probative value is outweighed by unfair prejudice, I would hold that the State failed entirely in proving the bad act Mobert conspiracy by clear and convincing evidence.
Relevance and the danger of unfair prejudice
Prior bad act evidence is admissible pursuant to the common-plan-or-scheme exception of NRS 48.045(2) when both the prior bad act evidence and the crime charged constitute "an `integral part of an overarching plan explicitly conceived and executed by the defendant.' `The test is not whether the other offense has certain elements in common with the crime charged, but whether it tends to establish a preconceived plan which resulted in the commission of that crime.'" Ledbetter v. State, 122 Nev. 252, 260-61 129 P.3d 671, 677-78 (2006) (quoting Rosky v. State, 121 Nev. 184, 196, 111 P.3d 690, 698 (2005) (other internal citations and quotations omitted)).
I conclude that the evidence of an uncharged prior bad act admitted herethe Mobert conspiracywas irrelevant because it was not part of a common plan or scheme when considered with the crimes charged because the State did not show that the two acts were part of an overarching, preconceived plan. As such, I conclude that the district court abused its discretion in admitting evidence of the prior uncharged bad acts alleged as the Mobert conspiracy for the reasons discussed below. There is a significant distinction between Mobert and Palensky. Mobert was in his late seventies, in poor health, and needed to have his affairs taken care of by another person at the time of the alleged conspiracy, whereas Palensky was in his sixties, in good health, and still had the strength to work on a ranch. The State portrayed to the jury that both of these victims were the sameelderly, frail, and helplesswhen they were allegedly taken advantage of by the Fieldses. I conclude that this portrayal is inaccurate because the victims were not in the same circumstance such that they could be considered similar enough to be part of a preconceived plan, as they were not the same age or in the same condition.
*722 Mobert died in 2007 after there was a civil settlement approved by the court between him and the Fieldsesthere was no ongoing dispute over money at the time of his death. Palensky was murdered, and there was no dispute with the Fieldses over money before his death. The circumstances of the alleged conspiracies are not similar, and the prior conspiracy alleged against Fields involving Mobert is irrelevant because the manner and cause of death of each of the victims are wholly different.
Mobert died of natural causes. The State failed to demonstrate that any alleged solicited murder of Mobert was relevant to proving a preconceived, overarching plan that resulted in the murder of Palensky. As such, I conclude that the district court abused its discretion by admitting the bad act evidence under the common-plan-or-scheme exception.
Even if the State had shown that the Mobert conspiracy was relevant to proving a common plan to conspire to murder Palensky, I conclude that the district court abused its discretion in admitting evidence of the Mobert conspiracy because the probative value of the evidence was substantially outweighed by the danger of unfair prejudice, and its admission led to serious jury confusion. Evidence of an alleged solicitation to murder Mobert from a police informant who even the police suggested was "playing both ends against the middle," which belies the police's own trust in the informant, is not relevant and goes solely to a showing of bad character.
Furthermore, NRS 48.035(1) provides for the exclusion of evidence, even if relevant, if the probative value of that evidence is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or of misleading the jury. Here, I conclude that the district court abused its discretion in the admission of evidence of the Mobert conspiracy because it was more prejudicial than probative and it led to serious jury confusion. A significant amount of time at trial was spent playing the excerpts of the conversations between Fields, Linda, and Wells related to the alleged Mobert conspiracy, as well as presenting Corn's testimony regarding the civil suit between the Fieldses and Mobert. Explaining every aspect of a civil suit within a criminal prosecution is potentially confusing to the jury because the standards and evidence are very different. The alleged conspiracies were not sufficiently similar for the Mobert conspiracy to be admitted under the common-plan-or-scheme exception. Because the Mobert conspiracy is by all accounts a business deal gone wrong, although it was settled out of court, I conclude that the district court erred in allowing evidence of this conspiracy to be admitted in the underlying case because Wells was not a reliable informant, the conspiracy was never charged, and the volume of information and time spent on submitting this conspiracy may have led to jury confusion.
Prior bad act evidence confuses jurors
The majority bases part of its decision to affirm Fields's conviction on the fact that presentation of the Mobert conspiracy evidence took less than a half day of a two-week trial. As a criminal defense lawyer for almost three decades, I can attest that any mention of prior bad acts in a criminal trial cannot be analyzed by the time it took to present said evidence. Further, the presentation of this type of evidence can feel like a "lifetime" to a defense attorney and his or her client! Less than a half day of this type of evidence is certainly unfair. Limiting instructions are fine as well as not using prior bad acts to show "propensity." However, this type of evidence in the instant case could only confuse the jury, and any probative value, which I do not believe exists, is outweighed by its prejudicial effect.
Although I conclude that the district court abused its discretion in admitting this uncharged prior bad act evidence, a new trial is not warranted unless the error was not harmless.
Harmless error
In reviewing nonconstitutional error, we use the standard set forth in Kotteakos v. United States, 328 U.S. 750, 66 S. Ct. 1239, 90 L. Ed. 1557 (1946), which is identical to NRS 178.598. Tavares, 117 Nev. at 732, 30 P.3d at 1132. "The test under Kotteakos is *723 whether the error `had substantial and injurious effect or influence in determining the jury's verdict.'" Id. (quoting Kotteakos, 328 U.S. at 776, 66 S. Ct. 1239). Accordingly, unless it is clear that the defendant "suffered no prejudice as determined by the Kotteakos test, the conviction must be reversed." Id. (citing United States v. Olano, 507 U.S. 725, 741, 113 S. Ct. 1770, 123 L. Ed. 2d 508 (1993)).
I conclude that the district court's improper admission of the bad act evidence regarding the Mobert conspiracy was not harmless for two reasons. First, I conclude that the unfair prejudice Fields suffered from the admission of the bad act evidence substantially outweighed any probative value of such an admission because there is no direct evidence tying Fields to the murder of Palensky and the circumstantial evidence of guilt is less than overwhelming. Second, I conclude that the error in admitting the evidence certainly had a substantial and injurious influence in determining the jury's verdict because the alleged prior bad act was so serious and potentially confusing to the jury. Consequently, the error was not harmless because the unfair prejudice to Fields that resulted from the district court's error in admitting the bad act evidence substantially outweighed its probative value. Rather, the admission of the evidence regarding the Mobert conspiracyevidence of an alleged prior murder solicitation by Fieldssurely had an impact on the jury's verdict because even if the jury could not tie Fields to Palensky's murder, the guilty verdict rendered could have been determined, in part, by the admission of evidence of Fields's alleged solicitation to kill Mobert.
Stare decisis would cause the evidence of the Mobert conspiracy to be inadmissible
The majority has successfully undermined the long line of cases and jurisprudence that has disallowed the use of prior bad acts by prosecutors. In Phillips v. State, 121 Nev. 591, 119 P.3d 711 (2005), receded from on other grounds as stated in Cortinas v. State, 124 Nev. ___, ___ n. 52, 195 P.3d 315, 324 n. 52 (2008), this court held that the probative value of defendant's prior convictions was outweighed by their prejudicial effect. Id. at 591, 119 P.3d at 711. In Phillips, admission of prior convictions, which met the burden of beyond a reasonable doubt, not merely clear and convincing evidence, were found to be error albeit harmless. Id. at 601-02, 119 P.3d at 718-19. Justice Rose, in his dissent, not only held the admission of prior bad act testimony to be error, but also that its presentation to the jury was not harmless beyond a reasonable doubt and therefore should have resulted in a reversal of the conviction. Id. at 603-04, 119 P.3d at 719-20 (Rose, J., concurring in part and dissenting in part).
In reversing the first-degree murder conviction in Longoria v. State, 99 Nev. 754, 670 P.2d 939 (1983), this court held that the district court committed reversible error by permitting the prosecutor to cross-examine the defendant about his alleged commission of attempted murder in a prior incident. Id. at 756-57, 670 P.2d at 940-41. The rationale of Longoria is applicable in the instant case since, in both cases, the evidence was not overwhelming and the jury may have reached a different conclusion if the error had not occurred. See also Bellon v. State, 121 Nev. 436, 117 P.3d 176 (2005); Walker v. State, 116 Nev. 442, 997 P.2d 803 (2000); Roever v. State, 114 Nev. 867, 963 P.2d 503 (1998) and Winiarz v. State, 107 Nev. 812, 820 P.2d 1317 (1991).
CONCLUSION
I conclude that the district court abused its discretion in admitting evidence of the Mobert conspiracy because the evidence was inadmissible prior bad act evidence that did not fall under the common-plan-or-scheme exception, and thus, was irrelevant. I further conclude that the probative value of the evidence was substantially outweighed by the danger of unfair prejudice. I further conclude the prior bad act was not proven by clear and convincing evidence. I conclude that a new trial is warranted because the admission of such evidence was not harmless-the confusing admission of the tapes and the amount of time spent on discussing the alleged uncharged conspiracy surely had an impact on the verdict. Accordingly, I would reverse the judgment of conviction and remand *724 this case to the district court for a new trial with the evidence of the Mobert conspiracy excluded.
NOTES
[1] Although she denied making the statement at trial, Linda's daughter told her uncle, Mike Walker, that her parents, Linda and Fields, were arguing with Palensky over money the night before he disappeared. The daughter's statement to her uncle was admitted as a prior inconsistent statement at trial.
[2] The evidence respecting the bounced check to Felder's lawyer was inadmissible hearsay, but its admission did not constitute reversible error because it was cumulative. Felder, 107 Nev. at 242, 810 P.2d at 758.
[3] The State did not argue that the Fieldses had a motive to kill Palensky because he allegedly molested Linda's grandson. On the contrary, the State argued that Linda's statements about Palensky being a child molester were trumped up and that Linda had made similar false accusations against Mobert to discredit and devalue both men.
[1] 117 Nev. 725, 733, 30 P.3d 1128, 1133 (2001) (stating that the trial court, absent a waiver from the defendant, must give a limiting instruction explaining the purposes for which bad act evidence is admitted immediately prior to its admission and a general instruction at the end of trial reminding the jurors that certain evidence may be used only for limited purposes).
[2] The record did not contain the transcript of the tapes or excerpts of conversations that were played for the jury.
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890 F. Supp. 960 (1995)
John RHODES, Plaintiff,
v.
BOB FLORENCE CONTRACTOR, INC., Defendant.
No. 94-4034-SAC.
United States District Court, D. Kansas.
May 18, 1995.
*961 Kirk W. Lowry, Topeka, KS, for plaintiff.
Randall J. Forbes, Frieden, Haynes & Forbes, Topeka, KS, for defendant.
MEMORANDUM AND ORDER
CROW, District Judge.
John Rhodes brings this action under the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101, et seq., claiming that the defendant, Bob Florence Contractor, Inc., (BFC), failed to reasonably accommodate his disabilities, laid him off due to his disabilities, and failed to rehire him due to his disabilities.
This case comes before the court upon BFC's motion for summary judgment (Dk. 51). The plaintiff has filed a response and BFC has filed a reply. The court, having considered the briefs of the parties, the pretrial order, and the applicable law, is now prepared to rule.
Summary Judgment Standards
A court grants a motion for summary judgment if a genuine issue of material fact does not exist and if the movant is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202 (1986). The substantive law governing the suit dictates which facts are material or not. Id. at 248, 106 S.Ct. at 2510. "Only disputes over facts that might affect the outcome of the suit under the governing law will ... preclude summary judgment." Id. There are no genuine issues for trial if the record taken as a whole would not persuade a rational trier of fact to find for the nonmoving party. Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986). "[T]here are cases where the evidence is so weak that the case does not raise a genuine issue of fact." Burnette v. Dow Chemical Co., 849 F.2d 1269, 1273 (10th Cir.1988).
The movant's burden under Rule 56 of the Federal Rules of Civil Procedure is to lay out the basis of its motion and to "point to those portions of the record that demonstrate an absence of a genuine issue of material fact given the relevant substantive law." Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 635, 121 L. Ed. 2d 566 (1992). "A movant is not required to provide evidence negating an opponent's claim." Committee for First Amendment v. Campbell, 962 F.2d 1517, 1521 (10th Cir.1992) (citation omitted).
If the moving party meets its burden, then it becomes the nonmoving party's burden to show the existence of a genuine issue of material fact. Bacchus Industries, Inc. v. Arvin Industries, Inc., 939 F.2d 887, 891 (10th Cir.1991); see Martin v. Nannie and the Newborns, Inc., 3 F.3d 1410, 1414 (10th Cir.1993) ("If the moving party meets this burden, the non-moving party then has the burden to come forward with specific facts showing that there is a genuine issue for trial as to elements essential to the non-moving party's case."). When the nonmoving party will have the burden of proof at trial, "`Rule 56(e) ... [then] requires the nonmoving party to go beyond the pleadings and by her own affidavits or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Mares v. ConAgra Poultry Co., Inc., 971 F.2d 492, 494 (10th Cir.1992) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986)). "Unsubstantiated allegations carry no probative weight in summary judgment proceedings." Phillips v. Calhoun, 956 F.2d 949, 951 (10th Cir.1992) (citations omitted); see Martin, 3 F.3d at 1414 (non-moving party cannot rest on the mere allegations in the pleadings). "Speculation does not create a genuine issue of fact; instead, it creates a false issue, the demolition of which is a primary goal of summary judgment." Hedberg v. Indiana Bell Telephone Co., Inc., 47 F.3d 928, 929 (7th Cir. 1995); see Vega v. Kodak Caribbean, Ltd., 3 *962 F.3d 476, 479 (1st Cir.1993) ("Optimistic conjecture, unbridled speculation, or hopeful surmise will not suffice."). The court views the evidence of record and draws inferences from it in the light most favorable to the nonmoving party. Burnette v. Dow Chemical Co., 849 F.2d at 1273.
More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed `to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S. Ct. 2548, 2555, 91 L. Ed. 2d 265 (1986). At the same time, a summary judgment motion is not the chance for a court to act as the jury and determine witness credibility, weigh the evidence, or decide upon competing inferences. Windon Third Oil and Gas v. Federal Deposit Ins., 805 F.2d 342, 346 (10th Cir.1986), cert. denied, 480 U.S. 947, 107 S. Ct. 1605, 94 L. Ed. 2d 791 (1987).
ADA
"The ADA and its attendant regulations were enacted, in part, to address perceived inadequacies in the Rehabilitation Act of 1973, 29 U.S.C. § 794." Hutchinson v. United Parcel Service, Inc., 883 F. Supp. 379, 387 (N.D. Iowa 1995). In its findings, Congress concluded that "historically, society has tended to isolate and segregate individuals with disabilities, and, despite some improvements, such forms of discrimination against individuals with disabilities continue to be a serious and pervasive social problem." 42 U.S.C. § 12101(a)(2). Congress also found that "individuals with disabilities continually encounter various forms of discrimination,." 42 U.S.C. § 12101(a)(5). One of the purposes of the ADA was "to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." 42 U.S.C. § 12101(b)(1). See Hutchinson, 883 F.Supp. at 390 (thoroughly discussing the history of the ADA). However, "[t]he ADA is not a job insurance policy, but rather a congressional scheme for correcting illegitimate inequities the disabled face." Hedberg, 47 F.3d at 934. "The ADA became effective on July 26, 1992, and it does not apply retroactively." Garcia-Paz v. Swift Textiles, Inc., 873 F. Supp. 547, 557 (D.Kan.1995).
The ADA provides that "[n]o covered entity shall discriminate against a qualified individual with a disability because of the disability of such individual in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training and other terms, conditions, and privileges of employment." 42 U.S.C. § 12112(a). "The term `qualified individual with a disability' means an individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires." 42 U.S.C. § 12111(8). "The term `disability' means, with respect to an individual (A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual; (B) a record of such an impairment; or (C) being regarded as having such an impairment." 42 U.S.C. § 12102(2).
"Accordingly, to qualify for relief under the ADA, a plaintiff must establish (1) that he is a disabled person within the meaning of the ADA; (2) that he is qualified, that is, with or without reasonable accommodation (which he must describe), he is able to perform the essential functions of the job; and (3) that the employer terminated him because of his disability." White v. York Intern. Corp., 45 F.3d 357, 360-361 (10th Cir. 1995).
"The ADA does not define the term `major life activities'" as used in 42 U.S.C. § 12102(2)(A). However, "[t]he ADA regulations adopt the definition of `major life activities' found in the Rehabilitation Act regulations, 34 C.F.R. § 104." Bolton v. Scrivner, Inc., 36 F.3d 939, 942 (10th Cir.1994), cert denied, ___ U.S. ___, 115 S. Ct. 1104, 130 L. Ed. 2d 1071 (1995). "The term means functions such as caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working." Id. (quoting 29 C.F.R. § 1630.2(i)).
To demonstrate that an impairment "substantially limits" the major life activity of working, an individual must show "significant[] restriction in the ability to perform either a class of jobs or a broad range of *963 jobs in various classes as compared to the average person having comparable training, skills and abilities." Id.
1630.2(j)(3)(i) (emphasis added). The regulations specify that "the inability to perform a single, particular job does not constitute a substantial limitation in the major life activity of working." Id.
Bolton, 36 F.3d at 942.
We review the record for evidence of six factors set forth in the ADA regulations. The first three factors "should be considered" when determining whether an impairment substantially limits a major life activity, 29 C.F.R. 1630.2(j)(2), and the additional three factors "may be considered" when determining whether an impairment substantially limits the major life activity of working, id. 1630.2(j)(3)(ii).
The three factors that "should be considered" when determining whether an impairment substantially limits a major life activity are: "(i) the nature and severity of the impairment; (ii) the duration or expected duration of the impairment; and (iii) the permanent or long term impact, or the expected permanent or long term impact of or resulting from the impairment." Id. 1630.2(j)(2).
The three additional factors that "may be considered" when an individual claims substantial limitation in the major life activity of working are:
(A) the geographical area to which the individual has reasonable access;
(B) the job from which the individual has been disqualified because of an impairment, and the number and types of jobs utilizing similar training, knowledge, skills or abilities, within that geographical area, from which the individual is also disqualified because of the impairment (class of jobs); and/or
(C) the job from which the individual has been disqualified because of an impairment, and the number and types of other jobs not utilizing similar training, knowledge, skills or abilities, within that geographical area, from which the individual is also disqualified because of the impairment (broad range of jobs in various classes).
Id. 1630.2(j)(3)(ii).
Bolton, 36 F.3d at 943.
The Tenth Circuit "has endorsed a two-part analysis for determining whether a person is qualified under the ADA:
First, we must determine whether the individual could perform the essential functions of the job, i.e., functions that bear more than a marginal relationship to the job at issue. Second, if (but only if) we conclude that the individual is not able to perform the essential functions of the job, we must determine whether any reasonable accommodation by the employer would enable him to perform those functions.
Milton v. Scrivner, Inc., 53 F.3d 1118 (10th Cir.1995) (quoting White, 45 F.3d at 361-62) (quoting Chandler v. City of Dallas, 2 F.3d 1385, 1393-94 (5th Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1386, 128 L. Ed. 2d 61 (1994))).
Under the ADA the term "discriminate" includes an employer's "not making reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability who is an applicant or employee, unless [the employer] can demonstrate that the accommodation would impose an undue hardship on the operation of the business of such covered entity." 42 U.S.C. § 12112(b)(5)(A). "It is plain enough what `accommodation' means. The employer must be willing to consider making changes in its ordinary work rules, facilities, terms, and conditions in order to enable a disabled individual to work." Vande Zande v. State of Wis. Dept. of Admin., 44 F.3d 538, 542 (7th Cir.1995).
Burden of Proof under the ADA
"Plaintiff has the burden to establish that he is `disabled' and `qualified' to perform the essential functions of the job either with or without reasonable accommodation." Dutton v. Johnson County Bd. of County Com'rs, 859 F. Supp. 498, 504 (D.Kan.1994); see Tyndall v. National Educ. Centers, 31 F.3d 209, 213 (4th Cir.1994) ("Plaintiff bears the burden of demonstrating that she could perform *964 the essential functions of her job with reasonable accommodation.").
Once the plaintiff produces evidence sufficient to make a facial showing that accommodation is possible, the burden of production shifts to the employer to present evidence of its inability to accommodate. (citations omitted). If the employer presents such evidence, the plaintiff may not simply rest on his pleadings. He "has the burden of coming forward with evidence concerning his individual capabilities and suggestions for possible accommodations to rebut the employer's evidence." Prewitt v. United States Postal Serv., 662 F.2d 292, 308 (5th Cir. Unit A 1981); see Mason, 32 F.3d at 318; Chiari v. City of League City, 920 F.2d 311, 318 (5th Cir. 1991). As with discrimination cases generally, the plaintiff at all times bears the ultimate burden of persuading the trier of fact that he has been the victim of illegal discrimination based on his disability. See St. Mary's Honor Ctr. v. Hicks, ___ U.S. ___, ___-___, 113 S. Ct. 2742, 2747-49, 125 L. Ed. 2d 407 (1993) (citations omitted).
White, 45 F.3d at 361.
Arguments of the Parties
BFC's arguments may be summarized as follows:
(1) Rhodes cannot meet his burden of establishing a prima facie case or satisfy his ultimate burden. Specifically, BFC argues:
(a) Rhodes is not "disabled" within the meaning of the ADA;
(b) Rhodes is not "otherwise qualified" within the meaning of the ADA;
(c) Rhodes cannot show that he was laid off and not rehired under any circumstance which gives rise to an inference that the decision was based upon his disability.
(2) Rhodes cannot demonstrate the existence of a genuine issue of material fact regarding the issue of whether BFC's employment decisions were pretextual.
Rhodes responds, arguing that BFC either misconstrues the facts or misapplies the law. In either event, Rhodes contends that summary judgment is inappropriate.
Uncontroverted Facts
At the outset, the court notes that the plaintiff's response to the defendant's motion for summary judgment fails to comply with D.Kan.Rule 206 in certain respects. First, as the defendant argues, the opening section of the plaintiff's statement of controverted facts and additional facts. Many of the plaintiff's statements of fact are clearly not controverted and hence the plaintiff's inclusion of "additional" facts drifts beyond what is permitted by the rules governing his response. See Big Tree Enterprises v. Mabrey, No. 93-4024-SAC, 1994 WL 191996 1994 U.S.Dist.LEXIS 6403 (D.Kan. April 15, 1994). Second, and of more concern, is the plaintiff's failure on some occasions to "refer with particularity to those portions of the records upon which the opposing party relies." D.Kan.Rule 206(c). Based upon the plaintiff's failure to meet the requirements of D.Kan.Rule 206(c), the court has deemed certain facts admitted. See D.Kan.Rule 206(c) ("All material facts set forth in the statement of the movant shall be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party.").
BFC is a corporation engaged in the construction industry. BFC is a union contractor and its construction employees must be union members. Rhodes worked for BFC for fourteen years as a latherer[1]/carpenter November 21, 1978 through November 22, 1992. Rhodes was apparently a good, honest, hard worker for BFC during his tenure.
On December 13, 1990, while working for BFC, Rhodes suffered a rotator cuff tear injury to his left shoulder.[2] Surgery was performed on the shoulder. After a period *965 of rehabilitation, Rhodes was released to return to work at BFC, subject to certain restrictions, on October 10, 1991. Rhodes' treating physician placed the following restrictions upon him if he were to continue the kind of work that he was performing at BFC prior to the injury:
1. No more than 10 pounds lifting with his left arm.
2. No overhead work with his left arm.
3. No more than 30 hours of work per week.
Rhodes' treating physician rated the injury to his shoulder as "a 7% impairment to his left upper extremity."[3] As of August, 1994, Rhodes' treating physician still limited Rhodes to 30 hours per week doing the kind of work he had performed for BFC.
Upon Rhodes' return to BFC in October, 1991, BFC accommodated those restrictions by providing Rhodes with light duty work. Rhodes was assigned to work at the Lied Center project. However, because Rhodes could only work 30 hours per week, he was not able to earn the same amount of money as he had while working 40 hours per week. BFC rejected Rhodes' request to be paid above union scale; BFC would not pay Rhodes 40 hours worth of wages for working only 30 hours. Rhodes' concern that he was not earning the same amount of money as he had prior to the accident caused him to become interested in seeking vocational rehabilitation through his workers compensation case.
Based upon Rhodes' request in his workers compensation case for vocational training, on April 16, 1992, a hearing was held. During the hearing, Rhodes expressed as his tentative goal for rehabilitation was to be retrained as a respiratory therapist. On June 15, 1992, an "Order for a Vocational Rehabilitation Report" was entered in Rhodes' workers compensation case. A vocational rehabilitation specialist named Garry Gammon was hired to perform the assessment.
In August of 1992, Rhodes wanted to begin attending classes at Washburn University as a full-time student in September of 1992. On August 6, 1992, Rhodes, at the request of his attorney, was examined by a physician. That physician, Dr. Wertzberger, in a written report, commented:
Based on consideration of his job description, his present statements, and the modifications he has made at work, I conclude that his longevity as a "Lather/Carpenter" is quite short.
Vocational options should be explored in an attempt to find occupation which does not lead to significant loads upon the shoulders nor the necessity for overhead work activities.
See (Dk. 52), Attachment K.
On October 6, 1992, Gammon submitted the final Vocational Rehabilitation Plan. The Plan recommended that Rhodes be retrained as a medical records technician. In the plan, Gammon indicated that BFC would not accommodate Rhodes because it would not pay Rhodes for working 40 hours when he was only working 30 hours and because BFC would not guarantee, based upon the seasonal nature of its work, that it would in the future have work for Rhodes to perform.
As the Lied Center project was coming to an end, BFC assigned Rhodes to work for a few days on the construction of Talbots in Topeka. On November 27, 1992, due to the lack of work at that time and the lack of work scheduled for the future, BFC laid off Rhodes. As of November, 1992, Rhodes had lost his membership in the Carpenter's Union because he had previously stopped paying dues. As of August 1994, Rhodes had still not rejoined the Carpenter's Union. BFC was aware of the fact that Rhodes was not a member of the union. BFC informed the Carpenter's Union Business Agent that if *966 Rhodes ever rejoined the union and wanted to work again, to send Rhodes to BFC for employment.
Between July and December of 1992, BFC laid off approximately 59 employees. The Lied Center project was one of BFC's largest projects, and at that time BFC had approximately 60-65 employees. A large number of employees without disabilities were laid off in late 1992 due to the fact that the projects BFC had under contract were nearing completion and because of the lack of work scheduled for the future that would justify not laying the majority of its employees off. In a major layoff such as the one that occurred in 1992, BFC will, however, attempt to keep a few key employees, such as employees who run projects, employed. In that way, BFC tries to keep those key employees from being hired by other contractors.
Like Rhodes, Don Uhl was also a latherer. Uhl had more seniority with BFC than Rhodes. Uhl was laid off in late 1992 but prior to Rhodes being laid off. Uhl has no disability. Uhl was not rehired by BFC until August 25, 1993.
Prior to laying Rhodes off, BFC became aware that in the near future Rhodes intended to become a full-time student at Washburn University to be trained to work in a field other than construction. Rhodes apparently personally told employees of BFC of his intention to attend Washburn University to be retrained in something other than the construction industry.
BFC was advised by its insurance company that it would be paying for Rhodes to be a full-time student at Washburn University. On December 7, 1992, Gammon wrote Washburn University authorizing Rhodes' enrollment on January 15, 1993, and directing that the bills for books and tuition be sent to BFC's insurance company. Rhodes enrolled in 14 credit hours in the spring semester of 1993, 6 credit hours during the 1993 summer term, and 13 credit hours during the fall semester of 1993. Since the spring of 1993, Rhodes has continued to be a full-time student at Washburn University. Rhodes currently intends to complete his associates degree in medical records technology during the fall semester of 1995 and then seek employment as a medical records technician.
Since he was laid off from BFC, Rhodes has worked as a self-employed independent contractor doing lathing, installing metal studs and drivit system. Rhodes worked 25 to 40 hours per week as an independent contractor.
On August 17, 1994, Rhodes' treating physician authorized him to return to working 40 hours per week. Rhodes is presently an employee of Barnhart Drywall and Plaster, working part-time while he attends Washburn University. While employed by Barnhart Drywall and Plaster, Rhodes has been doing lathing, R-board installation, metal stud installation and ceiling installation work. During the summer, Rhodes has worked full-time.
Analysis
If Rhodes is "disabled" within the meaning of the ADA, has he presented evidence upon which a rational factfinder could conclude that he is entitled to recover under the ADA?
Assuming, arguendo, that Rhodes is disabled,[4] the court finds that Rhodes has not *967 presented sufficient evidence upon which a rational factfinder could conclude that he is entitled to recover under the ADA.
Reasonable Accommodation
Assuming for the moment that BFC was obligated to retain Rhodes in November of 1992, or in the alternative to rehire him at a subsequent point in time, Rhodes has not demonstrated that BFC failed to reasonably accommodate his disability. While it had sufficient work to employ Rhodes, BFC apparently accommodated Rhodes' physical exertion restrictions. The only additional accommodation Rhodes apparently sought was an increase of pay above the union scale and a guarantee from BFC that he would not be laid off. Neither of these proposals are valid or reasonable "accommodations" under the ADA.
The regulations implementing the ADA and the case law interpreting clearly support this conclusion. See Milton, 53 F.3d at 1124-25 ("An employer is not required by the ADA to reallocate job duties in order to change the essential function of a job. See 29 C.F.R. Pt. 1630 App. 1630.2(o); Gilbert v. Frank, 949 F.2d 637, 644 (2d Cir.1991). An accommodation that would result in other employees having to worker (sic) harder or longer hours is not required.); 29 C.F.R. Pt. 1630, App. 1630.2(o) ("It should be noted that an employer is not required to promote an individual with a disability as an accommodation."). In short, the ADA did not require BFC to increase Rhodes' pay for working thirty hours per week to a rate that would make his gross pay equal to the amount he earned when he was working forty hours per week or to a rate above the amount paid other workers performing the same job. Nor was BFC required to guarantee Rhodes' employment in the future. As mentioned above, the ADA is not a job insurance policy.
Discrimination
The plaintiff has failed to present sufficient evidence upon which a rational factfinder to conclude that BFC violated the ADA in laying him off or in failing to rehire him. None of the evidence presented by the plaintiff is sufficient to provide a reasonable inference that BFC's decisions to retain or rehire Rhodes were based upon Rhodes' disability.
Each of the reasons offered by BFC for its actions are legitimate and non-discriminatory and are largely unrebutted by Rhodes. No reasonable inference from the evidence demonstrates that BFC's decision to lay off Rhodes was based upon his disability. Instead, BFC's decision to lay off Rhodes was based upon the lack of work, the lack of need to retain Rhodes, and the knowledge that Rhodes was seeking a career outside the construction industry. Rhodes' personal career choices cannot serve as the basis for an ADA claim. Rhodes' current contention that he intended and expected to work for BFC for life is belied by his own actions and pursuit of a degree at Washburn University in a field other than construction. No evidence contradicts BFC's contention that the layoffs of its employees was based upon the lack of work. Rhodes' disability does not insulate him from the vagaries of the marketplace. Moreover, Rhodes knew that construction workers were on occasion laid off due to the lack of work. BFC's legitimate reasons for laying off Rhodes are basically unassailed by the evidence presented.
As for Rhodes' failure to rehire claim, there is no evidence that BFC has discriminated against the plaintiff. In fact, BFC's contention that it did not offer Rhodes employment because Rhodes did not apply for reemployment, because Rhodes was no longer a member of the union, and because BFC knew that Rhodes was attending Washburn University full-time in pursuit of another career is not controverted by evidence which the court may consider. Nor is BFC required at this point in time to accept Rhodes' offer of returning to work. Rhodes' offer to quit school and return to BFC is conditioned upon BFC giving a guarantee of 40 hours, no "lay offs" and no retaliation, plus back pay and attorneys' fees.
In sum, the plaintiff has not demonstrated the existence of a genuine issue of material fact precluding summary judgment.
IT IS THEREFORE ORDERED that BFC's motion for summary judgment (Dk. *968 51) is granted. The clerk of the court shall enter judgment in favor of the defendant, each party to bear its own costs.
NOTES
[1] According to the plaintiff's brief, "the essential function of a latherer is to hang lath. Lath is basically a sheet of metal wire that looks like small chicken wire that is very light and is nailed or screwed to studs so that plasterers can then plaster the wall."
[2] As a result of this work-related injury, Rhodes filed a workers compensation claim. On October 21, 1993, Rhodes entered an agreement settling his claim.
[3] A vocational evaluation report dated February 6, 1993, was prepared by the vocational rehabilitation consultant hired by BFC's workers compensation carrier. That report indicates that based upon the "restrictions delineated in the physicians (sic) medical reports, Mr. Rhodes has lost no more than 29.71% of his work capacity or ability to access jobs within the labor market." The 29.71% number is based upon the following calculation: The restrictions prevent Rhodes from performing "Very Heavy" work (.71% of jobs) + "Heavy" work (8.98% of jobs) + a portion of "Medium" work (29.02% of jobs × .30% (percentage of medium jobs Rhodes can perform) = 20.02%) = 29.71%.
[4] Rhodes' shoulder is undoubtedly impaired. Based upon that impairment, he has been given certain restrictions by his physician. Nevertheless, despite the physical exertion restrictions set by his physician, as a factual matter, Rhodes' shoulder injury has not prevented him from performing a broad range of construction tasks, subject to the 30 hour per week limitation. In light of this, it is far from clear that Rhodes' impairment is of sufficient magnitude to demonstrate that he is disabled within the meaning of the ADA. See Bolton, 36 F.3d at 944; Chandler, 2 F.3d at 1392 ("`An impairment that affects only a narrow range of jobs can be regarded either as not reaching a major life activity or as not substantially limiting one.'") (quoting Jasany v. United States Postal Service, 755 F.2d 1244, 1249 n. 3 (6th Cir.1985); Ricks v. Xerox Corp., 877 F. Supp. 1468, 1475-76 (D.Kan. Feb. 14, 1995); Hutchinson, 883 F.Supp. at 395-96. But see 29 C.F.R. Pt. 1630, App. 1630.2(j).
On August 17, 1994, Rhodes was authorized by his treating physician to return to working 40 hours per week, apparently performing the same job that he claims his impairment prevented him from performing. At any point after that date, the court is uncertain that there is any factual basis to support the plaintiff's contention that he is disabled.
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https://www.courtlistener.com/api/rest/v3/opinions/2525672/
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306 F.Supp.2d 567 (2004)
Donald WOODWARD, Plaintiff,
v.
UNITED PARCEL SERVICE, INC., Defendant.
No. CIV.A.3:01-4747-17.
United States District Court, D. South Carolina, Columbia Division.
January 28, 2004.
*568 *569 Herbert W. Louthian, Jr., Deborah R.J. Shupe, Louthian and Louthian, Columbia, SC, Virginia M. O'Leary, O'Leary and Associates, Oakland City, IN, Darlene Robinson, Oakland City, IN, for Plaintiff.
Susan Pedrick McWilliams, Nexsen, Pruet, Jacobs and Pollard, Columbia, SC, Frederick Skip Sugarman, Brian D. Edwards, Alston and Bird, Atlanta, GA, for Defendant.
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
JOSEPH F. ANDERSON, JR., Chief Judge.
The plaintiff, Donald Woodward ("Woodward"), filed this action on December 13, 2001, alleging that United Postal Service, Inc. ("UPS") discriminated against him based on his race in violation of 42 U.S.C. §§ 1981 and 1988, and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e. Specifically, Woodward claims UPS discriminated against him in terms of pay and by failing to promote him. Furthermore, Woodward claims that the discrimination created a hostile work environment, that he was constructively discharged, and that he was retaliated against. After filing, the case was referred to Magistrate Judge Bristow Marchant for pretrial proceedings.
I. BRIEF PROCEDURAL HISTORY
UPS filed for summary judgment on February 26, 2003. Judge Marchant issued a Report and Recommendation ("the Report") on August 29, 2003, recommending that UPS's motion for summary judgment be granted as to all claims. On September 15, 2003, Woodward filed objections to the Report arguing that UPS's motion should be denied as to the causes of action alleging discrimination in pay and promotion.[1] UPS replied to Woodward's objections on October 1, 2003. In addition, at this court's request, both parties filed supplemental briefs on the statute of limitations issue on October 7, 2003.
On December 15, 2003, this court heard oral argument on UPS's motion for summary judgment. At the conclusion of the hearing, the court took the motion under advisement and requested that both sides submit draft orders by January 9, 2004. After reviewing the original and supplemental memoranda, hearing oral argument, and receiving and reviewing the draft orders, the court grants UPS's motion for summary judgment as to all remaining claims.
II. FACTUAL BACKGROUND
UPS operates a package pick-up and delivery service throughout the United States and the world. Its package operations are organized into approximately 60 separate districts, each of which is managed *570 by a District Manager. Each district primarily consists of business units called package centers and hubs. Package centers deliver and pick up packages to and from customers. Hubs receive and sort packages from package centers and other hubs and then distribute packages to the appropriate UPS delivery facilities. Each package center is staffed at the full-time management level by one to five supervisors and one Center Manager. Usually, four to six package centers are grouped into a division, which is managed by a division manager. Hubs are larger than centers and are managed by supervisors, hub managers, and one division manager.
Each district is further subdivided into a full complement of support functions, such as Industrial Engineering ("IE"), Accounting, Human Resources ("HR"), and Automotive. Each of these divisions is staffed at the full-time management level by supervisors, managers, and one department manager. Division managers and department managers in a district are collectively referred to as "the district staff" and all report directly to the District Manager.
UPS has a formal career development process whereby UPS managers are responsible for evaluating the employees under their supervision and identifying candidates for promotion. In making these decisions, the district staff utilizes a process known as a Career Development Meeting, which is led by the District Manager and District HR Manager and attended by the district staff. During these meetings, the performance, skills, work history, educational background, and other characteristics of each of the supervisors and managers in the district are discussed. From this discussion, a list is compiled of candidates for promotion. When promotional opportunities become available, the District Manager refers to the list and determines who will be promoted within the district. The list is used until the next meeting.
For purposes of compensation, UPS's non-union employees are grouped into salary grades. Salaries vary within each salary grade. Generally, supervisors are in Grade 14, center managers in Grade 16, and division or department managers in Grade 18. Division or department managers calculate salary increases for each manager and supervisor in their respective business unit based upon the unit's budget, the employee's position in the salary range, the employee's job performance the preceding year, and the employee's overall contribution to UPS. The proposed salary increases are reviewed with the District HR Manager and approved by the District Manager and District Controller. Salaries are influenced by a variety of factors, including an employee's previous experience with the company, the length of time in the pay grade, the employee's business unit, previous relocations, job performance, prior salary freezes as disciplinary action, and the employees's previous position in a higher salary grade.
Woodward began his employment with UPS as Package Car Driver in 1986. From 1986 through 1996, Woodward worked in several Grade 14 supervisory positions in the Accounting Department in the South Carolina District. On July 1, 1996, Woodward was selected for promotion to one of two Grade 16 Accounting Manager positions in the Columbia Billing Site for the Southeast Region Finance and Accounting Department, which was independent of the South Carolina District. Approximately one year later, Woodward's Grade 16 position in the Columbia Billing Site was eliminated. Plaintiff was then offered a special assignment in the Corporate Finance and Accounting Department in Atlanta, Georgia, which he performed for several months. When this special assignment *571 ended as a result of the work stoppage in August 1997, Woodward returned to Columbia. In February 1998, Woodward was laterally transferred to the position of District Assessor for the South Carolina District, which was in the IE Department. In June of 1999, Woodward was laterally transferred to the position of Training and Development manager in the HR Department.
In October 2000, Woodward was laterally transferred to an Operations position as a Hub Manager to gain Operations experience deemed necessary by his superiors for his advancement within the District. Woodward's performance in this position was unsatisfactory, and he was laterally transferred back to the District Assessor position in January 2001. On January 15, 2001, Woodward resigned.
III. DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate "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." Fed.R.Civ.P. 56(c). It is well established that summary judgment should be granted "only when it is clear that there is no dispute concerning either the facts of the controversy or the inferences to be drawn from those facts." Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir.1987).
The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view the evidence before it and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). When the defendant is the moving party and the plaintiff has the ultimate burden of proof on an issue, the defendant must identify the parts of the record that demonstrate the plaintiff lacks sufficient evidence. The nonmoving party, here the plaintiff, must then go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
A party "cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another." Beale v. Hardy, 769 F.2d 213, 214 (4th Cir.1985). Therefore, "[m]ere unsupported speculation ... is not enough to defeat a summary judgment motion." Ennis v. National Ass'n of Bus. & Educ. Radio, Inc., 53 F.3d 55, 62 (4th Cir.1995).
B. Applicable Statute of Limitations Periods in the Absence of Tolling
Woodward's § 1981 claims are governed by the three-year statute of limitations period set forth in South Carolina Code § 15-3-530. See Love v. Alamance County Bd. of Educ., 757 F.2d 1504, 1506 n. 2 (4th Cir.1985). Because Woodward filed this action on December 13, 2001, in the absence of tolling, the limitations period for Woodward's claims under § 1981 extends back to December 14, 1998.
Under Title VII, in a deferral state such as South Carolina, a charge of discrimination must be filed with the Equal Employment Opportunity Commission ("EEOC") within 300 days of the alleged discrimination. See 42 U.S.C. § 2000e-5(e)(1); EEOC v. Techalloy Md., Inc., 894 F.2d 676 (4th Cir.1990); Waiters v. Robert Bosch Corp., 683 F.2d 89, 90-91 (4th Cir.1982). Woodward filed a charge of discrimination with the EEOC on September 11, 2001. Thus, in the absence of tolling, the limitations *572 period applicable to Woodward's claims under Title VII extends back to November 16, 2000.
C. Tolling of the Statute of Limitations
1. Woodward's § 1981 Causes of Action
Both parties agree that the limitations period for at least one of Woodward's claims was tolled by Morgan, et al. v. United Parcel Service, Inc., 169 F.R.D. 349 (E.D.Mo.1996), a class action filed in the United States District Court for the Eastern District of Missouri. In Morgan, the plaintiffs, African-American employees of UPS, alleged that UPS discriminated against them in violation of Title VII and § 1981 in terms of pay and promotions.
On October 30, 1996, the court in Morgan certified four separate classes of plaintiffs all Grade 16 level employees.[2] The parties do not dispute that when Woodward became a Center Manager in HR on June 1, 1999, Woodward entered at least one of the classes certified in Morgan. While the parties agree that Woodward entered at least one of the Morgan classes on June 1, 1999, the parties disagree as to Morgan's ultimate effect on the causes of action in this case. First, the parties disagree as to which of Woodward's causes of action were encompassed by the claims at issue in Morgan. Second, the parties disagree as to the length of any tolling that occurred.
a. Which of Woodward's Causes of Action Were Encompassed by the Causes of Action in Morgan?
Woodward alleges in his § 1981 promotion claim that UPS failed to timely promote him from Grade 14 to Grade 16. The original complaint in Morgan limited the putative class to Grade 16 level employees, thus excluding Woodward. A subsequent amended complaint, filed on January 12, 1996, sought to broaden the class to include Grade 14 level employees. Despite the Morgan plaintiffs' efforts to include Grade 14 level employees, the Morgan court certified a class limited to Grade 16 level employees.
Since Woodward's cause of action for discrimination in promoting in violation of § 1981 is based on UPS's alleged failure to timely promote him from Grade 14 to Grade 16, Woodward's cause of action does not fall within the causes of action certified in Morgan. Therefore, at no time did Morgan toll the statute of limitations as to Woodward's failure to promote cause of action pursuant to § 1981. Woodward's cause of action alleging discrimination in pay in violation of § 1981, however, does fall within the causes of action certified in Morgan.
b. How Long Was the Statute of Limitations Tolled as to Woodward's § 1981 Pay Discrimination Cause of Action?
Woodward argues that tolling began on June 1, 1999, and would have ended on May 10, 2000, the date the Morgan court *573 entered final judgment, had Woodward not filed suit before May 10, 2000. Having filed suit on December 13, 2001, Woodward argues that the statute of limitations for the § 1981 pay cause of action was tolled from June 1, 1999 to December 13, 2001 and thus the cut-off date for the § 1981 pay claim should be moved back from December 14, 1998 to June 1, 1996 three years before tolling began.
UPS argues that any tolling that began on June 1, 1999, would have ended when the Morgan court granted summary judgment to the defendant on all class claims on June 26, 2000 well before Woodward filed his complaint. Therefore, UPS argues, the December 14, 1998 cut-off date should be moved back to October 18, 1997, not June 1, 1996. This court agrees with UPS that any tolling that began on June 1, 1999, ended on June 26, 2000, when the Morgan court granted summary judgment to the defendant on all class claims.
In American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 552-553, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974), the Supreme Court recognized that the pendency of a class action tolls the running of the statute of limitation for claims that are the same as those being asserted by the putative class. In American Pipe, however, the Supreme Court did not address the question of the duration of any such tolling. This question was addressed by the Supreme Court in Crown, Cork, & Seal Co. v. Parker, 462 U.S. 345, 352-53, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983). In Crown, Cork & Seal, the Supreme Court held that the statute of limitations on an individual class member's claim of discrimination begins to run upon the certification of a class that does not include that individual. Id. at 352 n. 5, 354, 103 S.Ct. 2392.
In the instant action, this court agrees with UPS that any tolling resulting from Morgan ended with the June 26, 2000 order granting summary judgment to UPS. This order effectively extinguished the claims of the class members just as an individual class member's claim is extinguished when a class is decertified or modified such that the individual no longer falls within the class definition. Indeed, both the class certification order in Crown, Cork & Seal, and the summary judgment order in Morgan, are equally effective in fully resolving the actual or putative class claims giving rise to tolling and in putting all persons with potential individual claims on notice that they need to pursue those claims on their own.
2. Woodward's Title VII Causes of Action
The cut-off date for Woodward's Title VII causes of action, in the absence of tolling, is October 16, 2000 300 days before Woodward filed a claim with the EEOC. Having found that any tolling pursuant to Morgan would have ended on June, 26, 2000 (over three months before the cut-off date for Woodward's Title VII claims) it is clear that Morgan could not have tolled the statute of limitations as to any of Woodward's Title VII claims. In other words, the class action claims in Morgan had been extinguished before Woodward's Title VII statute of limitations began to run. Accordingly, Morgan had no tolling effect as to these causes of action.
D. Woodward's Grade 14 to Grade 16 Promotion Claims
In his Objections to the Magistrate's R & R, Woodward objects to the recommendation that summary judgment should be granted as to the promotion causes of action pursuant to § 1981 and Title VII. These two causes of action allege that UPS discriminated against Woodward in failing to promote him from Grade 14 to Grade *574 16.[3] Woodward was finally promoted to Grade 16 on July 1, 1996. In light of this court's finding concerning the applicable statute of limitations, both Woodward's § 1981 and Title VII promotion causes of action are barred and UPS is entitled to summary judgment on both of them.
In addition, even if the court were to accept Woodward's position that the limitations periods applicable to his § 1981 and Title VII failure to promote claims are June 1, 1996, and August 5, 1998, respectively, the result would be the same. Even under Woodward's analysis of the statute of limitations, his Title VII promotion claim is untimely, and the statute of limitations for his § 1981 promotion claim extends back only to one month prior to his promotion to Grade 16. In other words, even under Woodward's analysis, the limitations period on his only timely claim extends back only 30 days prior to his promotion. Because Woodward has failed to present evidence of a specific promotion he was denied during this 30-day period, he cannot establish a prima facie case of discrimination. Accordingly, UPS is entitled to summary judgment on both promotion causes of action even if Woodward's statute of limitations analysis is used.
E. Woodward's Grade 16 Pay Discrimination Claims
Woodward's remaining pay discrimination claims under Title VII and § 1981 are very narrow. Specifically, Woodward contends that, during his tenure as a Grade 16 employee, (1) he did not progress to the midpoint of the Grade 16 salary range as quickly as white employees, and (2) he received lower annual raises than white Grade 16 employees.
The analytical framework for claims of racially disparate treatment that are not supported by direct evidence of discrimination is set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). Under this framework, a plaintiff must establish a prima facie case of discrimination. Once a prima facie case is established, a rebuttable presumption arises that the employer unlawfully discriminated against the plaintiff. The burden of production then shifts to the employer to show a legitimate, non-discriminatory reason for the disputed action. If the employer produces such a reason, the plaintiff must come forward with evidence that the employer's proffered reasons for its actions are merely pretextual and that the real reason is unlawful discrimination. Id. at 802-05, 93 S.Ct. 1817; Conkwright v. Westinghouse Elec. Corp., 933 F.2d 231, 234-35 (4th Cir.1991).
In order to establish a prima facie case of pay discrimination, Woodward must show that he (1) is a member of a protected class; (2) was as qualified as other employees not of the protected class; and (3) was paid less than similarly situated employees who were outside his protected *575 class. Bazemore v. Friday, 751 F.2d 662, 670 (4th Cir.1984). In cases where there are multiple comparators, identification of only a single comparator not in the protected class paid more than the plaintiff may not be sufficient to establish a prima facie case. Houck v. Polytechnic Inst. & State Univ., 10 F.3d 204, 206-07 (4th Cir.1993) ("[I]solated incidents or random comparisons demonstrating disparities in treatment may be insufficient to draw a prima facie inference of discrimination without additional evidence that the alleged phenomenon of inequality also exists with respect to the entire relevant group of employees."). Further, the plaintiff must prove that the comparators upon whom he relies are similarly situated "in all relevant respects." Holifield v. Reno, 115 F.3d 1555, 1562 (11th Cir.1997); see also Mallory v. Booth Refrigeration Supply Co., 882 F.2d 908, 912-13 (4th Cir.1989) (finding that plaintiffs had not established a prima facie case for discrimination because the plaintiffs' jobs were not substantially the same as comparators' in terms of the required effort and skill).
Woodward has not identified any relevant group of similarly situated comparators to support his claim of pay discrimination. In 1997, Woodward was one of two Accounting Managers in the Columbia Billing Site, and his salary was higher than that of his only peer, Luis Mendoza. In 1998, Woodward transferred to the District Assessor position in the South Carolina District a job in which he had no comparators because the other six Grade 16 managers in the IE department during 1998 and 1999 (while Woodward was the Assessor) all held positions with significantly different duties. Moreover, even assuming these other six managers were sufficiently similar to be comparators, the record reflects that the five individuals who made more than Woodward had been Grade 16 managers from two to eight years longer than Woodward, a factor that would naturally affect a manager's compensation.
In 1999, Woodward was given a transfer to the HR Department. The record indicates there were eight other Grade 16 managers in that department during the relevant period; however, none of them shared the same duties as Woodward. In addition, five of the eight managers had from six to eleven years more experience than Woodward at the Grade 16 management level and could not legitimately be considered proper comparators. Only two of the remaining three Grade 16 managers made more than Woodward: Franklin Hatchell and Daniel Fox.[4] UPS has provided evidence that the salaries of both of these individuals during the relevant time were higher than Woodward's as a result of previous Operations experience (Hatchell and Fox), documented stronger job performance (Hatchell), and/or longer tenure as a Grade 16 employee (Hatchell). Woodward has offered no evidence that UPS's explanation for these differences in pay is untrue or is mere pretext for race discrimination.
Woodward argues that four employees progressed to the mid-point of the Grade 16 salary range within 4 or 5 years of being promoted to that level. Presumably, Woodward's argument is that he would not have progressed as quickly as these employees. This argument cannot form the basis of a pay discrimination claim because of its speculative nature. In addition, it appears that Woodward resigned four and one-half years after his promotion to Grade 16 while at 96.9% of his pay range. As a result, it is possible that Woodward would have progressed to the Grade 16 salary mid-point in the same period of time.
*576 Further, UPS contends that Woodward's argument regarding his relative progress to Grade 16 mid-point is misleading because Woodward has focused only on a sub-set of the potential body of comparators. Woodward has identified four white co-workers who progressed to this point more quickly than he did or would have. According to UPS, however, this argument is misleading because Woodward has selectively focused only on those employees who progressed more quickly than he believes he would have progressed and has ignored a larger number of white co-workers who either did not progress to the Grade 16 mid-point at all, or who took substantially longer than four to five years to do so. UPS identified six such comparators who took six to twelve years, or longer, to reach this milestone. Furthermore, UPS presented evidence that, after four and one-half years at this level, Woodward was progressing more quickly than several of these employees. Under the circumstances, the court agrees that Woodward's showing, without more, is insufficient to demonstrate that Woodward was progressing more slowly up the Grade 16 salary scale than white employees at the same level.
In summary, Woodward has failed to identify any comparators who are similarly situated with respect to pay. Woodward has made no effort to demonstrate that any of the alleged comparators that he has identified held positions whose duties were the same as or substantially similar to his own. Instead, Woodward relies solely on his unsupported assertion that all Grade 16 level employees are similarly situated with respect to pay. Even assuming that Woodward has established a prima facie case of pay discrimination, however, he has failed to respond to UPS's evidence that the pay disparities between Woodward and his alleged comparators are the result of legitimate factors such as longer tenure as a Grade 16 employee and different work histories. As a result, there is simply no evidence from which to infer that UPS discriminated against Woodward with respect to pay.
IV. CONCLUSION
After carefully considering the record in this case, the applicable law, and Woodward's objections, this court agrees with the Report that summary judgment is appropriate. Accordingly, the objections are overruled, the analysis of the Report is adopted except where modified herein, and UPS's motion for summary judgment is granted as to all claims.
IT IS SO ORDERED.
NOTES
[1] Because Woodward did not object to the recommendation contained in the Report that this court grant summary judgment as to the causes of action for hostile work environment, retaliation, and constructive discharge, this court deems those claims abandoned and adopts the analysis of the Report as it relates to those claims.
[2] Although the original complaint in Morgan limited the putative class to Grade 16 level employees, a subsequent amended complaint, filed on January 12, 1996, sought to broaden the class to include Grade 14 level employees. Despite the Morgan plaintiffs' efforts to include Grade 14 level employees, the Morgan court certified a class limited to Grade 16 level employees. Since Woodward's causes of action for discrimination in promoting are based on UPS's alleged failure to timely promote him from Grade 14 to Grade 16, these specific causes of action do not fall within the class causes of action certified in Morgan. Therefore, at no time did Morgan toll the statute of limitations as to Woodward's failure to promote causes of action.
[3] Woodward alleges that the July 1999 transfer of Luis Mendoza to the corporate office in an accounting manager position, when Woodward alleges he was being told that no positions were available, is evidence of unlawful discrimination in promoting. This court agrees with and adopts the finding contained in the Report that Woodward's failure to promote claim with respect to Mendoza must be dismissed because Woodward cannot establish that he was more qualified than Mendoza for the job. Evans v. Techs. Applications & Serv. Co., 80 F.3d 954, 960-61 (4th Cir.1996) (affirming the district court's grant of summary judgment where the plaintiff failed to demonstrate that he was more qualified than the employee who received the promotion). Furthermore, it appears that this job action was a lateral transfer for Mendoza and would have been a lateral transfer for Woodward. As such, it could not support a failure to promote claim.
[4] Apparently, Fox made $25 more per month than Woodward during the relevant period.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2525698/
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306 F.Supp.2d 920 (2004)
NATIONAL WILDLIFE FEDERATION, Environmental Council of Sacramento, Friends of the Swainson's Hawk, Planning and Conservation League, and Sierra Club, Plaintiffs,
v.
Gale A. NORTON, Secretary of the Interior, and Steven A. Williams, Director, United States Fish and Wildlife Service, Defendants.
No. CIV-S-03-0278 DFL/JFM.
United States District Court, E.D. California.
February 4, 2004.
Laura Marie Robb, Earthjustice Legal Defense Fund Inc., Oakland, CA, John F. Kostyack, Esq., National Wildlife Federation, Washington, D.C., for National Wildlife Federation and Sierra Club.
*921 Edmund F. Brennan, Assistant U.S. Attorney, Sacramento, CA, Keith W. Rizzardi, U.S. Department of Justice, Environment and Natural Resources Division, Washington, D.C., for Defendant Gale A. Norton.
Edmund F. Brennan, Esq., Assistant U.S. Attorney, Sacramento, CA, for Defendant Steven A. Williams, Director of U.S. Fish and Wildlife Service.
MEMORANDUM OF OPINION AND ORDER
LEVI, Chief Judge.
Plaintiffs are various environmental organizations who challenge the Secretary of the Interior's issuance of an incidental take permit under the Endangered Species Act ("Act") for the proposed Metro Air Park ("Metro") development. The development is located adjacent to the Sacramento International Airport in an area of Sacramento known as North Natomas.[1] Based on Metro Air Park's proposed Habitat Conservation Plan ("Plan"), the Secretary, through the Fish and Wildlife Service ("Service"), issued an incidental take permit to the Metro Air Park Property Owners Association ("Association"). Plaintiffs challenge the Plan and the permit principally on the grounds that (1) the Association has not ensured adequate funding for the mitigation measures and (2) the required mitigation is not the maximum practicable. The parties have filed cross-motions for summary judgment.
I. Facts and Procedural History
A. The Metro Air Park Project
The Metro project site is located next to the Sacramento International Airport, between Elkhorn Boulevard and Elverta Road. (AR 6007.) The site is located within the Natomas Basin in Sacramento County. (AR 6004.) The project contemplates development of all 1,892 acres of the site, as well as about 100 acres of adjoining land needed for infrastructure. (AR 6007) The development would include commercial, light industrial, and office space, hotels, a golf course, and necessary roads and infrastructure. (AR 6007.) The site is now composed almost entirely of agricultural lands, mostly rice fields. However, the land has lain fallow for several years. (AR 6013-14.) When in active rice cultivation, the land provides valuable habitat for the Giant Garter Snake; in its current fallow state, however, the habitat value of the land is minimal to both the snake and the Swainson's Hawk, the two species of greatest concern. (AR 7139.)
B. The Affected Species
The permit covers 14 species, but the parties focus exclusively on two: the Giant Garter Snake and the Swainson's Hawk.[2] The Giant Garter Snake is a threatened species under both federal and state Endangered Species Acts. 50 C.F.R. § 17.11; 14 C.C.R. § 670.5(b)(4)(E). The snake lives near slow moving water, and the canals and irrigation ditches associated with *922 rice farming can provide suitable habitat. (AR 7066.) Because the snake may range over distances of up to five miles in a few days, connectivity of the wetland habitat is important to the snake's survival. (AR 6020, 7067.)
The Swainson's Hawk is listed as threatened under the California Endangered Species Act. 14 C.C.R. § 670.5(b)(5)(A). The hawk nests in the Natomas Basin in the summer time and migrates south for the winter. (AR 7071-72.) The hawk feeds primarily on rodents and so requires open fields and grasslands, with large nesting trees providing panoramic views. (Id.) Fields that lack adequate prey populations or that make for poor hunting because of vegetation height or density are not suitable habitat. (Id.)
C. The Habitat Conservation Plan
The Metro Plan adopts a number of mitigation measures to minimize the impact of development on covered species. The most important of these is the Plan's provision for habitat acquisition to mitigate habitat lost to development.[3] The Plan requires that for every acre of land developed, half an acre of habitat be permanently protected and managed to maximize its conservation value. (AR 6000.) Thus, the Plan adopts a 0.5:1 ratio, with the ratio based not on habitat lost but on total land developed regardless of its value as habitat. (Id.) Because the Plan contemplates development of the entire site, conservation land will be purchased off-site.
The Plan closely regulates the purchase and management of mitigation lands. Seventy-five percent of the mitigation lands must be maintained as rice fields or managed marsh. (AR 6052.) This would primarily benefit the snake. The remaining 25% would be preserved as upland habitat, primarily benefitting the hawk. (AR 6053.) The Plan further requires that mitigation lands consist of two habitat blocks of at least 400 acres with an interlinking water supply. (AR 7128.) All mitigation lands must be acquired within the Natomas Basin, with a requirement that 25% be in Sacramento County. (AR 6570-71.) There is no requirement that any of the lands be adjacent to or near the Metro Air Park site. In addition to the mitigation lands purchased under the 0.5:1 ratio, the Plan requires the establishment of a Swainson's Hawk preserve consisting of 200 contiguous acres to compensate for the loss of a nest tree within the Metro site.[4] (AR 6053.)
At full development, the Plan requires the purchase and maintenance of 1208 acres of mitigation land. (AR 6001.) The purchase and management of this land is delegated to the Natomas Basin Conservancy ("Conservancy"). (AR 6041.) The Conservancy is a non-profit corporation, already in existence, whose purpose is the purchase and maintenance of habitat land in the Natomas Basin. (AR 7032.) The Plan incorporates the Conservancy's acquisition criteria.[5] (AR 6035.) These criteria require that all land purchased as mitigation *923 land be suitable as habitat for the covered species. For example, lands acquired as wetlands mitigation must contain the appropriate soils to support marsh or rice farming, have adequate setbacks, be hydrologically connected to other parcels, and have an adequate water supply. (AR 6093.) There are corollary criteria for upland mitigation purchases. (AR 6105.) There are also detailed management programs to maintain wetlands for the benefit of the snake and other wetland species and to maintain uplands for the hawk and other upland species. (AR 6092-6107.)
The mitigation measures in the Plan are funded through mitigation fees paid by each developer when the developer obtains a grading permit. (AR 6000-01.) These fees are currently set at $10,027 per acre.[6] (Defs.' Mot. at 14.) There are a number of measures intended to ensure adequate funding for the mitigation requirements. The fees are subject to automatic annual adjustments, tied to the rate of inflation. (AR 6049.) The Conservancy also possesses the authority and responsibility to raise the fees to adjust for any increased costs of achieving the required mitigation ratio or maintaining the habitat value of the conservation lands. (AR 6045.)
Additionally, each developer must become a member of the Metro Air Park Property Owners Association and subscribe to its Covenants Conditions & Restrictions ("CC & Rs"). (AR 6007.) The Association is the permittee and is required to implement all of the provisions of the Plan, upon which the permit is conditioned. The permit also requires the Association to adhere to the Metro Air Park Implementation Agreement ("Agreement"). (AR 6592.) The Agreement further obligates the Association to carry out the provisions of the Plan. (AR 6559-60.) The CC & Rs give the Association the authority to raise fees as necessary. (AR 17199.) The Association has the authority to place a lien on any parcel whose owner refuses to pay additional fees assessed by the Association. (AR 6050.)
Finally, the Plan requires a program review after development of the site has reached 800 acres, or roughly the halfway point. (AR 6066.) During the review, an additional 200 acres may be developed; therefore, a maximum of 1000 acres may be developed before completion of the review and re-certification of the Plan and the permit. (Id.) This allows for adjustments to the Plan for changed conditions such as spikes in land costs or the unavailability of adequate mitigation lands on the open market. The Plan also requires that all of the required mitigation land must have been purchased before the issuance of grading permits for the final 10% of land within the Metro site. (AR 6575.) This provision is intended to ensure that all mitigation lands are purchased and set aside before the site is fully developed and before the remaining fees have been set and collected.
D. The Permit
On February 21, 2002, the Service issued a permit to the Association for development of the Metro site. (AR 7173.) The permit is conditioned upon compliance with, and implementation of, the Plan and the Agreement. (AR 7174.) The permit runs for a maximum of 50 years but lasts only as long as the Association is in existence. (Id.)
*924 E. Procedural History
The Service issued Findings and Recommendations and a Record of Decision on February 21, 2002, concluding that the implementation of the Plan would not jeopardize the continued existence of the snake, the hawk, or the other covered species. (AR 7124-71.) The Service found that: (1) any "take" of the covered species would be incidental to otherwise lawful activities, (2) the Plan minimized and mitigated the impacts of take to the maximum extent practicable, (3) the applicant ensured adequate funding, and (4) the authorized take would not appreciably reduce the likelihood of the survival and recovery of the species in the wild. (AR 7137-7144.) The permit was issued the same day. (AR 7172-78.) The plaintiffs challenge the issuance of the permit in their complaint filed February 13, 2003.
II. Analysis
The plaintiffs[7] claim that the Service's issuance of the permit is arbitrary and capricious. They argue that: (1) there is inadequate evidence to find that the authorized take will not jeopardize the survival and recovery of the species; (2) the Plan does not ensure sufficient funding; and (3) there is no demonstration that the Plan mitigates to the "maximum extent practicable." As will become apparent, the case largely turns on the uncontested fact that the Metro site now provides only poor habitat for both the snake and the hawk.
A. Statutory Framework
The Endangered Species Act requires the Secretary to determine whether a given species qualifies for protection as endangered or threatened, and confers significant protection on species that are so listed. Section 9 of the Act makes it unlawful for any person subject to the jurisdiction of the United States to "take" any member of any endangered or threatened species. See 16 U.S.C. § 1538(a)(1). The Act defines "take" as "to harass, harm, pursue, hunt, wound, kill, trap, capture, or collect." 16 U.S.C. § 1532(19). "Harm" is further defined by regulation to include killing or injuring a protected species through "significant habitat modification or degradation" that impairs "essential behavioral patterns, including breeding, feeding, or sheltering." 50 C.F.R. § 17.3.
Section 9's broad prohibition on taking is limited by several exceptions identified in § 10. Most importantly for present purposes, § 10 allows the Secretary to issue an incidental take permit, which authorizes its holder to take some members of protected species when the taking is incidental to carrying out an otherwise lawful activity. See 16 U.S.C. § 1539(a). The permittee is not liable for any taking that falls within the scope of the permit.
To obtain a permit, an applicant must develop and submit a habitat conservation plan, which specifies (1) the likely impact to the species from the proposed takings; (2) the steps the applicant will take to minimize and mitigate such impacts and the funding available for such mitigation; (3) alternative actions considered, and the reasons for not selecting them; and (4) such other measures as the Secretary may require as necessary or appropriate for the purposes of the plan. See 16 U.S.C. § 1539(a)(2)(A). Upon submission of a *925 permit application and related conservation plan, "the Secretary shall issue the permit," if she finds, after opportunity for public comment, that (i) the taking will be incidental; (ii) the applicant will, to the maximum extent practicable, minimize and mitigate the impacts of such taking; (iii) the applicant will ensure that adequate funding for the plan will be provided; (iv) the taking will not appreciably reduce the likelihood of the survival and recovery of the species in the wild; and (v) other measures required by the Secretary will be met. 16 U.S.C. § 1539(a)(2)(B). The permit "shall contain such terms and conditions as the Secretary deems necessary or appropriate to carry out the purposes of this paragraph." Id. If the Secretary finds that a permittee is not complying with the terms and conditions of the permit, she must revoke the permit. 16 U.S.C. § 1539(a)(2)(C).
B. Will the Authorized Take Jeopardize the Survival and Recovery of the Species?
The plaintiffs argue that the Service's decision to issue the permit was arbitrary and capricious because the Service failed to demonstrate that the take authorized by the permit will not jeopardize the covered species. (Pls.' Mot. at 26-31.) Plaintiffs contend that the Service did not have the necessary information to make a no jeopardy finding because the mitigation land to be purchased under the Plan has not been identified. Plaintiffs also make a number of arguments based on the effects of the Plan on individual snakes living at the site.
1. Failure to Identify Mitigation Lands
The Act requires the Service to find that "the taking will not appreciably reduce the likelihood of the survival and recovery of the species in the wild." 16 U.S.C. § 1539(a)(2)(B)(iv). The Service did make such a finding; however, plaintiffs contend that such a finding could have no basis in fact because no mitigation lands have been identified. (Pls.' Mot. at 27-28.) They argue that without the identification of specific mitigation lands the value of these lands as habitat to the covered species is unknown and unknowable.
The Metro Plan incorporates detailed land acquisition criteria. It also requires that the acquired land be managed for the benefit of the covered species and describes how that will be accomplished. The Service found that the current habitat value of the Metro site is quite limited, a finding that the plaintiffs do not contest.[8] (AR 7090-96, 7136.) Under the Plan approximately 2000 acres of poor habitat will be exchanged for 1000 acres of conservation lands specifically managed to foster habitat for both the snake and hawk. The Service could rationally conclude that the Plan's acquisition criteria and management scheme ensure that mitigation land will provide habitat superior to that lost at the site and that far from jeopardizing the species, the Plan will enhance their prospects for survival.[9]
*926 2. The Survival of Individual Snakes
Plaintiffs argue that the Plan fails to ensure the survival of individual snakes that may currently be living on the Metro site. (Pls.' Mot. at 28-30.) However, a habitat conservation plan need not demonstrate the survival of individual members of a covered species. Rather, the successful plan must ensure the continued viability of covered species, and the Service concluded that the Metro Plan does just that. The Service's conclusion is not arbitrary because certain individual snakes may be harmed by development on the site. The very purpose of the permit provisions of the Act is to allow the take of individual members of a species that the Act would otherwise prohibit.
C. Does the Plan Adequately Ensure Funding?
To obtain a permit, an applicant must "ensure that adequate funding for the plan will be provided." 16 U.S.C. § 1539(a)(2)(B)(iii). Plaintiffs argue that the Association has not ensured adequate funding of the Metro Plan. (Pls.' Mot. at 23-26.) There are a number of provisions of the Plan intended to ensure the adequacy of its funding. Most important are the provisions of the CC & Rs that give the Association the authority to impose any necessary supplemental fees on already-developed parcels such that the first developers may yet be liable for an additional assessment if future land costs soar and the provisions of the Agreement that require the Association to impose supplemental fees if necessary to fully implement the Plan. The mid-point review and requirement that all mitigation lands be purchased before the final 10% of the Plan site is developed provide some additional assurances. However, plaintiffs argue that these provisions are inadequate because the property owners could simply dissolve the Association rather than impose additional fees upon themselves. (Pls.' Reply at 11-15.) Plaintiffs imagine a scenario in which land costs rise steeply, most of the area is developed quickly under a fee that is too low to pay for conservation lands, and it is necessary to reach back to earlier developers for supplemental fees. Plaintiffs contend that developers will simply dissolve the Association rather than pay the additional fees.
In addition to being speculative, plaintiffs' argument also fails to recognize that dissolution of the Association would be unlawful under the terms of the permit. As a matter of state corporate law, the Association, a California corporation, has the ability to dissolve. But the CC & Rs provide that "no provision... relating to the [Plan] and the [permit]... may be modified, revoked or terminated without prior written consent of the [Service] and the [California Department of Fish and Game]." (AR 17105.) Dissolution of the Association would require the revocation of all, or at least most, of the CC & Rs, including many related to the Plan. Therefore, dissolution would require the permission of both the federal and state agencies. Dissolution of the Association would also be a violation of the Agreement, in which the Association obligated itself to fully carry out the Plan's conservation measures.
Moreover, the permit allows incidental take conditioned upon compliance with, and implementation of, the Plan. Thus, the permit gives the property owners certain rights (to take covered species) but also imposes certain duties (to fully implement the Plan). These duties do not end with the payment of the initial mitigation fee or with the acquisition of mitigation land. For instance, wetlands must be continually managed as either rice fields or marsh, *927 both of which require seasonal flooding and draining. (AR 6097.) Management of the wetlands also requires periodic removal of exotic pest plants. (AR 6099.) The Plan also requires the monitoring of trees planted to provide Swainson's Hawk habitat, with replanting if necessary. (AR 6054.) If the developers dissolve the Association, and this leads to a failure to fully implement the Plan, then their actions violate the permit. The Act permits the government to pursue civil and criminal penalties against "any person who knowingly violates... any provision of any" incidental take permit.[10] 16 U.S.C. § 1540(a)(1), (b)(1). The developers would be subject to these penalties if they dissolved the Association in order to avoid assessments necessary to implement the Plan.
D. Does the Plan Mitigate to the Maximum Extent Practicable?
To issue an incidental take permit, the Service must find that the habitat conservation plan minimizes and mitigates the impacts of incidental take "to the maximum extent practicable." 16 U.S.C. § 1539(a)(2)(B)(ii). The term "maximum extent practicable" is not defined in the statute, nor in any formal agency regulations.[11] It joins together two somewhat opposing concepts, "maximum" and "practicable,"[12] without providing the key to their reconciliation. Plaintiffs seem to argue that, in a plan designed like this one, where the development of land on-site is mitigated through the purchase and set-aside of land off-site, the maximum extent practicable requirement means that the plan must require the purchase of as much mitigation land as the particular developer possibly could afford while still going forward with the development. The environmentally superior alternative for the species would always be the preservation or creation of as much habitat as possible before the project would be rejected by a developer as too expensive. The Service, however, does not approach the maximum extent practicable requirement in this way. Rather, the Service looks to whether the *928 mitigation is "rationally related to the level of take under the plan." (AR 7140.)
The statutory language is consistent with the Service's interpretation. The statute requires that "the applicant will, to the maximum extent practicable, minimize and mitigate the impacts of" its take. 16 U.S.C. § 1539(a)(2)(B)(ii). The words "maximum extent practicable" signify that the applicant may do something less than fully minimize and mitigate the impacts of the take where to do more would not be practicable. Moreover, the statutory language does not suggest that an applicant must ever do more than mitigate the effect of its take of species. Thus, if a permit authorized the destruction of one acre of habitat that normally supports one individual member of a protected species, it would not be necessary for the applicant to create 100 acres of new habitat that would support some 100 individuals of the species, even if the particular developer could afford to do so. The Service's construction of the statute is entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).[13] Because the phrase "maximum extent practicable" is at best ambiguous, the court will defer to the construction of the agency, so long as it is reasonable. Id. at 844, 104 S.Ct. 2778. The Service's view of the statutory language as requiring that the level of mitigation must be "rationally related to the level of take under the plan" is entirely reasonable and avoids absurd results.[14] It also avoids unduly enmeshing the Service in developers' economic affairs and projections.
Using this construction of the statute, the Service made a finding that "the level of mitigation provided for in the [Plan] more than compensates for the impacts of take that will occur under the plan."[15] (AR 7140.) Based on such a finding, the Service was under no obligation to inquire whether additional mitigation was financially *929 possible. All that was reasonably required to mitigate had been included in the Plan.[16]
Even accepting plaintiffs' contention that the statute requires mitigation up to the financial breaking point, there is sufficient evidence here from which to draw that conclusion. The Service had evidence that the total development fees for the Metro Air Park project are among the highest in the Sacramento region, so the imposition of the higher fees necessary to purchase more habitat would make the project uncompetitive with other development in the area. (AR 7140.) The developers are also exposed to liability for supplemental fees should those prove necessary. This evidence is adequate to support the Service's conclusion that higher mitigation fees are impracticable, given that the existing lands are of little value and that mitigation fully compensates for any taking.
III. Conclusion
The Fish and Wildlife Service made all of the proper statutory findings before issuing the incidental take permit for the Metro Air Park development. The Service's ultimate conclusion that the mitigation measures included in the Metro Air Park Habitat Conservation Plan would benefit the Giant Garter Snake and the Swainson's Hawk, along with the other covered species, is reasonable given the degraded nature and poor quality of the habitat on the development site. The Service's decision to issue the permit is not arbitrary and capricious. Therefore, plaintiffs' motion for summary judgment is DENIED; defendants' cross-motion for summary judgment is GRANTED.
IT IS SO ORDERED.
NOTES
[1] The court previously set aside a permit issued to the City of Sacramento based upon a Habitat Conservation Plan for the entire Natomas Basin. National Wildlife Federation v. Babbitt, 128 F.Supp.2d 1274 (E.D.Cal.2000). The Natomas Conservation Plan is not the subject of this action, although it is part of the background of events leading to the development of the Metro Air Park Plan.
[2] Of the species covered by the permit, two are currently listed under the Act: the Giant Garter Snake and the valley elderberry longhorn beetle. Two were formerly listed: the Aleutian Canada goose and the peregrine falcon. Ten are federally unlisted: the Swainson's Hawk, the white-faced ibis, the bank swallow, the greater sandhill crane, the tricolored blackbird, the northwestern pond turtle, the loggerhead shrike, the burrowing owl, the Delta tule pea, and the Sanford's arrowhead. The Swainson's Hawk is listed under the California Endangered Species Act.
[3] Other mitigation measures include several intended to reduce harm to the snake during construction and the requirement of best management practices for rice farming, should that activity be resumed at the site prior to development. (AR 6052-6063.)
[4] The Plan requires that this land, along with the other upland habitat purchased, must be planted with the native trees preferred by nesting hawks. (AR 6054.)
[5] Plaintiffs maintain that the Natomas Basin Plan is not properly part of the record in this case. (Pls.' Reply at 18-19.) However, the relevant portions of the Natomas Basin Plan are attached to the Metro Plan as Appendix A. (AR 6091-6107.) The court did not find it necessary to refer to any part of the Natomas Plan not actually incorporated into the Metro Plan.
[6] The Plan originally set the per-acre fee at $5,993. (AR 6043.) The fee was increased by the Conservancy in 2003 to its present level. (Defs.' Mot. at 26 n. 21.) Of the original fee, $3,000 was allocated for land acquisition, with the remainder going to various administrative and maintenance costs. (AR 6043.)
[7] The defendants have not challenged the plaintiffs' standing in this case. Members of the plaintiff organizations have presented affidavits substantially similar to those presented to the court in Babbitt, 128 F.Supp.2d at 1289-90. Those affidavits show that the plaintiffs meet the requirements of associational standing. Plaintiffs also meet the constitutional case or controversy requirement. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)
[8] This finding distinguishes this case from Babbitt, 128 F.Supp.2d at 1298. In Babbitt, the Natomas Basin Plan failed to assess the value of the habitat on land within the development area. That Plan improperly assumed that all land in the Basin was of equal habitat value, although only some of the land was subject to the permit.
[9] Plaintiffs also argue that Sierra Club v. Marsh, 816 F.2d 1376, 1389 (9th Cir.1987), requires that all mitigation lands must be purchased prior to issuing a permit conditioned upon mitigation through habitat acquisition. However, the holding of Sierra Club is based on the particular facts of that case, especially the critical nature of the habitat involved, a factor that is missing here. The Ninth Circuit has held that Sierra Club does not generally require the purchase of mitigation lands before issuance of a permit. See Southwest Ctr. for Biological Diversity v. U.S. Bureau of Reclamation, 143 F.3d 515, 523-24 (9th Cir.1998). There is no general rule requiring purchase of mitigation lands prior to the issuance of a permit under the Act.
[10] There is no indication in the statute that only parties to the permit are subject to these penalties the use of "any person" indicates just the opposite. Therefore, the fact that the developers are not parties to the permit is not relevant. So long as they "knowingly" violate the terms of the permit they may be liable.
[11] The Service's Habitat Conservation Planning Handbook does contain a definition of "maximum extent practicable." See Habitat Conservation Planning Handbook at 7-3,4. The Handbook provides that the maximum extent practicable finding "typically requires consideration of two factors: adequacy of the minimization and mitigation program, and whether it is the maximum that can be practically implemented by the applicant." Id. That definition basically resembles the approach taken by the Service in its Findings and Recommendations in this case. (See AR 7140.)
[12] The parties do not explicitly consider the meaning of the term "practicable." The implication in the plaintiffs' briefs is that "maximum extent practicable" means the most that can possibly be done in other words, the most the developers could pay while still going forward with the project. While the meaning of the term "practicable" in the statute is not entirely clear, the term does not simply equate to "possible." "Practicable" is often used in the law to mean something along the lines of "reasonably capable of being accomplished." Black's Law Dictionary (7th ed.1999). For example, "practicable" is defined in a Federal Highway Administration regulation as "capable of being done within reasonable natural, social, or economic constraints." 23 C.F.R. § 650.105(k). "Practicable" is used twice in Fed.R.Civ.P. 23 and neither time is it synonymous with "possible." Courts also universally interpret the phrase "as soon as practicable," which is common in insurance policies, to mean "within a reasonable time." See, e.g., Ormet Primary Aluminum Corp. v. Employers Ins. of Wausau, 88 Ohio St.3d 292, 725 N.E.2d 646, 655 (2000).
[13] The court recognizes that there is uncertainty about when agency interpretations receive Chevron deference. See Richard Pierce, Administrative Law Treatise § 3.5 (4th ed.2004 supp.). Formal agency rules announced after notice and comment clearly do receive full deference, while more informal agency determinations may not. See United States v. Mead Corp., 533 U.S. 218, 230, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (holding that a statutory construction in a Customs letter received no deference). The court is persuaded that Chevron deference is appropriate in this instance given the "interstitial nature" of this legal question, the importance of the meaning of "maximum extent practicable" to the administration of the permit scheme, and the "expertise" of the Service. See Barnhart v. Walton, 535 U.S. 212, 222, 122 S.Ct. 1265, 152 L.Ed.2d 330 (2002).
[14] Under plaintiffs' interpretation, a permit that allows disturbance of one acre of Giant Garter Snake habitat could require the developer to create and manage one thousand acres of replacement habitat if that was the maximum the developer could afford.
[15] Plaintiffs argue that other evidence shows that the agency's conclusion that the Plan mitigated to the maximum extent practicable is arbitrary and capricious. They cite a number of internal documents from Service biologists questioning the adequacy of the mitigation ratio. (Pls.' Mot. at 17-18.) However, the mere existence of internal disagreements between agency experts does not make the agency's decision arbitrary or capricious. Aluminum Co. of Am. v. Bonneville Power Admin., 175 F.3d 1156, 1161-62 (9th Cir.1999). Plaintiffs also argue that the 0.5:1 ratio in the Metro Plan is significantly lower than that required by other plans in the region. (Pls.' Mot. at 19-20.) These plans, however, deal with additional species and use very different methods for calculating the mitigation ratio. (See, e.g., San Joaquin County Plan 4.1.2.) Their use of higher ratios is not determinative of what is adequate or practicable in the Metro Plan, particularly given that the development lands currently provide little or no habitat of value.
[16] Plaintiffs argue that the Service had to consider an increased mitigation alternative in order to make a finding that further mitigation measures were not practicable. It is true that consideration of a higher mitigation alternative will often be useful to the Service when determining whether additional mitigation is practicable. See Babbitt, 128 F.Supp.2d at 1292; HCP Handbook at 7-3. However, in the Metro Plan, increased mitigation would mean the purchase of more land for habitat. Since the Service found that the mitigation provided "more than compensates" for the impact of take, it was not necessary to consider alternatives that would do even more.
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947 N.E.2d 471 (2011)
BP PRODUCTS NORTH AMERICA, INC., and United States Steel Corporation, Appellants,
v.
INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR and Northern Indiana Public Service Company, Appellees.
No. 93A02-0905-EX-490.
Court of Appeals of Indiana.
April 25, 2011.
*473 James A. Strain, Geoffrey Slaughter, John F. Wickes, Jr., Todd A. Richardson, Joseph P. Rompala, Indianapolis, IN, Attorneys for Appellants.
Michael B. Cracraft, Joseph M. Hendel, Indianapolis, IN, Attorneys for Appellees.
OPINION
SHARPNACK, Senior Judge.
STATEMENT OF THE CASE
Appellants BP Products North America, Inc. ("BP"), and United States Steel Corporation ("U.S. Steel") appeal from a decision made by the Indiana Utility Regulatory Commission ("the Commission") involving Appellee Indiana Office of Utility Consumer Counselor and Appellee/Cross-Appellant Northern Indiana Public Service Company ("NIPSCO"). We reverse and remand in part and affirm in part.
ISSUES
The following restated issues are dispositive:
I. Whether the Commission erred in determining that BP was acting as a "public utility" as that term is defined under Indiana law.
II. Whether the Commission erred in holding that BP violated Indiana's Service Area Assignments Act, a statute governing electricity suppliers.[1]
FACTS AND PROCEDURAL HISTORY
BP's petroleum refinery plant in Whiting, Indiana, is the nation's largest inland refinery, covering approximately 1400 acres and possessing the capacity to process more than 400,000 barrels of crude oil per day. At the plant, BP refines oil into various petroleum distillates, including diesel fuel and gasoline. As part of its process of refining crude oil, BP creates its own supply of industrial-use water by drawing raw, untreated water from Lake Michigan through its intake pipe and processing the water at its on-site treatment plant. BP also generates steam and uses electricity and natural gas obtained from NIPSCO to power the significant industrial processes operating throughout the refinery. BP transmits the gas and electricity internally through its own private distribution systems within the refinery's footprint to run its oil-refining operation.
Over the years, BP has entered into contracts with adjacent and on-site private entities whereby it provides certain services either at cost or at a slight margin. BP provides excess steam from its refining process to the adjacent U.S. Steel facility, with the steam conveyed through BP pipes directly to U.S. Steel pipes. BP provides steam and sewer service to the adjacent *474 Ineos Chemical Plant, with the steam conveyed through BP pipes directly to Ineos pipes. BP provides low pressure raw service water to the adjacent Praxair facility. BP also provides low pressure raw service water to the City of Whiting, which the City then treats and distributes to its customers. BP also provides services to Marsulex, a tenant located within the refinery property that performs essential services as part of BP's manufacturing process. The services provided to Marsulex include low pressure raw service water, partially treated non-potable water, electricity, steam, process sewer treatment, and natural gas.
On June 27, 2008, BP filed a verified petition with the Commission generally describing BP's refinery processes and its contractual relationships with Marsulex and the entities adjacent to BP's property. BP primarily requested that the Commission find that the provision of services pursuant to private contract does not make BP a public utility. In the alternative, BP requested that if the Commission should find BP to be acting as a public utility, that the Commission decline to exercise jurisdiction over BP pursuant to Indiana Code section 8-1-2.5-5 (1995)[2] and Indiana Code sections 8-1-2-61.5(d) and 61.5(e) (2001).[3] BP further requested that if the Commission chose to exercise its jurisdiction, that the Commission issue the necessary certificates, permits, or authority needed for operation.[4]
In an order issued on May 13, 2009, the Commission determined that BP "is not a public utility with respect to the transportation of natural gas service to Marsulex." Appellants' Joint App. p. 26. The Commission further determined that BP "is providing utility services to the public and is a public utility with respect to the provision of steam, electricity, water, and wastewater/process sewer services...." Appellants' Joint App. p. 22.
The Commission found that a partial declination over BP's sale of steam is appropriate "given the particularly unique facts and circumstances of [the] case." Appellants' Joint App. p. 23. The Commission found that Marsulex, Ineos, and Praxair produce products that are integral to BP's refining process and that the steam BP sells to these entities is necessary for the creation of their own products. Accordingly, the Commission found that "the exchange of services is essential to the products BP, Ineos, Marsulex, and Praxair produce." Id. The Commission concluded that BP's primary business "is refining oil and not the sale of steam." Id. Therefore, "the sale of steam is a result of contracts [with Ineos and Praxair] and a lease agreement [with Marsulex], pursuant to which BP sells the steam at cost or at a slight margin to customers located either within the [refinery's] boundaries or contiguous to it." Id.
The Commission further determined that it lacked statutory authority to decline to exercise jurisdiction over BP's provision of water or wastewater/process sewer operations. Accordingly, the Commission created a "Subdocket in this Cause to establish *475 BP's tariff, rates and charges or to establish a regulatory plan ... for water and wastewater/process sewer service." Appellants' Joint App. p. 25.
The Commission determined that it would not decline jurisdiction over BP with respect to BP's furnishing of electricity to Marsulex, primarily because BP "does not possess an assigned service area for the provision of retail electric service pursuant to Indiana Code § 8-1-2.3 et seq., and no evidence to the contrary was offered by the parties." Id. at 24. The Commission noted that Indiana Code section 8-1-2.3-1 (1980) provides for the creation of assigned service areas for electricity suppliers, and states, "[I]n order to promote economical, efficient, and adequate electric service to the public, the currently unincorporated areas of Indiana shall be divided into designated geographic areas within which an assigned electricity supplier has the sole right to furnish retail electric service to customers." Id. The Commission directed BP to "enter into discussions with NIPSCO regarding BP's provision of electric service within NIPSCO's assigned service territory with the intent to reach an amicable resolution." Id. at 25.
BP and U.S. Steel initiated an appeal in this court on May 29, 2009. BP also entered into discussions with NIPSCO as directed by the Commission. In those discussions, BP learned of an earlier agreement between NIPSCO and Amoco, BP's predecessor. A stay of the appeal and remand to the Commission were sought and granted so that BP could return to the Commission and present the agreement. In its subsequent order of June 23, 2010, the Commission noted:
On August 11, 2009, BP filed with the Commission a Notice of NIPSCO's 1999 Contractual Consent to BP's Allocation of Electricity to Geographically Contiguous Affiliates and Third Parties ("Notice of Consent"). Attached to the Notice of Consent were: (i) a redacted copy of a Contract for Electric Service and Energy between BP's predecessor, BP Amoco Company ("Amoco"), and NIPSCO, which was entered into on July 22, 1999 (the "Contract") and is still effective; and (ii) a Commission Order dated March 22, 2000 in Cause No. 41608 approving the Contract. The Notice of Consent indicated that the attorneys and witnesses were unaware of the existence of the Contract and the March 22, 2000 Order. The Notice of Consent further asserted that as a result of the Contract and the Commission's March 22, 2000 Order, BP has received NIPSCO's consent to provide electric service to Marsulex and is not in violation of Ind.Code § 8-1-2.3-4.
Appellants' Joint App. pp. 27-28.[5] The Commission further noted:
Indiana Code § 8-1-2.3-4(a) provides in pertinent part that "no other electricity supplier shall render or extend retail electric service within its assigned service area unless the electricity supplier with the sole right consents thereto in writing and the commission approves." By definition, "electricity supplier" means "a public utility ... which furnishes retail electric service to the public." Ind.Code § 8-1-2.3-2(b).
Id. at 28, n. 1.
The Commission, however, found that the BP (Amoco) contract with NIPSCO "does not alter the Commission's determination that BP is acting as a public utility by providing electric utility service to Marsulex. BP is providing electric service to an entity other than itself and is therefore *476 a public utility pursuant to Ind.Code § 8-1-2-1 and Ind.Code § 8-1-6-3. Therefore, the Commission's previous finding is affirmed." Id. at 30.
The Commission further found that the BP (Amoco) contract with NIPSCO:
[D]oes not change the fact that BP does not possess an assigned service territory and cannot legally furnish electric service within Indiana. Under Indiana law, NIPSCO cannot consent to the provision of electric service within its service territory by an entity that does not possess an assigned service territory.
Accordingly, based on the evidence presented on remand and in the underlying proceeding, the Commission affirms its previous finding that BP is a public utility with respect to its provision of electric service to Marsulex. However, based on the law and applicable statutes, the Commission finds that BP does not possess the necessary legal authority to provide electric service to an entity other than itself. Therefore, BP must cease its service activity consistent with our prior findings. NIPSCO's consent under Section 12(2) of the Contract does not provide BP with such legal authority or modify our prior determination on this issue.
Id. at 31.
DISCUSSION AND DECISION
STANDARD OF REVIEW
As a general rule we employ a two-tiered standard when we review an order by the Commission. Hancock Cnty. Rural Elec. Corp. v. City of Greenfield, 768 N.E.2d 909, 911 (Ind.Ct.App.2002). First, we determine whether the decision is supported by specific findings of fact and by sufficient evidence. Second, we consider whether the decision is contrary to law. Id. A decision is contrary to law when the Commission fails to stay within its jurisdiction and to abide by the statutory and legal principles which guide it. Id. Here, the facts are undisputed, and the issues involve the Commission's interpretation of statutory language. The interpretation of a statute is a question of law reserved for the courts, and we review such interpretation under a de novo standard. Ind.-Ky. Elec. Corp. v. Comm'r, Ind. Dep't of Envtl. Mgmt., 820 N.E.2d 771, 777 (Ind.Ct.App.2005). The interpretation of a statute by the administrative entity charged with the duty of enforcing the statute is entitled to great weight. Id. However, no weight is given to an incorrect interpretation. Id.
I. STATUTORY LANGUAGE: WHAT IS A PUBLIC UTILITY?
In its May 13, 2009 order, the Commission stated that it "need only to determine whether or not BP is providing these utility services `either directly or indirectly to the public.'" Appellants' Joint App. p. 20. After discussing this court's holdings in U.S. Steel Corp. v. Northern Ind. Pub. Serv. Co., 482 N.E.2d 501 (Ind.Ct.App. 1985), trans. denied, and Knox Cnty. Rural Elec. Membership Corp. v. PSI Energy, Inc., 663 N.E.2d 182 (Ind.Ct.App.1996), trans. denied, the Commission determined, as stated above, that BP "is providing utility services to the public and is a public utility with respect to the provision of steam, electricity, water and wastewater/process sewer services pursuant to Indiana Code § 8-1-2-1(a) and Indiana Code § 8-1-6-3." Appellants' Joint App. p. 22.
Indiana Code section 8-1-2-1(a) (2006) provides the definition of a "public utility":
Except as provided in section 1.1 of this chapter, "public utility", as used in this chapter, means every corporation, company, partnership, limited liability company, *477 individual, association of individuals, their lessees, trustees, or receivers appointed by a court, that may own, operate, manage, or control any plant or equipment within the state for the:
(1) conveyance of telegraph or telephone messages;
(2) production, transmission, delivery, or furnishing of heat, light, water, or power; or
(3) collection, treatment, purification, and disposal in a sanitary manner of liquid and solid waste, sewage, night soil, and industrial waste.
The term does not include a municipality that may acquire, own, or operate any of the foregoing facilities.[6]
The term is similarly defined in Indiana Code section 8-1-6-3 (1984), which states:
The term "public utility", as used in this chapter, shall mean and embrace every corporation, company, cooperative organization of any kind, individual, association of individuals, their lessees, trustees, or receivers appointed by any court whatsoever that on or after March 15, 1969, may own, operate, manage, or control any plant or equipment within the state for the conveyance of telegraph or telephone messages, or for the production, transmission, delivery, or furnishing of heat, light, water, or power, or for the collection, treatment, purification, and disposal in a sanitary manner of liquid and solid waste, sewage, night soil, and industrial waste, for service directly or indirectly to the public, but said term shall not include a municipality that may after March 14, 1969, acquire, own, or operate any of the foregoing facilities.
In U.S. Steel, we considered whether a steel producer was a "public utility" under Indiana Code section 8-1-2-1 (the same statute that applies in this case). U.S. Steel owned two production facilities: Gary Works in Indiana, which was supplied with electricity by NIPSCO, and South Works in Chicago, which was supplied with electricity by the Commonwealth Edison Company. U.S. Steel brought a declaratory judgment action to determine whether its planned transmission through a transformer of power purchased from Commonwealth and mixed with NIPSCO's power to supply Gary Works, coupled with transmission of power to be purchased from NIPSCO and mixed with Commonwealth's power to supply South Works, would be subject to regulation by the Commission.
We held that the Commission's predecessor, the Public Service Commission of Indiana ("PSCI"), did not acquire jurisdiction over U.S. Steel because U.S. Steel did not qualify as a "public utility" as defined by Indiana statutes. 482 N.E.2d at 504. We noted that "[u]pon dedication of a business to a public use, it is established that such business is under a common law duty to serve all who apply so long as facilities are available without discrimination." Id. at 505-506 (citing Portland Natural Gas & Oil Co. v. State ex rel. Keen, 135 Ind. 54, 34 N.E. 818 (1893); Hockett v. State, 105 Ind. 250, 5 N.E. 178 (1886); 73 C.J.S. Public Utilities, § 7, p. 998). We also noted that at the very minimum, "[i]t is an *478 essential requirement that a business or enterprise must in some way be impressed with public interest before it may become a public utility." Id. at 506. We further noted that whether a given business is a public utility "depends on whether or not the service rendered by it is of a public character and of public consequence and concern, which is a question necessarily dependent on the facts of the particular case." Id. (citing Foltz v. City of Indianapolis, 234 Ind. 656, 130 N.E.2d 650, 654-56, 659 (1955)). We held that U.S. Steel's transmission did not "impress" U.S. Steel with a public interest, that PSCI did not have jurisdiction over U.S. Steel and, therefore, that the laws regulating public utilities would not apply. Id. Furthermore, on rehearing we stated, "[a]ny attempt to impress public utility status upon private property not dedicated to public use constitutes a taking thereof for public use without just compensation in violation of the Fourteenth Amendment." U.S. Steel, 486 N.E.2d at 1085.
In Knox, we upheld the right of a coal mine operator to engage in private distribution of electricity within its private property without becoming subject to "public utility" regulation, even though the electricity was being distributed over the boundary between the service territories of two electric utilities. We quoted U.S. Steel for the proposition that an entity must in some way be impressed with a public interest before it may become a public utility. 663 N.E.2d at 194 (quoting U.S. Steel, 482 N.E.2d at 506). We noted that in Knox, there was no question whether power was provided to the public because, as in U.S. Steel, the provider was transmitting its own power within its own property. Thus, there was no chance that either was transmitting power to the "public."
In the case before us, in its June 23, 2010 order, the Commission is very clear about the basis for its decision, as it states that "BP is providing electric service to an entity other than itself and is therefore a public utility pursuant to Ind. Code § 8-1-2-1 and Ind.Code § 8-1-6-3." Appellants' Joint App. p. 30. The Commission relied on U.S. Steel and Knox to support its conclusion that service to another entity brought BP under its jurisdiction as a public utility. While U.S. Steel and Knox support the principle that an entity which serves only itself is not a "public utility," they do not support the proposition that only an entity that serves only itself is not a "public utility." They do not hold that any entity that serves a separate entity or entities is per se a "public utility." Indeed, as described above, a "public utility" is one that is "dedicated to public use"; "under a common law duty to serve all who apply so long as facilities are available without discrimination"; "impressed with public interest"; and a provider of service "of a public character and of public consequences and concern."
Although there are no Indiana cases directly on point, there are cases from other jurisdictions which are similar to the instant case and which provide guidance in interpreting both Indiana Code section 8-1-2-1 and Indiana Code section 8-1-6-3. We examine a sampling of those cases below.
In City of Sun Prairie v. Pub. Serv. Comm'n, 37 Wis. 2d 96, 154 N.W.2d 360, 361 (1967), the court was asked to determine whether the Public Service Commission ("PSC") was correct in determining that a landlord who furnished heat, light, water and power to its tenants under a private contract was a "public utility" producing, transmitting, delivering, or furnishing utility services "directly or indirectly *479 to the public."[7] The court concluded that PSC misinterpreted the statute, and it held in favor of the landlord. The court stated that an earlier case, Cawker v. Meyer, 147 Wis. 320, 133 N.W. 157 (1911), was "determinative of the result." Id. In Cawker, the landlord constructed a building to be rented for stores, offices, and light manufacturing. A steam plant was installed therein to generate heat, electric light, and power to be furnished to the tenants and occupants of the building who desired such utility service. Because the landlord was unable to dispose of all of the heat and electricity to his tenants, he entered into contracts with three adjoining property owners to furnish them with heat and power. The Wisconsin Railroad Commission, the predecessor of PSC, determined that the landlord was a public utility because the "furnishing of heat, light, and power `to anyone else than to one's self is furnishing it to the public within the meaning of the statute.'" Id. at 362, 133 N.W. 157 (quoting Cawker, 133 N.W. at 158).
In concluding that the Commission had erred, the Cawker court stated: It was not the furnishing of heat, light, or power to tenants, or, incidentally, to a few neighbors, that the Legislature sought to regulate, but the furnishing of those commodities to the public; that is, to whoever might require the same. The use to which the plant, equipment, or some portion thereof is put must be for the public, in order to constitute it a public utility.
But whether or not the use is for the public does not necessarily depend upon the number of consumers; for there may be only one, and yet the use be for the public, as where a plant is built and operated for furnishing power to the public generally, but for a time finds one consumer who uses it all.... On the other hand, a landlord may furnish it to a hundred tenants, or, incidentally, to a few neighbors, without coming either under the letter or intent of the law. In the instant case, the purpose of the plant was to serve the tenants of the owners, a restricted class, standing in a certain contract relation with them, and not the public. The furnishing of power, light, and heat to a few neighbors was incidental merely and limited to them....
It is very difficult, if not impossible, to frame a definition for the word "public" that is simpler or clearer than the word itself. The Century Dictionary defines it as: "Of or belonging to the people at large; relating to or affecting the whole people of a state, nation, or community; not limited or restricted to any particular class of the community." The New International defines it as: "Of or pertaining to the people; relating to or affecting a nation, state or community at large." The tenants of the landlord are not the public; neither are a few of his neighbors, or a few isolated individuals with whom he may choose to deal, though they are a part of the public. The word "public" must be construed to mean more than a limited class defined by the relation of landlord and tenant, or by nearness of location, as neighbors, or more than a few who, by reason of peculiar relation to the owner of the plant, can be served by him.
Cawker, 133 N.W. at 158-59 (citations omitted).
*480 In Drexelbrook Assocs. v. Pa. Pub. Util. Comm'n, 418 Pa. 430, 212 A.2d 237, 239 (1965), the court was asked to determine whether the Public Utility Commission was correct in determining that an entity was subject to the public utility laws because it furnished services "to or for the public." The entity was the owner of a real estate development with a garden-type apartment village of 90 buildings containing 1,223 residential units, 9 retail stores, and a club with a dining room, swimming pool, skating rink, and tennis courts. The Drexelbrook court first cited Borough of Ambridge v. Pub. Serv. Comm'n, 108 Pa.Super. 298, 165 A. 47 (Pa.Super.Ct.1933), where a manufacturer who furnished water to another manufacturer was held not to be servicing the public because "[t]he public or private character of the enterprise does not depend... upon the number of persons by whom it is used, but upon whether or not it is open to the use and service of all members of the public who may require it...." Id. at 239, 165 A. 47 (citing Ambridge, 108 Pa.Super at 304, 165 A. at 49) (emphasis in Drexelbrook). The Drexelbrook court also cited Overlook Dev. Co. v. Pub. Serv. Comm'n, 101 Pa.Super. 217 (Pa.Super.Ct.1930), aff'd per curiam, 306 Pa. 43, 158 A. 869 (1932), which involved a land development company that distributed water not only to vendees situated on its previously owned tract of land, but also to owners of adjacent land. The Drexelbrook court cited Overlook for the proposition that the service was not open to the indefinite public but, being confined to privileged individuals, was private in nature. The Drexelbrook court then overturned the Commission, holding that the owner's tenants, although many in number, did not constitute "the public" within the meaning of the Public Utility Law, but instead constituted "a defined, privileged and limited group" to whom the proposed service would be "private in nature." Id. at 240.
In the present case, BP, which is in the business of refining oil, not producing utility services for the undifferentiated public, nevertheless found that it created excess amounts of such utility services through its refinery process. BP entered into private contracts to provide those excess services to U.S. Steel, Praxair, Ineos, and Marsulex, entities who, as adjacent property owners and/or providers of services within the refinery business, were a defined, privileged, and limited group. Because BP served these selected companiesa special class of entities that did not make up the indefinite publicit was engaged in a private activity, not the provision of services directly or indirectly to the public. Thus, as to these entities, the Commission, which erroneously interpreted both the controlling statutes and related case law, must vacate its orders and allow BP to proceed outside its jurisdiction.[8]
However, we see BP's contract with the City of Whiting in a different light. The contract provides for the provision of water to an entity that is a mere conduit serving the undifferentiated public, at least indirectly. Accordingly, BP is acting as a public utility when it sells water to the City.
*481 II. STATUTORY LANGUAGE: DOES BP'S PROVISION OF ELECTRICITY TO MARSULEX VIOLATE INDIANA CODE SECTION 8-1-2.3 et seq.?
The Commission found in both the May 13, 2009 and June 23, 2010 orders that BP, with reference to Marsulex, was an "electricity supplier" that was rendering electric service within NIPSCO's assigned service area. It concluded that BP was in violation of Indiana Code section 8-1-2.3-4 (1980), which states:
(a) As long as an electricity supplier continues to provide adequate retail service, it shall have the sole right to furnish retail electric service to each present and future consumer within the boundaries of its assigned service area and no other electricity supplier shall render or extend retail electric service within its assigned service area unless the electricity supplier with the sole right consents thereto in writing and the commission approves. . . .
(b) If an electricity supplier unlawfully renders or extends retail electric service within the assigned service area of another electricity supplier, the electricity supplier which has the sole right to furnish retail electric service in that assigned service area may bring an action in the circuit or superior court of the county where such assigned service area is located to enjoin the other electricity supplier from rendering or extending such unlawful retail electric service.
If a violation is proved, the violator shall pay to the aggrieved electricity supplier the gross revenues derived by the violator from the sale of electric service within the assigned service area of the aggrieved electricity supplier, all witness fees, court costs and reasonable attorneys' fees incurred in any litigation brought to enforce this section. Payment of damages, fees and costs does not entitle a violator to furnish retail electric service in such assigned service area. All such actions or proceedings must be brought within three (3) years after the violation occurs.
Indiana Code section 8-1-2.3-2(b) (1988) defines an "electricity supplier" as "a public utility, a local district rural electric membership corporation, or a municipally owned electric utility which furnishes retail electric service to the public." It is uncontested that BP is neither a local district rural electric membership corporation nor a municipally owned electric utility. As we determined in Issue I, BP also is not acting as a public utility when it supplies electricity to Marsulex. Accordingly, the Commission erred in determining that BP is an "electricity supplier" as that term is used in Indiana Code section 8-1-2.3-1 et seq.
CONCLUSION
The Commission erred in its interpretation of the controlling statutes and case law as they apply to BP's contracts with U.S. Steel, Ineos, Praxair, and Marsulex. Accordingly, we reverse the Commission's order as it applies to these contracts, and we remand with instructions that the Commission vacate this portion of the order. We affirm the Commission's order as it pertains to BP's contract with the City of Whiting.
Reversed and remanded in part and affirmed in part.
VAIDIK, J., and BRADFORD, J., concur.
NOTES
[1] Other issues raised on direct appeal and cross-appeal are rendered moot by our resolution of these issues.
[2] Subsection (a) of this statute provides in pertinent part that the Commission, when public interest requires, may decline to exercise jurisdiction, in whole or in part, over an energy utility or the retail energy service of the energy utility, or both.
[3] These subsections provide in pertinent part that the Commission may adopt rules or enter orders that are in the public interest and that may promote denominated purposes.
[4] U.S. Steel was granted the right to intervene, and it appeared and participated in the evidentiary hearing on BP's verified petition. Appellants' Joint App. p. 10.
[5] NIPSCO was not a party to the original BP petition consideration. It intervened and became a party on remand. Appellants' Joint App. p. 28.
[6] The words "directly or indirectly to or for the public" were inadvertently omitted from an amendment to the statute but are considered to be part of section 1(a)(2). Accordingly, an entity listed in the statute cannot be a "public utility" unless it produces, transmits, delivers, or furnishes heat, light, water, or power "`either directly or indirectly' to the public." See U.S. Steel Corp. v. Northern Ind. Pub. Serv. Co., 486 N.E.2d 1082, 1084-85 (Ind.Ct.App.1985), trans. denied (the denial of rehearing for the U.S. Steel case cited above).
[7] The statute is currently found at WIS. STAT. § 196.01(5)(a) (2011). It states that a designated entity is a "public utility" if it owns, operates, manages or controls "all or any part of a plant or equipment, within the state, for the production, transmission, delivery or furnishing of heat, light, water or power either directly or indirectly to or for the public."
[8] We note that NIPSCO engages in speculation about the possible evils that might flow from BP's unregulated activities under the statutes and the case law. We join the Drexelbrook court in concluding that "[s]uch reasoning disregards that express formulation of public policy by the Legislature embodied in the statutory definition of the term `public utility.' That provision confers jurisdiction on the Commission only where the service involved is rendered [directly or indirectly] `to or for the public.'" 212 A.2d at 242. (emphasis in original).
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952 N.E.2d 726 (2007)
376 Ill. App. 3d 1132
IN RE A.R.
No. 1-06-1213.
Appellate Court of Illinois, First District.
November 2, 2007.
Affirmed.
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961 N.E.2d 1048 (2012)
TIPTON COUNTY HEALTH CARE FOUNDATION, INC. f/k/a Tipton County Memorial Hospital Foundation, Petitioner,
v.
TIPTON COUNTY ASSESSOR, Respondent.
No. 49T10-1101-TA-6.
Tax Court of Indiana.
February 16, 2012.
*1049 Brent A. Auberry, Daniel R. Roy, Fenton D. Strickland, Faegre Baker & Daniels LLP, Indianapolis, IN, for petitioner.
Gregory F. Zoeller, Attorney General of Indiana, Lynne D. Hammer, Deputy Attorney General, Indianapolis, IN, for respondent.
WENTWORTH, J.
This case concerns whether the Indiana Board of Tax Review (the Indiana Board) properly determined that the Tipton County Health Care Foundation, Inc. (the Foundation) failed to raise a prima facie case that its assisted living facility is exempt from property tax under Indiana Code § 6-1.1-10-16. The Court affirms.
FACTS AND PROCEDURAL HISTORY
In 1998, Tipton County Memorial Hospital (the Hospital) built Autumnwood Village (Autumnwood), an assisted living facility. It is situated on 1.94 acres of land adjacent to the Hospital and two extended care facilities. All four facilities provide Tipton County's aging residents with access to a full continuum of care.
Autumnwood has 40 apartments, a central dining room, laundry rooms, a beauty salon, and several common areas. Many of the facility's amenities are similar to those found in traditional apartment living, but because Autumnwood was designed to meet the unique needs of individuals 55 years of age and older, it also provides amenities and services specifically directed at its aging population. For example, Autumnwood's apartments and common areas have extra-wide hallways and doors for wheelchair access; the hallways, elevators, and restrooms have handrails and grab bars for safety and mobility; all apartment doors are fireproof-rated so residents can wait in their apartments for rescue in the event of fire; and there is access to special security features, weekly transportation services, an emergency response system, on-site nursing, preferential access to certain nursing homes, and a variety of entertainment opportunities.
In late December 2007, the Hospital's Board of Trustees sold Autumnwood to the Foundation. Prior to the sale, the Hospital operated Autumnwood with assistance from Miller's Health Systems, Inc. (Miller's), an Indiana for-profit corporation that owns and operates 30 nursing homes under the name "Miller's Merry Manor" and 10 assisted living communities under the name "Miller's Senior Living" throughout Indiana. Under the terms of a "Management and Consulting Agreement" (the Agreement), Miller's provided consulting services, for a monthly fee, to the Hospital and for a short period to the Foundation with respect to Autumnwood's operations.
Beginning on January 1, 2008, the Foundation leased Autumnwood to Miller's for five years pursuant to a triple net lease (Lease). (See Cert. Admin. R. at 434-57.) Under the Lease, the Foundation agreed to deliver exclusive possession of Autumnwood to Miller's, allowing Miller's to either rename Autumnwood consistent with one of its own trade names or continue to operate the facility under its current name. (Cert. Admin. R. at 436.) Miller's in turn agreed to use Autumnwood as an assisted living facility and pay the Foundation an annual base rent and certain other expenses *1050 including all utilities and property taxes. (Cert. Admin. R. at 435, 438, 443.) The Lease further stated that:
[n]othing in th[e] Lease shall be deemed or be construed to render or constitute Landlord and Tenant, actually or constructively and in any or for any purpose, as being partners, joint venturers, or associates, or as having any relationship whatever other than that of Landlord and Tenant under th[e] Lease; nor shall anything in th[e] Lease be deemed or be construed to authorize either party to act as agent for the other party, except to the extent specifically and expressly provided otherwise in th[e] Lease.
(Cert. Admin. R. at 451.)
The Foundation timely filed an "Application for Property Tax Exemption" with the Tipton County Property Tax Assessment Board of Appeals (PTABOA) requesting a charitable purposes exemption for the 2008 and 2009 tax years. The PTABOA denied each. The Foundation filed an appeal with the Indiana Board, an administrative hearing was held, and the Indiana Board issued a final determination finding that the Foundation did not make a prima facie case that Autumnwood was entitled to a charitable purposes exemption.
On January 27, 2011, the Foundation filed this original tax appeal. The Court heard oral arguments on November 18, 2011. Additional facts will be supplied as necessary.
STANDARD OF REVIEW
This Court gives great deference to final determinations of the Indiana Board when it acts within the scope of its authority. Wittenberg Lutheran Vill. Endowment Corp. v. Lake Cnty. Prop. Tax Assessment Bd. of Appeals, 782 N.E.2d 483, 486 (Ind. Tax Ct.2003), review denied. Consequently, the Court will reverse a final determination of the Indiana Board only if it is:
(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(2) contrary to constitutional right, power, privilege, or immunity;
(3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory jurisdiction, authority, or limitations;
(4) without observance of procedure required by law; or
(5) unsupported by substantial or reliable evidence.
See IND.CODE § 33-26-6-6(e)(1)-(5) (2012).
ISSUE
The sole issue before the Court is whether the Foundation failed to raise a prima facie case that its assisted living facility is entitled to a charitable purposes property tax exemption under Indiana Code § 6-1.1-10-16.[1]
LAW
Indiana Code § 6-1.1-10-16 provides that "[a]ll or part of a building is *1051 exempt from property taxation if it is owned, occupied, and used by a person for educational, literary, scientific, religious, or charitable purposes." IND.CODE § 6-1.1-10-16(a) (2012). While unity of ownership, occupancy, and use is not required under Indiana Code § 6-1.1-10-16, when it is lacking, as is the case here, each entity must demonstrate that it has its own exempt purpose and explain the nexus between that purpose and its ownership, occupancy, and use of the property. See Hamilton Cnty. Prop. Tax Assessment Bd. of Appeals v. Oaken Bucket Partners, LLC, 938 N.E.2d 654, 657 (Ind. 2010) (citation omitted); Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm'rs, 686 N.E.2d 954, 955 (Ind. Tax Ct.1997), review denied.
It has long been held that exemption statutes are to be strictly construed against the taxpayer and, therefore, the burden is on the taxpayer to establish its right to an exemption. See St. Mary's Med. Ctr. of Evansville, Inc. v. State Bd. of Tax Comm'rs, 534 N.E.2d 277, 281 (Ind. Tax Ct.1989), aff'd by 571 N.E.2d 1247 (Ind.1991). To meet its burden, the taxpayer must have made a prima facie case[2] at the Indiana Board hearing by submitting probative evidence[3] sufficient to show its property qualifies for exemption. Brothers of Holy Cross, Inc. v. St. Joseph Cnty. Prop. Tax Assessment Bd. of Appeals, 878 N.E.2d 548, 550 (Ind. Tax Ct.2007) (footnotes added), review denied. Only then does the burden shift to the opposing party to rebut the taxpayer's evidence or, if uncontradicted, the taxpayer's prima facie case remains sufficient. College Corner, L.P. v. Dep't of Local Gov't Fin., 840 N.E.2d 905, 907-08 (Ind. Tax Ct.2006) (citation omitted).
ANALYSIS
On appeal, the Foundation first claims that the Indiana Board's determination is contrary to law because it provided probative evidence that Autumnwood was owned, occupied, and used as an assisted living facility. (See Pet'r Br. at 10-24, 26-30.) More precisely, the Foundation asserts that because Autumnwood is an assisted living facility that provides for the needs of the elderly, no other evidence is necessary to show that it is entitled to a charitable purposes exemption. (See Pet'r Br. at 36-40; Pet'r Reply Br. at 12-15.)
To qualify for a charitable purposes exemption, a taxpayer must show "`relief of human want . . . manifested by obviously charitable acts different from the everyday purposes and activities of man in general.'" National Ass'n of Miniature Enthusiasts v. State Bd. of Tax Comm'rs, 671 N.E.2d 218, 221 (Ind. Tax Ct.1996) (citation omitted). Indeed, "`by meeting the needs of the aging, namely, relief of loneliness and boredom, decent housing that has safety and convenience and is adapted to their age, security, well-being, emotional stability, and attention to problems of health, a charitable purpose is accomplished.'" Wittenberg, 782 N.E.2d at 488-89 (quoting Raintree Friends Hous., Inc. v. Indiana Dep't of State Revenue, 667 N.E.2d 810, 814-15 (Ind. Tax Ct.1996)). Furthermore, Indiana's courts have upheld charitable exemptions in several cases involving nursing homes and the *1052 care of the elderly.[4] Nevertheless, neither the language of one case nor an apparent trend from several cases has established a per se rule that an assisted living facility that cares for the elderly is automatically considered exempt by the mere character of its deeds. Rather, as the Court has repeatedly explained, every exemption case stands on its own facts and, therefore, they are not susceptible to bright-line tests or other abbreviated inquiries. See, e.g., Jamestown Homes of Mishawaka, Inc. v. St. Joseph Cnty. Assessor, 914 N.E.2d 13, 15 (Ind. Tax Ct.2009), review denied. Accordingly, the Foundation has not shown that the Indiana Board's final determination is contrary to law merely because Autumnwood is an assisted living facility.
The Foundation also claims that the Indiana Board's determination is unsupported by substantial evidence because it presented evidence that Miller's has an individual charitable purpose.[5] Specifically, the Foundation argues that the Indiana Board should have considered the content of Miller's website and the Lease as probative evidence that Miller's had its own charitable purpose. (See Oral Argument Tr. at 18-25.)
When a unity of ownership, occupancy, and use are lacking, like in this case, both entities must provide evidence of their own charitable purposes. Oaken Bucket, 938 N.E.2d at 657, 659. Indiana Code § 6-1.1-10-16 requires the showing of a charitable purpose, not simply the accomplishment of good and noble deeds, to ensure that: 1) the benefit conferred by the exemption relieves government of a cost it would otherwise bear, and 2) the exemption's largess does not primarily fulfill a commercial profit motive. See Dep't of Local Gov't Fin. v. Roller Skating Rink Operators Ass'n, 853 N.E.2d 1262, 1265-67 (Ind.2006) (explaining that exemption is improper when the benefits arising from the property's use inure to private entities rather than the public); Sangralea Boys Fund, 686 N.E.2d at 959 (explaining the requirements of the exemption "prevent an entity from leasing property to another, for either party's profit, and claiming an exemption").
According to the Foundation, Miller's mission statement, as documented on its website, evidences its charitable purpose:
The mission of Miller's . . . is to be an active presence in the communities we serve. We will specialize in delivering the highest quality of services to those in need. We will treat all individuals with integrity, compassion, and respect. Our goals are to enjoy work, grow in our professional and personal lives, and make a positive difference for those we serve.
(Cert. Admin. R. at 603; see also Pet'r Reply Br. at 13-14.) While the mission statement indicates that Miller's is in the business of providing for the needs of the elderly, it does not indicate that public benevolence is its reason for operating. Indeed, Miller's mission statement focuses on its operational goals and what it does, *1053 which seems more like an advertisement of its operating style rather than a declaration that it operates solely to advance a charitable purpose. Therefore, at first blush, Miller's mission statement is not indicative of what the Foundation claims.
The Foundation also points to certain provisions of the Lease, where Miller's agreed to use Autumnwood solely as an assisted living facility and to maintain the facility's licenses for that use, as evidence of Miller's charitable purpose. (See Oral Argument Tr. at 14-15.) When reviewed in its entirety, however, the Lease seems like another example of a commercial triple net lease, with nearly identical provisions to those in Oaken Bucket. See Oaken Bucket, 938 N.E.2d at 655 n. 1 ("A triple-net lease generally requires the landlord to pay for structural repairs while the tenant pays for utilities, property taxes, insurance, and property maintenance") (citation omitted). Thus, the provisions of the Lease indicate how Miller's will use Autumnwood during its tenancy, not that Miller's overall goal or purpose for its use is charitable. In other words, Miller's operation of Autumnwood as an assisted living facility does not mean that it did so to accomplish a charitable purpose. Cf. id. at 658-59 (explaining that the leasing of a property to a church did not show that the landlord had its own religious or charitable purpose).
Furthermore, the certified administrative record regarding whether the arrangement between the Foundation and Miller's was entered into for a public benefit (i.e., charitable purpose) or a private benefit (i.e., a profit motive) is woefully deficient. According to the Foundation, the Assessor bore the evidentiary burden to produce evidence that the arrangement would result in some private benefit, given that Miller's for-profit status does not show that Miller's actually profited from the arrangement. (See Pet'r Br. at 38-40.) Thus, while the Foundation claimed that it derived no profit from the Lease at the Indiana Board hearing, it offered no further evidence or explanation regarding whether Miller's derived a profit from the Lease. (See, e.g., Pet'r Reply Br. at 13-15.)
The taxpayer has the burden to prove that both the Foundation and Miller's lease arrangement is driven by a charitable purpose and not a profit motive. See Sangralea Boys Fund, 686 N.E.2d at 958-59. Although an entity's for-profit status alone is not sufficient to show that a lease arrangement will result in private benefit, its status is germane. Cf. e.g., Spohn v. Stark, 197 Ind. 299, 150 N.E. 787, 788 (1926) (finding income producing, rental property taxable when used and rented by the Indiana National Guard) with State Bd. of Tax Comm'rs v. Indianapolis Lodge No. 17, Loyal Order of Moose, Inc., 245 Ind. 614, 200 N.E.2d 221, 225 (1964) (exempting dining room from property tax when it was used for both profit and exempt purposes). Given that the record in this case simply does not indicate whether Miller's has a charitable purpose or a profit motive, the Court concludes that the Indiana Board's finding that the Foundation failed to raise a prima facie case that Autumnwood is entitled to a charitable purposes exemption under Indiana Code § 6-1.1-10-16 is supported by substantial evidence.
CONCLUSION[6]
When the Indiana Board's final determination is consistent with the law and supported *1054 by substantial evidence, as here, this Court will not substitute its judgment for that of the Indiana Board. Consequently, the Court AFFIRMS the final determination of the Indiana Board.
NOTES
[1] The Foundation has also claimed that the Indiana Board both erroneously overruled its objection regarding Indiana Code § 6-1.1-10-37 and failed to consider the evidence as it applied to 2008 and then to 2009 separately. (See Pet'r Br. at 2-3, 30-35, 41-42.) The Court need not address the Foundation's first claim because the Indiana Board's resolution of this case was not based on Indiana Code § 6-1.1-10-37. Similarly, the Court need not address the Foundation's second claim because it was not specifically raised or argued at the Indiana Board hearing. Inland Steel Co. v. State Bd. of Tax Comm'rs, 739 N.E.2d 201, 220 (Ind. Tax Ct.2000) (explaining that when a taxpayer fails to raise an issue or present an argument at the administrative level, the issue is waived and may not be considered by this Court on appeal), review denied.
[2] "Prima facie" means "`at first sight, on the first appearance; on the face of it; so far as can be judged from the first disclosure; presumably; a fact presumed to be true unless disproved by some evidence to the contrary.'" U-Haul Co. of Ind., Inc. v. Indiana Dep't of State Revenue, 896 N.E.2d 1253, 1256 n. 4 (Ind. Tax Ct.2008) (citations omitted).
[3] "Probative evidence is evidence that tends to prove or disprove a point in issue." Inland Steel, 739 N.E.2d at 211 (internal quotation and citation omitted).
[4] See, e.g., Knox Cnty. Prop. Tax Assessment Bd. of Appeals v. Grandview Care, Inc., 826 N.E.2d 177 (Ind. Tax Ct.2005); Wittenberg Lutheran Vill. Endowment Corp. v. Lake Cnty. Prop. Tax Assessment Bd. of Appeals, 782 N.E.2d 483 (Ind. Tax Ct.2003), review denied; Raintree Friends Hous., Inc. v. Indiana Dep't of State Revenue, 667 N.E.2d 810 (Ind. Tax Ct.1996); State Bd. of Tax Comm'rs v. Methodist Home for the Aged of the Ind. Conference of the Methodist Church, Inc., 143 Ind.App. 419, 241 N.E.2d 84 (1968).
[5] In its final determination, the Indiana Board focused solely on whether Miller's had a charitable purpose and, therefore, the Court need not discuss the Foundation's charitable purpose. (See Cert. Admin. R. at 122 ¶ 28.)
[6] The Assessor has claimed that the Foundation may not be granted the relief it seeks because it did not show, and was not in fact, prejudiced by the Indiana Board's final determination as required under Indiana Code § 33-26-6-6(e). (See Oral Argument Tr. at 62-63; Resp't Br. at 1-2, 8-9.) Given the Court's disposition of this case, however, it need not address this claim.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2526590/
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(2008)
Joyce A. NICE, Executrix, Plaintiff,
v.
WHEELING PITTSBURGH STEEL CORPORATION, et al., Defendants.
No. C2-00-584.
United States District Court, S.D. Ohio, Eastern Division.
March 31, 2008.
OPINION AND ORDER
EDMUND A. SARGUS, JR., District Judge.
This matter is before the Court for consideration of the Motion by Defendant, Royal Indemnity Company, seeking summary judgment regarding the claims brought by Joyce A. Nice, Executrix of the Estate of Patrick L. Nice, deceased. For the reasons that follow, the Motion for Summary Judgment is GRANTED.
I.
This case arose following the tragic death of Patrick L. Nice, an employee of the Wheeling Pittsburgh Steel Corporation. On the morning of April 19, 1999, Patrick L. Nice died while driving a tractor-trailer for his employer. According to the Complaint, due to a mechanical failure and overload of steel coils, the load rolled on to the cab where Patrick L. Nice was seated and thereafter caused his death.
The claims brought by his estate include allegations of intentional torts, intentional infliction of emotional distress and wrongful death. All of these claims arise under state law and are before this Court on the basis of diversity jurisdiction.
This case was originally filed in the Jefferson County Court of Common Pleas and was subsequently removed to this Court on May 16, 2000. Thereafter, this matter began its long and tortured history. Several months after the case was removed to this Court, Wheeling Pittsburgh Steel Corporation filed for bankruptcy protection. By virtue of federal bankruptcy law, this matter was stayed on November 27, 2000, subject to further order of the Bankruptcy Court.
Several years later, on October 7, 2004, Bankruptcy Judge Kay Woods issued a three page agreed order between the Wheeling Pittsburgh Steel Corporation and Joyce Nice, as Administrator. By the terms of the order, the Plaintiff herein was authorized to proceed on the claims brought in this Court, but only against the Wheeling Pittsburgh Steel Corporation's insurance carrier, Royal Indemnity Company. The Order states in part the following:
Counsel for Nice has indicated that if relief from Section 12.2 of the Plan and federal law is granted, Nice would pursue her rights to collect only against Royal & Sun Alliance Insurance Company ("Royal"), WPSC's insurance carrier, under WPSC's general liability policy. WPSC's general liability policy is subject to a deductible (self-insured retention amount) of $500,000. Counsel for Nice has indicated that Nice's proceeding against WPSC's insurance would not impact WPSC unfavorably meaning that WPSC would not be required to pay the $500,000 self insured retention amount and that Nice would only be entitled to a monetary recovery from Royal to the extent that any damages awarded as a result of the Action exceeded $500,000. Furthermore, Nice and her counsel are aware and have considered when agreeing to enter into this Agreed Order that although Royal may provide a defense in the Action, Royal may, in their discretion, assert a reservation of rights defense at a later date.
Because, under these facts, relief from Section 12.2 and federal law would not negatively impact WPSC, WPSC has agreed, subject to this Court's approval, to allow Nice relief from Section 12.2 of the Plan as well as 11 U.S.C. § 524 and 11 U.S.C. § 1141.
Appearing that the relief requested is appropriate and will not adversely impact WPSC, and that good cause has been showed for the relief request; ORDERED that Nice be granted relief....
(Doc. # 13-2).
From this, it is clear that the Bankruptcy Court permitted this case to proceed, but only to the extent that Wheeling Pittsburgh Steel Corporation had an insurance policy in effect at the time of Mr. Nice's death that had the potential to provide coverage for the claims asserted. The Bankruptcy Court expressly provided in the Order that this case would proceed only against the insurance carrier and not against the Wheeling Pittsburgh Steel Corporation, which at the time of the Order of the Bankruptcy Court was in reorganization under federal bankruptcy law.
Thereafter, this case was reactivated in this Court, only to be subject to additional delays resulting from illnesses suffered by Plaintiff's counsel. The docket in this case reveals multiple requests for extensions of time filed by counsel for the Plaintiff. From May 12, 2005 through March 9, 2007 the record indicates that Plaintiff's counsel sought over five extensions of time, all of which prevented final resolution of the matters raised in this case. Ultimately, on March 9, 2007, Plaintiff's former counsel moved to withdraw. After the Court granted the Motion to Withdraw, on June 25, 2007 new counsel for the Plaintiff entered his Notice of Appearance. Counsel then requested a reasonable period of time to prepare a Memorandum in Opposition to the Motion for Summary Judgment filed by Defendant Royal Indemnity Company. As of November 2, 2007, the Motion for Summary Judgment was fully briefed.
II.
The issues presented in this case are first framed by the limited right, under Ohio law, for an employee to sue an employer for injuries suffered in the course of employment. In addition, this case also implicates the effect of federal bankruptcy law with regard to intentional injury claims brought by the Nice estate against a former employer which filed for and received bankruptcy protection.
As to the effect of the bankruptcy proceedings, it is clear that the Bankruptcy Court permitted the Plaintiff herein to proceed only against the insurance company providing coverage to the Wheeling Pittsburgh Steel Corporation at the time of Mr. Nice's death. The Order allowed this action to go forward, as agreed to by Plaintiffs former counsel, but permitted the claims to be asserted only against the insurance carrier, and not the Wheeling Pittsburgh Steel Corporation. Further, the insurance carrier, Royal Indemnity Company, as an insurer, may only be liable for the conduct of Wheeling Pittsburgh Steel and only by the terms of the contract of insurance. Consequently, the Court will first address the potential liability of the Wheeling Pittsburgh Steel Corporation at the time of Mr. Nice's death. Subsequently, the Court will then evaluate whether the terms of the insurance policy written by Royal Indemnity Company in favor of Wheeling Pittsburgh Steel Corporation provides coverage for the claims asserted.
A. Ohio Law Regarding Intentional Tort Claims by Employees
It is undisputed that Mr. Nice was employed by the Wheeling Pittsburgh Steel Corporation at the time of his injuries. The claims brought by his estate in this case all arise under Ohio law. When this Court exercises its diversity jurisdiction, it is required to follow the law as found by the Ohio Supreme Court; in the event the Ohio Supreme Court has not addressed the precise issue, this Court then looks to the decisions of the various Ohio courts of appeals to determine the most likely decision of the Ohio Supreme Court on the same issue. Hisrich v. Volvo Cars, Inc., 226 F.3d 445, 449 (6th Cir. 2000).
Turning to state law, the Ohio Constitution provides
For the purpose of providing compensation to workmen and their dependents, for deaths, injuries or occupational disease, occasioned in the course of such workman's employment, laws may be passed establishing a state fund . . . such compensation shall be in lieu of all other rights to compensation or damages, for such death, injuries, or occupational disease, and any employer who pays the premium or compensation provided by law, passed in accordance herewith, shall not be liable to respond in damages at common law or by statute for such death, injuries or occupational disease.
Oh. Const, art. II, § 35. [emphasis added.]
At the time of Mr. Nice's death, the Supreme Court of Ohio recognized an exception to the exclusivity clause otherwise prohibiting lawsuits by employees or their estates against their employer. In Jones v. VIP Development Co., 15 Ohio St.3d 90, 472 N.E.2d 1046, Syllabus ¶ 1 (Ohio, 1984), the Ohio Supreme Court held "an intentional tort is an act committed with the intent to injure another or committed with the belief that such injury is substantially certain to occur." This holding refines the decision in Blankenship v. Cincinnati Milacron Chemicals, Inc., 69 Ohio St.2d 608, 433 N.E.2d 572 (Ohio, 1982) which held that the Ohio Constitution did not prevent an employee from enforcing common law remedies against an employer for claims involving intentional torts.[1] Consequently, in order for Royal Indemnity Company to be liable to the Plaintiff, Wheeling Pittsburgh Steel must have First committed an intentional tort against Patrick Nice, "with the intent to injure another, or committed with the belief that such injury is substantially certain to occur." Jones, 15 Ohio St.3d at 95, 472 N.E.2d 1046. Wheeling Pittsburgh Steel, by virtue of bankruptcy law and the Order from the Bankruptcy Court, is not liable for the claims presented in this case. Therefore, for Royal Indemnity Company to be liable to the Plaintiff, the policy of insurance issued to Wheeling Pittsburgh Steel must provide coverage for the type of claim filed by the Plaintiff.
Turning to the Defendant's Motion for Summary Judgment, the Court first notes that, without conceding that Wheeling Pittsburgh Steel did commit an intentional tort, as the term is used in Jones, Royal Indemnity Company bases its Motion for Summary Judgment upon the lack of coverage of such claims under the policy of insurance it issued to Wheeling Pittsburgh Steel Corporation.
Royal Indemnity Company issued a policy of insurance in effect between August 1, 1998 and June 1, 1999, which covered the period involving the death of Patrick L. Nice. In Coverage A, the policy insured against "bodily injury." Significantly, the same policy contained the following language:
a. Exclusions. This policy does not apply to:
Expected or intended injury.
"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. This exclusion does not apply to "bodily injury" resulting in the use of reasonable force to protect persons or property.
Comprehensive General Liability Policy.
In addition to the language of the policy, Royal Indemnity Insurance added an Employer's Liability Stop Gap Coverage endorsement amending the bodily injury liability coverage. The endorsement contained the following exclusion:
IX. Bodily injury intentionally caused or aggravated by you, or bodily injury resulting from an act which is determined to have been committed by you with the belief that an injury is substantially certain to occur.
In Penn Traffic Co. v. AIU Ins. Co., 99 Ohio St.3d 227, 790 N.E.2d 1199 (Ohio, 2003), the Ohio Supreme Court held that Ohio public policy does not prohibit an employer from obtaining insurance covering tort claims brought by employees or their estates, if the employer did not intend to injure the employee but believed that injury was substantially certain to occur. In other words, under Ohio law, an employer, such as the Wheeling Pittsburgh Steel Corporation, may not, consistent with Ohio public policy, obtain an insurance policy covering purely intentional conduct designed to injure an employee. At the same time, however, a policy of insurance may issue under Ohio law to cover cases in which an employer did not deliberately intend to injure an employee but believed or had knowledge that an injury was substantially certain to occur. The sole question in this analysis is whether the insurance policy issued by Royal Indemnity Company provides coverage for claims alleging that the employer believed or knew that injury was substantially certain to occur. The parties dispute whether the language of the policy quoted above provides coverage for the claims of the Plaintiff.
In Simpson v. Intermet Corp., Case No. 05-4536, 213 Fed.Appx. 390, 2007 WL 64229 (6th Cir.2007) (unpublished), a panel of the Sixth Circuit addressed the same issue. The Court framed the issue as follows:
. . . whether, under Ohio law, an umbrella policy of insurance which provides coverage for liability for an occurrence in excess of the limits of the insured's primary employer's liability coverage, and which does not exclude coverage for injury arising in the course of employment, but does exclude coverage for injury resulting from an accident expected or intended from the standpoint of the insured employer, effectively excludes coverage for what is known under Ohio law as a "substantial certainty" intentional tort.
Id. at *1.
After analyzing the terms of the policy, which, while not identical, are similar to those used in the policy at issue here, together with decisions from other, lower Ohio courts, the Sixth Circuit concluded that the plain language of the policy excluded coverage.
The Sixth Circuit noted that, while the Ohio Supreme Court was silent on the precise question, a number of Ohio courts of appeals had reached the same conclusion. See McGuffin v. Zaremba Contracting, 166 Ohio App.3d 142, 849 N.E.2d 315 (Ohio Ct.App. 8th Dist.2006); Cincinnati Ins. Co. v. Schwerha, 2006 WL 1868321 (Ohio Ct.App. 7th Dist.2006); Chavis v. AIG Technical Servs., Inc., 2005 WL 1177929 (Ohio Ct.App. 10th Dist.2005); and Altvater v. Ohio Cas. Ins. Co., 2003 WL 22077728 (Ohio Ct.App. 10th Dist. 2003).
The Plaintiff cites this Court to Talbert v. Continental Cas. Co., 157 Ohio App.3d 469, 811 N.E.2d 1169 (Ohio App.2d Dist. 2004), for the proposition that a general exclusion for injury contained in the policy of insurance does not exclude "substantially certain intentional torts." While this proposition is correct, the case in Talbert included a policy which contained an exclusion for only bodily injury intentionally caused by the insured. The policy language in this case is much more specific and literally tracks the language used by the Ohio Supreme Court in defining the "substantial certainty" intentional tort.
The Plaintiff also contends that because the policy defines accident "to include assault and battery unless committed by or at the direction of the insured" that the language of the policy was intended to provide coverage for bodily injury or death of Wheeling Pittsburgh Steel Corporation's employees. The Plaintiff contends that the coverage for assault and battery demonstrates that certain intentional acts are considered accidents. The Court finds, however, that the plain language of the policy exclusion prevents such an interpretation of otherwise unambiguous terms.
The Court concludes that, based upon the clear language of the policy exclusions together with the decision in Simpson v. Intermet, supra, and those of the various Ohio courts of appeals cited above, that the policy in question excludes coverage for the claims brought by the Plaintiff in this case.
III.
Based upon the foregoing, the Motion for Summary Judgment filed by Defendant Royal Indemnity Company (Doc. # 69) is hereby GRANTED.
IT IS SO ORDERED.
NOTES
[1] Effective April 7, 2005, the Ohio Legislature enacted O.R.C. § 2754.01. This enactment modifies the decisions in Jones and Blankenship to provide that the term "substantial certainty" means "that an employer acts with deliberate intent to cause an employee to suffer an injury, a disease, a condition or death." O.R.C. § 2745.01(B). This statute, having been enacted after the claims arose in this case, is not applicable herein. The parties have filed supplemental briefing regarding the case of Kiminski v. Metal & Wire Products Co., decided on March 18, 2008 by the Ohio Court of Appeals for the 7th Circuit. 07-CO-15. The Court found § O.R.C. 2745.01 unconstitutional. This Court does not apply the statute to this case, since the claims arose before passage of the statute.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/6364025/
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Opinion by
Judge Wilkinson, Jr.,
These are appeals from a decision of the Court of Common Pleas of Allegheny County which set aside an order of the Pennsylvania Liquor Control Board (Board) and directed that a new restaurant liquor license be granted to the appellee. We find it necessary to reverse the lower court and reinstate the order of the Board refusing the application.
The appellee currently possesses a retail malt beverage dispenser license. He has applied for a new restaurant liquor license now that the municipality in which his establishment is located has approved a referendum permitting retail over the bar liquor sales. This application was opposed by the appellant, Mt. Lebanon United Presbyterian Church, and was eventually denied by the appellant Board. The Board based its denial on two findings: (1) that the appellee’s establishment is located within 300 feet of the appellantprotesfant church, and also the St. Bernard Roman Catholic Church; (2) that the granting of a liquor license would adversely affect the welfare, health, peace *580and morals of the neighborhood within a.radins of..500. feet. Either finding would be sufficient to support the Board’s decision.
The lower court reversed the Board on both counts. It found that the appellee was seeking a person to person transfer of a restaurant liquor license, as opposed to applying for a new restaurant liquor license, and, that, therefore, the 300 foot'rule was not-applicable. Section 404 of the Liquor Code, Act of April 12, 1951, P.L. 90, as amended, 47 P.S. §4-404. See Lousil, Inc. v. Liquor Control Board, 5 Pa. Commonwealth Ct. 33, 288 A.2d 560 (1972). In addition,, it found, in effect, that there was insufficient evidence to overcome the presumption that a liquor establishment is not ordinarily detrimental to the community, and, therefore, held that the Board abused its discretion in' finding to the contrary.
We find that in the present case the appellee was applying for a new restaurant liquor license, and that this is not a case involving a person to person transfer. Moriarty Liquor License Case, 190 Pa. Superior Ct. 64, 152 A.2d 794 (1959) ; Talley Liquor License Case, 184 Pa. Superior Ct. 458, 136 A.2d 143 (1957). As such, it was within the Board’s discretion to apply the 300 foot rule and deny the application. Elks of the World, Summit Lodge No. 115 v. Pennsylvania Liquor Control Board, 30 Pa. Commonwealth Ct. 526, 374 A.2d 747 (1977). We find nothing in this case that would indicate that the Board has in any way abused' the discretion available to it. In addition, we find appellee’s constitutional argument, and his analogies to the “non-conforming use’’ doctrine of the law of zoning, to be without merit.
In light of the above, we need not decide whether the lower court properly concluded that the Board abused its discretion in applying the 500 foot rule.' •
Accordingly, we will enter the following
*581Order
Now, December 6,1977, the decision of the Court of Common Pleas of Allegheny County, No. S.A. 301 of 1976, dated September 17, 1976, is reversed and the order of the Pennsylvania Liquor Control Board refusing the application is hereby reinstated.
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01-03-2023
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06-24-2022
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https://www.courtlistener.com/api/rest/v3/opinions/2526552/
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619 F. Supp. 2d 110 (2009)
Leigh CAISSIE, Plaintiff,
v.
CITY OF CAPE MAY, City of Cape May Police Department, Sgt. Anthony Marino, Sgt. Kenneth Cooper, Cabana's Beach Bar & Grill, John Doe Police Officers 1-10, Defendants, and
City of Cape May, City of Cape May Police Department, Sgt. Anthony Marino, Sgt. Kenneth Cooper Jointly, Severally and in the Alternative, Defendants/Third Party Plaintiffs, and
Frog Spring Corp. & LBH, LLC t/a Cabana's and Martini Beach Restaurant [Improperly pled as Cabana's Beach Bar & Grill], Third Party Plaintiffs,
v.
Nicholas M. Baldwin, Third Party Defendant.
Civil No. 1:08-cv-0303 (JHR).
United States District Court, D. New Jersey.
May 27, 2009.
*114 David R. Castellani, Esq., Castellani Law Firm, LLC, Northfield, NJ, for Plaintiff.
A. Michael Barker, Esq., Linwood Greene, Linwood, NJ, for Public Defendants.
Philip T. Ciprietti, Esq., Marlton, NJ, for Private Defendant.
OPINION
JOSEPH H. RODRIGUEZ, District Judge.
This matter comes before the Court on a Motion to Dismiss filed by Defendants Kenneth Cooper, Anthony Marino, City of Cape May, and City of Cape May Police Department ("Public Defendants") on October 3, 2008, as well as on a Motion to Dismiss filed by Defendant Cabana's Beach Bar & Grill ("Private Defendant") on October 9, 2008.[1] Public Defendants seek dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). Alternatively, Public Defendants request that Plaintiff provide a more definite statement pursuant to Federal Rule of Civil Procedure 12(e), assuming the qualified immunity issue cannot be resolved at this point in the litigation. As for Private Defendant, it contends that Plaintiff's claim should be dismissed pursuant to N.J. Stat. Ann. § 2A:22A-1, et seq.[2] Plaintiff Leigh Caissie opposes both motions. Oral Argument was held on May 18, 2009.
I. Jurisdiction
This case is a civil action over which the district court has original jurisdiction based on a question "arising under the Constitution, laws, or treaties of the United States." See 28 U.S.C. § 1331. Here, Plaintiff asserts a substantive due process claim pursuant to 42 U.S.C. § 1983. With respect to Plaintiff's state law claims, this Court has supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a). This case was removed from the Superior Court of New Jersey, Law Division, Cape May County, on January 16, 2008 pursuant to 28 U.S.C. § 1446.
II. Factual Background
Because this matter comes before the Court on Defendants' motions to dismiss, the Court must accept as true Plaintiff's factual allegations in the Complaint. The facts are as follows. On November 23, 2005, Plaintiff Leigh Caissie was violently assaulted by her then-boyfriend Nicholas *115 Baldwin (Third-Party Defendant) at Cabana's in Cape May, New Jersey. (See Compl. p. 1 ¶ 1.) Baldwin was visibly intoxicated at Cabana's that day, (id. at p. 6 ¶ 3), but was nonetheless served alcoholic beverages. (Id. at p. 7 ¶ 6.) The City of Cape May Police Department was called to Cabana's to respond to the incident. (Id. at p. 1 ¶ 2.)
Sergeant Kenneth Cooper arrived at Cabana's and arrested Baldwin. (Id.) With the assistance of Sergeant Anthony Marino, Sergeant Cooper took Baldwin into police custody. (Id. at ¶ 4.) Baldwin subsequently informed Sergeants Cooper and Marino that he was on probation for an aggravated assault offense occurring in Wildwood, New Jersey. (Id.) Baldwin also informed Sergeants Cooper and Marino that it "was not over" between him and Plaintiff. (Id. at ¶ 5.) Despite this information, Cape May Police released Baldwin that evening, November 23, 2005. (Id. at ¶ 6.)
After releasing Baldwin, Sergeants Cooper and Marino contacted Lower Township Police Department to warn them of the possibility of future contact and altercations between Baldwin and Plaintiff. (Id. at ¶ 7.) At no time did Sergeants Cooper and Marino call Plaintiff to provide notification of Baldwin's release. (Id. at ¶ 8.) That night, Baldwin attacked Plaintiff causing her severe and permanent injuries. (Id. at ¶ 9.) Plaintiff has sought, and continues to seek, medical treatment as a result of these injuries. (Id. at ¶ 11.)
III. Standard of Review
A complaint should be dismissed pursuant to Rule 12(b)(6) if the alleged facts, taken as true, fail to state a claim. Fed. R.Civ.P. 12(b)(6); see In re Warfarin Sodium, 214 F.3d 395, 397-98 (3d Cir.2000). Although "detailed factual allegations" are not necessary, "a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (internal citations omitted). Thus, a motion to dismiss should be granted unless the plaintiff's factual allegations are "enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true (even if doubtful in fact)." Id. (internal citations omitted).
When deciding a motion to dismiss pursuant to Rule 12(b)(6), only the allegations in the complaint, matters of public record, orders, and exhibits attached to the complaint, are taken into consideration. See Chester County Intermediate Unit v. Pa. Blue Shield, 896 F.2d 808, 812 (3d Cir. 1990). A district court must accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir.1994). These allegations and inferences must be viewed in the light most favorable to the plaintiff. Id. However, the Court need not accept "`unsupported conclusions and unwarranted inferences,'" Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir.2007) (citation omitted), and "[l]egal conclusions made in the guise of factual allegations . . . are given no presumption of truthfulness." Wyeth v. Ranbaxy Labs., Ltd., 448 F. Supp. 2d 607, 609 (D.N.J.2006) (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L. Ed. 2d 209 (1986)); see also Kanter v. Barella, 489 F.3d 170, 177 (3d Cir.2007) (quoting Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir.2005) ("[A] court need not credit either `bald assertions' or `legal conclusions' in a complaint when deciding a motion to dismiss.")).
*116 It is not necessary for the plaintiff to plead evidence. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir.1977). The question before the Court is not whether the plaintiff will ultimately prevail. Watson v. Abington Twp., 478 F.3d 144, 150 (2007). Instead, the Court simply asks whether the plaintiff has articulated "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S. Ct. 1955.
IV. Discussion
To begin, Plaintiff stipulates to the dismissal of any and all claims against Cape May Police Department. (Pl. Opp'n Br. 2.) Plaintiff concedes that "the proper municipal defendant is the City of Cape May." (Id.) As a result, Defendant Cape May Police Department is hereby dismissed from this action. With respect to the remaining Public and Private Defendants, Plaintiff asserts one federal claim arising under 42 U.S.C. § 1983 and several state law claims arising under N.J. Stat. Ann. § 10:6-1[3], among others. Because the Court may decline to exercise jurisdiction over the state law claims if Plaintiff's sole federal claim is dismissed, the § 1983 claim becomes a threshold issue. See Cunningham v. Lenape Regional High Dist. Bd. of Educ., 492 F. Supp. 2d 439, 451 (D.N.J.2007) (declining to exercise supplemental jurisdiction over New Jersey Civil Rights Act claim after dismissing the plaintiff's sole federal claim). Accordingly, it is appropriate to analyze Plaintiff's substantive due process claim first.
A. § 1983 and State Created Danger Doctrine
Any analysis of 42 U.S.C. § 1983 should begin with the language of the statute:
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.
See 42 U.S.C. § 1983. As the above language makes clear, Section 1983 is a remedial statute designed to redress deprivations of rights secured by the Constitution and its subordinate federal laws. See Baker v. McCollan, 443 U.S. 137, 145 n. 3, 99 S. Ct. 2689, 61 L. Ed. 2d 433 (1979). By its own words, therefore, Section 1983 "does not ... create substantive rights." Kaucher v. County of Bucks, 455 F.3d 418, 423 (3d Cir.2006) (citing McCollan, supra). To state a cognizable claim under Section 1983, a plaintiff must allege a "deprivation of a constitutional right and that the constitutional deprivation was caused by a person acting under the color of state law." Phillips v. County of Allegheny, 515 F.3d 224, 235 (3d Cir.2008) (citing Kneipp v. Tedder, 95 F.3d 1199, 1204 (3d Cir. 1996)). Notably, complaints alleging municipal liability under Section 1983 are not subject to heightened pleading standards. See Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, et al., 507 U.S. 163, 168, 113 S. Ct. 1160, 122 L. Ed. 2d 517 (1993) (contrasting pleading requirements for allegations of municipal liability under § 1983 with that of "fraud or mistake").
Here, Plaintiff alleges that the "deliberate indifference to [her] ... was so egregious *117 as to constitute a due process violation protectable pursuant to 42 U.S.C. § 1983." (Compl. p. 3 ¶ 2.) She further alleges that:
3. ... [T]he ultimate harm to the plaintiff was foreseeable by the defendants and that such defendants willfully disregarded the safety of the plaintiff by using their authority as police officers of the City of Cape May to create an opportunity for plaintiff's attacker to locate her on November 23, 2005 after release from custody and forcibly assault and beat the plaintiff.
4. ... [T]he individual defendants in releasing the plaintiff's attacker were acting pursuant to official policy or custom of the City of Cape May and the City of Cape May Police Department...
5. As a direct and proximate result of defendant's violation of plaintiff's civil rights plaintiff was caused to be severely beaten and permanently injured...
(Compl. p. 4 ¶¶ 3-5.) In sum, Plaintiff seeks to allege a substantive due process violation under the Due Process Clause of the Fourteenth Amendment. U.S. Const. amend. XIV, § 1 ("nor shall any State deprive any person of life, liberty, or property, without due process of law").
To be sure, there is an indisputable "constitutional liberty interest in personal bodily integrity that is protected by the Due Process Clause of the Fourteenth Amendment." Phillips, 515 F.3d at 235. This liberty interest is protected because "[t]he touchstone of due process is protection of the individual against arbitrary action of government." Stolzer v. City of Philadelphia, 2003 WL 22299251, at *2 (E.D.Pa. Sept. 30, 2003) (citing Wolff v. McDonnell, 418 U.S. 539, 558, 94 S. Ct. 2963, 41 L. Ed. 2d 935 (1974)). Notwithstanding that interest, the Due Process Clause places no positive obligation on the State to ensure the safety of, or otherwise affirmatively protect, its citizens. Phillips, 515 F.3d at 235 (citing DeShaney v. Winnebago County Dept. of Soc. Servs., 489 U.S. 189, 196-197, 109 S. Ct. 998, 103 L. Ed. 2d 249 (1989)) (rejecting the view that the Constitution imposes "affirmative obligations" on the State, and holding that "the State cannot be held liable under the [Due Process] Clause for injuries that could have been averted had it chosen to provide them."). The reasoning that informs this conclusion is the original intent of the Due Process Clause. See DeShaney, 489 U.S. at 196, 109 S. Ct. 998 (observing that the Due Process Clause was designed "to protect the people from the State, not to ensure that the State protected them from each other."); accord Jackson v. City of Joliet, 715 F.2d 1200, 1203 (7th Cir.1983) ("The Fourteenth Amendment... sought to protect Americans from oppression by state government, not to secure them basic governmental services.").
Significantly, the Third Circuit recognized an exception to this rule when it adopted the state created danger theory. See Kneipp v. Tedder, 95 F.3d 1199, 1211 (3d Cir.1996) (holding "that the state created danger theory is a viable mechanism for establishing a constitutional claim under 42 U.S.C. § 1983."). Under that theory, "the state may assume responsibility for the safety of an individual for whom it affirmatively creates or enhances a risk of danger." Kaucher, 455 F.3d at 431 (emphasis added). Four elements are required to allege a cognizable claim:
(1) the harm ultimately caused was foreseeable and fairly direct;
(2) a state actor acted with a degree of culpability that shocks the conscience;
*118 (3) a relationship between the state and the plaintiff existed such that the plaintiff was a foreseeable victim of the defendant's acts, or a member of a discrete class of persons subjected to the potential harm brought about by the state's actions, as opposed to a member of the public in general; and
(4) a state actor affirmatively used his or her authority in a way that created a danger to the citizen or that rendered the citizen more vulnerable to danger than had the state not acted at all.
Id. (citing Bright v. Westmoreland County, 443 F.3d 276, 281 (3d Cir.2006)).
In the instant case, Public Defendants focus on the fourth and second elements as the basis for their motion to dismiss. (Public Def. Br. 12; Public Def. Reply Br. 13.) Although they make no argument regarding elements one and three, Public Defendants do not concede these points to Plaintiff. For the sake of completeness, then, each element of the state created danger claim is examined below.
1. Foreseeability and Directness
To satisfy the first element of a state created danger claim on a motion to dismiss, "a plaintiff must ... plead that the harm ultimately caused was a foreseeable and a fairly direct result of the state's actions." See Morse v. Lower Merion School District, 132 F.3d 902, 908 (3d Cir. 1997). Here, Plaintiff alleges under the Second Count of her Complaint that the "ultimate harm to the plaintiff was foreseeable by the defendants". (Compl. p. 4 ¶ 3.) This bald assertion typically is insufficient to withstand a motion to dismiss. See Morse, 132 F.3d at 908 ("[W]e need not accept `bald assertions' or `legal conclusions' contained in the complaint."). There are additional facts alleged, however, that bring Plaintiff over the threshold on this first element.
To begin, Plaintiff alleges that Public Defendants were aware of Baldwin's history of violence. (Compl. p. 2 ¶ 4) ("[Defendants] knew or should have known... that Mr. Baldwin had ... a previous restraining order issued against him by the plaintiff for another incident of domestic violence and ... was currently on probation for aggravated assault."). Indeed, the very incident that predicated Baldwin's arrest on November 23, 2005 was an alleged assault on Plaintiff at Cabana's. (Compl. p. 1 ¶ 1.) Plaintiff also alleges that Baldwin told Public Defendants that it "was not over". (Compl. p. 4 ¶ 5.) These facts stand in stark contrast to the facts in Morse, supra, at 904-05, where the defendant's lacked any knowledge of the assailant's "violent propensities". Compare 132 F.3d at 908 (holding that the defendants "could not have foreseen that allowing construction workers to use an unlocked back entrance for access to the school building would result in the murderous act of a mentally unstable third party"). To be sure, it is not necessary to plead a history of violence in order to overcome a motion to dismiss on foreseeability grounds; See Phillips, 515 F.3d at 237 ("We have never held that to establish foreseeability, a plaintiff must allege ... `a history of violence.'"), awareness of a risk of violence or harm will suffice. Id. at 238-239 (emphasis added). Considering the facts provided above, such awareness is sufficiently alleged in the complaint. Foreseeability is therefore satisfied.
Next, a well-pleaded complaint must also allege directness. Id. at 239. Stated differently, the complaint must "allege that the attack or harm is a `fairly direct' result of the defendant's acts." Id. An appropriate guidepost for directness is randomness; there is a distinction "between harm that occurs to an identifiable *119 or discrete individual under the circumstances and harm that occurs to a random individual with no connection to the harm-causing party." Id. (citing Morse, 132 F.3d at 909). Here, Plaintiff was the girlfriend of the assailant. Moreover, the incident which formed the basis of Baldwin's arrest was a confrontation between the couple. Mere randomness, therefore, is not at work. As the injury occurred on the same night that Baldwin was released from Public Defendants' custody, concerns of attenuation are mitigated. In light of the foregoing, and notwithstanding Defendant's token opposition, Plaintiff satisfies the first element of a state created danger claim.
2. Shocks the Conscience
By contrast, Plaintiff fails to satisfy the second element of shocks the conscience. Candidly, there is no hard and fast rule to determine when a state actor acts with a degree of culpability such that he or she shocks the conscience. A sliding scale is used "upon which the degree of culpability required to establish such a claim must be measured." Phillips, 515 F.3d at 240. This inquiry is appropriately performed on a case-by-case basis. See Estate of Smith v. Marasco (Smith I), 318 F.3d 497, 508 (3d Cir.2003) (noting that "the precise degree of wrongfulness required to reach the conscience-shocking level depends on the circumstances of a particular case.").
For guidance, the Third Circuit has ruled that "[t]he level of culpability required to shock the conscience increases as the time state actors have to deliberate decreases." Sanford v. Stiles, 456 F.3d 298, 309 (3d Cir.2006) (emphasis added). Thus, when "a defendant is confronted with a hyperpressurized environment such as a high-speed chase ... it is usually necessary to show that the officer deliberately harmed the victim." Kaucher, 455 F.3d at 426 (citing Estate of Smith v. Marasco (Smith II), 430 F.3d 140, 153 (3d Cir.2005)) (internal quotations omitted). When "a defendant has the luxury of proceeding in a deliberate fashion," however, "deliberate indifference may be sufficient to shock the conscience." Id. Somewhere between deliberate indifference and harmful intent, in "circumstances involving something less urgent than a `split-second' decision but more urgent than an `unhurried judgment,' there is a mid-level standard that requires gross negligence and arbitrariness." Walter v. Pike County, 544 F.3d 182, 193 (3d Cir.2008) (citing Sanford, 456 F.3d at 308). In sum, the culpability standard is in large part a function of timing.[4]See Smith I, 318 F.3d at 508.
Before assessing whether Public Defendants acted with a degree of culpability that shocks the conscience, the Court must first determine which culpability standard applies. When compared to a high-speed police chase, see Sanford, 456 F.3d at 305 (applying the high-level `intent to harm' culpability standard (citing County of Sacramento v. Lewis, 523 U.S. 833, 854, 118 S. Ct. 1708, 140 L. Ed. 2d 1043 (1998))), or a social worker's removal of a child from a home, See Miller v. City of Philadelphia, 174 F.3d 368, 375 (3d Cir. 1999) (applying the mid-level `conscious disregard of a great risk of serious harm' or `gross negligence' culpability standard), it makes sense that the low-level `deliberate indifference' standard applies to the instant arrest, detention, release, and subsequent *120 failure to warn. Cooper and Marino acted with `unhurried judgment' in arresting, detaining[5], and releasing Baldwin. Their decision to release Baldwin and not warn Plaintiff was made in the context of a controlled custodial setting and "with the luxury of relaxed deliberation". See Smith I, 318 F.3d at 509. Consequently, the Court finds that `deliberate indifference' applies.
The next question, then, is whether Plaintiff has sufficiently alleged deliberate indifference on the part of Public Defendants such that the shocks the conscience element is satisfied. Here, Plaintiff alleges in pertinent part:
10. The defendant's actions in releasing plaintiff's attacker Mr. Baldwin from their care, custody and supervision after arresting this individual for a violent attack on the plaintiff and with knowledge of his probationary status and intent to do further harm to the plaintiff was negligent, careless, grossly negligent and exhibited a reckless indifference for the safety of the plaintiff.
(Compl. p. 3 ¶ 10.)
3. It is further alleged that the ultimate harm to the plaintiff was foreseeable by the defendants and that such defendants willfully disregarded the safety of the plaintiff by using their authority as police officers ... to create an opportunity for plaintiff's attacker to locate her on November 23, 2005 after release from custody and forcibly assault and beat the plaintiff.
(Compl. p. 4 ¶ 3.) At minimum, these allegations use the appropriate legal language as gleaned from the relevant case law. But appropriate legal language, without more, is insufficient to withstand a motion to dismiss for failure to state a claim. This Court need not accept "`unsupported conclusions and unwarranted inferences,'" Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir.2007) (citation omitted), and "[l]egal conclusions made in the guise of factual allegations ... are given no presumption of truthfulness." Wyeth v. Ranbaxy Labs., Ltd., 448 F. Supp. 2d 607, 609 (D.N.J. 2006) (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L. Ed. 2d 209 (1986)).
Indeed, the only allegation suggesting that Public Defendants may have acted with `deliberate indifference' is the fact that Cooper and Marino failed to warn Plaintiff of Baldwin's release. (Compl. p. 2 ¶ 8.) Yet, this allegation does not clear the hurdle for Plaintiff. The mere fact that the officers failed to warn Plaintiffdespite having information regarding Baldwin's violent tendenciesdoes not shock the conscience in the unique circumstances of this case. Furthermore, the notification to Lower Township belies any contention that they released Baldwin "with deliberate indifference to the results of their actions." See Phillips, 515 F.3d at 241. Given that "it is the misuse of state authority, rather than a failure to use it, that can violate the Due Process Clause," Phillips, 515 F.3d at 235 (quoting Bright, 443 F.3d at 282), Plaintiff fails to clear this hurdle on a motion to dismiss.
The underpinnings of this conclusion are strengthened when Public Defendants' actions are compared to similar actions in another case. Cf. Stolzer, 2003 WL 22299251 at *2-*5 (dismissing the plaintiff's state created danger claim pursuant to Rule 12(b)(6) in part because of failure to satisfy the second element). In Stolzer, *121 an assailant "stalked, harassed and threatened" the plaintiff for nearly six months. Id. at *2. This harassment stemmed from accusations that the plaintiffMr. Tinnenywas having an affair with the assailant's wife. Id. Before holding that the police did not `willfully disregard'[6] Tinneny's safety, the Court reviewed the following tragic events:
In approximately October 2000 Mr. Passalicqua, armed with a gun, threatened to kill Tinneny at a future date. Tinneny informed the City police department and the office of the District Attorney of Passalicqua's threats. On January 10, 2001 Tinneny obtained an Order of Protection against Passalicqua under Pennsylvania's Protection from Abuse Act... Despite the protection order, Passalicqua continued to stalk, harass, and threaten Tinneny. Prior to January 19, 2001 Tinneny reported to the City police department that Passalicqua was in violation of the protection order. As a result, the police obtained an arrest warrant... On January 19, 2001 the police arrested Passalicqua and brought him into police headquarters for questioning. After holding [him] in custody for an unknown period of time, the police agreed to release Passalicqua so that he could go home, put his affairs in order and see his children once more before turning himself back into the police at 1:00 o'clock P.M. The police did not notify Tinneny that Passalicqua had been released. At approximately 1:15 o'clock P.M. Passalicqua drove to Tinneny's place of employment and shot and killed him. Passalicqua then committed suicide.
Id. (emphasis added). The Court noted that, under the circumstances, the police might have taken "a more active role," but the officers did not willfully disregard the plaintiff's safety. Id. at *5.
Stolzer is instructive. Like Stolzer, the officers in this case did not contact Plaintiff upon releasing the assailant. Unlike Stolzer, however, the officers did contact a local police department. It follows then, that Public Defendants took `a more active role' than the defendants in Stolzer. Even though the court in Stolzer employed the now-defunct `willful disregard' standard, the factual similarity of the case and its subsequent ruling supports this Court's conclusion today. Plaintiff fails to plead deliberate indifference. Because Plaintiff fails to plead deliberate indifference, she cannot satisfy the second element of a state created danger claim. As a result, Plaintiff fails to allege a claim upon which relief can be granted. Although this conclusion effectively resolves the motion to dismiss, for the sake of completeness, the Court examines the remaining third and fourth elements of the state created danger claim.
*122 3. Special Relationship
The third element of a state created danger claim requires that a relationship exist "between the state and the plaintiff such that the `plaintiff was a foreseeable victim of the defendant's acts,' or a `member of a discrete class of persons subjected to the potential harm brought about by the state's actions,' as opposed to a member of the public in general.'" See Bright, 443 F.3d at 281 (citing Kneipp, 95 F.3d at 1209 n. 22; and Morse, 132 F.3d at 906, 913). As stated most recently by the Third Circuit, "[t]he relationship requirement of the third element `contemplates some contact such that the plaintiff was a foreseeable victim of the defendant's acts in a tort sense.'" Phillips, 515 F.3d at 242 (quoting Morse, 132 F.3d at 912).
In Phillips, the Third Circuit found that, for purposes of withstanding a Rule 12(b)(6) motion, Plaintiff sufficiently alleged a special relationship. Phillips, 515 F.3d at 242. There, the plaintiff Jeanne Phillips brought a § 1983 action as the representative of the estate of her deceased sonMark Phillipsagainst Allegheny County, its 911 center, and several of its employees. Id. at 228. Plaintiff's son had been targeted by a rogue 911 employee who used the tools and capabilities of the emergency service for which he worked for the purpose of retribution and murder. Id. at 229. The assailant knew that Mark Phillips was the new boyfriend of his ex-girlfriend. Id. at 228-29. Inflamed with passion and rage, the assailant used the 911 dispatch tools to track down Mark and shoot him. Id. at 229. The plaintiff's complaint alleged this triangular relationship. Id. at 242. Additionally, the complaint alleged that Mark Phillips was targeted by the assailant for retribution and violence. Id. at 242-43. Because of the foregoing allegations, the Third Circuit held that Phillips had "adequately alleged a relationship between plaintiff and the state for purposes of the state-created danger theory." Id. at 243.
Here, Plaintiff alleges that Baldwin told the arresting officers it "was not over" between the couple. (Compl. p. 2 ¶ 5.) Plaintiff also alleges that the officers knew of the restraining order previously issued by Plaintiff against Baldwin. (Id. at ¶ 4.) Finally, there is an allegation that Plaintiff and Baldwin were seeing each other in a romantic relationship. (Id. at p. 1 ¶ 2.) In light of the precedent established in Phillips, supra, these allegations sufficiently satisfy the third element of a state created danger claim.
4. Affirmative Act
Lastly, the fourth element of a state created danger claim requires that "a state actor used his or her authority in a way that created a danger to the citizen or that rendered the citizen more vulnerable to danger than had the state not acted at all." See Bright, 443 F.3d at 281 (citing DeShaney, 489 U.S. at 201, 109 S. Ct. 998). There are three sub-elements to this fourth element. Ye v. United States, 484 F.3d 634, 638 (3d Cir.2007). First, a state actor must exercise his or her authority. Id. Second, a state actor must take some affirmative action; mere assurance is insufficient. Id. at 638-640. Third, the act must either create a danger to the citizen or render "the citizen more vulnerable to danger than if the state had not acted at all." Id. at 639 (citing Bright, 443 F.3d at 281-82). As emphasized in Bright and underscored in Phillips:
Liability ... is predicated upon the states' affirmative acts which work to the plaintiff's detriment in terms of exposure to danger. It is the misuse of state authority, rather than a failure to use it, that can violate the Due Process Clause.
*123 Phillips v. County of Allegheny, 515 F.3d 224, 235 (3d Cir.2008) (quoting Bright, 443 F.3d at 282) (emphasis added).
Here, Plaintiff fails to satisfy the second and third sub-elements. Consequently, she fails to adequately plead the fourth element of a state-created danger claim. Defendants rely heavily on this fourth element to advance their motion to dismiss. (Def. Br. 12.) Defendants contend that "[a]s a matter of law, the act of arresting then releasing Baldwin cannot be the "but for" cause of Plaintiff's subsequent injuries." (Id.)
In response, Plaintiff contends that "[i]f the [third party] defendant [Baldwin] was detained that night this assault upon the plaintiff would never have happened." (Pl. Opp'n Br. 5.) Plaintiff contextualizes this contention with the following facts: (1) Defendants knew Baldwin was serving a probationary term for aggravated assault; (2) Defendants knew that Baldwin said it "was not over" between him and Plaintiff; (3) Defendants knew Baldwin had been drinking; and (4) Defendants failed to inform Plaintiff or a Judge of these facts before his release. (Id.) Considering these facts, Plaintiff contends that Defendants used "their authority to create an opportunity [that] would have [not] otherwise existed for the [third party] crime to occur." (Id.) (alteration to original quote). Plaintiff's argument is unavailing.
Paragraph six of the First Count provides:
Despite such notice and or knowledge of Mr. Baldwin's intention to do further harm to the plaintiff and the fact that Mr. Baldwin was currently serving a probationary term, these defendants released Mr. Baldwin from their care, custody and control on November 23, 2005.
(Compl. p. 2 ¶ 6.) To be sure, the first sub-element is sufficiently alleged. There is no doubt that the police exercised their authority by arresting, detaining, and releasing Baldwin. By contrast, the second and third sub-elements fail. It must be underscored that the actor omissioncentral to this dispute is the failure to directly warn Plaintiff of Baldwin's release. This failure to warn does not rise to the level of an affirmative act for purposes of a state-created danger claim. See Walter v. Pike County, 544 F.3d 182, 194-95 (3d Cir.2008).
Walter is directly on point. In that case, the Third Circuit upheld a district court's decision to grant qualified immunity to three officers in a state-created danger claim. See There, the plaintiff advanced a similar claim to the one here; namely, the plaintiff sought to hold police officers liable for a failure to warn of a private act of violence. Walter, 544 F.3d at 189. Although the appeal stemmed from a grant of summary judgment, the holding and reasoning of the court is no less instructive.
The Third Circuit ruled:
[A] state actor's failure to warn about the likelihood of a private act of violenceeven a highly culpable failure to warncannot itself predicate liability. Rather, under the fourth element of a state-created danger claim, liability ... is predicated upon the state's affirmative acts which work to the plaintiff's detriments in terms of exposure to danger, and we have never found a state-created danger claim to be meritorious without an allegation and subsequent showing that state authority was affirmatively exercised.
Walter, 544 F.3d at 194 (citing Bright, 443 F.3d at 282 (internal quotations omitted)). Moreover, "[i]f a state-created danger claim cannot be predicated on a failure to arrest," the Third Circuit opined, "neither can it be predicated on a failure to provide *124 protection." Walter, 544 F.3d at 195 (citing Bright, 443 F.3d at 284 ("mere failure to protect an individual against private violence does not violate the Due Process Clause.")) (citations omitted). A failure to provide protection is sufficiently broad to encompass a failure to warn. For the sake of clarity, however, the Third Circuit concluded"if an assurance of well-being despite the presence of a threat is not a sufficiently affirmative act, neither is the mere failure to warn of a threat." Walter, 544 F.3d at 195. (emphasis added).
Walter controls the instant issue. Plaintiff alleges that the officers failed to warn her of Baldwin's release. It is this lack of warning, despite full knowledge of Baldwin's violent history and threats, which she contends is sufficient to state a claim for a substantive due process violation using the state-created danger theory. This contention fails. Even though Walter stemmed from summary judgment, the block-quote cited above envisions the necessary "allegations" to plead the fourth element of a state-created danger claim. See Walter, 544 F.3d at 194 ("[W]e have never found a state-created danger claim to be meritorious without an allegation and subsequent showing that state authority was affirmatively exercised.") (emphasis added). Because a failure to warn of a threat is insufficient for purposes of pleading an affirmative act, Plaintiff fails to plead the second sub-element of the fourth element of a state-created danger claim.
If more is needed, Plaintiff also fails to plead the third sub-element. Plaintiff cannot show that Public Defendants either created a risk of danger or enhanced her risk of danger. Bright, 443 F.3d at 281 (requiring a showing of creation of danger or increase in vulnerability to danger by state actor). While not binding, two unpublished cases inform this Court's decision. See generally Green v. City of Philadelphia (Green II), 92 Fed. Appx. 873 (3d Cir.2004); and Stolzer v. City of Philadelphia, 2003 WL 22299251 (E.D.Pa. Sept. 30, 2003).
With respect to Green (II), the plaintiff, Fitz Green, was shot by his lover, Evelyn White, on July 4, 2000. Green (II), 92 Fed.Appx. at 874. This shooting occurred approximately one month after the Philadelphia Police "investigated a `domestic dispute' involving Green and White." Id. At the time of the investigation, Green told the police that White had "violent tendencies". Id. He also told the police that White had threatened him with a gun. Id. In light of these facts, the police took White's gun to secure the situation. Id. Then, acting upon belief that the domestic dispute was under control, the police returned the gun to White. Id. Green was ultimately shot in the leg by White with that very gun one month later. Id. at 875.
The district court dismissed the plaintiff's § 1983 action, and held that the plaintiff failed to properly "demonstrate prong four on how `the state actors used their authority to create an opportunity that otherwise would not have existed for the third party's crime to occur.'" See Green v. City of Philadelphia (Green I), 2003 WL 1848731, at *2 (E.D.Pa. Apr. 9, 2004) (citing Kneipp, 95 F.3d at 1208) (quoting Mark v. Borough of Hatboro, 51 F.3d 1137, 1152 (3d Cir.1995)). The Third Circuit affirmed. See Green (II), 92 Fed.Appx. at 876. In doing so, the Third Circuit opined:
When the officers returned the gun to White, it placed Green in no worse position than he would have been in without their temporary intervention, and that temporary intervention did not create any guarantee of Green's future safety.
Id. The Court also noted that the shooting was "too remote" to give rise to proximate cause, in that one month separated the return of the gun and the shooting of the *125 leg. Id. As a result, the Third Circuit held that the "City defendants' action did not create any danger to Green". Id.
Green (II) is consistent with the recent precedential holding in Walter, supra. Additionally, Green (II) is persuasive based on the similarity to the facts of the instant case. Although there is room to distinguish the instant case based on the temporal proximity of the state act and its subsequent consequence, (there, one month lapsed, here one day lapsed), the surrounding circumstances and subsequent ruling are persuasive. Like Green (II), here, a dispute was investigated by the police. Also like Green (II), the police intervened. There, the officers took away the gun; here, the officers took away Baldwin. In both cases, the officers had knowledge of the violent tendencies of the assailant. Extending the logic of the Green (II) to the instant case, the release of Baldwin placed Plaintiff in no worse position than she would have been in without police intervention, and "that temporary intervention did not create any guarantee of [Plaintiff's] future safety." Green (II), 92 Fed.Appx. at 875-76.
Stolzer v. City of Philadelphia is also persuasive due to its factual and procedural similarity. See generally 2003 WL 22299251 (E.D.Pa. Sept. 30, 2003). The facts of that case are detailed above in the section examining the shocks the conscience element. See supra Part IV.A.2. Discussing the relevant fourth element of the state-created danger theory, the district court opined:
While Plaintiff maintains, and it is certainly true, that Passalicqua could not have killed Tinneny during the afternoon of January 19, 2001 if the City had not released Passalicqua from its custody, this does not establish that the City `created an opportunity that otherwise would not have existed.' In order for the court to find that the City had created such an opportunity, plaintiff must aver some facts which establish that Tinneny `was in a worse position after the police intervened than [he] would have been if they had not done so.'
...
When the City released Passalicqua it did not increase the danger or risk of injury to Tinneny. The risk of injury to Tinneny remained constant. There is no allegation or inference in the Complaint to the contrary. Consequently, plaintiff fails to establish this prong.
Stolzer, 2003 WL 22299251 at *7 (citing Kneipp, 95 F.3d at 1209) (internal citations omitted).
Here, Plaintiff attempts to satisfy the fourth element by alleging:
[T]he ultimate harm to the plaintiff was foreseeable by the defendants and that such defendants willfully disregarded the safety of the plaintiff by using their authority as police officers of the City of Cape May to create an opportunity for plaintiff's attacker to locate her on November 23, 2005 after release from custody and forcibly assault and beat the plaintiff.
(Compl. p. 4 ¶ 3.) Plaintiff further alleges that she was beaten and injured as a "direct and proximate result" of the officers' conduct. (Id. at ¶ 5.) Pointedly, these allegations, taken as true, fail to establish the third sub-element of the fourth element of a state-created danger claim.
It is not enough that Plaintiff baldly allege that the officers created an "opportunity" for Baldwin to attack her. (Compl. p. 4 ¶ 3.) Plaintiff must also show that the City either created a danger or rendered her more vulnerable to danger than had the City not acted at all. See Bright, 443 F.3d at 281. Plaintiff has not made such a showing. Indeed, after the officers released *126 Baldwin, they telephoned Lower Township. As stated by the Third Circuit in Walter, "a state actor's failure to warn about the likelihood of a private act of violenceeven a highly culpable failure to warncannot itself predicate liability." See 544 F.3d at 194. Plaintiff contends that "[i]f the defendant was detained that night this assault upon the plaintiff would never have happened." (Pl. Br. 5.) This is precisely the same contention that was rejected in Stolzer, supra, and the Court sees no reason to accept it today. It may be true that if the police never released Baldwin, he would have never attacked Plaintiff.[7] It may also be true that if judges never grant bail in criminal cases, defendants will never commit outside crimes before trial. Ours may be an imperfect system, but it is the one in which we operate. Surely more is needed to establish a constitutional violation.
In conclusion, Plaintiff fails to allege that Public Defendants either created a danger or enhanced the risk of danger to Plaintiff. Because Plaintiff fails to allege the second and third sub-elements, she fails to establish the fourth element of her state-created danger claim. As a result, Plaintiff has not alleged a claim upon which relief may be granted. The Court dismisses her substantive due process claim against Public Defendants.[8]
B. Remaining Federal Claims
Public Defendants Kenneth Cooper and Anthony Marino contend they are entitled to qualified immunity. (Public Def. Br. 5.) Because the Court has not found a constitutional violation, there is no need to examine whether Public Defendants are entitled to qualified immunity.[9]See Saucier v. Katz, 533 U.S. 194, 201, 121 S. Ct. 2151, 150 L. Ed. 2d 272 (2001) ("If no constitutional right would have been violated were the allegations established, there is no necessity for further inquiries concerning qualified immunity."); see also Kaucher v. County of Bucks, 455 F.3d 418, 423 n. 2 (3d Cir.2006) (refraining from conducting qualified immunity analysis where no constitutional violation has been established (citing Saucier, supra)).
For the same reasons, there is no need to examine Plaintiff's Monell claim against Public Defendant City of Cape May. See, e.g., Hill v. Borough of Kutztown, 455 F.3d 225, 245 (3d Cir.2006) (holding "[t]here cannot be an award of damages against a municipal corporation based on the actions of one of its officers when in fact ... the officer inflicted no constitutional harm." (quoting Grazier ex rel. White v. City of Philadelphia, 328 F.3d 120, 124 (3d Cir. 2003))) (internal quotations omitted); see also Kaucher, 455 F.3d at 423 n. 2 (citing Searles v. Se. Penn. Transp. Auth., 990 F.2d 789, 794 (3d Cir.1993) ("[W]e need *127 not reach the issue of whether [the municipal entity] could be held liable where, as here, we have concluded that no constitutional right was violated.")); and McGrain v. City of Philadelphia, 2006 WL 2668651, at *7 (E.D.Pa. Sept. 15, 2006) ("Because the court has ruled that [the plaintiff] has failed to state a claim alleging a constitutional violation, it follows that [the plaintiff's] due process claims against the city must also be dismissed.") (alteration in original).
C. Remaining State Law Claims
Plaintiff also alleges several state law claims. Against Public Defendants, Plaintiff alleges violation of the New Jersey Civil Rights Act. See N.J. Stat. Ann. § 10:6-1. Against Private Defendants, Plaintiff alleges claims grounded in common law negligence and the New Jersey Dram Shop Act. See N.J. Stat. Ann. § 2A:22A-1, et seq. In response, Public Defendants assert state law immunity pursuant to the New Jersey Tort Claims Act. See N.J. Stat. Ann. §§ 59:1-1 to 12-3. Private Defendants contend that Plaintiff fails to meet the proofs required under the Dram Shop Act.
Because this Court has dismissed Plaintiff's sole federal claim, the Court declines to exercise jurisdiction over Plaintiff's remaining state law claims. Section 1367(c)(3) provides:
The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if ... the district court has dismissed all claims over which it has original jurisdiction.
See 28 U.S.C. § 1367(c)(3). Other courts faced with similar situations have followed this procedure. See, e.g., McGrain v. City of Philadelphia, 2006 WL 2668651, at *7 (E.D.Pa. Sept. 15, 2006) (declining to exercise jurisdiction over state law claims pursuant to 28 U.S.C. § 1367(c)(3) when all federal claims have been dismissed); and Cunningham v. Lenape Regional High Dist. Bd. of Educ., 492 F. Supp. 2d 439, 451 (D.N.J.2007) (same). As a result, Plaintiff's remaining state law claims are hereby dismissed.
V. Conclusion
In conclusion, Public Defendants' Motion to Dismiss pursuant to Federal Rule of Procedure 12(b)(6) is granted. Plaintiff's state-created danger claim is dismissed for failure to state a claim. Because no constitutional violation is present, therefore, the Court does not reach the issues of qualified immunity or municipal liability. Accordingly, Public Defendants' alternative Motion for a More Definite Statement pursuant to Federal Rule of Procedure 12(e) is moot. The Court declines to exercise jurisdiction over Plaintiff's remaining state law claims against Public and Private Defendants pursuant to 28 U.S.C. § 1367(c)(3). A state court is better suited to analyze these claims. Consequently, this case is remanded to state court.
An appropriate ORDER shall follow.
NOTES
[1] Private Defendant refers to itself as "Frog Spring Corp. & LBH, LLC t/a Cabana's and Martini Beach Restaurant". (Private Def. Br. 3.) As such, Private Defendant was improperly pled as "Cabana's Beach Bar & Grill". Where appropriate, Private Defendant is referred to as "Cabana's" in this Opinion.
[2] The short title for this statute is the "New Jersey Licensed Alcoholic Beverage Server Fair Liability Act". See N.J. Stat. Ann. § 2A:22A-1, et seq. Specifically, Private Defendant contends that Plaintiff's claim must be dismissed for failure to allege sufficient facts to establish damages under that Act. (Private Def. Br. 8.)
[3] Plaintiff alleges that Public Defendants violated her rights under the New Jersey Civil Rights Act. See N.J. Stat. Ann. 10:6-1.
[4] To neatly summarize, three standards are used with respect to state action that shocks the conscience: (1) deliberate indifference; (2) conscious disregard of a great risk of serious harm; and (3) intent to cause harm. See Walter, 544 F.3d at 192-193.
[5] The pleadings do not indicate the length of time that Baldwin was held in custody, other than noting he was eventually released that same night.
[6] Granted, the "willful disregard of safety" standard of Stolzer pre-dates the refined "shock the conscience" standard of Bright v. Westmoreland. See 443 F.3d at 281 (holding that a state actor must act "with a degree of culpability that shocks the conscience"). The Third Circuit discussed the evolution of this culpability standard in Sanford v. Stiles:
In assessing the standard of fault in state-created danger cases, we have inquired in the past whether `the state actor acted in willful disregard for the safety of the plaintiff.' See, e.g., Morse, 132 F.3d at 908 (quoting Kneipp, 95 F.3d at 1208). More recently, largely in consideration of the Supreme Court's decision in Lewis, 523 U.S. at 847-49, 118 S. Ct. 1708, we have acknowledged that the fault inquiry requires asking whether the state official `acted with a degree of culpability that shocks the conscience'. See, e.g., Bright, 443 F.3d at 281.
Sanford, 456 F.3d at 305. Notwithstanding the use of a different standard, however, Stolzer remains persuasive due its `failure to warn' context.
[7] Plaintiff further states that "if the plaintiff was notified in accordance with the law, that the defendants were releasing Baldwin, this assault would not have happened." (Pl. Br. 5.) This assertion is mere conjecture. In any event, a failure to warn does not enable Plaintiff to cross the hurdle on the instant motion to dismiss.
[8] In light of the foregoing analysis, amendment is futile because, given the facts of this case, Plaintiff cannot plead the second or fourth elements of a state-created danger claim. Specifically, Plaintiff cannot plead that Public Defendants' conduct shocks the conscience, and she cannot plead that Public Defendants created danger or enhanced the risk of danger by failing to warn her of Baldwin's release. Because amendment is futile, Plaintiff need not be given the opportunity to amend her complaint. See Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d Cir.2008) (citing Shane v. Fauver, 213 F.3d 113, 116 (3d Cir.2000)).
[9] Accordingly, Public Defendant's Rule 12(e) Motion for a More Definite Statement is rendered moot.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2526556/
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619 F. Supp. 2d 914 (2009)
SANTA MONICA BAYKEEPER, a non-profit corporation, Plaintiff,
v.
KRAMER METALS, INC., a corporation; Spectrum Alloys, Inc., a corporation; Continental Truck and Towing Company LLC, a limited liability company; R & P Renovators, LLC, a limited liability company; Kramer/Spirtas, LLC, a limited liability company; Rail Prop, LLC, a limited liability company, Defendants.
Case No. 07-03849 DDP (FMOx).
United States District Court, C.D. California.
February 27, 2009.
*916 Daniel Cooper, Martin McCarthy, San Francisco, CA, Andrew L. Packard, Michael P. Lynes, Andrew L. Packard, Law Offices of Andrew L. Packard, Petaluma, CA, for Clean Water, Inc.
Emily Julia Atherton, Jason M. Booth, Dongell Lawrence Finney, Los Angeles, CA, for Defendants.
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
DEAN D. PREGERSON, District Judge.
Santa Monica Baykeeper ("Baykeeper") brings this action to enforce alleged violations of the Clean Water Act. Defendant Kramer Metals ("Kramer") has owned and operated two scrap metal recycling plants in Los Angeles. Baykeeper moves for Partial Summary Judgment, seeking a finding of liability for a total of 14,092 violations and days of violation against Kramer. After reviewing the materials submitted by the parties and hearing oral argument, the Court grants in part and denies in part the Motion for Partial Summary Judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
Kramer Metals is the current and/or former owner and operator of two scrap metal facilities located in Los Angeles that are the subject of this lawsuit. It is undisputed that storm water discharged from both facilities is regulated by California's Industrial Storm Water Permit ("General *917 Permit"). Pl.'s Request for Judicial Notice ("RJN"), Ex. A (General Permit No. CAS000001, "Waste Discharge Requirements for Discharges of Storm Water Associated with Industrial Activities Excluding Construction Activities," Water Quality Order No. 97-03-DWQ).
A. Kramer 1760
Kramer owns and operates the scrap metal facility located at 1760 Slauson Avenue in Los Angeles, California ("Kramer 1760"). Kramer 1760 sits on approximately 1.8 acres, and includes a yard, office, scale, and operations buildings and equipment. Its operations include scrap metal recycling and processing, as well as vehicle fueling and maintenance. Some of its scrap metal processing and storage occurs outdoors, and the facilities are only partially covered. Storm water coming into contact with the Kramer 1760 facilities discharges from the site via two driveways facing Slauson Avenue and one driveway facing Holmes Avenue. It flows into gutters on Slauson and Holmes Avenues and into a drop inlet on Randolf Street. The drop inlet on Randolph street discharges into Compton Creek, the Los Angeles River, and San Pedro Bay.
Kramer Metals collected samples of storm water discharging from Kramer 1760 at sample location Kramer Outfalls 1 and 2 on April 20, 2007. Cooper Decl., Ex. I at 160. Additionally, as part of its investigation into Kramer's compliance with the Clean Water Act, Baykeeper collected samples on February 11, 2007, February 22, 2007, April 20, 2007, November 30, 2007, January 6, 2008, and November 26, 2008.[1]
B. Kramer 1000
Until 2008, Kramer also owned and operated the scrap metal facility at 1000 Slauson Avenue in Los Angeles, California ("Kramer 1000").[2] That facility is an approximately 3.5-acre scrap metal facility. Activities include sorting, baling of ferrous and non-ferrous metals, car body smashing, and vehicle fueling, Scrap is stored and processed outside, and the facility is at least partially unpaved. Storm water coming into contact with the Kramer 1000 facility discharges via the driveway facing Slauson Avenue and flows into gutters located on Slauson Avenue, which discharge into Compton Creek, the Los Angeles River, and San Pedro Bay.
Baykeeper collected samples of storm water discharging from Kramer 1000 locations on February 11, 2007, February 22, 2007, November 30, 2007, and January 6, 2008. See Note 1, supra; Defs.' Statement, ¶¶ 182-88.
C. Procedural History
Baykeeper, a non-profit public benefit corporation organized under California state law, seeks to protect and enhance Los Angeles area waters for the benefit of ecosystems, for the use and enjoyment of its members, and for the public at large. Ford Decl. ¶¶ 4-5. After conducting an investigation of the Kramer facilities at issue here, Baykeeper concluded that *918 Kramer 1760 and Kramer 1000 were operating in violation of the General Permit and the Clean Water Act. Baykeeper mailed statutorily required notice of intent to sue on March 10, 2007. On June 13, 2007, Baykeeper filed this suit. Baykeeper's Complaint alleges Six Causes of Action for discharges of contaminated storm water and failure to comply with the requirements of California's General Industrial Permit, in violation of the Clean Water Act. Baykeeper filed this Motion for Partial Summary Judgment on December 12, 2008.
II. BAYKEEPER'S MOTION FOR SUMMARY JUDGMENT
Baykeeper moves for a finding that each Kramer facility violated the Clean Water Act in five ways. At bottom, Kramer's opposition to summary judgment takes two approaches. First, Kramer argues that certain EPA-promulgated standards do not have the legal impact Baykeeper accords them. Second, and more broadly, Kramer argues that genuine issues of material fact pervade this suit and make summary judgment inappropriate on all grounds.[3]
A. Legal Standard for Summary Judgment
Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine issue exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party"; and material facts are those "that might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S. Ct. 2505.
"As the party with the burden of persuasion at trial, [Baykeeper] must establish beyond controversy every essential element of its" Clean Water Act claim. So. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 888 (9th Cir.2003)(citing William W. Schwarzer, et al., California Practice Guide: Federal Civil Procedure Before Trial § 14:124-127 (2001)). All reasonable inferences from the evidence must be drawn in favor of Kramer. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Kramer can defeat summary judgment "by demonstrating the evidence, taken as a whole, could lead a rational trier of fact to find in its favor." So. Cal. Gas Co., 336 F.3d at 888. As the party opposing summary judgment, Kramer must come forward with specific facts, supported by admissible evidence, showing a genuine issue for trial. Fed.R.Civ.P. 56(e); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir.1995).
B. Legal Framework: The Clean Water Act and California's General Permit
1. The Clean Water Act and Permit System
The objective of the Clean Water Act is to restore and maintain the "chemical, physical and biological integrity of [the] Nation's waters." 33 U.S.C. § 1251(a). In accordance with that objective, § 301(a) of the Clean Water Act makes unlawful "the discharge of any pollutant by any person,"[4] unless in compliance with a permit *919 issued under the National Pollutant Discharge Elimination System ("NPDES"). 33 U.S.C. §§ 1311(a), 1342; Envtl. Prot. Agency v. California ex rel. State Water Resources Control Board, 426 U.S. 200, 205, 96 S. Ct. 2022, 48 L. Ed. 2d 578 (1976). "An NPDES permit serves to transform generally applicable effluent limits and other standards ... into the obligations... of the individual discharger." State Water Resources Control Board, 426 U.S. at 205, 96 S. Ct. 2022.
Noncompliance with a permit constitutes a violation of the Clean Water Act. 40 C.F.R. § 122.41. Authority to issue permits under the NPDES is vested in the Administrator of the Environmental Protection Agency, but that authority may be delegated to states. 33 U.S.C. § 1342(b); Hawaii's Thousand Friends v. City and County of Honolulu, 821 F. Supp. 1368 (D.Haw.1993). The State of California has been granted permitting authority.
The Clean Water Act authorizes citizen suits "against any person ... who is alleged to be in violation of ... an effluent standard or limitation under this chapter."[5] 33 U.S.C. § 1365(a)(1). The Act imposes strict liability for NPDES violations. See Hawaii's Thousand Friends, 821 F.Supp. at 1392 (noting that because the Clean Water Act imposes strict liability, issues of fault do "not absolve the violator from penalties, although [a lack of fault] might mitigate the amount of the penalties assessed"). Accordingly, to establish a violation of the Act, Baykeeper need only prove that Kramer violated the terms and conditions of its NPDES permit. Id.
2. California's General Storm Water Permit
Section 402(p) of the Clean Water Act, 33 U.S.C. § 1342(p), establishes a framework for regulating pollutants associated with industrial activity. Pursuant to EPA regulations, authorized states may issue general permits or individual permits to regulate storm water discharges. See 40 C.F.R. §§ 122.26(c), 122.28, 123.25; see also 60 Fed.Reg. 50804-01. California has issued a General Permit that applies to all storm water discharges requiring a permit except construction activity.[6] RJN, Ex. A. The parties agree that the General Permit governs Kramer's facilities.
The General Permit implements the requirements of the Clean Water Act through both technology-based provisions and water quality-based standards. As relevant here, the General Permit sets out four basic requirements for permittees: (1) effluent limitations, (2) receiving water limitations, (3) the implementation of a Storm Water Pollution Prevent Plan, and (4) the development of a Monitoring and Reporting Program.
First, the General Permit sets effluent limitations. There are three basic effluent limitations. Where the EPA has set effluent limitation guidelines for an industry, storm water discharges may not exceed the specific guidelines. Gen. Permit, Effluent Limitation B(1) (RJN, Ex. A at 22-23). Additionally, storm water discharges shall not contain a hazardous substance equal to or in excess of a reportable quantity listed in 40 C.F.R. Part 117 and/or 40 C.F.R. Part 302. Gen. Permit, Effluent Limitation B(2) (RJN, Ex. A at 23). Neither *920 of these first two limitations is at issue here: the EPA has not established specific guidelines for scrap metal recycling facilities and Baykeeper does not argue that Kramer's storm water discharges were in excess of a reportable quantity. Finally, the General Permit includes a technology-based requirement. It requires that facility operators "reduce or prevent pollutants associated with industrial activity" through (1) the implementation of the best available technology economically achievable ("BAT") for toxic and non-conventional pollutants and (2) the best conventional pollutant control technology ("BCT") for conventional pollutants. Gen. Permit, Effluent Limitation B(3) (RJN, Ex. A at 23). A facility operator can comply with this requirement by developing and implementing a Storm Water Pollution Prevention Plan ("SWPPP") that (1) complies with the requirements in § A of the General Permit and (2) includes best management practices ("BMPs")[7] that achieve BAT/BCT. Id.
Second, the General Permit prohibits the discharge of water that causes or contributes to an exceedance of any applicable water quality standards contained in a Statewide Water Quality Control Plan or the applicable Regional Water Board's Basin Plan. Gen. Permit, Receiving Water Limitation C(2) (RJN, Ex. A at 23). The EPA has promulgated statewide water quality standards for toxic pollutants in California through the California Toxics Rule, 40 C.F.R. 131.38 (2005) ("CTR"). The CTR sets out a numeric schedule for toxic pollutants.[8] A facility operator will not be in violation of limitation C(2) if (1) the facility operator has implemented BMPs that achieve BAT/BCT and (2) the facility operator appropriately submits a report the describes the current BMPs and revisions to those BMPs and the SWPPP. Gen. Permit, Receiving Water Limitation C(3)-(4) (RJN, Ex. A at 23-24).
Third, the General Permit requires that permittees develop and implement a Storm Water Pollution Prevention Plan that meets certain requirements. Gen. Permit, § A (RJN, Ex. A at 30). The SWPPP has two major objectives: (1) to identify and evaluate sources of pollutants and (2) to identify and implement site-specific BMPS to reduce or prevent pollutants associated with industrial activities in storm water discharges. Gen. Permit, § A(2) (RJN, Ex. A at 30-31). Section A of the General Permit catalogues with significant detail what an SWPPP must contain to comply with the General Permit. A SWPPP must contain a compliance activity schedule, a description of industrial activities and pollutant sources, a description of BMPs, drawings, maps (including a site map), and relevant copies or references of parts of other plans. Id. A permittee must evaluate and update the SWPPP with additional BMPs necessary to achieve compliance with the General Permit. See Gen. Permit, Receiving Water Limitation C(3)-(4), §§ A(2) & A(9).
Fourth, the General Permit requires a permittee to develop a Monitoring and Reporting Program ("MRP"). Gen. Permit, § B. As part of the MRP, a permittee must conduct visual observations of storm *921 water throughout the Wet Season; must collect water samples at each outfall during specific times; must analyze these samples for specific contaminants; and must file Annual Reports with the Regional Board summarizing the visual observations, results of sampling analysis, and General Permit compliance. Gen. Permit, §§ B(3)-(5), B(14). Where permittees participate in group monitoring programs, reduced monitoring requirements apply. Gen. Permit, § B(15). Because Kramer participates in the Metals Recyclers Monitoring Group ("MRMG"), Kramer must sample from at least two storm events over the five-year period of the General Permit. Id. § B(15)(b).
C. Effluent Limitation B(3) of the General Permit
Baykeeper first argues that there is no genuine issue of material fact that both Kramer 1760 and Kramer 1000 violated Effluent Limitation B(3) of the General Permit. In order to comply with Effluent Limitation B(3), a facility's SWPPP must include BMPs that achieve BAT/BCT. Gen. Permit, Effluent Limitation B(3). Baykeeper cites to the Benchmark Levels set out in the EPA Multi-Sector Permit and argues that these "provide an objective standard to determine if a permittee's BAT/BCT has been implemented." Pl.'s Mem. at 8. Because samples collected at both Kramer 1760 and Kramer 1000 showed pollutants in excess of these Benchmarks, Baykeeper argues, both facilities were in violation of the General Permit. Kramer argues that the use of the EPA Benchmarks is inappropriate and that there are genuine issues of material fact regarding the samples on which Baykeeper relies.
Because Baykeeper's first basis for summary judgment relies on the Court importing the EPA Benchmarks as objective measures, the Court begins by addressing the propriety of relying on those standards. The Court finds that the EPA Benchmarks are appropriate to use as objective guidelines in assessing whether Kramer has implemented BMPs that achieve BAT/BCT, but that they are only one part of such an analysis. Accordingly, as discussed below, the Court denies summary judgment on this ground.
1. The EPA's Authority and Actions
As relevant here, the Clean Water Act requires that the EPA issue certain types of guidelines, and also gives the EPA considerable discretion in how to do so.
a. Authority to Set Effluent Limitations and Authority to Issue Permits
First, the Clean Water Act directs the EPA to set effluent limitations for certain pollutants on a national level. 33 U.S.C. § 1311(b)(2)(A). An effluent limitation is a "restriction imposed by the Director on quantities, discharge rates, and concentrations of `pollutants' which are `discharged' from `point sources' into `waters of the United States,' the waters of the `contiguous zone,' or the ocean." 40 C.F.R. § 122.2. Effluent limitations can be technological, as well as numeric. When the EPA sets numeric effluent limitations, the Clean Water Act requires that they reflect the application of the best available technology economically achievable. 33 U.S.C. § 1311(b)(2)(A). The EPA must identify the degree of effluent reduction attainable through the application of the best control measures and practices achievable. 33 U.S.C. § 1342(b)(2). The BAT should include treatment, process and procedure innovations, and operating methods. Id. In assessing BAT, the EPA is required to consider factors that include but are not limited to the age of equipment and facilities involved, process employed, engineering aspects, process changes, the cost of achieving such effluent reduction, and non-water *922 quality environmental impact of technology, such as energy use. Id. For some industries, the EPA has promulgated regulations, including numeric effluent limits for storm water discharges, that apply on a national level. See 40 C.F.R., Subchapter N. Scrap recycling facilities are not among those industries regulated by Subchapter N.
Additionally, as mentioned above, § 402(p) of the Clean Water Act, 33 U.S.C. § 1342(p), grants the EPA the authority to issue permits regulating pollutants and discharges, as well as the discretion to delegate its permitting authority to approved states. Unless the EPA chooses to regulate on a national level, an authorized state's permit will govern storm water discharges in that state.
b. The EPA's Multi-State General Permit ("MSGP")
Pursuant to its permitting authority under § 1342(p), the EPA has promulgated the Multi-Sector General Permit for Stormwater Discharges Associated with Industrial Activity ("MSGP"). See Final National Pollutant Discharge Elimination System Storm Water Multi-Sector General Permit for Industrial Activities, 60 Fed. Reg. 50804 (September 29, 2005); Final Reissuance of National Pollutant Discharge Elimination System (NPDES) Storm Water Multi-Sector General Permit for Industrial Activities, 65 Fed.Reg. 64746-01 (October 30, 2000); Final National Pollutant Discharge Elimination System (NPDES) General Permit for Stormwater Discharges From Industrial Activities, 73 Fed.Reg. 56572-01 (September 29, 2008) (referring to http://cfpub.epa.gov/npdes/stormwater/msgp.cfm for the text of the 2008 MSGP). The MSGP only applies to non-delegated States; it therefore does not apply to California industrial facilities, except for those located on Indian lands.[9]
Overall, the MSGP sets out specific standards, requirements for an SWPPP, and for monitoring and reporting. Among its other provisions, the MSGP sets out benchmark levels for certain pollutants to use as a guideline in analyzing facilities' compliance with the Clean Water Act, and directs facilities to conduct monitoring on the basis of those benchmark levels. 1995 MSGP, 60 Fed.Reg. at 50824-25; 2000 MSGP, 65 Fed.Reg. at 64836-39; 2008 MSGP at 102.
As set forth in the MSGP, Benchmark levels are distinct from the effluent limitations described above. According to the various versions of the MSGP, benchmarks
are the pollutant concentrations above which EPA determined represent a level of concern. The level of concern is a concentration at which a storm water discharge could potentially impair, or contribute to impairing, water quality or affect human health from ingestion of water or fish. The benchmarks are also viewed as a level that, if below, a facility presents little potential for water quality concern. As such, the benchmarks also provide an appropriate level to determine whether a facility's storm water pollution prevention measures are successfully implemented. The benchmark concentrations are not effluent limitations and should not be interpreted or adopted as such. These values are merely levels which EPA has used to determine if a storm water discharge from any given facility merits further monitoring to ensure that the facility has been successful in implementing a SWPPP. *923 2000 MSGP, 65 Fed.Reg. at 64766-67; see id. at 64816 ("The results of benchmark monitoring are primarily for your use to determine the overall effectiveness of your SWPPP in controlling the discharge of pollutants to receiving waters. Benchmark values, included in Part 6 of this permit, are not viewed as effluent limitations. An exceedance of a benchmark value does not, in and of itself, constitute a violation of this permit. While exceedance of a benchmark value does not automatically indicate that violation of a water quality standard has occurred, it does signal that modifications to the SWPPP may be necessary. In addition, exceedance of benchmark values may identify facilities that would be more appropriately covered under an individual, or alternative general permit where more specific pollution prevention controls could be required."); 1995 MSGP, 60 Fed.Reg. at 50824-25 (same); 2008 MSGP at 35 ("The benchmark concentrations are not effluent limitations; a benchmark exceedance, therefore, is not a permit violation. Benchmark data are primarily for your use to determine the overall effectiveness of your control measures and to assist you in knowing when additional corrective action(s) may be necessary to comply with the effluent limitations in Part 2."). Where samples indicate concentrations in excess of benchmarks, the MSGP generally appears to require that a company evaluate its control measures and determine whether modifications are necessary. See, e.g., 2008 MSGP at 35-37 (§ 6.2.1).
Benchmark limitations and effluent limitations also appear to have different relationships BAT/BCT. As described above, by statute, effluent limitations are inextricably linked to BAT/BCT. See 33 U.S.C. §§ 1311(b)(2)(A), 1342(b)(2). EPA Benchmarks, on the other hand, are not as linked. Rather, it appears that the Benchmarks levels are based on information such as concentration values for aquatic life, secondary wastewater treatment regulations, and human health criteria. See 1995 MSGP, 60 Fed.Reg. at 50825; 2000 MSGP, 65 Fed.Reg. at 64767 (citing to 1995 MSGP). While numeric effluent limitations must take into account industry-specific BAT/BCT, the numeric guidelines reflected in the Benchmark levels do not vary among industries. The pollutants an industry must monitor does vary by industry, however; the EPA has determined whether an industry presents a risk for certain types of pollutants based on a statistical analysis of samples. See id.
According to the MSGP, scrap recycling facilities, which are Standard Industrial Classification Code 5093, must monitor seven chemicals. There are no numeric effluent limitations for scrap recycling facilities set forth either in 40 C.F.R. Subchapter N or in the MSGP.
2. Effluent Limitations in California's General Permit
The parties agree that California's General Permit does not by its terms incorporate the MSGP's Benchmark levels in Effluent Limitation B(3). The General Permit provides that for facilities regulated by 40 C.F.R. Subchapter N, "compliance with the effluent limitation guidelines constitutes compliance with BAT and BCT for the specified pollutants and must be met comply with this General Permit." Gen. Permit, Fact Sheet at VIII (RJN, Ex. A at 14); Id., Effluent Limitation B(1) (RJN, Ex. A at 22). For industries that are not among the industrial categories listed in 40 C.F.R. Subchapter N, like the scrap recycling facilities at issue here, the General Permit provides that "it is not feasible at this time to establish numeric effluent limitations.... Therefore, this General Permit allows the facility operator to implement best management practices (BMPs) to *924 comply with the requirements of this General Permit." Gen. Permit, Findings ¶ 9 (RJN, Ex. A at 21). The lack of an objective standard in the General Permit has been a source of criticism. See Booth Decl., Ex. B. at 80. The General Permit does require, however, that permittees incorporate BMPs "that achieve BAT/BCT." Gen. Permit, Effluent Limitation B(3).
3. Role of EPA Benchmark Levels in the Effluent Limitation B(3) Analysis
Baykeeper urges the Court to look to the EPA Benchmarks as "objective standards for determining the sufficiency of BMPs." Reply at 7. Baykeeper asserts that because Kramer had numerous samples exceeding the Benchmark levels, there is no genuine issue of material fact that Kramer's BMPs did not achieve BAT/BCT, as required by the General Permit. Kramer argues that adopting Baykeeper's approach inappropriately treats the benchmarks as enforceable guidelines, even though the General Permit does not specifically incorporate them as such. Baykeeper accuses Kramer of mischaracterizing its argument. Although Baykeeper asserts that it does not "elevate[] EPA Benchmark levels to `enforceable numeric limits,'" see Reply at 6, there is limited, if any, practical difference between that and what Baykeeper asks the Court to do in its first argumentto grant summary judgment based solely on samples that are above the benchmark levels. See Pl.'s Mem. at 10 ("Each of these discharges of polluted storm water in excess of EPA Benchmarks is a separate violation of the General Permit[.]").
The Court holds that the EPA Benchmarks are relevant guidelines that should be used to evaluate the efficacy of a facility's BMPs, but that samples in excess of those benchmarks do not necessarily constitute a violation of the General Permit.[10] There can be no reasonable dispute that the Benchmarks are relevant to the inquiry as to whether a facility implemented BMPs, Cf. Waterkeepers Northern California v. AG Industrial Mfg. Inc., 375 F.3d 913, 919 n. 5 (9th Cir.2004) (suggesting that the plaintiff appropriately pointed to EPA Benchmark values "as evidence to support its claim that [the defendant] failed to implement adequate BMPs"). As Baykeeper noted in its Reply, the Benchmarks are often used as an objective guideline by those investigating compliance. Indeed, Timothy Simpson, Vice President and principal engineer for Geomatrix Consultants, the group leader for the Metals Recyclers Monitoring Group, testified at his deposition that the MRMG uses the EPA's Benchmarks to determine which clients likely need to implement "additional measures" to remain in compliance with the General Permit. See Simpson Decl., ¶ 1; Simpson Depo. at 35:6-36:14. The MSGP contemplates using the Benchmark levels in precisely this way. See pp. 921-23, supra; 2000 MSGP, 65 Fed.Reg. at 64766-67 ("[T]he benchmarks also provide an appropriate level to determine whether a facility's storm water pollution prevention measures are successfully implemented.").
Although the Benchmark levels are useful objective guidelines, the Court is not persuaded it would be appropriate to hold that samples showing concentrations in excess of the Benchmark levels constitute a violation of Effluent Limitation B(3) simply by virtue of exceeding those Benchmark levels. Doing so would effectively and inappropriatelyturn these Benchmarks into numeric effluent limitations. First, the General Permit neither specifically *925 incorporates the Benchmark levels nor cites to them as helpful guidance. Second, the MSGP indicates that Benchmark levels are to be used as signals that an SWPPP may need adjusting, not as a bright-line proxy for compliance or noncompliance. Moreover, Effluent Limitation B(3) provides that BMPs must "achieve BAT/BCT." As discussed above, while effluent limitations are inextricably linked with BAT/BCT, as far as the Court can tell, EPA Benchmarks are not so linked. Without a direct link to BAT/BCT, it would be problematic to use the Benchmark levels to conclusively determine whether a facility's "BMPs achieve BAT/BCT."
Instead, the Court holds that a more comprehensive approach is necessary. The Clean Water Act, the General Permit, and applicable regulations suggest that the approach to compliance with permits requires assessments based both on industry-wide standards and on an individualized and flexible approach. For example, when the EPA sets effluent limits, it does so on an industry-by-industry basis. See 33 U.S.C. § 1311(b)(2)(A) (requiring that effluent limitations be set for "categories and classes of point sources"). However, the substance of each SWPPP, including the appropriate BMPs, is developed facility-by-facility. See Gen. Permit, § A. The Court does not doubt that an objective standard has benefits, including the ease of administration and the ease of determining when site violates the General Permit. Repeated and/or significant exceedances of the Benchmark limitations should be relevant to this determination. With respect to Effluent Limitation B(3), however, the General Permit appears to require a more comprehensive look at the BAT/BCT for the industry to determine whether a specific site's BMPs achieve BAT/BCT.
Baykeeper's first ground for summary judgment rests entirely on the fact that samples repeatedly show effluent limitations in excess of the benchmark levels. See Pl.'s Mem. at 9-10. Baykeeper's argument draws from sampling at the Kramer facilities and the opinion of Dr. Horner. As noted above, the Court agrees that sampling orders of magnitude in excess of the benchmark levels is evidence supporting Baykeeper's contention that Kramer did not have BMPs that achieve BAT/BCT. As discussed above, however, this evidence in and of itself does not establish a violation of Effluent Limitation B(3). Dr. Horner opined that "modern stormwater treatment devices can produce effluents of higher quality for many" of the contaminants set by the MSGP, and that, accordingly, "the EPA benchmarks convey some `benefit of the doubt' on treatment capabilities to dischargers." Horner Decl. ¶ 23. According to Dr. Horner, because they accord some benefit of the doubt, these benchmarks "are in no way excessively stringent or infeasible to meet." Id. Although both sampling and Dr. Horner's opinion support Baykeeper's Motion, without a more comprehensive discussion of the BAT/BCT, the Court cannot find that no genuine issue of material fact remains. The SWPPP and Kramer's testimony reflect some BMPs used by the Kramer facilities; while the Court finds it doubtful that BMPs such as sweeping achieve BAT/BCT, the Court has no real discussion on these issues before it in reference to Effluent Limitation B(3). Where Baykeeper's motion included no discussion of how Kramer's BMPs compared with the BAT/BCT, the Court is not convinced that samples in excess of the Benchmark levels were sufficient to shift the burden to Kramer to dispute this claim. (To the extent Baykeeper discusses these issues with reference to requirements of the *926 SWPPP, the Court addresses liability on that ground below.)
D. Receiving Water Limitation C(2) of the General Permit
Next, Baykeeper moves for summary judgment on the ground that the discharge from both Kramer facilities is in excess of water quality standards, and therefore in violation of the Receiving Water Limitation C(2) of the General Permit. In particular, Kramer argues that Baykeeper inappropriately relies on the California Toxics Rule. The Court holds that the California Toxics Rule is a water quality standard that applies to Kramer, and that summary judgment is warranted as to liability on that ground.
1. CTR as a Water Quality Standard Under Receiving Water Limitation C(2)
The General Permit's Receiving Water Limitations provides that storm water discharges "shall not adversely impact human health or the environment." Gen. Permit, Receiving Water Limitation C(1). In particular, Receiving Water Limitation C(2) provides that storm water discharges "shall not cause or contribute to an exceedance of any applicable water quality standards contained in a Statewide Water Quality Control Plan or the applicable Regional Water Board's Basin Plan." Id., Receiving Water Limitation C(2).
The California Toxics Rule ("CTR"), 40 C.F.R. 131.38, is an applicable water quality standard. After a California court overturned the State's water quality control plan, and pursuant to § 303 of the Clean Water Act, 33 U.S.C. § 1313, the EPA promulgated the CTR "to fill a gap in California water quality standards" that had existed for several years in the absence of a State water quality control plan. Water Quality Standards; Establishment of Numeric Criteria for Priority Toxic Pollutants for the State of California, 65 Fed. Reg. 31682 (May 18, 2000). The EPA's Summary of the Final Rule provides that "[t]hese Federal criteria are legally applicable in the State of California for inland surface waters, enclosed bays and estuaries for all purposes and programs under the Clean Water Act." Id. "All waters (including lakes, estuaries, and marine waters)... are subject to the criteria promulgated today. Such criteria will need to be attained at the end of the discharge pipe, unless the State authorizes a mixing zone." Id. at 31701. For the pollutants present in the discharges from the Kramer facilities, the following pollutant concentrations apply (assuming a receiving water hardness of 100 mg/L as CaCO3 and all as dissolved quantities): lead0.065 mg/L; copper0.013 mg/L; zinc0.120 mg/L; and cadmium0.0043 mg/L. 40 C.F.R. 131.38(b)(1).[11]
Kramer argues that the CTR is not applicable here for two reasons, neither of which the Court finds persuasive. First, Kramer argues that, according to California's "Policy for Implementation of Toxics *927 Standards for Inland Surface Waters, Enclosed Bays, and Estuaries of California," the CTR does not apply to individual dischargers. See Booth Decl., Ex. A. Kramer's reading of the CTR and the Implementation Policy is unavailing. The CTR expressly applies to "all waters" for "all purposes and programs under the Clean Water Act." See 65 Fed.Reg. at 31682, 31701. By noting that the Implementation Policy does not apply to storm water discharges, see Booth Decl., Ex. A at 16 n. 1, the Implementation Policy does not purport to exempt storm water dischargers from the limits imposed by the CTR, a federal regulation. Rather, the Implementation Policy suggests that those issues are regulated by the General Permit. The General Permit requires adherence to water quality standards.[12] Second, Kramer appears to argue that its contribution to impairment by pollutants would be small. However, the CTR criteria apply "end of the discharge pipe, unless the State authorizes a mixing zone." 65 Fed.Reg. at 31701. The General Permit authorizes no mixing zone.
In sum, the CTR is a water quality standard in the General Permit, Receiving Water Limitation C(2). A permittee violates Receiving Water Limitation C(2) when it "causes or contributes to an exceedance of such a standard, including the CTR. The General Permit provides that a facility operator "will not be in violation of Receiving Water Limitation C(2) as long as the facility operator has implemented BMPs that achieve BAT/BCT" and follows a reporting procedure. Gen. Permit, Receiving Water Limitation C(3).
2. Baykeeper's Samples
Baykeeper rests its argument for C(2) violations at the 1760 facility on sampling by Kramer on April 20, 2007 and by Baykeeper on February 11, 2007, February 22, 2007, April 20, 2007, November 20, 2007, and January 3, 2008. Baykeeper rests its argument for C(2) violations at the 1000 facility on sampling by Baykeeper on February 11, 2007 and February 22, 2007. While Kramer cannot object to the quality of its own sampling, see Sierra Club v. Union Oil Co. of Cal., 813 F.2d 1480, 1492 (9th Cir.1987), vacated by 485 U.S. 931, 108 S. Ct. 1102, 99 L. Ed. 2d 264, judgment reinstated in 853 F.2d 667 (9th Cir.1988) ("when a permittee's reports indicate that the permittee has exceeded permit limitations, the permittee may not impeach its own reports by showing sampling error"), it argues that Baykeeper's samples may not be reliable.
Kramer's objection to the reliability of these samples is twofold. First, Kramer notes that Kramer did not provide access or permission to sample storm water at its facility. Kramer Decl. ¶ 7. According to Simpson, if such samples were taken off of Kramer Metals' premises, "they may have been tainted by water from other sources." Simpson Decl. ¶ 21.[13]*928 Second, Kramer argues that the existence of fecal coliform in the samples "indicates the possibility of contamination of the samples by water from other sources." Simpson Decl. ¶ 22. Carlos Carreon, who collected Baykeeper's samples, provided a detailed explanation as to his background and experience with water quality and environmental engineering here. Carreon Decl. ¶¶ 3-4, Ex. A. Additionally, Carreon's description of the collection of the water samples contains significant detail, providing a narrative description of the location and process Carreon used, as well as Carreon's notes. See, e.g., Carreon Decl. ¶ 14, Ex. H at 116, 132. Kramer's witnesses do not specifically address either Carreon's qualifications or his sampling technique.[14] Rather than address Carreon's specific descriptions of the sampling conditions, Simpson's declaration contains only a conclusory assertion that the water sampling was performed "under undocumented conditions" and that this, combined with the presence of fecal coliform, suggests that the samples could have been tainted. Simpson Decl. ¶ 19. Simpson's assertion as to the "undocumented" nature of Carreon's samples is without merit in light of the significant detail provided by Carreon. Additionally, Simpson's conclusory statement that the presence of fecal coliform "possibly" indicates contamination does not give rise to a genuine issue of material fact as to the validity of these samples. Id. ¶ 22. The only supporting evidence on which Simpson relies is a similarly conclusory statement from Kramer. See Kramer Decl. ¶ 7. Simpson does not, for example, explain why, based on Carreon's detailed description of his sampling techniques, those techniques were improper. More than speculation is needed to raise a triable issue of fact, and Simpson's conclusory statements are insufficient to do so with respect to these samples. See F.T.C. v. Publishing Clearing House, 104 F.3d 1168, 1171 (9th Cir.1997) ("A conclusory, self-serving affidavit, lacking detailed facts and any supporting evidence, is insufficient to create a genuine issue of material fact.").
3. Kramer 1760
Kramer cannot dispute the information contained in its annual reports or reports to the MRMG. See Sierra Club, 813 F.2d at 1492. The sampling data for that date indicates levels above the CTR standards. Horner Decl. ¶¶ 29-39. On April 20, 2007, Kramer Metals conducted samples at out-falls 1 and 2. It is undisputed that both samples had concentrations of copper, zinc, and lead significantly above the CTR standards for these pollutants. Horner Decl., Ex. C at 77; 40 C.F.R. 131.38(b).
________________________________________
Result
Parameter Location (mg/L) CTR
________________________________________
Copper Outfall 1 1.45 0.013
________________________________________
Copper Outfall 2 1.54 0.013
________________________________________
Lead Outfall 1 0.786 0.065
________________________________________
Lead Outfall 2 1.05 0.065
________________________________________
Zinc Outfall 1 2.14 0.12
________________________________________
Zinc Outfall 2 2.27 0.12
________________________________________
*929 Samples taken by Baykeeper on February 11, 2007, February 22, 2007, April 20, 2007, November 30, 2007, and January 6, 2008 also indicated excesses of CTR standards for these pollutants.
Because these numbers exceed the applicable WQS, the Court finds that there was at least one violation of Receiving Water Limitation C(2) at Kramer 1760. See Horner Decl. ¶¶ 30, 32, 33, 35, 36, 38, 42. Kramer does not dispute Dr. Horner's assertion that Kramer did not submit a report to the appropriate regional water board, in compliance with Receiving Water Limitation C(3). See id. at ¶ 29. Thus, that safe harbor undisputably cannot apply.
4. Kramer 1000
Because Kramer did not take any samples at the Kramer 1000 facility, Baykeeper relies only on its own samples. These samples show an excess of the WQS for that facility on certain occasions, most often for copper and zinc. For example, the samples taken on November 30, 2007 show the following breakdown:
________________________________________
Result
Parameter Location (mg/L) CTR
________________________________________
Copper Outfall 1 0.3399 0.013
________________________________________
Copper Outfall 2 0.07684 0.013
________________________________________
Lead Outfall 1 0.01088 0.065
________________________________________
Lead Outfall 2 0.01323 0.065
________________________________________
Zinc Outfall 1 2.819 0.12
________________________________________
Zinc Outfall 2 0.04999 0.12
________________________________________
See Horner Decl., Ex. C at 78-79. On the Court's reading of the data, it reflects excesses of the WQS for these three pollutants on the following dates:
___________________________________________________
Dates in
Parameter Location Excess of CTR
___________________________________________________
Copper Outfall 1 2/11/07, 11/30/07
___________________________________________________
Copper Outfall 2 2/11/07, 2/22/07,
4/20/07, 11/30/07,
1/6/08
___________________________________________________
Lead Outfall 1 None
___________________________________________________
Lead Outfall 2 None
___________________________________________________
Zinc Outfall 1 2/11/07, 11/30/07
___________________________________________________
Zinc Outfall 2 2/11/07, 2/22/07
___________________________________________________
See id. at 71-81. Kramer does not dispute Dr. Horner's assertion that Kramer did not submit a report to the appropriate regional water board, in compliance with Receiving Water Limitation C(3). Thus, that safe harbor undisputably cannot apply. The Court will defer ruling on the number of violations until a later time, such as in conjunction with appropriate damages.
5. Summary
For the reasons stated above, the Court holds that the CTR is an "applicable water quality standard" under Receiving Water Limitation C(2)'s prohibition on discharges that "cause or contribute to an exceedance of any applicable water quality standards." Additionally, the Court finds that there was at least one violation of Receiving Water Limitation C(2) at each facility.
E. Storm Water Pollution Prevention Plans
Baykeeper next argues that the facilities' SWPPPs are inadequate in violation of the General Permit. Section A of the General Permit sets forth the requirements for site maps. The SWPPP has "two major objectives: (a) to identify and evaluate sources of pollutants" and "(b) to identify and implement site-specific best management practices (BMPs) to reduce or prevent pollutants associated with industrial activities in storm water discharges." Gen. Permit, § A(2). Although the SWPPP requirements "are designed to be sufficiently flexible to meet the needs of various facilities," there are nevertheless mandatory components. As relevant here, the SWPPP must include: (1) a Site Map, Gen. Permit § A(4); (2) a description and assessment of potential pollutant sources, id. §§ A(6)-(7); and (3) a narrative description *930 of the BMPs to be implemented at the facility for each potential pollutant, id. § A(8). Additionally, the SWPPP must be evaluated once a year to determine whether revisions are appropriate. Id. § A(9). Baykeeper challenges each facility's SWPPP in four ways.
1. Kramer 1760
a. Identification, Description and Assessment of Potential Pollutants and Their Sources
The SWPPP must include a narrative description of the facility's industrial activities, which include storage areas, shipping and receiving areas, fueling areas, vehicle and equipment storage and maintenance areas, material handling and processing areas, waste treatment and disposal areas, and dust or particulate generating areas. Id. §§ A(6)(a), A(4)(e). Additionally, it must include a narrative of potential pollutant sources associated with those industrial activities, and potential pollutants that could be discharged. Id. § A(6)(a). The SWPPP must also include a narrative assessment of those industrial activities and pollutant sources "to determine ... [w]hich areas of the facility are likely sources of pollutants" and "[w]hich pollutants are likely to be present in sotrm water discharges." Id. § A(7)(a).
Baykeeper argues that there is no genuine issue of material fact that Kramer 1760's SWPPP failed to satisfy these requirements. Baykeeper first argues that the SWPPP's identification of potential pollutants is too general to comply with the General Permit: rather than listing specifics, the SWPPP's identification is more general, citing "sediment, metals, and oil" as potential pollutants. Cooper Decl., Ex. A at 15-16. A number of parts of the General Permit suggest that it requires more detail than that provided by the Kramer 1760 SWPPP. First, the example in Table B suggests that some specificity is required. Gen. Permit at Table B, RJN Ex. A at 37. In that example, the activity is listed as "fueling," the pollutant source as "spills and leaks during delivery," and the pollutant is "fuel oil." Id. Rather than listing "oils," the example provides some specificity as to the type of oils. Additionally, the provision explaining § A(6) repeatedly notes that an SWPPP should describe the "characteristics" of pollutants and pollutant sources. See Gen. Permit, §§ A(6)(iii) ("Describe ... the characteristics of dust and particulate pollutants; the approximate quantity of dust and particulate pollutants that may be deposited within the facility boundaries..."), A(6)(v) ("All non-storm water discharges shall be described. This shall include the source, quantity, frequency, and characteristics of the non-storm water discharges[.]"). This explanation suggests that the identification required by the General Permit should be relatively specific. Moreover, the identification of specifics is consistent with the purposes of the SWPPP, as specific types of pollutants including specific types of particles or metalsmay require different BMPs or have different BAT/BCT. Metals identified by the EPA as concerns for scrap metal recycling facilities or, at the very least, those that show up in Kramer's own testing of the facility, would be appropriate to list. Without a reasonably specific identification of potential pollutants, the identification of BMPs may be rendered meaningless in that it will be more difficult to assess whether they are effective.
Kramer appeals to practical concerns. See Def.'s Statement at ¶ 234; Kramer Decl. ¶ 4 ("Kramer Metals' operations, as a recycler of various types of scrap metal, including both ferrous and nonferrous metal, are necessarily varied, as are the types, forms, and quantities of the numerous metals we recycle. Accordingly, *931 it would be impractical for Kramer Metals to try to list specifically all those materials, as they constantly change on a daily, and sometimes even hourly basis, as metal is brought, processed, sold, and shipped."). The Court does not read Baykeeper's argument to suggest that Kramer needed to list every single type of metal or material that might be brought into its facilities; rather, it suggests that the General Permits simply requires some additional specifics, such as common pollutants associated with metals. The Court finds this characterization of the SWPPP reasonable. While Kramer cites practical concerns, Kramer's explanation does not provide an explanation of provisions in the General Permit that suggest specific pollutants would not be required. Because the Kramer 1760 SWPPP's identifications included only general indications of the types of pollutants, they lacked the specificity required to comply with the General Permit.
Additionally, Kramer has shown that the Kramer 1760 facility fails to adequately describe and assess scrap metal processing and storage. As mentioned above, the General Permit requires that the SWPPP "[d]escribe each handling and storage area, type, characteristics, and quantity of significant materials handled or stored, description of the shipping, receiving, and loading procedures, and the spill or leak prevention and response procedures." Gen. Permit § A(6)(ii). The SWPPP's description is entirely too general to satisfy these requirements. See Cooper Decl., Ex. A at 13 (stating that the quantity of scrap varies), 15 (one-paragraph description of storage).
b. Incorporation of BMPs That Achieve BAT/BCT
Next, Baykeeper argues that the SWPPP fails to incorporate BMPs that comply with the General Permit's requirement for SWPPPs. According to the General Permit, an SWPPP must include a description of the storm water BMPs to implemented. Gen. Permit, § A(8). Those BMPs "shall be developed and implemented to reduce or prevent pollutants in storm water discharges." Id. The General Permit requires that facility operators consider non-structural and structural BMPs. According to § A(8)(a) of the General Permit, "[n]on-structural BMPs generally consist of processes, prohibitions, procedures, schedule of activities, etc., that prevent pollutants associated with industrial activity from contacting with storm water discharges." The General Permit provides that "[f]acility operators should consider all possible non-structural BMPs options before considering additional structural BMPs." Id. "Where non-structural BMPs ... are not effective, structural BMPs shall be considered. Structural BMPs generally consist of structural devices that reduce or prevent pollutants in storm water discharges." Id. at § A(8)(b). In determining whether BMPs are effective, the General Permit suggests that visual observations, inspections, and sampling results are all relevant. Id. at § A(9).
Baykeeper argues that the nonstructural BMPs have not been effective, and that the SWPPP has not incorporated structural BMPs as required in such a situation. Baykeeper's argument rests on the combination of storm water samples, visual observations by its investigators and in Kramer's reports, and a site inspection form by the Los Angeles Department of Public Works from June 2006. See Cooper Decl., Ex. I at 169-180; Horner Decl. ¶¶ 29-42 & Ex. C.; Cooper Decl. Exs. F, M, P, V; Carreon Decl. ¶ 10. As mentioned above, the General Permit defines non-structural BMPs as those that prevent pollutants from coming into contact with *932 storm water. Kramer has not presented evidence creating a genuine issue of material fact as to whether its non-structural BMPs meet this standard. Where nonstructural BMPs are ineffective, i.e., do not prevent pollutants from coming into contact with storm water, an SWPPP must include structural BMPs. Gen. Permit, § A(8)(b). Though Kramer disputes whether it actually used structural BMPs or was implementing BMPs that achieve BAT/BCT, it is undisputed that the SWPPP itself does not include structural BMPs. Accordingly, the Court finds that Kramer's SWPPP is in violation of § A(8) of the General Permit.
c. Site Map
Baykeeper also argues that the 1760 SWPPP violates the General Permit because it does not include a Site Map as required by § A(4). In Opposition, Kramer submitted what appears to be a Site Map for the 1760 Facility. See Booth Decl., Ex. G; Def.'s Genuine Issues at ¶ 255. Baykeeper points out that Exhibit G is unauthenticated. It appears to the Court that Exhibit G is the only unauthenticated document in the Booth Declaration. There is no representation that the Site Map was included with the SWPPP. Kramer has not submitted a Notice of Errata. However, the Regional Board Inspection Reports and Notices of Violation repeatedly suggest that the SWPPP is complete. See Cooper Decl., Ex. Q. Accordingly, the Court finds that there are genuine issues of material fact as to whether the 1760 SWPPP included a Site Map.
d. Revisions to SWPPP
Finally, Baykeeper argues that Kramer has failed to update the SWPPP to include adequate BMPs at the Kramer facility, as required by §§ A(2) & A(9). It is undisputed that there has been no revision to the SWPPP, but Kramer argues that it was not required to update. While the Court finds that there are genuine issues of material fact as to whether the facility was using BMPs that achieve BAT/BCT (i.e., whether it was actually using structural BMPs), the Court has already found that the non-structural BMPs were inadequate. Accordingly, the Court finds that revisions to the SWPPP were necessary.
e. Summary
In sum, the Court finds that summary judgment is warranted on violations of §§ A(6), A(8), and A(9) of the General Permit.
2. Kramer 1000
a. Identification, Description and Assessment of Potential Pollutants and Their Sources
Like the Kramer 1760 SWPPP, the Kramer 1000 SWPPP fails to identify any specific pollutants, aside from generally listing "sediment; metals, and oil" and "metal particles." See Cooper Decl., Ex. B at 32, 34. Moreover, the 1000 SWPPP does not adequately describe the various processing and storage procedures, as required by § A(6)(ii). See Cooper Decl., Ex. B at 29, 32; Carreon Decl. ¶¶ 46-47, Ex. V; Ford Decl. ¶¶ 42-46. Accordingly, the Kramer 1000 SWPPP also violates the General Permit.
b. Incorporation of BMPs That Achieve BAT/BCT
The Kramer 1000 SWPPP also does not include structural BMPs. Kramer has not presented evidence that creates a genuine issue of material fact as to whether nonstructural BMPs prevented pollutants from coming into contact with storm water. Again, while there are genuine issues as to whether the BMPs actually used achieved BAT/BCT, the Court finds summary judgment appropriate as to the *933 Kramer 1000 SWPPP's compliance with § A(8).
c. Site Map
Baykeeper also argues that the Kramer 1000 Site Map failed to satisfy the requirements of the General Permit. The General Permit requires that the Site Map include all areas of industrial activity; locations where materials are directly exposed to precipitation; and outline of all impervious areas of the facility; and all areas subject to soil erosion. Gen. Permit § A(4)(a)-(e). Baykeeper has presented evidence showing that Kramer 1000 has large areas of exposed soil and stores substantial scrap metal and other materials without cover and directly exposed to precipitation, neither of which is reflected in the Site Map. See Cooper Decl., Ex. B at 30 (Site Map); Horner Decl. ¶¶ 44-46 & Ex. B at 56-61; Carreon Decl. ¶¶ 46-47 & Ex. V at 245-49. Kramer has not presented evidence showing a genuine issue of material fact as to these issues. Accordingly, the Court finds that the Site Map did not comply with the SWPPP.
d. Revisions
For the reasons noted above with respect to the 1760 facility, the Court finds that Kramer did not revise its SWPPP as required by § A of the General Permit.
e. Summary
In sum, the Court finds that summary judgment is warranted for violations of §§ A(4), A(6), A(8), and A(9) of the General Permit.
F. Monitoring and Reporting Plans
Section B of the General Permit sets out requirements for monitoring and reporting storm water. These monitoring and reporting requirements are aimed at (1) ensuring that storm water discharges are in compliance with discharge prohibitions, effluent limitations, and receiving water limitations, and (2) assisting in the evaluation and analysis of the BMPs. See Gen. Permit, § B(2). By participating in the MRMG, Kramer is subject to reduced monitoring. Id. at § B(15). Members of the group monitoring program must conduct storm water sampling and analysis in compliance with the following requirements: (1) they must be collected from two storm events at each site during the five-year cycle that occur during scheduled facility hours and that are preceded by at least three working days without storm water discharges; (2) the samples must be taken during the first hour of discharge; (3) at least one sample must be collected from the first storm event of a particular wet season (October 1 through May 30); (4) samples must be analyzed for specific contaminants; and (5) samples must be analyzed for toxic chemicals and other pollutants that are likely to be present in storm water discharges in significant quantities. Id. at §§ B(5)(a)-(b).
1. Kramer 1760
It is undisputed that Kramer 1760 was designated to collect storm water samples during the 2003-2004, 2004-2005, 2005-2006, and 2006-2007, and that Kramer tested only once during this period, on April 20, 2007. Baykeeper has presented evidence that there were numerous qualifying events recorded in downtown Los Angeles, during these four seasons. See Cooper Decl., Ex. T.[15] While issues of fact may preclude summary judgment on many *934 of these examples, at the very least, Kramer's own annual reports establish that there were two qualifying events in 2003-04. While Kramer recorded visual observations, it did not sample. See Cooper Decl., Ex. F at 107-108; see also Packard Decl., Ex. C at 44.[16] By failing to take two samples, Kramer failed to comply with the requirements of the General Permit. The Court finds that genuine issues remain as to the other alleged violations of this section.[17]
2. Kramer 1000
It is undisputed that Kramer was designated to collect stormwater samples at the Kramer 1000 facility during the 2002-2003, 2003-2004, 2004-2005, and 2006-2007 wet seasons. Def.'s Statement at ¶¶ 327, 330, 338, 355. It is also undisputed that Kramer conducted no samples for Kramer 1000. Id. at ¶¶ 329, 332, 339, 348. For the same reasons as with Kramer 1760, the Court grants summary judgment as to the failure to conduct two samples. See Cooper Decl., Ex. M at 259-60 & Ex. P at 320. For the same reasons as with Kramer 1760, the Court denies summary judgment as to any other violations of this subsection.
G. Annual Reports
Finally, Baykeeper moves for summary judgment on the basis that Kramer failed to self-report any noncompliance, in violation of § A(9) of the General Permit. As this argument appears primarily to rely on the adequacy of Kramer's BMPs, see Reply at 21-23, the Court finds summary judgment inappropriate on this ground.
III. RULE 56(f) REQUEST
Although Kramer has defended Baykeeper's Motion for Summary Judgement, it has also filed a request pursuant to Federal Rule of Civil Procedure 56(f) for a continuance of this motion. While Kramer presents this request as an alternative for the court "if the Court is not inclined to deny the motion based on the materials before it now." Opp. at 23-24.
Rule 56(f) provides that if a party opposing a motion for summary judgment "shows by affidavit that, for specified reasons, it cannot present facts essential to justify its opposition, the court may: (1) deny the motion; (2) order a continuance to enable affidavits to be obtained, depositions to be taken, or other discovery to be undertaken; or (3) issue any other just order." Fed.R.Civ.P. 56(f). "A party requesting a continuance pursuant to Rule 56(f) must identify by affidavit the specific facts that further discovery *935 would reveal, and explain why those facts would preclude summary judgment." Tatum v. City and County of San Francisco, 441 F.3d 1090, 1100 (9th Cir.2006). A district court is within its discretion to deny a Rule 56(f) request "if the movant has failed diligently to pursue discovery in the past." Chance v. Pac-Tel Teletrac, Inc., 242 F.3d 1151, 1161 n. 6 (9th Cir. 2001) (quoting Nidds v. Schindler Elevator Corp., 113 F.3d 912, 920 (9th Cir.1996)) (internal quotation marks omitted). That said, "a district court should continue a summary judgment motion upon a good faith showing by affidavit that the continuance is needed to obtain facts essential to preclude summary judgment." California v. Campbell, 138 F.3d 772, 779 (9th Cir. 1998).
Supported by an affidavit from counsel for Kramer, Kramer makes its Rule 56(f) request on two grounds. First, Kramer asserts that it did not know that Baykeeper would be relying on the water samples it collected in this Motion for Summary Judgment. Second, Kramer asserts that it was not aware Baykeeper would be using Dr. Horner as an expert witness and has not had the opportunity to cross-examine him.
Discovery is not yet closed in this case. According to the current scheduling order, stipulated by the parties, Fact Discovery Cut Off is March 3, 2009. See Order Re Stipulation Setting Pretrial and Trial Schedule, Docket No. 26, at 2. Expert disclosures and reports are due March 17, 2009, rebuttal expert reports are due April 21, 2009, and expert discovery cut-off is April 28, 2009. Id. The last day to hand-serve Motions is March 24, 2009, and the Motion cut-off is April 14, 2009. Id.
To the extent Kramer's Rule 56(f) motion rests on Baykeeper's use of its own samples, Kramer's request lacks merit. According to Baykeeper's counsel, although it has been over a year and a half since Baykeeper filed this case, Kramer has conducted no discovery. Cooper Reply Decl. ¶ 9. In Baykeeper's Rule 26(a) Initial Disclosures, dated January 29, 2008, Baykeeper specifically disclosed data reports relating to storm water sampling it conducted at Kramer's facilities on February 11, 2007, February 22, 2007, and November 30, 2007. Cooper Reply Decl., Ex. D at 62. Likewise, Tom Ford, Carlos Carreon, Meredith McCarthy, and Jose Couce have been designated as witnesses since those initial disclosures. Id. at 64. Kramer's suggestion that it did not expect Baykeeper to rely on this information because of a conversation in which Kramer's counsel criticized Baykeeper's samples, see Booth Aff. ¶¶ 3-4, does not justify continuance. See Chance, 242 F.3d at 1161 n. 6.
Kramer's challenge as to Dr. Horner are also unavailing. As mentioned above, under the current Scheduling Order, stipulated by the parties, expert reports and disclosures are not due until March 17, 2009, rebuttal expert reports are due April 21, 2009, and expert discovery cut-off is April 28, 2009. The last day to hand-serve Motions is March 24, 2009, and the Motion cut off is April 14, 2009. Baykeeper notes that its consultant conducted a noticed site inspection at both Kramer facilities with Dr. Horner for the purposes of settlement as early as October 2007. Because Dr. Horner has been in the case since late 2007, Kramer has had ample time to take his deposition. Additionally, Kramer's insistence that it has not had a chance to cross-examine Dr. Horner, though perhaps relevant, is unconvincing here. The dates provided by the parties' own stipulated scheduling order suggest that the parties did not necessarily contemplate pre-Summary Judgment depositions of experts. More importantly, however, Kramer has failed to point to specific facts that may be *936 provided in such a deposition that would undermine summary judgment here.
This is not a case where discovery has just begun or the moving party has sprung new information on the defendant at the last minute. Although Kramer is correct that discovery has not yet been completed, the Court finds its explanations insufficient in the context of this case. Thus, the Court denies the Rule 56(f) request.
IV. CONCLUSION
For the foregoing, reasons, the Court grants in part and denies in part Baykeeper's Motion for Partial Summary Judgment.
IT IS SO ORDERED.
NOTES
[1] As discussed in more detail below, Kramer disputes the authority of these samples and what they show. See Defs.' Statement of Genuine Issues ("Defs.' Statement"), ¶¶ 40-50.
[2] Operations at that facility stopped in 2008. It is undisputed that on June 17, 2008, Kramer Metals filed a Notice of Termination for the Kramer 1000 facility. According to Douglas Kramer's deposition testimony, operations at the facility ended in early 2008 because the facility was subject to an eminent domain proceeding in the City of Los Angeles. Atherton Decl., Ex. B at 21:4-11. Baykeeper seeks liability for violations at Kramer 1000 from April 14, 2002 through June 16, 2008. Mot. at 3:8-10.
[3] Although Kramer lists some of these genuine issues in its Opposition, it makes this argument primarily by pointing to its Statement of Genuine Issues of Material Fact and the declarations supporting the Opposition. Opp. at 17:7-14.
[4] As a corporation, Kramer is a "person" under the Clean Water Act. 33 U.S.C. § 1362(5).
[5] For the purposes of § 1365, the term "effluent standard or limitation under this chapter" includes an unlawful act under § 1311(a), i.e., the discharge of a pollutant in violation of the General Permit. 33 U.S.C. § 1365(f); see id. §§ 1311(a), 1342(p).
[6] The General Permit was issued in 1991, modified in 1992, and reissued in 1997.
[7] BMPs are
schedules of activities, prohibitions of practices, maintenance procedures, and other management practices to prevent or reduce the pollution of "waters of the United States." BMPs also include treatment requirements, operating procedures, and practices to control plant site runoff, spillage or leaks, sludge or waste disposal, or drainage from raw material storage.
40 C.F.R. § 122.2. BMPs can be structural or non-structural.
[8] As discussed below, the parties dispute the applicability and impact of the CTR.
[9] See 2000 MSGP, 65 Fed.Reg. at 64803; 2008 MSGP, Appendix C, C-4, available at http://cfpub.epa.gov/npdes/stormwater/msgp. cfm.
[10] At oral argument, Baykeeper agreed that this was the proper approach.
[11] The CTR levels are lower than benchmark levels. See 65 Fed.Reg. at 31701 ("EPA is aware that the criteria promulgated today for some of the priority toxic pollutants are at concentrations less than EPA's current analytical detection limits. Analytical detection limits have never been an acceptable basis for setting water quality criteria since they are not related to actual environmental impacts."). Pursuant to § 1342(p)(3)(A) (which incorporates the requirements of § 1311), "industrial storm-water discharges shall achieve any more stringent limitation, including those necessary to meet water quality standards, treatment standards or schedules of compliance, established pursuant to any State law or regulation." Defenders of Wildlife v. Browner, 191 F.3d 1159, 1164-65 (9th Cir.1999)(internal quotation marks and alterations omitted).
[12] This interpretation is consistent with the approach taken by the Regional Water Quality Control Board for the Los Angeles Region in its 2001 LA County MS4 Permit. See Cooper Reply Decl., Ex. B at 51 (defining "Water Quality Standards and Water Quality Objectives" to mean "water quality criteria contained in ... the California Toxics Rule").
[13] Baykeeper has objected to the Simpson Declaration on the basis of Federal Rule of Evidence 702 and Federal Rule of Civil Procedure 56(e). See Pl.'s Objections to Evidence. Though styled as an attack on Simpson's entire declaration, Baykeeper's Rule 702 objection appears primarily to challenge Simpson's "qualifi[cations] as an expert by knowledge, skill, experience, training, or education" to opine on the relevance or interpretation of EPA Benchmarks and CTR. The Court does not read Baykeeper's objection to bear on Simpson's qualifications to testify the propriety of certain samples or how to sample, and does not read his deposition testimony to be inconsistent with his declaration on these points. Baykeeper does not argue, for instance, that Simpson has not stated the factual basis for his opinion. See Walton v. U.S. Marshals Service, 492 F.3d 998, 1008 (9th Cir.2007) (In this circuit, "[e]xpert opinion is admissible and may defeat summary judgment if it appears the affiant is competent to give an expert opinion and the factual basis for the opinion is stated in the affidavit, even though the underlying factual details and reasoning upon which the opinion is based are not." (internal quotation marks omitted)).
[14] Kramer filed objections to Carreon's declaration on February 13, 2009. The objections the sampling paragraphs assert lack of personal knowledge in violation of Federal Rule of Evidence 602. The Court overrules these objections.
[15] Baykeeper presents a list of qualifying events drawn from data from the National Climatic Data Center Website, http://www. ncdc.noaa.gov/oa/ncdc.html. Cooper Decl. ¶ 22. Kramer objects to this evidence on the basis that it is hearsay. See Def.'s Genuine Issues ¶¶ 296-325. In response, Baykeeper notes that "Kramer Metals provides no basis for its objection as to hearsay." See, e.g., Baykeeper's Restatement of Uncontroverted Facts, at ¶ 298. The Court notes that Baykeeper has the burden of showing that its evidenceproffered for the truth of the matter asserted, see Fed.R.Evid. 801falls into an exception to the hearsay rule. Although it has not cited these rules specifically, Baykeeper has essentially argued that Federal Rules of Evidence 803(8) and 1006 provide for admission. These Rules likely provide for admission. As discussed below, however, the Court's holding ultimately does not rest on this evidence.
[16] Kramer objects to the documents attached to the Packard Declaration on the basis that they are "unauthenticated and inadmissible." See Opp. At 19-20. But see Packard Decl. ¶ 4. As Kramer cites no rules or law for his general statement, the Court is unable to discern the exact nature of Kramer's objection.
[17] Genuine issues of fact remain, for example, as to whether a qualifying event occurred at the Kramer facility. While the Court does not consider Simpson's general statement in deposition sufficient to defeat summary judgment that qualifying events occurred, see Atherton Decl., Ex. A at 8:19-24, Douglas Kramer stated that no such events occurred under penalty of perjury. While the Court finds it unlikely that a storm event would occur at USC and not at Kramer 1760, it is not the Court's role to weigh evidence on such issues.
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17 N.Y.3d 661 (2011)
958 N.E.2d 874
2011 NY Slip Op 7303
THE PEOPLE OF THE STATE OF NEW YORK, Respondent,
v.
EDWIN SANTIAGO, Appellant.
No. 166.
Court of Appeals of New York.
Argued September 13, 2011.
Decided October 20, 2011.
*663 Legal Aid Society, Criminal Appeals Bureau, New York City (Jeffrey I. Dellheim, and Steven Banks, of counsel), for appellant.
Cyrus R. Vance, Jr., District Attorney, New York City (Patrick J. Hynes, and Alan Gadlin, of counsel), for respondent.
Chief Judge LIPPMAN and Judges CIPARICK, GRAFFEO, READ, SMITH and JONES concur.
*664 OPINION OF THE COURT
PIGOTT, J.
In this case, turning on the accuracy of eyewitnesses' recognition of an assailant's partially concealed face, we consider whether two additional eyewitness identifications sufficiently corroborated the victim's identification of the defendant, so as to render expert testimony on eyewitness recognition memory unnecessary. We conclude that they did not, and that it was error to exclude much of the proposed testimony.
I.
In the early morning of January 10, 2003, a woman waiting for a train at a Manhattan subway station was attacked by a stranger. She had noticed the man when, after they made eye contact on the platform, he stepped behind a pillar before approaching her. When he was an arm's length away from her, the man asked whether she was "working." When she inquired what he meant, he asked if she was an escort. After she looked away and said "No," the man began assaulting her. She closed her eyes while raising her hands to protect herself. She could not tell whether her assailant had a weapon. After about 10 seconds, the attack stopped, and the assailant fled.
The victim was assisted by workers at the station, who, along with the police, searched fruitlessly for the assailant. An ambulance transported her to a hospital where she was treated. At the hospital, the victim gave detectives a description of her attacker, a Hispanic male, late 20s or early 30s, five feet, eight inches to five feet, nine inches tall, with a mustache and a goatee. To one detective, the victim described her assailant's "brown[/]yellow mustache."
The man was wearing a winter jacket, a hooded sweatshirt or "hoodie," jeans, and a "winter hat." The jacket, hoodie and hat together covered the assailant's head in such a way that his face was concealed "[f]rom the middle of his top lip, down, and from the top of his eyebrows up." The victim could not see her assailant's hair, except for his eyebrows and mustache. On the day after the attack, the victim was interviewed by a police artist who created a sketch of the perpetrator.
Police detectives visited the subway station in search of eyewitnesses. Edwin Rios, who had seen the assault, described *665 the assailant as a Hispanic male in his mid to late 20s, with a goatee, wearing a hood. The assailant had passed Rios after the attack, carrying a knife. Later, police located another witness, Pablo Alarcon, who had noticed the assailant beforehand because the man's facial expression made Alarcon nervous. After the attack, Alarcon saw the assailant put a knife away as he fled. Alarcon also described the perpetrator as a Hispanic male with a goatee. Police officers showed Rios a copy of the artist's sketch of the perpetrator; Rios thought it was "[m]ore or less" accurate.
On January 19, 2003, a plainclothes police officer patrolling a subway station in Brooklyn noticed a man in a winter jacket, jeans and winter cap selling Metrocard "swipes." Later, the officer saw the same man engaged in the same activity at the next stop. The officer arrested the man, defendant Edwin Santiago, and his photograph made its way to the detective squad investigating the January 10 attack.
An array comprising photographs of six men and including defendant's arrest photograph was shown to Alarcon on January 22. He claimed not to recognize defendant or any of the other men in the array. The victim viewed the photographic array on January 24. She testified that, when she saw the photograph of Santiago, it felt as if her "heart stopped and [she] got really scared and [] said that that was him."
Santiago, who had been released, was rearrested the following day, at a shelter for the homeless. A photograph taken after the second arrest shows Santiago with a dark mustache and goatee. He was 30 years old and five feet, five inches in height.
On January 26, the victim identified Santiago in a six-person lineup. According to the victim, when she saw defendant, she felt "really scared"it was, once again, as if her "heart stopped" and she "knew it was him." On the same day, Alarcon viewed the lineup. As he later explained at defendant's suppression hearing and trial, he recognized defendant as the perpetrator of the attack with an "eighty percent" feeling of confidence in his identification, but, because he was concerned about his immigration status, he told the police that he did not recognize anyone. The following day, Alarcon saw a photograph of Santiago in handcuffs, accompanied by police officers, in a Spanish-language newspaper; the article made it clear that Santiago had been identified by the victim of the subway attack and arrested.
Santiago was indicted by a grand jury on a first-degree assault charge on February 6, 2003.
*666 II.
No physical evidence linked defendant to the assault. As it appeared at the time of the indictment, the People's case would be built entirely on the victim's identification. Attempting to secure expert testimony from Professor Steven Penrod on the psychological factors affecting the accuracy of eyewitness identification, Santiago filed a motion in limine on June 26. The People countered by arguing, among other things, that much of the proposed expert testimony was within the common understanding of jurors, or inapplicable to the facts of the case.
Supreme Court granted defendant's motion to the extent of ordering a Frye hearing (see Frye v United States, 293 F 1013 [DC Cir 1923]), to determine whether the principles Professor Penrod proposed to describe in his testimony had gained general acceptance in their scientific fields. During subsequent motion practice, defendant gave provisional summaries of Penrod's expected testimony. He would testify concerning studies that support various principles proposed by psychologists in the field of eyewitness recognitionexposure time (the amount of time available for viewing a perpetrator affects the witness's ability to identify the perpetrator); cross-racial and cross-ethnic inaccuracy (non-Hispanic Caucasian eyewitnesses are generally less accurate in identifying Hispanic people than in identifying other non-Hispanic Caucasians); weapon focus (a victim's focus on the weapon used in an assault can affect ability to observe and remember the attacker); lineup fairness (similarity of fillers to the suspect increases identification accuracy); lineup instructions (police instructions indicating that the police believe the perpetrator to be in the lineup increase the likelihood of false identification); forgetting curve (the rate of memory loss for an event is greatest right after the event and then levels off over time); postevent information (eyewitness testimony about an event often reflects not only what the witness actually saw but also information the witness obtained later); wording of questions (eyewitness testimony about an event can be affected by how questions put to the witness during investigation are worded); unconscious transference (eyewitnesses sometimes identify as the culprit an individual familiar to them from other situations or contexts); simultaneous versus sequential lineups (witnesses are more likely to make mistakes when they view simultaneous lineups than when they view sequential lineups); eyewitness confidence issues (an eyewitness's confidence level is not a good predictor of eyewitness accuracy, but eyewitness *667 confidence is the major determinant in whether an identification is believed by jurors), and confidence malleability (eyewitnesses' confidence levels can be influenced by factors unrelated to identification accuracy).
After defendant's case was transferred to a different Supreme Court Justice, defendant renewed his motion to admit expert testimony. On December 19, 2003, Supreme Court denied defendant's motion, without holding a Frye hearing. While noting that there was "no corroboration of the victim's identification," Supreme Court nonetheless ruled that the case was not "an appropriate one for an expert identification witness" (2 Misc 3d 652, 653 [Sup Ct, NY County 2003]). Supreme Court found that the case did not involve a cross-racial identification as contemplated by the psychological literature, and that weapon focus was not relevant because the victim was not aware of any weapon. Supreme Court further reasoned that testimony about how lineup instructions can influence an identification would be inappropriate, because the victim here "must have realized that the person whose photograph she selected would be in the lineup" (id. at 654). The court rejected expert testimony on postevent information, the forgetting curve, the wording of questions, and eyewitness confidence issues (including confidence malleability), on the ground that "by helping to create the sketch and approving its final version, the victim went on the record, for better or worse, about the facial features of her attacker long before any of those topics potentially could influence her lineup identification" (id. at 654). The court found evidence about simultaneous versus sequential lineups inappropriate on the basis that "[j]urors are not experts on constitutional law and procedure, and cannot be educated about those topics during a trial" (id. at 655). In addition, Supreme Court noted that, in Frye hearings in other cases, postevent information and unconscious transference had been found to be not generally accepted within the relevant scientific community.[1] Supreme Court concluded by inviting the parties to "suggest ways to address, during jury selection and in the final instructions, the topic of a witness's confidence if one side feels that the court's charge on `certainty' is not adequate to cover `confidence'" (id. at 655). Defense counsel objected to the ruling.
*668 III.
On December 21, 2003, Alarcon told an assistant district attorney that he had in fact recognized someone in the January 2003 lineup. Shown photographs of that lineup, he identified defendant as the person he had recognized from the attack. On January 20, 2004, Rios was shown a new lineup, in which he identified Santiago.
Following a suppression hearing, at which his motions were denied, Santiago was tried before a jury. The victim identified Santiago at the trial, insisting that there was no doubt in her mind that he was her assailant. Rios and Alarcon also identified defendant; the latter repeated that he was only "eighty percent sure" of his identification. The jury heard about the prior photographic and lineup identifications.
After the defense rested, Santiago renewed his objection to Supreme Court's refusal to admit the expert testimony, moving to reopen his case. Supreme Court denied the motion.
Defense counsel's summation stressed that certainty of identification was not equivalent to accuracy of identification. As promised, Supreme Court's final charge told the jury to "[k]eep in mind that the witness's confidence or lack of confidence in his or her testimony is not necessarily indicative of accuracy of identification."
On February 5, 2004, the jury found Santiago guilty of assault in the first degree. Supreme Court convicted him accordingly, sentencing him to 25 years imprisonment, to be followed by five years postrelease supervision.
Santiago timely appealed, raising several issues he has since abandoned, as well as the argument we now considerhis claim that Supreme Court abused its discretion in denying his request for expert testimony on eyewitness identification. On May 6, 2010, a fractured Appellate Division affirmed Supreme Court's judgment (75 AD3d 163 [2010]). Two Justices concluded that there was no abuse of discretion; another concurred, in an opinion expressing the view that any error was harmless. The two dissenting Justices would have held that Supreme Court abused its discretion, and one of the dissenting Justices granted defendant leave to appeal to this Court (2010 NY Slip Op 81574[U] [2010]). We now reverse.
IV.
A trial court may, in its discretion, admit, limit, or deny the testimony of an expert on the reliability of eyewitness identification, *669 weighing a request to introduce such expert testimony "against other relevant factors, such as the centrality of the identification issue and the existence of corroborating evidence" (People v Lee, 96 NY2d 157, 163 [2001]). Because mistaken eyewitness identifications play a significant role in many wrongful convictions, and expert testimony on the subject of eyewitness recognition memory can educate a jury concerning the circumstances in which an eyewitness is more likely to make such mistakes, "courts are encouraged . . . in appropriate cases" to grant defendants' motions to admit expert testimony on this subject (People v Drake, 7 NY3d 28, 31 [2006], citing People v Young, 7 NY3d 40 [2006]).
In People v LeGrand (8 NY3d 449 [2007]), we set out standards governing the discretion of trial courts in regard to the admission of expert testimony on eyewitness identification. LeGrand established a two-stage inquiry for considering a motion to admit such testimony. The first stage is deciding whether the case "turns on the accuracy of eyewitness identifications and there is little or no corroborating evidence connecting the defendant to the crime" (LeGrand, 8 NY3d at 452). If the trial court finds itself with such a case, then it must proceed to the second stage, which involves the application of four factors. The court must decide whether the proposed "testimony is (1) relevant to the witness's identification of defendant, (2) based on principles that are generally accepted within the relevant scientific community, (3) proffered by a qualified expert and (4) on a topic beyond the ken of the average juror" (id.). If, on the other hand, sufficient evidence corroborates an eyewitness's identification of the defendant, then there is no obligation on the part of the trial court to proceed to the second stage of analysis, because testimony concerning eyewitness identifications is unnecessary (see e.g. Young, 7 NY3d at 45).
In LeGrand, one witness to a murder, who saw the perpetrator close up, identified the defendant as the killer in a photographic array and in a lineup, conducted seven years later. Two other witnesses, who identified the defendant at trial after they had failed to identify him in a photographic array, had seen his photograph in the array again in the district attorney's office the night before they testified. No physical evidence connected defendant to the killing. Defendant sought to introduce expert testimony on research concerning factors that may influence the perception and memory of eyewitnesses and the reliability of their identifications. The trial court, after a Frye hearing, *670 precluded the testimony on the ground that the expert's conclusions were not generally accepted in the relevant scientific community.
We held that, with respect to much of the requested expert testimony on eyewitness identifications, the hearing court abused its discretion in failing to admit the testimony. In particular, we ruled that there was sufficient evidence to confirm that the principles underlying the expert's proposed testimony regarding the lack of correlation between confidence and accuracy of identification, confidence malleability, and the effect of postevent information on identification accuracy were generally accepted by social scientists and psychologists working in the field, and that testimony concerning these issues should not have been precluded (LeGrand, 8 NY3d at 458). By contrast, we ruled that there was insufficient evidence to confirm that the principles underlying the expert's testimony on weapon focus were generally accepted by the relevant scientific community, so that this testimony was properly excluded (id.).
We returned to the theme of expert testimony on eyewitness identification in People v Abney and People v Allen (13 NY3d 251 [2009]). In Abney, a teenage girl was robbed of a necklace, on a subway station stairway, by a stranger wielding a large knife. The only evidence against defendant was the eyewitness identifications (in a photographic array and in a lineup) of the girl. Defendant requested permission to elicit expert testimony about the effects of event stress, exposure time, event violence and weapon focus, cross-racial identification, lineup instructions, and double-blind lineups. In Allen, two masked men robbed a barbershop; one carried a knife. Two witnesses recognized the robber with the knife as an individual whom they knew from the neighborhood, and then identified defendant as that person in a photographic array. Defendant sought to elicit testimony from an expert concerning the effects of event stress, weapon focus, lack of correlation between confidence and accuracy, and unconscious transference. In both cases, expert testimony on eyewitness identifications was excluded.
In Abney, where "it was clear that there was no evidence other than [the victim's] identification to connect defendant to the crime, and she did not describe him as possessing any unusual or distinctive features or physical characteristics" (13 NY3d at 268), we held that the trial court abused its discretion in failing to allow expert testimony on the subject of witness confidence and in refusing to hold a Frye hearing with regard to *671 the expert's proposed testimony on the effect of event stress, exposure time, event violence and weapon focus, and cross-racial identification.[2]
In Allen, on the other hand, the case against defendant did not depend exclusively on one eyewitness's identification, and we ruled that the trial court acted within its discretion.
"Allen is not a `case [that] turns on the accuracy of eyewitness identifications [where] there is little or no corroborating evidence connecting the defendant to the crime' (LeGrand, 8 NY3d at 452). Critically, [a second eyewitness] independently identified defendant as the knife-wielding robber who searched him and stood nearby throughout the course of the robbery. And defendant was not a stranger to either [eyewitness]." (13 NY3d at 269.)
Whether a victim's or other eyewitness's identification of a defendant is sufficiently corroborated by other eyewitness identifications, so that the trial court need not proceed to the second stage of the LeGrand analysis, is dependent on the circumstances of the case. In LeGrand, no physical evidence linked the defendant to the crime, and the two doubtful eyewitness identifications did not sufficiently corroborate the identification of the eyewitness who saw the perpetrator close up. However, even when the evidence that a defendant was the perpetrator of a crime consists entirely of eyewitness identifications, the case is not necessarily one in which "there is little or no corroborating evidence" (8 NY3d at 452). Thus, in Allen, we held that the second eyewitness's identification of the defendant constituted evidence corroborating an eyewitness identification (13 NY3d at 269). We reached that conclusion because the corroborating identification possessed strong indicia of accuracy. In particular, the defendant in Allen was known to the second eyewitness, who recognized him during the robbery (id.).
V.
In the present case, when Supreme Court denied Santiago's in limine motion in December 2003, the evidence disclosed by the People consisted of the victim's identifications of him in a photographic array and a lineup. At that time, as Supreme Court *672 noted, the case turned on the accuracy of a single eyewitness identification and there was no corroborating evidence connecting the defendant to the crime. The issue therefore becomes whether the four factors enumerated in the second stage of the LeGrand analysis apply to the proposed testimony.
Supreme Court abused its discretion when it refused to allow testimony on studies showing that eyewitness confidence is a poor predictor of identification accuracy and on studies regarding confidence malleability. Undoubtedly, such testimony is relevant to this case in which the primary evidence against defendantthe only evidence at the time of Supreme Court's first rulingwas the victim's identification, and she expressed her recognition with subjective certainty. Moreover, the principles concerning confidence about which the expert was to testify are generally accepted within the relevant scientific community, and are beyond the ken of the average juror (Abney, 13 NY3d at 268; LeGrand, 8 NY3d at 458). For similar reasons, Supreme Court abused its discretion when it excluded expert testimony on the effects of postevent information on eyewitness memory (see LeGrand, 8 NY3d at 458).[3]
Given that the People did not dispute that the victim is a non-Hispanic Caucasian, the proposed testimony on inaccuracy of identifications of Hispanic people by non-Hispanic Caucasians appears relevant, and is beyond the ken of the average juror. Supreme Court should also have given more adequate consideration to whether the proposed testimony concerning exposure time, lineup fairness, the forgetting curve, and simultaneous versus sequential lineups was relevant to this case and beyond the ken of the average juror, and if necessary held a Frye hearing, to determine whether these factors are generally accepted as reliable within the relevant scientific community.[4]
By contrast, testimony concerning weapon focus, the effects of lineup instructions, wording of questions, and unconscious transference would have been irrelevant. The victim was not aware that her assailant had a weapon, and the record contains no evidence of improper lineup instructions, suggestive wording, or the presence of defendant's image in photographs the *673 victim saw prior to identifying him in the photographic array she viewed. In these respects, exclusion was proper.
VI.
A separate question is whether Supreme Court abused its discretion when, after the defense had rested, the court denied defendant's renewed request to call an expert witness on eyewitness identification. By this time, the People had introduced evidence of Alarcon's and Rios's identifications of defendant, in addition to the victim's.
The People argue that, because of this additional evidence, this is not a case in which "there is little or no corroborating evidence connecting the defendant to the crime" (LeGrand, 8 NY3d at 452), and consequently it could not have been an abuse of discretion to exclude the requested expert testimony. We disagree.
Here, as in LeGrand, several factors call the corroborating identifications into question. Like the victim, Alarcon saw only part of the perpetrator's face. Alarcon identified defendant as the perpetrator with only 80% confidence. It is also possible that Alarcon's December 2003 identification, using the photographs of the January 2003 lineup, was tainted by his memory of the photograph of defendant he had seen in the Spanish-language newspaper. Moreover, Rios's identification of defendant may have been influenced by his memory of the police artist's sketch of the assailant, calling into question the independence of this evidence from the victim's own identification. Taking into account all these circumstances, we do not consider the corroborating evidence sufficient to obviate the second stage of the LeGrand analysis.
Supreme Court, therefore, having erred in certain respects in denying defendant's pretrial motion to admit expert testimony regarding eyewitness testimony, erred in the same respects in denying defendant's end-of-trial motion to reopen the case and admit the expert testimony. Moreover, in its second ruling, Supreme Court should have given specific consideration to the proposed testimony concerning unconscious transference. That testimony would have been relevant, given that Alarcon saw a photograph of Santiago, and Rios saw a sketch of the perpetrator based on the victim's description, and familiarity with these images may have influenced these eyewitnesses' identifications.
Finally, Supreme Court's errors were not harmless. Trial error is only harmless when there is overwhelming proof of the *674 defendant's guilt and no significant probability that the jury would have acquitted the defendant were it not for the error (People v Crimmins, 36 NY2d 230, 242 [1975]). Here, the proof of defendant's guilt was not overwhelming; therefore, the errors cannot be regarded as harmless. We need not decide the probability that the verdict would have been different if the expert testimony had not been excluded.
Accordingly, the order of the Appellate Division should be reversed and a new trial ordered.
Order reversed, etc.
NOTES
[1] We decided otherwise, with respect to postevent information, in People v LeGrand (8 NY3d 449, 458 [2007]).
[2] However, we ruled that expert testimony on lineup instructions and double-blind lineups would have been irrelevant to the victim's identification of defendant.
[3] While we had not yet decided LeGrand at the time Supreme Court reached its decision, the trial court should have held a Frye hearing to investigate the scientific acceptability of the principles related to eyewitness confidence and postevent information.
[4] We note that the fact that the victim assisted in the creation of an artist's sketch of her attacker does not render the expert testimony irrelevant.
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962 N.E.2d 437 (2012)
356 Ill. Dec. 752
The PEOPLE of the State of Illinois, Appellee,
v.
Elias GUTIERREZ, Appellant.
No. 111590.
Supreme Court of Illinois.
January 20, 2012.
*438 Michael J. Pelletier, State Appellate Defender, Thomas A. Lilien, Deputy Defender, and Jaime L. Montgomery, Assistant Appellate Defender, of the Office of the State Appellate Defender, of Elgin, for appellant.
Lisa Madigan, Attorney General, of Springfield, and Michael J. Waller, State's Attorney, of Waukegan (Michael A. Scodro, Solicitor General, and Michael M. Glick and Joshua M. Schneider, Assistant Attorneys General, of Chicago, of counsel), for the People.
OPINION
Justice THOMAS delivered the judgment of the court, with opinion.
¶ 1 At issue is whether the appellate court properly remanded the cause for notice and a hearing on the defendant's ability to pay a public defender fee when the circuit clerk, on its own, improperly imposed the fee. We hold that the fee should have been vacated outright.
¶ 2 BACKGROUND
¶ 3 Defendant, Elias Gutierrez, was convicted of predatory criminal sexual assault of a child and sentenced to 20 years' imprisonment. Defendant appealed, arguing that several fines and fees had been improperly imposed. The appellate court allowed him to supplement the record with a certified copy of a "Party Finance Summary Query" that detailed the fines and fees that had been imposed by the Lake County circuit clerk. One of these was a $250 public defender fee. 405 Ill.App.3d 1000, 1001-02, 345 Ill.Dec. 180, 938 N.E.2d 619.
¶ 4 The appellate court agreed with defendant that the public defender fee had to be vacated pursuant to section 113-3.1(a) of the Code of Criminal Procedure of 1963 (725 ILCS 5/113-3.1(a) (West 2008)) because defendant had not been provided with notice and a hearing. 405 Ill.App.3d at 1002, 345 Ill.Dec. 180, 938 N.E.2d 619. Relying on People v. Love, 177 Ill.2d 550, 227 Ill.Dec. 109, 687 N.E.2d 32 (1997), the court held that the fee could not be imposed *439 unless defendant had been provided with both: (1) notice that the trial court was considering imposing the fee; and (2) a hearing that focused on the defendant's financial circumstances and his ability to pay reimbursement for appointed counsel. Id. at 1002-03, 345 Ill.Dec. 180, 938 N.E.2d 619. The court, however, disagreed with defendant's argument that the fee should be vacated outright. The court explained that it had already held in People v. Schneider, 403 Ill.App.3d 301, 303-04, 342 Ill.Dec. 798, 933 N.E.2d 384 (2010), that cases in which the fee is imposed without notice and a hearing should be remanded for a hearing on the defendant's ability to pay. Id. at 1003, 345 Ill.Dec. 180, 938 N.E.2d 619. In Schneider, the defendant had argued that the case could not be remanded for a hearing because section 113-3.1(a) requires that the hearing be held no later than 90 days after the entry of a final judgment and that time period had already expired. The Schneider court noted that this court had remanded the matter for a hearing in Love and stated that it viewed Love as binding. Schneider, 403 Ill.App.3d at 304, 342 Ill.Dec. 798, 933 N.E.2d 384. Here, the appellate court followed Schneider and remanded the cause for a hearing, despite the fact that the 90-day time period had long since expired. 405 Ill.App.3d at 1003, 345 Ill.Dec. 180, 938 N.E.2d 619. We allowed defendant's petition for leave to appeal. Ill. S.Ct. R. 315 (eff. Feb. 26, 2010).
¶ 5 ANALYSIS
¶ 6 Jurisdiction
¶ 7 Before proceeding to the merits, we must address the State's contention that the appellate court lacked jurisdiction to consider defendant's appeal. The State argues that the appellate court lacked jurisdiction for two reasons: (1) the fee was ordered by the circuit clerk rather than by the court, and the appellate court's jurisdiction is generally limited to reviewing final orders of the circuit court; and (2) defendant's notice of appeal did not indicate that he was appealing the assessment of any fees or fines. We address the notice of appeal question first.
¶ 8 The State argues that defendant's notice of appeal was insufficient to confer jurisdiction on the appellate court to review the assessment of any fees or fines. The State cites People v. Smith, 228 Ill.2d 95, 104, 319 Ill.Dec. 373, 885 N.E.2d 1053 (2008), for the proposition that "Illinois courts have held that a notice of appeal confers jurisdiction on a court of review to consider only the judgments or parts thereof specified in the notice of appeal." The State notes that defendant filed two notices of appeal. The first indicated that defendant was appealing the denial of his motion to reconsider sentence, but contained the wrong date. The notice of appeal listed the date as August 1, 2008, which was the date of sentencing. Defendant then filed an amended notice of appeal in which he corrected the date to December 23, 2008, which was the date the court's final judgment was entered. Neither notice listed the assessment of any fines or fees and thus, according to the State, neither of the notices "adequately set out the judgment complained of." See Smith, 228 Ill.2d at 105, 319 Ill.Dec. 373, 885 N.E.2d 1053. We disagree.
¶ 9 In Smith, the defendant's notice of appeal was from the circuit court's judgment of conviction, entered on November 10, 2004, but the defendant's argument concerned the trial court's denial of his "motion for sentence correction," and that order was entered on February 21, 2006. Id. at 103, 319 Ill.Dec. 373, 885 N.E.2d 1053. While acknowledging that notices of appeal are to be construed liberally, this court held that no matter how liberally it *440 construed defendant's notice of appeal, it could not fairly and adequately be read as encompassing the court's order of February 21, 2006. Id. at 105, 319 Ill.Dec. 373, 885 N.E.2d 1053.
¶ 10 Smith is entirely distinguishable. In that case, we held that a notice of appeal, no matter how liberally construed, could not encompass a judgment entered over a year after the judgment identified in the notice. Here, by contrast, defendant appealed from the final judgment in his case. His first notice of appeal indicated that he was appealing from the denial of his motion to reconsider the sentence, but listed the wrong date. Defendant then filed an amended notice that listed the date December 23, 2008, the date of final judgment. Defendant's notice of appeal substantially conformed to the form provided in Rule 606(d) (Ill. S.Ct. R. 606(d) (eff. Sept.1, 2006)), but omitted the section where a defendant can identify if he is appealing from anything other than his conviction.
¶ 11 In People v. Lewis, 234 Ill.2d 32, 332 Ill.Dec. 334, 912 N.E.2d 1220 (2009), the defendant argued that the trial court erred in imposing a street value fine without an evidentiary hearing. The defendant's notice of appeal, however, stated that he was appealing from the denial of his motion to suppress. Id. at 35-36, 332 Ill.Dec. 334, 912 N.E.2d 1220. The defendant's notice of appeal substantially conformed with the form provided in Rule 606(d) and left blank the section in which he could have indicated if he was appealing from any order other than his conviction. Id. at 38, 332 Ill.Dec. 334, 912 N.E.2d 1220. The defendant did not raise any issue on appeal regarding the denial of his motion to suppress; rather, he merely contested the imposition of a street value fine without an evidentiary hearing. The State argued that the appellate court did not have jurisdiction to address the street value fine issue. The appellate court did not address the State's jurisdictional argument, and the State raised the argument again in this court. This court rejected the State's argument and held that the notice was sufficient to confer appellate jurisdiction. This court noted that the notice did not indicate that defendant was appealing anything other than his conviction. Id. at 38, 332 Ill.Dec. 334, 912 N.E.2d 1220. The Lewis court also pointed out that an order denying a motion to suppress is not appealable. Id. at 38, 332 Ill.Dec. 334, 912 N.E.2d 1220. Thus, Lewis concluded that the notice adequately informed the State that defendant was appealing from his conviction. Id. at 39, 332 Ill.Dec. 334, 912 N.E.2d 1220.
¶ 12 We likewise hold here that, where defendant's notice of appeal listed the date of final judgment and did not indicate that defendant was appealing anything other than his conviction, the State was adequately informed of the nature of defendant's appeal, and the appellate court had jurisdiction. The State notes that there is some confusion as to when the circuit clerk imposed the public defender fee. The Party Finance Summary Query provided to defendant lists two dates: "FILED 08/22/2007," and "STATUS 08/01/2008." The "filed" date is one day after the complaint was filed, and the "status" date is the date that defendant was sentenced. The logical inference is that the fee was assessed on the date that defendant was sentenced. Thus, the notice of appeal, which clearly indicated that defendant was appealing from the court's final judgment, was sufficient to confer jurisdiction on the appellate court to consider defendant's entire conviction.
¶ 13 The State also argues, however, the appellate court had no authority to review the fee because it was not embodied in any order of the circuit court. The *441 State points out that the fee was improperly imposed by the circuit clerk. According to the State, when defendant learned that the fee had been improperly imposed, he should have moved to vacate it in the circuit court. If the court would have denied the motion, then defendant would have had an appealable order. The State argues that this would prevent a squandering of scarce appellate judicial resources. The State acknowledges, with a long string citation, that the appellate court regularly acts on fines and fees improperly imposed by circuit clerks, but it appears that the jurisdictional question was not raised in those cases.
¶ 14 The State concedes that, pursuant to section 113-3.1(a), a public defender fee may be imposed only by the circuit court after a proper hearing and that the court cannot delegate this function to the circuit clerk. Defendant argues that, because the circuit clerk acted beyond its authority in imposing the fee, the order was void. Because a void order may be attacked at any time or in any court, either directly or collaterally (People v. Thompson, 209 Ill.2d 19, 25, 282 Ill.Dec. 183, 805 N.E.2d 1200 (2004)), defendant argues that the appellate court had jurisdiction to address the improperly imposed fee. We agree with defendant. A court cannot confer relief, even from void orders, if the court lacks jurisdiction. People v. Flowers, 208 Ill.2d 291, 308, 280 Ill.Dec. 653, 802 N.E.2d 1174 (2003). Because defendant's notice of appeal properly brought up his entire conviction for review, the appellate court had jurisdiction to act on void orders of the circuit clerk. See People v. Shaw, 386 Ill.App.3d 704, 710-11, 325 Ill.Dec. 708, 898 N.E.2d 755 (2008) (just as a void order may be attacked at any time, appellate court could address forfeited argument that circuit clerk acted beyond its authority in imposing a fine). Thus, we conclude that the appellate court had jurisdiction to consider defendant's argument that the public defender fee was improperly imposed.[1]
¶ 15 Merits
¶ 16 Defendant contends that the appellate court should have vacated the public defender fee outright and erred in remanding for a hearing on his ability to pay. Defendant's appeal raises solely questions of law, and thus our review proceeds de novo. People v. Phillips, 242 Ill.2d 189, 194, 351 Ill.Dec. 298, 950 N.E.2d 1126 (2011).
¶ 17 Section 113-3.1(a) of the Code of Criminal Procedure provides as follows:
"Whenever under either Section 113-3 of this Code or Rule 607 of the Illinois Supreme Court the court appoints counsel to represent a defendant, the court may order the defendant to pay to the Clerk of the Circuit Court a reasonable sum to reimburse either the county or the State for such representation. In a hearing to determine the amount of the payment, the court shall consider the affidavit prepared by the defendant under Section 113-3 of this Code and any other information pertaining to the defendant's financial circumstances which may be submitted by the parties. Such hearing shall be conducted on the court's own motion or on motion of the State's Attorney at any time after the appointment of counsel but no later than *442 90 days after the entry of a final order disposing of the case at the trial level." (Emphases added.) 725 ILCS 5/113-3.1(a) (West 2010).
¶ 18 In Love, the trial court ordered the defendant to pay a public defender fee, but did not hold a section 113 -3.1(a) hearing. Love, 177 Ill.2d at 553, 227 Ill.Dec. 109, 687 N.E.2d 32. This court rejected the State's argument that compliance with section 113-3.1(a) was optional. The Love court noted that the statute was designed to protect a defendant's due process rights and held that both the plain language of the statute and the legislative history indicated that compliance with the statute was a prerequisite to imposing a public defender fee. Id. at 555-60, 227 Ill.Dec. 109, 687 N.E.2d 32. In that case, the court remanded so that a proper hearing could be held. Id. at 565, 227 Ill.Dec. 109, 687 N.E.2d 32. Since then, the appellate court has routinely rejected the argument that the passage of more than 90 days after final judgment precludes courts from remanding cases for a hearing when a defendant has not been provided one, and Love is generally cited as authority for the proposition that remanding is the proper course. See, e.g., Schneider, 403 Ill. App.3d at 304, 342 Ill.Dec. 798, 933 N.E.2d 384. We caution, however, that the timeliness issue was not raised in Love. In that case, the appellate court vacated the fee and remanded for a hearing, and, in his appellee's brief in this court, the defendant specifically asked this court to affirm the appellate court's judgment. Thus, Love should not be read as deciding the issue either way.
¶ 19 Defendant argues that the appellate court should have vacated the public defender fee outright rather than remanding the cause for a hearing. Defendant notes that the statute requires that the hearing take place no later than 90 days after entry of the final order, and that the appellate court's remand order came almost two years after the trial court's final order was entered. Defendant argues that, because this court stated in Love that the hearing must happen "within the specified time period" (Love, 177 Ill.2d at 556, 227 Ill.Dec. 109, 687 N.E.2d 32) the appellate court erred in remanding the matter.
¶ 20 The State counters that, despite what this court said in Love, this court remanded for a hearing in that case even though the 90-day time limit had long since expired. The State contends that this was entirely appropriate because the 90-day period should be viewed as directory rather than mandatory. The State notes that the statute does not specify any consequences for noncompliance with the 90-day period and, therefore, under this court's decisions in People v. Robinson, 217 Ill.2d 43, 298 Ill.Dec. 37, 838 N.E.2d 930 (2005), and People v. Delvillar, 235 Ill.2d 507, 337 Ill.Dec. 207, 922 N.E.2d 330 (2009), it should be given a directory reading. Defendant responds that section 113-3.1(a) falls within one of the exceptions to the rule cited by the State. As this court explained in Robinson, even when a statutory provision sets forth no consequences for a failure to comply, it will be considered mandatory if it contains "negative words importing that the acts required shall not be done in any other manner or time." (Internal quotation marks omitted.) Robinson, 217 Ill.2d at 57, 298 Ill. Dec. 37, 838 N.E.2d 930 (quoting People v. Jennings, 3 Ill.2d 125, 127, 119 N.E.2d 781 (1954)). Here, the statute states that the hearing should take place "no later than 90 days after the entry of a final order disposing of the case at the trial level." (Emphasis added.) 725 ILCS 5/113-3.1(a) (West 2010).
¶ 21 We agree with defendant that the fee must be vacated outright, but we *443 also conclude that, on the facts of this case, it is not necessary to resolve whether section 113-3.1(a)'s time limit is mandatory or directory. At oral argument, the State made several important concessions leading directly to the conclusion that the fee should have been vacated outright. Again, section 113-3.1(a) provides that the fee may be ordered by the court and that the hearing on a defendant's ability to pay shall be conducted on the court's own motion or on motion of the State's Attorney. No such motion was made in this case by either the State or the trial court; the circuit clerk simply imposed the fee on its own.
¶ 22 In response to a question from the bench, the State explained that:
"If the clerk assesses the fee in a way that does not appear in the record anywhere * * * if the State has not moved for the fee, then the State isn't seeking the fee in that case. And if the court doesn't move under its own motion for the fee, then the court isn't seeking the fee. So then it's just a question of bringing this improperly assessed fee by the clerk to the court's attention to vacate it."
This case represents the exact situation outlined by the State at oral argument. The clerk assessed the fee in a way that did not appear in the record, and neither the State nor the trial court moved for a public defender fee. Thus, on this record, neither the State nor the trial court was seeking the fee, and the clerk's improperly assessed fee should have been vacated.
¶ 23 In response to the State's oral argument that the statute was directory, one of the Justices asked the State if that argument meant that the State could come in a year after a final judgment was entered and request a public defender fee that it had not sought before. The State responded that it could do so, but that such a motion should be denied because it would be brought outside the 90-day statutory period. Another Justice then asked if that was not exactly what the State was doing here: making a de facto motion for a fee long after the statutory period had expired. In response, the State went back to its jurisdictional argument. Whether section 113-3.1(a)'s time limit is mandatory or directory, the statute clearly does not contemplate the State asking for a public defender fee for the first time when the case is on appeal.
¶ 24 This is where the appellate court's analysis went off track. The appellate court stated that, "[b]efore assessing a public defender fee, a defendant must be provided with notice that the trial court is considering imposing payment" (405 Ill. App.3d at 1002, 345 Ill.Dec. 180, 938 N.E.2d 619), and that "[t]he court must find an ability to pay before it may order the defendant to pay reimbursement for appointed counsel" (id. at 1003, 345 Ill.Dec. 180, 938 N.E.2d 619). Here, however, the trial court did not order the reimbursement, and there is no indication in the record that it was even considering doing so. The circuit clerk had no authority to impose the public defender fee on its own, and, because neither the State nor the circuit court was seeking a public defender fee, the appellate court should have vacated the fee outright.
¶ 25 Before closing, we must express our disappointment that, 14 years after this court's decision in Love, defendants are still routinely being denied proper hearings before public defender fees are imposed. See, e.g., People v. Dalton, 406 Ill.App.3d 158, 346 Ill.Dec. 870, 941 N.E.2d 428 (2010); Schneider, 403 Ill.App.3d 301, 342 Ill.Dec. 798, 933 N.E.2d 384; People v. Holman, 402 Ill.App.3d 645, 344 Ill.Dec. 490, 937 N.E.2d 196 (2010); People v. Elcock, *444 396 Ill.App.3d 524, 336 Ill.Dec. 59, 919 N.E.2d 984 (2009); People v. Sanchez, 392 Ill.App.3d 1084, 332 Ill.Dec. 175, 912 N.E.2d 361 (2009); People v. Rowell, 375 Ill.App.3d 421, 314 Ill.Dec. 457, 874 N.E.2d 553 (2006); People v. Fletcher, 335 Ill. App.3d 447, 269 Ill.Dec. 180, 780 N.E.2d 365 (2002); People v. M.I.D., 324 Ill. App.3d 156, 257 Ill.Dec. 351, 753 N.E.2d 546 (2001); People v. Grayson, 321 Ill. App.3d 397, 254 Ill.Dec. 420, 747 N.E.2d 460 (2001); People v. Witte, 317 Ill.App.3d 959, 251 Ill.Dec. 548, 740 N.E.2d 834 (2000); People v. Foster, 316 Ill.App.3d 855, 250 Ill.Dec. 148, 737 N.E.2d 1125 (2000); People v. Lyons, 315 Ill.App.3d 959, 248 Ill.Dec. 842, 735 N.E.2d 162 (2000); People v. Exum, 307 Ill.App.3d 1000, 241 Ill.Dec. 481, 719 N.E.2d 342 (1999); People v. Houser, 305 Ill.App.3d 384, 238 Ill.Dec. 633, 712 N.E.2d 355 (1999); People v. Basler, 304 Ill.App.3d 230, 237 Ill.Dec. 801, 710 N.E.2d 431 (1999); People v. Jenkins, 303 Ill.App.3d 854, 237 Ill.Dec. 279, 709 N.E.2d 265 (1999); People v. Johnson, 297 Ill.App.3d 163, 231 Ill.Dec. 698, 696 N.E.2d 1269 (1998). And this list merely includes published decisions addressing the issue. In some of these cases, the fee was imposed by the circuit court without a hearing, and in some it was imposed by the circuit clerk. In the present case, as well as in Schneider and Dalton, the fee was imposed by the Lake County circuit clerk. At oral argument, defense counsel represented that this is a particular problem in Lake County, with the circuit clerk routinely imposing the fee on its own. Even the State referred to the "rogue actions of the Lake County Circuit Clerk."
¶ 26 We admonish the circuit clerks in general, and the Lake County circuit clerk in particular, that they may not impose public defender fees on their own. Pursuant to statute, a public defender fee may be imposed only by the circuit court after notice and a hearing on the defendant's ability to pay. We again remind the trial courts of their duty to hold such a hearing before imposing these fees, and we trust that we will not have to speak on this issue again.
¶ 27 CONCLUSION
¶ 28 On the record before us, there is no indication that either the State or the trial court was seeking a public defender fee. The Lake County circuit clerk improperly imposed the fee on its own, and the fee must therefore be vacated. The appellate court erred in remanding the cause for a hearing on defendant's ability to pay. We therefore reverse that portion of the appellate court's judgment that remanded the cause for notice and a hearing on defendant's ability to pay, but affirm it in all other respects.
¶ 29 Affirmed in part and reversed in part.
Chief Justice KILBRIDE and Justices FREEMAN, GARMAN, KARMEIER, BURKE, and THEIS concurred in the judgment and opinion.
NOTES
[1] As a policy matter, we fail to see how the State's proposed procedure would prevent a squandering of scarce judicial resources. It is obviously much more efficient for the appellate court to simply take care of the matter while the case is on review than to have the defendant initiate a separate proceeding to have the fine vacated. Also, we do not believe that the clerk's action in imposing an illegal fee should further burden the defendant.
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18 N.Y.3d 831 (2011)
962 N.E.2d 764
938 N.Y.S.2d 273
2011 NY Slip Op 8999
THE PEOPLE OF THE STATE OF NEW YORK, Respondent,
v.
WAYNE R. STEWART, Appellant.
No. 233.
Court of Appeals of New York.
Argued November 16, 2011.
Decided December 15, 2011.
*832 Anthony J. LaFache, Utica, for appellant.
John H. Crandall, District Attorney, Herkimer (Jeffrey S. Carpenter and Jacquelyn M. Asnoe of counsel), for respondent.
Chief Judge LIPPMAN and Judges CIPARICK, GRAFFEO, READ, SMITH, PIGOTT and JONES concur in memorandum.
OPINION OF THE COURT
MEMORANDUM.
The order of the Appellate Division should be modified by reducing defendant's conviction for assault in the first degree (Penal Law § 120.10 [1]) to one for assault in the second degree (Penal Law § 120.05 [2]) and remitting to County Court for resentencing and, as so modified, affirmed.
While the assault upon which defendant's conviction is based was serious, involving numerous blows with a sharp instrument, the resulting injuries were described in their most acute aspect by the treating emergency room physician as "superficial"; no organ damage or injury to muscle tissue was radiologically evident. Three of the victim's four wounds required only gauze dressing. And, while the remaining six-to-seven-centimeter wound on the victim's inner forearm was sutured, the victim spent just one day in the hospital without follow-up medical care, apart from the removal of his stitches. These injuries were not shown to be objectively "distressing or objectionable" (see People v McKinnon, 15 NY3d 311, 315 [2010]) so as to justify the conclusion that they constituted "serious . . . disfigurement" qualifying as a serious physical injury predicate for first degree assault under Penal Law § 120.10 (1) and § 10.00 (10).
Nor was serious physical injury proved upon the alternative ground set forth in the same Penal Law provisions, that the victim suffered "protracted impairment of health." It is true that the victim complained of daily pain attributable to his healing scars, but there was no basis for the jury reasonably to conclude that these sensations, discomfiting as they may have been, were indicative of or causally related to any protracted health impairment. There was, as noted, no medical evidence of an injury even potentially giving rise to extended health impairment. And, while we do not exclude the possibility that pain *833 may itself be disabling and result in protracted impairment of health, there was no evidence that the pain complained of by the present victim was so severe as to have had that effect; the victim did not, for example, testify as to his pain's severity or his need to resort to palliative measures. We note in this connection that the governing definitional statute, Penal Law § 10.00 (10), provides that, apart from an injury that is protractedly health impairing, "serious physical injury" alternatively may be "physical injury which creates a substantial risk of death, or which causes death or serious and protracted disfigurement . . . [or] protracted loss or impairment of the function of any bodily organ." It would not have been consistent with the Legislature's evident intent in this enumeration, rigorously to require verifiable proof of serious and consequential injury, to have included in it what would amount to a catch-all option for complaints of persisting discomfort unconnected to ascertainable health impairment.
Order modified, etc.
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47 F. Supp. 2d 605 (1999)
Sandra ALLEN, et al.
v.
COLUMBIA MALL, INC., et al.
No. CIV. L-96-1546.
United States District Court, D. Maryland.
March 18, 1999.
*606 *607 David L. Douglas, Theresa H. Hajost, Washington, DC, Richard H. Gordin, Tighe, Patton, Tabackman, Babbin, Washington, DC, for plaintiffs.
Jay Morstein, Eric Paltell, Theresa M. Connolly, Baltimore, MD, for defendants Columbia Mall, Inc.
Robert Jackson, Richard Ortiz, Michael McCollum, Andrea Jette, Pamela Berman, Leigh Earl Slayne, Boston, MA, Robert H. Bouse, Jr., H. Joy Sharp, Baltimore, MD, for defendant Malls Learningsmith, Inc., Evelyn Eichorn and Jeremiah Gallay.
MEMORANDUM
LEGG, District Judge.
While the Allen family was Christmas shopping at the Columbia Mall in December 1995, Christian Allen and his friend, Chelton Thorpe, were accused of shoplifting at a Learningsmith store. These two young men and Christian Allen's mother, Sandra Allen ("Allen"), filed the present case against Columbia Mall and four of its security guards[1] (collectively "Mall defendants") and Learningsmith, Inc. and two of its employees[2] (collectively "Learningsmith defendants"). All African-Americans, the plaintiffs allege racial discrimination and unlawful search and seizure as against all defendants, and various Maryland state torts.[3]
Jurisdiction is premised on a federal questionnamely Count I, which charges the defendants with racial discrimination and unlawful search and seizure in violation of 42 U.S.C. § 1983. The state tort claims are before this Court through supplemental jurisdiction, 28 U.S.C. § 1367.[4]
Currently pending is the Mall defendants' Motion for Summary Judgment. For the following reasons the Court agrees with the Mall defendants that there is no state action to support the plaintiffs' § 1983 claim and GRANTS the Motion for Summary Judgment as to Count I of the Second Amended Complaint as against all defendants. Because the plaintiffs' § 1983 claim fails, this Court no longer has original subject matter jurisdiction over the case. Accordingly, the Court will DISMISS *608 the state tort claims as against all defendants.
I. Background
On December 21, 1995, Allen was Christmas shopping at Columbia Mall along with her mother, her three children (including Christian Allen, age fourteen), and Christian Allen's friend, Thorpe, also age fourteen. (See 2nd Am. Compl. at ¶ 14). All members of Allen's family and Thorpe are African-American. (See id.). While Allen and her mother were elsewhere in the Mall, the four children entered the Learningsmith store. (See Christian Allen Dep. at 38). As the children browsed, at least one customer informed the Learningsmith employees (defendants Eichhorn and Gallay), that she had seen the two teenage boys shoplifting. (See Eichhorn Dep. at 63; Allen Dep. at 46-47).
A Learningsmith employee apparently called Columbia Mall security for assistance. Kevin Klevins, lead security officer, took the call and dispatched defendant Jackson to the store via radio. (See Klevins Dep. at 145). Security officers Ortiz and Jette, who were near Learningsmith, also responded to the radio call. (See Ortiz Dep. at 75; Jette Dep. at 85). At some point, defendant McCollum also came to the store. (See Jackson Dep. at 146). Jackson arrived first, and Eichhorn apprised him of the situation. (See Eichhorn Dep. at 102-103). Jackson told Eichhorn that in order to be guilty of shoplifting, the young men must have left the store with stolen merchandise. (See id.).
Shortly thereafter, Allen called her children to go home. (See Christian Allen Dep. at 33). Christian Allen's brother and sister exited the store, but when Christian Allen and Thorpe attempted to leave, they were stopped by the defendant security guards and by the Learningsmith employees. (See id. at p. 38). Eichhorn told the teenagers that two customers had accused them of shoplifting and asked them to empty their pockets.[5] (See id. at pp. 38-40). Although no one touched the young men, they complied, emptying their pants and jacket pockets in full view of Mall patrons. (See id. at 44-45). Nothing was found. (See 2nd Am. Compl. at ¶ 21).
Allen told the young men to wait for her at the food court. (See Allen Dep. at 106). She entered Learningsmith and complained "that the incident embarrassed her and her family." (2nd Am. Compl. at ¶ 22). Allen left to retrieve her children but was followed by Gallay and a security guard. (See Allen Dep. at 108). Gallay conducted a second search of the young men's jackets at the food court, again finding nothing. (See id. at 108-109).
At this point, Allen asked to speak with Gallay's supervisor. (See id. at 109). She complained to the supervisor that the search was racially motivated. (See id. at 62). Gallay proposed searching Allen's bags, but she refused, explaining that she had not been in the store with her bags. (See id.).
Allen next asked where to file a complaint. (See id. at 109). She alleges that Ortiz told her that she could not leave until she was released. (See id. at 114). Allen states she waited at a table in the food *609 court until told that she was released. (See id. at 117). Then, Allen filed a complaint with the Mall and returned home with her family. (See id. at 118-120). The plaintiffs filed the present lawsuit in May 1996.
II. Summary Judgment Standard
The Court may grant summary judgment when "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 judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Material factual disputes are "genuine" if a reasonable jury could return a verdict for the non-moving party based upon the record as a whole. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Id. at 252, 106 S. Ct. 2505.
Nevertheless, in determining whether there is a genuine issue of material fact, the Court views the facts, and all reasonable inferences to be drawn from them, in the light most favorable to the non-moving party. See Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir. 1987). Accordingly, the Court will draw all reasonable inferences in favor of the plaintiffs for purposes of the Mall defendants' Motion.
III. Discussion
A. Count I: § 1983
In Count I, the plaintiffs sue all defendants under 42 U.S.C. § 1983 for race discrimination in violation of the Thirteenth and Fourteenth Amendments and for unlawful search and seizure in violation of the Fourth Amendment.[6] "To state a claim under § 1983, a plaintiff must allege the violation of a right secured by the Constitution and laws of the United States, and must show that the alleged deprivation was committed by a person acting under color of state law." West v. Atkins, 487 U.S. 42, 48, 108 S. Ct. 2250, 101 L. Ed. 2d 40 (1988). The Mall defendants contend that even if constitutional violations did occur, they were not committed by someone acting under color of state law. The Court agrees.
It is not necessary for an individual to be a state officer to act under color of state law for purposes of § 1983 actions. If a private person is "jointly engaged" with a state official in the alleged violation, that person acts under color of state law. See e.g. Dennis v. Sparks, 449 U.S. 24, 27-28, 101 S. Ct. 183, 66 L. Ed. 2d 185 (1980).
Accordingly, the Court must consider the individuals involved in the incident to determine if any were state officials or otherwise acting under color of state law. The Learningsmith defendants were clearly not state officials. They detained the two young men pursuant to the Maryland shopholder's privilege. See Md. Code Ann., Jud. Proc., § 5-402.[7] Although the Learningsmith defendants acted pursuant to a state statute, this is not enough to make them state actors for purposes of § 1983. They must have also "acted together with" or "obtained significant *610 aid from state officials...." Lugar v. Edmondson Oil Co., 457 U.S. 922, 937, 102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982). As explained below, the Learningsmith employees were not jointly engaged with state officials so as to transform their conduct into state action.
It is undisputed that the defendant security guards were employees of a private company with no police powers and, therefore, were not state officers. In fact, the only security guard with police powers at the Mall during the incident was Klevins, the lead security officer, who dispatched Jackson to Learningsmith. Klevins was a "specially commissioned officer" under Maryland law.[8] The plaintiffs argue that the security guards acted jointly with Klevins, thereby bringing the guards' actions under color of state law. Accordingly, the Court must decide whether a reasonable juror could conclude that the guards and Klevins were jointly engaged in the alleged constitutional violations.
1. The Columbia Mall's "Security Plan"
According to Mall policy, the security guards operated pursuant to a written, "Security Plan." (See Ds' Mot. for Sum. J., Exh. 1). Guards, who are employees of the Mall, wear police-like uniforms and carry portable radios and handcuffs. They do not carry guns or other weapons.[9]
For purposes of the Security Plan, the Mall is essentially divided into the common areas and the stores. Security guards have jurisdiction in the common areas of the Mall. Within these common areas, the security guards perform such tasks as answering the questions of Mall patrons, asking vagrants and loiterers to "keep moving," and locking and unlocking mall doors. Security guards do not chase people suspected of offenses or crimes unless they believe that "immediate intervention can prevent serious bodily injury to another without undue risk of injury to the officer or others." (Id. at 27). Because security guards have only "citizen arrest" powers, they generally "defer to local police for purposes of apprehension or arrest." (Id.)
In contrast, the security guards have no jurisdiction within the stores of the Mall. The stores are leased spaces which are owned and controlled by the tenant merchants. Guards are not responsible for security within these tenant areas. (See id. at 26). Because shoplifting necessarily occurs within stores, security guards have very little power or responsibility with respect to suspected shoplifters. Essentially, security guards can conduct a "walk-through" of a store to deter suspected shoplifters from leaving the store with stolen merchandise. Security guards cannot, however, detain or search suspected shoplifters. This is the responsibility of merchants. If a merchant decides to detain a suspect, security guards have the limited role of offering their "presence" to prevent a breach of peace. The purpose of this presence is to secure the physical safety of merchants and patrons, not to protect or recover property. It is the merchant's responsibility to call the police if desired; security guards will call the police only upon request. (See DeCarlo Report, at 5).
*611 1. Klevins' Involvement
On the night of December 21, 1995, Klevins was in charge of the Mall's security officers. To the best of his recollection, he received a very general call from Learningsmith, requesting assistance. He does not recall that the word, "shoplifting" was used. He does not recall being told that the incident involved two young men. He stated in deposition that the race of the suspects was never mentioned. In fact, Klevins stated that he did not discover that the suspects were African-American until the plaintiffs filed the present case. (See Klevins Dep. at 152-153). To the best of his recollection, the caller simply stated, "Security, come to Learningsmith." (Id. at 147). The plaintiffs offer no evidence to the contrary.
Responding to the call, Klevins dispatched security officer Jackson to Learningsmith over the radio because his post was closest to the store. Jackson reported to Learningsmith. At the time that the call came over the radio, security officer Ortiz was conducting a light check in the Mall, accompanied by security officer Jette, who was off-duty. Because they were near the store at the time, Ortiz and Jette also came to Learningsmith. Having heard the radio communication, security officer McCollum also approached the store. Upon seeing that the situation was under control, McCollum left. Ortiz, Jette, and McCollum came to Learningsmith by their own volition; Klevins did not instruct any of these defendants to report to the store.
The facts are clear that Klevins was never at the scene during the incident at issue. His only "presence" was via radio contact with the subordinate security guards. Off-duty at the time of the Learningsmith incident, Jette did not even have her radio with her. Thus, she was never in contact with Klevins. Any radio contact that may have occurred between Klevins and McCollum or Ortiz was minimalessentially consisting of their telling Klevins when they were leaving the scene.
Both Jackson and Klevins, however, admit to being in radio contact with each other throughout the Learningsmith incident. Although the record is not entirely clear, the evidence indicates that the radio contact between Jackson and Klevins consisted of a series of "updates," rather than instructions. Jackson first called Klevins to advise him that this was a shoplifting incident and to find out what actions the merchant could take. (See Klevins Dep. at 152). Klevins called back and reiterated security guard policy with respect to shoplifting: only the merchants could detain or search the suspects; Jackson was merely to "stand by." (Id. at 154). Jackson acknowledged receiving this call. (See id.). After Eichhorn asked the young men to empty their pockets, Jackson again called Klevins to inform him that the merchant had conducted a search but found nothing. (See id. at 164). At the food court, Gallay asked Thorpe and Christian Allen to empty their pockets again. Klevins stated in deposition that he did not know that Gallay had conducted this second search. (See id.).
Allen alleges that Ortiz twice told her that she could not leave the vicinity until she was "released." Ortiz denies this. (See Ortiz Dep. at 129). For the purpose of ruling on this Motion, the Court will assume that Ortiz did detain Allen in this manner. Klevins stated in deposition, however, that he did not know of the detention and that such a detention would have been against policy. (See Klevins Dep. at 169). He stated that he did not instruct Ortiz or any security officer to detain the Allens or to later release them. (See id. at 168). Rather, he stated store policy which expressly forbade security officers from detaining suspects. The plaintiffs have offered no evidence to counter this assertion.
3. Analysis
The plaintiffs assert that Klevins' radio contact with the defendant security *612 officers was sufficient to establish the "joint engagement" necessary for state action. For the following reasons, Court disagrees.
Klevins and the defendant security guards have provided the only evidence as to the content of the radio contacts. This uncontroverted evidence demonstrates that Klevins played no part in racial discrimination.[10] Not only did Klevins never instruct the security guards to search or seize the plaintiffs, but he restated Mall policy, which prohibited such actions. Klevins' participation at best can be characterized as that of a central dispatcher. Aside from reiterating Mall policy, the only active step Klevins took was to send Jackson to the store.
The plaintiffs argue that because Klevins must have had a sense of what was occurring, his lack of intervention made him a joint participant. The case law does not support this strained reading of joint action, however. Even the cases that the plaintiffs cite reveal that there cannot be state action unless a state officer is closely connected to the federal violation committed by a private citizen.
For example, a police officer engaged in joint action with a landlord in an eviction when he went alone to the tenants' home, informed them that the landlord was using proper eviction procedures, and advised them to abandon the premises. See Howerton v. Gabica, 708 F.2d 380, 381 (9th Cir.1983). Another police officer engaged in joint action with a private towing company when he summoned the towing company, directed the company to tow the vehicle, notified the owner that his vehicle had been removed, and instructed the owner on how to claim the vehicle. See Stypmann v. City and County of San Francisco, 557 F.2d 1338, 1341 n. 4 (9th Cir.1977). Even if the Court assumes arguendo that constitutional violations occurred in the present case and that Klevins was aware of them, his involvement clearly does not rise to the level required for joint activity.[11]
The plaintiffs further argue that by wearing police-like uniforms, the security guards created an impression that they were state actors, aligned with the merchants. It is true that a shopper might perceive a security guard as supporting a store owner or employee. This perception alone, however, cannot create state action. The security guards offered their presence solely to ensure the physical safety of both merchants and patrons. The guards neither advised the merchants whether to make a search nor assisted them in doing so. (See Jackson Dep. at 41; Ortiz Dep. at 95).
The plaintiffs also seek to hold Columbia Mall liable under § 1983 on the grounds that its security guards acted pursuant to an unconstitutional policy and/or received insufficient training.[12]See Monell v. Dept. of Social Services, 436 U.S. 658, 692-94, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). The record contains no evidence to support such a claim. Columbia Mall's policy prohibited its security guards from searching or detaining suspected shoplifters. *613 (See Klevins Dep. at 95-98). The Mall policy is not per se unconstitutional as it does not authorize constitutional violations. See Spell v. McDaniel, 824 F.2d 1380, 1387 (4th Cir.1987).
The plaintiffs, moreover, cannot show that the existence of this policy was the proximate cause of constitutional violations. See id. at 1388 (explaining that a policy that is not unconstitutional per se must be shown to have been the proximate cause of the constitutional violation). The plaintiffs attempt to demonstrate this causality by providing the Court with copies of three complaints in other cases, allegedly arising from "false shoplifting" detentions at Columbia Mall. These complaints do not establish a pattern of illegal activity to support the plaintiffs' claims in the instant case. For a large mall such as Columbia, three incidents hardly demonstrate a pattern. Significantly, only one case alleges that the shoplifting detention was racially motivated. Furthermore, the record is silent as to the ultimate disposition of these cases. In short, the three cases are not the type of detailed statistical evidence that would constitute sufficient circumstantial proof of such a custom or practice. See Dwares v. City of New York, 985 F.2d 94, 100 (2nd Cir.1993).[13]
Finally, the plaintiffs argue that the Mall had sufficiently close contacts with the police to make it a state actor. This argument too is unavailing. Columbia Mall asked the Howard County Police Department to review its security plan. The Mall also instructed its guards to call the police at the behest of merchants and arranged for police officers to act as Mall security guards in the event of unexpected absences among its regular force. This is not the type of symbiotic relationship that would transform the Mall into a state actor. See Jackson v. Pantazes, 810 F.2d 426, 430 (4th Cir.1987).
For these reasons, the Court finds that there was no state action to support a § 1983 claim. Accordingly, the Court will grant the Mall defendants' Motion for Summary Judgment as to Count I and dismiss Count I as against all defendants.
B. Counts II Through VII: State Tort Claims
With Count I dismissed, the Court no longer has original subject matter jurisdiction over this case.[14] Thus, the Court must decide whether to dismiss the state tort claims over which it had assumed supplemental jurisdiction.
The general rule is that "if the federal claims are dismissed before trial ...the state claims should be dismissed as well." United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). The Supreme Court has explained that this rule "simply recognizes that in the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrinejudicial economy, convenience, fairness, and comitywill point toward declining to exercise jurisdiction over the remaining state-law claims." Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7, 108 S. Ct. 614, 98 L. Ed. 2d 720 (1988). See also Wright v. Associated Ins. Companies Inc., 29 F.3d 1244, 1251 (7th Cir. 1994); Parker & Parsley Petroleum Co. v. Dresser Industries, 972 F.2d 580 (5th Cir.1992) (holding that the trial court abused its discretion in retaining jurisdiction over state law claims after it had dismissed the federal claims).
*614 Here, an analysis of judicial economy, convenience, fairness, and comity reveals that this Court should dismiss the state law claims. Although the Court has some hesitation over dismissing the state claims in a case that was filed in May 1996, the Court does not believe that dismissing Counts II through VII will prejudice any party.[15] The plaintiffs will be free to refile their state claims in state court.[16] Refiling in state court will not entail a significant expenditure of time or money. The parties can use the discovery they have already conducted for this case in state court. Similarly, with a few minor changes, the same Motion for Summary Judgment and opposition thereto can be filed in state court. Finally, the state courts are better suited than this Court to resolve the issues of state law in this case. Thus, the Court sees no compelling reason to depart from the general rule of dismissing pendent state law claims when the federal claims are dismissed before trial.
IV. Conclusion
For the foregoing reasons, the Court shall, by separate Order, GRANT the Mall defendants' Motion for Summary Judgment as to Count I as against all defendants and DISMISS the case in its entirety. The plaintiffs are given leave to refile Counts II through VII of the Second Amended Complaint in state court.
NOTES
[1] The defendant security guards are Robert Jackson, Michael McCollum, Andrea Jette, and Richard Ortiz.
[2] The defendant employees are Evelyn Eichhorn and Jeremiah Gallay.
[3] These torts include: i) false imprisonment (as against all defendants); ii) defamation (as against all defendants); iii) assault (as against all defendants); iv) negligent training and supervision (as against Columbia Mall and Learningsmith); and v) negligence (as against all defendants).
[4] If a federal district court has original jurisdiction over a claim, this statute allows that court to assume jurisdiction over all other claims "that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution."
[5] In her deposition, Allen states that both Eichhorn and the security guards asked the teenagers to empty their pockets. This testimony, however, is inconsistent with the depositions of Christian Allen (at 38-40), Thorpe (at 33-34), Eichhorn at (64-65), and Jackson (at 128-129). All witnesses other than Allen state that only Eichhorn (not the security guards) asked the young men to empty their pockets.
The Court finds that a reasonable juror would conclude that only Eichhorn asked the young men to empty their pockets. Even if Allen's contrary recollection created a dispute of fact, that dispute would not alter the outcome of the Summary Judgment Motion. As discussed below, Klevins' involvement in the Learningsmith incident did not rise to the level of joint action necessary to support the plaintiffs' allegation that the defendants acted under color of state law
[6] Although the plaintiffs allege racial discrimination, Thorpe stated in deposition that he does not think race had anything to do with the incident. (See Thorpe Dep. at 69). Both Allen and her son admit that they have no facts to support their allegations of racial discrimination. (See Allen Dep. at 138; Christian Allen Dep. at 94).
[7] This statute affords immunity in civil suits for detention, slander, malicious prosecution, and false arrest to merchants (and their agents) who detain suspected shoplifters with probable cause.
[8] As a specially commissioned officer, Klevins had the authority to write parking tickets at the mall and to arrest people suspected of committing crimes within the mall common areas and parking lot. The mere fact that Klevins received his police powers pursuant to a Maryland statute does not mean that defendant security guardshis subordinates acted under color of state law.
[9] The policy states, "[a]ll weapons are prohibited including firearms, mace, nightsticks, or similar devices. Presently, the only exceptions are that nightsticks may be issued to security personnel trained in their use, as approved within the center's security plan, if specifically approved by The Rouse Company Security Committee and oleoresin capsicum (OC) spray may be used by Security Supervisors trained in accordance with The Rouse Company Guidelines." (Ds' Mot. for Sum. J., Exh. 1, at 23).
[10] It should be noted that Jackson, the security guard who Klevins dispatched to the scene, is himself African-American.
[11] Klevins, moreover, had no duty to protect the plaintiffs from harm at the hands of the Learningsmith employees. See DeShaney v. Winnebago County Dept., of Social Services, 489 U.S. 189, 109 S. Ct. 998, 103 L. Ed. 2d 249 (1989) (holding that the Constitution does not require a state actor to protect a person from the actions of private parties unless the state has taken that person into custody). Because Klevins' contact with the Learningsmith defendants was even more attenuated than that with the security guards, it is clear that the actions of the Learningsmith defendants cannot be considered state action.
[12] Because there is no vicarious liability under § 1983, Columbia Mall can only be held liable for the actions of its security guards if they acted pursuant to an unconstitutional policy or received insufficient training. See e.g. Revene v. Charles County Commissioners, 882 F.2d 870, 874 (4th Cir.1989).
[13] Likewise, the plaintiffs merely assert that the security guards received insufficient training. The defendant security guards as well as Klevins and the defendants' expert witness, Leonard DeCarlo, testified that the guards received satisfactory training on shoplifting. (See e.g. Jackson Dep. at 33; DeCarlo Report at 7).
[14] Complete diversity does not exist; jurisdiction was founded on the federal question present in Count I.
[15] Although this case was filed in May 1996, the plaintiffs amended the Complaint twice. The Court granted leave for the plaintiffs to file the Second Amended Complaint in June 1997.
[16] Under Maryland Rule of Civil Procedure for Circuit Court 2-101(b), a Maryland Circuit Court will treat this action as timely filed if it is refiled in that court within 30 days of this dismissal.
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947 N.E.2d 350 (2011)
The PEOPLE of the State of Illinois, Plaintiff-Appellant,
v.
Ashley K. NASH, Defendant-Appellee.
No. 2-09-0833.
Appellate Court of Illinois, Second District.
March 31, 2011.
*352 Michael J. Waller, Lake County State's Attorney, Lawrence M. Bauer, Deputy Director, Gregory L. Slovacek, State's Attorneys Appellate Prosecutor, for People of the State of Illinois.
Thomas A. Lilien, Deputy Defender (Court-appointed), Patrick M. Carmody (Court-appointed), Office of the State Appellate Defender, for Ashley K. Nash.
OPINION
Justice BURKE delivered the judgment of the court, with opinion.
Defendant, Ashley K. Nash, was driving her car with a teenager and a small child *353 riding as passengers. A police officer, Nathan Hucker of the Zion police department, stopped the car because defendant was not wearing her seat belt. See 625 ILCS 5/12-603.1(a) (West 2008). The officer determined that defendant's driving privileges had been suspended, and defendant could not produce an insurance card. Defendant was arrested, handcuffed, and placed in the backseat of the squad car. While waiting for a tow truck to impound the vehicle, the officer conducted an inventory search and found under the driver's seat evidence that caused defendant to be charged with attempted unlawful possession of a controlled substance. See 720 ILCS 570/402(c) (West 2008); 720 ILCS 5/8-4(a) (West 2008).
Defendant moved to suppress the evidence on the ground that, when the vehicle was searched, the officer did not have a reasonable suspicion that there was evidence that needed to be preserved in connection with the offense of driving with a suspended license. The trial court granted the motion, and the State appeals. The State argues that defendant's suspended license and her inability to show proof of insurance at the time of the stop meant that her car could not be driven legally, and therefore the inventory search that disclosed the contraband was reasonable under the fourth amendment. Defendant responds that the vehicle did not need to be impounded, because the officer did not ask the teenage passenger whether she (1) had a valid driver's license, (2) could produce proof that the car was insured, and (3) was willing to take possession of the car. We reverse the suppression order and remand the cause for further proceedings.
FACTS
On June 10, 2009, defendant was charged with attempted unlawful possession of a controlled substance in that defendant, with the intent to commit the offense of unlawful possession of a controlled substance, performed a substantial step toward the commission of that offense. The charge alleged that defendant possessed an object that contained methylenedioxymethamphetamine (MDMA), also known as ecstasy, which is a controlled substance. See 720 ILCS 570/402(c) (West 2008); 720 ILCS 5/8-4(a) (West 2008).
On June 19, 2009, defendant moved to suppress the evidence. Defendant conceded that the seat belt violation was a valid basis for the traffic stop. However, defendant asserted that, once she was arrested and placed in the backseat of the squad car, the officer did not have a reasonable suspicion that there was evidence that needed to be preserved in connection with the offense of driving with a suspended license.
At the hearing on the motion to suppress, Hucker testified to the traffic stop. On May 21, 2009, Hucker stopped defendant for driving while not wearing her seat belt. See 625 ILCS 5/12-603.1(a) (West 2008). Defendant pulled over and parked in front of a house in a residential area. The car was not blocking traffic or a driveway. Defendant had two passengers, a small child and a teenage female.
Hucker asked defendant for her driver's license and proof of insurance. Defendant told the officer that her license and insurance card were at home. Defendant provided her name, address, and date of birth. A license check established that defendant's driving privileges had been suspended. The home address that defendant provided was about four blocks from the location of the stop.
Another officer arrived, and Hucker directed defendant to walk to the rear of her vehicle. Hucker handcuffed defendant and told her that she was under arrest. *354 Hucker led defendant to the front of his squad car, performed a quick patdown with the back of his hand, and placed her in the backseat of his squad car. Meanwhile, the other officer watched the teenage passenger, whom Hucker believed to be defendant's daughter or niece, and the small child. Defense counsel asked Hucker whether the teenage passenger could have been 16, 17, 18, or 19 years old, and Hucker answered "yes." The two passengers were allowed to leave and "sent on [their] way," but they waited near the scene for someone to give them a ride.
Hucker concluded that (1) defendant's driving privileges were suspended, (2) defendant could not provide proof that the car was insured, and (3) "there was no other available immediate driver to take the vehicle." Based on his assessment of the scene, Hucker summoned a tow truck to impound the vehicle. While waiting for the tow truck, Hucker began an inventory search of the vehicle, using a "vehicle tow report," which is a form used by Zion police officers. While defendant was in the backseat of the squad car and the two passengers stood nearby, the two officers filled out the tow report with defendant's information, the condition of the vehicle, and the property found inside. Under the driver's seat, Hucker found a half of a bright yellow tablet inside a small blue plastic bag. Based on his experience, Hucker suspected that the pill was ecstasy. On the tow report, Hucker checked boxes showing that the reasons for the tow were the narcotics seizure and the arrestee's control of the vehicle. Defendant was transported to the police station, where Hucker told her that he found a pill in her car.
Hucker testified that the Zion police department has guidelines for impounding a vehicle. An officer conducts an inventory search if the vehicle is impounded. The entire car is searched for any items of value, and the items are noted on the tow report to protect the defendant's property and to protect the department from false claims of loss. The search is not designed to discover narcotics or other kinds of contraband, but if the officer comes across something that looks like contraband, he investigates further. Hucker testified that the department guidelines are "oral and written" but not specified by ordinance.
Hucker testified that he did not bother to ask the teenage passenger if she could drive the car, because no one could operate the car legally if it was uninsured. Although defendant could not produce an insurance card, she told Hucker that the car was insured. Hucker did not ask for the name of the insurance company.
During argument, the parties stipulated that defendant's car was, in fact, insured at the time of the traffic stop. Defendant argued that the impoundment and inventory search were improper because (1) the car was legally parked and did not hinder traffic, (2) Hucker should have investigated whether the teenage passenger could have driven the car from the scene, and (3) the car actually was insured. The State responded that, at the time of the stop, Hucker had no affirmative duty to investigate defendant's undocumented claim that the car was insured or to ask the teenage passenger if she was eligible to drive the car from the scene. In fact, the State argued that defendant, not Hucker, had the burden of showing proof of insurance and that her failure to meet that burden created a presumption that the car was uninsured. According to the State, defendant's suspended license and the presumption of a lack of insurance required that the car be impounded.
The trial court agreed with defendant and suppressed the evidence. The court emphasized that, although there was no *355 insurance card in defendant's vehicle, the car was, in fact, insured. The court found that, when the car was stopped, it was legally parked in a residential area. The court also found that there was evidence of a Zion police department oral policy that called for towing and impounding a vehicle when the driver lacks insurance and a valid driver's license, but that there was "no evidence" of a written policy or an ordinance.
The court found that the department's oral policy provided for no exceptions to towing, such as when proof of insurance "could be readily available," the car is parked legally, and the car could be removed by a passenger or someone else. The court found that, while there was "no evidence" that the teenage passenger was a licensed driver, she might have been licensed and the officer did not investigate the matter.
The trial court held that "there were alternative means here that were reasonable for the officer to have taken that would not violate the fourth amendment." The court emphasized that, before initiating the tow, Hucker should have determined whether the teenage passenger could produce a valid driver's license and "readily obtainable proof of insurance." The court noted that Hucker could have seized the car keys and locked the doors while the teenage passenger walked four blocks to defendant's home and retrieved the insurance card. Despite finding that Hucker acted in good faith and that defendant did not show proof of insurance at the scene, the court determined that the police should not have impounded and searched the car, because it was, in fact, insured.
The State moved for reconsideration of the suppression, and the trial court denied the motion on August 10, 2009. On the same date, the State timely filed a notice of appeal and a certificate of impairment.
ANALYSIS
The burden of proof is on the defendant at a hearing on a motion to suppress evidence. 725 ILCS 5/114-12(b) (West 2008); People v. Lampitok, 207 Ill.2d 231, 239, 278 Ill.Dec. 244, 798 N.E.2d 91 (2003). If the defendant makes a prima facie case that the evidence was obtained through an illegal search, the State can counter with its own evidence. Lampitok, 207 Ill.2d at 239, 278 Ill.Dec. 244, 798 N.E.2d 91.
When reviewing a trial court's suppression ruling, this court applies a two-part standard of review. People v. Cosby, 231 Ill.2d 262, 271, 325 Ill.Dec. 556, 898 N.E.2d 603 (2008); People v. Luedemann, 222 Ill.2d 530, 542, 306 Ill.Dec. 94, 857 N.E.2d 187 (2006) (citing Ornelas v. United States, 517 U.S. 690, 699, 116 S.Ct. 1657, 134 L.Ed.2d 911 (1996)). The trial court's factual findings are entitled to great deference, and we will reverse them only if they are against the manifest weight of the evidence. Cosby, 231 Ill.2d at 271, 325 Ill.Dec. 556, 898 N.E.2d 603. However, a reviewing court "`remains free to undertake its own assessment of the facts in relation to the issues,'" and we review de novo the trial court's ultimate legal ruling as to whether suppression is warranted. Cosby, 231 Ill.2d at 271, 325 Ill.Dec. 556, 898 N.E.2d 603 (quoting Luedemann, 222 Ill.2d at 542-43, 306 Ill.Dec. 94, 857 N.E.2d 187).
In this case, the operative facts are undisputed. The trial court found that, at the time of the traffic stop, the Zion police department had an oral policy that called for impounding and towing a vehicle if the driver had a suspended license and could not produce proof of insurance. The court found that there was "no evidence" of a written policy to that effect, *356 but that finding is not consistent with Hucker's testimony that a written policy existed. Regardless, the absence of a written impoundment policy does not render an inventory search per se unreasonable. People v. Gipson, 203 Ill.2d 298, 306, 309, 272 Ill.Dec. 1, 786 N.E.2d 540 (2003). Because the operative facts of this case are not disputed, we agree with the parties that our review of the suppression order is de novo. See People v. Mitchell, 355 Ill. App.3d 1030, 1032, 291 Ill.Dec. 786, 824 N.E.2d 642 (2005).
The State argues that the inventory search was appropriate because defendant was driving with a suspended license and failed to show proof of insurance. Defendant responds that the inventory search was unreasonable because the car was, in fact, insured and Hucker "failed to afford the defendant or her 16 to 19 year old passenger an opportunity to provide proof of insurance for the car."
The fourth amendment "`protects two types of expectations, one involving "searches," the other "seizures."'" Soldal v. Cook County, Illinois, 506 U.S. 56, 63, 113 S.Ct. 538, 121 L.Ed.2d 450 (1992) (quoting United States v. Jacobsen, 466 U.S. 109, 113, 104 S.Ct. 1652, 80 L.Ed.2d 85 (1984)). Although the parties have commingled the concepts of search and seizure, the impoundment of the car (the "seizure") is properly analyzed as distinct from the inventory (the "search"). Soldal, 506 U.S. at 63-64, 113 S.Ct. 538 (one can search property without seizing it and seize property without searching it). Both the seizure and the search must meet the strictures of the fourth amendment.
The leading case of South Dakota v. Opperman, 428 U.S. 364, 96 S.Ct. 3092, 49 L.Ed.2d 1000 (1976), explains why police impoundments and inventory searches are treated as distinctive processes, which are warranted in different but frequently overlapping circumstances. Impoundments may be in furtherance of "public safety" or "community caretaking functions," such as removing "disabled or damaged vehicles" and "automobiles which violate parking ordinances and which thereby jeopardize both the public safety and the efficient movement of vehicular traffic." Opperman, 428 U.S. at 368-69, 96 S.Ct. 3092. An impoundment must either be supported by probable cause or be consistent with the police role as "caretaker" of the streets and completely unrelated to an ongoing criminal investigation. Opperman, 428 U.S. at 370 n. 5, 96 S.Ct. 3092.
When a vehicle is lawfully impounded, an inventory search is a judicially created exception to the warrant requirement of the fourth amendment. Gipson, 203 Ill.2d at 304, 272 Ill.Dec. 1, 786 N.E.2d 540 (citing People v. Hundley, 156 Ill.2d 135, 138, 189 Ill.Dec. 43, 619 N.E.2d 744 (1993)). The Supreme Court has identified three objectives that are served by allowing inventory searches: (1) protection of the owner's property; (2) protection of the police against claims of lost or stolen property; and (3) protection of the police from potential danger. Gipson, 203 Ill.2d at 304, 272 Ill.Dec. 1, 786 N.E.2d 540 (citing Opperman, 428 U.S. at 369, 96 S.Ct. 3092). To be deemed reasonable, the inventory search must further these objectives, and it will satisfy the fourth amendment as long as the police procedures are reasonable and administered in good faith. People v. Clark, 394 Ill.App.3d 344, 348, 333 Ill.Dec. 315, 914 N.E.2d 734 (2009). The procedures need not be in writing if the police act according to standardized department procedures for conducting inventory searches. Gipson, 203 Ill.2d at 306, 309, 272 Ill.Dec. 1, 786 N.E.2d 540; Clark, 394 Ill.App.3d at 348, 333 Ill.Dec. 315, 914 N.E.2d 734.
*357 Three criteria must be met for a valid warrantless inventory search of a vehicle: (1) the original impoundment of the vehicle must be lawful; (2) the purpose of the inventory search must be to protect the owner's property, to protect the police from claims of lost, stolen, or vandalized property, and to guard the police from danger; and (3) the inventory search must be conducted in good faith pursuant to reasonable standardized police procedures and not as a pretext for an investigatory search. Hundley, 156 Ill.2d at 138, 189 Ill.Dec. 43, 619 N.E.2d 744.
A. The Impoundment
The threshold issue in considering whether the police have conducted a valid inventory search incident to a tow is whether the impoundment of the vehicle was proper. See People v. Mason, 403 Ill.App.3d 1048, 1054, 343 Ill.Dec. 490, 935 N.E.2d 130 (2010); Clark, 394 Ill.App.3d at 348, 333 Ill.Dec. 315, 914 N.E.2d 734. Pursuant to their community-caretaking function, police have authority to seize and remove from the streets vehicles impeding traffic or threatening public safety and convenience. Opperman, 428 U.S. at 369, 96 S.Ct. 3092; Mason, 403 Ill.App.3d at 1054, 343 Ill.Dec. 490, 935 N.E.2d 130; Clark, 394 Ill.App.3d at 348, 333 Ill.Dec. 315, 914 N.E.2d 734. However, the fact that the defendant's car would be left unattended without the tow is not a sufficient reason for impoundment unless the vehicle would be parked illegally. Mason, 403 Ill.App.3d at 1054, 343 Ill.Dec. 490, 935 N.E.2d 130; Clark, 394 Ill.App.3d at 348, 333 Ill.Dec. 315, 914 N.E.2d 734.
Hucker testified that he followed Zion police department guidelines that require an officer to impound a vehicle and perform an inventory search when (1) the driver lacks a valid license, (2) there is no proof of insurance, and (3) no other driver is available to take the vehicle. For the following reasons, we determine that the Zion police department guidelines are consistent with the Illinois Vehicle Code (625 ILCS 5/1-100 et seq. (West 2008)) and relevant case law regarding impoundments.
Several principles of statutory interpretation are relevant to the threshold issue of whether the impoundment of the vehicle was proper pursuant to the Vehicle Code. The primary rule of statutory construction is to ascertain and give effect to the intent of the legislature. People v. Donoho, 204 Ill.2d 159, 171, 273 Ill.Dec. 116, 788 N.E.2d 707 (2003). The best evidence of legislative intent is the statutory language. When possible, a court should interpret the statute according to the plain and ordinary meaning of the language. Donoho, 204 Ill.2d at 171, 273 Ill.Dec. 116, 788 N.E.2d 707. In determining legislative intent, the court should consider, in addition to the statutory language, the reason for the law, the problems to be remedied, and the objects and purposes sought. Donoho, 204 Ill.2d at 171-72, 273 Ill.Dec. 116, 788 N.E.2d 707. A statute is ambiguous if it is subject to two or more reasonable interpretations. Donoho, 204 Ill.2d at 172, 273 Ill.Dec. 116, 788 N.E.2d 707. When the statute contains undefined terms, we may employ a dictionary to ascertain the plain and ordinary meaning of those terms. People v. Davison, 233 Ill.2d 30, 40, 329 Ill.Dec. 347, 906 N.E.2d 545 (2009). Where the language is clear and unambiguous, we will apply the statute without resort to further aids of statutory construction. The construction of a statute is a question of law, which is reviewed de novo. Davison, 233 Ill.2d at 40, 329 Ill.Dec. 347, 906 N.E.2d 545.
Defendant concedes that the Vehicle Code authorized Hucker to initiate the *358 traffic stop because she was driving without wearing her seat belt. See 625 ILCS 5/12-603.1 (West 2008). Defendant further concedes that she was driving with a suspended license and that her car did not contain an insurance card to show that the vehicle was insured. See 625 ILCS 5/6-303(a) (West 2008).
No person shall operate a motor vehicle designed to be used on a public highway unless the vehicle is covered by a liability insurance policy (625 ILCS 5/7-601(a), 3-707(a) (West 2008)), and every operator of such a motor vehicle shall carry within the vehicle evidence of insurance (625 ILCS 5/7-602 (West 2008)). "The evidence of insurance shall be displayed upon request made by any law enforcement officer wearing a uniform or displaying a badge or other sign of authority." 625 ILCS 5/7-602 (West 2008). Furthermore, "[a]ny person who fails to comply with a request by a law enforcement officer for display of evidence of insurance, as required under Section 7-602 of this Code, shall be deemed to be operating an uninsured motor vehicle." 625 ILCS 5/3-707(b) (West 2008). Because defendant failed to comply with Hucker's request for evidence of liability insurance, she was deemed to be operating an uninsured motor vehicle at the time of the stop.
Because (1) defendant was driving with a suspended license (see 625 ILCS 5/6-303(a) (West 2008)) and (2) defendant was deemed to be operating an uninsured motor vehicle (see 625 ILCS 5/3-707(b) (West 2008)), section 6-303(e) of the Vehicle Code required the officer to impound the vehicle (625 ILCS 5/6-303(e) (West 2008)). Section 6-303(e) provides in relevant part that a person who is driving with a suspended or revoked license and "who is also in violation of Section 7-601 of this Code relating to mandatory insurance requirements, in addition to other penalties imposed under this Section, shall have his or her motor vehicle immediately impounded by the arresting law enforcement officer." 625 ILCS 5/6-303(e) (West 2008).
Pointing out that the car was insured but did not contain an insurance card, defendant argues that she did not violate the insurance policy mandate of section 7-601, but instead violated the insurance card mandate of section 7-602. Because section 6-303(e) refers to a violation of section 7-601 and not section 7-602, defendant argues that the impoundment was not statutorily authorized. We disagree. When a driver is stopped with a suspended license, section 6-303(e) requires impoundment for a "violation of Section 7-601 of this Code relating to mandatory insurance requirements." (Emphasis added.) 625 ILCS 5/6-303(e) (West 2008). Because she did not show evidence of insurance (see 625 ILCS 5/3-707(b) (West 2008)), defendant was deemed to be operating an uninsured vehicle, and operating a motor vehicle without liability insurance is a violation of section 7-601. Thus, showing evidence of liability insurance is among the mandatory insurance requirements embodied in section 7-601.
Opperman teaches that impoundments by the police may be in furtherance of "public safety" or "community caretaking functions," such as removing "disabled or damaged vehicles." Opperman, 428 U.S. at 368-69, 96 S.Ct. 3092 (to permit the uninterrupted flow of traffic, disabled or damaged vehicles will often be removed from the highways or streets at the behest of the police engaged solely in caretaking and traffic-control activities). In this case, defendant's car, without proof of liability insurance, was tantamount to a disabled vehicle because section 6-303(e) prohibited it from being operated until proof of insurance was shown. Thus, the impoundment, as mandated by section 6-303(e), furthered *359 police community-caretaking functions and was reasonable under the fourth amendment.
1. Mason
Our conclusion is consistent with Mason, which addressed a challenge to an inventory search. At 2:10 a.m., Mason committed a traffic violation, and an officer stopped Mason's vehicle. Mason's driver's license was revoked, he could not provide proof of insurance, and the officer suspected that Mason was under the influence of alcohol. The officer called for backup, arrested Mason, and placed him in the rear seat of the squad car. An inventory search disclosed a substance that caused Mason to be charged with possession of a controlled substance. Mason, 403 Ill.App.3d at 1050, 343 Ill.Dec. 490, 935 N.E.2d 130. The officer testified that Mason's revoked license and his inability to show proof of insurance meant that the car had to be towed, which in turn required an inventory search and report. Mason, 403 Ill.App.3d at 1050-51, 343 Ill.Dec. 490, 935 N.E.2d 130. The officer explained that "`state law,'" rather than police department policy, mandated the impoundment. Mason, 403 Ill.App.3d at 1052, 343 Ill.Dec. 490, 935 N.E.2d 130.
The trial court granted Mason's suppression motion, concluding that Arizona v. Gant, 556 U.S. ___, 129 S.Ct. 1710, 173 L.Ed.2d 485 (2009), "`is a bright line decision'" that bars inventory searches. Mason, 403 Ill.App.3d at 1052, 343 Ill.Dec. 490, 935 N.E.2d 130. In Gant, the United States Supreme Court clarified the search-incident-to-arrest exception that applies to the warrantless search of a vehicle. Gant, 556 U.S. at ___, 129 S.Ct. at 1716. The Court emphasized that there are two circumstances under which a search of a vehicle incident to a lawful arrest is permissible. See Gant, 556 U.S. at ___, 129 S.Ct. at 1719. Under the first circumstance, law enforcement may search "a vehicle incident to a recent occupant's arrest only when the arrestee is unsecured and within reaching distance of the passenger compartment at the time of the search." Gant, 556 U.S. at ___, 129 S.Ct. at 1719. The second circumstance justifying the search of a vehicle incident to an arrest occurs "when it is `reasonable to believe evidence relevant to the crime of arrest might be found in the vehicle.'" Gant, 556 U.S. at ___, 129 S.Ct. at 1719 (quoting Thornton v. United States, 541 U.S. 615, 632, 124 S.Ct. 2127, 158 L.Ed.2d 905 (2004)).
Upon concluding that the search of Mason's vehicle did not match either of the acceptable circumstances described in Gant, the Appellate Court, Third District, held that Gant "did not expressly overrule those cases in which courts have sanctioned inventory searches pursuant to the proper impoundment of a vehicle." Mason, 403 Ill.App.3d at 1055, 343 Ill.Dec. 490, 935 N.E.2d 130. The appellate court further held that the impoundment and ensuing inventory search were proper. The court emphasized the officer's testimony that, when a driver has a suspended or revoked license and there is no insurance for the vehicle, a tow is mandated. Although the officer was uncertain about the basis for the mandate, his decision to tow was based on a standardized procedure that was itself based on the cognizable reason that an uninsured vehicle operated by a driver with a revoked or suspended license must be towed. The court deemed the procedure a legitimate exercise of law enforcement's caretaking function, because section 7-601 prohibits the operation on a public highway of a motor vehicle that is not covered by a liability insurance policy. Mason, 403 Ill.App.3d at 1055, 343 Ill.Dec. 490, 935 N.E.2d 130.
*360 2. Duguay
Defendant relies on United States v. Duguay, 93 F.3d 346 (7th Cir.1996), in arguing that the impoundment was not a proper exercise of community caretaking. We note that Illinois state courts are not bound to follow federal court decisions, but such decisions can provide guidance and serve as persuasive authority. Lamar Whiteco Outdoor Corp. v. City of West Chicago, 355 Ill.App.3d 352, 360, 291 Ill. Dec. 318, 823 N.E.2d 610 (2005).
In Duguay, a violent-crimes task force set up a roadblock as part of a sweep in and around federally funded housing projects in Alton. The police saw Duguay riding as a passenger in a car driven by his girlfriend, who was a resident of a housing project. The officers recognized Duguay as someone who (1) had sold crack to undercover agents in the past, (2) had been associated with a certain narcotics distribution ring, and (3) was a resident of a different housing project. Duguay, 93 F.3d at 348, 350. To avoid the roadblock, the woman parked the car and the two occupants exited and walked toward her apartment. The police approached the couple, an argument ensued, Duguay struck an officer, and he was arrested. The disturbance attracted a crowd, including Duguay's brother. Duguay told his girlfriend not to surrender the car keys. An officer told the woman that he was going to impound the car and demanded the keys. The woman refused and was arrested for obstruction of justice. Within 10 minutes of Duguay's arrest, the officers unlocked the car and began an inventory search, which disclosed a substantial amount of crack cocaine. Duguay, 93 F.3d at 349.
After affirming the district court's decision that the officers had a reasonable suspicion for the investigative stop, the Seventh Circuit Court of Appeals held that the impoundment and subsequent warrantless inventory search of the vehicle were illegal. The Seventh Circuit concluded that (1) the conflicting testimony of the officers indicated that the Alton police department did not use a standardized impoundment procedure (Duguay, 93 F.3d at 352), and (2) even if the department had articulated a coherent policy for impounding the vehicle, basing the impoundment on the arrestee's status as a driver, owner, or passenger is "irrational and inconsistent with `caretaking' functions" (Duguay, 93 F.3d at 353).
Surmising that the purported policy required towing "any time the arrestee is carted off to jail, regardless of whether another person could have removed the car and readily eliminated any traffic congestion, parking violation, or road hazard," the Seventh Circuit determined that the impoundment was unreasonable because Duguay's girlfriend had been driving the car, possessed the keys, and was prepared to remove the car from the street and also because Duguay's brother was present and also might have been able to move the car. Duguay, 93 F.3d at 353. The Seventh Circuit added that "[t]he policy of impounding the car without regard to whether the defendant can provide for its removal is patently unreasonable if the ostensible purpose for impoundment is for the `caretaking' of the streets." Duguay, 93 F.3d at 353.
First, we note that the Seventh Circuit's commentary on the caretaking function of the impoundment policy in Duguay is dicta because the fourth amendment issue was decided based on the State's failure to articulate a standardized impoundment procedure. The fact-specific holding in Duguay does not apply to this case.
Second, the purported impoundment policy in Duguay is distinguishable from the impoundment mandate of section 6-303(e) *361 of the Vehicle Code. The police procedure in Duguay was deemed to be unreasonable because it did not consider the possibility that the vehicle could be removed legally without impoundment. In contrast, here, section 6-303(e) mandated impoundment because the vehicle could not be removed legally. Neither the teenage passenger nor anyone coming to defendant's aid could operate the vehicle without liability insurance (see 625 ILCS 5/7-601(a), 3-707(a) (West 2008)), and the absence of insurance was established at the scene by defendant's failure to show an insurance card (see 625 ILCS 5/3-707(b) (West 2008)).
The Duguay court explained, "we do not see what purpose denying possession of the car to a passenger, a girlfriend, or a family member could possibly serve." Duguay, 93 F.3d at 353. In contrast, Hucker did not deny possession of the vehicle to the teenage passenger or anyone else because no one at the scene asked for it. Moreover, the purpose of impounding the car in this case was clear: preventing an uninsured vehicle from being operated in violation of the Vehicle Code.
3. Harrington
Defendant next argues that this case is similar to Harrington v. Heavey, No. 04-C-5991, 2006 WL 3359388 (N.D.Ill. Nov. 16, 2006) (not reported in F.Supp.2d). Harrington filed a civil rights action against various police officers, alleging that the impoundment of her car violated her fourth and fourteenth amendment rights. Based on a minor traffic violation, Officer Heavey stopped a vehicle driven by Harrington's son, who was driving with an expired license. Harrington, 2006 WL 3359388, at *1. The officer issued citations for speeding and driving without a valid license. The officer seized the car pursuant to a city ordinance that mandated the seizure of vehicles driven by persons not possessing valid licenses. After being stopped, the driver called Harrington, who arrived at the scene. Harrington showed the officer her valid license and proof of liability insurance, and she asked for the car. The officer refused and impounded the vehicle. Later that evening, Harrington regained custody of the car after paying the city's $ 500 administrative seizure fee and towing charges. Harrington, 2006 WL 3359388, at *1. Seeking damages, Harrington's complaint alleged that the impoundment was unreasonable under the fourth amendment and that the seizure ordinance's lack of pretowing and adequate posttowing hearing procedures violated the fourteenth amendment. Harrington, 2006 WL 3359388, at *1.
In determining whether the impoundment was reasonable under the fourth amendment, the district court stated, "the decision to impound pursuant to the seizure ordinance does not, in and of itself, determine the reasonableness of the seizure. Instead, reliance on and reference to the seizure ordinance merely raises the relevant legal question of whether the City's mandatory impoundment policy serves the police's community caretaking function such that impoundments under that policy are reasonable under the Fourth Amendment." Harrington, 2006 WL 3359388, at *5. Relying on Duguay, the district court found the seizure ordinance unconstitutional because it "deprives the City's officers from considering alternatives to impoundment and thus, from determining whether community caretaking interests justify impoundment in a particular instance." Harrington, 2006 WL 3359388, at *5.
The Harrington court commented that, even if the impoundment policy were discretionary, the seizure was unreasonable under the circumstances where Harrington provided at the scene proof that she was *362 the owner, she had a valid license and proof of insurance, she was prepared to remove the vehicle herself, and there was no indication that she was impaired or otherwise incapable of lawfully operating the vehicle. Harrington, 2006 WL 3359388, at *5.
Like Duguay, Harrington is distinguishable from this case because the impoundment mandate of section 6-303(e) is based in part on the absence of liability insurance (as established by lack of proof of insurance), which would prevent a car from being removed from the scene legally. Harrington stands for the proposition that adherence to an impoundment policy does not necessarily render an impoundment reasonable under the fourth amendment, but defendant does not allege that section 6-303(e) is unconstitutional.
The parties stipulated at the hearing that the vehicle was, in fact, insured; but Hucker did not know that at the time of the impoundment. Moreover, Hucker had little reason to believe defendant when she told him that the car was insured. Besides insisting that the car was insured, defendant also had said that her driver's license was at home, which gave the false impression that her driving privileges were not suspended. Regardless of defendant's credibility, the absence of proof of insurance at the scene meant that defendant was deemed to be operating an uninsured motor vehicle. See 625 ILCS 5/3-707(b) (West 2008). If the teenage passenger had shown a valid license, volunteered to promptly retrieve proof of insurance from defendant's home, agreed to remove the vehicle, and been not otherwise impaired from lawfully operating the vehicle, one could argue that impoundment would have been unreasonable under the fourth amendment. However, no such offer was made and defendant's assertion that the teenage passenger could have removed the vehicle lawfully is speculative at best. Regardless, it would be unreasonable and unduly burdensome to require the officer to remain at the scene and wait an indeterminate period for someone to possibly return and cure the conditions that mandated the impoundment.
4. Young
Despite the unambiguous impoundment mandate of section 6-303(e) of the Vehicle Code, the trial court concluded that there were alternative means that a reasonable police officer would have taken that would not have violated defendant's fourth amendment rights, such as locking the car and seizing the keys until proof of insurance was produced. Defendant echoes the trial court's position, arguing that the impoundment was unreasonable because the officer should have pursued less intrusive alternatives to facilitate the removal of the vehicle.
Defendant cites People v. Young, 363 Ill.App.3d 268, 300 Ill.Dec. 231, 843 N.E.2d 489 (2006), for the proposition that, before conducting the inventory search, the officer should have attempted to cure the conditions that had mandated the impoundment. In Young, a car was pulled over for a minor traffic violation, and the driver was arrested for driving with a suspended license. The officer summoned a tow truck but did not tell the driver or Young, who was a passenger. Before the tow truck arrived, the officer performed an inventory search and found marijuana in the trunk. Young admitted that the drugs were his. After Young was arrested, another passenger in the car told the officer that he had a valid license. The officer canceled the tow and allowed the passenger to drive the vehicle from the scene. Young, 363 Ill.App.3d at 269, 300 Ill.Dec. 231, 843 N.E.2d 489. Young argued that, before inventorying the car, the officer *363 should have asked Young and the other passenger if either could legally remove the car to avoid impoundment.
At the suppression hearing, the officer testified that the State Police policy on inventory searches calls for towing and searching a vehicle if none of the occupants is a licensed driver, and the State argued that the policy did not require the officer to investigate whether a licensed driver was present before searching the vehicle. The Appellate Court, Third District, disagreed, holding that the policy must inherently contain such a requirement. Young, 363 Ill.App.3d at 270, 300 Ill.Dec. 231, 843 N.E.2d 489. The court concluded that an officer must ask the passengers because "[i]t is unreasonable to assume that passengers will automatically and affirmatively volunteer that they are licensed drivers. If officers do not query other occupants of the vehicle, the policy would have little meaning." Young, 363 Ill.App.3d at 271, 300 Ill.Dec. 231, 843 N.E.2d 489. The appellate court affirmed the trial court's suppression order, concluding that, once the driver was in custody, the State Police policy inherently required the officer to ask the two passengers if either had a valid license. Young, 363 Ill.App.3d at 271, 300 Ill.Dec. 231, 843 N.E.2d 489.
Relying on Young, defendant argues that Hucker should have seized the car keys, locked the doors, and asked the teenage passenger whether she could produce a valid driver's license and proof that the car was insured. Defendant argues that, if the teenage passenger produced a valid license and proof of insurance at the scene, Hucker should have permitted her to remove the car. Defendant alternatively asserts that, if the teenage passenger was a licensed driver but had no proof of insurance, the officer should have afforded her the opportunity to walk to defendant's home and retrieve an insurance card.
While Hucker testified that the teenage passenger might have been of legal driving age and the parties stipulated that the car was insured, the record is devoid of any evidence of (1) the teenage passenger's name, (2) whether the teenage passenger was a licensed driver, (3) whether the teenage passenger possessed an insurance card at the scene, (4) whether a valid insurance card for the vehicle was four blocks from the scene at defendant's home, as defendant asserts, (5) whether the teenage passenger had access to the home, and (6) whether the teenage passenger was impaired in any way that would have prevented her from removing the vehicle.
Hucker testified that he was familiar with the Zion police department impoundment procedures but that he was unaware of any policy that required an officer to investigate whether any occupant of the vehicle had proof of insurance and a valid license. Moreover, the Vehicle Code is silent as to how an officer stopping a vehicle should deal with passengers when the driver has a suspended or revoked license and no insurance card. Section 6-303(e) provides that, after a vehicle is impounded based on the driver's invalid license and lack of insurance, "[t]he motor vehicle may be released to any licensed driver upon a showing of proof of insurance for the vehicle that was impounded and the notarized written consent for the release by the vehicle owner." (Emphasis added.) 625 ILCS 5/6-303(e) (West 2008). Thus, neither the Zion police department policy nor the statute requires an officer to investigate the presence of a licensed driver and facilitate the showing of proof of insurance.
Even if we were to read into the Zion police department impoundment policy and the Vehicle Code the requirement of asking passengers whether they possess valid *364 driver's licenses, the reason for the tow (the failure to show proof of insurance) would not be cured. This case is distinguishable from Young, where proof of insurance was never at issue. We decline to extend Young to require an officer to ask a passenger to produce proof of insurance for a car when the driver cannot produce it.
B. The Inventory Search
Our determination that section 6-303(e) of the Vehicle Code mandated the impoundment does not end our analysis, as defendant argues that the inventory search was a fourth amendment violation. Hucker testified that, consistent with the police department's procedures for impounding and inventorying vehicles, the officers prepared the vehicle tow report, which included defendant's information, the condition of the vehicle, and a description of property found inside. Hucker testified that an officer must conduct an inventory search if a vehicle is impounded; the entire car is searched for any items of value, and the items are noted on the tow report to protect the defendant's property and to protect the department from false claims of loss. He further testified that the search is not designed to discover narcotics or other kinds of contraband.
We hold that the State met the three criteria for a valid warrantless inventory search of a vehicle. First, section 6-303(e) of the Vehicle Code and the Zion police department guidelines mandated the original impoundment of the vehicle. Second, the trial court heard unrebutted evidence that the purpose of the inventory search was to protect the owner's property and to protect the police from claims of lost, stolen, or vandalized property. Third, the trial court found that Hucker conducted the inventory search in good faith. The inventory search was pursuant to reasonable standardized police procedures and was not a pretext for an investigatory search. See Hundley, 156 Ill.2d at 138, 189 Ill.Dec. 43, 619 N.E.2d 744. Thus, the trial court erred in entering the suppression order.
CONCLUSION
In conclusion, we hold that the trial court erroneously suppressed the evidence. Section 6-303(e) of the Vehicle Code required the officer to impound the vehicle because (1) defendant was driving with a suspended license (see 625 ILCS 5/6-303(a) (West 2008)) and (2) defendant was deemed to be operating an uninsured vehicle, because she failed to show proof of liability insurance (see 625 ILCS 5/3-707(b) (West 2008)). See 625 ILCS 5/6-303(e) (West 2008). Because the impoundment was mandated by the Vehicle Code and the officer testified in detail regarding his adherence to the procedures for impounding and inventorying the vehicle, we conclude that the search was reasonable. Under these circumstances, where the teenage passenger of undetermined age did not attempt to establish at the scene that the vehicle could be removed legally, the fourth amendment did not require the officer to investigate methods to facilitate the removal of the vehicle to avoid the impoundment.
For the preceding reasons, the judgment of the circuit court of Lake County is reversed and the cause is remanded for further proceedings.
Reversed and remanded.
Justice ZENOFF concurred in the judgment and opinion.
Justice BOWMAN dissented, with opinion.
Justice BOWMAN, dissenting:
I respectfully dissent because I believe that the trial court correctly granted defendant's *365 motion to suppress. The "`essential purpose' of the fourth amendment is to impose a standard of reasonableness upon the exercise of discretion by law enforcement officers to safeguard the privacy and security of individuals against arbitrary invasions." People v. McDonough, 239 Ill.2d 260, 266, 346 Ill.Dec. 496, 940 N.E.2d 1100 (2010) (quoting Delaware v. Prouse, 440 U.S. 648, 653-54, 99 S.Ct. 1391, 59 L.Ed.2d 660 (1979)). Here, it is undisputed that the home address that defendant provided was about four blocks away from the location of the stop. Officer Hucker presumably could have verified the address through the license check that led to defendant's arrest. As in Young, I believe that Hucker should have asked the teenager, whom Hucker admitted could have been 16 to 19 years old, whether she was a licensed driver. If so, the reasonable course of action would have been to allow the teenager to go to the home and retrieve proof of insurance, which would have led to both the teenager driving the vehicle away and the elimination of the statutory basis for impounding the vehicle. Although the majority states that it would be unreasonable and unduly burdensome for an officer to have to wait an "indeterminate period" for this series of events (op. 349 Ill.Dec. at 725, 947 N.E.2d at 362), the officer could have easily provided a specific amount of time to retrieve the insurance card.
Even otherwise, I believe the vehicle's impoundment under the circumstances of this case violated defendant's fourth amendment rights. I recognize that the impoundment complied with section 6-303(e) of the Vehicle Code, but a seizure may comply with state law while still being unreasonable under the fourth amendment. Sibron v. New York, 392 U.S. 40, 61, 88 S.Ct. 1889, 20 L.Ed.2d 917 (1968). I agree with the majority that an impoundment must either be supported by probable cause or be consistent with the police role as "caretaker" of the streets. Op. 349 Ill.Dec. at 719, 947 N.E.2d at 356. In the caretaker scenario, it follows that "[a]n officer cannot reasonably order an impoundment in situations where the location of the vehicle does not create any need for the police to protect the vehicle or to avoid a hazard to other drivers." Miranda v. City of Cornelius, 429 F.3d 858, 866 (9th Cir.2005). Further, as the majority recognizes, the fact that a car would be left unattended does not justify impoundment unless the car would be parked illegally. Op. 349 Ill.Dec. at 720, 947 N.E.2d at 357. Here, defendant's car was parked in a residential area four blocks from her home and was not blocking traffic or a driveway. Op. at 716, 947 N.E.2d at 353. The majority states that, because defendant did not have proof of insurance, her car was tantamount to a disabled vehicle because it could not be operated until proof of insurance was shown. Op. at 721-22, 947 N.E.2d at 358-59. However, it does not logically follow that the car could not remain legally parked without proof of insurance. In other words, the legally parked car was not in any sense jeopardizing public safety or impeding the efficient movement of traffic, so its impoundment cannot be justified as a street caretaking function. Accordingly, I would hold that the vehicle's impoundment was unreasonable, and I would affirm the trial court's grant of defendant's motion to suppress.
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19 F. Supp. 2d 235 (1998)
Jessica A. HOCKLEY, a Minor by Her Guardian Ad Litem, William HOCKLEY, and William Hockley and Margaret Hockley, Individually, Plaintiffs,
v.
SHAN ENTERPRISES LIMITED PARTNERSHIP d/b/a Comfort Inn And Pankaj Sheth, Defendants/Third Party Plaintiffs,
v.
LIEBER RICH AND SONS, INC., Middle Department Inspection Agency, Inc., Holby Valve Company, Inc., and Raypak, Inc., t/a Raypak, Third Party Defendants.
Civ.A. No. 96-cv-2796 (SSB).
United States District Court, D. New Jersey.
August 5, 1998.
*236 John Gerard Devlin, Michael T. Malarick, John Gerard Devlin & Associates, P.C., Westmont, NJ, for Defendants/Third Party Plaintiffs.
Robert A. Assuncao, Steven F. Gooby, Piper & Marbury L.L.P., Princeton, NJ, for Third Party Defendant Raypak, Inc.
OPINION ON MOTION FOR SANCTIONS
BROTMAN, District Judge.
Presently before the Court is third-party defendant Raypak, Inc.'s ("Raypak") Motion for Sanctions against defendant Shan Enterprises Limited Partnership ("Shan") pursuant to Fed.R.Civ.P. 11 ("Rule 11") and 28 U.S.C. § 1927. For the reasons discussed below, the Motion is denied.
I. FACTS AND PROCEDURAL BACKGROUND
On April 22, 1995, Jessica Hockley was a guest in Room 716 in the Comfort Inn hotel in Absecon, New Jersey. She sustained second and third-degree scald burns while using the shower in her room. Defendant/Third-Party Plaintiff Shan owns and operates the hotel.
On July 5, 1996, counsel for Ms. Hockley filed an amended complaint against Shan alleging that it had failed to regulate the temperature of the hot water supplied to the shower in her hotel room or to warn guests of the potential dangers posed by the water temperature. On August 23, 1996, Shan filed a third-party complaint against a number of parties, including Raypak. This complaint alleged that Raypak had designed, manufactured, sold, and distributed defective boilers that had been responsible for Ms. Hockley's injuries.
On February 2, 1998, United States Magistrate Judge Joel B. Rosen executed an Order Approving Settlement. On February 6, 1998, following the reported settlement by the parties, this Court issued an Order of Dismissal, dismissing the action without costs and without prejudice. On March 2, 1998, a Stipulation of Dismissal with Prejudice as to Raypak, Inc. was filed, dismissing Shan's claims against Raypak with prejudice. On March 7, 1998, Raypak filed a motion with this court requesting sanctions against Shan under Rule 11 and 28 U.S.C. § 1927. On March 25, 1998, Raypak withdrew its motion for sanctions because it had failed to comply with the twenty-one day "safe harbor" notice period required by Rule 11. On April 16, *237 1998, Raypak refiled its motion, having provided Shan with the requisite notice.
II. DISCUSSION
Raypak contends that Rule 11 sanctions should be imposed against Shan because it failed to conduct a reasonable inquiry into Raypak's culpability before filing its third-party action. Raypak also seeks attorneys' fees pursuant to 28 U.S.C. § 1927 for Shan's "vexatious and inexcusable delay in dismissing the action against Raypak."
Shan counters that its pre-suit investigation was reasonable and revealed an adequate basis for liability against Raypak. In addition, with respect to Raypak's request for sanctions under 28 U.S.C. § 1927, Shan contends that its conduct was not in "bad faith."
More importantly, Shan advances two arguments that Raypak's Rule 11 motion is procedurally barred. First, it contends that Raypak's late filing of its Rule 11 motion did not comply with Local Rule 11.3, which requires that Rule 11 motions be filed prior to the entry of final judgment. Second, it contends that, since it withdrew its claim before Raypak moved for sanctions, Raypak's motion is barred by the "safe harbor" provision of Rule 11.
A. SANCTIONS UNDER RULE 11
Since its adoption in 1937, Rule 11 has undergone several significant permutations. Throughout its history, Rule 11 has required the signature of an attorney submitting pleadings to the court.[1] It has also always provided for sanctions against attorneys who fail to comply with its requirements. The basic provisions of Rule 11 have remained the same, but the precise conduct required of attorneys by the rule and the manner of implementing the rule's provisions have changed over time.
Rule 11 was amended in 1983 and again in 1993.[2] During the intervening period, the Third Circuit in 1988 adopted a supervisory rule, discussed infra, that affected the application of the 1983 rule. The adoption of this supervisory rule led to the implementation of identical rules governing United States District Courts for the District of New Jersey, Local Rule ("L.Civ. R.") 11.3 and General Rule ("G.R.") 12.L. A brief overview of the evolutionary developments of Rule 11 is instructive.
1. Rule 11 Pre-1993
Throughout its existence, Rule 11 has required attorneys to sign all papers submitted to the court. In its 1937 incarnation, an attorney's signature certified that to the best of that attorney's "knowledge, information, and belief there is good ground to support [the pleading]; and that it is not interposed for delay." Fed.R.Civ.P. 11 Advisory Committee's Notes (1983 Amendments) (Foundation Press 1992). The 1937 rule, however, was not effective in deterring abuses of the judicial system. Fed.R.Civ.P. 11 Advisory Committee Notes (1983 Amendments) at 85 (West 1998).
Rule 11 was amended for the first time in 1983. The 1983 amendment added that an attorney's signature on a paper indicated that the paper was "well grounded in fact" to the best of his or her knowledge, formed after a reasonable inquiry, and was not being submitted for any improper purpose. Fed. R.Civ.P. 11 (West 1991). The 1983 rule also provided that "the court ... shall impose upon the person who signed [the improper paper] ... an appropriate sanction." Id. (emphasis added).
The 1983 version of Rule 11 was intended to enhance the rule's effectiveness in deterring abuses of the judicial process. See Fed. R.Civ.P. 11 Advisory Committee Notes (1983 Amendments) at 85 (West 1998). To attain this end, the 1983 rule was meant to emphasize attorney responsibility and reduce the reluctance of the court to impose sanctions. Id. The "well grounded in fact" requirement placed a heavy burden on attorneys to "look before leaping" and investigate the basis of papers before submitting them to the court. *238 See id. The language stating that the court "shall" impose sanctions upon a finding that such sanctions are warranted limited courts' discretion in imposing sanctions. See, e.g., Bradgate Assocs., Inc. v. Fellows, Read & Assocs., Inc., 999 F.2d 745, 753 n. 6 (3d Cir.1993) (recognizing that the 1983 incarnation of Rule 11 limited courts' discretion in imposing sanctions, and further that the then-proposed 1993 Rule was more permissive); Frantz v. United States Powerlifting Federation, 836 F.2d 1063, 1065 (7th Cir. 1987), Weil v. Markowitz, 829 F.2d 166, 171 (D.C.Cir.1987) (both recognizing that decision whether to impose sanctions under 1983 Rule 11 was non-discretionary). The 1983 Rule 11, therefore, served the dual goals of emphasizing attorney responsibility and increasing courts' ability and willingness to impose sanctions. Fed.R.Civ.P. 11 Advisory Committee Notes (1983 Amendment) at 86 (West 1998). The 1983 rules committee fully expected that the new rule would result in sanctions being more frequently imposed. Id. at 85.
In 1988, however, the tide in the Third Circuit seemingly shifted away from the pro-sanction bent of 1983 Rule 11. In Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 92 (3d Cir.1988), the plaintiffs had sued the defendants under anti-trust laws. Summary judgment was granted against the plaintiffs, and the Third Circuit affirmed. After receiving a copy of the Order affirming the district court's grant of summary judgment, but before the mandate had issued, the defendants moved to impose sanctions on the plaintiffs under Rule 11 on the grounds that the plaintiffs had not conducted a reasonable investigation in to the facts prior to filing suit. Id. at 93. The district court granted the sanctions. Id. at 94. The Third Circuit reversed, holding that while the district court had jurisdiction to entertain the motion following the entry of final judgment,[3] the facts of the case did not warrant sanctions. Id. at 94-97.
More importantly, the court "[adopted] as a supervisory rule for the courts in the Third Circuit a requirement that all motions requesting Rule 11 sanctions be filed in the district court before the entry of a final judgment." Id. at 100. The court adopted this supervisory rule out of concern about the inefficiency of "fragmented appeals": where an appeal of the disposition of a case on its merits is followed by an appeal of the disposition of a Rule 11 motion. Id. at 99; see Lite, Comment on General Rule for the District of New Jersey 12.L, New Jersey Federal Practice Rules at 91 (Gann 1997). The decision in Pensiero later resulted in the implementation of L. Civ. R. 11.3, which states that "all applications for sanctions under Fed.R.Civ.P. 11 shall be filed with the Clerk prior to the entry of final judgment notwithstanding the provisions of any other Rule of this Court." New Jersey Federal Practice Rules (1997 Supplement) at 14 (Gann 1997); see also G.R. 12.L, New Jersey Federal Practice Rules at 72 (Gann 1997).
The jurisdiction of district courts to entertain Rule 11 motions was extended further in Schering Corp. v. Vitarine Pharmaceuticals, 889 F.2d 490, 496 (3d Cir.1989). In Schering, the plaintiff pharmaceutical companies sued the defendant pharmaceutical companies under the Lanham Trade-Mark Act. Id. at 491. The plaintiffs voluntarily dismissed the action, but six weeks after this dismissal the defendants moved for sanctions. Id. at 494. The District Court granted sanctions, id., and the Third Circuit reversed, id. at 496. Because Schering involved a voluntary dismissal and not a final judgment, Schering presented an issue of first impression in the Third Circuit: whether district courts have jurisdiction to entertain Rule 11 motions after a voluntary dismissal. Id. at 494. The Third Circuit determined that while a district *239 court has "jurisdiction to entertain and decide [a] Rule 11 motion after defendants suffer[] a voluntary dismissal under Rule 41(a)(1)(i)," sanctions were not warranted by the facts of the case. Id. at 496-500.[4]
Shan contends that this court should deny Raypak's motion for sanctions because Schering does not grant this court jurisdiction over Raypak's Rule 11 motion. Shan contends that this is so because the instant action was dismissed pursuant to Rule 41(a)(1)(ii). In making this contention, Shan suggests that the holding in Schering was limited to cases dismissed under Rule 41(a)(1)(i).[5] Shan, however, provides no basis for this distinction.
Furthermore, this distinction runs counter to the precedent set by the United States Supreme Court in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990). In Hartmarx, the defendants filed counterclaims alleging violations of anti-trust laws against the plaintiff and its subsidiaries. Id. at 395, 110 S. Ct. 2447. The defendants filed these counterclaims in November, 1983. Id. at 388-89, 110 S. Ct. 2447. Plaintiffs moved for dismissal and sanctions under Rule 11. Id. at 389, 110 S. Ct. 2447. In April, 1984, defendant voluntarily dismissed the counterclaims pursuant to Rule 41(a)(1)(i). This dismissal became effective in July, 1984. Id. The court heard oral argument on the motion for sanctions in June, 1984, and took the motion under advisement. Id. In February, 1988, over 3-1/2 years after hearing oral argument on the Rule 11 motion, the district court granted sanctions. Id. The Supreme Court affirmed the award of sanctions, holding that "a voluntary dismissal does not expunge the Rule 11 violation" since the violation "is complete when the paper is filed." Id. at 395, 110 S. Ct. 2447. The Court also concluded that a district court "may enforce Rule 11 even after the plaintiff has filed a notice of dismissal under Rule 41(a)(1)," making no distinction between Rules 41(a)(1)(i) and 41(a)(1)(ii). Id. at 398, 110 S. Ct. 2447. Therefore, the developments in Rule 11 and the case law interpreting them, culminating in Hartmarx, affirm that this court possesses jurisdiction to entertain Raypak's motion for sanctions.
2. Rule 11 Post-1993
In 1993, amid concerns about "problems that [had] arisen in the interpretation and application" of the 1983 rule, Rule 11 was amended to include a "safe harbor" provision.[6] The current version of the rule reads in relevant part:
Rule 11. Signing of Pleadings, Motions, and Other Papers; Representations to Court; Sanctions
....
(c) Sanctions
....
(1) How Initiated.
....
(A) By Motion. A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). It shall be served as provided in Rule 5, but shall not be filed or presented to the court unless, within 21 days after service of the motion (or such *240 other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.
Fed.R.Civ.P. 11(c)(1)(A).
The "safe harbor" provision requires the party moving for sanctions to notify the party against which it seeks sanctions of its intention to move for sanctions. The court can impose sanctions only if, after twenty-one days, the non-moving party has not withdrawn the offending petition or "acknowledge[d] candidly that it does not currently have evidence to support a specified allegation." Fed.R.Civ.P. 11 Advisory Committee Notes (1993 Amendment) at 89 (West 1998). The express purpose of this amendment to the rule was to prevent abuses of Rule 11 sanctions by providing parties a "safe harbor" within which they will not be subject to sanctions unless they refuse to withdraw offending papers filed with the court. Id.
The language and intent of the 1993 Rule appear to preclude bringing sanctions after the party against which sanctions are sought has voluntarily dismissed its suit. Implicit in the amended Rule 11 is the policy provision that, absent clearly abusive behavior akin to contempt of court, a party will always have the chance to withdraw offending papers it has submitted. See id. It has been suggested that the "safe harbor" provision of the 1993 rule was intended as a check against satellite litigation. See Daliessio v. DePuy, Inc., 178 F.R.D. 451, 452-53 (E.D.Pa.1998); see also Howard A. Cutler, A Practitioner's Guide to the 1993 Amendment to Federal Rule of Civil Procedure 11, 67 Temple L.Rev. 265, 286, 293 (1994) (stating that the 1993 amendment to Rule 11 is likely to have the effect of reducing satellite litigation over Rule 11 sanctions). Making Rule 11 sanctions available to parties requesting them even after the end of a case would seemingly confound this purpose.
Furthermore, the Hartmarx principle that a Rule 11 violation is complete when the offending paper is filed with the court appears to conflict with the present version of Rule 11 which provides that a violation of Rule 11 is not complete unless the offending paper is not withdrawn within 21 days following notice by the moving party. Indeed, other district courts have recognized Hartmarx as being superseded by the 1993 Rule 11. See Photocircuits Corp. v. Marathon Agents, Inc., 162 F.R.D. 449, 452 (E.D.N.Y. 1995) (holding that 1993 Rule 11 superseded Hartmarx and precluded award of sanctions following a voluntary dismissal of the action); Morroni v. Gunderson, 169 F.R.D. 168, 171 (M.D.Fla.1996) (holding that "a party who seeks Rule 11 sanctions based upon allegations in a complaint [ ] cannot wait until the action has been voluntarily dismissed by the opposing party because the party who voluntarily dismisses a case has withdrawn the offending pleading by dismissing the case") (citing Photocircuits Corp., 162 F.R.D. 449 (E.D.N.Y.1995)). Therefore, the text of the current Rule 11 and current authority interpreting it indicate that a motion for sanctions under Rule 11 must be submitted prior to the dismissal of a case.[7]
Raypak concedes that Shan had nothing to withdraw after the voluntary dismissal, but asserts that Shan should still be sanctioned because it has failed to "acknowledge[] candidly that [it does] not have evidence to support" its claims against Raypak. *241 "[A] party will not be subject to [Rule 11] sanctions ... unless, after receiving the [Rule 11] motion, it refuses to withdraw that position or to acknowledge candidly that it does not currently have evidence to support a specified allegation." Fed.R.Civ.P. 11 Advisory Committee Notes (1993 Amendment) at 89 (West 1998) (emphasis added). A party is not required both to withdraw its position and make a candid acknowledgment to avoid Rule 11 sanctions; withdrawal alone is sufficient. Since Shan withdrew its position when it voluntarily dismissed its claims, it is not subject to Rule 11 sanctions. Accordingly, Raypak's motion is denied to the extent that it requests sanctions under Rule 11.
B. SANCTIONS UNDER 28 U.S.C. § 1927
Raypak also seeks sanctions pursuant to 28 U.S.C. § 1927. That section provides, in relevant part:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorney's fees reasonably incurred because of such conduct
"To justify the imposition of [sanctions under § 1927], [an attorney's] conduct must be of an egregious nature, stamped by bad faith that is violative of recognized standards in the conduct of litigation." Baker Industries, Inc. v. Cerberus, Ltd., 764 F.2d 204, 208-209 (3d Cir.1985). Raypak argues that Shan knew or should have known "as early as October 1996" that their third-party action against Raypak was frivolous. It contends that Shan acted in bad faith by continuing to sustain the action.
Shan disputes the contention that it acted in bad faith. It contends that its pre-suit investigation revealed that the Raypak boilers were "an integral part of the water heater system that ... supplied scalding water" to the shower stall occupied by the minor plaintiff. Response Brief at 17. Prior to filing its third-party action, Shan obtained evidence that Raypak had manufactured two of the boilers in the hotel's hot water system. It also determined that the hot water in Room 716 was measured at a peak temperature of 160 degrees. Shan Exh. G at 2. Furthermore, during discovery, Shan received specifications for the Raypak boilers that indicated that the boilers were supposed to "assure constant 140 [degree] F water to both fan coil unit and the hot water fixtures." Shan Exh. E at 3. It also learned that "most adults will suffer a third degree burn if exposed to 150°F water for only two seconds," Shan Exh. L at 5, that the water passing through the heat exchanger was 203°F, and that the water in the storage tank was 154°F. Id. at 7. Shan also produced evidence that at least one of the Raypak boilers was in use on the date Ms. Hockley was injured. Deposition of Norman Bird, January 9, 1997, Shan Exh. F at 63-64.
Considering the evidence, there are no grounds to support an inference of bad faith on the part of Shan in bringing or maintaining its third-party action against Raypak. On the contrary, Shan knew when it brought this third party action that Raypak's boilers were part of the hotel's hot water system and that the water temperature in the shower in Room 716 exceeded the "constant" temperature assured in the specifications for the Raypak boilers. Though these facts do not prove that Raypak was liable for Ms. Hockley's injuries, they do provide a reasonable ground for initiating the suit against Raypak. Furthermore, considering the evidence obtained during discovery, Shan did not act in bad faith in maintaining its suit against Raypak. Since Shan's actions in the instant litigation can not be considered egregious or in bad faith, sanctions under 28 U.S.C. § 1927 are not warranted.
III. CONCLUSION
For the reasons stated above, Raypak's Motion for Sanctions under Rule 11 and 28 U.S.C. § 1927 is denied.
NOTES
[1] The rule has since been amended to include "motions and other papers."
[2] Rule 11 was also amended in 1987, but the changes were technical and not substantive. See Fed.R.Civ.P. 11 Advisory Committee Notes (1987 Amendment) at 86 (West 1998).
[3] The Third Circuit held that a district court has jurisdiction to entertain motions for sanctions submitted even after an appellate affirmance on the merits of a case because a motion for sanctions is "uniquely separable" and "collateral" from a decision on a case's merits. Pensiero, 847 F.2d at 98. Therefore, a motion for sanctions under Rule 11 after an affirmance on the merits is not barred by the doctrines of res judicata or collateral estoppel, or by a judge-made rule "[divesting] the district court of jurisdiction over [a] case pending disposition of the appeal." Id. at 97. The Third Circuit's holding in Pensiero declares that a district court is not jurisdictionally barred (either by res judicata or collateral estoppel) from hearing a motion for Rule 11 sanctions after an affirmance on the merits. See id. at 98.
[4] Despite Pensiero's supervisory rule, the Third Circuit in Schering had to address the motion's merits because Schering involved a voluntary dismissal rather than a final judgment. Thus, the motion in Schering was not procedurally barred by Pensiero's supervisory rule. The holdings of Pensiero and Schering are not inconsistent but complementary: the latter extends the jurisdiction recognized in the former.
[5] Rule 41 reads, in pertinent part, as follows: Rule 41. Dismissal of Actions
(a) Voluntary Dismissal: Effect Thereof.
(1) By plaintiff; by Stipulation.
... [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.
Rule 41(a)(1)(i) pertains to the voluntary dismissal of cases prior to service of an answer or summary judgment motion. Rule 41(a)(1)(ii) pertains to voluntary dismissal following appearances.
[6] Other significant revisions were made to the rule, but only the addition of the "safe harbor" provision is relevant to the instant case.
[7] Raypak cites what it believes to be contrary authority from this District. In Y.J. Sons & Co., Inc. v. Anemone, Inc., 212 B.R. 793, 808 (D.N.J. 1997), the District Court affirmed a Bankruptcy Court's award of sanctions subsequent to the dismissal of the main action. This result would seem to run contrary to Rule 11. However, there is a significant distinction between the rule in Y.J. Sons, Inc. and the rule in the instant case.
Sanctions were awarded in Y.J. Sons, Inc. pursuant to Bankruptcy Rule 9011. The two rules today are almost identical. Both contain a 21-day safe harbor provision. However, in August 1997, when Y.J. Sons, Inc. was decided, Bankruptcy Rule 9011 did not contain the 21-day safe harbor provision it contains today. See Bankr. Rule 9011, 11 U.S.C.A. (West 1984). In fact, the rule under which Y.J. Sons, Inc. was decided was similar to the 1983 Rule 11. See id. The amendments to Bankruptcy Rule 9011 that resulted in the inclusion of the safe harbor provision did not become effective until December 1997, four months after Y.J. Sons, Inc. was decided. Bankr. Rule 9011, 11 U.S.C.A. (West Supp.1998). Therefore, the post-final-judgment sanctions imposed in Y.J. Sons, Inc. were imposed under a fundamentally different rule than the one at issue in the instant case.
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961 N.E.2d 344 (2011)
356 Ill. Dec. 248
The PEOPLE of the State of Illinois, Plaintiff-Appellee,
v.
Terry LLOYD, Defendant-Appellant.
No. 4-10-0094.
Appellate Court of Illinois, Fourth District.
November 16, 2011.
*346 Michael J. Pelletier, State Appellate Defender, Karen Munoz, Deputy Defender, Ryan R. Wilson (argued), Asst. Appellate Defender, Office of the State Appellate Defender, for Terry Lloyd.
William A. Yoder, McLean County State's Attorney, Patrick Delfino, Director, Robert J. Biderman, Dep. Director, Luke McNeill, Staff Atty. (argued), State's Attorneys Appellate Prosecutor, for People.
OPINION
Justice TURNER delivered the judgment of the court, with opinion.
¶ 1 In January 2009, a grand jury indicted defendant, Terry Lloyd, with seven counts of criminal sexual assault under section 12-13(a)(2) of the Criminal Code of 1961 (Criminal Code) (720 ILCS 5/12-13(a)(2) (West 2008)). Following a July 2009 trial, a jury found defendant guilty of all seven counts. Defendant filed a motion for a new trial. At a joint November 2009 hearing, the McLean County circuit court denied defendant's posttrial motion and sentenced him to an aggregate 44 years in prison. Defendant filed a motion to reconsider his sentence, which the court denied in January 2010.
¶ 2 Defendant appeals his conviction, asserting (1) the State's evidence is insufficient to prove beyond a reasonable doubt defendant knew the victim, P.V., was unable to understand the nature of the *347 charged act or give knowing consent to those acts, and (2) his convictions on four of the seven counts must be vacated where the acts pleaded in those counts do not constitute "sexual penetration" as defined for the jury. We affirm in part, reverse in part, and remand the cause with directions.
¶ 3 I. BACKGROUND
¶ 4 A. The State's Charges
¶ 5 The grand jury's seven indictments all asserted defendant committed criminal sexual assault under section 12-13(a)(2) of the Criminal Code (720 ILCS 5/12-13(a)(2) (West 2008)), which is violated when a person "commits an act of sexual penetration and the accused knew that the victim was unable to understand the nature of the act or was unable to give knowing consent." The indictments alleged the acts were committed between September 1, 2008, and January 7, 2009, and stated P.V. was both "unable to understand the nature of the act or give knowing consent." Additionally, counts I, III, V, and VII alleged the penetration involved defendant's hand and P.V.'s vagina; and counts II, IV, and VI alleged the penetration involved defendant's mouth and P.V.'s vagina.
¶ 6 B. Trial Evidence
¶ 7 The State presented the following evidence in support of its charges at defendant's July 2009 trial.
¶ 8 P.V., born February 28, 1995, testified that, when she was 13 years old, she and her mother returned home to find defendant's van parked in their driveway. Defendant was in the van with P.V.'s aunt, Brenda Phelps. P.V. had known defendant her whole life as he was a long-time family friend. P.V. got into the van and sat behind Brenda. Shortly thereafter, defendant reclined his seat and began rubbing P.V.'s leg and "private part." P.V. moved defendant's hand once, but when he put his hand back on her leg, she decided to "just let it be." Brenda then exited the van. (Brenda acknowledged during her testimony that she had a conviction for "permitting the sexual abuse of a minor" in McLean County case No. 97-CF-448.)
¶ 9 Defendant told P.V. she was "beautiful" and "sexy." P.V. responded by laughing, thinking defendant was joking. Defendant resumed rubbing P.V.'s leg and rubbing her "private part" over her underwear. Defendant then placed his hand into P.V.'s underwear. He touched the part of her private area that "has the hole" and moved his finger up and down in that area. Defendant stopped touching her when she said "[s]omebody's coming" after a light came on in the house.
¶ 10 A week or two later, defendant was at P.V.'s house, and P.V. asked Brenda and defendant if she could listen to music in defendant's van. Defendant gave her the keys to the van, and she alone went out to the van. Shortly thereafter, defendant came out and joined P.V. in the van. Defendant asked P.V. whether she enjoyed herself the "last time" and told her that she was beautiful. Defendant then began touching P.V.'s leg and clothing above what P.V. described as her "private." Defendant then told P.V. that she had "too much clothes on." P.V., thinking defendant wanted to do "the same thing that he did the last time," walked into the house, changed clothes, and returned to the van. Defendant did not have to ask P.V. to take off her clothes because P.V. "already kinda [sic] knew what [she] was supposed to do." P.V. explained the reason she returned to the van, as follows:
"[W]ell, in a sense, I was scared, but then, like, I didn't reallyI don't know. I kind of thought it was, like, right at the time, because, like, I don't really talk *348 or hang around people that are my age. I usually hang out with my sister's friends, and my sister's 16 now, but she was 15 at the time. They're always talking about, like, the stuff that they've done and stuff, and so I just kind of figured that maybe that's what they were talking about, so I kind ofI guess in a way, I went along with it `cause I thought that I was supposed to do, like, the same thing, because I didn't really, like, express it, I guess, in a way."
¶ 11 P.V. moved to the back of the van and pulled her sweatpants down. Defendant began rubbing her "private part on top of [her] underwear." After that, he placed his hand under her underwear and "put his fingers inside of [her] private." At first, it was just one finger, but later it was two fingers. Defendant moved his hand under P.V.'s sports bra and then asked P.V. if he could "taste it." P.V. responded, "`I don't know,'" but then "agreed to it." Defendant put his tongue on P.V.'s vagina. Defendant's cellular telephone rang, and defendant stopped. Before P.V. got out of the van, defendant told her not to tell anyone. He also said "he'd get, like, 45 to life years." P.V. promised that she would not tell because she did not "want to get anybody in trouble."
¶ 12 Approximately two weeks later, P.V. was again listening to music in defendant's van when defendant came out to join her. Defendant asked P.V. if she "wanted to do it again." P.V. initially said no. However, defendant persisted and P.V. eventually agreed, telling defendant it was going to be the last time. Defendant began rubbing P.V.'s leg. Because P.V. was in a seat that could be seen through the window, she moved to the rear row of seats in the van. P.V. helped defendant pull her pants down. Defendant "put his fingers in [her] private, and then he had put his tongue on my private." When defendant asked P.V. if she had ever "`kissed a dick,'" P.V. responded she had not and did not want to. Defendant's cellular telephone rang, and she got out of the van.
¶ 13 That same day, defendant called P.V. on her cellular telephone. He began the conversation by asking where she was, if anyone was around, and whether she could talk. Defendant then asked why she was acting weird around him. A few days later, defendant was at her house. After he left, defendant called P.V. on her cellular telephone to ask why she was acting weird again. Defendant again had started the conversation by asking where she was and if she could talk.
¶ 14 About a week later, defendant stopped at P.V.'s house, and Brenda asked defendant to take P.V. to the gas station to buy some potato chips. P.V. got into defendant's van. Defendant drove away but did not go directly to the gas station. Instead, he drove out of town for what "felt like 30 minutes." When defendant stopped the van, he told P.V. to get into the back of the van. Defendant pulled P.V.'s pants down and began rubbing her "private" and performing oral sex on her. Defendant put two of his fingers "inside of [her] private" and stated it "seemed like [she] could take * * * good dick, or big dick."
¶ 15 After that defendant asked P.V. "if he could put his private inside of [hers]." Concerned that defendant was actually going to try to penetrate her with his penis, P.V. told defendant she did not want him to do that. Defendant then proceeded to perform oral sex on P.V. for another 10 minutes. At that point, P.V. told defendant she wanted defendant to stop, explaining Brenda would wonder where they were. Defendant stopped, and they drove *349 to the gas station before returning to P.V.'s home.
¶ 16 A few days later, P.V. told her sister about what defendant had done. The next day, P.V. told her mother, who contacted the police.
¶ 17 On cross-examination, P.V. testified she had attended sexual-education classes since sixth grade, where she received information about "good touches" and "bad touches." P.V. "wanted to have the experience, just not with [defendant]."
¶ 18 Detective Michael Burns testified he met with P.V. at her mother's request. After speaking to P.V., Burns met with defendant, whose birth date is February 28, 1966 (making him 42 years old at the time of the offenses). Defendant told Burns he listened to music in the van with P.V. but denied ever being alone with P.V. in the van or anywhere else. Defendant also denied ever calling P.V. on her cellular telephone. However, telephone records admitted into evidence at trial showed someone using defendant's cellular telephone had called P.V.'s cellular telephone twice.
¶ 19 Brenda testified she lived with P.V. and P.V.'s mother, Brenda's sister, when defendant was taking advantage of P.V. At the time of trial, Brenda was married to defendant's half-brother. Brenda recalled several occasions in which defendant had been alone with P.V., including the time P.V. left with defendant to retrieve the potato chips from the gas station. Defendant and P.V. were gone "longer than what [she] expected [them] to be."
¶ 20 Defendant chose not to present any evidence in his defense.
¶ 21 After the case went to deliberations, the jury asked the following two questions:
"(1) Does contact with the sex organ through clothing constitute sexual penetration?
(2) How much of the body (the pubic area) is considered part of the sex organ[?]"
In response to the questions, the trial court gave the jury the following remarks:
"In response to Question # 1, be advised you have the instructions of law concerning the definition of sexual penetration. No further definition can be provided to you.
In response to Question # 2, you are further instructed: The female `sex organ' is not limited to the vagina but also includes the labia majora and labia minora, the outer and inner folds of skin of the external genital organs."
The court also gave some citations for its answer to the second question.
¶ 22 C. The Jury's Verdict and Defendant's Sentence
¶ 23 On the aforementioned evidence, the jury convicted defendant of all seven counts of criminal sexual assault. In November 2009, the trial court sentenced defendant to (1) five years in prison on counts I and II, (2) six years in prison on counts III and IV, (3) seven years in prison on counts V and VI, and (4) eight years in prison on count VII. The court ordered all of the sentences to be served consecutively, for an aggregate sentence of 44 years in prison. Defendant filed a motion to reconsider his sentence, which the court denied on January 5, 2010.
¶ 24 On February 1, 2010, defendant filed a notice of appeal in compliance with Illinois Supreme Court Rule 606 (eff. Mar. 20, 2009). Thus, this court has jurisdiction under Illinois Supreme Court Rule 603 (eff. July 1, 1971).
¶ 25 II. ANALYSIS
¶ 26 A. Sufficiency of the Evidence
¶ 27 Defendant first asserts the State failed to present any evidence establishing *350 defendant knew P.V. was unable to understand the nature of the charged acts or give knowing consent to those acts as required by section 12-13(a)(2) of the Criminal Code. The State argues P.V. was unable to understand the nature of the charges and give knowing consent due to her youth and defendant knew that.
¶ 28 When presented with a challenge to the sufficiency of the evidence, a reviewing court's function is not to retry the defendant. People v. Givens, 237 Ill.2d 311, 334, 343 Ill.Dec. 146, 934 N.E.2d 470, 484 (2010). Rather, we consider "`whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.'" (Emphasis in original.) People v. Davison, 233 Ill.2d 30, 43, 329 Ill.Dec. 347, 906 N.E.2d 545, 553 (2009) (quoting Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979)). Under that standard, a reviewing court must draw all reasonable inferences from the record in the prosecution's favor. Davison, 233 Ill.2d at 43, 329 Ill.Dec. 347, 906 N.E.2d at 553. Additionally, we note a reviewing court will not overturn a criminal conviction "unless the evidence is so improbable or unsatisfactory that it creates a reasonable doubt of the defendant's guilt." Givens, 237 Ill.2d at 334, 343 Ill. Dec. 146, 934 N.E.2d at 484.
¶ 29 Here, the grand jury charged defendant with criminal sexual assault under section 12-13(a)(2) of the Criminal Code, which states, in pertinent part, as follows:
"(a) The accused commits criminal sexual assault if he or she:
* * *
(2) commits an act of sexual penetration and the accused knew that the victim was unable to understand the nature of the act or was unable to give knowing consent[.]" 720 ILCS 5/12-13(a)(2) (West 2008).
In People v. Whitten, 269 Ill.App.3d 1037, 1042-43, 207 Ill.Dec. 569, 647 N.E.2d 1062, 1066 (1995), the Fifth District explained the "accused knew that the victim was unable to understand the nature of the act or was unable to give knowing consent" language of section 12-13(a)(2) that is at issue in this appeal. The Whitten court stated the following:
"The crime of criminal sexual assault is committed by the wrongful act of the accused, not the inability of the victim. There is nothing in the phrase `unable to give knowing consent' that indicates that this phrase should be limited to those situations where a victim's ability to understand is in question. The legislature clearly indicated in section 12-13(a)(2) that there are two different ways to commit the crime; the first, of course, is to knowingly have sexual relations with someone who is unable to understand the nature of the act, while the second method is to knowingly have sexual relations with someone who, for any reason, is unable to give knowing consent. Courts should not automatically intertwine these two ways to violate the statute, so that we are left with only one type of victim, the severely developmentally disabled person. We should, therefore, consider all the evidence before the jury, including the accused's perspective as to what he knew and when he knew it, in assessing the question of complainant's consent." (Emphasis added.) Whitten, 269 Ill.App.3d at 1042-43, 207 Ill.Dec. 569, 647 N.E.2d at 1066.
¶ 30 Defendant cites the Second District's People v. Fisher, 281 Ill.App.3d 395, 403, 217 Ill.Dec. 349, 667 N.E.2d 142, 147 (1996), where that court stated section 12-13(a)(2) "applies to situations where an otherwise normally competent person is *351 rendered temporarily unable to give knowing consent." Similarly, the dissent asserts section 12-13(a)(2) is limited to the victim's inability to consent based on a mental condition. Infra ¶ 57. We disagree this section is limited to only those situations. Section 12-13(a)(2) places no limitation on the reason for the victim's inability to understand the act or give knowing consent. If the legislature intended to limit the reasons to temporary conditions or mental conditions, it would have so noted. It is not our job to create limitations. See People v. Woodard, 175 Ill.2d 435, 443, 222 Ill.Dec. 401, 677 N.E.2d 935, 939 (1997) ("Where an enactment is clear and unambiguous, the court is not free to depart from the plain language and meaning of the statute by reading into it exceptions, limitations, or conditions that the legislature did not express * * *."). As Justice Scalia has stated, "The only sure indication of what Congress intended is what Congress enacted * * *." Zuni Public School District No. 89 v. Department of Education, 550 U.S. 81, 122, 127 S.Ct. 1534, 167 L.Ed.2d 449 (2007) (Scalia, J., dissenting, joined by Roberts, C.J., and Thomas, J.).
¶ 31 In this case, the issue on appeal can be addressed under the second method of proving the offense, "knowingly have sexual relations with someone who, for any reason, is unable to give knowing consent." (Emphasis added.) Whitten, 269 Ill.App.3d at 1042, 207 Ill.Dec. 569, 647 N.E.2d at 1066. On appeal and at trial, the State asserted P.V. was unable to give knowing consent based on her young age. The concept that a person must attain a certain age to be able to give consent to sexual activities has deep legal roots. The American legal system adopted it from the English common law, which had codified it in 1275. Michelle Oberman, Turning Girls Into Women: Re-evaluating Modern Statutory Rape Law, 8 DePaul J. Health Care L. 109, 119 (2004). The reasoning behind an age of consent is that young people lack maturity in judgment and the ability to comprehend the consequences of such activity. See Addison v. People, 193 Ill. 405, 417-18, 62 N.E. 235, 238 (1901) (per curiam); see also Russell L. Christopher & Kathryn H. Christopher, Adult Impersonation: Rape by Fraud as a Defense to Statutory Rape, 101 Nw. U. L. Rev. 75, 111-12 (2007). Thus, "[t]he age of consent fixed by a state represents a legislative judgment about the maturity of girls in matters of sex." Beul v. ASSE International, Inc., 233 F.3d 441, 450 (7th Cir. 2000). The Illinois legislature has enacted several age-based criminal statutes addressing the offender's age, the victim's age, and the type of conduct, and those provisions show the age of consent in Illinois is generally 17 (720 ILCS 5/12-15(c) (West 2008)) but, in a few instances, it is 18 (see, e.g., 720 ILCS 5/12-13(a)(3) (West 2008)). See Doe v. Oberweis Dairy, 456 F.3d 704, 707 (7th Cir.2006) (en banc).
¶ 32 The facts of this case highlight the reason behind the existence of the age of consent. While P.V. was curious about sexual activities and wanted to have the experiences her sister and her sister's friends had, she felt weird and scared and did not want the experience to be with defendant. P.V. also testified she thought that she was supposed to do those things based on the conversations she heard between her sister and her sister's friends. Her explanation of why she changed her clothes at defendant's request shows a confused and inexperienced young teenager. P.V.'s immature thought process is highlighted by the fact she kept thinking it would not happen again. Moreover, the trial evidence showed on a couple of occasions she would initially tell defendant no to the activity he wanted to do but then *352 would eventually allow him to do it after he persisted. Defendant, who was almost 30 years older than P.V., was the one that started all of the advances.
¶ 33 The fact the legislature has enacted some age-based statutes eliminating the term "consent" does not mean the legislature sought to exclude the inability to consent based on age from section 12-13(a)(2). As stated, section 12-13(a)(2) contains no such limiting language. Moreover, section 12-13(a)(2) requires the State to prove the defendant knew the person was unable to consent, not simply the victim's age. With the age-based crimes, the State does not have to prove that fact. Moreover, because the State has to prove the accused knew the victim was unable to consent, it would be highly unlikely any sexual contact between two similarly aged teenagers under 17 or sex with a person almost 17 would be punishable under section 12-13(a)(2). Thus, we disagree with any suggestion the inability to consent based on age is excluded from section 12-13(a)(2) because it would produce an illogical result. Infra ¶¶ 63-65.
¶ 34 As noted in Whitten, 269 Ill.App.3d at 1042-43, 207 Ill.Dec. 569, 647 N.E.2d at 1066, the focus of our analysis is on what defendant knew. Contrary to any suggestion by the State, the mere fact P.V. was 13 alone is insufficient to prove "the accused knew that the victim was unable to understand the nature of the act or was unable to give knowing consent." 720 ILCS 5/12-13(a)(2) (West 2008). Knowledge is usually established by circumstantial evidence. People v. Weiss, 263 Ill. App.3d 725, 731, 200 Ill.Dec. 296, 635 N.E.2d 635, 639 (1994). "The State must present sufficient evidence from which an inference of knowledge can be made, and any inference must be based on established facts and not pyramided on intervening inferences." Weiss, 263 Ill.App.3d at 731, 200 Ill.Dec. 296, 635 N.E.2d at 639. Defendant had known P.V. her entire life and had the same birth date as hers, about which they often joked. Thus, defendant would have known P.V. was in her early teens, well below the age of consent.
¶ 35 The State's evidence also shows defendant knew P.V. could not knowingly consent due to her young age. Before P.V. left the van after the second incident, defendant told P.V. she could not tell anyone because he would get "45 to life." After the third and fourth incidents, defendant again told P.V. she could not tell anyone. Defendant also stated on three occasions P.V. made him nervous because he thought she was going to tell on him. When defendant called P.V. on her cellular telephone, defendant began the conversation by asking if anyone was around and if she was able to talk. Such actions again indicate he had knowledge P.V. could not consent to the activities in which they were engaging. Additionally, when confronted by Officer Burns, defendant denied calling P.V. and denied being alone with her in the van.
¶ 36 In addition to the testimony about defendant's statements, the jury viewed and heard P.V. while she testified in court at the July 2009 trial. The jury had the opportunity to assess P.V.'s personal characteristics, including her maturity level, physical characteristics, and emotional and mental strength. Such considerations would factor into her lack of ability to consent due to her youth and defendant's knowledge of her inability to consent. Moreover, we note that, as defendant had known P.V. all of her life, he was positioned to take advantage of her naiveté as she was coming into her teen years. Based on its observations and subsequent assessments of P.V., the jury could reasonably infer P.V. was unable to give consent to this older lifelong family friend. A cold *353 record does not give us the opportunity to make those observations and subsequent assessments, and that is why we give great deference to the trier of fact's judgment.
¶ 37 Accordingly, we find the State presented more than ample evidence to prove beyond a reasonable doubt defendant knew P.V. was unable to give consent.
¶ 38 B. Jury Instruction
¶ 39 Defendant asserts his convictions for criminal sexual assault based on his actions with his fingers must be vacated based on the definition of "sexual penetration" provided the jury. Defendant acknowledges he failed to preserve this error in the trial court and requests that we review the issue under the plain-error doctrine (Ill.S.Ct. R. 615(a) (eff. Jan. 1, 1967)). The State concedes the jury was provided the wrong jury instruction defining "sexual penetration" but argues the error did not rise to the level of plain error.
¶ 40 The plain-error doctrine permits a reviewing court to consider unpreserved error under the following two scenarios:
"(1) a clear or obvious error occurred and the evidence is so closely balanced that the error alone threatened to tip the scales of justice against the defendant, regardless of the seriousness of the error, or
(2) a clear or obvious error occurred and that error is so serious that it affected the fairness of the defendant's trial and challenged the integrity of the judicial process, regardless of the closeness of the evidence." People v. Sargent, 239 Ill.2d 166, 189, 346 Ill.Dec. 441, 940 N.E.2d 1045, 1058 (2010).
Since the State admits an error occurred, we begin our analysis by considering whether either of the two prongs of the plain-error doctrine has been satisfied. Sargent, 239 Ill.2d at 189-90, 346 Ill.Dec. 441, 940 N.E.2d at 1059. Under both prongs, the defendant bears the burden of persuasion. Sargent, 239 Ill.2d at 190, 346 Ill.Dec. 441, 940 N.E.2d at 1059.
¶ 41 Defendant contends the error was so serious that he was denied a fair trial. We begin by examining the error. The four convictions at issue are based on defendant committing an act of sexual penetration with P.V., involving his fingers and her vagina. Section 12-12(f) of the Criminal Code (720 ILCS 5/12-12(f) (West 2008)) defines "sexual penetration" and produces two broad categories of conduct. See People v. Maggette, 195 Ill.2d 336, 346-47, 254 Ill.Dec. 299, 747 N.E.2d 339, 345 (2001). One category "includes any contact between the sex organ or anus of one person by an object, the sex organ, mouth or anus of another person." (Emphasis in original.) Maggette, 195 Ill.2d at 347, 254 Ill.Dec. 299, 747 N.E.2d at 345. With this category, the term "object" does not include parts of the body. Maggette, 195 Ill.2d at 350, 254 Ill.Dec. 299, 747 N.E.2d at 347. The second category "includes any intrusion of any part of the body of one person or of any animal or object into the sex organ or anus of another person." (Emphasis in original.) Maggette, 195 Ill.2d at 347, 254 Ill.Dec. 299, 747 N.E.2d at 345. Illinois Pattern Jury Instructions, Criminal, No. 11.65E (4th ed. 2000) (hereinafter, IPI Criminal 4th No. 11.65E) separates the definition of "sexual penetration" into the two aforementioned categories. In this case, at the State's request, the trial court gave only the first portion of IPI Criminal 4th No. 11.65E, which is the first or "contact" definition. Under that definition, defendant's finger cannot constitute an "object," and thus the State could not have proved sexual penetration by defendant's finger under that definition.
*354 ¶ 42 The State recognizes the second or "intrusion" definition should also have been given to the jury. However, it argues defendant was not prejudiced by the improper instruction and was not denied a fair trial. Specifically, it notes with the last three incidents, P.V. gave specific testimony of digital penetration, and as to the first incident, the evidence was sufficient for the jury to reasonably infer digital penetration took place.
¶ 43 Defendant notes the error with the jury instruction was compounded by the fact that, in its closing argument, the State improperly explained the "sexual penetration" definition by using the language of the contact clause instead of the intrusion clause. He also notes the trial court's definition of female sex organ in response to the jury's second question. Moreover, defendant disagrees with the State's assertion P.V.'s testimony showed digital penetration took place on all four occasions.
¶ 44 We agree with the State P.V.'s testimony clearly demonstrates defendant inserted his fingers into her vaginal opening during the second, third, and fourth incidents. With each incident, P.V. stated defendant put his fingers inside or in her "private." With the second and fourth incidents, P.V. explained it was not just one, but two fingers. Moreover, with the last incident, P.V. testified defendant stated she could take "good dick, or big dick" after his fingers were inside her "private." Such testimony is clear evidence of digital penetration unlike in People v. James, 331 Ill.App.3d 1064, 1068, 266 Ill.Dec. 106, 773 N.E.2d 1176, 1180 (2002), where the victim testified the "defendant touched her `in' her `private part'" but did not explain what constituted her "private part." Since the uncontroverted evidence showed digital penetration, the result of defendant's trial would not have been different if the intrusion instruction would had been given. Accordingly, we find defendant has not shown plain error resulted from the erroneous jury instruction as to three of the four counts of criminal sexual assault based on defendant's actions with his fingers. See People v. McNeal, 405 Ill. App.3d 647, 676, 352 Ill.Dec. 856, 955 N.E.2d 32, 45-46 (2010) (finding no plain error for an improper jury instruction where the evidence showed an intrusion and thus the outcome would have been the same if the proper instruction would have been given).
¶ 45 The evidence of intrusion with regard to the first incident is not as clear. As to that incident, P.V. testified defendant's finger touched "the part that has the hole" and his hand went up and down on the part of her "privates" that has a hole. As the State notes, "[a] jury may reasonably infer that an act of penetration occurred based on testimony that the defendant `rubbed,' `felt' or `handled' the victim's vagina," unless the victim denied penetration occurred. People v. Hillier, 392 Ill.App.3d 66, 69, 331 Ill.Dec. 108, 910 N.E.2d 181, 184 (2009). However, in this case, the jury twice received the wrong definition of "sexual penetration" that did not inform the jury an intrusion was required. Thus, while we find the jury could have found sexual penetration under the intrusion clause during the first incident, it is also reasonable a jury could have not found an intrusion based on P.V.'s testimony. Since the incorrect "sexual penetration" definition could have affected the outcome of defendant's trial on the count of criminal sexual assault based on the initial incident (presumably count I), we find defendant has shown plain error as to that conviction. Accordingly, we reverse defendant's criminal-sexual-assault conviction and sentence for count I and remand for a new trial on that count. See James, *355 331 Ill.App.3d at 1070, 266 Ill.Dec. 106, 773 N.E.2d at 1181.
¶ 46 III. CONCLUSION
¶ 47 For the reasons stated, we reverse defendant's criminal-sexual-assault conviction and sentence for count I, affirm the McLean County circuit court's judgement in all other respects, and remand for a new trial on count I. As part of our judgment, we award the State its $75 statutory assessment against defendant as costs of this appeal.
¶ 48 Affirmed in part and reversed in part; cause remanded with directions.
Justice POPE concurred in the judgment and opinion.
Justice STEIGMANN dissented, with opinion.
¶ 49 JUSTICE STEIGMANN, specially concurring in part and dissenting in part:
¶ 50 Defendant engaged in felonious criminal conduct and deserves to be punished. Regrettably, the crimes charged were not the crimes he committed. Because the State's evidence completely fails to prove defendant guilty of the crimes charged, this court is duty-bound to reverse all of his convictions. Accordingly, I respectfully dissent.
¶ 51 I. BACKGROUND
¶ 52 A. The State's Charges
¶ 53 In January 2009, the State charged defendant with seven counts of criminal sexual assault pursuant to section 12-13(a)(2) of the Criminal Code (720 ILCS 5/12-13(a)(2) (West 2008)), which states that an individual commits criminal sexual assault when he commits an act of sexual penetration with a victim who he knows is unable to "understand the nature of the act" or "give knowing consent." These seven counts were the only charges against defendant. That means that in order to convict him of anything, the State needed to prove beyond a reasonable doubt that defendant committed an act of sexual penetration with P.V. and he knew that she was either (1) unable to understand the nature of the act or (2) was unable to give knowing consent.
¶ 54 B. The Term "Unable" Under Section 12-13(a)(2) of the Criminal Code
¶ 55 When analyzing section 12-13(a)(2) concerning whether a victim was unable to understand the nature of the act or was unable to give knowing consent, the question should be asked: Unable, why? There are two possible answers to that question, depending upon one's construction of the section. The first answer is because of the victim's mental condition; the second answer is because of the victim's legal condition.
¶ 56 1. The Victim's Mental Condition
¶ 57 A review of the sections of the Criminal Code defining sex offenses makes clear that section 12-13(a)(2) is referring to the victim's mental condition. Thus, when properly understood, that section would read as follows: "(a) the accused commits criminal sexual assault if he or she * * * (2) commits an act of sexual penetration and the accused knew that the victim because of the victim's mental condition was unable to understand the nature of the act or because of the victim's mental condition was unable to give knowing consent." (Italicized words added.) This construction is consistent both with the plain language of the statute and how it has been applied since the section was added to the Criminal Code in 1984. The victims in cases involving section 12-13(a)(2) have been unable to understand the nature of the sexual acts or unable to consent because of their mental conditionthat *356 is, the victims typically were either severely mentally handicapped or in such a drunken state as to be practically comatose. See, for example, People v. Weiss, 263 Ill.App.3d 725, 200 Ill.Dec. 296, 635 N.E.2d 635 (1994) (victim was 34 years old and functioning at the level of a 4-year-old child); People v. Barnslater, 373 Ill.App.3d 512, 311 Ill.Dec. 619, 869 N.E.2d 293 (2007) (victim was in a drunken stupor).
¶ 58 2. The Victim's Legal Condition
¶ 59 The alternative construction of the statute would have it read as follows: "(a) The accused commits criminal sexual assault if he or she * * * (2) commits an act of sexual penetration and the accused knew that the victim because of the victim's legal condition was unable to understand the nature of the act or because of the victim's legal condition was unable to give knowing consent." (Italicized words added.) In this case, the "legal condition" is P.V.'s young age, which is the sole argument that the State has offered regarding the notion that she "could not consent" and defendant was aware of that fact. According to this argument, she could not consent because, being only 13 years old, the law would not recognize her consent.
¶ 60 This construction of the statute is based upon the victim's legal conditionnamely, her ageand not based upon her acuity in any way. Under this analysis, she could be the most precocious, knowledgeable, and advanced 13-year-old one could imagine, but she would still be a victim (under section 12-13(a)(2)) who was unable to understand the nature of the act or was unable to give knowing consent.
¶ 61 3. The Consequences of the Majority Opinion
¶ 62 Under this construction of the statute, P.V.'s "legal condition"namely, her inability to give knowing consent because of her agestems from either section 12-15(b), (c), 12-16(c), (d) or (f) of the Criminal Code. 720 ILCS 5/12-15(b), (c), 12-16(c), (d), (f) (West 2008). These are the five statutes that essentially constitute what used to be known as "statutory rape," meaning that a person engaging in an act of sexual penetration or sexual conduct with a victim who was under 17 years of age committed a criminal offense whether or not the victim was a willing participant. (Under sections 12-15(b) and (c), the crimes involved are misdemeanors, whereas under sections 12-16(c), (d), and (f), the crimes involved are probationable, Class 2 felonies.) However, if the "legal condition" because of the victim's age is to be the focus of section 12-13(a)(2) regarding whether the victim was unable to understand the nature of the act or was unable to give knowing consent, then a consequence of so concluding would beas the State acknowledged at oral argument in this casethat this definition would apply to other possible victims as well, not just the 13-year-old victim in this case.
¶ 63 Another such victim would be a girl who was, perhaps, 16 years and 11 months old. Under the "legal condition" construction of section 12-13(a)(2), if the accused, say, the 17-year-old boyfriend of the 16-year-old girl, committed an act of sexual penetration with his girlfriend (who, let's assume, was a fully willing participant in the act) and the accused knew that the victim was 16 years old, then as a matter of law he knew that the victim was unable to understand the nature of the act or was unable to give knowing consent. That means he committed a nonprobationable, Class 1 felony. This outcome would, of course, be ridiculous, but it is nonetheless the result compelled by the State's "legal condition" construction of the statute.
¶ 64 Additionally, I note that section 12-13(a)(2) contains no age reference at all. That means that an accused, who would be *357 guilty of criminal sexual assault (the aforementioned nonprobationable Class 1 felony) for engaging in an entirely consensual act of sexual penetration with a 16-year-old female, could himself be 17 years old and still be guilty of that crime.
¶ 65 Another consequence of the majority opinion that a 15-year-old male who had entirely consensual sexual intercourse with his 16-year-old girlfriend would also be guilty of the nonprobationable Class 1 felony of criminal sexual assault, albeit as a juvenile delinquent. And, by the way, so would she!
¶ 66 The majority attempts to explain away such results by writing the following:
"[B]ecause the State has to prove the accused knew the victim was unable to consent, it would be highly unlikely any sexual contact between two similarly aged teenagers under 17 or sex with a person almost 17 would be punishable under section 12-13(a)(2). Thus, we disagree with any suggestion the inability to consent based on age is excluded from section 12-13(a)(2) because it would produce an illogical result." Supra ¶ 33.
¶ 67 The above quotation is significant for two reasons. First, it constitutes an implied admission by the majority that P.V.'s supposed "inability to consent" is based on nothing but her age. In other words, P.V.'s "legal condition," not her mental condition, is the basis for the majority's decision to affirm defendant's convictions.
¶ 68 Second, other than the hope that a local prosecutor would have the good sense not to charge a 17-year-old boy with the nonprobationable Class 1 felony of criminal sexual assault under section 12-13(a)(2) because he engaged in sexual intercourse with his entirely willing 16-year-old girlfriend, on what does the majority rely to claim that such a charge "would be highly unlikely"? Supra ¶ 33. After all, based upon my experience of 42 years with the criminal justice system in this state, I am shocked at the very charges some prosecutor brought in this case and take the view that they (1) clearly do not apply and (2) are entirely unsupported by the evidence. Construing criminal statutes should not be based upon the hope that no prosecutor will ever bring ridiculous charges; instead, courts should forthrightly reject those charges that are not consistent with Illinois law and reverse any convictions obtained thereunder.
¶ 69 C. The Majority's Reliance Upon Whitten
¶ 70 The majority relies upon its interpretation of Whitten as justification for its notion that criminal sexual assault is committed under section 12-13(a)(2) when a person, like defendant in the present case, engages in sexual relations with a person who, for any reason, is unable to give knowing consent. The majority claims the phrase "for any reason" in Whitten justifies its view that the legal condition of P.V.namely, her ageis sufficient to prove that charge. That conclusion is clearly wrong and finds no basis for support in Whitten.
¶ 71 In Whitten, the complainant was "a 32-year-old developmentally disabled female with an intelligence quotient (IQ) of 54 and a functional level of nine years and nine months." Whitten, 269 Ill.App.3d at 1039, 207 Ill.Dec. 569, 647 N.E.2d at 1064. She resided in a residential living program for developmentally disabled adults, and the defendant, a 56 year-old male, was an employee of that residential unit who, on the evening in question, entered her apartment by using a pass key. He then allegedly committed a criminal sexual assault upon her. Whitten, 269 Ill.App.3d at 1039, 207 Ill.Dec. 569, 647 N.E.2d at 1064. The Whitten court then wrote the following:
*358 "Complainant's testimony revealed that she did not consent to sexual intercourse with defendant. She testified that defendant did not ask her permission, and in fact, he did not say a word to her. Complainant stated that she did not give him permission to have sex with her and that she did not want to have sex with defendant. * * *
Complainant testified that she had not received any sex education. Additionally, Helton [(her case coordinator)] testified that complainant had an IQ of 54 and was mildly mentally retarded, but that she functioned at the 9-year-9-month-old level. While complainant cooked some meals for herself and could go shopping and received money for her work at the rehabilitation center, the evidence presented at trial created the inference that she had never lived alone. Helton had known complainant for about 12 years and had counseled her regularly regarding her problems in dealing with other people. Helton also testified that, in her opinion, complainant would not understand the long-term ramifications of a sexual relationship; that complainant would not know she could refuse the sexual advances of a staff member; and that a person had to be very basic with complainant.
* * *
Here, complainant's mental disability, her lack of sex education, and her statements that she had sex with defendant against her will, when combined with Helton's testimony regarding her understanding and the contradictions in defendant's and Lilly's testimony, meet the burden of proof required of the State regarding complainant's inability to give knowing consent. Further, defendant was in a position of authority, which would deter complainant from refusing defendant's sexual advances." Whitten, 269 Ill.App.3d at 1040-42, 207 Ill.Dec. 569, 647 N.E.2d at 1065-66.
¶ 72 The above recitation from Whitten makes clear that decision provides no support for the majority's premise that P.V.'s agewithout morecan constitute a basis for concluding that she was unable to give knowing consent. That the majority relies on Whitten for support reveals the dearth of support in Illinois law is for its position. The majority may rely on Whitten because no other Illinois case offers the majority any support and Whitten at least contains a phrase thatalbeit taken out of contextat first blush seems supportive.
¶ 73 In People v. Blunt, 65 Ill.App.2d 268, 212 N.E.2d 719 (1965), the court addressed the issue now before us because the defendant was charged with rape under a statute that defined that crime (in part) as intercourse which occurred "[w]here the female is so mentally deranged or deficient that she cannot give effective consent to intercourse." Ill.Rev. Stat.1963, ch. 38, ¶ 11-1. The defendant was convicted, and the sole issue was whether the 23-year-old prosecuting witness was so mentally deficient that she could not give effective consent to an act of intercourse. Id. Some expert witnesses testified that the victim had an IQ ranging from 71 through 78, and she was further described as mentally deficient. Blunt, 65 Ill.App.2d at 269-70, 212 N.E.2d at 720. This court reversed the defendant's conviction, explaining as follows:
"Mere mental derangement or mental deficiency is not enough. Its thrust must be of sufficient magnitude to throttle effective consent. To what does the term `mentally deficient' relate? Does it imply the lack of mental capacity and training to understand calculus, the provisions of the Internal Revenue Code or the doctrine of dependent relative revocation in wills? We think not. * * * *359 Does it mean the inability to understand and comprehend the act of sexual intercourse, its moral aspects and the evil consequences which may flow from it? Again this record establishes such comprehension.
* * *
In other jurisdictions where punishment is imposed upon those having sexual intercourse with females who through unsoundness of mind are incapable of effective consent, the capacity to consent `presupposes an intelligence capable of understanding the act, its nature and possible consequences.' 44 Am Jur Rape, § 10, Ann Cas 1912B 1050. We think this record attributes to [the victim] that intelligence. The bizarre events of this record cannot be equated with [the victim's] lack of knowledge of the nature of the act nor of its moral reprehensibility nor of the possible fruits of its enjoyment. Morally distasteful as it is, it is not within the proscription of criminal sanctions under our Criminal Code relating to forcible rape." Blunt, 65 Ill.App.2d at 273-74, 212 N.E.2d at 722.
¶ 74 In People v. Maloney, 201 Ill. App.3d 599, 611-12, 146 Ill.Dec. 943, 558 N.E.2d 1277, 1285 (1990), then-Appellate Court Justice Charles Freeman wrote an opinion for the First District Appellate Court that affirmed the defendant's conviction for criminal sexual assault under section 12-13(a)(2) of the Criminal Code and rejected the defendant's claim that Blunt required a different result. In Maloney, although the victim was 16 years old, he had a mental age of 7 and attended school for severely learning-disabled children. Maloney, 201 Ill.App.3d at 611, 146 Ill. Dec. 943, 558 N.E.2d at 1285. The appellate court found ample basis in the record for a rational jury to conclude that the State had proved that the victim was unable to understand the nature of the acts of sexual penetration or to give knowing consent thereto and noted that "we believe that the whole scenario of the contact between defendant and [the victim] clearly reveals that defendant sought to take advantage of [the victim's] reduced mental abilities after becoming aware of them during his conversation with him." The Maloney court agreed with Blunt that "[m]ere mental derangement or * * * deficiency is not enough. Its thrust must be of sufficient magnitude to throttle effective consent." (Internal quotation marks omitted.) Maloney, 201 Ill.App.3d at 611-12, 146 Ill.Dec. 943, 558 N.E.2d at 1285. The Maloney court found that standard to have been met in the case before it.
¶ 75 In People v. Velasco, 216 Ill.App.3d 578, 587, 159 Ill.Dec. 147, 575 N.E.2d 954, 960 (1991), this court affirmed the defendant's conviction for criminal sexual assault under section 12-13(a)(2) of the Criminal Code where the complainant was born with Down's syndrome, her functional level was somewhere between that of a six-year-old and an eight-year-old, she had been classified as trainably mentally handicapped, and she did not understand "where babies come from."
¶ 76 In People v. Fisher, 281 Ill.App.3d 395, 397, 217 Ill.Dec. 349, 667 N.E.2d 142, 143 (1996), the defendant was convicted of criminal sexual assault under section 12-13(a)(2) of the Criminal Code for committing an act of sexual penetration with a person whom he knew to be unable to give knowing consent. The defendant had engaged in sexual intercourse with a girl who was rendered unconscious after she consumed a large quantity of alcohol. The appellate court affirmed the defendant's conviction, holding that a reasonable fact finder could conclude that the amount of alcohol ingested by the 125-pound complainant could have left her incapable of *360 being sufficiently roused to have knowingly given or refused consent to the defendant's advances. Fisher, 281 Ill.App.3d at 403, 217 Ill.Dec. 349, 667 N.E.2d at 147. Weiss (where the victim was 34 years old and functioning at the level of a 4-year-old child) and Barnslater (where the victim was in a drunken stupor), previously mentioned, follow in this vein.
¶ 77 My reason for listing all of these cases is to point out that in the history of Illinois jurisprudence no published opinion has done what the majority opinion would do in this case: affirm a defendant's conviction for criminal sexual assault under section 12-13(a)(2) of the Criminal Code based solely upon the victim's legal conditionnamely, her ageand not based upon her acuity in any way. I respectfully disagree with this unprecedented view.
¶ 78 D. The Majority Disregards the Legislative Structure Defining Sex Offenses
¶ 79 With commendable candor, the State conceded at oral argument before this court that its claim that P.V. was unable to give knowing consent was essentially based upon two facts: (1) she was 13 years old and (2) 13-year-olds cannot "consent" to acts of sexual penetration, however willingly they may have engaged in them. This argument is not consistent with how the Illinois legislature has defined sex offenses in the Criminal Code.
¶ 80 The Criminal Code reveals that the legislature is perfectly capable of saying precisely what it intends when it is defining crimes based, at least in part, upon the age of the victim. Indeed, in the very say same section of the Criminal Code at issue in this casenamely section 12-13(a)(albeit in a different subsection) the legislature defines criminal sexual assault as follows:
"(a) The accused commits criminal sexual assault if he or she:
* * *
(4) commits an act of sexual penetration with a victim who was at least 13 years of age but under 18 years of age when the act was committed and the accused was 17 years of age or over and held a position of trust, authority or supervision in relation to the victim." 720 ILCS 5/12-13(a)(4) (West 2008).
In section 12-16(d), the legislature defined "aggravated criminal sexual abuse" as follows:
"(d) The accused commits aggravated criminal sexual abuse if he or she commits an act of sexual penetration or sexual conduct with a victim who was at least 13 years of age but under 17 years of age and the accused was at least 5 years older than the victim." 720 ILCS 5/12-16(d) (West 2008).
What sections 12-13(a)(4) and 12-16(d) have in common is that the legislature determined that the willingness of the victim to engage in the sexual acts in question did not matter because of the victim's age. In other words, even if the victim consented to or solicited the acts in question, the adult engaging in those acts with the victim would still be guilty of the crimes defined if the State was able to prove the other elements. For purposes of the present case, what is significant about what the legislature did in section 12-13(a)(4) and section 12-16(d) is that by removing the issue of consent from those statutes, the legislature eliminated any reference to the issue of consent byliterallynot using that word.
¶ 81 Other examples from the Criminal Code in which the legislature defined a crime and eliminated any issue of the victim's willingness to engage in the sexual conduct in question by omitting any reference *361 to whether or not the victim consented can be found as follows: (1) section 12-14.1, defining predatory criminal sexual assault of a child (720 ILCS 5/12-14.1 (West 2008)); (2) sections 12-15(b) and 12-15(c), defining two forms of criminal sexual abuse (720 ILCS 5/12-15(b), (c) (West 2008)); (3) section 12-13(a)(3), defining one version of criminal sexual assault (720 ILCS 5/12-13(a)(3) (West 2008)); (4) sections 12-14(b) and 12-14(c), defining two versions of aggravated criminal sexual assault (720 ILCS 5/12-14(b), (c) (West 2008)); and (5) section 12-16(b), section 12-16(c)(1)(i), section 12-16(c)(2)(i), section 12-16(d), section 12-16(e), and section 12-16(f), defining various forms of the offense of aggravated criminal sexual abuse (720 ILCS 5/12-16(b), (c)(1)(i), (c)(2)(i), (d), (e), (f) (West 2008)).
¶ 82 Despite the above statutes and the legislative structure they represent, the State maintains (and the majority agrees) that section 12-13(a)(2) should be construed to read as follows: "The accused commits criminal sexual assault if he or she commits an act of sexual penetration and the accused knew that the victim was under 17 years of age when the act was committed." "Consent" in a real-world context would then become entirely irrelevant.
¶ 83 This interpretation is totally wrong. The word "consent" in section 12-13(a)(2) should be given its common, ordinary meaningnamely, compliance in or approval of what is done or proposed by another. (Merriam-Webster's Collegiate Dictionary 245 (10th ed. 2000). As the record in this case reveals, that definition fits how P.V. responded to defendant's sexual overtures. In People v. Beasley, 314 Ill.App.3d 840, 846, 247 Ill.Dec. 790, 732 N.E.2d 1122, 1127 (2000), the First District Appellate Court explained "consent" in this context as follows:
"`"Consent" implies a willingness, voluntariness, free will, reasoned or intelligent choice, physical or moral power of acting, or an active act of concurrence (as opposed to a passive assent) unclouded by fraud, duress, or mistake. [Citation.] The ability to give knowing consent should involve more than measuring complainant's IQ or ability to physically resist defendant.' Whitten, 269 Ill.App.3d at 1042-44 [207 Ill.Dec. 569, 647 N.E.2d at 1066]."
¶ 84 E. The Record Contains No Evidence That P.V. Was Unable To Give Knowing Consent
¶ 85 The State failed to present any evidence that P.V. was unable to give knowing consent. In fact, the State's evidence showed that P.V. voluntarily complied with the sexual acts defendant proposed. P.V.'s ability to give knowing consent is perhaps best shown by her willingness to withhold her consent when defendant suggested that they engage in sexual intercourse or that she perform oral sex upon him. She had sufficient understanding of the circumstances as well as confidence in herself to say, in effect, "This far, but no further." And he complied with the line she drew. These circumstances belie the notion that P.V. was anything like the victim in Whitten, who clearly (due to her mental condition) was unable to give knowing consent, or like the victims in any of the other cases discussed herein.
¶ 86 F. The State Charged Defendant With the Wrong Crime
¶ 87 Defendant's knowledge of P.V.'s age is the sole basis for the State's claim that defendant knew she was unable to give knowing consent. As noted earlier, this record is devoid of any evidence suggesting that P.V. did not understand the nature of the acts defendant engaged in with *362 her or was unable to give knowing consent to his doing so. The absence of any such evidence explains why the State on appeal based its entire case upon P.V.'s age and cited nothing else.
¶ 88 The majority writes that "the focus of our analysis is on what defendant knew. Contrary to any suggestion by the State, the mere fact that P.V. was 13 alone is insufficient to prove `the accused knew the victim was unable to understand the nature of the act or was unable to give knowing consent.' [Citation.]" Supra ¶ 34. So, even though (in this instance) the majority claims to disagree with the State that the mere fact of P.V.'s age alone was sufficient to prove the charge against defendant, the majority fails to cite any other evidence in the recordother than P.V.'s ageindicating that she was unable to understand the nature of the act or was unable to give knowing consent.
¶ 89 In fact, in the very next paragraph, the majority writes that "[t]he State's evidence also shows defendant knew P.V. could not knowingly consent due to her young age." Supra ¶ 35. However, the only support for this assertion is defendant's repeatedly telling P.V. not to tell anyone what they had been doing and mentioning he could get "45 to life." But, of course, all that shows is that defendant knew P.V. was (in common parlance) "jail bait." He may not have known the statutory citation, but he knew that engaging in sexual activities with a 13-year-old was a crime. And he was right. The trouble, however, is that the State chose to charge him with the wrong crimethat is, criminal sexual assault under section 12-13(a)(2)instead of the crime he should have been charged withnamely, aggravated criminal sexual abuse under section 12-16(b). 720 ILCS 5/12-16(d) (West 2008).
¶ 90 The record shows that the State presented more than enough evidence to prove defendant committed aggravated criminal sexual abuse, which section 12-16(d) of the Criminal Code defines as follows: "The accused commits aggravated criminal sexual abuse if he or she commits an act of sexual penetration or sexual conduct with a victim who was at least 13 years of age but under 17 years of age and the accused was at least 5 years older than the victim." 720 ILCS 5/12-16(d) (West 2008). Aggravated criminal sexual abuse is a probationable Class 2 felony. 720 ILCS 5/12-16(d) (West 2008); 730 ILCS 5/5-5-3 (West 2008).
¶ 91 Unfortunately, the State did not charge defendant with that crime. Instead, the State charged him only with multiple counts of criminal sexual assault, a nonprobationable Class 1 felony (720 ILCS 5/12-13(a) (West 2008); 730 ILCS 5/5-5-3(c)(2)(H) (West 2008)) based upon the State's claim that defendant knew that the minor victim, P.V., was unable to "understand the nature of the act" or "unable to give knowing consent." That defendant may in fact be guilty of some felony sex offenses involving a 13-year-old child is not a matter this court may consider when evaluating the sufficiency of the evidence regarding the actual charges the State chose to bring against defendant. For the reasons previously stated, because the State failed to prove those charges at trial, this court should reverse all of defendant's convictions.
¶ 92 II. EPILOGUE
¶ 93 In my 22 years on this court, I have never written an opinion to reverse a criminal conviction based on the insufficiency of the State's evidence. Nor have I written a dissent, as here, arguing that the majority has erred by failing to reverse a defendant's conviction on the grounds of insufficient *363 evidence. This long-standing record is in no small measure due to my deference to the trier of fact and my unwillingness to second-guess it.
¶ 94 This case is different. Here, we need not reweigh the evidence because there is no evidence to weigh. Once the State's claim is rejectedthat based solely on P.V.'s age, she was unable to understand the nature of the act or unable to give knowing consentthis record is totally bereft of any evidence to sustain defendant's convictions.
¶ 95 III. CONCLUSION
¶ 96 The majority reverses some of defendant's convictions and affirms others. Because I conclude all of his convictions should be reversed, I concur in part and dissent in part. While I concur in the reversal on count I, I would reverse outright and would not remand for a new trial.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2530737/
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471 F.Supp.2d 980 (2006)
FOREVER LIVING PRODUCTS U.S. INC., Plaintiff,
v.
Matthew GEYMAN, et al., Defendants.
No. CV 06-1814-PHX-PGR.
United States District Court, D. Arizona.
December 18, 2006.
*981 Edwin B. Wainscott, Quarles & Brady Streich Lang LLP, Phoenix, AZ, for Plaintiff.
John Charles Hendricks, Meagher & Geer PLLP, Scottsdale, AZ, Dawn L. Dauphine, William J. Maledon, Osborn Maledon PA, Phoenix, AZ, for Defendants.
ORDER
ROSENBLATT, District Judge.
Currently pending before the Court are Plaintiffs Motion to Remand (Doc. 10) and Defendants' Motion to Transfer to United States District Court for the Western District of. Washington Pursuant to 28 U.S.C. § 1404(a) (Doc. 2). The Court now rules on the motions.
*982 I. INTRODUCTION
On July 21, 2006, the Defendants removed this action from the Maricopa County Superior Court to this federal forum. On the same day, the Defendants filed the present Motion to Transfer to the United States District Court for the Western District of Washington Pursuant to 28 U.S.C. § 1404(a). The Defendants make two very persuasive arguments in support of transfer. First, they argue that it is very likely that this court Cannot assert personal jurisdiction over the Defendants, and that the District Court of the Western District of Washington does have personal jurisdiction over all parties. Second, the Defendants maintain that the case should be transferred because the District Court in Washington has, and is, presiding over a case involving the same parties, same counsel and closely related issues. In response to the Defendants' motion for transfer, the Plaintiff Forever Living Products U.S., Inc. ("FLP") filed a Motion to Remand this case to the Maricopa County Superior Court arguing that removal was improper.
II. BACKGROUND
The Defendants ask that the Court transfer this case to the Western District of Washington so that it may be assigned to Judge Marsha Pechman, who has presided since May 2005 over a related case, the factual investigation of which triggered the present lawsuit by Plaintiff FLP. The related case is captioned Bach, et al. v. Forever Living Products U.S., Inc., et al., No. C05-0970P ("Bach"), in which the plaintiffs have sued FLP, its related companies, and Rex Maughn its owner, for allegedly misappropriating plaintiffs' trademarks and copyrights in the novel Jonathan Livingston Seagull. The lawyers in the Bach litigation, along with their clients Mr. Bach, the author of Jonathon Livingston Seagull, and Mr. Munson, the individual who took the photograph found on the cover of the book, are the Defendants in the case before this Court.
The Plaintiffs in Bach alleged that over the past 28 years, FLP has systematically misappropriated the name, title and copyrighted title character of Jonathan Livingston Seagull, and a copyrighted photo from the novel, and then used this intellectual property to create what FLP calls the "Jonathan Brand." In doing so, the Bach Plaintiffs allege that FLP has copied a number of passages from the book and repeatedly used the book's distinctive trade dress of a white silhouette of a seagull against a blue background to adorn its "Jonathan Brand." In Bach, the Plaintiffs assert that this is in violation of their rights under the Copyright Act, 17 U.S.C. § 101 et seq. and Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by creating and exploiting the "Jonathon Brand."
As alleged in the Bach case, FLP used its "Jonathan Brand" to attract and retain millions of distributors and to motivate them to purchase and sell FLP's products. The Bach Plaintiffs' counsel contacted, and continue to contact, distributors as part of their pretrial investigation. The factual investigation by the Bach Plaintiffs' counsel, now Defendants to the present action, prompted this suit by FLP. In conducting said investigation, Plaintiffs' counsel made Google searches of FLP to review articles about and references to the company. One of the websites that provided a hit for FLP is a website called www.scam.com. Individuals posting on this website had made comments stating that FLP was one of the Multi-Level Marketing ("MLM") companies to avoid. In an attempt to locate and talk to existing and former distributors for FLP, the Bach Plaintiffs' lawyers posted the following inquiry on the website:
Hello, I am one of the attorneys representing the Plaintiffs in a lawsuit against *983 the multi-level marketing company Forever Living Products. The suit is in federal court in Seattle and is scheduled for trial later this year. We would like to talk with existing or former independent distributors of Forever Living Products who are willing to talk about their experiences with the company. If you are an existing or former independent distributor of Forever Living Products and would be willing to talk to us, or if you know someone who is, please contact me at (206)382-1168 (work), (206) 325-1843 (evening) or mgeyman@ jphillipslaw.com. Thank you, Matthew Geyman.
This website posting forms the entire basis of the lawsuit removed to this Court. The Plaintiff argues that this particular inquiry posted by the Defendants in our case, the Bach Plaintiffs' counsel, constitutes both defamation and tortious interference with business relationships. The Plaintiff, without ever quoting the posting they take issue with, filed the present action claiming that the Defendants' internet posting was both false and defamatory.[1]
III. LEGAL STANDARD AND ANALYSIS
A. Transfer
28 U.S.C. § 1404(a) provides as follows: "For the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." Section 1404(a) is intended to place discretion in the district court to adjudicate motions to transfer according to "individualized, case-by-case consideration of convenience and fairness." Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988). A motion under § 1404(a) thus calls on the district court to weigh and balance a number case-specific factors. Id. The following factors may be considered by the Court when reaching its decision on a motion to transfer:
(1) the location where the relevant agreements were negotiated and executed; (2) the state that is most familiar with the governing law; (3) the Plaintiffs choice of forum; (4) the respective parties contacts with the forum; (5) the contacts relating to the Plaintiffs cause of action in the chosen forum; 6 the differences in the costs of litigation in the two forums; 7 the availability of compulsory process to compel attendance of unwilling non-party witnesses, and (8) the ease of access to sources of proof.
Jones v. GNC Franchising, Inc., 211 F.3d 495, 498-99 (9th Cir.2000).
*984 Under the facts of this case, considering both convenience and fairness, the balance tips in favor of transfer. First, a court in the Western District of Washington will have personal jurisdiction over the parties. Second, the district court in Washington is presiding over related litigation in which all parties and their counsel are present. The third consideration is that none of the present parties will be inconvenienced by transfer of this case to the aforementioned district.
Although the Defendants bear the burden of showing that transfer is appropriate, that burden is easily met in this case. There is little doubt that this Court lacks jurisdiction over some, or more than likely, all of the Defendants. When a lack of jurisdiction is likely, it is proper to transfer the action to a district where the action could have been brought, and where the district court has personal jurisdiction over the Defendants. Grandinetti v. Luna, 2006 WL 1455572 (D.Ariz.2006). In the present case, there is no basis for taking general jurisdiction over the Defendants as none work, live or do business in the State of Arizona. The sole alleged connection with Arizona for the purposes of specific jurisdiction, and indeed the only alleged contact by any Defendant with Arizona, is the aforementioned passive website inquiry on www.scam.com. As the Defendants correctly note, such a connection is facially inadequate to demonstrate that Defendants purposely directed their activities to this state.
The Ninth Circuit has well developed case law regarding personal jurisdiction based on contacts through the internet. This circuit has concluded that something more than mere advertisement or solicitation on the internet is necessary to indicate that a Defendant purposely, albeit electronically, directed his activity in a substantial way to the forum state. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414 (9th Cir.1997); see also Bancroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082 (9th Cir.2000); Metropolitan Life Ins. Co. v. Neaves, 912 F.2d 1062 (9th Cir.1990). As brought to the Court's attention by the Defendants, the case of Medinah, Mining, Inc. v. Amunategui, 237 F.Supp.2d 1132 (D.Nev.2002), is directly on point. In the Medinah Mining Case, the court held that a resident of the state of Arkansas did not purposely avail himself of the privilege to conduct business activities in the state by posting allegedly defamatory messages about a Nevada corporation on an interactive website. Id. As noted by the Nevada District Court, such websites are set up for the public to post information, and anyone who visits the website can obtain information or post one's own message. Id. There is no service being bought, sold or promoted. Id. at 1135.
These are just a few of the cases contained in a wide body of case law stating the same principle: Allegedly tortious conduct on a passive website will not vest jurisdiction in a forum merely because the Defendant knows that the alleged victim of the alleged wrong resides in that forum. See Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1158 (9th Cir.2006). Many of the cases discussing personal jurisdiction based on internet communication are indistinguishable from the present factual scenario. One such case, the recently decided Pebble Beach, unequivocally shows that this Court lacks jurisdiction over the parties. Id. However, the Plaintiff ignores this large body of case law, cites entirely irrelevant cases, and makes frivolous arguments. In sum, the Plaintiff wastes this Court's time and scant judicial resources in filing such a frivolous complaint and then opposing the pending motion to transfer.
*985 Furthermore, as the Defendants con reedy argue, it does not appear that the Plaintiff will be in any way inconvenienced in the Washington District Court since it is already litigating the Bach case in that forum. The Plaintiff no doubt selected Arizona as the forum for this litigation because it is headquartered, although not incorporated, here. However, as the Defendants suggest, the Plaintiff is more than likely, trying to harass and intimidate the Defendants due to the case filed against FLP in the" Western District of Washington. The preference for honoring a Plaintiffs choice of forum is simply thata preference. It is not a right. See, e.g., E.I. DuPont de Nemours v. Diamond Shamrock Corp., 522 F.Supp. 588 (D.Del. 1981). Considering the posture of the present case, the Court will not rely on the fact that Plaintiff chose Arizona as a reason to keep the matter in this district when the interests of justice and fairness so clearly require otherwise.
The Plaintiff argues that if this Court declines to remand this matter to the state court, then it should also deny transfer as the Defendants have not demonstrated that the Washington court is the most convenient forum. In support of this position, the Plaintiff makes the meaningless argument that two of the Defendants, the author Bach and the photographer Munson, have admittedly and voluntarily vacationed in this state. In addition, the Plaintiff posits that the Defendant Phillips Law Group's website is available to Arizona residents and in fact highlights their participation in significant litigation before a tribal court located in Window Rock, Arizona. The Court finds both arguments entirely irrelevant and concludes that perhaps Plaintiff is attempting to insult this Court's knowledge of the law. A Navajo Tribal Court is not considered a state or federal court in Arizona. It is a completely different sovereign. Furthermore, Defendant Geyman has never practiced in the state or federal courts of Arizona, and lives and practices law in Seattle. Again, when arguing that personal jurisdiction can be exercised over the Defendants in this state, the Plaintiff completely ignores the considerable body of law in the Ninth Circuit that establishes definitively that posting an inquiry on a passive website does not qualify as express aiming. As stated above, this conclusion was reiterated in the Ninth Circuit's Pebble Beach decision just a few months ago. 453 F.3d at 1155.
B. Remand
Soon after removal the Defendants' Motion to Transfer was filed, the Plaintiff filed the present Motion to Remand arguing that this Court lacks the requisite subject matter jurisdiction because the amount in controversy does not exceed $75,000, exclusive of costs and interests. The Plaintiff contends that while it is possible that FLP's cumulative, special, general, compensatory and punitive damages could exceed the required $75,000, FLP did not, and does not, intend to recover more than $75,000, exclusive of costs and interests. The Plaintiff argues that it was never its intention to recover damages, but simply to have the allegedly defamatory solicitation removed from the website. The Plaintiff argues that it is its absolute right to sue for less than the total amount of its actual damages. Indeed, the United Supreme Court has stated that if a Plaintiff does not desire to try his case in federal court he may resort to the expedient of suing for less than the jurisdictional amount, and though he would be justly entitled to more, the Defendant cannot remove. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 295, 58 S.Ct. 586, 82 L.Ed. 845 (1938). However, this case is distinguishable from one that clearly *986 pleads less than the statutory minimum while more could be recovered.
The Defendants maintain that removal was proper in this case since to establish that the $75,000 jurisdictional amount is met, the Defendants need only establish that it is more likely than not that the amount in controversy exceeds that amount. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996). In measuring the amount in controversy, a court must assume that the allegations in the complaint are true and assume that a jury will return a verdict for the plaintiff on all claims made in the complaint. Kenneth Rothschild Trust v. Morgan Stanley Dean Witter, 199 F.Supp.2d 993, 1001 (C.D.Cal.2002). In the present case, not only did the Plaintiff allege that it suffered "public contempt, ridicule, degradation, severe outrage and actual pecuniary damage to its business reputation," it also sought special, general, compensatory and punitive damages in an amount "sufficient to deter Defendants and others from engaging in similar tortious conduct in the future."
The Plaintiff has made a post hoc attempt to disavow some of the damages alleged in the Complaint by stating that it only wants the Defendants to remove their bulletin board inquiry that allegedly prompted this suit. To support this argument, the Plaintiff attaches the declaration of its treasurer and secretary, and General Counsel of all FLP companies, Rjay Lloyd. The Court now reasons that if Plaintiff merely wanted declaratory relief, why did it fail to file such an action instead of one pleading not only compensatory but also punitive damages. The Plaintiff has made more than one contradictory statement in its filings. So many, in fact, that most of Plaintiff's allegations strike the Court as entirely disingenuous.
IV. CONCLUSION
The Court concludes that this case be transferred to the Western District of Washington based on both the lack of personal jurisdiction over Defendants and the underlying Bach litigation. Plaintiffs Motion to Remand based on improper removal is without merit. In bringing said motion in response to the Defendants' request to transfer, Plaintiff blatantly ignores nearly every legitimate argument made by Defendants, based both in fact and in law, and then goes on to cite clearly irrelevant case law.[2] The sole event that gives rise to the present litigation is a single communication by the Bach Plaintiffs' counsel while conducting his factual investigation of the case. As the Defendants point out, Judge Pechman, the Judge presiding over the Bach litigation, is in the best position to determine what constitutes such factual investigation subject to the litigation privilege. If the Plaintiff legitimately believes this lawsuit has merit, then it should have no concern about having the case transferred to the Western District of Washington. Therefore,
IT IS ORDERED that the Defendants' Motion to Transfer to the United States District Court for the Western District of *987 Washington Pursuant to 28 U.S.C. § 1404(a) (Doc. 2) is GRANTED.
IT IS FURTHER ORDERED that the Plaintiff's Motion to Remand (Doc. 10) is DENIED.
NOTES
[1] The Court can't help but wonder what the Plaintiff finds false and defamatory about this particular internet posting. Indeed, the poster was and is counsel for plaintiffs in a suit filed against FLP in a district court located in Seattle, and the aforementioned case is scheduled for trial. Certainly, Plaintiff's counsel is aware that truth is a complete defense to defamation suits. See, e.g., Fri as v. Los Angeles County Metro. Transp. Authority, 176 F.3d 482 (9th Cir.1999). Furthermore, the Court questions whether the present matter is nothing more than a frivolous suit brought under improper motives, and whether the filing of such a case should result in hefty sanctions under Federal Rule of Civil Procedure 11. Plaintiff's counsel, when filing a pleading with the Court, is certifying that "it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation." Fed.R.Civ.P. 11(b)(2006). The present matter strikes the Court as just the type of filing that Rule 11 seeks to preclude. There are many legitimate cases filed in this district that deserve both the Court's time and attention. This case deserves neither. Such litigation tactics cast attorneys in a negative light and ultimately result in a black mark on the profession as a whole.
[2] According to the Arizona Rules of Professional Conduct, ER 3.3(2), a lawyer shall not knowingly "fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel." The Court is well aware that opposing counsel cited all relevant and controlling cases concerning jurisdiction based on internet communications, but the fact that the Plaintiff's counsel did not address or even attempt to distinguish those cases from the present factual scenario clearly calls into question certain ethical considerations.
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471 F.Supp.2d 967 (2007)
Stacy O. JOHNSON, Plaintiff,
v.
MICHIGAN CLAIM SERVICE, INC., d/b/a The ASU Group, Defendant.
Civil No. 05-2909 (PJS/RLE).
United States District Court, D. Minnesota.
January 23, 2007.
*968 Christopher P. Rosengren, Gislason & Hunter, New Ulm, MN, for plaintiff.
Jeremy D. Sosna, Chad W. Strathman, Ford & Harrison LLP, for defendant.
ORDER ADOPTING REPORT AND RECOMMENDATION
SCHILTZ, District Judge.
This matter is before the Court on the parties' objections to Chief Magistrate Judge Raymond L. Erickson's Report and Recommendation ("R & R") dated December 1, 2006. Judge Erickson recommends denying the parties' cross-motions for summary judgment. The Court has conducted a de novo review. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). Based on that review, the Court adopts the R & R and denies the motions.
Plaintiff Stacy O. Johnson brings this action against defendant Michigan Claim Service, Inc. ("MCS"), alleging that MCS terminated his employment in violation of 38 U.S.C. § 4316(c) of the Uniformed Services Employment and Reemployment Rights Act.[1] Section 4316(c) provides that
[a] person who is reemployed by an employer under this chapter shall not be discharged from such employment, except for cause . . . within one year after the date of such reemployment, if the person's period of service before the reemployment was more than 180 days[.]
38 U.S.C. § 4316(c). The parties do not dispute that Johnson was "reemployed by an employer under this chapter" after a previous period of service exceeding 180 days, or that he was discharged within one year after the date of his reemployment. Instead, the parties dispute whether Johnson *969 was discharged "for cause" within the meaning of § 4316(c).
Unfortunately, the parties largely confuse this question that is, the question of whether Johnson's discharge was "for cause" with the question of whether the non-competition and confidentiality agreement that Johnson refused to sign would have been legally enforceable. The two questions are related, but not identical. As Judge Erickson recognized, the ultimate issue in this case is not whether the non-competition and confidentiality agreement would have been enforceable. The ultimate issue is whether MCS's discharge of Johnson for refusing to sign the agreement was reasonable under § 4316(c) (an issue on which MCS bears the burden of proof, see 20 C.F.R. § 1002.248(a)[2]).
If the agreement would have been unenforceable, then it can be assumed that Johnson's dismissal was unlawful. An employer almost surely does not have "cause" to fire an employee for refusing to sign an unenforceable agreement. As Judge Erickson explained, though, this Court cannot decide on this record and briefing whether the agreement that Johnson refused to sign was in fact unenforceable. One problem is that it is not clear whether Minnesota law or Michigan law controls, and Minnesota law appears to differ from Michigan law in important respects. Compare Freeman v. Duluth Clinic, Ltd., 334 N.W.2d 626, 630 (Minn.1983) (mere continuation of employment may be sufficient consideration for non-competition agreement, but only if it is bargained-for and provides the employee with "real advantages") with QIS, Inc. v. Indus. Quality Control, Inc., 262 Mich.App. 592, 686 N.W.2d 788, 789 (2004) (mere continuation of employment is sufficient consideration for non-competition agreement). The parties have inexplicably failed to brief this issue. A second problem is that, regardless of which state's law controls, there are important factual issues on which the record is either silent or in conflict.[3]
It is also true, as Johnson argues, that even if the agreement would have been enforceable, Johnson's dismissal may not have been lawful. An employer can act unreasonably in firing an employee for refusing to sign an enforceable non-competition and confidentiality agreement. The reasonableness of the employer's conduct depends on all of the circumstances. MCS argues that there is no dispute that it faced adverse economic conditions which necessitated the agreement. But there is evidence in the record that the division in which Johnson was employed was in good financial health, Stubbs Dep. 69, and that two other employees were offered compensation in exchange for signing the agreement, while Johnson was not, Johnson Dep. Ex. 3 at 4 (Docket No. 22-3 at 4).
The bottom line is that the parties will have to try the question of whether the firing of Johnson was "for cause." Because *970 the enforceability of the non-competition and confidentiality agreement under state law is an important possibly determinative factor relevant to that question, the parties will at some point need to submit full briefs on whether Minnesota or Michigan law controls. The parties should submit briefs on that issue, at the latest, when they submit their motions in limine.
ORDER
Based on all of the files, records, and proceedings herein, the " Court ADOPTS Judge Erickson's Report and Recommendation [Docket No. 49]. IT IS HEREBY ORDERED THAT:
1. Defendant's motion for summary judgment [Docket No. 19] is DENIED;
2. Plaintiff's motion for partial summary judgment [Docket No. 25] is DENIED; and
3. To the extent that plaintiff's complaint may be read to assert a claim under 38 U.S.C. § 4311, the claim is DISMISSED WITHOUT PREJUDICE as abandoned.
REPORT AND RECOMMENDATION
ERICKSON, Chief United States Magistrate Judge.
I. Introduction
This matter came before the undersigned United States Magistrate Judge pursuant to a special assignment, made in accordance with the provisions of Title 28 U.S.C. § 636(b)(1)(B), upon the Motion of the Defendant Michigan Claim Service, Inc. ("MCS"), for Summary Judgment, as well as the Motion of the Plaintiff Stacy O. Johnson ("Johnson") for Partial Summary Judgment on the liability issue. A Hearing on the Motions was conducted on November 1, 2006, at which time, the Plaintiff appeared by Christopher P. Rosengren, Esq., and the Defendant appeared by Jeremy D. Sosna, and Elizabeth A. Grande, Esqs. For reasons which follow, we recommend that both Motions be denied.
II. Factual and Procedural Background
This action arises from Johnson's allegation that MCS terminated his employment, in violation of the Uniformed Services Employment and Reemployment Rights Act, Title 38 U.S.C. § 4828, et seq. ("USERA"). See, Complaint, Docket No. 1. Specifically, Johnson contends that MCS failed to retain him for a period of one (1) year, following his return from a military deployment of more than one hundred and eighty (180) days. Id. at page 2, ¶ 3. In response, MCS alleges that it had just cause for terminating Johnson's employment, as he refused to comply with a company policy, that was instituted after his return, and that required key management members, and sales staff, to execute a noncompete and confidentiality agreement (the "Agreement"), as a condition of continued employment See, Defendant's Memorandum of Law, Docket No. 21-1, at 1.
At the time that Johnson began working for MCS in 2002, he was a Captain in the Minnesota Army Reserves. See, Complaint, at page 2, ¶¶ 5-6. He was mobilized for Active Duty in Iraq, on March 15, 2003, where he remained until his deactivation on June 12, 2004. Id. at ¶¶ 8-9; see also, Deposition of Stacy Johnson ("Johnson Dep."), Docket No. 29, Exhibit 1, at p. 13. On May 11, 2004, Johnson filed a request, under USERRA, for reemployment with MCS, and he returned to work on August 2, 2004, in the same position as he held prior to his activation, and with the same pay. Id. at ¶¶ 10-11. In January of 2005, MCS presented the Agreement to over thirty-three (33) staff members, including Johnson, and informed them that, if they failed to sign the Agreement, they *971 would be terminated. See, Defendant's Motion in Support, Docket No. 21, at 8-11. Johnson refused to sign the Agreement unless he were given "additional severance pay or compensation," id. at 10, and, on January 11, 2005, his employment with MCS was terminated, along with that of several other non-military MCS staff members, who had also refused to sign the Agreement. See, Complaint, at page 2, ¶ 12.
Johnson filed his Complaint on December 15, 2005. See, Complaint, Docket No. 1. On September 8, 2006, MCS moved for Summary Judgment, see Docket No. 19, and on the same day, Johnson filed his Cross-Motion for Partial Summary Judgment on the issue of liability, see, Docket No. 25.
III. Discussion
A. Standard of Review. Summary Judgment is not an acceptable means of resolving triable issues, nor is it a disfavored procedural shortcut when there are no issues which require the unique proficiencies of a Jury in weighing the evidence, and in rendering credibility determinations. See, Wallace v. DTG Operations, Inc., 442 F.3d 1112, 1118 (8th Cir.2006), citing Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Midwest Oilseeds, Inc. v. Limagrain Genetics Corp., 387 F.3d 705, 711 (8th Cir.2004), cert. denied, 544 U.S. 977, 125 S.Ct. 1860, 161 L.Ed.2d 728 (2005). Summary Judgment is appropriate when we have viewed the facts, and the inferences drawn from those facts, in a light most favorable to the nonmoving party, and we have found no triable issue. See, Smutka v. City of Hutchinson, 451 F.3d 522, 526 (8th Cir.2006), citing Mayer v. Nextel W. Corp., 318 F.3d 803, 806 (8th Cir.2003); Eide v. Grey Fox Technical Servs. Corp., 329 F.3d 600, 604 (8th Cir. 2003); Philip v. Ford Motor Co., 328 F.3d 1020, 1023 (8th Cir.2003). For these purposes, a disputed fact is "material" if it must inevitably be resolved and the resolution will determine the outcome of the case, while a dispute is "genuine" if the evidence is such that a reasonable Jury could return a Verdict for the nonmoving party. See, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Planned Parenthood of Minnesota/South, Dakota v. Rounds, 372 F.3d 969, 972 (8th Cir.2004); Fenney v. Dakota, Minnesota & Eastern R.R. Co., 327 F.3d 707, 711 (8th Cir.2003):
As Rule 56(e) makes clear, once the moving party files a properly supported Motion, the burden shifts to the nonmoving party to demonstrate the existence of a genuine dispute. In sustaining that burden, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavit or as otherwise provided in this Rule, must set forth specific facts showing that there is a genuine issue for trial." Rule 56(e), Federal Rules of Civil Procedure; see also, Anderson v. Liberty Lobby, Inc., supra at 256, 106 S.Ct. 2505; Eddings v. City of Hot Springs, Ark., 323 F.3d 596, 602 (8th Cir.2003). Moreover, the movant is entitled to Summary Judgment where the nonmoving party has failed "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, supra at 322, 106 S.Ct. 2548; see also, Forest Park II v. Hadley, 408 F.3d 1052, 1057 (8th Cir.2005); Mercer v. City of Cedar Rapids, 308 F.3d 840, 843 (8th Cir.2002); Hammond v. Northland Counseling Center, Inc., 218 F.3d 886, 891 (8th Cir.2000). No genuine issue of fact exists in such a case because "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily *972 renders all other facts immaterial." Celotex Corp. v. Catrett, supra at 323, 106 S.Ct. 2548; see also, Sallis v. University of Minnesota, 408 F.3d 470, 474 (8th Cir.2005); Davis v. U.S. Bancorp, 383 F.3d 761, 768 (8th Cir.2004); Bell Lumber and Pole Co. v. United States Fire Ins. Co., 60 F.3d 437, 441 (8th Cir.1995).
B. Legal Analysis. At issue in the parties' respective dispositive Motions is the applicability of Title 38 U.S.C. § 4316(c) to the facts presented.[1] Section 4316(c) temporarily alters the at-will status of employees, who return from military service, by providing as follows:
A person who is reemployed by an employer under this chapter shall not be discharged from such employment, except for cause * * * within one year after the date of such reemployment, if the person's period of service before the reemployment was more than 180 days.
Title 38 U.S.C. § 4316(c); see, Francis v. Booz, Allen & Hamilton, Inc., 452 F.3d 299, 308 (4th Cir.2006).[2] The employer bears the burden of proving that it, was reasonable to discharge the USERRA-covered employee for his conduct, and that the employee had express or implied notice that the conduct would constitute cause for discharge. Id., citing 20 C.F.R. § 1002.248(a);[3]Hillman v. Arkansas *973 Highway & Transportation Dept., 39 F.3d 197, 200 (8th Cir.1994)("The reasonableness of the discharge is determined by asking whether it was fair to discharge the veteran because of his conduct and whether the veteran had notice, express or fairly implied, that such conduct would be grounds for discharge."), citing Carter v. United States, 407 F.2d 1238, 1244-45 (D.C.Cir.1968); see also, Jordan v. Jones, 84 F.3d 729, 732 (5th Cir.1996), cert. denied sub nom. Jordan v. Valdez, 519 U.S. 976, 117 S.Ct. 412, 136 L.Ed.2d 325 (1996).
"Cause" is not defined in USERRA, but "is to be liberally construed and strictly enforced for the benefit of those who left private life to serve their country." Ortiz Molina v. Rimco, Inc., 2006 WL 2639297 at *7 (D.Puerto Rico, September 13, 2006), citing Alabama Power Co. v. Davis, 431 U.S. 581, 584-85, 97 S.Ct. 2002, 52 L.Ed.2d 595 (1977), and Duarte v. Agilent Techs., Inc., 366 F.Supp.2d 1039, 1046 (D.Colo.2005); see Warren v. Int'l Business Machines Corp., 358 F.Supp.2d 301, 313-14 (S.D.N.Y.2005)("Like the legislation that preceded it, USERRA should be liberally construed for the benefit of those who serve their country."), citing McGuire v. United Parcel Service, 152 F.3d 673, 676 (7th Cir.1998), and Fishgold v. Sullivan Drydock & Repair Corp., 328 U.S. 275, 66 S.Ct. 1105, 90 L.Ed. 1230 (1946).
Here, the parties do not dispute that Johnson was given express notice, that he would be discharged if he failed to sign the Agreement, and that his employment was terminated, along with at least two (2) other employees who had failed to sign the Agreement, for that very reason. See, Defendant's Memorandum in Support, supra at 1, 8-9; Plaintiffs Response Memorandum, supra at 6; Plaintiffs Memorandum in Support, Docket No. 26, at 3. Therefore, the only issue presented is whether there is a genuine factual dispute, that should be resolved by a Jury, concerning the reasonableness of MCS's decision to terminate Johnson. See, Defendant's Memorandum in Support, supra at 15; Plaintiff's Response Memorandum, at 5.
In support of its Motion, MCS argues that it terminated Johnson "for cause," as required by Section 4316(c), because its requirement, that Johnson sign the Agreement, was reasonable. According to MCS, in January of 2005, it was driven, by "serious financial hardships * * * in the previous twelve months," to institute a global policy mandating key management and sales employees to sign the Agreement. See, Defendant's Reply, Docket No. 43-1, at 4. Since customer relations were critical to MCS's financial health, MCS claims that it decided to initiate the Agreement in order "to protect * * * customer relationships," and "not allow someone like Mr. Johnson to leave the company * * * and take that customer relationship with [him]." Deposition of Tara O'Connor-La-Rose ("LaRose Dep."), supra at 27.
In urging that corporate exigency was the justification for imposing the Agreement upon certain of its employees, MCS has submitted deposition testimony of several officers, and employees, which attest to the fact that, in the years leading up to January of 2005, MCS had laid off over 200 *974 employees.[4] See, Defendant's Memorandum in Support, Docket No. 21, at 5; LaRose Dep., Docket No. 22-D, at 31-32. The parties agree that the number of workers, who were laid off, included (3) of the five (5), Sales Representatives who were in the division where Johnson worked. See, Johnson Dep., Docket No. 22-B, at 115; Defendant's Memorandum in Support, Docket No. 21, at 5. Given this evidence, which is not substantively controverted, we can accept that MCS was undergoing a restructuring in the period prior to its termination of Johnson's employment, but that acceptance does not commend Summary Judgment in MCS's favor.
There is support, of course, for the general proposition that, when an employer has demonstrated a genuine financial need, which prompts a reduction-in-force, the termination of an USERRA-protected employee can be "for cause." See, Ferguson v. Walker, 397 F.Supp.2d 964, 974 (C.D.Ill.2005)(discharge of police officer due to "budgetary concerns" of employing village was "for cause"); Michell v. Continental Loss Adjusting Servs., Inc., 1994 WL 761962 at *7 (S.D.Ala., May 25, 1994)(granting Summary Judgment to employer on showing of financial necessity); Ruesterholtz v. Titeflex, Inc., 166 F.2d 335, 336 (3d Cir.1948)(argument that adverse economic conditions do not constitute cause rejected as being without merit); Kent v. Todd Houston Shipbuilding Corp., 72 F.Supp. 506, 509 (D.Tex.1947)(employer not required to do anything to have enough work to continue to employ plaintiff); Maloney v. Chicago, B & Q.R. Co., 72 F.Supp. 124, 125-26 (D.C.Mo.1947)("There was no controversy but that the defendant was justified because of economic conditions in thus reducing its force at the yards mentioned.").
Accordingly, while Courts have been sympathetic to employers who are in genuine financial peril, notwithstanding the protections of USERRA, the simple fact is that Johnson's employment was not terminated by a reduction-in-forcehe had survived the prior layoffs.[5] The issue, instead, resolves to whether MCS was reasonable in demanding Johnson, and others who were not protected by USERRA, to forfeit his future employment, either as an independent contractor, or as an employee of a competitor of MCS, for a period of one (1) year, in the very States in which Johnson had previously worked, without the exchange of any compensation for the forfeiture.[6]
*975 MCS has presented evidence that the Agreement was perceived by its Board of Directors as important to its corporate interests, but they have not provided any evidence to support the reasonableness of extracting such an agreement, from Johnson, without consideration. Indeed, in sworn Answers to Interrogatories, Johnson avers that two other employeesJohn Bradley and Brian Steleywere "offered money to sign the non-compete agreement," an attestation, which, while oblique, has not been controverted. Docket No. 22, Exhibit 2, at p. 4. Moreover, there are conflict of law issues, which attend to the reasonableness of MCS's demand for a noncompetition agreement on penalty of an employment termination. The conflict has not been meaningfully addressed by either party, and stands as yet another impediment to Summary Judgment.
If, as MCS argued at the Hearing, Michigan law applies to the Agreement, then no consideration would appear to be necessary for, under the law of Michigan, "mere continuation of employment is sufficient consideration to support a noncompete agreement in an at-will employment setting." QIS, Inc. v. Industrial Quality Control, Inc., 262 Mich.App. 592, 686 N.W.2d 788, 789 (2004), app. denied, 472 Mich. 872, 693 N.W.2d 814 (2005), citing Robert Half; International, Inc. v. Van Steenis, 784 F.Supp. 1263, 1273 (E.D.Mich.1991); see also, Lowry Computer Products, Inc. v. Head, 984 F.Supp. 1111, 1115 (E.D.Mich.1997). However, a different result follows under Minnesota law where noncompete agreements are disfavored and, to be enforceable, "must be ancillary to the initial employment agreement or, if not ancillary to the initial agreement, supported by independent consideration." Hutchinson Technology Corp. v. Magnecomp Corp., 2006 WL 2061707 at *3 (D.Minn., July 17, 2006), citing National Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn.1982); Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn.Ct.App.1993). As a consequence, Minnesota Courts have held that, while "the mere continuation of employment can be used to uphold coercive agreements," the non-compete agreement "must be bargained for and provide the employee with real advantages." Freeman v. Duluth Clinic, Inc., 334 N.W.2d 626, 630 (Minn.1983), citing Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130-31 (Minn.1980).
Unfortunately, both parties have ignored this issue as it has borne no briefing, and very little substantive argument. For its part, MCS has primarily relied on the fact that the Agreement included a choice of law provision which reflected that the "Agreement is governed by the law of the State of Michigan without regard to conflict of laws principles." Docket No. 22, Exhibit 2, at p. 18 of 43. However, Johnson did not sign the Agreement, and it is not apparent from this Record whether any written contract existed, between MCS and Johnson, to which Michigan law would apply. For his part, Johnson simply argues that Minnesota law should apply since the majority of the duties he performed occurred in Minnesota, although he offers no legal support for that proposition. See, Plaintiffs Memorandum in Support, Docket No. 26, at 9 n. 2. This unsettled, and unbriefed, issue of law could critically impact upon the issues presented, both here and at Trial.
Since MCS has not, demonstrated, as a matter of law, that its termination of *976 Johnson's employment was reasonable, MCS is not entitled to Summary Judgment. As the Courts have recognized, "[b]ecause employers have the burden of proving that the discharge was reasonable, it is difficult for employers to achieve summary judgment on claims under § 4316(c)." Francis v. Booz, Allen & Hamilton, Inc., supra at 308, citing Alan's of Atlanta, Inc. v. Minolta Corp., 903 F.2d 1414, 1425 (11th Cir.1990)("As is well established, in a summary judgment proceeding the party against whom the burden of proof falls at trial faces a challenge more difficult than otherwise."). Here, as to MCS's Motion, we find genuinely disputable issues of material fact, on the crucial question of "reasonableness," which precludes an award of Summary Judgment.[7]
As for Johnson's Partial Summary Judgment Motion, MCS's failure, on this Record, to demonstrate that its termination of Johnson was reasonable as a matter of law, does not absolve Johnson of his obligation to demonstrate that MCS's conduct was unreasonable as a matter of law. As was the case with MCS's conclusory averments, we are not persuaded by Johnson's conclusory testimony, unsupported by other evidence, that the Agreement was "manufactured" "to get rid of [him]." Johnson Dep., supra at 85-87. We cannot say, on this abbreviated Record, that MCS's decision to implement the Agreement did not afford some consideration to Johnson, which a Jury could find was adequate, in exchange for its extraction, of a noncompetition provision.[8] In short, neither party has satisfied its burden of demonstrating that no genuine issues of material fact exist, and accordingly, Summary Judgment on both Motions should be denied.
NOW, THEREFORE, It is
RECOMMENDED:
1. That the Defendants' Motion for Summary Judgment [Docket No. 19] be denied.
2. That the Plaintiff's Motion for Partial Summary Judgment [Docket No. 25] be denied.
3. That, to the extent that the Plaintiffs Complaint may be read to assert a claim under Title 38 U.S.C. § 4311, the claim be dismissed as having been abandoned.
Dec. 1, 2006.
NOTES
[1] Johnson does not object to Judge Erickson's conclusion that he has abandoned any claim under 38 U.S.C. § 4311, which prohibits discrimination in employment based on military service.
[2] As Judge Erickson noted, this regulation took effect after Johnson's claim accrued, but the parties do not dispute that it accurately summarizes the applicable law.
[3] Johnson argues that, under Michigan law, an employer does not have "cause" to fire an employee for refusing to sign a non-competition agreement when the employee, like Johnson, is not employed at will. Johnson cites QIS, 686 N.W.2d at 789, in support of his argument. But QIS is easily distinguishable. In QIS, the employer attempted to force union employees to sign individual non-competition agreements. Id. The Michigan Court of Appeals held that the employees' refusal to sign was not "just cause" for termination because the employer could not require union employees to agree to obligations outside of the union contract. Id. at 790. Unlike QIS, no such circumstances barred MCS from seeking individual non-competition agreements with its employees.
[1] In his Complaint, Johnson alleges that his "military service was, in whole or in part, a motivating factor for his termination." Complaint, at page 2, ¶ 14. As pertinent, Title 38 U.S.C. § 4311 protects service members from discrimination, upon a showing that the service member's military service was a "motivating factor" for some discriminatory employment action. However, in his Response Memorandum, Docket No. 39, at pp. 3-5, and at the Hearing, Johnson clarified that he is alleging only that MCS violated Section 4316(c), and that he is not bringing a Section 4311 claim. Accordingly, Johnson is no longer claiming that his military service was a "motivating factor" in MCS's termination of his employment and, to the extent that his Complaint may be read, to allege a claim under Section 4311, that claim should be dismissed.
[2] In order to be protected under Section 4316(c), Johnson must show that he is qualified under Section 4312, which provides as follows:
(a) Subject to subsections (b), (c), and (d) and to section 4304, any person whose absence from a position of employment is necessitated by reason of service in the uniformed services shall be entitled to the reemployment rights and benefits and other employment benefits of this chapter if
(1) the person * * * has given advance written or verbal notice of such service to such person's employer;
(2) the cumulative length of the absence and of all previous absences from a position of employment with that employer by reason of service in the uniformed services does not exceed five years; and
(3) except as provided in subsection (f), the person reports to, or submits an application for reemployment to, such employer in accordance with the provisions of subsection (e) * * *
Title 38 U.S.C. § 4312(a); see, Duarte v. Agilent Techs., Inc., 366 F.Supp.2d 1039, 1046 (D.Colo.2005).
Both parties accept that Johnson has satisfied this burden, and that he is qualified under Section 4312(a), see, Answer, Docket No. 5, and therefore, we do not further address that threshold question.
[3] Section 1002.248 provides as follows:
The employee may be discharged for cause based either on conduct or, in some circumstances, because of the application of other legitimate nondiscriminatory reasons.
(a) In a discharge action based on conduct, the employer bears the burden of proving that it is reasonable to discharge the employee for the conduct in question, and that he or she had notice, which was express or can be fairly implied, that the conduct would constitute cause for discharge.
(b) If, based on the application of other legitimate nondiscriminatory reasons, the employee's job position is eliminated, or the employee is placed on layoff status, either of these situations would constitute cause for purposes of USERRA. The employer bears the burden of proving that the employee's job would have been eliminated or that he or she would have been laid off.
70 Federal Register 75246, 75309 (December 19, 2005).
Although this Section did not become effective until January 18, 2006, after Johnson's claim accrued, its contents generally summarize the cases on point. Id. at 75246. We do not cite the Section as the applicable law, but as illustrative of the general rule of law as gleaned from a host of cases addressing the meaning of "cause," as the term is employed in USERRA.
[4] At the Hearing, MCS represented that it had employed four hundred (400), to four hundred and fifty (450) employees, prior to the onset of layoffs, but there is nothing of Record which attests to that fact. Rather, the evidence on the, subject is conclusory in tone and content. See, LaRose Dep., Docket No. 22-D at 18 and 32 ("I do recall that as there was a number of layoffs occurring * * *."), and ("In 2005 * * * a significant portion of people had left the company,").
[5] In fact, whatever may have been the economic circumstance, prior to Johnson's return from Iraq, there is testimony from a ranking corporate officer that, as of the time that the Agreement was issued, the company, or at least the division in which Johnson was employed, "was growing, it had grown for several years, and was continuing to be successful." Deposition of Bruce Stubbs, Docket No. 22, Exhibit 3, at p. 30 of 30.
[6] MCS can take small comfort from the fact that two (2) employees, who were not protected by USERRA, were also terminated, with Johnson, for failing to accept the Agreement. As the Courts recognize, "Section 4316(c) temporarily changes the at-will employment status of returning veterans." Francis v. Booz, Allen & Hamilton, Inc., 452 F.3d 299, 308 (4th Cir.2006). As to an at-will employee, "[a] private employer may have the right, in the absence of statute or contract to the contrary, to fire an employee for, personal reasons, unrelated to job function, that appeal to the employer, the color of hair, a dislike of men who smoke, or have a tattoo, etc.," but "[t]hat does not mean that the employer can fire a returning veteran for the same reason as constituting `cause.'" Carter v. United States, 407 F.2d 1238, 1244 (D.C.Cir.1968).
[7] MCS has cited cases, in support of its contention, that "cause" can be found on circumstances that have "nothing to do with the employee's performance at work at all." Defendant's Reply in Support of Summary Judgment, Docket No. 43, at p. 3. We do not quarrel with that general proposition, but note that each of the cases cited in support of the question involved a Trial to the presiding Judge. Here, MCS, has not presented such uncontested evidence as would show, as a matter of law, that its decision to terminate Johnson's employment was objectively reasonable.
[8] MCS argued at the Hearing, with little evidentiary support, that it provided Johnson with consideration in the form of continued employment with the company, as well as in the opportunity to attend the annual company meeting in mid-January of 2005, so as to gain exposure to strategic initiatives, new products, and company marketing plans. See, LaRose Dep., at 15, 29-31; Johnson Dep., at 162. In the absence of competent evidence, we are unable to assess the legitimacy, let alone the adequacy, of such claimed consideration.
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948 N.E.2d 878 (2011)
Lyle LACEY, Petitioner,
v.
INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
No. 49T10-0906-TA-25.
Tax Court of Indiana.
May 16, 2011.
Lyle Lacey, Indianapolis, IN, pro se.
Gregory F. Zoeller, Attorney General of Indiana, Kristen M. Kemp, Deputy Attorney General, Indianapolis, IN, Attorneys For Respondent.
FISHER, Senior Judge.
On April 20, 2009, the Indiana Department of State Revenue (Department) issued a final determination in which it determined Lyle Lacey (Lacey) owed Indiana adjusted gross income tax for the 2007 tax year (the year at issue). Lacey has appealed that final determination.[1]
FACTS AND PROCEDURAL HISTORY
Lacey, an Indiana resident, is employed by Adecco as a verification engineer. (Resp't Ex. N at 14.) For the year at issue, Lacey's W-2 form indicates that Adecco paid him a substantial amount in wages. (See Resp't Ex. I.)
When Lacey filed his 2007 federal and state income tax returns, he did not attach his W-2 form. Instead, he attached to each return a federal Form 4852 on which he indicated that his wages were zero.[2]*879 (See Resp't Exs. B at 5, H at 5 (footnote added).) Accordingly, Lacey's federal return reported his federal adjusted gross income as zero; likewise, Lacey's state return reported his Indiana taxable income as zero.[3] (Resp't Exs. B at 1, H at 1 (footnote added).) Lacey's state return also claimed a refund of the $5,034.98 in state and county income taxes that had been withheld by Adecco. (Resp't Ex. H at 1-2.)
After reviewing his state return, the Department determined that Lacey was not entitled to a refund and that he actually owed another $1,113.21 in state income tax.[4] (Resp't Ex. P (footnote added).) Lacey protested. The Department conducted a telephonic administrative hearing on April 6, 2009. On April 20, 2009, the Department issued a letter of findings denying Lacey's protest.
Lacey filed an original tax appeal on June 12, 2009. A trial was held on July 14, 2010, and the Court heard the parties' oral arguments on December 13, 2010. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This Court reviews the Department's final determinations de novo. IND. CODE ANN. § 6-8.1-5-1(i) (West 2011) (relating to proposed assessments); IND.CODE ANN. § 6-8.1-9-1(d) (West 2011) (relating to claims for refund). Accordingly, it is bound by neither the evidence nor the issues presented at the administrative level. Snyder v. Ind. Dep't of State Revenue, 723 N.E.2d 487, 488 (Ind.Tax 2000), review denied.
A notice of proposed assessment is prima facie evidence that the Department's claim for unpaid taxes is valid. A.I.C. § 6-8.1-5-1(c). Consequently, "[t]he burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Id.
DISCUSSION
On appeal, Lacey argues that the compensation he received in 2007 as a result of his employment with Adecco is not income within the meaning of the Sixteenth *880 Amendment to the United States Constitution[5] or the Internal Revenue Code. (Pet'r Br. at 6, 9 (footnote added).) As a result, he maintains that his federal tax return, which reported zero as the amount of his federal adjusted gross income, was properly completed. (See Pet'r Reply Br. at 2 ¶ 4.) In turn, because Indiana's adjusted gross income tax "piggybacks" the federal income tax, Lacey asserts that he has no state taxable income and, hence, no state income tax liability. (See Pet'r Pet. at 4-5 ¶¶ 40-42; Pet'r Reply Br. at 2 ¶¶ 3-6.)
As support for his argument, Lacey cites to the United States Supreme Court's decision in Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521 (1919), for the proposition that only "gain" or "profit" can be "income."[6] (See Pet'r Br. at 5 n.3 (footnote added).) Lacey then reasons that his compensation is not income because there was no "gain" or "profit"; rather, the compensation was received in equal exchange for the services he rendered for Adecco. (See Pet'r Br. at 5-7.) Lacey is incorrect.
More than eleven years ago, this Court explained the significance of the "income as gain" language found in Eisner and upon which Lacey now relies. Indeed:
In Eisner, the Supreme Court considered whether the Sixteenth Amendment permitted Congress to tax as income a taxpayer's stock dividend made against accumulated profits of the issuing corporation. The Court in Eisner defined income as the "gain derived from capital, from labor, or from both combined." Applying this definition, the Court focused on the phrase "derived from capital," which included a "gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital . . . [and] received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal[.]"
* * * * * *
Eisner merely concluded that stock dividends are not income within the meaning of the Sixteenth Amendment because the taxpayer received no separate asset from the company for his own individual use and benefit. In short, the taxpayer realized no gain that was severed from and independent of the company's assets. The Court in Eisner did not discuss what constituted a "gain derived from labor."[7]
*881 Snyder, 723 N.E.2d at 489-90 (internal footnotes and citations omitted) (footnote added). In any event, the Supreme Court has, since its decision in Eisner, repeatedly rejected the argument that income is limited to gain or profit. See Commissioner v. Kowalski, 434 U.S. 77, 94, 98 S.Ct. 315, 54 L.Ed.2d 252 (1977) (rejecting the assumption that Eisner's "income as gain" definition was incorporated in the current definition of income found in section 61 of the Internal Revenue Code); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473, 99 L.Ed. 483 (1955) (explaining that while the definition of "income as gain" served a useful purpose within the limited context of Eisner, "it was not meant to provide a touchstone to all future gross income questions").)
To the extent, then, that Lacey argues his compensation from Adecco is not taxable income because it does not reflect "gain" or "profit," it matters not. Indeed, in both Kowalski and Glenshaw Glass, not only did the Supreme Court reject the notion that income was limited to gain or profit, but it accepted and applied the definition of "gross income" as provided in section 61 of the Internal Revenue Code. See Kowalski, 434 U.S. at 83, 98 S.Ct. 315; Glenshaw Glass, 348 U.S. at 432, 75 S.Ct. 473. Pursuant to that definition, wages are income for purposes of taxation. See I.R.C. § 61(a)(1) (2007) ("gross income" is "all income from whatever source derived, including . . . compensation for services"). Thus, it is undeniably clear that Lacey's claimthat the compensation he received from Adecco is not taxable incomeis incorrect as a matter of law.[8]
Lacey also contends that because the federal income tax is "an un-apportioned direct tax," it runs counter to the Supreme Court's holding in Brushaber v. Union Pacific Railroad Company, 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493 (1916). (See Pet'r Br. at 8-9.) More specifically, Lacey contends that in Brushaber, the Supreme Court held that the Sixteenth Amendment's provision "exempting a tax from apportionment [is in] irreconcilable conflict with the general [constitutional] requirement that all direct taxes be apportioned." (Oral Argument Tr. at 5.) (See also Pet'r Br. at 8 (where Lacey states that the Court in Brushaber "indicated that the 16th Amendment did not change the constitution with respect to direct taxes; direct taxes must be apportioned").)
Lacey's contention is without merit. Congressional power to tax is articulated in Article 1, Section 8 of the Constitution and "embraces every conceivable power of taxation" including the power to lay and collect income taxes. Brushaber v. Union Pacific R.R. Co., 240 U.S. 1, 12-13, 36 S.Ct. 236, 60 L.Ed. 493 (1916). "It is clear. . . that the whole purpose of the [Sixteenth] Amendment was to relieve all income taxes . . . from apportionment[.]" Id. at 18, 36 S.Ct. 236. Indeed,
there is no escape from the conclusion that the Amendment was drawn for the purpose of doing away . . . with the principle. . . of determining whether a tax on income was direct [or] not . . . since in express terms the Amendment provides *882 that income taxes, from whatever source the income may be derived, shall not be subject to the regulation of apportionment.
Id.
CONCLUSION
Lacey has not shown that the compensation he received in 2007 as a result of his employment with Adecco is not income within the meaning of the Sixteenth Amendment or the Internal Revenue Code. As a result, Lacey's employment compensation is income subject to Indiana's adjusted gross income tax and the Court therefore AFFIRMS the Department's final determination.
On a final note, this case marks the third time this Court has rejected the argument that one's employment wages do not constitute income subject to Indiana's adjusted gross income tax. See Lacey v. Ind. Dep't of State Revenue, 894 N.E.2d 1113 (Ind.Tax 2008), review denied; Snyder, 723 N.E.2d at 490-91. Consequently, the Court now provides the following warning: in the future, when a taxpayer advances the same (or a substantially similar) argument, the Court will not hesitate to consider whether an award of attorney fees is appropriate. See IND.CODE ANN. § 34-52-1-1(b) (West 2011) (allowing a court to award attorney's fees to a prevailing party if it finds, inter alia, that the losing party litigated in bad faith or pursued a frivolous, unreasonable, or groundless claim or defense). See also Chapo v. Jefferson Cnty. Plan Comm'n, 926 N.E.2d 504, 509-10 (Ind.Ct.App.2010) (defining a "frivolous, unreasonable, or groundless" claim or defense) (citation omitted).[9]
NOTES
[1] Certain information and exhibits in this case have been filed as "not for public access" and are confidential. See Ind. Administrative Rule 9; Ind. Trial Rule 5. This Court's opinion therefore provides only that information essential to its resolution of the case and as appropriate to develop the law. See Admin. R. 9(G)(3), (4)(d).
[2] A Form 4852 "serves as a substitute for Forms W-2, W-2c, and 1099-R and is completed by taxpayers . . . when (a) their employer or payer does not give them a Form W-2 or Form 1099-R, or (b) when an employer or payer has issued an incorrect Form W-2 or Form 1099-R." I.R.S. Form 4852 (Rev.1-2007). Lacey completed and submitted the Form 4852 because he believed that pursuant to sections 3121 and 3401 of the Internal Revenue Code, "wages" could only be earned by those workers who received a federal "privilege" and, thus, Adecco "mischaracterized" what it paid him. (See Resp't Exs. C at 5-6, F.) But see Lacey v. Ind. Dep't of State Revenue, 894 N.E.2d 1113, 1114-15 (Ind.Tax 2008) (where this Court rejected the same argument when Lacey raised it in challenging his 2006 state income tax liability), review denied.
[3] Indiana imposes a tax on an individual's "adjusted gross income." See IND.CODE ANN. § 6-3-2-1(a) (West 2007). For purposes of that tax, "adjusted gross income" is defined as that term is defined in section 62 of the Internal Revenue Code, with certain modifications. See IND.CODE ANN. § 6-3-1-3.5(a) (West 2007) (amended 2009). Thus, "adjusted gross income" is, "in the case of an individual, gross income minus . . . [certain] deductions[.]" I.R.C. § 62(a) (2007). In turn, "gross income" is "all income from whatever source derived, including . . . compensation for services[.]" I.R.C. § 61(a)(1) (2007). See also IND.CODE ANN. § 6-3-1-8 (West 2007) (explaining that "gross income" for purposes of Indiana's adjusted gross income tax has the same meaning as "gross income" set forth in I.R.C. § 61). Pursuant to these definitions, if a taxpayer does not have adjusted gross income as defined in the Internal Revenue Code for federal income tax purposes, the taxpayer generally does not have adjusted gross income for Indiana income tax purposes.
[4] Meanwhile, the Internal Revenue Service rejected Lacey's federal return, recomputed his federal income tax liability based on his W-2, and assessed him with a $5,000 penalty for filing a frivolous tax return. (See Resp't Exs. B at 10, C at 10-12, D, E.)
[5] The Sixteenth Amendment, ratified in 1913, states: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." U.S. CONST. amend XVI.
[6] Lacey also claims that in Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731 (1930), the Supreme Court held that salaries, wages, or compensation for personal service were not to be included in gross income, but rather only the gains, profits, and income derived therefrom. (See Pet'r Reply Br. at 4; Third Request To Take Judicial Notice (filed Apr. 8, 2011) at 23 ¶ 15 (where Lacey quotes not from the language of the opinion, but rather from a version of the opinion that included a syllabus).) The Supreme Court held no such thing. Lucas v. Earl, 281 U.S. 111, 114, 50 S.Ct. 241, 74 L.Ed. 731 (1930) (concluding that, based on an earlier version of the federal tax code, "[t]here is no doubt that . . . salaries [are taxable] to those who earned them"). See also United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499 (1906) (explaining that the syllabus and headnotes constitute no part of the Supreme Court's opinion).)
[7] This Court went on to say, however, that "by analogy to [its] treatment of `gain derived from capital,' one could reasonably surmise that the Court in Eisner would have viewed wages as representing the `gain' or `profit' independent and separate from the labor an individual provided in exchange for his or her wages." Snyder v. Ind. Dep't of State Revenue, 723 N.E.2d 487, 490 (Ind.Tax 2000), review denied.
[8] Throughout the course of this litigation, Lacey has referred to the money he received from Adecco as "compensation" and not as "wages." With respect to Indiana's adjusted gross income tax, however, this distinction has no legal significance. See IND.CODE ANN. § 6-3-1-23 (West 2007) (stating that for purposes of Indiana's adjusted gross income tax, "[t]he term `compensation' means wages, salaries, commissions and any other form of remuneration paid to employees for personal services").
[9] The argument that employment wages do not constitute income subject to taxation has been identified as "frivolous" and deemed sanctionable by both the Internal Revenue Service and the federal courts. See I.R.C. § 6702(a) (2007); I.R.S. Notice 2007-30, 2007-14 I.R.B. 883 (modified and superseded by I.R.S. Notice 2008-14, 2008-4 I.R.B. 310). See also, e.g., Kile v. Commissioner, 739 F.2d 265, 269-70 (7th Cir.1984) (explaining that because there is no reasonable basis to believe that wages are not subject to income tax "given the universal and longstanding rejection of [that] argument," the Seventh Circuit and many of its sister courts assess fees in such cases given "the waste of limited judicial and administrative resources that such groundless actions have occasioned") (citations omitted).
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957 N.E.2d 531 (2011)
354 Ill. Dec. 215
The PEOPLE of the State of Illinois, Plaintiff-Appellee,
v.
Thomas WALKER, Defendant-Appellant.
No. 1-07-2889.
Appellate Court of Illinois, First District, Fourth Division.
September 1, 2011.
Rehearing Denied October 6, 2011.
*534 Michael J. Pelletier, State Appellate Defender, Patricia Unsinn, Deputy Defender, Office of the State Appellate Defender (Michael H. Orenstein, Assistant Appellate Defender), for Appellant.
Anita Alvarez, State's Attorney of Cook County (James E. Fitzgerald, Mary P. Needham, Mikah Soliunas, of counsel), for Appellee.
OPINION
Justice PUCINSKI delivered the judgment of the court, with opinion.[*]
¶ 1 Following a jury trial, defendant Thomas Walker was convicted of first degree *535 murder and sentenced to 65 years in prison. On appeal, defendant contends that: (1) the trial court misled the jury and coerced a verdict; (2) the trial court failed to ensure all the jurors understood and accepted principles that are fundamental to a fair trial; (3) the trial court failed to inquire into defendant's pro se ineffective assistance of counsel claim; and (4) the mittimus incorrectly states defendant was adjudged guilty of two counts of first degree murder.
¶ 2 In an opinion filed on July 15, 2010, this court affirmed defendant's conviction and corrected his mittimus. People v. Walker, 403 Ill.App.3d 68, 342 Ill. Dec. 654, 932 N.E.2d 1115 (2010). Thereafter, on March 8, 2011, the Illinois Supreme Court issued a supervisory order directing this court to vacate its prior judgment and reconsider its prior ruling in light of People v. Thompson, 238 Ill. 2d 598, 345 Ill. Dec. 560, 939 N.E.2d 403 (2010). People v. Walker, 239 Ill. 2d 585, 346 Ill. Dec. 551, 940 N.E.2d 1155 (2011) (table). On reconsideration, we again affirm defendant's first degree murder conviction and sentence but correct the mittimus to reflect a single conviction for murder.
¶ 3 I. BACKGROUND
¶ 4 Defendant was charged with committing the murder of Juliette Robinson. The State's witnesses testified that defendant shared a home with Juliette and, on the evening of February 4, 2004, entered her bedroom while she was sleeping. Defendant and Juliette's 11-year-old son, Thomas Walker III, was also sleeping in Juliette's room. Defendant was carrying a loaded revolver and argued with Juliette. Defendant summoned his 15-year-old stepdaughter, Dionne Robinson, into the room and told her to tie up her brother, but she refused. Defendant then accused Juliette of having an affair and an argument ensued. When defendant reached for a tape recorder he had hidden behind Juliette's bed, Juliette fled the room and defendant fired two gunshots at her. She continued to run through the living room and out the front door while defendant shot at her. She was killed by a single gunshot wound to the back and collapsed at the bottom of the staircase. Defendant fled the scene and was later arrested at a hospital where he was being treated for a failed suicide attempt.
¶ 5 Thomas Walker III and Dionne testified consistently about the events that evening. Dionne also added that when defendant summoned her into the room, he was waving a gun and said that someone in the room was going to die that night. Furthermore, defendant started shooting at Juliette while she was still in the bedroom. Dionne heard two shots in the bedroom, two outside the bedroom, and two more after that. After Dionne summoned the police, she ran outside to check on her mother and saw defendant get in his van and drive away.
¶ 6 Alberta Randall, who lived across the street from the crime scene, testified that she heard defendant and Juliette arguing on the night of the offense. Next, Randall heard a gunshot and saw Juliette fall down her front stairs. Then, defendant ran down the same stairs with a gun in his hand, got in his van and drove away.
¶ 7 A police investigation unit processed the crime scene. The unit observed bullet holes in the walls and holes from bullets that had passed through a door before going into the wall. The unit, however, was unable to retrieve any bullet fragments, which might have passed through the drywall and dropped down into the hollow portion of the wall. Furthermore, the lack of bullet casings at the scene indicated that the offender probably used a revolver.
*536 ¶ 8 Defendant testified on his own behalf. He claimed he did not have a gun when he entered Juliette's bedroom on the night of the offense. According to defendant, he went into Juliette's room to talk about the problems they were having, but she started yelling. Defendant remembered reaching into a dresser drawer to look for his hidden tape recorder but instead grabbed Juliette's gun. He claimed the gun was already cocked when he took it out of the drawer. While he was reaching for the tape recorder with his empty hand, Juliette jumped up, ran past him and pushed the gun that was in defendant's other hand. The gun went off, and defendant claimed he could not remember the subsequent events clearly.
¶ 9 The jury found defendant guilty of first degree murder and found that he personally discharged a weapon that proximately caused the death of the victim. Defendant was sentenced to 40 years on the charge of first degree murder to be served consecutively to a sentence of 25 years based on the jury's finding that defendant personally discharged a firearm that caused the victim's death. Defendant timely appealed.
¶ 10 II. ANALYSIS
¶ 11 A. Coercion of the Verdict
¶ 12 Defendant contends comment by the judge midway through the two-day jury trial withheld the option of a deadlock and coerced a verdict. The challenged comment was as follows:
"We still intend to complete this trial on Thursday, which means that once you start deliberating, you'll continue to work until you reach a verdict * * *."
¶ 13 The State contends the defendant's argument is forfeited because defendant failed either to contemporaneously object or to raise this issue in a posttrial motion. People v. Enoch, 122 Ill. 2d 176, 186, 119 Ill. Dec. 265, 522 N.E.2d 1124 (1988). Defendant responds that we should relax the waiver rule because the basis for the objection is the trial judge's conduct. The rationale for the relaxation of the waiver rule when the conduct of the judge is at issue is derived from "`the fundamental importance of a fair trial and the practical difficulties involved in objecting to the conduct of the trial judge.'" People v. Brown, 200 Ill.App.3d 566, 575, 146 Ill. Dec. 346, 558 N.E.2d 309 (1990) (quoting People v. Heidorn, 114 Ill.App.3d 933, 936, 70 Ill. Dec. 439, 449 N.E.2d 568 (1983)). Keeping in mind that the waiver rule is relaxed when the objection is based on the judge's conduct, we find the exception to the waiver rule applicable here. Accordingly, we will address defendant's argument. We note the alleged error implicates defendant's right to a fair trial; thus the question is a legal one, which we review de novo. People v. Ramos, 396 Ill.App.3d 869, 878-79, 336 Ill. Dec. 295, 920 N.E.2d 504 (2009).
¶ 14 Defendant argues that the comment by the judge to the jury"you'll continue to work until you reach a verdict"essentially ordered a unanimous verdict and ruled out the possibility of a hung jury. In support of this argument, defendant relies on People v. Gregory, 184 Ill.App.3d 676, 132 Ill. Dec. 932, 540 N.E.2d 854 (1989), People v. Ferro, 195 Ill.App.3d 282, 292-93, 141 Ill. Dec. 850, 551 N.E.2d 1378 (1990), and United States v. Arpan, 861 F.2d 1073, 1077 (8th Cir.1988). Unlike the instant case, these cases challenge responses by the trial courts to jury questions once the jury reached a standstill in the deliberation process. Rather, the comments by the trial court in the instant case, which occurred midway through the trial process, simply conveyed a schedule timeline for the remainder of the proceedings *537 to allow jurors to make the appropriate plans, bring any required medications and make any necessary notifications. In context, the comment by the judge was as follows:
"Ladies and gentlemen, that's going to conclude the evidence you're going to hear today. As I told you when you were selected yesterday, because of prior scheduling of other matters, we will not hear evidence tomorrow.
We will ask you to be back here on Thursday at 10:30 in the morning, and I will do everything possible to start closer to on time than we did today.
We still intend to complete this trial Thursday, which means that once you start deliberating, you'll continue to work until you reach a verdict so that you will let people know about that. And should you need medications or something like that, bring them with you so you don't run into these problems, okay?"
¶ 15 We note that those comments were not made to a deliberating jury or to a jury about to begin deliberations. The record does not reflect any indication by the trial judge that the jurors would be held indefinitely. The record does not reflect any coercion by the experienced trial judge. We reject defendant's argument that the comments by the judge coerced a unanimous verdict or misled the jury. Rather, the judge was giving the jurors information regarding scheduling they needed to know to make necessary plans and notifications before any deliberation began.
¶ 16 B. Compliance With Supreme Court Rule 431(b)
¶ 17 Defendant next argues his conviction must be reversed and this case remanded for a new trial because the trial court failed to fully comply with amended Supreme Court Rule 431(b) (Ill.S.Ct. R. 431(b) (eff. May 1, 2007))[1] because it failed to admonish the venire about each of the four principles enumerated therein. Specifically, defendant contends that the trial court failed to admonish the prospective jurors about the principle preserving a defendant's right not to present evidence on his behalf. Moreover, defendant contends that the trial court completely failed to question one juror about his acceptance of any of the principles. Although defendant acknowledges that he failed to properly preserve this issue for review, he urges this court to review his claim for plain error. He contends that the court's error necessarily deprived him of his right to a fair and impartial jury and thus constituted plain error under the second prong of plain error review.
¶ 18 To properly preserve an issue for appeal, a defendant must object to the purported error at trial and specify the error in a posttrial motion. Enoch, 122 Ill.2d at 186, 119 Ill. Dec. 265, 522 N.E.2d 1124; People v. Bannister, 232 Ill. 2d 52, 65, 327 Ill. Dec. 450, 902 N.E.2d 571 (2008). A defendant's failure to abide by both requirements results in forfeiture of appellate review of his claim. Enoch, 122 Ill.2d at 186, 119 Ill. Dec. 265, 522 N.E.2d 1124; People v. Piatkowski, 225 Ill. 2d 551, 564, 312 Ill. Dec. 338, 870 N.E.2d 403 (2007). Here, it is undisputed that defendant failed to object to the trial court's purported Rule 431(b) violations at trial or in a posttrial motion, and accordingly, we find that forfeiture applies.
*538 ¶ 19 The plain error doctrine, however, provides a limited exception to the forfeiture rule. Ill. S.Ct. R. 615(a); Bannister, 232 Ill.2d at 65, 327 Ill. Dec. 450, 902 N.E.2d 571. It permits review of otherwise improperly preserved issues on appeal if the evidence is closely balanced or the error is of such a serious magnitude that it affected the integrity of the judicial process and deprived the defendant of his right to a fair trial. Ill. S.Ct. R. 615(a); Bannister, 232 Ill.2d at 65, 327 Ill. Dec. 450, 902 N.E.2d 571. The first step in any such analysis is to determine whether any error actually occurred. People v. Walker, 232 Ill. 2d 113, 124-25, 327 Ill. Dec. 570, 902 N.E.2d 691 (2009). If an error is discovered, the defendant then bears the burden of persuasion to show that the error prejudiced him under either prong. People v. McLaurin, 235 Ill. 2d 478, 495, 337 Ill. Dec. 221, 922 N.E.2d 344 (2009).
¶ 20 Defendant's claim of error concerns the trial court's compliance with a supreme court rule, which is subject to de novo review. People v. Suarez, 224 Ill. 2d 37, 41-42, 308 Ill. Dec. 774, 862 N.E.2d 977 (2007); People v. Haynes, 399 Ill.App.3d 903, 340 Ill. Dec. 80, 927 N.E.2d 819 (2010). To determine whether an error occurred in this case, we examine amended Rule 431(b) as well as our supreme court's recent opinion interpreting the rule (People v. Thompson, 238 Ill. 2d 598, 345 Ill. Dec. 560, 939 N.E.2d 403 (2010)). Rule 431(b) provides:
"The court shall ask each potential juror, individually or in a group, whether that juror understands and accepts the following principles: (1) that the defendant is presumed innocent of the charge(s) against him or her; (2) that before a defendant can be convicted the State must prove the defendant guilty beyond a reasonable doubt; (3) that the defendant is not required to offer any evidence on his or her own behalf; and (4) that the defendant's failure to testify cannot be held against him or her; however, no inquiry of a prospective juror shall be made into the defendant's failure to testify when the defendant objects.
The court's method of inquiry shall provide each juror an opportunity to respond to the specific questions concerning the principles set out in this section." (Emphasis added.) Ill. S.Ct. R. 431(b) (eff. May 1, 2007).
¶ 21 In Thompson, our supreme court observed the amended rule's use of the term "shall" created a mandatory question and response process to address a jury's acceptance of each of the four enumerated principles. Thompson, 238 Ill.2d at 607, 345 Ill. Dec. 560, 939 N.E.2d 403; see also Haynes, 399 Ill.App.3d at 912, 340 Ill. Dec. 80, 927 N.E.2d 819 (explaining that "[i]n enacting the amended version of Rule 431(b), our supreme court imposed a sua sponte duty on courts to ask potential jurors individually or in a group whether they accept the [four Zehr] principles").[2] A trial court's failure to inquire as to a potential juror's acceptance and understanding of all four principles constitutes error. See Thompson, 238 Ill.2d at 607, 345 Ill. Dec. 560, 939 N.E.2d 403; Haynes, 399 Ill.App.3d at 912, 340 Ill. Dec. 80, 927 N.E.2d 819; People v. Magallanes, 397 Ill.App.3d 72, 83, 336 Ill. Dec. 774, 921 N.E.2d 388 (2009).
¶ 22 Here, in its prefatory comments to the entire venire, the trial court spoke about three of the four Rule 431(b) principles *539 that governed defendant's trial, omitting the principle that the law does not require a defendant to present evidence on his behalf. Specifically, the court stated:
"The defendant is presumed to be innocent of the charge in the indictment, and that presumption of innocence remains throughout the trial with the defendant unless or until you have been satisfied by the evidence in the case beyond a reasonable doubt as to the guilt of the defendant.
The burden of proving the guilt of the defendant is on the State. The law does not require the defendant to prove his innocence.
The defendant may or may not testify. And the fact that he does not testify in no way should be used as evidence against him."
¶ 23 Thereafter, during the voir dire process, the trial court asked different panels of jurors about their understanding and acceptance of the three Zehr principles pertaining to a defendant's presumption of innocence, the State's burden of proof, and the right of a defendant not to testify or have his decision used against him. Although defendant contends that prospective juror Guerro N. was not questioned about his understanding and acceptance of any of the Zehr principles, the record does not support defendant's contention. The record demonstrates that the trial court called the names of nine venire members, including Guerro N., to be questioned. The trial court then questioned five of the venire members and excused one prospective juror when she indicated that she was unsure of her ability to remain fair and impartial during the case. The trial court then stated: "Okay. To the four of you, I am going to ask a series of questions you heard me ask other jurors." The trial court then inquired whether Guerro N. and the three other venire members understood the aforementioned three Zehr principles. Accordingly, the record rebuts defendant's claim that the court failed to question Guerro N.
¶ 24 More problematic, however, is that the trial court failed to question all of the prospective jurors about their understanding and acceptance of the Zehr principle preserving a defendant's right not to present evidence on his behalf. In our original opinion, we found that the trial court's incomplete Rule 431(b) admonishments constituted error, but that the error did not require reversal of defendant's conviction. Walker, 403 Ill.App.3d at 74-76, 342 Ill. Dec. 654, 932 N.E.2d 1115. Specifically, we rejected that the defendant's argument that a court's failure to fully comply with Rule 431(b) necessarily infringes on his right to a fair trial and constitutes plain error under the second prong of plain error review. Walker, 403 Ill.App.3d at 76, 342 Ill. Dec. 654, 932 N.E.2d 1115. On reconsideration, we do not find that the Thompson decision compels a different result.
¶ 25 In Thompson, our supreme court expressly rejected the argument that a trial court's failure to strictly comply with amended Rule 431(b) necessarily infringes upon a defendant's right to a fair and impartial jury and constitutes plain error under the second prong of plain error review. Thompson, 238 Ill.2d at 614, 345 Ill. Dec. 560, 939 N.E.2d 403. The court acknowledged that "[a] finding that defendant was tried by a biased jury would certainly satisfy the second prong of plain-error review because it would affect his right to a fair trial and challenge the integrity of the judicial process," but explained that a reviewing court "cannot presume the jury was biased simply because the trial court erred in conducting the Rule 431(b) questioning." Id. The court acknowledged that the 2007 amendment to *540 the rule made it mandatory for trial courts to assess every potential juror's acceptance of the four Rule 431(b) principles but explained:
"[T]he failure to conduct Rule 431(b) questioning does not necessarily result in a biased jury, regardless of whether that questioning is mandatory or permissive under our rule. Although the amendment to the rule serves to promote the selection of an impartial jury by making questioning mandatory, Rule 431(b) questioning is only one method of helping to ensure the selection of an impartial jury. [Citation.] It is not the only means of achieving that objective. A violation of Rule 431(b) does not implicate a fundamental right or constitutional protection, but only involves a violation of this court's rules." Id. at 614-15, 345 Ill. Dec. 560, 939 N.E.2d 403.
¶ 26 Accordingly, because a trial court's Rule 431(b) violation does not necessarily result in a biased jury and constitute plain error, the court concluded that it was the defendant's burden of persuasion to show that the trial court's violation of Rule 431(b) in his case resulted in a biased jury and affected the integrity of the judicial process. Id. at 614, 345 Ill. Dec. 560, 939 N.E.2d 403. The court observed that although the prospective jurors in the defendant's case received some, but not all, of the Rule 431(b) questions, the defendant failed to meet his burden of showing that the error affected the fairness of his trial and, accordingly, the second prong of plain error review did not provide a basis for excusing the defendant's forfeiture. Id. at 615, 345 Ill. Dec. 560, 939 N.E.2d 403.
¶ 27 Here, as in Thompson, the trial court failed to strictly comply with Rule 431(b). Specifically, the court only conducted an inquiry regarding three of the four Zehr principles and failed to ascertain whether the potential jurors understood and accepted that a defendant is not required to present evidence on his own behalf. Notwithstanding the trial court's error, we find that defendant has failed to prove that the trial court's Rule 431(b) violation resulted in an unfair trial and affected the integrity of the judicial process. Notably, there is nothing in the record to indicate that the jury was biased. Moreover, we observe that defendant did, in fact, present evidence on his behalf. Accordingly, we find that the second prong of plain error review does not provide us with a basis to excuse defendant's procedural default. See Thompson, 238 Ill.2d at 614-15, 345 Ill. Dec. 560, 939 N.E.2d 403; Haynes, 399 Ill.App.3d at 914, 340 Ill. Dec. 80, 927 N.E.2d 819; Magallanes, 397 Ill. App.3d at 100, 336 Ill. Dec. 774, 921 N.E.2d 388. Defendant does not argue that the error constitutes plain error under the first prong, and we therefore find no basis to excuse defendant's procedural default under either prong of plain-error review.
¶ 28 C. Inquiry Regarding Defendant's Claim of Ineffective Assistance of Counsel
¶ 29 Defendant next argues that the trial court failed to conduct an adequate inquiry into the defendant's pretrial pro se claims that "he did not trust appointed counsel and did not want counsel defending his interests."
¶ 30 The trial court is required to inquire into a defendant's pretrial pro se claims of ineffective assistance of counsel under the principles articulated in People v. Krankel, 102 Ill. 2d 181, 189, 80 Ill. Dec. 62, 464 N.E.2d 1045 (1984). In Krankel, defense counsel failed to contact an alibi witness or present an alibi defense at trial. Krankel, 102 Ill.2d at 187, 80 Ill. Dec. 62, 464 N.E.2d 1045. The defendant pro se challenged posttrial his attorney's representation at trial. Krankel, 102 Ill.2d at 187, 80 Ill. Dec. 62, 464 N.E.2d 1045. The *541 Illinois Supreme Court held that the trial court should have appointed alternate counsel to represent defendant at the posttrial hearing regarding his claim of ineffective assistance of counsel. Krankel, 102 Ill.2d at 189, 80 Ill. Dec. 62, 464 N.E.2d 1045. The case was remanded for a hearing on the defendant's motion with newly appointed counsel. Krankel, 102 Ill.2d at 189, 80 Ill. Dec. 62, 464 N.E.2d 1045.
¶ 31 The Illinois Supreme Court, in applying Krankel, recognized in People v. Nitz, 143 Ill. 2d 82, 134, 157 Ill. Dec. 431, 572 N.E.2d 895 (1991), "that there is no per se rule that new counsel must be appointed every time a defendant presents a pro se motion for a new trial alleging ineffective assistance of counsel." Nitz expressed that principle as follows:
"If the trial court conducts a preliminary investigation of the defendant's allegations and determines them to be spurious or pertaining only to trial tactics, no new counsel should be appointed to represent the defendant. If, however, the defendant's allegations of incompetence indicate that trial counsel neglected the defendant's case, the court should appoint new counsel to argue defendant's claims of ineffective assistance of counsel." People v. Nitz, 143 Ill. 2d 82, 134-35, 157 Ill. Dec. 431, 572 N.E.2d 895 (1991).
¶ 32 A trial court is not required to appoint new counsel every time a defendant files a pro se motion claiming ineffective assistance of counsel. People v. Jocko, 389 Ill.App.3d 247, 263, 329 Ill. Dec. 193, 906 N.E.2d 38 (2009) (citing People v. Moore, 207 Ill. 2d 68, 77, 278 Ill. Dec. 36, 797 N.E.2d 631 (2003)). Rather, the trial court should first examine the factual basis underlying the defendant's claim. Moore, 207 Ill.2d at 77-78, 278 Ill. Dec. 36, 797 N.E.2d 631. This can be accomplished in several ways. Moore, 207 Ill.2d at 77-78, 278 Ill. Dec. 36, 797 N.E.2d 631. The court could simply ask trial counsel about the circumstances surrounding the claim or ask defendant questions about his claim. Moore, 207 Ill.2d at 78, 278 Ill. Dec. 36, 797 N.E.2d 631. In the alternative, the court can base its determination on its personal knowledge of defense counsel's performance at trial or on the facial insufficiency of defendant's allegations. Moore, 207 Ill.2d at 78-79, 278 Ill. Dec. 36, 797 N.E.2d 631. If a defendant's claim lacks merit or relates only to matters of trial strategy, the trial court may deny the motion without appointing new counsel. Moore, 207 Ill.2d at 77-78, 278 Ill. Dec. 36, 797 N.E.2d 631.
¶ 33 If the trial court makes no determination of the merits of defendant's claim, then the standard of review is de novo. Moore, 207 Ill.2d at 75, 278 Ill. Dec. 36, 797 N.E.2d 631. If the trial court makes a determination on the merits, then the conduct of the trial court is reviewed under a manifest erroneous standard of review. People v. McCarter, 385 Ill. App. 3d 919, 941-42, 325 Ill. Dec. 17, 897 N.E.2d 265 (2008). A trial court makes a determination on the merits by considering defendant's allegations and conducting adequate inquiry into the allegations. People v. Ford, 368 Ill.App.3d 271, 276, 306 Ill. Dec. 472, 857 N.E.2d 871 (2006). However, no inquiry by the trial court is required when a defendant fails to identify relevant facts and raises only general, conclusory allegations of ineffective assistance of counsel.
¶ 34 We are mindful of the relaxed pleading requirements for pro se allegations of ineffective assistance of counsel. See Moore, 207 Ill.2d at 79, 278 Ill. Dec. 36, 797 N.E.2d 631 (to trigger an inquiry under Krankel, "a pro se defendant is not required to do any more than bring his or her claim to the trial court's attention"). We note that some minimum *542 requirements must be satisfied by a defendant in order to trigger preliminary inquiry by the trial court. People v. Ward, 371 Ill.App.3d 382, 431, 308 Ill. Dec. 899, 862 N.E.2d 1102 (2007). A bald allegation of ineffective assistance is insufficient; rather, the defendant should raise specific claims with supporting facts before the trial court is required to consider the allegations. People v. Radford, 359 Ill.App.3d 411, 418, 296 Ill. Dec. 272, 835 N.E.2d 127 (2005). A defendant's allegations that are conclusory, misleading or legally immaterial, or do not identify a colorable claim of ineffective assistance of counsel would not require further inquiry by the trial court. People v. Johnson, 159 Ill. 2d 97, 126, 201 Ill. Dec. 53, 636 N.E.2d 485 (1994); People v. Ford, 368 Ill.App.3d 271, 276, 306 Ill. Dec. 472, 857 N.E.2d 871 (2006) (remand for further inquiry was not necessary where the defendant's allegations were facially insufficient, set forth in a general and conclusory manner, and contradicted by other allegations, by facts on the record and by the prosecutor).
¶ 35 In the instant case, during the pretrial status date on February 27, 2007, defense counsel informed the trial court that defendant intended to reject the trial court's plea offer. Regarding defense counsel's representations, defendant then said, "I'm rejecting you. I don't trust you. You are the devil. You are the devil. That's what you is, the devil. I don't trust you." We are mindful that defendant was medicated for a psychiatric condition, including a delusional disorder and found fit for trial with medication one month before the February 27, 2007, pretrial status date.
¶ 36 The trial court responded, "Mr. Walker?" Defendant replied, "I don't trust him. He is sneaky." The judge then explained that the trial court, not defense counsel, made the plea offer. Defendant then stated, "I don't want to go to trial with him. I don't trust him." The trial judge responded, "Well, he's your lawyer. Now, when can we try this case." Defendant made no further comment and the case was set for trial on April 3, 2007. The case was continued several times and trial began on July 9, 2007.
¶ 37 These comments were not repeated during the five months of time which elapsed from February 27, 2007, until July 9, 2007, when trial began. Moreover, these comments were not repeated during the trial process. We also note that defendant did not articulate a specific complaint against the competence of defense counsel and no claim of ineffective assistance of counsel has been argued on appeal. Accordingly, the record reflects that defendant's general, conclusory comments did not bring to the trial court's attention a specific claim with supporting facts of ineffective assistance of counsel and, therefore, the trial court was not required to conduct further inquiry.
¶ 38 D. Mittimus
¶ 39 Finally, defendant contends the mittimus should be corrected to accurately reflect a single conviction for first degree murder. The mittimus reflects two convictions for first degree murder: (1) intentional and knowing murder where defendant intentionally killed the victim and during the commission of the offense personally discharged a firearm that proximately caused death, and (2) defendant shot the victim knowing that such an act created a strong probability that his actions would result in death or great bodily harm and during the commission of the offense personally discharged a firearm that proximately caused death. When multiple murder convictions have been entered for the same act, only the conviction for the most serious charge should be reflected on the mittimus, and convictions on the less serious charges must be vacated. People v. Cardona, 158 Ill. 2d 403, 411, 199 Ill. Dec. 667, 634 N.E.2d 720 (1994). In the *543 instant case, the conviction for knowing and intentional murder is the conviction for the most serious charge. See People v. Cardona, 158 Ill.2d at 411, 199 Ill. Dec. 667, 634 N.E.2d 720.
¶ 40 Under Illinois Supreme Court Rule 615(b)(1), a reviewing court may "reverse, affirm, or modify the judgment or order from which the appeal is taken." Ill. S.Ct. R. 615(b)(1). Remand is unnecessary because we have the authority to directly order the clerk of the circuit court to make the necessary corrections to defendant's sentencing order. Ill. S.Ct. R. 615(b)(1); People v. McCray, 273 Ill.App.3d 396, 403, 210 Ill. Dec. 438, 653 N.E.2d 25 (1995).
¶ 41 Accordingly, we direct the clerk of the circuit court to correct the mittimus to reflect a single conviction for the most serious charge of intentional and knowing murder where defendant intentionally killed the victim and during the commission of the offense personally discharged a firearm that proximately caused death. The defendant's conviction for shooting the victim knowing that such an act created a strong probability of death or great bodily harm shall be vacated by the clerk of the circuit court. The mittimus is to be corrected by the clerk of the circuit court to reflect a single conviction for intentional first degree murder pursuant to section 9-1(a)(1) of the Criminal Code of 1961 (720 ILCS 5/9-1(a)(1) (West 2008)).
¶ 42 Affirmed as modified.
Justices SALONE and STERBA concurred in the judgment and opinion.[**]
NOTES
[*] Following Justice Frossard's retirement, Justice Pucinski delivered the judgment of the court, with opinion. Justice Pucinski has reviewed all relevant materials, including the court's original opinion filed on July 15, 2010, and the supervisory order issued by our supreme court on March 8, 2011.
[1] Rule 431(b) codifies our supreme court's holding in People v. Zehr, 103 Ill. 2d 472, 477, 83 Ill. Dec. 128, 469 N.E.2d 1062 (1984), requiring that four inquiries be made of potential jurors in a criminal case to determine whether a particular bias or prejudice would deprive the defendant of his right to a fair and impartial trial.
[2] Prior to the amendment, Rule 431(b) required questioning only "[i]f requested by defendant." (Internal quotation marks omitted.) See Thompson, 238 Ill.2d at 608, 345 Ill. Dec. 560, 939 N.E.2d 403.
[**] Pursuant to Justice O'Brien's retirement, Justice Salone has participated in the reconsideration of this case. Pursuant to Justice Gallagher's retirement, Justice Sterba has participated in the reconsideration of this case. Justice Salone and Justice Sterba have both reviewed all relevant materials, including the original opinion filed on July 15, 2010, and the supervisory order issued by our supreme court on March 8, 2011.
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https://www.courtlistener.com/api/rest/v3/opinions/2531333/
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951 N.E.2d 290 (2011)
Thomas R. CROWEL, Appellant,
v.
MARSHALL COUNTY DRAINAGE BOARD, Appellee.
No. 50A03-1011-MI-606.
Court of Appeals of Indiana.
August 10, 2011.
*292 Mark A. Bates, Schererville, IN, Attorney for Appellant.
James N. Clevenger, Wyland, Humphrey, Wagner & Clevenger, LLP, Plymouth, IN, Attorney for Appellee.
OPINION
MATHIAS, Judge.
Thomas R. Crowel ("Crowel") appeals from the Marshall Circuit Court's order denying his petition for judicial review in favor of the Marshall County Drainage Board ("the Drainage Board"). Crowel raises one issue for our review, which we restate as whether the trial court erred in concluding that the Drainage Board's decision was not arbitrary, capricious, unlawful, or not supported by substantial evidence. We reverse and remand with instructions.
Facts and Procedural History
In 1908, William H. Myers and other landowners in Marshall County successfully petitioned for the construction of a public drain and, as a result, construction of the Myers Ditch was completed in 1913. The Myers Ditch is comprised of an open ditch and eight clay tile arms. At issue in this case is the reconstruction of arm number seven ("Arm # 7") of the Myers Ditch.
The 358-acre watershed area of Arm # 7 is composed of commercial, agricultural, and residential land, and includes Crowel's twenty-six-acre parcel of farm land. At a 1998 meeting of the Drainage Board, several owners of property located within the watershed complained of flooding and water in their basements. In 1999, thirteen landowners filed a petition with the Drainage Board seeking relief. No action was taken on the petition until ten years later, when the flooding issue was brought up again at a June 2009 Drainage Board meeting. The surveyor subsequently filed a report with the Drainage Board classifying Arm # 7 as a drain in need of reconstruction. Specifically, the surveyor concluded that the tile was "not adequate to perform the function for which it was designed and constructed" and proposed that a new route for the tile be constructed. Appellant's App. p. 33. In his report, the surveyor estimated the cost of reconstructing Arm # 7 at $114,474, listed the property owners to be assessed, and proposed an assessment schedule. After receipt of the surveyor's report, the Drainage Board published notice and scheduled a public hearing for March 15, 2010.
As a result, Crowel received notice that he would be charged a reconstruction assessment of over $7,000.00 under the proposed assessment schedule. Prior to the public hearing, Crowel and others filed letters with the Drainage Board objecting to the proposed assessment. Crowel again *293 objected to the assessment at the March 15 public hearing, arguing that his agricultural property, which is located at the higher end of the watershed, did not suffer from the flooding problems complained of by the residential property owners at the lower end of the watershed and that, as a result, his property would not be benefitted by the reconstruction. Although Crowel testified that a small portion of his land occasionally flooded after heavy rains, he claimed that the reconstruction project would not alleviate the problem because a private tile drain located on that portion of his land and connecting to Arm # 7 has been blocked by a utility company's gas line.
The surveyor testified at the public hearing that Crowel's land would be benefitted by the reconstruction if the blockage was removed from Crowel's private tile. The surveyor testified further that because Crowel's private tile was outside the Drainage Board's jurisdiction, it would be up to Crowel to see to it that the blockage was cleared. Additionally, the surveyor and Drainage Board member Jack Roose noted that because Crowel's property is situated at the higher end of the watershed, surface water runoff from his land contributes to the flooding problems experienced by the owners of the lower-lying properties. At the conclusion of the hearing, the Drainage Board determined that the costs of the project would be less than the benefits accruing to the affected landowners and approved the proposed reconstruction plan. On the same date, the Drainage Board issued a written order adopting the surveyor's proposed assessment schedule.
On March 31, 2010, Crowel filed a petition for judicial review. The trial court held a hearing on the petition on September 17, 2010. On September 30, 2010, the trial court entered an order denying Crowel's petition. The order was accompanied by the following relevant findings of fact:
6. [Crowel] alleges that his property does not suffer from the flooding problems complained of by the affected landowners who own (or owned) property at the lower end of the watershed and that therefore he would receive no benefit from the reconstruction or relocation of Arm # 7 of the Myers Drain.
7. The evidence shows that [Crowel's] farm ground is at or near the higher end of the watershed area and the natural flow of storm water run-off carries the water from his real estate to that of the lower situated landowners.
8. The Court finds that flooding problems suffered by the affected (primarily residential) landowners at the lower portion of the watershed result in part from dealing with the water run-off from [Crowel's] farm ground and the other agricultural ground located at the highest point of the watershed area.
9. The Drainage Board found it to be appropriate for all parcel owners within the watershed to bear some cost of the project and established a tiered rate structure for agricultural acreage, residential acreage (double the agricultural rate) and commercial acreage (triple the agricultural rate).
10. [Crowel] alleges that the Board's decision was arbitrary, capricious, unlawful or not supported by substantial evidence in that the decision was not based upon any drainage study or any scientific method.
11. The evidence before the Board at the public hearing held on March 15, 2010, included detailed maps of the watershed area to include [Crowel's] acreage as well as profile and elevation studies of the newly proposed drain.
12. The testimony of the surveyor at the public hearing held on March 15, *294 2010, established that [Crowel's] property fell within the watershed of Arm # 7 of the Myers Drain and that surface runoff water from his property contributed to the flooding problems experienced by the homeowners at the lower end of the watershed.
13. [Crowel] did not present any credible evidence that his property was not within the watershed of Arm # 7 of the Myers Drain.
14. [Crowel's] primary allegation was that his property would not be benefitted because his property did not flood when the parcels lower in the watershed flooded.
15. The Board's finding that [Crowel's] property contributed to the flooding problems of the lower owners and that it was therefore appropriate that as a parcel within the watershed, he should contribute to the cost of the project is not arbitrary, capricious, nor unlawful and is supported by substantial evidence.
Appellant's App. pp. 5-6. Crowel filed a motion to correct error on October 27, 2010, which the trial court summarily denied on October 29, 2010. Crowel now appeals.
Standard of Review
Indiana Code section 36-9-27-107 (2006) governs judicial review of drainage board decisions. Subsection (c) of the statute provides that "[i]n affirming or setting aside a decision or determination of the board, the court shall enter its findings and order or judgment on the record." Additionally, Indiana Trial Rule 52(A)(3) provides in relevant part that the trial court shall make special findings of fact without request "in any . . . case provided by these rules or by statute." Thus, the trial court in this case was required to, and did, enter special findings of fact. See Schrader v. Porter Cnty. Drainage Bd., 880 N.E.2d 304, 307 (Ind.Ct.App.2008), trans. denied; Clouse v. Noble Cnty. Drainage Bd., 809 N.E.2d 849, 857 (Ind. Ct.App.2004), trans. denied.
The standard of review we apply to special findings entered under Trial Rule 52(A) is two-tiered. Clouse, 809 N.E.2d at 857. First, we determine whether the evidence supports the findings and second, whether the findings support the judgment. Id. We will set aside the trial court's findings and conclusions only if they are clearly erroneous. Id. Findings are clearly erroneous where a review of the record leaves us with a firm conviction that a mistake has been made. Id. In reviewing the trial court's entry of special findings, we neither reweigh the evidence nor judge the credibility of witnesses, and we accept the ultimate facts as stated by the trial court if there is evidence in the record to sustain them. Id.
Additionally, where a trial court has entered special findings pursuant to Trial Rule 52(A), we may affirm the judgment on any legal theory supported by the findings. Mitchell v. Mitchell, 695 N.E.2d 920, 923 (Ind.1998). Before affirming on a legal theory supported by the findings but not espoused by the trial court, we should be confident that our conclusions are consistent with all of the trial court's findings of fact and the reasonable inferences flowing therefrom. Id.
Discussion and Decision
On appeal, Crowel argues that the trial court erred in upholding the Drainage Board's assessment because the assessment was arbitrary, capricious, and not supported by substantial evidence. See Ind.Code § 36-9-27-107(b) (2006) (requiring the trial court to set aside a drainage board decision if it is arbitrary, capricious, unlawful, or not supported by substantial *295 evidence). Specifically, he argues the assessment was improper because his land will receive no benefit from the reconstruction.
Indiana Code section 36-9-27-34 (2006) provides in relevant part that the county surveyor shall classify a regulated drain as a drain in need of reconstruction when "it will not perform the function for which it was designed and constructed[.]" When a county drainage board refers a drain to the surveyor for a reconstruction report, "the surveyor shall determine and set forth in his report the best and cheapest method of reconstructing the drain so that it will adequately drain all affected land." Ind.Code § 36-9-27-49 (2006). Additionally, the surveyor shall estimate the costs of the proposed reconstruction and include in his report the name and address of each owner of land to be affected by the proposed reconstruction. Id. Once the surveyor files the reconstruction report, the county drainage board shall
[p]repare a schedule of assessments containing a description of each tract of land determined to be benefited by the reconstruction, and the name and address of the owner of the land. The name, address, and description shall be taken from the surveyor's report. The board shall enter in the assessment schedule the percentage of the total cost of the reconstruction to be assessed against each tract of land, with the percentage to be based upon the benefit accruing to the land from the reconstruction. The percentage allocated to all lands benefited must be at least one hundred percent (100%) and as near to one hundred percent (100%) as is practicable.
* * *
The board may consider the factors listed in section 112 of this chapter in preparing the schedules.
Ind.Code § 36-9-27-50 (2006) (emphasis added). Thus, assessments for the reconstruction of public drains must be apportioned based upon the benefits accruing to the land as a result of the reconstruction. See Whitley, Noble and Allen Joint Drainage Bd. v. Tschantz, 461 N.E.2d 1146, 1149 (Ind.Ct.App.1984) (noting that assessments for the maintenance of public drains must be apportioned based on the benefits accruing to each tract of land). In apportioning benefits under Indiana Code section 36-9-27-50, the board may consider the following factors:
(1) the watershed affected by the drain to be constructed, reconstructed, or maintained;
(2) the number of acres in each tract;
(3) the total volume of water draining into or through the drain to be constructed, reconstructed, or maintained, and the amount of water contributed by each land owner;
(4) the land use;
(5) the increased value accruing to each tract of land from the construction, reconstruction, or maintenance;
(6) whether the various tracts are adjacent, upland, upstream, or downstream in relation to the main trunk of the drain;
(7) elimination or reduction of damage from floods;
(8) the soil type; and
(9) any other factors affecting the construction, reconstruction, or maintenance.
Ind.Code § 36-9-27-112 (2006).
Crowel argues that his property will receive no benefit from the reconstruction, and that he therefore should not be *296 assessed for any portion of its cost.[1] The Drainage Board did not issue any written findings specifying the manner in which Crowel's property was benefitted by the reconstruction project; rather, it issued a general order adopting the surveyor's report and schedule of assessments.
In contrast, the trial court made the specific findings required by Indiana Code section 36-9-27-107(c), but it made no finding that Crowel's property was benefitted by the reconstruction project. Instead, the trial court found that because Crowel's property is situated at the higher end of the watershed, "the natural flow of storm water run-off" from his property contributes to the flooding problems experienced by the owners of lower-lying parcels.[2] Appellant's App. p. 5. The trial court went on to conclude that "[t]he Board's finding that [Crowel's] property contributed to the flooding problems of the lower owners and that it was therefore appropriate that as a parcel within the watershed, he should contribute to the cost of the project is not arbitrary, capricious, nor unlawful and is supported by substantial evidence." Id. at 6. Significantly, the trial court made no findings that the surface water drainage caused any injury to Crowel's property. Thus, the issue before us is whether the additional drainage of surface water naturally flowing off of *297 Crowel's land and burdening the lower-lying parcels constitutes a benefit to Crowel's land supporting the Drainage Board's assessment. We conclude that it does not.
In determining whether lands are benefitted by a drainage project, we may only consider special benefits to the land, as opposed to general benefits that accrue to the landowner as a member of the community at large. Hubenthal v. Crain, 239 Ind. 646, 650, 159 N.E.2d 850, 852-53 (1959). Benefits are special when they increase the value of the property, relieve it from a burden, or make it especially adapted to a purpose which enhances its value. Id.; Lipes v. Hand, 104 Ind. 503, 503, 1 N.E. 871, 873 (1885). Further, it is not necessary that the benefits be direct and immediate to justify an assessment; future possibilities as well as collateral or indirect benefits may be considered. Clouse, 809 N.E.2d at 862 (citing Hubenthal, 239 Ind. at 650, 159 N.E.2d at 853).
In Hubenthal, our supreme court noted that in apportioning benefits to land, the surveyor must
consider the fact that the owners of the higher land have a right to the natural drainage of their land and that the owners of the low lands must assume this burden different from their better situated neighbors. And further, that although the owners of the higher lands are chargeable for the additional burden caused by their artificial drainage, owners of the low lands must also be charged according to the benefits which they receive from the increased artificial drainage which the ditch provides.
239 Ind. at 651, 159 N.E.2d at 853 (citations omitted).
Hubenthal's language is a corollary to Indiana's common law "common enemy doctrine" of surface water diversion. See Argyelan v. Haviland, 435 N.E.2d 973, 977-78 (Ind.1982). This doctrine provides that "surface water which does not flow in defined channels is a common enemy and that each landowner may deal with it in such manner as best suits his own convenience. Such sanctioned dealings include walling it out, walling it in and diverting or accelerating its flow by any means whatever." Id. at 975. Thus, it is not unlawful for a landowner to improve his land in such a way as to accelerate or increase the flow of surface water by limiting or eliminating ground absorption or changing the grade of the land, even where the improvement will cause water either to stand in unusual quantities on adjacent land or to pass into or over adjacent land in greater quantities or in other directions than the waters were accustomed to flow. Bulldog Battery Corp. v. Pica Investments, Inc., 736 N.E.2d 333, 339 (Ind.Ct.App.2000); Pickett v. Brown, 569 N.E.2d 706, 708 (Ind.Ct. App.1991), trans. denied. "However, a landowner may not collect or concentrate surface water and cast it, in a body, upon his neighbor." Pflum v. Wayne Cnty. Bd. of Comm'rs, 892 N.E.2d 233, 237 (Ind.Ct. App.2008).
In the case before us, the trial court did not consider Crowel's right to the natural drainage of his land in upholding the Drainage Board's assessment. Rather, the court simply concluded that Crowel should be required to contribute to the reconstruction project because the natural flow of surface water runoff from his land contributed to drainage problems experienced by lower-lying parcels. This finding stands in stark contrast to the Indiana Code section 36-9-27-50 requirement that assessments be based on benefits accruing to the land to be assessed, not on a theory of fault with regard to injuries suffered by other parcels.
*298 Although it may be inconsistent with the concept of being a "good neighbor," or a more laudable and generalized concept of the common good, under the common enemy doctrine, Crowel is entitled to the additional, natural drainage of surface water afforded his land due to its location on the high end of the watershed, and he is not liable to his neighbors for any damage to their property resulting from that drainage. See Argyelan, 435 N.E.2d at 975. We must therefore conclude that, as a matter of law, relieving the lower-lying parcels from flooding occasioned by the natural flow of surface water from Crowel's property does not benefit Crowel's land and, therefore, cannot form the basis of the reconstruction assessment levied against him. Because the trial court made no findings regarding any other benefit to Crowel's land, its findings were insufficient to support its judgment.
Though not cited by either party, we feel it prudent to address our supreme court's decision in Culbertson v. Knight, 152 Ind. 121, 52 N.E. 700 (1899). In that case, decided over a century ago, the court addressed a challenge to an assessment for the construction of a public drain brought by owners of land on the high end of the watershed who claimed that their lands were "sufficiently high above the proposed drain to enable them to successfully discharge upon lower lands the water falling and coming upon their grounds, and that consequently they can receive no benefits from the construction of the proposed ditch[.]" Id. at 121, 52 N.E. at 701. In affirming the assessment, the court reasoned that the upper estates used ditches as a system of artificial drainage, and that water draining from these ditches caused frequent flooding and injury to the lower-lying parcels. Id. The court also noted that the owners of the lower-lying lands "had the right to fight `the common enemy,' and upon their own premises even to raise embankments, to ward off the water coming upon them by natural surface drainage . . . and thus heap up the surface water upon the appellants' land, without relief to them except through our drainage laws." Id.
As noted above, the common enemy doctrine applies only to natural surface water drainage, and the doctrine does not allow a landowner to collect or concentrate surface water by artificial means and cast it, in a body, upon his neighbor. Argyelan, 435 N.E.2d at 976. Thus, in Culbertson, the appellants' use of ditches to collect surface water and divert it toward lower ground took them outside the protections of the common enemy doctrine.
Here, however, the trial court made no findings regarding any artificial drainage system on Crowel's property and referred only to "the natural flow of storm water run-off" from his property. Appellant's App. p. 5. And while it is at least theoretically possible that the owners of the lower-lying parcels could build dams around their property and cause surface water to back up onto Crowel's land, we do not interpret Culbertson as standing for the proposition that obviating the need for permitted surface improvements to the lower-lying parcels that might harm parcels situated higher in the watershed, standing alone, amounts to a benefit sufficient to support an assessment. We find this approach particularly appropriate in light of our supreme court's more recent statement in Hubenthal that the surveyor must "consider the fact that the owners of the higher land have a right to the natural drainage of their land and that the owners of the low lands must assume this burden different from their better situated neighbors." 239 Ind. at 651, 159 N.E.2d at 853 (citing Culbertson, 152 Ind. 121, 52 N.E. 700).
*299 The Drainage Board directs our attention to evidence supporting the conclusion that Crowel's land will be benefitted in other ways by the reconstruction project. Specifically, they rely on the surveyor's testimony that Crowel's private tile drains into Arm # 7, and that if the blockage is removed from the private tile, Crowel's land will be benefitted by the additional drainage provided. But the trial court made no findings to that effect and we are bound by the findings before us. We reiterate here our standard of review: our analysis is limited to determining whether the trial court's findings are supported by the evidence and whether the findings support the judgment. Schrader, 880 N.E.2d at 307; Clouse, 809 N.E.2d at 857. And although we may affirm on a different legal theory than that espoused by the trial court, our theory must be supported by the trial court's findings. Mitchell, 695 N.E.2d at 923. Here, the trial court's only findings with regard to a supposed benefit to Crowel's land concerned relieving the lower-lying parcels from the ill effects of the natural flow of surface water from Crowel's land. As we explained above, these findings are insufficient to support the trial court's order. As an appellate court, we will not engage in the fact finding process required to conclude that Crowel's property will be benefitted in ways not expressed in the trial court's findings.
Because the trial court's findings were insufficient to support its conclusion that the Drainage Board's assessment was not arbitrary, capricious, unlawful, or not supported by substantial evidence, we must vacate the trial court's order. However, because evidence was presented at trial that might support the conclusion that Crowel's land was benefitted by the reconstruction project, we remand to the trial court with instructions to reconsider the evidence in the record and enter new findings and conclusions, if warranted and as supported by the record. If, on remand, the trial court determines based on the evidence in the record that Crowel's land will be benefitted by the reconstruction project, its findings and conclusions should reflect the evidence that supports that determination. If, however, the trial court determines that Crowel's land will not be benefitted, as defined by statute and case law, it should enter judgment in favor of Crowel. We stress that neither Crowel nor the Drainage Board are to be given the opportunity to retry the case or present additional evidence on remand; the trial court's judgment should be based solely on the evidence in the record.[3]
Reversed and remanded with instructions.
KIRSCH, J., concurs.
VAIDIK, J., dissents with opinion.
VAIDIK, Judge, dissenting.
I respectfully disagree with my colleagues that the trial court's findings were insufficient to support its conclusion that the Drainage Board's assessment was not arbitrary, capricious, unlawful, or otherwise not supported by substantial evidence. My colleagues' opinion is premised upon the assumption that Crowel's land was not benefitted by reconstructing this drain. I disagree.
Drainage law was enacted for the public good "to promote the health, comfort, and convenience of the public." Zigler v. Menges, 121 Ind. 99, 22 N.E. 782, 783 *300 (1889). Long ago our Supreme Court determined that the drainage laws were an appropriate exercise of the police powers of the state. Gifford Drainage Dist. v. Shroer, 145 Ind. 572, 44 N.E. 636 (1896). With this recognition, an extensive regulatory system was designed to establish a joint enterprise to solve the common enemy of surface water problems.
The Marshall County Drainage Board oversees the drainage system in Marshall County for the benefit of its citizens. With the aid of the county surveyor, the Drainage Board determines watersheds within the county. A watershed is an area of land from which all runoff water drains to a given point. Ind.Code § 36-9-27-2. Drains within a watershed are constructed, reconstructed, and maintained by the Drainage Board in order to avoid flooding, standing water, and marsh areas.
My colleagues, the trial court, and the Drainage Board all agree that Crowel's property is in the watershed served by the reconstructed drain and his surface water empties into the drain in question. On its journey to the drain, Crowel's water travels through his neighbors' properties causing significant flooding especially when the drain is not working. Tr. p. 25. In my opinion, the fact that Crowel's water drains into the reconstructed drain, in and of itself, is enough to show that Crowel's property benefits from the reconstructed drain. It matters not that his water first travels through his neighbors' lower-lying properties before it finds its way into the drain. Crowel's water drains into the reconstructed drain; thus, his property benefits. Culbertson v. Knight supports this conclusion when stating that a land is benefitted "whether the drain passes through the land or not, in so far as it affords an outlet for the drainage of the land." 152 Ind. 121, 52 N.E. 700, 701 (1899). Broadly interpreting benefits in this matter is consistent with the policy of drainage law to establish an enterprise against the common enemy of standing water.
Further, "it is not necessary that the benefits be direct and immediate to justify an assessment. Future possibilities, if any, as well as collateral or indirect benefits, may be considered." Hubenthal v. Crain, 239 Ind. 646, 159 N.E.2d 850, 853 (1959) (citing 10 I.L.E. Ditches and Drains). While it is true that Crowel has a right to the natural drainage of his land under Indiana's common law "common enemy doctrine" of surface water diversion, it is also true that Crowel's neighbors have a right under the "common enemy doctrine" to dam water or to change the grade of their land to cause water to back up on Crowel's property. Thus, Crowel's neighbors have the right to engage in a water war to alleviate the flooding problems of their own property. The avoidance of a future water war with his neighbors is also a benefit, albeit an indirect one, to Crowel's land.
The majority correctly notes that in Culbertson, the higher-level landowner collected his surface water in a ditch before casting it on his lower-level neighbors' properties. Because Culbertson involved the collection of water by artificial means, the majority distinguishes this case from Culbertson. While this distinction surely exists, I do not believe that it makes a difference. Rather, I believe that the majority's opinion changes drainage law as it has been applied for a very long time, will promote water wars between neighbors, and undermines the legislative intent of resolving water problems by a common enterprise.
Attorney James Clevenger, Counsel for the Drainage Board, summarized the problem well at the hearing before the trial court. Clevenger argued:
*301 It is not uncommonwe run into this all the time at Drainage Board hearings. Folks that are on the higher ground in the watershed theirtheir water naturally seeks lower ground. It gets away, so it's like well why am I paying to have this tile reconstructed? Well, because where it goes is where it's not supposed to go. It goes on these poor other people's property, so, I mean, we can have these people damming up the edge of their property so it doesn't get leave, and then you have that particular problem. We decided long ago that that's not the proper way to do these things. The proper way is if you're getting water in your watershed you should pay your fair share to make sure that it is taken care ofuhin ain a proper way and doesn't burden the other landowners in the watershed.
Tr. p. 17-18.
For all of the reasons above, I respectfully dissent and would affirm the trial court.
NOTES
[1] Crowel also argues that his property is not located within the watershed area of Arm # 7. In support of this argument, Crowel notes that his land is located on the east side of Michigan Road. Crowel directs our attention to a copy of the public notice published in 1908 for the original construction of the Myers Ditch and claims that "none of the landowners which benefited from the original construction of . . . Arm # 7 held, owned, or farmed property on the east side of Michigan Road." Appellant's Br. at 9. Although the notice lists several landowners whose land was determined to be affected by the construction, it does not contain full descriptions of each tract of land, and it therefore does not support Crowel's conclusion that none of the tracts originally determined to be affected by the construction of Arm # 7 included land located on the east side of Michigan Road. Crowel also argues that all eight arms of the Myers Ditch are located on the west side of Michigan Road, but this does not preclude a conclusion that parcels on the east side of Michigan Road are part of the same watershed. Finally, Crowel notes that his property is assessed maintenance fees on the Ballinger Ditch rather than the Myers Ditch, but the surveyor testified at the public hearing that the Ballinger and Myers ditches have been combined for the purposes of maintenance. But most importantly, the surveyor testified that if the blockage were removed from Crowel's private tile, water collected in the private tile would drain into Arm # 7, a point that Crowel does not dispute. This evidence is sufficient to support the trial court's finding that Crowel's property is located within the watershed area of Arm # 7.
[2] Crowel argues that this finding is not supported by the evidence because "[t]he Board never produced any elevation studies to back up this finding and the evidence showed that the drain access, if any, from Crowel's property to Michigan Road was blocked by utility cables." Appellant's Br. at 12. As an initial matter, we note that in its finding, the trial court referred only to "the natural flow of storm water run-off" from Crowel's property. Appellant's App. p. 5. Thus, Crowel's alleged lack of access to artificial drainage by way of his private tile is irrelevant. With regard to the trial court's finding that the natural flow of surface water away from Crowel's property contributed to flooding problems on the lower-lying parcels of land, we note that the surveyor testified at the public hearing that Crowel's property is located at the high end of the watershed and that it contributes to the flooding problem. The surveyor testified further that he considered the topography of the area and ran a hydrology program to determine the volume of water moving within the tile. Additionally, maps that were made part of the record show the elevation profiles of the watershed area. This evidence was sufficient to support the trial court's finding that the flow of surface water away from Crowel's property, located at the higher end of the watershed, contributed to flooding problems in the lower-lying parcels.
[3] Because we conclude that the trial court's findings are insufficient to support the conclusion that Crowel's land will be benefitted by the reconstruction project, we need not address Crowel's remaining arguments.
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44 So. 3d 1195 (2010)
Tyrone BLASH, Appellant,
v.
STATE of Florida, Appellee.
No. 4D07-4011.
District Court of Appeal of Florida, Fourth District.
September 29, 2010.
*1196 Carey Haughwout, Public Defender, and Ellen Griffin, Assistant Public Defender, West Palm Beach, for appellant.
Bill McCollum, Attorney General, Tallahassee, and Joseph A. Tringali, Assistant Attorney General, West Palm Beach, for appellee.
TAYLOR, J.
Appellant, Tyrone Blash, was convicted of first degree murder and conspiracy to commit first degree murder. On appeal, he argues two points: (1) that the trial court erred in allowing the state to introduce photographs and other evidence relating to the use of accelerants throughout the victim's residence after the victim's death, and (2) that the trial court erred in denying appellant's motion for mistrial after a state witness's testimony suggested that appellant had other criminal charges. We affirm on both points for the reasons stated below.
On July 16, 2001, close family friends of Chris Conley found him dead, lying face down on the living room floor of his Fort Lauderdale home with his hands and feet bound by electrical cords and fishing wire. Mr. Conley lay in a pool of blood, having suffered multiple gaping head wounds and nineteen stab wounds to the neck, chest and abdomen. Soon after the victim's body was discovered, a deputy arrived at the scene and noticed a chemical odor coming from the kitchen. He saw rags and pots on the stove and smelled chemicals in the living room and kitchen.
At trial, the state presented evidence that accelerants had been spread throughout the residence after the victim's death. Forensic chemist Robin Gall testified that some type of ignitable liquid had been poured on the victim's body and clothing. A crime scene investigator testified that he found a can of paint thinner, which had been tipped over, next to the victim's body and another can of paint thinner in the attic. He also testified that he saw bubble wrap, coated with the same substance found in the cans, spread throughout the victim's home. Over defense counsel's objections, the state admitted photographs of the cans, bubble wrap, apartment, and latent *1197 fingerprints recovered from the cans and other items.
Appellant argues that the trial court erred by allowing the jury to hear testimony about the accelerants and to see photographs of them. He contends that this evidence was irrelevant in that it did not tend to prove or disprove any element of first degree murder or conspiracy to commit first degree murder. He further argues that even if relevant, the evidence was highly prejudicial and outweighed any probative value.
The state responds that the testimony, photographs, and other physical evidence relating to accelerants were relevant in that they confirmed details of appellant's out-of-court confession. During appellant's videotaped confession to a Manhattan assistant district attorney, he stated that after the victim was beaten and stabbed, he tied the victim's hands and feet with electrical cord and fishing wire and attempted to set the victim and his home on fire. He first grabbed a battery charger and hooked it up to the back door of the house to make sure that anyone who came to the residence would be electrocuted upon entering. Next, appellant poured flammable materials, cans of paint thinner, around the house and on the victim. To facilitate a fire, appellant scattered bubble wrap all around the house and then turned on the electrical stove burners.
The trial court did not abuse its discretion in admitting testimony and other evidence relating to the accelerants; the evidence corroborated appellant's out-of-court statements and was consistent with the physical evidence found at the scene of the crime. See Thompson v. State, 565 So. 2d 1311, 1315 (Fla.1990) (holding that photographs of the victim were relevant to establish the victim's identity and to show that the defendant's out-of-court confessions were consistent with the physical evidence found at the scene). Further, the probative value of this evidence was not substantially outweighed by the danger of unfair prejudice. As the state correctly noted, evidence of the accelerants corroborated appellant's statements about his intentions to burn down the home and further framed the events of the murder.
In his second point on appeal, appellant argues that the trial court reversibly erred in denying his motion for mistrial after a state witness, Manhattan Assistant District Attorney Jody Kane, referred to his "New York case," suggesting that appellant had other criminal charges in New York. In short, the trial court properly denied the motion for mistrial as this testimony was in response to defense counsel's questions on cross-examination about appellant's contact with another New York police officer prior to giving his videotaped statement to Kane. Further, the reference to appellant's "New York case" was isolated, inadvertent, and not so egregious as to warrant a mistrial.
Affirmed.
STEVENSON and MAY, JJ., concur.
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41 So. 3d 304 (2010)
Raquel ELIAS, Appellant,
v.
WORLD WIDE CONCESSIONS, LLC d/b/a Pizza Hut and Comp Options, Appellees.
No. 1D09-5076.
District Court of Appeal of Florida, First District.
July 7, 2010.
Rehearing Denied August 5, 2010.
Toni L. Villaverde of Tony L. Villaverde, PLLC., South Miami, for Appellant.
Laurence F. Leavy and Jay Siegel of Laurence Leavy and Associates, Fort Lauderdale, and Kimberly A. Hill of Kimberly A. Hill, P.L., Fort Lauderdale, for Appellees.
PER CURIAM.
In this workers' compensation appeal, Claimant raises three issues challenging an order of the Judge of Compensation Claims (JCC) which denies the payment of temporary partial disability (TPD) benefits for periods preceding her attainment of maximum medical improvement, and denies a claim for additional impairment income benefits based on impairment ratings assigned by authorized treating physicians. We affirm the first two issues on appeal regarding the denial of TPD benefits and the JCC's findings regarding the degree of permanent impairment suffered, because competent substantial evidence supports the JCC's findings of fact, and Claimant, having been afforded (by the JCC) an opportunity to cure any perceived prejudice caused by the employer/carrier's (E/ C's) late introduction of evidence, failed to take advantage of the offer, inviting any error complained of on appeal. Sullivan v. State, 303 So. 2d 632, 635 (Fla.1974) (stating where the trial judge has extended counsel opportunity to cure error, and counsel fails to take advantage of opportunity, such error, if any, was invited and will not warrant reversal).
We find merit however, in Claimant's third issue regarding the JCC's failure to *305 rule on the correct rate of impairment income benefits payable for the permanent impairment sustained. Here, Claimant, in two instances (in her trial memo, and again in a motion for rehearing), requested the JCC render a ruling on the correct rate of impairment income benefits payable pursuant to section 440.15(3)(c), Florida Statutes (2007), based on the stipulated average weekly wage (AWW) of $491.34 (here, an issue regarding the correct AWW was litigated, and resolved on the record at hearing). Notwithstanding, the JCC failed to address this issue by way of substantive ruling, denial, or reservation, requiring Claimant to appeal the absence of a ruling. See Betancourt v. Sears Roebuck & Co., 693 So. 2d 680, 682 (Fla. 1st DCA 1997) (en banc) (stating in cases where JCC fails to rule on issue ripe for adjudication, and does not reserve jurisdiction on issue, appellate court will consider absence of ruling a denial for jurisdictional purposes, and failure to rule reversible error based on JCC's noncompliance with duty to adjudicate all ripe issues).
The E/C's argument that Claimant, although filing, litigating, and prevailing upon a claim for an upward adjustment in her average weekly wage, and requesting the payment of additional impairment income benefits (and providing express calculations therefor), did not make it clear she wanted to be paid impairment income benefits at the correct weekly rate, does little to advance its cause. Under the Workers' Compensation Law, the E/C carries the affirmative obligation of providing benefits due under the statute (subject to legitimate defenses),[1] and here, it makes no argument whatsoever as to the appropriateness of the $117.95 weekly-rate it utilized for payment of impairment income benefits, an amount which bears no meaningful relationship to the agreed upon average weekly wage, and appears deficient under any reading of section 440.15(3)(c), Florida Statutes (2007). Because the JCC failed to rule on a ripe, substantive issue, twice brought to her attention during the course of the trial proceedings, this court is constrained from ruling on the appropriateness of the impairment income benefits thus far paid to Claimant. We have no reservation, however, in concluding the JCC or the E/C should have addressed, in some fashion, the Claimant's stated concerns as to the appropriate rate, to oblige the intent of the Legislature that the Workers' Compensation Law be interpreted so as to assure the quick and efficient delivery of benefits, in an efficient and self-executing system which is not an economic or administrative burden (see section 440.015, Florida Statutes (2007)), and to avoid the otherwise unnecessary aspects of this appeal.
The JCC's procedural denial of Claimant's claim for additional impairment income benefits based on an increase in her AWW is REVERSED and REMANDED for proceedings consistent with this opinion. The denial of TPD benefits, and the claim for an increased permanent impairment rating is AFFIRMED.
HAWKES, C.J., BENTON and LEWIS, JJ., concur.
NOTES
[1] "Unless it denies compensability or entitlement to benefits, the carrier shall pay compensation directly to the employee as required by §§ 440.14, 440.15, and 440.16, in accordance with the obligations set forth in such sections." § 440.21(a), Fla. Stat. (2007).
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48 So. 3d 121 (2010)
Blene A. BETEMARIAM, Appellant,
v.
Binor B. SAID, Appellee.
No. 4D09-1312.
District Court of Appeal of Florida, Fourth District.
November 17, 2010.
Rehearing Denied December 22, 2010.
*123 Curtis L. Witters of Glickman Witters & Marell, P.A., West Palm Beach, and Marjorie Gadarian Graham of Marjorie Gadarian Graham, P.A., Palm Beach Gardens, for appellant.
Susan G. Chopin of Chopin & Chopin, LP, West Palm Beach, for appellee.
WARNER, J.
Appellant, Blene Betemariam, timely appeals a final judgment of paternity and for partition, which determined, among other things, that she was not legally married to the appellee, Dr. Binor Said. The parties participated in a religious ceremony, but never obtained a marriage license. The court held that the marriage was not valid, and that the court thus had no authority to award alimony or order equitable distribution of assets. We affirm, as we conclude that Virginia, where the religious ceremony was performed, would hold that their unlicensed marriage was void ab initio. We reverse, however, the trial court's refusal to require Said to pay the parties' children's educational expenses because Said had the ability to pay such expenses, which were in accordance with the parties' standard of living.
Betemariam and Said met each other in 2000 when both were married but separated from their respective spouses. They began living together, and Betemariam gave birth to twins the next year. In the fall of 2002, both Betemariam and Said had finalized their divorces to their prior spouses, and they began discussing marriage. Said's father wished his son to be married in the Islamic faith. Although Betemariam was not a Muslim, she agreed to marry Said in an Islamic ceremony, which occurred on January 1, 2004, in Alexandria, Virginia. The service was conducted by an Imam in accordance with Islamic law. The couple received a marriage certificate, written in Arabic and signed by Said's father and uncle as witnesses. Said and Betemariam did not obtain a marriage license before their religious ceremony, nor did they file their marriage certificate with any clerk of court.
Betemariam testified that her understanding was that the Imamas an official with the authority to marry peoplewould take care of everything necessary for her and Said to be recognized as a married couple. Said never told her that they needed a civil license in advance of their wedding. However, she admitted that she had obtained a marriage license for one of her previous two marriages. Said testified that he did not believe they needed to get a marriage license in advance of the wedding. Said testified that the couple's intent in going through with the wedding ceremony was to sanctify their union and to make a religious commitment. Said never thought that he would be in court "discussing whether I have a religious or legal marriage."
The parties moved to Florida and eventually settled in West Palm Beach where Said joined a radiology practice. Following the move to West Palm Beach where they purchased a home, Betemariam was the primary care-giver for the children and *124 did not work outside the home. The parties eventually enrolled their children at the Rosarian Academy, a private school that costs $13,000 per child each year. At the time of trial, the children had attended Rosarian for about five years. The parties opened joint bank accounts and purchased other property, taking title jointly as husband and wife.
When Betemariam filed for divorce in 2007, Said moved to dismiss the proceedings, claiming that the parties were never legally married. Betemariam amended her petition to include a count for equitable relief in the event the court determined that the parties were not legally married to each other. Said counter-petitioned for paternity, visitation, and child support.
The case proceeded to trial. After hearing the foregoing evidence, the court entered a final judgment of paternity and for partition, ruling that the parties were never legally married and that the court was without jurisdiction to consider equitable distribution or alimony. The court reasoned that although the parties entered into a religious ceremony, they had not obtained a marriage license in any of the states in which they had resided. Because both parties had been married previously, the court discounted any claim of lack of knowledge of the licensing requirement.
The court did, however, resolve the paternity and child issues. It designated Betemariam as the primary residential custodian, awarded child support, and required Said to maintain an insurance policy for the benefit of the children. The court also ordered partition and sale of both parcels of property owned by the parties. Betemariam moved for rehearing and, among other things, requested that the final judgment be amended to require Said to pay the costs of private school education for the children. The trial court denied the motion, prompting this appeal.
The issue of whether the parties' religious wedding ceremony amounted to a valid marriage is determined in accordance with the law of the place where the putative marriage occurred. See Preure v. Benhadj-Djillali, 15 So. 3d 877, 877 (Fla. 5th DCA 2009); see also Goldman v. Dithrich, 131 Fla. 408, 179 So. 715, 716 (1938). Here, because the wedding ceremony occurred in Virginia, we look to Virginia law to determine whether the parties in this case were validly married. Betemariam argues that the Virginia statute requiring the parties to obtain a marriage license to constitute a valid marriage is directory, not mandatory. Therefore, the trial court could determine that the marriage was valid based upon the parties' belief in the validity of their marriage.
Virginia statutory and case law is contrary to Betemariam's position. Section 20-13 of the Code of Virginia, entitled "License and solemnization required," provides as follows: "Every marriage in this Commonwealth shall be under a license and solemnized in the manner herein provided." (emphasis supplied). Additionally, Virginia's statutory scheme provides that the validity of a marriage is not affected by certain defects:
§ 20-31. Belief of parties in lawful marriage validates certain defects
No marriage solemnized under a license issued in this Commonwealth by any person professing to be authorized to solemnize the same shall be deemed or adjudged to be void, nor shall the validity thereof be in any way affected on account of any want of authority in such person, or any defect, omission or imperfection in such license, if the marriage be in all other respects lawful, and be consummated with a full belief on the part of the persons so married, or either *125 of them, that they have been lawfully joined in marriage.
Va.Code § 20-31 (emphasis supplied).
In Offield v. Davis, 100 Va. 250, 40 S.E. 910 (1902), the Supreme Court of Virginia interpreted a former version of the Virginia Code, which contained language similar to the current statutory language, prescribing that "every marriage in this state shall be under a license and solemnized in the manner herein provided." 40 S.E. at 914. The court held that the statute "wholly abrogated" common law marriage, and "no marriage or attempted marriage, if it took place in this state, can be held valid here unless it has been shown to have been under a license, and solemnized according to our statutes." Id.
We view Offield as making the marriage license mandatory, not directory, and other Virginia courts do likewise. In a case on "all fours," a Virginia circuit court has held that the parties' marriage was void ab initio when they were married in a religious ceremony but failed to obtain a marriage license. See In re Ejigu, 79 Va. Cir. 349, 2009 Va. Cir. LEXIS 127, 2009 WL 4704510 (Sept. 30, 2009) (Klein, J.). In that case, the petitioners, a putative husband and wife, sought to have their marriage affirmed under section 20-31 and 20-91, Code of Virginia. The latter statute provides a vehicle for a court to issue a decree affirming a marriage where it is "denied or doubted by either of the parties," and the court is presented with "due proof of the validity thereof." The parties had been married in a religious ceremony but did not obtain a marriage license. They had conducted themselves as husband and wife since their marriage. Nevertheless, the court determined that it could not affirm their marriage, which was void ab initio for failure to obtain the license.
The court found that section 20-31 could not be used to validate the marriage, as that section allowed correction of defects with respect to the officiant's authority or defects in the marriage license. It did not cure a marriage void ab initio. Quoting from Offield, the court held that in order to be valid under Virginia law, the marriage must be under a license and properly solemnized. One without the other is not enough. The court looked to a similar case of In re Kulmiye & Ismail, 77 Va. Cir. 67, 2008 Va. Cir. LEXIS 121, 2008 WL 8130992 (2008) (Roush, J.), involving nearly identical facts to those in this case. In that case, as well, the court held that the marriage was invalid and could not be affirmed when no marriage license was ever issued. In Ejigu, Judge Klein concluded:
[T]he defect presented was not an issue of the officiant's authority or the contents of the marriage license. The defect was the complete non-existence of the license itself. Under the plain meaning of the three above referenced statutes, this Court has no authority to affirm a marriage that was entered into without a license. While the parties may remain married according to their religion, their marriage ceremony conferred no legal rights between them under the laws of the Commonwealth of Virginia.
(footnote omitted). As Virginia has interpreted its requirement of a marriage license as mandatory, and the parties in this case did not obtain a marriage license, they were not validly married under Virginia law. The trial court had no choice but to determine that no legal marriage had occurred. This result is also consistent with the Fifth District's reasoning under a similar circumstance involving Oregon law. See Preure, 15 So.3d at 878.
Because the trial court also found, as appears undisputed in the record, that *126 neither party could claim lack of knowledge of the marriage license requirement, both parties were equally responsible for the invalidity of their marriage. Thus, we also agree with the trial court that Betemariam could not claim equitable alimony. See Burger v. Burger, 166 So. 2d 433 (Fla. 1964) (where putative wife is equally responsible with putative husband for invalidity of marriage, wife is not entitled to permanent alimony).
The trial court did, however, have the authority to determine the issues involving the children pursuant to both parties' requests in their pleadings and its authority pursuant to Chapter 742, Determination of Parentage. Betemariam contends on appeal that the trial court abused its discretion in failing to require Said to pay for the children's private schooling when it was the standard of living of the children and Said could well afford to pay it. The trial court failed to mention it in the final judgment and simply denied the motion for rehearing requesting it.
On appeal, Said does not contest his ability to pay, nor does he contest that the children have always been educated in private institutions. Rather, he maintains that Betemariam did not request such relief. We disagree.
It is well established that a court may order a parent to pay for private educational expenses if it finds that the "parent has the ability to pay for private school" and the "expenses are in accordance with the family's customary standard of living and are in the child's best interest." Wilson v. Wilson, 559 So. 2d 698, 700 (Fla. 1st DCA 1990); see also Kaiser v. Harrison, 985 So. 2d 1226 (Fla. 5th DCA 2008). An award of a child's private school expenses is reviewed for abuse of discretion. See Thomas v. Thomas, 776 So. 2d 1092, 1094 (Fla. 5th DCA 2001).
Betemariam's petition sufficiently pleaded her request for an award of private school tuition, even if she did not specifically mention that request within the section of her petition styled "prayer for relief." See Raskin v. Raskin, 625 So. 2d 1314, 1315 (Fla. 4th DCA 1993) ("Ordinarily, it is the facts alleged, the issues, and the proof, not the form of the prayer for relief, which determine the nature of the relief to be granted.") (emphasis added). In the body of the wife's amended petition for dissolution, Betemariam specifically stated that she "requests that the Husband be ordered to continue to provide a private school education for the minor children at Rosarian Academy or another private school of comparable quality."
In any event, this issue was tried by the parties' consent. See, e.g., Smith v. Smith, 971 So. 2d 191, 194-95 (Fla. 1st DCA 2007); Hemraj v. Hemraj, 620 So. 2d 1300, 1301 (Fla. 4th DCA 1993). Although the joint pretrial statement did not specifically include a request for such relief, the parties both presented evidence on the issue of the children's private schooling. Betemariam testified to her desire for the children to remain at the Rosarian Academy through the eighth grade. Betemariam's forensic accountant also testified to the substantial amount of income Said would have left over even if he paid for the children's private school. By contrast, Said testified that he did not want the court to order him to continue to pay for private schooling at Rosarian Academy, explaining that he thought Rosarian was "too structured" and that there were other schools available, including a good public school. In closing argument, Said's attorney specifically requested that the court not order payment of the private schooling. It is disingenuous to suggest that the issue was not tried, when counsel asked the court to address the issue.
*127 We conclude on this record that the court abused its discretion in failing to order Said to pay for private tuition for his children. His income clearly could support such payments, and the parties had sent their children to Rosarian Academy for five years. They had never attended another school. Everyone testified to how well the children were doing in life generally.
It appears that the court may have been swayed by Said's argument that Betemariam had not properly requested that relief, but, as noted above, she requested it in her pleadings, and in any event we find that the issue was tried by consent. Thus she was entitled to make that claim and have the court adjudicate the issue. We therefore reverse with instructions that the court order Said to pay for the private school tuition of the children.
As to all other issues raised, we find no error. We therefore affirm the final judgment except as to the failure to order Said to pay private school tuition on which we reverse and remand for the trial court to amend its final judgment consistent with this opinion.
POLEN and LEVINE, JJ., concur.
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44 So.3d 171 (2010)
The STATE of Florida, Appellant,
v.
Raymond LUMARQUE, Appellee.
No. 3D09-2781.
District Court of Appeal of Florida, Third District.
August 25, 2010.
Rehearing Denied October 6, 2010.
*172 Bill McCollum, Attorney General, and Douglas J. Glaid, Assistant Attorney General, for appellant.
Mark Seiden, Miami, Daniel R. Silver, for appellee.
Before WELLS, SHEPHERD, and SUAREZ, JJ.
SHEPHERD, J.
The State appeals from an order excluding in limine certain photographic and documentary evidence, which the State argues is relevant to the prosecution of the defendant, Raymond Lumarque, on pending charges of burglary with assault or battery, kidnapping, misdemeanor battery and sexual battery without serious injury, all arising out of an alleged incident involving his ex-wife. We have jurisdiction. See State v. Palmore, 495 So.2d 1170, 1171 (Fla.1986). The State also seeks certiorari relief from a trial court order declining the State permission to introduce into evidence an alleged prior incident involving the couple while their divorce was pending, which the State contends is admissible Williams Rule evidence. See Williams v. State, 110 So.2d 654 (Fla. 3d DCA 1959).
We summarily deny the State's petition for certiorari without discussion. On the appeal, we conclude the trial court abused its discretion by concluding that exhibits 5-9 and 11-15 are not admissible in the trial of this case. The State sought to admit into evidence two sexually suggestive images and eleven text messages between the ex-wife and a boyfriend, found on the defendant's cellular telephone. The ex-wife testified that prior to the assault by the defendant, he showed her the two images and one of the text messages. There also is evidence in the record from which one might infer the defendant examined the ex-wife's cellular telephone on the morning or afternoon before the alleged incident when he was alone in the house for a brief period after returning their children back to his ex-wife's home.
At an in limine hearing, the trial court found the two images and one text message the ex-wife testified to admissible, but concluded the remaining exhibits inadmissible as the ex-wife could not authenticate them. The court erred. The images and text messages were found on the defendant's cellular telephone, seized pursuant *173 to a search of the defendant's home through a warrant shortly after the alleged incident. This fact, testified by the State's forensics expert, is sufficient to authenticate these exhibits. U.S. v. Caldwell, 776 F.2d 989, 1001-02 (11th Cir.1985) (holding that authentication of evidence merely requires a finding that the evidence is what it purports to be). It also is immaterial that the ex-wife could not identify each of the messages being shown to her on the night of the incident. Regardless how these images and text messages might have found their way onto the defendant's cellular telephone, the State has presented sufficient evidence at this stage that these exhibits constitute evidence of motive. Craig v. State, 510 So.2d 857, 863 (Fla. 1987) (stating that evidence of motive is admissible when it would help the jury understand other evidence). Accordingly, they are admissible into evidence at the trial of this case upon the State laying the proper predicates as indicated by this opinion. In all other respects, we summarily affirm the order on appeal.
Affirmed in part, reversed in part, and remanded for further proceedings consistent herewith.
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43 So. 3d 834 (2010)
David LEHOULLIER, Petitioner,
v.
GEVITY/FIRE EQUIPMENT SERVICES and AIG Claim Services, Inc., and AIU Holdings, Inc., Respondents.
No. 1D10-1875.
District Court of Appeal of Florida, First District.
August 31, 2010.
*835 Wendy S. Loquasto of Fox & Loquasto, P.A., Tallahassee, and Marc E. Golden of Rosenthal & Levy, P.A., Port St. Lucie, for Petitioner.
Kimberly J. Fernandes of Kelley, Kronenberg, Gilmartin, Fichtel, Wander, Bamdas, Eskalyo & Dunbrack, P.A., Miami Lakes, for Respondents.
LEWIS, J.
Petitioner/Claimant seeks certiorari review of an order of the Judge of Compensation Claims (JCC) granting the Employer/Carrier's (E/C) motion to compel Claimant's attendance at an independent medical examination (IME). Because we conclude that the order departs from the essential requirements of law and would cause irreparable harm that cannot be adequately remedied on appeal, we grant the petition and quash the compulsion order.
Claimant, a service technician for the E/C, sustained various neurological and orthopedic injuries in a compensable accident on July 27, 2007. Following the accident, the E/C selected and authorized various medical providers to treat Claimant's injuries.
Claimant subsequently developed psychological problems and filed petitions for benefits (PFBs) on May 21, June 11, and June 22, 2009. In the petitions, Claimant sought temporary indemnity benefits, authorization and payment for prescription medications, authorization for psychiatric care and acupuncture, penalties, interest, costs, and attorney's fees. These claims were mediated and, in a mediation conference report filed August 4, 2009, the parties indicated that they resolved all pending issues with the exception of attorney's fees and costs. Significantly, the E/C agreed to authorize a psychiatrist of its choice to treat Claimant's psychological injuries. The mediation agreement specified that all pending issues were resolved and that the JCC retained jurisdiction regarding the issue of entitlement and amount of attorney's fees and costs. The JCC thereafter entered an order dismissing all claims contained in all PFBs filed on or before June 22, 2009, except for those pertaining to attorney's fees and costs.
After resolving all claims in mediation, the E/C filed a motion to compel Claimant's attendance at a neuropsychiatric IME. In the motion, the E/C expressed concern over the existence of Claimant's psychiatric condition and the longevity of Claimant's medical care with one of his authorized treating physicians. In response, Claimant argued the JCC lacked authority to compel his attendance at an IME because no "dispute" existed within the meaning of section 440.13(5)(a), Florida Statutes (2007).
*836 After conducting a hearing on the E/C's motion, the JCC entered an order compelling Claimant's attendance at a neuropsychiatric IME. Reasoning that an E/C is permitted to transfer medical care pursuant to section 440.13(2)(d), Florida Statutes (2007), if an independent medical examiner determines the employee is not making appropriate progress in recuperation, the JCC concluded that Claimant could be compelled to attend an IME. Claimant seeks review of the JCC's order, asserting that it departs from the essential requirements of law because there is no dispute between the parties, as required by section 440.13(5)(a).
"Certiorari review lies if the JCC orders a psychiatric IME without statutory authority." Zabik v. Palm Beach County Sch. Dist., 911 So. 2d 858 (Fla. 1st DCA 2005); see Taylor v. Columbia/HCA Doctors Hosp. of Sarasota, 746 So. 2d 1244, 1245 (Fla. 1st DCA 1999)("In the context of compelled physical or psychiatric examinations, the required element of irreparable harm may be found based on the notion that once the invasive harm of the examination occurs, it cannot be undone on appeal."). In the present case, no statutory authority supports the order compelling Claimant's attendance at an IME.
Section 440.13(5)(a), Florida Statutes (2007), permits an IME if the facts disclose a dispute "concerning overutilization, medical benefits, compensability," or disability. Under this provision, "the only condition required for a party to request an IME is a dispute." Cortina v. State, Dep't of HRS, 901 So. 2d 273, 274 (Fla. 1st DCA 2005); Zabik, 911 So.2d at 859 (holding that it is incumbent upon party seeking IME to prove existence of dispute). We read "dispute" to mean a legal dispute cognizable under the Florida Worker's Compensation Law. See, e.g., Cortina, 901 So.2d at 274 (holding that a section 440.13(5)(a) "dispute" is created when an employer denies a claim for benefits or when a claimant disagrees with the diagnosis of an E/C-authorized treating physician); ABC Liquors, Inc. v. Flores, 700 So. 2d 102 (Fla. 1st DCA 1997) (holding that a claimant's request for IME amounted to a request for authorization of medical care and, therefore, that the E/C's denial of that request created a dispute over medical benefits, warranting authorization of IME).
Here, there was no "dispute" between the parties because Claimant had not requested any benefit or medical treatment that the E/C declined to provide. Contrary to the E/C's argument, it did not demonstrate a dispute by expressing concern over Claimant's progress with the physician it authorized to treat Claimant's injuries. To create a dispute concerning medical benefits, an E/C is required to deny a claimant's request for medical benefits. Simply expressing unilateral speculative concerns over a claimant's progress with an authorized physician is insufficient. See Zabik, 911 So.2d at 859 (holding E/C's speculative but unrealized concern over claimant's psychiatric condition insufficient to constitute dispute warranting IME).
The JCC, relying on section 440.13(2)(d), determined that the E/C created a "dispute" by questioning Claimant's progress with the authorized treating physician. Section 440.13(2)(d) provides that "[t]he carrier has the right to transfer the care of an injured employee from the attending health care provider if an [IME] determines that the employee is not making appropriate progress in recuperation." Contrary to the reasoning of the JCC, section 440.13(2)(d) does not grant an E/C an independent right to an IME whenever the E/C suspects a claimant is not adequately progressing. Rather, this section presumes the existence of a dispute warranting *837 the initial appointment of an IME, as required by section 440.13(5)(a). Section 440.13(2)(d) applies only after an E/C establishes a dispute pursuant to section 440.13(5)(a) and the IME takes place.
Because the E/C failed to prove the existence of a dispute as required by section 440.13(5)(a), the JCC should not have compelled Claimant's attendance at an IME. Consequently, we GRANT the petition and QUASH the order granting the E/C's motion to compel.
DAVIS and PADOVANO, JJ., concur.
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42 So.3d 824 (2010)
Paul V. MINOTTY, M.D., Appellant,
v.
Thomas A. BAUDO, M.D., Karen Todd, M.D., John Valids Zudans, M.D. and Florida Eye Institute, Appellees.
Paul V. Minotty, M.D., Appellant,
v.
Thomas A. Baudo, M.D., Karen Todd, M.D., John Valids Zudans, M.D. and Florida Eye Institute, Appellees.
Nos. 4D08-5090, 4D08-5091.
District Court of Appeal of Florida, Fourth District.
July 21, 2010.
Rehearing Denied September 16, 2010.
*826 Marie Tomassi, Laura E. Prather and Brigid A. Merenda of Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, P.A., St. Petersburg, for appellant.
Jane Kreusler-Walsh and Rebecca Mercier Vargas of Kreusler-Walsh, Compiani & Vargas, P.A., West Palm Beach, Louis B. Vocelle, Jr. and Paul R. Berg of Vocelle & Berg, LLP, Vero Beach, and Lois O. Rosenbaum of Stoel Rives LLP, Portland, Oregon, for appellees.
WARNER, J.
Dr. Paul Minotty, the founding member of Florida Eye Institute, Inc., appeals an $8,000,000 judgment in a shareholders' derivative suit and individual judgments in excess of $2,000,000 in compensatory and punitive damages in favor of three doctors in the Eye Institute. We consolidate both appeals for purposes of this opinion. The judgments in the derivative suit were entered on claims of securities fraud, common law fraud, breach of fiduciary obligation, and illegal interception of confidential communications. As to the individual doctors, their judgments stemmed from claims of interception of confidential communications of two of the doctors, invasion of privacy, breach of fiduciary duty, and securities fraud in favor of appellee Dr. Zudans. We reverse the judgments for interception of confidential communications, as we conclude that the statute under which the claims were made does not permit recovery for anything other than actual interception of oral communications, which did not occur in this case. As to FEI's breach of fiduciary claim, we reverse because the trial court permitted admission of evidence of unpled transactions. And we conclude the court erred in entering judgment for duplicate damages on the securities and common law fraud claims. We also reverse the judgment in favor of Dr. Zudans for fraud, because he failed to present evidence of the proper measure of damages. We affirm the remaining judgments and affirm the issues raised by appellees on cross-appeal.
We begin with the facts underlying the litigation in this case. Dr. Minotty opened an eye care practice called Florida Eye Institute ("FEI") in Vero Beach in 1985, buying the land and constructing a building to house the practice. He built a surgery center in 1986. Two doctorsDr. *827 Roger Meyer and Dr. Karen Toddjoined the practice and became shareholders between 1986 and 1991. In 1992, Dr. Minotty bought additional land and built a second building to connect to the first and house FEI's growing practice and surgery and laser centers, called the Surgicenter. Dr. David O'Brien joined the practice in 1998.
Initially, the buildings and surgery center were owned by Dr. Minotty; not FEI. However, in 2001, Dr. Minotty sold to FEI the land and buildings in which the practice was located, for $5.5 million. All of FEI's then existing shareholders (Drs. Minotty, Meyer, Todd and O'Brien) agreed to the purchase price by corporate resolution. When Dr. Baudo joined the practice in 2003, they refinanced the property and distributed the equity that had accumulated to the shareholders.
In 2003, all of FEI's shareholders (except Baudo) authorized Dr. Minotty to negotiate to sell half the surgery center to FEI.[1] Up until this point the Surgicenter was owned by Dr. Minotty through a limited liability corporation. Dr. Minotty sold FEI 50% ownership in the Surgicenter in 10% increments each year for five years. The agreement set a formula to be paid for each 10% increment based upon the profitability of the center. FEI signed a note for each of the 10% shares. The contract also contained a "put" option, which permitted Dr. Minotty to force FEI to purchase the remaining 50% of the surgery center at the end of five years. While the sale was discussed at a shareholders meeting, Dr. Minotty had actually signed the agreements on behalf of both FEI and the Surgicenter the day before the shareholder meeting. At the meeting, he represented to the shareholders that they would have an "option" to purchase the remaining half of the Surgicenter in the future.
From 2003 to 2007, FEI made payments on the notes to Dr. Minotty for its share of the Surgicenter. In return, it received its share of the Surgicenter income. In March 2007, Dr. Minotty informed the other shareholders that he had decided to exercise the "put" and sell the remaining 50% of the Surgicenter to FEI, forcing FEI to buy it, which surprised several of the shareholders. They asked for an appraisal of the Surgicenter, and FEI obtained an expert to appraise the property. During this time the shareholders requested a change in the board of directors of FEI, which Dr. Minotty had occupied as the sole member since the inception of the corporation. Dr. Minotty agreed, and all six shareholders became directors of the corporation.
When the shareholders received the appraisal of the property, several of them determined that the original contract price was unfair. Drs. Zudans and Baudo met with Dr. Minotty, and demanded that he rescind the entire Surgicenter contract. Dr. Minotty refused. Drs. Zudans and Baudo then made a formal demand that FEI sue Dr. Minotty for damages, and a special board meeting was called. A vote was taken, but the doctors reached a deadlock, with two shareholders voting with Minotty and the other three (Baudo, Todd and Zudans) voting to sue.
As the relationship between the shareholders deteriorated, Dr. Minotty received information that caused him to suspect that the dissident shareholders were planning other methods to remove him from the practice, including setting him up for an arrest the evening of the office holiday party in December 2007. FEI documents were also disappearing from the offices. After contacting the Vero Beach Police, he *828 hired a private investigator to assist him. With Dr. Minotty's concurrence, the private investigator set up hidden security cameras at FEI offices. These included the offices of Drs. Todd and Zudans. Although the cameras were equipped with audio as well as video recording, the audio recording never worked and therefore never intercepted any oral communications. Within a few days of their installation, the doctors were alerted to the cameras. The cameras were removed, but not before video was recorded of the doctors in their offices both alone and with their patients.
In January 2008, Drs. Todd, Baudo and Zudans brought a shareholders' derivative suit on behalf of FEI against Dr. Minotty. They alleged claims for appointment of a receiver, breach of fiduciary duty, securities fraud, common law fraud, and illegal interception of communications under section 934.03, Florida Statutes. The complaint alleged that Dr. Minotty had acted as both the buyer and the seller in the sale of the Surgicenter, and that he had not given full disclosure to the shareholders. Additionally, it alleged that Dr. Minotty had engaged in self-dealing, breaches of fiduciary duties, and accounting activities that harmed FEI. It alleged that an independent valuation of the Surgicenter had valued it at significantly less than the purchase price that Dr. Minotty negotiated for himself. Finally, it alleged illegal interception of communications in violation of section 934.03, based upon the use of the hidden security cameras.
Shortly after the derivative action was filed, Drs. Todd, Baudo and Zudans personally sued Dr. Minotty, alleging breach of fiduciary duties, interference with business relationships, invasion of privacy, and intentional infliction of emotional distress. Drs. Zudans and Todd, whose offices had been wired, also included individual claims for interception of communications. And Dr. Zudans, who had purchased his shares for $200,000 when he joined the practice, included a count for fraudulent misrepresentation in the purchase of the stock.
The case proceeded with lightning speed and was set for trial within six months. Only eighteen days prior to trial, the plaintiffs moved to amend the complaint to request punitive damages. The trial court denied the request as to all counts except for the interception of communications claim, determining that a claim for punitive damages was practically automatic under the statute.
Trial proceeded on all of the claims. As to the interception of communications claims, the evidence showed that cameras and microphones were installed, but the microphones never worked. The operator of the camera was able to record video but not audio of the doctors dealing with patients and alone in their offices. The doctors testified as to their emotional turmoil at having been surreptitiously viewed.
A significant portion of the trial dealt with the 2001 real estate sale from Dr. Minotty to FEI. At trial, Dr. Minotty objected to the introduction of any evidence regarding the 2001 real estate sale to FEI as being outside of the pleadings. None of the allegations of the complaint referenced that transaction. He also contended that any claim regarding that 2001 transaction would be time barred because it had occurred more than four years earlier. In contrast, the doctors contended that the general allegations of mismanagement covered the 2001 sale and that the evidence regarding that sale should be admitted. The trial court overruled the objections and admitted evidence regarding the 2001 sale.
The trial went on for weeks. Lengthy and detailed testimony was presented with respect to the financial dealings between the parties. FEI's experts testified that *829 FEI overpaid Dr. Minotty $3.852 million for the Surgicenter stock (including interest), based upon its fair market value at the time of the sale. They also told the jury that an additional $3.1 million in losses to FEI occurred through the misallocation of expenses between FEI and the Surgicenter. With respect to the 2001 building sale from Dr. Minotty to FEI, they testified that FEI paid $2 million in excess of the property's value (including statutory interest from the date of sale). After the conclusion of plaintiffs' case, Dr. Minotty moved for directed verdict on the interception of communications claims, arguing that there was no evidence that wire communications had been intercepted in that no sound had been captured. The trial court denied the motion. The court also denied Dr. Minotty's motion for directed verdict on the other issues he raised.
After presentation of the case, the jury returned substantial verdicts in favor of the plaintiffs. On the derivative claims the jury returned a verdict for FEI, awarding $2 million for the breach of fiduciary duty to FEI, $2 million for the securities fraud against FEI in connection with the Surgicenter sale, and $2 million for fraud in connection with the Surgicenter sale. It also awarded $1,000 for the interception of communications as to FEI and $2.5 million in punitive damages on the interception claim.
The jury found in favor of the individual doctors on their respective claims. On Drs. Todd and Zudans's individual claims for invasion of privacy, the jury awarded $250,000 each. On Dr. Baudo's individual claim of invasion of privacy, the jury awarded Baudo $100,000. On Drs. Todd, Baudo, and Zudans's individual claims for breach of fiduciary duty, the jury awarded $500 each. On Dr. Zudans's claim for fraudulent misrepresentation in the sale of securities, the jury awarded $200,000, the amount Dr. Zudans had paid for the stock. On Drs. Todd and Zudans's claims for interception of communications, the jury awarded $1,000 each in compensatory damages and found that punitive damages were warranted against Dr. Minotty. The jury awarded $200,000 each in punitive damages on Drs. Todd and Zudans's individual claims for interception of communications.
Dr. Minotty now appeals all of the awards in favor of FEI. As to the individual doctors, he appeals their breach of fiduciary duty claims, and Dr. Zudans's fraud claim. FEI cross-appeals the trial court's denial of its motion to amend to add a claim for punitive damages as well as the trial court's denial of an injunction against Dr. Minotty from exercising his "put" option to require purchase of his stock in FEI.
I. Claim for Interception of Communications Pursuant to Section 934.10, Florida Statutes
Dr. Minotty argues that the trial court erred in denying his motion for directed verdict on the illegal interception of communications claim because no oral communications were ever intercepted. FEI/doctors assert that mere recording of images equates to the interception of communications. They point out that interception includes "aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device." § 934.02(3), Fla. Stat. (2007) (emphasis added). Thus, the plaintiffs argue, interception of the video images is actionable, even without the interception of oral communications. We disagree.
Section 934.03(1)(a) provides:
*830 Interception and disclosure of wire, oral, or electronic communications prohibited.
(1) Except as otherwise specifically provided in this chapter, any person who:
(a) Intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept any wire, oral or electronic communication;
* * *
shall be punished as provided in subsection (4) [imposing criminal liability].
By including the word "endeavor," the statute would permit criminal liability for an attempt to intercept oral communications. However, the Legislature limited civil causes of action to cases of actual interception. Section 934.10, Florida Statutes provides:
Civil remedies.
(1) Any person whose wire, oral, or electronic communication is intercepted, disclosed, or used in violation of ss. 934.03-934.09 shall have a civil cause of action against any person or entity who intercepts, discloses, or uses, or procures any other person or entity to intercept, disclose, or use, such communications and shall be entitled to recover ...
(emphasis added). FEI/doctors admitted that there was no evidence of an actual interception; thus, they did not prove the essential element of their cause of action. We reject FEI/doctors' assertion that an attempted interception would be actionable.
Armstrong v. Southern Bell Telephone and Telegraph Co., 366 So.2d 88 (Fla. 1st DCA 1979), supports the position that the civil remedy section requires actual interception of oral communications. There, Carroll had complained to Southern Bell that she was receiving harassing calls which she believed Armstrong was making. The phone company put a device on the phone line to record the numbers which Armstrong dialed, but it did not record her voice. Armstrong sued Southern Bell for damages for violation of 934.10. The phone company obtained a summary judgment. On appeal, the First District affirmed because it was uncontradicted that no oral communication was ever intercepted. There had been no recording or eavesdropping; there had merely been a recording of electrical impulses signifying the phone numbers called from Anderson's phone.
By its choice of statutory language, the Legislature did not create a civil cause of action for attempts to intercept oral communications. It provided for civil damages only for the actual interception, dissemination, or use of those communications. It is up to the Legislature, if it so chooses, to expand the civil cause of action to cover attempted interception of communications.
FEI/doctors also argue that chapter 934 covers the interception of silent video images, and Dr. Minotty's surveillance video clearly captured those. We disagree with this interpretation of the statute. Under the statute, the term "intercept" includes "the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device." § 934.02(3), Fla. Stat. (2007). While FEI/doctors contend that the silent video captures the contents of the communication, section 934.02(7) defines "contents" as including "any information concerning the substance, purport, or meaning of that communication." The doctors' physical conduct recorded on silent videotapes does not convey the substance of a particular communication.
*831 Chapter 934 was modeled after the Federal Wiretap Act, 18 U.S.C. section 2510 et seq., as amended by the Electronic Communications Privacy Act of 1986. Florida follows federal courts as to the meaning of provisions after which Chapter 934 was modeled. See O'Brien v. O'Brien, 899 So.2d 1133, 1135-36 (Fla. 5th DCA 2005). Federal decisions uniformly have held that the act's provisions do not apply to surveillance that fails to capture the substance of any wire, electronic, or oral communications. For instance, in Sanders v. Robert Bosch Corp., 38 F.3d 736 (4th Cir.1994), a security company, which had been hired to protect a business, installed a "voice logger" which secretly recorded the telephone conversations of security guards in the security office. Later, the security company discontinued the use of the voice logger and ordered the equipment shut down, but unbeknownst to the company, a microphone was kept open through which ambient sound in the office could be picked up. No one knew of its existence, and no one listened to any of the tapes. No voices were ever recorded. A guard sued the company, alleging a violation of the federal wiretap act. The Fourth Circuit Court of Appeals held that no interception of conversations occurred during the period where the microphones were open, picking up only ambient sound, because the contents of the aural communication had not been intercepted.
Several federal cases have held that the federal act does not apply to silent surveillance videos. In United States v. Koyomejian, 970 F.2d 536, 541 (9th Cir.1992), the court held that silent surveillance videos were not covered by the Federal Wiretap Act, reasoning that the act did not apply to the interception of visual images without oral communications. The court stated:
By its terms, the statute governs the interception of "wire, oral, or electronic communications...." 18 U.S.C. § 2511. The statute defines a "wire communication" as "any aural transfer made ... through the use of facilities for the transmission of communications by the aid of wire, cable, or other like connection between the point of origin and the point of reception...." 18 U.S.C. § 2510(1) (emphasis added). An "oral communication" is defined as "any oral communication uttered by a person exhibiting an expectation that such communication is not subject to interception under circumstances justifying such expectation...." 18 U.S.C. § 2510(2) (emphasis added). An "electronic communication" is "any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature transmitted ... by a wire. ..." 18 U.S.C. § 2510(12) (emphasis added). Finally, "intercept" means "the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device." 18 U.S.C. § 2510(4) (emphasis added).
By their plain meaning, these definitions do not apply to silent video surveillance.
Id. at 538-39. See United States v. Jackson, 213 F.3d 1269, 1280 (10th Cir.2000) (holding that the Federal Wiretap Act, which prohibits the intentional interception of "any wire, oral, or electronic communication," did not apply to silent video surveillance camera on a telephone pole outside defendant's residence), vacated on other grounds, 531 U.S. 1033, 121 S.Ct. 621, 148 L.Ed.2d 531 (2000); United States v. Falls, 34 F.3d 674 (8th Cir.1994) (same).
Most recently, in United States v. Larios, 593 F.3d 82 (1st Cir.2010), the First Circuit also held that silent video surveillance is not covered by the terms of the act, noting that every other federal circuit *832 which has addressed the issue has come to the same conclusion.
By its terms, Title III regulates the interception and disclosure of "wire, oral, or electronic communication[s]." 18 U.S.C. § 2511. The statute defines "intercept" as "the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device." 18 U.S.C. § 2510(4). Every circuit court to address the issue has concluded that Title III does not regulate silent video surveillance. [citations omitted] Appellants make no argument and cite no authorities to the contrary.
We agree with our sister circuits that, by its plain meaning, the text of Title III does not apply to silent video surveillance.
Id. at 90 (emphasis supplied). As the Florida statute is patterned after the federal statute and contains essentially the same language, we conclude that silent video surveillance is not covered by section 934.02 or 934.10. As in Larios, FEI/doctors have pointed to no authority holding that silent video surveillance is within the ambit of these provisions. Indeed, when one thinks of the extensive use of video surveillance today, it is not at all surprising that the Legislature has determined not to include it within its terms. Video cameras capture activity in the public streets, in our stores and banks, and even as nanny-cams in our homes. They are a valuable tool in fighting crime, preventing thefts, and keeping our homes safer. To hold that silent video camera surveillance would violate the terms of the act would create a substantial impediment to this useful technology in fighting crime. If the Legislature wishes to include silent video surveillance within the provisions of the act, it can do so. It is not up to the courts to rewrite the statute to include it.
Dr. Minotty's motion for directed verdict should have been granted. The plaintiffs did not prove their cause of action under the act. We thus reverse the final judgments entered in favor of both FEI and the individual doctors on their claims for interception of communications, including both the compensatory and punitive damage awards. We note, however, that the jury found in favor of the individual doctors for essentially the same conduct for invasion of privacy, and Dr. Minotty has not challenged that judgment.
II. Breach of Fiduciary Duty Claim
We reverse the final judgment in favor of FEI for breach of fiduciary duty, because the trial court allowed FEI to include the 2001 sale of the property by Dr. Minotty to FEI in its claim for damages for breach of fiduciary duty, even though that claim was never alleged in the pleadings. Counsel objected to the presentation of evidence on the issue at trial; yet, over objection, the trial court granted the plaintiff's motion to conform the pleadings to the evidence so as to include that claim before the jury.
The breach of fiduciary duty count of FEI's complaint included allegations regarding the 2003 sale and ongoing mismanagement of the corporation by Minotty. Nothing in the complaint remotely alleged that FEI was including the 2001 sale of Dr. Minotty's property to FEI in the allegations of wrongdoing or damages. Where a claim is not pled, a jury may consider that claim only where the evidence in support was submitted without objection and an appropriate motion to conform the pleadings to the evidence is made. See Goldschmidt v. Holman, 571 So.2d 422, 424 (Fla.1990); E.I. Du Pont De Nemours & Co. v. Desarrollo Indus. Bioacuatico *833 S.A., 857 So.2d 925, 930 (Fla. 4th DCA 2003). Despite its total absence from the complaint, over Minotty's objection, FEI was permitted to present substantial evidence regarding the transaction and the contention that Dr. Minotty had overvalued the property when selling it to his corporation.
The 2001 transaction formed an integral portion of the damages on the breach of fiduciary claim, as even FEI acknowledged in its brief. An FEI expert testified that the damages from that transaction alone approximated $2 million, the amount the jury awarded.
The trial court erred in submitting that claim to the jury as part of the breach of fiduciary duty claim. We therefore reverse. We remand, however, for a new trial on the breach of fiduciary duty claim, as there were other aspects of the claim, including the misallocation of funds for which recovery may still be allowed. It is impossible for us to determine whether the jury based its verdict on the 2001 land sale alone, or whether the jury also found that Dr. Minotty breached a fiduciary duty to FEI through the misallocation of funds between FEI and the Surgicenter. On remand, however, no claim may be made based upon the 2001 transaction.[2]
III. FEI's Securities Fraud and Common Law Fraud Claims
In challenging the final judgments for securities fraud and common law fraud, Dr. Minotty contends that the awards on both counts duplicate each other. He moved for a remittitur to reduce the verdict by the amount of the duplication, which was denied. We reverse.
Through the shareholder's derivative suit, FEI claimed that Dr. Minotty had misrepresented the agreement to the shareholders and engaged in self-dealing. The complaint alleged two alternative theories for damages, securities fraud and common law fraud.[3] At trial FEI's expert testified that FEI overpaid for the stock by $3.852 million. The verdict form proposed by FEI asked the jury to decide both issues and determine the damages incurred as to both. The jury returned a verdict finding that Dr. Minotty committed securities fraud in connection with the 2003 sale of the Surgicenter stock and that FEI's total amount of damages was $2 million. It also found that Dr. Minotty did "commit fraudulent misrepresentation" in the 2003 Surgicenter stock sale and assessed $2 million on that claim.
Dr. Minotty filed a motion requesting remittitur, arguing that the securities fraud claim and the common law fraud claim were simply alternative theories for the same damages. Therefore, the two $2 million awards were duplicative of each other. The trial court denied the motion, and Dr. Minotty raises the duplication of damages on appeal. Because he brought this error to the court's attention in his motion for remittitur, we conclude that it has been preserved.
"A double recovery based on the same elements of damages is prohibited." Montage Group, Ltd. v. Athle-Tech Computer Sys., Inc., 889 So.2d 180, 199 (Fla. 2d DCA 2004). We have examined the complaint, the evidence, the argument, and the jury verdict forms. It is clear that the securities fraud claim and the common law *834 fraud claim both involve the 2003 Surgicenter sale and rely on the same element of damages. As such, recovery on both counts is prohibited. The court should have entered judgment only once on the two counts.
FEI contends that Dr. Minotty should have objected at trial if the verdict appeared ambiguous. To the contrary, we think that FEI should have brought any question regarding the verdict and the potential for double recovery to the attention of the court. When instructing the jury on securities fraud and fraudulent misrepresentation, the court recited the elements of both claims and only then told the jury to consider the damages. Thus, the instructions required the jury to make only one computation of damages on the fraud claims. During the charge conference, however, FEI insisted that the verdict allow the jury to determine the damages after each claim. The court used FEI's proposed verdict form which permitted the jury to enter a separate damage award on each fraud claim. The jury returned the same damages for each claim. If the improper jury findings were the result of an imperfect verdict form, that form was proposed by FEI.
Alternatively, FEI argues that the jury may have split the damages between two counts. We rejected a similar argument in Osheroff v. Rauch Weaver Millsaps & Co., 882 So.2d 503 (Fla. 4th DCA 2004). There a broker had obtained a judgment for both tortious interference with its broker's commission contract and civil conspiracy to breach the contract. The damages, i.e., the brokerage commission, were the same for each count. In a footnote we determined that the jury could not do so:
We recognize, as the brokers argue, that the jury entered an award for separate amounts on the civil conspiracy claim and the tortious interference claim, which suggests that the jury may have taken it upon itself to apportion damages either between the parties or between the claims. Even if this were the case, the jury had no right to do so based on the evidence presented and the legal instructions given by the trial judge.
Id. at 507 n. 1.
Similarly, in this case the jury was properly charged, although the verdict form may have been defective. Looking at the form, we cannot tell what the jury intended to do. It could have apportioned damages between the two claims, although the damages requested by FEI at trial for the Surgicenter sale amounted to $3.8 million, not $4 million. Or it could have determined the same amount for each claim, recognizing that the damages were the same. But the jury had no right to apportion damages between the two claims. Based upon our opinion in Osheroff, the court erred in failing to reduce the judgment by the amount of one of the claims.
We reject Dr. Minotty's remaining arguments against any recovery on these claims as well as on the breach of fiduciary duty claim.
IV. Dr. Zudans's Fraudulent Misrepresentation Claim
Dr. Zudans sued Dr. Minotty for fraudulent misrepresentation in connection with Dr. Zudans's purchase of stock in FEI, for which he paid $200,000. The jury found for Dr. Zudans and awarded $200,000 in damages. We reverse the award, because the verdict is against the manifest weight of the evidence, as Dr. Zudans presented no evidence of the amount of his loss.
Dr. Zudans testified at trial that he had paid $200,000 for his stock in FEI. He claimed in his complaint and at trial that at *835 the time of his purchase he did not know that Dr. Minotty was essentially self-dealing in the sale of the surgical center to FEI, which Dr. Zudans alleged that Dr. Minotty overvalued by a considerable amount. Had he known of Dr. Minotty's self-dealing, he said he would not have purchased the stock. Dr. Zudans offered no evidence as to the fair market value of the stock at the time of purchase.
Although Dr. Minotty did not move for a directed verdict at the close of the evidence, he did move for a new trial on Dr. Zudans's fraud claim on the ground that it was contrary to the manifest weight of the evidence, i.e., that there was no evidence of any loss to Dr. Zudans. The issue was thus preserved for appeal. See Perlman v. Ferman Corp., 611 So.2d 1340, 1341 (Fla. 4th DCA 1993) (explaining that where a party did not seek a directed verdict on the ground that the plaintiff failed to prove damages, the party was still entitled to a new trial where the verdict was contrary to the manifest weight of the evidence).
As we explained in Morgan Stanley & Co. v. Coleman (Parent) Holdings Inc., 955 So.2d 1124, 1132 (Fla. 4th DCA 2007):
It is fundamental that "[a]ctual damages and the measure thereof are essential as a matter of law in establishing a claim of fraud." "Damage is of the very essence of an action for fraud or deceit." Without proof of actual damage the fraud is not actionable. Thus, to prevail in an action for fraud, a plaintiff must prove its actual loss or injury from acting in reliance on the false representation.
(citations and footnote omitted).
Florida has developed a "flexibility" theory of damages in cases of fraudulent misrepresentation to assure that an injured party will obtain full compensation for the effect of the fraud. See Morgan Stanley, 955 So.2d at 1128 (citing Nordyne, Inc. v. Fla. Mobile Home Supply, Inc., 625 So.2d 1283, 1286 (Fla. 1st DCA 1993)). An injured party may recover either the out-of-pocket loss or the benefit of the bargain loss. We explained both theories in Martin v. Brown, 566 So.2d 890 (Fla. 4th DCA 1990):
The first standard is the "benefit of the bargain" rule which awards as damages the difference between the actual value of the property and its value had the alleged facts regarding it been true. The second standard is the "out-of-pocket" rule which awards as damages the difference between the purchase price and the real or actual value of the property.
Id. at 891-92. Note that each measure of damages requires that the jury have evidence of the actual value of the property in question. In Morgan Stanley the expert did not testify to the actual value of the stock in question, a fatal flaw in the fraud action. Without the proof of the actual value of the stock, the plaintiff had not proved its damages.
In this case, no evidence was ever presented as to the actual value of the stock on the date in question. The only evidence tending to prove its value was the amount of the purchase price. Therefore, Dr. Zudans did not prove any damages as a result of the action. Because Dr. Minotty did not move for a directed verdict, however, and moved only for a new trial, we reverse and remand for a new trial on the fraudulent misrepresentation claim.
V. Individual Doctors' Breach of Fiduciary Duty Claim
Dr. Minotty maintains that the trial court should have granted a directed verdict on the individual doctors' claims of breach of fiduciary duty because they failed to prove damages. The elements of a cause of action for breach of fiduciary duty are: (1) the existence of a fiduciary *836 duty; (2) its breach; and (3) damages proximately caused by the breach. See Gracey v. Eaker, 837 So.2d 348, 353 (Fla. 2002). Where a breach of fiduciary duty is shown but no actual damages are proved, nominal damages may be awarded. See Stevens v. Cricket Club Condo., Inc., 784 So.2d 517, 519 (Fla. 3d DCA 2001). Because the jury found that a breach of fiduciary duty occurred and awarded nominal damages, no error occurred.
VI. Cross-Appeal
On cross-appeal, FEI and the doctors maintain that the trial court erred in denying their motion to amend their complaint on the eve of trial to assert a claim for punitive damages on their breach of fiduciary duty and fraud claims. We conclude that the trial court did not abuse its discretion in denying the late-filed motion to amend.
Even though the fraud and fiduciary duty claims had been pending since the institution of the suit, FEI/doctors did not file or serve their motion to amend to include punitive damages until less than twenty days prior to trial. See Fla. R. Civ. P. 1.190(f) (requiring at least twenty days' notice of the motion prior to hearing). The trial actually started, and the jury was selected and sworn before the court considered the motion to amend. Because of the late filing, the court denied the motion, noting that the plaintiffs could have brought the motion as to those claims much earlier. Under those circumstances, we find no abuse of discretion in denying the motion. We distinguish Burr v. Norris, 667 So.2d 424 (Fla. 2d DCA 1996), cited by FEI/doctors, which was decided prior to the adoption of Rule 1.190(f). Burr is factually different, and the motion to amend was made at least a month prior to the start of trial, whereas in this case the motion was filed slightly more than two weeks prior to trial.
As their second issue on cross-appeal, FEI/doctors appeal the trial court's denial of an injunction. After the verdict, FEI/doctors moved to enjoin Dr. Minotty from exercising the "put" option for the second half of the surgery center sale. The trial court refused to enjoin Dr. Minotty from exercising the "put" option, because FEI/doctors had not requested such relief in their complaint. We affirm. A circuit court is not authorized to grant injunctive relief where an injunction has neither been requested, nor proven. See City of Indian Rocks Beach v. Tomalo, 834 So.2d 341, 342 (Fla. 2d DCA 2003). FEI/doctors did not seek to enjoin Dr. Minotty's exercise of the "put" option in their pleadings, and the essential allegations to support an injunction are missing. The issue of an injunction was not tried by express or implied consent. See Fla. R. Civ. P. 1.190(b). Finally, FEI/doctors did not prove all of the essential allegations, which are (1) a clear legal right, (2) an inadequate remedy at law, and (3) that irreparable harm will arise absent injunctive relief. See K.W. Brown & Co. v. McCutchen, 819 So.2d 977, 979 (Fla. 4th DCA 2002). While the parties dispute all three elements, we conclude the trial court did not err in denying this post-verdict motion.[4]
Affirmed in part, reversed in part and remanded for further proceedings consistent with this opinion.
TAYLOR and MAY, JJ., concur.
NOTES
[1] Baudo was left out due to an oversight.
[2] The 2003 Surgicenter transaction also formed part of the breach of fiduciary duty claim. Because we also hold in section III that FEI may not be compensated twice for the same damages, on remand the 2003 Surgicenter transaction should also be omitted in the breach of fiduciary duty claim.
[3] See n. 2.
[4] We do not decide in this appeal whether injunctive relief is barred by the election of remedies doctrine.
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45 So.3d 699 (2010)
Darrell CRAIG, Appellant
v.
STATE of Mississippi, Appellee.
No. 2009-KA-00820-COA.
Court of Appeals of Mississippi.
September 28, 2010.
*703 Kenya Reese Martin, attorney for appellant.
Office of the Attorney General by Laura Hogan Tedder, attorney for appellee.
Before KING, C.J., GRIFFIS and ISHEE, JJ.
KING, C.J., for the Court:
¶ 1. Darrell Craig was convicted in the Circuit Court of Amite County of armed robbery and sentenced to thirty years in the custody the Mississippi Department of Corrections (MDOC). He appeals raising the following issues: (1) the circuit court erred in denying his motion to dismiss for failure to grant a speedy trial based on the violation of his statutory right to a speedy trial; (2) the circuit court erred in admitting into evidence a DNA report, which was first produced to Craig two days before trial; (3) the circuit court erred in allowing into evidence testimony based upon the subject DNA report when the State's witness was not qualified to testify as an expert witness; (4) the circuit court erred in admitting into evidence articles of clothing and firearms when the State failed to establish a proper chain of custody for the items; and (5) the circuit court denied his right to a fair and impartial jury by striking two African American jurors. Finding no error, we affirm the judgment of the circuit court.
FACTS
¶ 2. On December 12, 2006, four individuals entered Trustmark Bank in Gloster, Amite County, Mississippi, and robbed Lacey Taylor and other bank employees. Testimony indicated that after the robbers fled the scene of the robbery, large quantities of money were found discarded along Main Street in Gloster. Officers in pursuit of the robbers found several items of clothing discarded along Highway 33, the direction in which the robbers allegedly traveled after the robbery. Later that afternoon on Macedonia Road in Gloster, officers found an abandoned, burning SUV, which was later identified as the getaway car. At the site, officers also found a pair of tennis shoes and a boot near the burning vehicle and three guns in the embankment not far from the vehicle. Officer Danny Mauex testified that the clothing retrieved from Highway 33, the guns retrieved from the embankment, and the shoes retrieved from the burn site were placed in evidence bags and turned over to Chief Tommy Lee of the Gloster Police Department. Chief Lee testified that he placed the evidence bags in the vault and the guns in the evidence locker.
¶ 3. On August 24, 2007, Craig, Warren Williams, Dameon Washington, Eric Robertson, Derrick Tobias, and Neffeti A. Oshunremi were indicted under Mississippi Code Annotated section 97-37-37 (Supp. 2009) for armed robbery with an enhanced punishment for use of a firearm during the commission of a felony. On September 19, *704 2008, Craig was convicted of armed robbery. Craig was sentenced to thirty years in the custody of the MDOC on September 22, 2008. On September 29, 2008, Craig filed a motion for a judgment notwithstanding the verdict (JNOV) or, alternatively, for a new trial. The circuit court denied Craig's motion on May 18, 2009. Craig timely filed his notice of appeal.
ANALYSIS
I. Speedy Trial
¶ 4. Craig asserts that he was not afforded a speedy trial pursuant to Mississippi Code Annotated section 99-17-1 (Rev.2007). Craig claims that he went to trial on September 18, 2008, 362 days after he was arraigned on September 21, 2008. Craig claims that this lengthy delay in going to trial precluded his obtaining records from his bonding agent, which would have established his whereabouts on the day before the crime occurred. Craig maintains that he effectively asserted his right to a speedy trial by filing no motions for continuance, by not objecting to the State's request for a body search, and by voluntarily submitting DNA samples at the State's request.
¶ 5. According to DeLoach v. State, 722 So.2d 512, 516 (¶ 12) (Miss.1998):
Review of a speedy trial claim encompasses the fact question of whether the trial delay rose from good cause. Under this Court's standard of review, this Court will uphold a decision based on substantial, credible evidence. If no probative evidence supports the trial court's finding of good cause, this Court will ordinarily reverse. The [S]tate bears the burden of proving good cause for a speedy trial delay, and thus bears the risk of non-persuasion.
(Internal citations omitted).
¶ 6. Pursuant to Mississippi Code Annotated section 99-17-1, the defendant shall be tried no later than 270 days after the date of arraignment. Craig was arraigned on September 21, 2007, and went to trial on September 18, 2008. On September 15, 2008, the trial court conducted a hearing on Craig's motion to dismiss. As a result of the hearing, the trial court found that the time period from arraignment to trial exceeded 270 days. The trial court noted that the delay resulted from older cases being scheduled for trial. The trial judge ruled that such delay was sufficient under the law for good cause and the matter would not be dismissed.
¶ 7. The United States Supreme Court established a balancing test to determine whether a defendant's constitutional right to a speedy trial has been violated. Barker v. Wingo, 407 U.S. 514, 530, 92 S.Ct. 2182, 33 L.Ed.2d 101 (1972). The four factors that are to be considered together and balanced are: "(1) length of delay, (2) reason for delay, (3) the defendant's assertion of his right, and (4) prejudice to the defendant." Id. at 530-32, 92 S.Ct. 2182; White v. State, 969 So.2d 72, 78 (¶ 14) (Miss.Ct.App.2007). In reviewing the allegation that Craig's statutory speedy-trial right was violated, we apply the same balancing analysis used to address the violation of a constitutional right to a speedy trial.
A. Length of Delay
¶ 8. According to the Barker analysis, "[t]he length of the delay is to some extent a triggering mechanism. Until there is some delay which is presumptively prejudicial, there is no necessity for inquiry into the other factors that go into the balance." Barker, 407 U.S. at 530, 92 S.Ct. 2182. The time from Craig's arraignment to his trial was 362 days. This exceeds the statutorily mandated 270 days *705 by 92 days and is presumptively prejudicial.
B. Reason for Delay
¶ 9. "Once a delay is found to be presumptively prejudicial, the burden of proof shifts to the State to show cause for the delay." Stark v. State, 911 So.2d 447, 450 (¶ 11) (Miss.2005). The appellate court must determine whether the delay should be charged to the State or the defendant. Id. Since it is the State's responsibility to provide a defendant with a speedy trial, this factor is weighed against the State unless it can show either that the delay was caused by the defendant or that the delay was for a good cause. Id.; Wiley v. State, 582 So.2d 1008, 1012 (Miss. 1991). In this case, the delay was caused by an overcrowded docket with older, previously scheduled cases being tried before Craig's case. This factor only slightly favors Craig because of the acceptable justification for the delay.
C. Assertion of the Right to a Speedy Trial
¶ 10. Craig claims he asserted his right to a speedy trial by not filing any motions for continuances, not objecting to the State's request for a body search, voluntarily submitting DNA samples at the State's request, and filing a motion to dismiss all of the charges. While it is the State's burden to bring an accused to trial, a defendant's failure to assert his right to a speedy trial must be weighed against him. Stark, 911 So.2d at 452 (¶ 26). The assertion of the right to a speedy trial is an active assertion, not passive. In this case, Craig did not actively assert his right to a speedy trial. Therefore, this factor weighs in favor of the State.
D. Prejudice to the Defendant
¶ 11. Craig argues that he was prevented from obtaining evidence of his absence from the State of Mississippi at the time of the robbery; therefore, he argues he was prejudiced in the presentation of his defense. Craig stated that he was in Houston, Texas, at the time of the robbery. Craig asserts that this matter was discussed with his bail agent; however, because the agent only maintained office records of visits for a two-year period, the record of Craig's presence in Houston at that time was not available.
¶ 12. In considering whether a defendant was prejudiced by the delay, this Court looks at the three elements that a speedy trial is intended to address: "(1) the prevention of oppressive pre-trial incarceration; (2) the minimization of anxiety and concern of the accused; and (3) limiting the possibility the defense will be impaired." Oliver v. State, 20 So.3d 16, 23 (¶ 21) (Miss.Ct.App.2009) (citing Wiley, 582 So.2d at 1012).
¶ 13. In this case, Craig claims that his defense was impaired. Craig claims the documents needed to prove he was in Houston and not in Gloster at the time the crime was committed were destroyed. Assuming the existence of these documents, we find it was Craig's responsibility to seek their timely retention and preservation. In the absence of a timely effort by Craig to preserve the documents, we do not see that he was prejudiced by the delay. Thus, we find that this factor weighs in favor of the State.
¶ 14. This assignment of error is without merit.
II. Admission of a DNA report
¶ 15. On Friday, September 12, 2008, the State received oral notice from Scales Laboratory in Brandon, Mississippi, that the DNA profile from the boot matched Craig. At that time, the State *706 requested a written report. The State advised the defense orally on Monday, September 15, 2008, of the DNA report during a hearing on Craig's motion to dismiss the case due to the violation of his statutory right to a speedy trial. On Tuesday, September 16, 2008, at 10:00 a.m., the State provided a copy of the written DNA report to the defense. Thereafter, Craig filed a motion in limine to exclude the DNA evidence. In his motion in limine, Craig specifically stated that he did not wish to delay the trial of this matter further, but merely to have the report excluded.
¶ 16. At trial, Craig objected to the introduction of the DNA report for the following reasons: (1) the report was not produced to defense counsel in sufficient time prior to trial in order to adequately dispute the validity and substance of the report; (2) statements in the report regarding the analysis tend to invite speculation, conjecture, and guesswork; (3) the State could not properly authenticate the document as required by Rules 901 and 902 of the Mississippi Rules of Evidence; (4) the report was inadmissible hearsay, which is prohibited by Rules 801 and 802 of the Mississippi Rules of Evidence; (5) the State could not authenticate the chain of custody for the boot; (6) the probative value of the evidence contained in the report was substantially outweighed by the danger of unfair prejudice, confusion of the issues, and the danger of causing the jury to return a possible conviction based upon speculation and guesswork; and (7) the report was untimely received by the defense.
¶ 17. On appeal, Craig argues that the State waited almost two years to produce a DNA report even though it had possession of or access to the evidence from which the DNA sample was collected. Craig contends that the State's failure to produce discovery in a timely manner resulted in his not securing a forensic expert witness in a timely manner in order to rebut the testimony offered by the State's witness. Craig claims that the untimely receipt of the DNA report forced him to give up his Fifth Amendment right to avoid self-incrimination and testify at trial in order to explain Kathryn Moyse's testimony.
¶ 18. When confronted with an alleged discovery violation, this Court looks to Rule 9.04(I) of the Uniform Rules Circuit and County Court. Rule 9.04(I) states that:
If at any time prior to trial it is brought to the attention of the court that a party has failed to comply with an applicable discovery rule or an order issued pursuant thereto, the court may order such party to permit the discovery of material and information not previously disclosed, grant a continuance, or enter such other order as it deems just under the circumstances.
However, "[t]he trial court is allowed to exclude evidence where discovery violations are `willful or motivated by the desire to gain a tactical advantage.'" McGregory v. State, 979 So.2d 12, 17 (¶ 8) (Miss.Ct. App.2008). According to Parker v. State, 20 So.3d 702, 708 (¶ 23) (Miss.Ct.App. 2009), "[i]f a defendant who has been surprised by undisclosed discoverable evidence does not request a continuance at the time of such surprise, he waives this issue on appeal." (Quoting Hughery v. State, 799 So.2d 105, 116 (¶ 12) (Miss.Ct. App.2001)).
¶ 19. While Craig claims that the State's failure to timely provide the DNA report forced him to give up his Fifth Amendment right to avoid self-incrimination, Craig stated that he did not want a continuance, but merely to have the DNA evidence excluded. The failure to request a continuance is a waiver, thus making this *707 issue procedurally barred from being raised on appeal. Id. at 707-08 (¶ 23).
¶ 20. Notwithstanding the procedural bar, we find that the decision of the trial court was harmless error. The record indicated that the boot was sent to DNA Security Laboratory in Burlington, North Carolina, for analysis on October 10, 2007, and thereafter returned to Scales Laboratory. On January 23, 2008, the boot and buccal swabs taken from Craig were delivered to Scales Laboratory for comparative analysis. Moyse, forensic DNA analyst for Scales Laboratory, testified that the comparative analysis did not begin until August 20, 2008, and was completed on August 25, 2008. The final report was delivered orally to the State on September 15, 2008. The record contained no explanation for the delay in completing the analysis especially when Moyse testified that a DNA analysis could be completed in one to two weeks. Despite the length of time required to process the samples and complete a report, there was no indication that the State's delay in providing the DNA report was willful or motivated by the desire to gain a tactical advantage.
¶ 21. Moreover, prior to the testimony of the State's DNA expert witness, Moyse, the trial judge conducted a hearing outside the presence of the jury to address the defense's motion in limine to exclude the DNA report. At the conclusion of the hearing, the trial court denied Craig's motion in limine to have the report excluded citing the following reasons: (1) although it was through previous counsel, the defense was aware of some potential DNA evidence at least no later than January 2008, when the trial court ordered DNA samples to be taken from the defendant; and (2) the State was not advised until Friday, September 12, 2008, that there was a match of a DNA sample from the boot to Craig. The trial court also noted that while the report was received shortly before trial, the State did not fail to disclose the results of the report in a timely manner. Thus, this issue is without merit.
III. State's Expert Witness
¶ 22. Craig contends that the trial court erred in allowing Moyse to testify regarding the DNA report when her testimony was speculative and amounted to mere guesswork. Craig asserts Moyse's analysis was wholly unreliable because she could not conclusively testify that Craig was a 100% match to the mixture found inside the boot. Craig claims that Moyse was allowed to read the DNA report into the trial record. Moyse was allowed to read the following into the record:
DNA analysis of the boot yielded a partial DNA profile indicative of a mixture containing DNA from more than one individual. The suspect, Darrell Craig, cannot be excluded as being a contributor to this mixture profile. The probability of excluding a random individual from this mixture profile is 99.99%. The suspects Derrick Tobias and Warren Williams are excluded from as being contributors.
Craig asserts that because the report did not identify any other suspects and/or individuals who were the source of the mixture used in the subject analysis, did not identify a measurable amount of the mixture extracted from the boot, and did not identify the methodology used in her analysis, Moyse invited the jury to assume Craig's guilt and attempted to relieve the State of its required burden of proof.
¶ 23. "The trial court has discretion in determining whether an expert is qualified to testify. This Court should not reverse the trial court's ruling unless it can be shown that the trial judge abused his discretion or that the expert was clearly *708 not qualified." Baldwin v. State, 757 So.2d 227, 230-31 (¶ 11) (Miss.2000) (internal citations omitted). Generally, on a challenge to the admissibility of DNA evidence, a trial court will conduct a hearing pursuant to supreme court decision in Hughes v. State, 892 So.2d 203, 210 (¶ 13) (Miss.2004). Under the test adopted in Polk v. State, 612 So.2d 381 (Miss.1992), the Court should ask: (1) whether there was "a theory generally accepted in the scientific community which supports the conclusion that DNA testing can produce reliable results," (2) whether there "are current techniques capable of producing reliable results in DNA identification and that are generally accepted in the scientific community," and (3) whether "the testing laboratory perform[ed] generally accepted scientific techniques without error in the performance or interpretation of the tests." Hughes, 892 So.2d at 210 (¶ 13).
¶ 24. The trial court conducted a hearing outside the presence of the jury regarding the qualification of Moyse as an expert witness. Both the State and defense were allowed to voir dire Moyse. The trial court also questioned Moyse regarding the accepted standards of DNA testing and the procedures she used in the DNA extraction and analysis. After the State conducts its voir dire of Moyse, the State tendered her as an expert, and the defense reserved its questions for cross-examination. The trial court accepted the expert in the field tendered by virtue of education, experience, training, and knowledge. The defense neither objected nor cross-examined Moyse as to her ability to testify as an expert witness, but the defense objected to Moyse's testimony mainly on its credibility. The admission and exclusion of expert testimony are within the sound discretion of the trial court. Funderburk v. Johnson, 935 So.2d 1084, 1107 (¶ 71) (Miss.Ct.App.2006). "As the gatekeeper, the trial court must ascertain that the proffered testimony is both relevant and reliable, that is, that the testimony will assist the trier of fact." Id. "The reliability analysis must focus on the `principles and methodology' underlying an expert opinion, not on the conclusions generated." Id. (citation omitted). However, once this has been established, the credibility of the expert witness's opinion is left to the jury. Id.
¶ 25. At the conclusion of the hearing, the trial court opined on the uniqueness of this situation in which the analyst who analyzed the boot in Burlington was also the analyst who analyzed the swabs here in Mississippi; thus, it was like two witnesses in one. The trial court indicated that from Moyse's testimony, there was no sign of any tampering with the evidence, and a chain of custody had been established. As a result, the trial court held that there was clearly evidence of reliability. The trial judge held that because Moyse was the analyst who did both extractions of the samples in question, and the method of analysis was a standard DNA analysis, the witness could testify.
¶ 26. We find no merit to Craig's argument that the evidence was not reliable, since Moyse could not conclusively testify that Craig was a 100% match to the mixture. Moyse testified that her analysis of the boot indicated that there was DNA from other people found in the boot; however, in cases where there is more than one individual in a genetic profile, an exclusion-probability calculation is conducted. Moyse stated that the exclusion-probability calculation allows the analyst to calculate the chances of taking a random individual and excluding them from the mixture. Moyse noted that 99.99% of the time when a random individual is compared to the DNA mixture, the DNA will not match, and the individual is excluded. *709 In this case, Craig's genetic profile was found in the DNA mixture and could not be excluded. In addition, during the defense's case-in-chief, Craig acknowledged that he owned the boot. Craig testified that when he evacuated New Orleans, Louisiana, during Hurricane Katrina, he took jeans, t-shirts, tennis shoes, and the boots from which the DNA was extracted. Craig stated that he had the boots when he went to live with Tobias at the Tobias's mother's home. When he left and moved to LaPlace, Louisiana, and then subsequently to Houston, Texas, he left the boots behind. The record indicates that only one of the boots that Craig had left behind was found at the crime scene and later processed for analysis. Moyse's testimony that there was DNA from others on the boot and Craig's testimony that he was not in possession of the boots after leaving LaPlace would be questions for the jury to decide.
IV. Chain of Custody
¶ 27. Craig contends that it was undisputed that the State failed to establish and authenticate the original chain of custody regarding the articles of clothing admitted into evidence. Craig asserts that no law-enforcement officer or official testified that the articles of clothes were properly bagged and the bags labeled at the time the clothing was collected. Craig claims that the seizing officer could not testify as to where the bags were taken once sealed.
¶ 28. "A trial court is given great discretion when determining whether the State has established a proper evidentiary chain of custody." Vaughn v. State, 972 So.2d 56, 61 (¶ 20) (Miss.Ct.App. 2008). "[T]he supreme court has never required a production of every person who handled the object or an accounting of every moment in order to establish proper chain of custody." Cooley v. State, 14 So.3d 63, 65 (¶ 10) (Miss.Ct.App.2008) (citations omitted).
¶ 29. The proper test to determine whether or not there has been a showing of the proper chain of custody of the evidence is whether there is a reasonable inference of likely tampering with the evidence. Butler v. State, 592 So.2d 983, 985 (Miss.1991). The State must prove that there is no reasonable inference of tampering with evidence. Id. However, the defendant has the burden of producing evidence that the chain of custody has been broken. Fulks v. State, 944 So.2d 79, 83 (¶ 8) (Miss.Ct.App.2006). "Proof of the chain of custody is intended to satisfy the fact-finder of the identity and validity of the evidence. Without doubts being raised, a break in the chain does not bar introduction." Shaw v. State, 915 So.2d 442, 447 (¶ 15) (Miss.2005) (citations omitted).
¶ 30. During trial, Officer Lester Lambert testified that once he heard dispatch announce the direction in which the suspects were seen traveling, he traveled right on Highway 33 North toward Homochitto Road in pursuit of the suspects. While traveling in that direction he noticed several articles of clothing in the middle of the road and on the edge of the road. He immediately called Officer Danny Mauex to bring evidence bags. Officer Mauex testified that when he arrived at the scene, he and Officer Lambert retrieved the items of clothing from the roadway and placed them in evidence bags. Officer Mauex stated that once he received the items of clothing as well as the items from the second scene where the burning vehicle was found, he turned the evidence bags and guns over to Chief Lee.
¶ 31. Chief Lee testified that when he received the bags from Officer Mauex's possession, all the bags were closed. Chief Lee stated that he placed the bags, *710 without opening and examining the contents, in the evidence locker and the guns in the vault. Officer Gerald Wall later testified that he obtained the sealed evidence bags from Chief Lee on January 3, 2007, for transport to the Mississippi Crime Laboratory. Officer Wall stated that Chief Lee retrieved the evidence bags from the evidence locker and guns from the vault. Officer Wall testified that he had personal knowledge of the items contained in each of the evidence bags because once he delivered the evidence to the crime lab, he had to remove each item from all the bags in order for processing at the crime lab. Officer Wall identified the items as clothing that had been picked up on the side of the road on Highway 33 and at the burn site. Officer Wall also indicated that he returned the clothing back to the Gloster Police Department because the crime lab would not accept the clothing since there was nothing with which to compare it. Officer John Stoll then testified that he took both the items of clothing from the vault at the Gloster Police Department and the items from the crime lab to Scales Laboratory in Brandon. Each of these officers indicated that when they retrieved the evidence from its point of origination and delivered to the point of destination there was no evidence of tampering. In addition, the State's expert witness, Moyse, testified that when she received the boot in Burlington, via FedEx, there was no indication of tampering.
¶ 32. The trial court overruled Craig's objection to the admission of the clothing and one handgun. The clothing and a handgun with a broken stock and ammunition were introduced as a composite exhibit; however, another handgun and part of a burned-out weapon were marked for identification purposes only. As previously stated, the production of every person, who handled the evidence at every moment is not required to establish a chain of custody. However, in this case, the testimony of the officers indicated that there was an accounting of every person who had handled the evidence at every moment of the investigation and its analysis. In addition, Craig failed to produce any evidence that suggested there had been any tampering with the evidence. Therefore, this issue is without merit.
V. Fair and Impartial Jury
¶ 33. Craig claims that two African American jurors were struck after his grandmother, who had vision problems, sat beside the two jurors during lunch, even though nothing was said, and no words were exchanged. Craig argues that the trial court acted outside of its discretion in striking the jurors, even after the jurors admitted to the court that they could remain fair and impartial throughout the duration of the trial.
¶ 34. Deciding to dismiss a juror for good cause and subsequently replacing that juror with an alternate is completely within the trial court's discretion. Stevens v. State, 513 So.2d 603, 604 (Miss.1987); see Myers v. State, 565 So.2d 554, 557 (Miss.1990). The Mississippi Supreme Court has made it clear that the trial court does not have the authority to remove and replace jurors arbitrarily; the supreme court has suggested that the trial court articulate into the record the exact reasons for excusing a juror. Myers, 565 So.2d at 557-58; Stevens, 513 So.2d at 605.
¶ 35. In this case, on the first day of trial after the jury had been empaneled, the sheriff, other law-enforcement personnel, and one of the State's attorneys saw jurors Patricia Martin and Odessia Ross sitting at a picnic table outside the courthouse having lunch with family members and witnesses for the defendant. The family members and witnesses included *711 Craig's girlfriend, mother, and grandmother. The trial court was informed of the conversation; however, because those who witnessed it could not identify the jurors by name, the trial court proceeded with opening statements and the State's case-in-chief. After opening statements and the testimony from two of the State's witnesses, the trial court recessed to address the matter regarding the jurors' communication with the defendant's family members. When questioned by the trial judge, the jurors indicated that they were sitting having lunch when defense witnesses came to the picnic table and sat down. The jurors indicated that their discussion was not in regard to the case but about their church affiliation. Each of the jurors also indicated that she had her juror's badge on at that time. After taking into consideration the communication between the jurors and family members, the trial judge dismissed the jurors and replaced them with the alternates. The court reasoned that although the jurors were told not to talk to anyone regarding the case, the family members, who were aware that Martin and Ross were jurors, sat down and began talking with the jurors. The trial judge opined that although he did not believe anything improper took place, the parties and witnesses were informed that they were not to mix or communicate with jurors and vice versa.
¶ 36. The trial judge articulated in the record that the reason for excusing the jurors and replacing them with alternates was because family members sat down and befriended jurors, when the members of the family as well as the jurors had been clearly instructed not to communicate with one another. Craig objected to the trial court's decision. However, there was no indication in the record that the trial court abused its discretion. Therefore, this issue is without merit.
¶ 37. THE JUDGMENT OF THE CIRCUIT COURT OF AMITE COUNTY OF CONVICTION OF ARMED ROBBERY AND SENTENCE OF THIRTY YEARS IN THE CUSTODY OF THE MISSISSIPPI DEPARTMENT OF CORRECTIONS IS AFFIRMED. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE APPELLANT.
LEE AND MYERS, P.JJ., GRIFFIS, BARNES, ISHEE, ROBERTS, CARLTON AND MAXWELL, JJ., CONCUR. IRVING, J., CONCURS IN RESULT ONLY WITHOUT SEPARATE WRITTEN OPINION.
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46 So.3d 1229 (2010)
Kennis L. SCHUMMER, Appellant,
v.
STATE of Florida, Appellee.
No. 1D09-6494.
District Court of Appeal of Florida, First District.
November 17, 2010.
*1230 Kennis L. Schummer, pro se, for Appellant.
Bill McCollum, Attorney General, and Bryan Jordan, Assistant Attorney General, Tallahassee, for Appellee.
MARSTILLER, J.
Appellant, Kennis Schummer, was convicted in 1993 of racketeering, grand theft, and unlawful financial transaction. This court affirmed the convictions and sentences in Schummer v. State, 654 So.2d 1215 (Fla. 1st DCA 1995). Appellant's current appeal is from an order denying his motion to declare $22,759 in restitution paid in full after offsetting a money judgment he won against Gulf Coast Audio Visual Producers, Inc. ("Gulf Coast"), the victim of his crimes. We affirm the trial court's order for we find none of the ordered restitution has been satisfied by setoff.
When Appellant was convicted, he was ordered to pay Gulf Coast $23,759 in restitution in addition to serving terms of incarceration and probation. The trial court subsequently reduced the restitution to $22,759 after vacating a single count of conviction for both grand theft and unlawful financial transaction. In 2002, Appellant obtained a civil judgment against Gulf Coast in the amount of $44,928, and against Robert Roy and Charles Edwards, the owners of Gulf Coast, for $14,975.82 and $14,674.82, respectively. Gulf Coast in turn was awarded treble damages and pre-judgment interest totaling $85,355.93 on its civil theft counterclaim against Appellant. The Final Judgment provided this amount would be offset by the $44,928 in damages Appellant received against Gulf Coast, thereby resulting in a net judgment against Appellant of $40,427.93. The Final Judgment stated further:
Any amounts paid to or collected by Defendant Gulf Coast Audio Visual Producers, Inc. in satisfaction of its judgment shall concurrently satisfy the restitution *1231 obligation owed to said defendant by plaintiff established by restitution order entered in State of Florida v. Kenneth L. Schummer, Case No.1992-CF-005096A, Circuit Court, Escambia County, Florida.
See § 775.089(8), Fla. Stat. (providing that restitution is to be set off against any subsequent civil recovery obtained by the person to whom restitution is owed).
In 2003, Gulf Coast assigned its judgment against Appellant to Charles Edwards, who thereafter assigned it to Robert Roy. As a result of the assignments, the $40,427.93[1] judgment against Appellant was offset and thus reduced by $32,182.91, the total amount Edwards and Roy owed in damages and interest to Appellant as of January 30, 2003. Because the setoffs were not "amounts paid to or collected by" Gulf Coast, they had no effect on the $22,759 in restitution Appellant must pay to Gulf Coast as a result of the criminal proceedings. But pursuant to section 775.089(8) and the final judgment in the civil proceedings, Appellant is entitled to concurrently satisfy his obligations under the civil judgment and the restitution order.
AFFIRMED.
HAWKES, C.J., and PADOVANO, J., Concur.
NOTES
[1] We assume interest had accrued on the judgment by the time Gulf Coast assigned it, but the record does not reflect the amount of such interest.
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691 F.Supp.2d 797 (2010)
ALLSTATE INSURANCE COMPANY, et al., Plaintiffs,
v.
ST. ANTHONY'S SPINE & JOINT INSTITUTE, P.C., Melvin D'Souza, D.C., et al., Defendants.
No. 06-cv-7010.
United States District Court, N.D. Illinois, Eastern Division.
March 9, 2010.
*798 Mark Anthony LaRose, Andrew T. Sperry, David I. Koppelman, Joseph A. Bosco, LaRose & Bosco, Ltd., Chicago, IL, for Plaintiffs.
Andrew Peter Lamis, Law Offices of Andrew P. Lamis, Chicago, IL, for Defendants.
MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Judge.
BACKGROUND
Before the Court is Plaintiffs Allstate Insurance Company, Allstate Indemnity Company, and Allstate Property and Casualty Company's (collectively "Allstate") Motion for Summary Judgment on Defendants Melvin D'Souza, D.C. ("Dr. D'Souza") and St. Anthony's Spine and Joint Institute, P.C.'s ("St. Anthony's") (collectively "Defendants") Counterclaim. Allstate's suit against Defendants includes a claim pursuant to 720 ILCS § 5/46-5(a) based on Defendants' submission of allegedly false and misleading medical reports, records, and billing statements for chiropractic and diagnostic services to Allstate. Defendants filed a counterclaim against Allstate alleging that Allstate brought its suit against Defendants in bad faith in contravention of 720 ILCS § 5/46-5(b) and seeking statutory damages and attorneys' fees. For the following reasons, the Court *799 grants Plaintiffs' Motion for Summary Judgment.
I. Northern District of Illinois Local Rule 56.1
When determining summary judgment motions, the Court derives the background facts from the parties' Local Rule 56.1 statements. Specifically, Local Rule 56.1 assists the Court by "organizing the evidence, identifying undisputed facts, and demonstrating precisely how each side propose[s] to prove a disputed fact with admissible evidence." Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 527 (7th Cir.2000). Local Rule 56.1(a)(3) requires the moving party to provide "a statement of material facts as to which the moving party contends there is no genuine issue." Cracco v. Vitran Exp., Inc., 559 F.3d 625, 632 (7th Cir.2009). "The opposing party is required to file `a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon.'" Id. (citing N.D. Ill. R. 56.1(b)(3)(B)). In addition, Local Rule 56.1(b)(3)(C) requires the nonmoving party to present a separate statement of additional facts that require the denial of summary judgment. See Ciomber v. Cooperative Plus, Inc., 527 F.3d 635, 643-44 (7th Cir.2008). Pursuant to the Local Rules, the Court will not consider any additional facts proposed in the nonmoving party's Local Rule 56.1(b)(3)(B) Response, but instead must rely on the nonmovant's Local Rule 56.1(b)(3)(C) Statement of Additional Facts when making factual determinations. See id. at 643; Cichon v. Exelon Generation Co., L.L.C., 401 F.3d 803, 809 (7th Cir. 2005) ("Local Rule 56.1 requires specifically that a litigant seeking to oppose a motion for summary judgment file a response that contains a separate `statement ... of any additional facts that require the denial of summary judgment.'") (emphasis in original).
Moreover, the purpose of Rule 56.1 statements is to identify the relevant evidence supporting the material facts, not to make factual or legal arguments, see Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006), and thus the Court will not address the parties' arguments made in their Rule 56.1 statements and responses. Also, the requirements for responses under Local Rule 56.1 are "not satisfied by evasive denials that do not fairly meet the substance of the material facts asserted." Bordelon, 233 F.3d at 528. Further, the Court may disregard statements and responses that do not properly cite to the record. See Cichon, 401 F.3d at 809-10. Finally, "hearsay is inadmissible in summary judgment proceedings to the same extent that it is inadmissible in a trial." Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir.1997). With these standards in mind, the Court turns to the relevant facts of the case.
II. Dr. D'Souza's Affidavit
Prior to addressing the facts, the Court must address Dr. D'Souza's affidavit which contains numerous unsubstantiated statements and legal conclusions that are outside of his personal knowledge. Rule 56(e)(1) of the Federal Rules of Civil Procedure sets forth requirements for affidavits submitted at the summary judgment stage:
A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. If a paper or part of a paper is referred to in an affidavit, a sworn or certified copy must be attached to or served with the affidavit. The court may permit an affidavit to be supplemented or opposed *800 by depositions, answers to interrogatories, or additional affidavits.
Fed.R.Civ.P. 56(e)(1). "While personal knowledge may include inferences and opinions, those inferences must be substantiated by specific facts." Vakharia v. Little Co. of Mary Hosp. & Health Care Ctrs., 62 Fed.Appx. 122, 125 (7th Cir.2003); Drake v. 3M, 134 F.3d 878, 887 (7th Cir. 1998) ("Rule 56 demands something more specific than the bald assertion of the general truth of a particular matter, rather it requires affidavits that cite specific concrete facts establishing the existence of the truth of the matter asserted.")
The Court recognizes that 720 ILCS § 5/46-5(b) on which Defendants premise their counterclaim provides that, "[i]n determining whether an insurance company ... acted in bad faith, the court shall relax the rules of evidence to allow for the introduction of any facts or other information on which the insurance company... may have relied in bringing an action under subsection (a) of this Section." 720 ILCS § 5/46-5(b). Defendants contend that § 5/46-5(b) renders certain otherwise inadmissible evidence admissible as to the issue of Allstate's reliance. The evidentiary portion of § 5/46-5(b), however, is a state rule of evidence and thus inapplicable here. Indeed, the "Federal Rules of Evidence, not provisions of state law, govern the admissibility of evidence in federal court." Park v. City of Chicago, 297 F.3d 606, 611 (7th Cir.2002); see also Barron v. Ford Motor Co. of Canada Ltd., 965 F.2d 195, 198 (7th Cir.1992) ("Even in diversity cases the rules of evidence applied in federal courts are the federal rules of evidence rather than state rules ..."). As the Seventh Circuit noted in Barron, "[a] pure rule of evidence, like a pure rule of procedure, is concerned solely with accuracy and economy in litigation ... while a substantive rule is concerned with the channeling of behavior outside the courtroom." Id. at 199. Because the text of § 5/46-5(b) establishes an evidentiary rule, the provision does not apply to the admissibility of evidence in federal court.
Despite the inapplicability of this evidentiary rule, the Court views the facts in the light most favorable to Defendants. The Court will consider evidence admissible in federal court, including deposition testimony from Allstate employees and Dr. D'Souza, as well as portions of Dr. D'Souza's affidavit that are based on his personal knowledge. The Court, however, will not consider the many self-serving, conclusory allegations contained in Dr. D'Souza's affidavit that assert legal conclusions regarding issues at the center of this motion for summary judgment, or that are not supported by Dr. D'Souza's personal knowledge or any other form of evidence. The Court, for example, will not assume the truth of the following statements contained in Dr. D'Souza's affidavit: Allstate's "refusal to pay for my patients' care was because [Allstate] does not credit as real and compensable musculigamentous injuries arising out of automobile accidents," Allstate's "refusal to pay for radiographic testing of my patients was because the insurance company falsely believes that x-rays can only be used to detect fractures of bone and are useless in diagnosing soft tissue injuries," "Allstate's continuing practice of declining any payment for the reasonable and necessary medical expenses of its insureds ... who [were] treated at my clinic was in bad faith," "this is a vindictive suit" and "it has been brought against me as a means to punish me for caring for soft tissue injury patients," "[t]he suit is being used to harass, intimidate and burden me," "the suit has also been brought as a means of avenging [Allstate's] hostility toward me for my views [on] ... injuries arising from automobile accidents," "the charges against me... are untrue," "I believe all of Allstate's accusations against me have been trumped *801 up to try to mask the motive of this suit, which is to vindictively punish, harass, and intimidate me for treating and diagnosing patients whom Allstate does not want to pay its insurance out to," and "[t]his lawsuit has been brought to teach a lesson to chiropractors in this community that if they engage in caring treatment and thorough diagnostic work up of soft tissue injury cases and if they engage in public speech and actions that challenge the practices of [Allstate] ... they can be targeted for a costly and burdensome suit as punishment." (R. 184-1, Ex. 1, D'Souza Aff., ¶¶ 122, 124-125, 184-188, 204, 227.)
III. Relevant Facts
The facts underlying Allstate's claims against Defendants are detailed in the ruling on Defendants' Motion for Summary Judgment. (R. 209-1, Memorandum Opinion and Order.) The facts pertinent to the pending motion concern whether Defendants have a counterclaim that Allstate brought its statutory insurance fraud claim against Defendants in bad faith.
A. Defendants' Relationship with Allstate
Dr. D'Souza, a chiropractic physician, conducts business through a series of chiropractic centers located in and around Chicago, Illinois. (R. 186-1, Plaintiffs' Local Rule 56.1 Statement of Undisputed Facts, ¶¶ 2-5.) As a physician who treats patients who have been injured in automobile accidents, Dr. D'Souza routinely submits claims to insurance companies. Allstate has contracted to pay all reasonable expenses actually incurred for the necessary medical treatments and services of insureds in an automobile accident. Id. at ¶ 4. At issue in this case are a series of insurance claims seeking payment of medical bills that Dr. D'Souza submitted to Allstate between 2000 and 2006. (R. 196-1, Defendants' Local Rule 56.1 Statement of Additional Facts, ¶ 1.) Most of the insurance claims Defendants submitted to Allstate involved patients who sustained soft-tissue injuries consisting of ligament and muscle sprains or strains of the cervical, thoracic, and/or lumbar spine in automobile accidents. (R. 186-1, ¶¶ 1-2.) From 2000 through the inception of this lawsuit, Allstate paid Defendants almost $80,000 in direct payments for treatments and diagnostic services, but declined to pay the majority of bills that Dr. D'Souza submitted to Allstate. (R. 196-1, ¶ 9; R. 186-1, Pl.Ex. S.) In the pending lawsuit, Allstate has put at issue every patient, approximately 450 individuals, who received treatment from Dr. D'Souza from 2000 forward. (R. 186-1, ¶ 27.)
B. Allstate's Investigation and Dr. D'Souza's Response
At the outset of the time frame in which Dr. D'Souza submitted claims to Allstate, sometime in 2001 or early 2002, Allstate's Special Investigations Unit ("SIU") began investigating Defendants on suspicion of fraudulent activities. Allstate began its investigation after discovering inconsistencies between information contained in Defendants' billing statements and patients' recollections of who performed treatments they received at Dr. D'Souza's clinics. (R. 186-1, Pl.Ex. E, Summins Dep., pp. 211, 295.) In addition to these inconsistencies, as early as 2001, some SIU personnel also discovered information that led them to believe that Dr. D'Souza was perpetrating a fraudulent scheme through the use of a videofluoroscopic x-ray machine, or DMX. (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 61, 139.) Defendants used the DMX to take videofluoroscopic x-rays of patients beginning in late 2000. (R. 186-1, ¶ 17.) Based on these concerns, by 2001, Allstate had designated Dr. D'Souza as a "provider on hold," and thereafter Allstate sent all of the claims submitted by Dr. D'Souza to the SIU for further investigation. (R. 196-1, ¶ 3.)
*802 Allstate employees and Dr. D'Souza hold conflicting views regarding the value of or necessity for his treatment of the patients whose claims are at issue in this lawsuit. Danielle Crespo was the SIU analyst assigned to the investigation of Dr. D'Souza. (R. 186-1, ¶ 63.) Crespo, and a number of SIU investigators, including Larry Arbetman, James Ryan, and Raymond Summins, for example, believe that soft-tissue injuries are typically "self-limiting," resolve in a few days, do not require long term treatment, and pose no risk of permanent injury. Id. at ¶ 4. SIU personnel also explained that Allstate considers injuries confirmed by diagnostic tests such as MRIs, CAT scans, or x-rays to be objective injuries. (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 26-29.) Conversely, Allstate considers injuries that are based only on complaints made by patients and not confirmed by diagnostic tests, even if those injuries are diagnosed by a physician, to be subjective injuries. Id. Specifically, SIU employees Crespo and Arbetman believe that physicians cannot use x-rays and videofluoroscopic motion x-rays to diagnose soft-tissue injuries to the cervical, thoracic or lumbar spine. (R. 196-1, ¶ 15.) Crespo and William Watts, also an SIU investigator, believe that x-rays do not show whether a soft-tissue injury is present in a patient. Id. In fact, Crespo testified that all the employees in the SIU unit believed that Dr. D'Souza "had no business" employing the DMX machine due to the nature of his patients' injuries. (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 72-73.) Arbetman testified that he did not believe that any Allstate employees were present while Dr. D'Souza treated any of the patients whose claims are at issue in this lawsuit. (R. 196-1, ¶ 26.)
Crespo, who testified that she was the individual principally responsible for the analysis of the propriety of suing Dr. D'Souza, testified at length regarding Dr. D'Souza's fraudulent practices. In fact, she testified that she believed that Dr. D'Souza never provided medical care to anyone who was actually in need of that care, (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 117-118, 236), a view also held by Arbetman who similarly testified that a "vast majority" of Dr. D'Souza's practice is fraudulent. (R. 205-1, Pl.Ex. Q, Arbetman Dep., pp. 75-76.) Crespo, acting in her role as an Allstate employee, also told dozens of attorneys in Chicago who represented Dr. D'Souza's patients that Dr. D'Souza was providing medically unnecessary treatments and fraudulently padding bills, and that he was dishonest. (R. 196-1, ¶ 30.) She further testified that she told one attorney that Allstate was taking the position that Allstate would not treat Dr. D'Souza's bills in the same manner as other physicians' bills. According to Crespo, a benefit of communicating with these attorneys was that they would not take cases involving Dr. D'Souza as the medical provider. (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 153-154.) In addition, Crespo testified that one factor that attorneys might have considered in deciding to "walk away" from a case associated with Dr. D'Souza was whether they could settle the case with the insurance company. Id. at p. 156. Finally, Crespo testified that she communicated these same concerns regarding Dr. D'Souza to his patients. (R. 196-1, ¶ 133.)
Contrary to the beliefs held by Crespo and other SIU employees, Dr. D'Souza believes that physicians can diagnose soft-tissue injuries, that soft-tissue injuries are not self-limiting and can benefit from treatment, and that such injuries carry long-term risks. (R. 196-1, ¶ 7.) Dr. D'Souza also believes, based on his education and experience, that static x-rays and motion x-rays, or DMX, are useful tools for diagnosing muscoligamentous injuries caused by automobile accidents. Id. at ¶ 16. Indeed, Dr. D'Souza believes that *803 Allstate's views regarding the allegedly subjective nature of soft-tissue injuries are contrary to both medical science and widely accepted views in the chiropractic profession. Id. at ¶ 8.
Allstate and Dr. D'Souza also hold conflicting beliefs regarding Dr. D'Souza's use of chiropractic assistants. Dr. D'Souza contends that he properly trained, educated, and supervised his assistants, and that all tasks performed by his assistants were proper. Id. at ¶ 42. Dr. D'Souza employed chiropractic treatments of soft-tissue massage, superficial heat therapy, ultrasound deep heat therapy, electromuscle stimulation therapy, and physician exercises to treat patients. (R. 196-1, Def. Ex. 1, D'Souza Aff., ¶¶ 64-69.) Although Dr. D'Souza alleges that the chiropractic profession recognizes these as standard treatments, and Dr. D'Souza's medical records demonstrated that his patients suffered injuries in automobile accidents, received treatment and incurred expenses, Allstate did not pay many of the bills submitted by Dr. D'Souza. Id. at ¶¶ 70, 116-118.
The parties further dispute whether all of Dr. D'Souza's patients received the chiropractic treatments indicated on the medical bills submitted to Allstate. Dr. D'Souza asserts in his affidavit that the patients did receive those treatments, (id. at ¶ 121), but Allstate's expert, Dr. Reinke, has opined that some of the patients did not receive the treatments indicated on the medical bills submitted to Allstate by Defendants. (R. 186-1, Pl.Ex. L, Reinke Report, p. 18.) Dr. Reinke explains that some of Dr. D'Souza's patients have testified that they did not actually receive all of the treatments identified in Dr. D'Souza's billing statements, and that some billing statements reflect services that are not identified in the SOAP notes associated with the date of service. Id. at pp. 18-19. To support these contentions, Dr. Reinke prepared a detailed chart identifying each claim for which she concluded that Dr. D'Souza billed for services never rendered. Id.
C. Dr. D'Souza's Public Challenge of Allstate Practices
In 2001 and 2002, Dr. D'Souza became publicly active regarding his belief that the DMX motion x-ray was a useful tool physicians could employ to prove muscoligamentous injuries and his concerns regarding the behavior of insurance companies in denying claims based on those injuries. (R. 196-1, Def. Ex. 1, D'Souza Dep., ¶¶ 134-140, 144-146.) As part of his public campaign, Dr. D'Souza published information on his website and held conferences in the Chicago area for physicians who treated, and attorneys who represented, patients who had sustained automobile accident injuries. Id. SIU employees Crespo and Watts knew that Dr. D'Souza was promoting the use of DMX via his website, and that he held a conference promoting the use of DMX. (R. 196-1, ¶ 20.) Crespo testified that she, other SIU investigators, and the assigned analyst on the Dr. D'Souza investigation viewed the actions of Dr. D'Souza in promoting the use of the DMX to be highly inappropriate, and that she did not "understand why he would solicit attorneys when his top priority should be the well-being of his patients." (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 229-230.) Crespo also testified that she had never heard of a doctor or physician hosting a conference where lawyers were in attendance, and that she told employees of other insurance companies that Dr. D'Souza was employing a medically useless DMX motion x-ray in his cases. (R. 196-1, ¶¶ 22-23.)[1]
*804 In addition to these public actions, Dr. D'Souza also expressed some of his concerns directly to Allstate. In 2003, Dr. D'Souza had a telephone call with SIU investigator Watts. (R. 186-1, Def. Ex 1, D'Souza Dep., ¶¶ 151-153.) Watts recalls Dr. D'Souza calling him to discuss a bill or payment regarding a particular patient's claim. (R. 205-1, Pl.Ex. R, Watts Dep., p. 122.) During the call, Dr. D'Souza and Watts discussed the licensing of Dr. D'Souza's chiropractic assistants. (R. 196-1, Def. Ex. 1, D'Souza Aff., ¶ 150.; R. 205-1, Pl.Ex. R, Watts Dep., pp. 90-97.) Watts also recalls a discussion of a discrepancy between Dr. D'Souza's recollection and a patient's recollection regarding whether Dr. D'Souza was present for certain treatment. (R. 205-1, Pl.Ex. R, Watts Dep., p. 104.) Prior to his call with Dr. D'Souza, Watts also recalled a series of phone calls with the Illinois Department of Professional Regulation in which he inquired as to whether there was a license for chiropractic assistants and vaguely recalls that there was no such license. Id. at pp. 100-101. In addition, Watts testified that after his call with Dr. D'Souza, Dr. D'Souza posted a statement relating to the specific claim that Dr. D'Souza called Allstate to discuss on a website called "Allstatesucks.com." In that posting, Dr. D'Souza characterized Watts' claims handling in a negative way and called him unfair. Id. at pp. 121-123, 137.
Dr. D'Souza was upset about the phone call with Watts and continued to believe that Allstate's refusal to pay his bills was wrong. (R. 196-1, ¶ 42.) Dr. D'Souza therefore contacted the Illinois Attorney General, a member of the Illinois Medical Licensing Board, and the Illinois Department of Professional Regulation about his dispute with Allstate regarding the use of chiropractic assistants. Id. at ¶ 44. In response, Dr. D'Souza received an informal advisory opinion from the Illinois Department of Professional Regulation that stated that neither the Illinois Medical Practice Act nor the rules for the administration of that Act set forth regulations regarding chiropractic assistants or requirements that such individuals be licensed. Id. at ¶ 45. The letter also referred to a provision of the Act which stated, in part: "Nothing in this Act shall be construed to limit the delegation of tasks or duties by a physician licensed to practice medicine in all its branches to a licensed practical nurse, a registered professional nurse, or other personnel." Id. After receiving this letter, in or around FebruaryApril 2004, Dr. D'Souza transmitted the letter via fax or mail to approximately 30 Allstate employees, including a number of SIU employees who worked on Dr. D'Souza's claims. A number of these employees subsequently reviewed the letter. Id. at ¶ 46-47.
After receiving the letter from Dr. D'Souza, Allstate contacted its outside counsel from the offices of Dale Sherman or Christine Tennon, and the offices of Condon and Cook, who held a meeting with Allstate SIU employees regarding the advisory opinion sent to Allstate by Dr. D'Souza. Id. at ¶ 49. Allstate's counsel informed Allstate's SIU personnel that the advisory opinion letter was not a binding legal opinion. Id. at ¶ 50. Indeed, SIU investigator Ryan continued to take the position that the treatment rendered by Dr. D'Souza's chiropractic assistants was inappropriate. Id. at ¶ 51. SIU investigator *805 Summins also testified that Allstate did not change its position that Allstate should not pay for treatments done by Dr. D'Souza's assistants, and that there was "a lot of gray area" concerning the issue of direct supervision by a chiropractic physician of an assistant. Id. at ¶¶ 52, 55. Crespo similarly testified that whether a non-physician can assist a chiropractic physician is a "gray area," though she noted that an assistant could perform an ultrasound if the physician is in direct proximity to the assistant. Id. at ¶¶ 56-57. Arbetman also testified that a chiropractor had to be in the room with an assistant when an assistant was treating a patient, but was not sure if the physician needed to be present every minute. Id. at ¶ 58. Finally, Ryan believed that chiropractic assistants could perform massages without physician supervision. Id. at ¶ 59.
D. Allstate's Continued Investigation and Institution of Legal Proceedings
Meanwhile, the SIU continued to investigate its suspicions of Defendants' fraudulent activities by securing recorded statements of Dr. D'Souza's patients and obtaining Defendants' medical records pertaining to Dr. D'Souza's patients' personal injury claims. (R. 186-1, ¶ 20.) In addition, Allstate inspected one of Dr. D'Souza's clinics and interviewed Dr. D'Souza. Id. at ¶ 21. After Allstate took these steps, in 2004, Brendan Hannan, an SIU manager, requested a meeting with SIU analyst Catia Monforton to discuss the evidence obtained by Allstate during its investigation into Defendants' activities. Id. at ¶ 22. Hannan presented Monforton with evidence which raised a series of concerns including that Defendants billed for services not rendered, permitted treatment of patients by unlicensed physicians, and used the DMX to diagnose soft-tissue injuries. (R. 186-1, Pl.Ex. F, Monforton Dep., p. 33.) Subsequent to her meeting with Hannan, Monforton decided to consolidate and continue the various investigations into Dr. D'Souza, and, in June 2004, to retain outside legal counsel, LaRose & Boscoe, Ltd. ("LaRose"), to conduct an investigation into Defendants. (Id. at p. 24; R. 205-1, Pl.Ex. W, Monforton Aff., ¶ 19.) During its legal investigation, LaRose secured numerous depositions of Dr. D'Souza, the associate physicians and employees who worked at the St. Anthony's clinics, and Dr. D'Souza's patients. (R. 186-1, ¶ 25.) At the conclusion of its investigation, LaRose provided Allstate with an opinion concerning Defendants' fraudulent activities. Id.
In 2005, Allstate also retained Dr. Tara Reinke, a chiropractic expert, to conduct a peer review of three individual cases involving Defendants' clinics. Id. at ¶ 26. Allstate hired Dr. Reinke in order to assist it in its investigation and to make a determination as to whether or not to pursue litigation against Defendants. (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 2-7.) Dr. Reinke found that Defendants' medical records failed to substantiate the medical necessity of medical services, treatments and diagnostic testing allegedly rendered by Defendants. Dr. Reinke also raised the same concerns that led Allstate to suspect additional improper activities on the part of Defendants regarding, inter alia, aspects of diagnostic imaging generally, the necessity of videofluoroscopic x-rays, and the establishment of medical necessity for services rendered. (R. 186-1, ¶ 27.) On May 10, 2006, Allstate decided to retain Dr. Reinke to review numerous other claims involving Defendants' clinics and to opine on Defendants' pattern of misconduct by billing for services never rendered, providing treatment for non-existent injuries, using unlicensed assistants, providing inaccurate medical reporting, and misrepresenting medical staffing. Id. at ¶ 28.
*806 On November 30, 2006, Dr. Reinke issued her opinions to Allstate that the medical records, sworn statements and other documentation that she reviewed demonstrated a "clear pattern of misconduct" by Dr. D'Souza. Based on Dr. Reinke's opinion and the evidence secured in its ongoing investigation into Defendants' fraudulent activities, Allstate filed the present lawsuit on December 19, 2006. (R. 186-1, Pl.Ex. G, Crespo Dep., pp. 2-7, 127, 318-322.) Crespo testified that she recommended the filing of a lawsuit against Dr. D'Souza, but that Ed Moran, head of Allstate's claims department, ultimately made the decision to file the lawsuit. Id. at pp. 127-128. The complaint filed by Allstate cited to specific deposition testimony and medical records. (R. 1-1, Complaint; R. 186-1, ¶ 12.)
Subsequent to the filing of the lawsuit, Dr. Reinke continued her review of Defendants' files and eventually reviewed all 450 case files at issue. (R. 186-1, ¶ 32.) She concluded that Defendants had engaged in a pattern of misconduct "designed to inflate the potential value of insurance claims and/or lawsuits involving insurance claims." Id. Dr. Reinke opined that Dr. D'Souza improperly billed for exams at the highest level, inappropriately used form medical reporting, misrepresented that licensed physicians were performing treatments, billed for treatment and services never rendered, billed for unnecessary diagnostic testing and chiropractic treatment, negligently maintained medical records and diagnostic studies, exaggerated the nature and extent of injuries allegedly sustained, paid "kickbacks" to physicians that referred patients to him, and improperly solicited personal injury attorneys and patients. Id.
LEGAL STANDARD
Summary judgment is proper when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Knight v. Wiseman, 590 F.3d 458 (7th Cir.2009). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In determining summary judgment motions, "facts must be viewed in the light most favorable to the nonmoving party only if there is a `genuine' dispute as to those facts." Scott v. Harris, 550 U.S. 372, 127 S.Ct. 1769, 1776, 167 L.Ed.2d 686 (2007). The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). "Thus, to survive summary judgment, the nonmoving party must present evidence sufficient to establish a triable issue of fact on all essential elements of its case." Lewis v. CITGO Petroleum Corp., 561 F.3d 698, 702 (7th Cir.2009); see Rozskowiak v. Vill. of Arlington Heights, 415 F.3d 608, 612 (7th Cir.2005) (the nonmoving party must present "evidence on which the jury could reasonably find for the nonmoving party.").
ANALYSIS
In Count II of its Complaint, Allstate seeks damages pursuant to 720 ILCS § 5/46-5(a), which states in pertinent part: "A person who knowingly obtains, attempts to obtain, or causes to be obtained, by deception, control over the property of any insurance company by the making of a false claim or by causing a false claim to be made on a policy of insurance issued by an insurance company ... shall be civilly liable to the insurance company ... in an amount equal to either 3 times the value of the property wrongfully obtained or, if no *807 property was wrongfully obtained, twice the value of the property attempted to be obtained, whichever amount is greater, plus reasonable attorneys fees." 720 ILCS § 5/46-5(a). Section 46-5(b) conversely provides the basis for Defendants' counterclaim against Allstate and states: "An insurance company ... that brings an action against a person under subsection (a) of this Section in bad faith shall be liable to that person for twice the value of the property claimed, plus reasonable attorneys fees." 720 ILCS § 5/46-5(b). Under § 46-5(b), then, to survive summary judgment, Defendants must establish a genuine issue of material fact regarding whether Allstate brought fraud claims against them in bad faith.
As an initial matter, both parties rely heavily on Steadfast Ins. Co. v. Auto Mktg. Network, Inc., 2001 WL 881324, 2001 U.S. Dist. LEXIS 11708 (N.D.Ill. July 31, 2001), the only reported case addressing claims pursuant to § 46-5(b). In Steadfast, the court considered whether a determination of bad faith in the insurance context requires a showing of improper motive. In reaching its determination, the Steadfast court analyzed the language of § 46-5(b), common law definitions of bad faith, and courts' interpretations of "unreasonable and vexatious" delay or denial of a claim pursuant to 215 ILCS § 5/155. Id. at *6-7, 2001 U.S. Dist. LEXIS 11708 at *21-*28. Steadfast's detailed analysis of the issues is persuasive, and the court ultimately held:
For § 46-5(b), however, the explicit use of the term bad faith leaves little room to doubt that liability must be predicated on proof of `... a state of mind affirmatively operating with furtive design or ill will.' The notion that it is a mixture of motive and result suggests that motive can be inferred from other evidence. For these reasons, the court adopts Steadfast's view that improper motive must be established to prevail under § 46-5(b). Subjective intent is generally a jury question. Thus, as indicated above, summary judgment is appropriate only if no reasonable jury could find in favor of the non-moving party.
Id. at *7, 2001 U.S. Dist. LEXIS 11708 at *27-*28. In order to prevail on its motion for summary judgment, Allstate must therefore establish that no reasonable jury could find that Allstate brought its actions against Defendants with improper motive. Because this issue presents a subjective question, Allstate's burden is high. See, e.g., Kilty v. Maple Grove Condo. Ass'n, 101 F.Supp.2d 1041, 1051 (N.D.Ill.2000) (holding that the defendant's subjective intent in a discriminatory housing case is a proper question for the jury).
I. The Undisputed Facts Show that Allstate Had a Good Faith Basis for Filing Suit Against Defendants
The undisputed facts demonstrate that Allstate had sufficient evidence on which to premise its § 46-5(a) claim against Defendants. This case is unlike Steadfast where the Court declined to enter summary judgment on the plaintiffs' § 46-5(b) claim because despite a six-month investigation into the defendants' activities, the plaintiffs' barren complaint raised a genuine issue of fact as to whether plaintiffs had acted in bad faith by filing a complaint that did not contain any substantive allegations. 2001 WL 881324 at *8-9, 2001 U.S. Dist. LEXIS 11708 at *32-*33. This case is more analogous to Lummis v. State Farm Fire & Cas. Co., 469 F.3d 1098, 1100 (7th Cir.2006) in which the Seventh Circuit upheld a district court's dismissal of the plaintiff insured's bad faith claim against the defendant insurer at the summary judgment stage. Lummis involved a suit filed against State Farm as a result of State Farm's denial of payment of the plaintiff's claim subsequent to a fire *808 that destroyed the plaintiff's home. The Plaintiff claimed that State Farm denied its claim in bad faith in contravention of state law. State Farm, however, presented evidence revealing that the cause of the fire was arson, State Farm informed the plaintiff that he had coverage under its policy despite the fact that his mortgagee was paying premiums on his home, the plaintiff was "nonchalant and cavalier" on the day of the fire, the plaintiff was struggling financially, the plaintiff purchased gasoline on the day of the fire, and the fire occurred the day of the foreclosure proceeding on the plaintiff's home. Id. Based on this evidence, the Court held that "State Farm's position [in denying plaintiff's claim], as a matter of law, simply can't be viewed as unreasonable or motivated by ill will." Id.
Similarly, Allstate has presented uncontested evidence that, prior to filing its complaint against Defendants, it thoroughly investigated Dr. D'Souza's activities for five years, obtained recorded statements from Dr. D'Souza's patients who testified that they did not receive all of the services for which Dr. D'Souza billed, reviewed Defendants' medical records, and inspected Defendants' clinics. Allstate also retained outside legal counsel to further its investigation, and secured the deposition of Dr. D'Souza and other clinic employees. Plaintiffs do not dispute these facts. The evidence also shows that Allstate's internal investigation revealed a series of fraudulent practices on the part of Dr. D'Souza and his clinics, including that Defendants billed for services not rendered, permitted treatment of patients by unlicensed physicians, and used DMX to diagnose soft-tissue injuries. Finally, Allstate retained a medical expert to assess the evidence collected by Allstate who issued an expert report in 2006 concluding that Defendants' activities demonstrated a clear pattern and practice of billing for services never rendered, using unlicensed assistants to provide medical treatment, providing inaccurate medical reporting, and inappropriately soliciting personal injury plaintiffs and attorneys. Allstate premised its complaint against Defendants on this evidence, and indeed cited to specific deposition testimony and other evidence throughout its detailed complaint. (R. 1-1, Complaint.) In short, Allstate conducted an extensive, thorough investigation before filing this lawsuit, and it has presented a wide array of evidence to demonstrate that it had a good faith basis for filing suit against Defendants. Accordingly, summary judgment is appropriate with respect to Defendants' bad faith counterclaim. See Lummis, 469 F.3d 1098 (holding that insurer's position, as a matter of law, was not unreasonable or motivated by ill will because thorough investigation into facts related to insurance claim at issue revealed evidence to support its denial of plaintiff's claim.) Based on the undisputed facts, no jury could find bad faith on Allstate's part as a matter of law.
II. Defendants Cannot Establish Any Genuine Issues of Material Fact With Respect to Their Bad Faith Counterclaim
Defendants' attempts to establish a genuine issue of material fact with respect to their § 46-5(b) counterclaim fail. They have failed to raise a question of fact regarding bad faith.
Defendants first argue that the fact that Dr. D'Souza holds a view regarding treatment of soft-tissue injuries that is contrary to the view taken by Allstate reveals bad faith on the part of Allstate. Defendants have established that there is a divergence of opinion between Allstate and Defendants on this issue. While Allstate employees testified that they believe soft-tissue injuries resolve in a few days and do *809 not necessitate long-term treatment, and that such injuries are subjective, Dr. D'Souza, based on his education and experience, believes such injuries are objective, require extended treatment, and can result in permanent injury. Dr. D'Souza and Allstate also hold conflicting opinions regarding the use of DMX motion x-rays. Dr. D'Souza asserts that the DMX is a useful tool to diagnose muscoligamentous spinal injuries caused by automobile accidents, while Allstate questions the use of this form of x-ray.
The Court, however, need not resolve these questions to determine that Defendants' § 46-5(b) claim does not survive summary judgment. Dr. D'Souza's opinion alone that Allstate's views are "false views" that Allstate uses to "avoid paying claims in bad faith so as to keep its money" does not establish a genuine issue of fact regarding bad faith, especially where Allstate has retained a qualified expert who opines that Dr. D'Souza routinely provides and/or bills for excessive and unnecessary treatment and diagnostic testing. (R. 186-1, Ex. K, Reinke Report.) Dr. Reinke also opines that videofluoroscopy, or DMX, is not required or appropriate for the evaluation of spinal or extremity soft-tissue injuries. (R. 186-1, Ex. K. Reinke Report, p. 8.) While these questions need to be resolved to determine Allstate's § 46-5(a) claim against Defendants, the fact that Allstate holds opposing views supported by a qualified medical expert to those of Dr. D'Souza does not support any furtive design or ill will toward Dr. D'Souza. See, e.g., Lummis v. State Farm Fire & Cas. Co., 2005 WL 1417053, *9, 2005 U.S. Dist. LEXIS 12346, *24-*25 (S.D.Ind. June 16, 2005) ("evidence may be highly relevant in deciding whether State Farm was wrong in determining [insured's claim]... [b]ut the possibility that a jury could disagree with State Farm's determination will not defeat summary judgment on a bad faith claim.")
As noted in Backwater, Inc. v. Penn-American Ins. Co., 448 F.3d 962 (7th Cir. 2006), a case in which the Seventh Circuit upheld a district court's dismissal of plaintiff insured's bad faith claim against defendant insurer on summary judgment, "the court, in deciding a motion for summary judgment, is obliged to construe the facts as favorably as possible to the nonmoving party. But [insurer], in deciding whether to grant or deny coverage, was under no such obligation." Id. at 964. Likewise, in the present case, Allstate "was free, within the constraints of reason and good faith, to evaluate the evidence and draw its own conclusion about [Dr. D'Souza's claims]." Id. Although "conflicting inferences may be drawn from the facts," "[t]hat's practically the definition of a good-faith dispute." Id. Such a dispute cannot provide the basis for a claim that an insurer breached a duty to deal in good faith. Id. (applying Indiana tort law). See also Sexson v. State Farm Fire & Cas. Co., 61 Fed.Appx. 267 (7th Cir.2003) (upholding dismissal of bad faith claim against insurer at summary judgment stage where insurer demonstrated a genuine good faith dispute on the issue of whether a fire was the product of the insured's arson.)
Defendants further attempt to establish a factual dispute regarding their bad faith counterclaim by contending that Allstate filed its lawsuit against Dr. D'Souza in retaliation for his public actions regarding issues involving soft-tissue injuries in auto accidents. Even viewing the relevant facts in the light most favorable to Defendants, however, there is no factual dispute bearing on Defendants' bad faith claim. Defendants present evidence that Dr. D'Souza published information on his website and held widely publicized conferences in the Chicago area for physicians and attorneys in 2001 and 2002. The evidence also shows that, in 2003, Allstate informed Dr. D'Souza that his use of chiropractic assistants *810 was improper because they were unlicensed, despite that fact that no current regulation specifically governed delegation by a chiropractic physician to an unlicensed assistant. Thereafter, Dr. D'Souza challenged Allstate's actions on a website called "AllstateSucks.com." Moreover, because Dr. D'Souza thought that Allstate was refusing payment of his bills on the basis of his use of unlicensed assistants, he contacted several Illinois regulatory agencies and ultimately received an informal advisory opinion from the Department of Professional Regulation in early 2004 which confirmed the lack of governing authority on the issue. Dr. D'Souza claims that this was the "final straw" prompting Allstate to pursue its suit against him because after Dr. D'Souza mailed and faxed his correspondence with the regulatory agencies to a total of 30 Allstate employees, including Crespo, Allstate hired lawyers to sue Dr. D'Souza.
Allstate, however, has presented undisputed evidence that belies Defendants' assertions that these actions led to Allstate's claim against Defendants. Based on these facts, no reasonable jury could find for Defendants. Indeed, Allstate admits that subsequent to receiving Dr. D'Souza's correspondence, Allstate retained outside legal counsel, Condon and Cook, to review the issues regarding chiropractic assistants raised by Dr. D'Souza. Allstate's outside legal counsel informed Allstate employees that the advisory opinion was not a legally binding document. Significantly, however, the uncontroverted evidence demonstrates that Allstate's retention of outside counsel to investigate Dr. D'Souza's practices as they related to the claims underlying this lawsuit was a step taken by Allstate apart from its retention of Condon and Cook. The undisputed evidence shows that, in 2004, Brendan Hannan, an SIU manager, requested a meeting with SIU analyst Catia Monforton to discuss the evidence obtained by Allstate during its investigation into Defendants' activities. Hannan presented Monforton evidence which raised concerns that Defendants were billing for services not rendered, permitting treatment of patients by unlicensed physicians, and using DMX to diagnose soft-tissue injuries. Subsequent to her meeting with Hannan, Monforton decided to consolidate and continue the various internal investigations into Dr. D'Souza, and, in June 2004, to retain outside legal counsel, LaRose, to further investigate Dr. D'Souza.
Accordingly, while Defendants have established that Allstate retained counsel to review the issues raised by Dr. D'Souza in his communications with Allstate regarding chiropractic assistants, Defendants have presented no evidence to contradict Allstate's evidence that it hired LaRose as a result of the various indicators of fraud that SIU employees discerned in their separate and distinct review of Defendants' claim files from 2001 forward. Indeed, Defendants have presented no evidence linking Dr. D'Souza's public actions, or his communications with or about Allstate, to Allstate's investigation or lawsuit. Viewing all evidence in favor of Defendants, they have failed to establish a genuine issue of fact regarding bad faith. See Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir.1992) ("While we view the facts in the light most favorable to the nonmoving party, there is an affirmative burden of production on the nonmoving party to defeat a proper summary judgment motion."); see also Chmiel v. JC Penney Life Ins. Co., 158 F.3d 966, 968 (7th Cir.1998) (noting that the court is not required to draw every conceivable inference from the record in favor of the non-movant, but only those inferences that are reasonable).
Indeed, given the lack of factual basis for their theory, Defendants rely solely on the timing of Allstate's retention of LaRose. *811 Defendants argue that Allstate's timing is "no coincidence," and that Allstate was aware of the allegedly fraudulent activity as early as 2001, but did not hire LaRose until 2004, "the very same time that Dr. D'Souza sent his letter to about 30 Allstate employees." (R. 195-1, Defendants' Opposition, p. 14.) The Seventh Circuit has held, however, that timing alone is not sufficient to create a genuine issue of material fact. Bivens v. Trent, 591 F.3d 555 (7th Cir.2010) ("suspicious timing alone rarely is sufficient to create a triable issue") (citing Tomanovich v. City of Indianapolis, 457 F.3d 656, 665 (7th Cir.2006)). Defendants' argument in this regard is therefore not persuasive. Accordingly, Defendants have not established a genuine issue of material fact regarding bad faith on the part of Allstate in investigating Dr. D'Souza or retaining counsel to pursue a lawsuit against him and his clinics.
Finally, Defendants also attempt to create a triable issue of fact by mischaracterizing the testimony of Allstate employees. Defendants' Opposition memorandum is replete with exaggerated descriptions of the statements of Allstate employees. In particular, Defendants rely heavily on the testimony of SIU employee Crespo.
There is no indication in Crespo's deposition testimony that ill will or furtive design motivated any of Crespo's statements. Instead, the evidence merely reflects that, in line with her job responsibilities, Crespo disseminated information regarding the facts underlying Allstate's investigation to attorneys associated with patients treated by Dr. D'Souza.
Furthermore, while Crespo testified that she recommended the filing of a lawsuit against Dr. D'Souza, she ultimately did not make this determination. Allstate only moved forward with a lawsuit after consulting with outside counsel and reviewing Dr. Reinke's findings. The evidence presented by Defendants is therefore insufficient to create an issue of triable fact regarding Allstate's alleged bad faith. See. e.g., Nat'l Ath. Sportswear, Inc. v. Westfield Ins. Co., 2007 WL 3286858, *13-14, 2007 U.S. Dist. LEXIS 82614, *42-*43 (N.D.Ind. Nov. 5, 2007) (granting summary judgment for defendant on plaintiff insured's bad faith claim and holding that allegations and evidence that defendant repeatedly requested plaintiff to undergo an examination under oath, did not return plaintiff's phone calls, ignored correspondence from plaintiff, and delayed in responding to plaintiff did not rise to the level of bad faith).
Allstate's thorough investigation and factual support for its claim against Dr. D'Souza defeats Defendants' attempts to create a triable issue of fact with respect to their bad faith counterclaim. Defendants have not provided any evidence that would allow a jury to conclude that Allstate filed suit against Defendants under § 46-5(a) in bad faith.
CONCLUSION
For the foregoing reasons, the Court grants Plaintiffs' Motion for Summary Judgment on Defendants' Counterclaim.
NOTES
[1] To supplement the facts regarding Dr. D'Souza's public activities, in his affidavit, Dr. D'Souza also summarizes the opinions that Dr. Michael Freeman expressed at a conference. In addition to being inadmissible hearsay, the Court has previously ruled that Dr. Freeman's opinions are inadmissible in this case. (R. 179-1, 8/31/09 Minute Entry granting, in part, Plaintiff's Motion to Strike.) The Court will not permit Dr. D'Souza to introduce Dr. Freeman's opinions through his affidavit. Accordingly, the Court strikes paragraphs 141-143 of Dr. D'Souza's affidavit.
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47 So.3d 357 (2010)
R.I., Appellant,
v.
DEPARTMENT OF CHILDREN AND FAMILIES, Appellee.
No. 4D10-1540.
District Court of Appeal of Florida, Fourth District.
November 3, 2010.
Rehearing Denied December 8, 2010.
*358 William W. Booth and Michelle Hankey of Legal Aid Society of Palm Beach County, Inc., West Palm Beach, for appellant.
Colleen Farnsworth, Assistant Regional Legal Counsel, Florida Department of Children & Families, West Palm Beach, for appellee.
Pamela S. Wynn, Lake Worth, for Amicus Curiae Child & Family Connections, Inc.
POLEN, J.
R.I. appeals the trial court's "Order Denying Motion to Order Department of Children and Families to Pay Fees Associated with the Administration of the Trust."
R.I. is developmentally disabled. He resided in foster care until his eighteenth birthday in April 2010. He remains under the extended jurisdiction of the juvenile court until his 19th birthday. See § 39.013(2), Fla. Stat. (2010). While in foster care, R.I. received Social Security benefits due to his disability, which were held in the department's master trust, for which the department is trustee. R.I. now lives in an APD (Agency for Persons with Disabilities) home, and receives a stipend from the department through the Road to Independence (RTI) program.
Section 402.17(7)(c), Florida Statutes (2010), applicable to R.I., provides as follows:
When a client under the age of 18 who has been in the legal custody, care, or control of the department and for whom the department is holding money or property as a trustee attains the age of 18 and has a physical or mental disability, or is otherwise incapacitated or incompetent to handle that client's own financial affairs, the department shall apply for a court order from a court of competent jurisdiction to establish a trust on behalf of that client. Where there is no willing relative of the client acceptable to the court available to serve as trustee of such proposed trust, the court may enter an order authorizing *359 the department to serve as trustee of a separate trust under such terms and conditions as the court determines appropriate to the circumstances. [emphasis added]
Because R.I. was not competent to handle his own financial affairs, and had no responsible relative to act as trustee, he requested that the court order the department to establish a trust on his behalf, separate from the master trust, and that the department serve as trustee. The trial court granted, in part, R.I.'s motion to establish a trust and appoint trustee, and reserved ruling on the issue of fees that would be imposed for the establishment and administration of the trust.
An entity was located that was willing to serve as trustee, the Center for Special Needs Trust Administration. This Florida, not-for-profit corporation has established a pooled trust pursuant to 42 U.S.C. § 1396p(d)(4)(C), to protect public assistance benefits, and utilize trust assets to meet special needs that are not provided by basic public assistance, on behalf of its beneficiaries. A one-time fee of $500 for trusts with less than $7,500, is assessed at the time of establishment of a trust by that agency.
The parties agreed to having R.I.'s conserved funds in the department's master trust transferred to a trust administered by the Center for Special Needs Trust Administration, rather than having the department create an entirely new trust for R.I.[1] R.I. did not, however, consent to the payment of the one-time $500 fee for the establishment of the trust, and moved for an order requiring the department to pay the fee. At the hearing, R.I. argued that, when the department is required to "establish" a trust pursuant to subsection (c) of the statute, it must pay any fees associated with the establishment of the trust. The trial court disagreed, and denied R.I.'s motion to require the department to pay the fee. In its written order, the trial court stated:
This is a case of first impression. This Court gives the plain meaning to words in § 402.17(7)(c). Here, the statute is silent as to the payment of fees. The Court will not read this requirement into the statute as it is presumed the Legislature knew how to state a requirement that [the department] pay trust fees.
We agree with the trial court. The statute directs only that "the department shall apply for a court order from a court of competent jurisdiction to establish a trust on behalf of that client," and that "the court may enter an order authorizing the department to serve as trustee of a separate trust under such terms and conditions as the court determines appropriate to the circumstances." § 402.17(7)(c) (emphasis added). The latter course of action is, of course, discretionary.
"Legislative intent guides statutory analysis, and to discern that intent we must look first to the language of the statute and its plain meaning." Fla. Dep't of Children & Family Servs. v. P.E., 14 So.3d 228, 234 (Fla.2009). As the supreme court recently reiterated:
[A] "statute must be given its plain and obvious meaning." ... In interpreting [a statute], however, we cannot read [a] subsection in isolation, but must read it within the context of the entire section in order to ascertain legislative intent for the provision.... A "statute should be interpreted to give effect to every clause in it, and to accord meaning and harmony to all of its parts" and is not to *360 be read in isolation, but in the context of the entire section....
Fla. Dep't of Envtl. Protection v. Contract-Point Fla. Parks, LLC, 986 So.2d 1260, 1265-66 (Fla.2008) (citations omitted); see also P.E., 14 So.3d at 234 ("[i]t is axiomatic that all parts of a statute must be read together in order to achieve a consistent whole") (quoting Forsythe v. Longboat Key Beach Erosion Control Dist., 604 So.2d 452, 455 (Fla.1992)).
The department's obligations in administering a child's master trust account are detailed in section 402.17. The Legislature's first charge in the statute requires the department to "protect the financial interest of the state with respect to claims that the state may have for the care and maintenance of clients of the department or agency." The statute further instructs that the department
shall, as trustee, hold in trust and administer money ... designated for the personal benefit of clients.... [and] act as trustee of clients' money ... in accordance with the usual fiduciary standards applicable generally to trustees, and shall act to protect both the short-term and long-term interests of the clients for whose benefit it is holding such money ....
§ 402.17, Fla. Stat. The department contends that the administrative fee to join the special needs pooled trust is an appropriate expenditure of client funds under the statute, because the expenditure is intended to benefit, and will benefit, R.I. The department notes that R.I. agreed to the use of this trust in order to meet his needs.
Subsection (2)(c) of the statute provides:
The department ... shall perform the following acts: ...
Withdraw the money and use it to meet current needs of clients. For purposes of this paragraph, `current needs' includes payment of fees assessed under s. 402.33. The amount of money withdrawn shall take into account the need of the department ... as the trustee of a client's money and property, to provide for the long-term needs of a client, including, but not limited to, ensuring that a client under the age of 18 will have sufficient financial resources available to be able to function as an adult upon reaching the age of 18, meeting the special needs of a client who has a disability and whose special needs cannot otherwise be met by any form of public assistance or family resources, or maintaining the client's eligibility for public assistance, including medical assistance, under state or federal law.
§ 402.17(2)(c) (emphasis added).
R.I.'s entry into the trust will allow him to conserve his assets, and thus, will protect both his short-term and long-term interests. See § 402.17. As the department explains in its answer brief:
The special needs pooled trust is established and administered pursuant to 42 U.S.C. § 1396p(d)(4)(C), to ensure that assets contained in the trust are exempt from being counted towards the [$2,000] SSI resource cap. In other words, the primary purpose of the special needs pooled trust is to ensure that [R.I.] can conserve some level of personal assets while continuing to be eligible for SSI benefits. [R.I.] may also deposit his Road to Independence stipend into this trust.
Accordingly, the special needs pooled trust is an established and lawful vehicle for holding and administering funds of an SSI beneficiary, without those funds being counted against the $2,000 SSI resource cap. 42 U.S.C. § 1396p(d)(4)(C); POMS SI 01120.203.
We further agree with the department that the expenditure of R.I.'s assets to *361 cover the administrative fee is consistent with "the usual fiduciary standards applicable generally to trustees," as required by section 402.17. Section 736.0816, Florida Statutes, allows a trustee to, among other things, "[p]ay taxes, assessments, ... and other expenses incurred in the administration of the trust." § 736.0816(15), Fla. Stat. (2010). We disagree with R.I. that using his funds to pay the administrative fee constitutes compensation to the department.
R.I. speculates that the use of his master trust funds to pay the pooled trust fee "could" violate sections of the master trust that prohibit expenditure of trust assets in payment of a client's "debt." Citing no legal authority, R.I. implies that expenditure of master trust assets for anything other than a "basic living expense" constitutes satisfaction of a debt. Here, however, R.I.'s master trust assets are not being used to pay a debt, but an expense necessary to shield his assets and protect his eligibility for federal welfare benefits.
In summary, the trial court correctly concluded there is no statutory requirement mandating the department to pay any administrative fees or costs for the establishment of a special needs pooled trust for a client who attains the age of eighteen. To the contrary, the applicable statutes authorize the department, as trustee, to expend the client's trust assets for his benefit. R.I.'s joining the special needs pooled trust allows him to conserve his assets and ensure continued eligibility for public assistance, making the $500 administrative fee to join the special needs pooled trust an appropriate expenditure.
Affirmed.
HAZOURI and GERBER, JJ., concur.
NOTES
[1] The res of this trust will be composed of R.I.'s SSI benefits currently held in the department's master trust, future payments of SSI benefits, and his RTI monthly stipend.
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691 F.Supp.2d 626 (2010)
ST. PAUL MERCURY INSURANCE COMPANY, Plaintiff/Counter-Defendant,
v.
AMERICAN BANK HOLDINGS, INC., Defendant/Counter-Plaintiff, and
Amiel Cueto, Defendant.
Case No. RWT 09cv961.
United States District Court, D. Maryland.
March 5, 2010.
*627 Thomas James Judge, April Hope Gassler, Thompson Loss and Judge LLP, Washington, DC, for Plaintiff/Counter-Defendant.
Albert J. Mezzanotte, Jr., Whiteford Taylor and Preston, Baltimore, MD, Valerie L. Tetro, Whiteford Taylor and Preston LLP, Washington, DC, for Defendant/Counter-Plaintiff.
Amiel Cueto, Belleville, IL, pro se.
MEMORANDUM OPINION
ROGER W. TITUS, District Judge.
This case primarily asks whether this Court may exercise personal jurisdiction over a non-resident defendant who enrolled foreign default judgments in Maryland. Concluding that the answer is yes, the Court will, by separate order, deny Defendant Amiel Cueto's Motion To Dismiss for Lack of Personal Jurisdiction [Paper No. 9] and related motions [Paper Nos. 46 & 57].
I
On June 11, 2008, Mr. Cueto initiated a lawsuit against Defendant American Bank Holdings, Inc. ("ABHI"), a Delaware corporation with its principal place of business in Maryland, in the Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois. See Paper No. 1 ("Compl.") ¶¶ 6, 8; see also id. Ex. A ("Cueto Compl."). ABHI did not timely file an answer or other responsive pleading, see Compl. ¶ 11, and, on July 23, 2008, the Illinois court entered three separate default judgments against ABHI, see id. ¶ 12; id. Ex. B.
On February 12, 2009, Mr. Cueto enrolled the foreign default judgments in various Maryland courts, seeking their enforcement, including the Circuit Court for Montgomery County, Maryland (Case No. 308934V), the Circuit Court for Howard County, Maryland (Case No. 13C09076350), and the Circuit Court for Prince George's County, Maryland (Case No. CAL09-08463). See id. ¶ 3. Shortly thereafter, Maryland courts sent ABHI notices indicating Mr. Cueto had enrolled the default judgments. See Paper No. 51 ("St. Paul Opp'n"), Ex. A.
ABHI notified its insurer, Plaintiff St. Paul Mercury Insurance Company ("St. Paul"), of the default judgments on February 25, 2009, see Compl. ¶ 25; id. Ex. D, and moved to set aside the default judgments in the Illinois Circuit Court the next day, see Paper No. 7 ("ABHI Answer"), Ex. 1. The Illinois Circuit Court denied ABHI's motion to set aside the default judgments, and the matter is currently on appeal before the Illinois Court of Appeals. See St. Paul Opp'n 3 n. 2. On August 17, 2009, the Circuit Court for Montgomery *628 County, Maryland vacated the judgments enrolled in that court, holding that the Illinois courts did not have personal jurisdiction over ABHI. See id. Ex. B. On September 14, 2009, Mr. Cueto filed a motion to set aside the order of the Circuit Court for Montgomery County vacating the judgment, See id. Ex. C, which the Court denied on October 21, 2009, see id. Ex. D.
St. Paul denied ABHI's request for coverage with respect to the default judgments and commenced this declaratory judgment action against ABHI and Mr. Cueto on April 15, 2009. See Compl. ¶ 1. In its Complaint, St. Paul alleges that Mr. Cueto is an Illinois resident and that the Court may exercise jurisdiction over him pursuant to Maryland's long-arm statute and the Due Process Clause of the Fourteenth Amendment. See id. ¶¶ 2-3. Mr. Cueto was personally served with a summons and St. Paul's Complaint in Illinois on May 7, 2009. See Paper No. 8 ("Proof of Service Upon Amiel Cueto"). Mr. Cueto, proceeding pro se, filed a handwritten "special appearance" on May 27, 2009, see Paper No. 9 ("Cueto's Motion To Dismiss"), which the Court determined is effectively a motion to dismiss for lack of personal jurisdiction. See Paper No. 49 ("January 8, 2010 Mem. Op. and Order").
In his Motion To Dismiss, Mr. Cueto contends that he has never made any contract in Maryland, "had nothing to do with the contract for insurance" at issue in this litigation, has not committed a tortious or wrongful act in Maryland, and has not been physically present in the State of Maryland since 1969. In their oppositions, St. Paul and ABHI argue that this Court may exercise personal jurisdiction over Mr. Cueto because he enrolled the Illinois default judgments he obtained against ABHI in Maryland courts. See St. Paul Opp'n at 2; Paper No. 52 ("ABHI Opp'n"), at 6-7. In his Reply, Mr. Cueto argues that his enrollment of the foreign judgments, absent any attempts to enforce them, is an insufficient basis for personal jurisdiction. See Paper No. 57 ("Cueto Reply"), at ¶¶ 11-12.
II
Where a district court addresses the question of personal jurisdiction on the basis of motion papers and legal memoranda, without an evidentiary hearing, a plaintiff need only make a prima facie showing of "a sufficient jurisdictional basis." See Consulting Eng'rs Corp. v. Geometric Ltd., 561 F.3d 273, 276 (4th Cir.2009). When analyzing the question of personal jurisdiction, the court "must draw all reasonable inferences arising from the proof, and resolve all factual disputes, in the plaintiff's favor." Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 60 (4th Cir.1993).
A federal court may exercise personal jurisdiction over a non-resident defendant if (1) the requirements of the forum state's long-arm statute are satisfied and (2) the exercise of jurisdiction comports with the Due Process Clause of the Fourteenth Amendment. See Consulting Eng'rs, 561 F.3d at 277. Maryland has construed its long-arm statute to authorize the exercise of personal jurisdiction to the full extent allowable under the Due Process Clause. See Base Metal Trading, Ltd. v. OJSC "Novokuznetsky Aluminum Factory," 283 F.3d 208, 212-13 (4th Cir.2002). Even though the Maryland long-arm statute reaches the outer limits of due process, the Court still must consider the express provisions of the Maryland long-arm statute because it continues to limit the exercise of specific personal jurisdiction to actions arising from any act enumerated in the statute. See Johansson Corp. v. Bowness Constr. Co., 304 F.Supp.2d 701, 704 (D.Md. 2004).
*629 A
The Maryland long-arm statute provides that "[a] court may exercise personal jurisdiction over a person, who directly or by an agent . . . [t]ransacts any business or performs any character of work or service in the State." Md.Code Ann., Cts. & Jud. Proc. § 6-103(b)(1) (West 2009). The Maryland Court of Appeals has held that "the acts done within a State which will support in personam jurisdiction as transacting `any business' are not necessarily limited to acts which are a part of commerce or of transactions for profit, but include acts which constitute a purposeful activity within the State." Novack v. Nat'l Hot Rod Ass'n, 247 Md. 350, 231 A.2d 22, 26 (1967). "[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958).
The Maryland courts have not yet addressed the question of whether enrollment of foreign judgments constitutes purposeful availment of state law and satisfies the "[t]ransacts any business" requirement of the state's long-arm statute. Even outside of Maryland, it appears that no court has directly decided the issue under its own long-arm statutes or as a matter of constitutional due process.[1] The statute authorizing the enrollment and enforcement of foreign judgments, the Uniform Enforcement of Foreign Judgments Act ("UEFJA"), is likewise silent on the issue of whether the filing of the foreign judgment confers personal jurisdiction in other proceedings.[2]See Md.Code Ann., Cts. & Jud. Proc. Proc., §§ 11-801-07 (West 2009). Given the lack of precedent and statutory guidance, the Court will treat this issue as one of first impression.
The Court concludes that a non-resident defendant who enrolls foreign default judgments in Maryland pursuant to UEFJA "[t]ransacts . . . business" within the *630 meaning of Maryland's long-arm statute. It arrives at this conclusion based on the similarities between the purposeful availment of a state's laws and protections when a judgment creditor enrolls a foreign default judgment and when a litigant files a lawsuit. Prior to enactment of UEFJA, a judgment creditor had to file a lawsuit in Maryland to enforce a foreign judgment. See Weiner v. Blue Cross of Md., Inc., 730 F.Supp. 674, 676 (D.Md.1990). UEFJA streamlined the procedure for enforcing a judgment by eliminating the need to file a complaint, see id. at 677, but a judgment creditor retains the right to bring an action to enforce a judgment instead of proceeding under UEFJA. See Md.Code Ann., Cts. & Jud. Proc. Proc., § 11-805(b) (West 2009). A foreign judgment filed pursuant to the procedures of UEFJA is treated as a Maryland judgment, see id. § 11-802(a)(2), and "has the same effect and is subject to the same procedures, defenses, and proceeding for reopening, vacating, staying, enforcing, or satisfying as a judgment of the court in which it is filed," id. §§ 11-802(b). Thus, the initiation and outcome of a proceeding under UEFJA is substantively similar to those of a civil action. Just as civil actions voluntarily initiated by nonresidents may constitute purposeful availment of the laws and protections of Maryland, so also should foreign judgment enrollment proceedings. See Neuralstem, Inc. v. StemCells, Inc., 573 F.Supp.2d 888, 898 (D.Md.2008) ("StemCells purposefully availed itself of the privileges and benefits of this forum by voluntarily filing the 2006 Maryland action, which involves the same parties and is related to the same transaction or occurrence as the instant matter.").
Accordingly, the Court finds that Mr. Cueto transacted business and engaged in purposeful activity in Maryland when he enrolled the Illinois default judgments against ABHI in several different courts within Maryland. By enrolling the foreign judgments in Maryland, Mr. Cueto expressly invoked "the benefits and protections of [Maryland's] laws." Hanson, 357 U.S. at 253, 78 S.Ct. 1228. Therefore, the Maryland long-arm statute authorizes the exercise of jurisdiction over Mr. Cueto for matters arising from or relating to the enrollment of the Illinois default judgments in Maryland. Since St. Paul's declaratory judgment action regarding the existence of insurance coverage directly relates to the Illinois default judgments enrolled in Maryland, the state's long arm statute authorizes this Court's exercise of personal jurisdiction over Mr. Cueto.
B
"Due process requires that personal jurisdiction over a non-resident defendant only be exercised where the defendant has certain minimum contacts with Maryland, `such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Young Again Prods., Inc. v. Acord, 307 F.Supp.2d 713, 715 (D.Md.2004) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). In evaluating whether specific jurisdiction over Mr. Cueto comports with due process, the Court must consider (1) the extent to which he has purposefully availed himself of conducting activities in Maryland and thereby has established minimum contacts, (2) whether St. Paul's claim arises out of Mr. Cueto's activities directed at Maryland; and (3) whether the exercise of personal jurisdiction would be "constitutionally reasonable." Christian Sci. Bd. of Dirs. of the First Church of Christ, Scientist v. Nolan, 259 F.3d 209, 216 (4th Cir.2001). Constitutional reasonableness is measured by considering the burden on Mr. Cueto of litigating in the forum, the interest of Maryland in adjudicating the dispute, St. Paul's interest in obtaining convenient and effective relief, the shared interests of the *631 states in obtaining efficient resolution of disputes, and the interest of the states in furthering substantive social policies. See Consulting Eng'rs, 561 F.3d at 279 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).
The first two due process inquiries have already been answered affirmatively by the analysis under the Maryland longarm statute. See supra Part II. B. Mr. Cueto has the requisite minimum contacts with Maryland by virtue of his purposeful availment of its courts to enroll the foreign judgments against ABHI, and those contacts are directly related to the insurance coverage dispute brought by St. Paul. As for the third inquiry, the Court finds that exercising jurisdiction over Mr. Cueto is constitutionally reasonable. First, Mr. Cueto does not and cannot reasonably complain that litigating here is unduly burdensome when he enrolled three foreign judgments in the Maryland courts. Second, Maryland has a great interest in adjudicating a dispute between a Maryland insured and its insurer regarding the existence of coverage under a policy issued in Maryland. Third, St. Paul has a strong interest in resolving the insurance policy dispute in Maryland because it is the only identifiable forum in which both Mr. Cueto and ABHI have sufficient contacts. Fourth, the states have an interest in adjudicating claims in a single action against all defendants. Fifth, the only social policies implicated in this action relate to the relationship between a Maryland insured and its insurer, and the Maryland courts are in the best position to further those social policies. The "traditional notions of fair play and substantial justice" are therefore not offended by this Court exercising its jurisdiction over Mr. Cueto. See Int'l Shoe, 326 U.S. at 316, 66 S.Ct. 154 (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940)).
III
Mr. Cueto also moves the Court to lift the stay and to vacate the injunction entered on December 17, 2009, see Paper No. 45 ("December 17, 2009 Order"). See Cueto Reply 7-8; Paper No. 46 ("Cueto Motion for Other Relief"). In order to a facilitate a speedy resolution in the underlying Illinois action, the Court stayed the proceedings in this case until June 7, 2010, and enjoined the parties from commencing any actions to address the issues raised in St. Paul's complaint or ABHI's counterclaim in any other court. See December 17, 2009 Order. In Maryland, the resolution of insurance coverage disputes should await the outcome of the underlying litigation where the issues in the coverage action are not independent and separable from those asserted in the underlying suit. See Blue Ridge Ins. Co. v. Puig, 64 F.Supp.2d 514, 516 (D.Md.1999). In this case, the outcome of the Illinois action on appeal will undoubtedly impact the insurance coverage dispute before this Court. Indeed, if all of the default judgments are vacated, the remaining issue in this case as to whether St. Paul has any duty to indemnify ABHI for its defense costs would not concern Mr. Cueto. Consequently, both the stay and injunction remain in effect until June 7, 2010, at which time the Court will likely have the benefit of the outcome of the appeal in the underlying Illinois action.
For the foregoing reasons, the Court will, by separate order, deny Defendant Amiel Cueto's Motion To Dismiss for Lack of Personal Jurisdiction [Paper No. 9], deny Defendant Amiel Cueto's Motion for Other Relief [Paper No. 46], and deny Defendant Amiel Cueto's Motion To Lift the Stay [Paper No. 57].
ORDER
Upon consideration of Defendant Amiel Cueto's Motion To Dismiss for Lack of *632 Personal Jurisdiction [Paper No. 9], Defendant Amiel Cueto's Motion for Other Relief [Paper No. 46], Defendant Amiel Cueto's Motion To Lift the Stay [Paper No. 57], and the opposition and replies thereto, it is for the reasons stated in the accompanying Memorandum Opinion on this 5th day of March, 2010, by the United States District Court for the District of Maryland, hereby
ORDERED, that Defendant Amiel Cueto's Motion To Dismiss for Lack of Personal Jurisdiction [Paper No. 9] is DENIED, and it is further
ORDERED, that Defendant Amiel Cueto's Motion for Other Relief [Paper No. 46] is DENIED, and it is further
ORDERED, that Defendant Amiel Cueto's Motion To Lift the Stay [Paper No. 57] is DENIED.
NOTES
[1] The court which has come closest to deciding the issue is the Court of Appeals of Ohio in Hall v. Tucker, 161 Ohio App.3d 245, 829 N.E.2d 1259 (2005). In that case, Tucker, a resident of New Jersey, had purchased from Hall, a resident of Ohio, a standard bred brood mare, which had medical problems and gave birth to an undersized foal. 829 N.E.2d at 1264. Tucker filed suit against Hall in the United States District Court of New Jersey to rescind the sale. Id. The New Jersey court referred the dispute to arbitration, and the arbitrator issued an arbitration award to Tucker, which the New Jersey court reduced to judgment. Id. Tucker filed the judgment in the Jackson County (Ohio) Court of Common Pleas, thereby placing a lien upon all of the land and tenements Hall owned in Jackson County. Id. Tucker then filed a complaint to marshal liens against all of Hall's property in Jackson County and thereafter commenced foreclosure proceedings against Hall's farm. Id. Hall subsequently filed a complaint against Tucker in the Jackson County Court of Common Pleas, which Tucker moved to dismiss, alleging that the trial court lacked personal jurisdiction over him. Id. at 1265. The trial court found that Hall had set forth sufficient allegations to establish its jurisdiction, and Tucker appealed. Id. The Court of Appeals of Ohio concluded that Tucker's purchase of the horse in Ohio combined with his use of Jackson County Court of Common Pleas to enforce the New Jersey judgment satisfied the Ohio long-arm statute's transacting business requirement and that exercising jurisdiction over Tucker comported with due process. Id. at 1267, 1269.
[2] Unlike UEFJA, the Maryland Uniform Interstate Family Support Act, which provides for the enforcement of out-of-state child-support orders against obligors who reside in Maryland, specifically addresses the issue of personal jurisdiction. It states: "Participation by a plaintiff in a proceeding before a responding tribunal, whether in person, by private attorney, or through services provided by the support enforcement agency, does not confer personal jurisdiction over the plaintiff in another proceeding." See Md.Code Ann., Fam. Law § 10-326(a) (West 2009).
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Dismissed and Memorandum Opinion filed May 21, 2009
Dismissed
and Memorandum Opinion filed May 21, 2009.
In The
Fourteenth Court of
Appeals
____________
NO. 14-09-00208-CR
____________
EX PARTE GERALD
DWAYNE CARLINE
On Appeal from the 230th District
Court
Harris County, Texas
Trial Court Cause No. 1200702
M E M O R A N D U M O P I N I O N
Appellant
was charged with manufacturing with intent to deliver between 28 and 400 grams
of a controlled substance. Appellant filed a pre-trial application for writ of
habeas corpus asking the trial court to set a reasonable bond. The trial court
set pre-trial bond at $200,000 and dismissed the application. Appellant then
filed a notice of appeal.
On May
12, 2009, appellant filed a motion to dismiss the appeal because the issues in
this appeal have been rendered moot. According to the motion, appellant
entered a guilty plea to possession of a controlled substance and was sentenced
to confinement for two years in the Institutional Division of the Texas
Department of Criminal Justice.
Appellant=s plea renders the issue of pretrial
bond moot. See Ex parte Morgan, 335 S.W.2d 766, 766 (Tex. Crim. App.
1960); Ex parte Bennet, 818 S.W.2d 199, 200 (Tex. App.CHouston [14th Dist.] 1991, no pet.)
(stating that Awhere the premise of a habeas corpus application is destroyed by
subsequent developments, the legal issues raised thereunder are rendered moot@).
Accordingly,
we dismiss this appeal as moot.
PER CURIAM
Panel consists of Chief Justice Hedges and Justices Yates
and Frost.
Do Not Publish C Tex. R. App. P. 47.2(b).
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43 So.3d 170 (2010)
Armando ALONSO and Michael S. Cease, Appellants,
v.
OCEAN BANK, a Florida banking corporation, Laurel Gardens, LLC, a Florida limited liability company, Allen R. Greenwald, an individual, Jill F. Greenwald, an individual, Great Florida Bank, a Florida banking corporation, and Kimely-Horn and Associates, Inc., a foreign corporation registered to do business in Florida, Appellees.
No. 4D09-1770.
District Court of Appeal of Florida, Fourth District.
September 8, 2010.
*171 Lazaro J. Mur and Cyril E. Smith of Nixon Peabody LLP, Palm Beach Gardens, for appellants.
Andrew D. Manko, David J. Smith and Cristina Alonso of Carlton Fields, P.A., Miami, for appellee Ocean Bank.
POLEN, J.
Appellants, Armando Alonso and Michael Cease, appeal the trial court's order granting appellee, Ocean Bank's, motion for summary judgment in its foreclosure action against appellee, Laurel Gardens, LLC and Alonso and Cease. We hold that summary judgment was properly entered and affirm.
On January 20, 2005, Laurel Gardens obtained a loan in the amount of $14.5 million from Ocean Bank and executed a promissory note in the amount of $14.5 million, with a maturity date of July 20, 2006. The initial note was secured by a mortgage deed and security agreement which encumbered 609 acres of real property in St. Lucie County and any personal property located thereon, and an Assignment of Leases, Rents, and Profits, which entitled Ocean Bank to any lease or rent profits on the real property in the event of default.
The maturity date was ultimately extended to April 27, 2008, and the loan amount was increased to $16.35 million per Laurel Gardens' request. Appellants Cease and Alonso each executed an Unlimited Guaranty of Laurel Gardens' obligations under the note and mortgage.
The note required Laurel Gardens to pay interest payments on a monthly basis through the date of maturity, April 27, 2008. On that date, the note provided that the "entire outstanding principal balance together with all accrued and unpaid interest, if any, shall be due and payable." In lieu of paying the entire principal balance by April 27, 2008, the note gave Laurel Gardens the option of extending the date of maturity for one year upon meeting the following conditions:
Provided that this Note or any part of its supporting loan documents are not in default and Holder has received evidence of approval from Town, Village, and County zoning ("TVC") of a Development of Region Impact designation *172 ("DRI"), Maker herein shall have the option to extend the Maturity Date specified herein for an additional twelve (12) months upon payment to Holder of an extension fee equal to one quarter of one percent (0.25 of 1%) of the then committed amount.
The commitment letter provided, in part: "In the event the Borrower exercises the option to extend the maturity date twelve [12] months, interest reserve will be replenished based [sic] via borrower's own funds based on the then prevailing interest rate."
Finally, the note contained a severance clause stating that in the event any provision contained in the mortgage or note or any other loan document should be held unenforceable, inapplicable, invalid, or illegal, such issue would not affect the other terms of the agreement and the mortgage would be construed as if such provision had never been contained therein.
After Laurel Gardens failed to pay the outstanding balance due on April 27, 2008, and failed to comply with any of the preconditions of extension established by the mortgage documents, Ocean Bank filed suit against Laurel Gardens, Cease, and Alonso asserting seven claims: (1) Breach of Promissory Note; (2) Foreclosure of Mortgage; (3) Foreclosure of Security Interest; (4) Replevin; (5) Enforcement of Assignment of Leases; (6) Enforcement of Guaranty by Cease; and (7) Enforcement of Guaranty by Alonso.
Laurel Gardens, Cease, and Alonso raised the following affirmative defenses in an amended answer:
(1) Ocean Bank knows its interests in the property are well protected and valuable and foreclosure would be inequitable;
(2) Ocean Bank breached its agreement by not extending the maturity date of the note despite the fact that (a) the consolidated note was not in default on April 27, 2008, (b) the DRI was no longer a necessary, material, or relevant condition, and (c) defendants remained ready, willing, and able to pay any extension fee;
(3) Ocean Bank is prohibited from claiming a default under the consolidated note because the note had remained current, the DRI was no longer necessary, material, or relevant, and defendants were ready, willing, and able to pay the extension fee.
Ocean Bank ultimately filed an amended motion for summary judgment arguing there was no issue of material fact and the undisputed facts entitled them to a judgment on all claims as a matter of law. Ocean Bank supported its motion with the initial note, the consolidated note, and the affidavit of Carlos Sandino, Vice President of Ocean Bank, who affirmed the loan documents were valid and that Laurel Gardens neither tendered the outstanding sums due nor complied with the pre-conditions to exercising the option to extend.
Defendants filed two affidavits, both of which were from Cease. In the first, Cease swore that (1) the note provided for an option to extend, (2) all payments were made on time up to April 27, 2008, (3) Laurel Gardens was ready, willing, and able to pay the extension, and (4) Ocean Bank waived the DRI condition because it knew the condition was no longer relevant as the development plans for the property had changed and DRI approval could no longer be obtained. In the second affidavit, Cease swore that (1) Evilio Herrera and Danilo Perez were his contacts at Ocean Bank, and (2) that his dealings with Ocean Bank had not involved Carlos Sandino.
A hearing on the motion for summary judgment, which was not transcribed, was *173 held on March 30, 2009. The court entered final summary judgment in favor of Ocean Bank on all claims based on its determination that the note and mortgage were in default for Laurel Gardens' failure to pay the full amount due on April 27, 2008 and failure to meet the conditions necessary to execute the extension. The court entered a judgment awarding Ocean Bank $19,099,503.23 in damages under the note and allowing Ocean Bank to foreclose on the mortgage encumbering Laurel Gardens' real property. The court also determined that Ocean Bank was entitled to recover the full amount of damages against Cease and Alonso, jointly and severally, under the guaranties.
On appeal, Cease and Alonso contend the trial court erred in granting summary judgment because (1) the promise to extend the maturity date was illusory as it was based on an impossible precondition; namely, obtaining DRI designation when there is no such designation or term under the Land Development Code for St. Lucie County, and (2) Ocean Bank should have been equitably estopped from foreclosing on the note where it acted contrary to its long-standing custom and practice of notifying Cease and Alonso when payments were due and withdrawing funds from their account to satisfy such payments.
The appellant's first argument is unpersuasive. While the precondition of obtaining a DRI designation may have been illusory, Cease and Alonso also failed to fulfill the other preconditions to exercising their right to extension under the note. The contract's severance clause avoids any concern over the DRI designation. Summary judgment was properly entered.
The second argument fails as well. Not only is there no record evidence that this argument was raised below, but there is also no evidence that any such custom was ever established. Accordingly, we affirm the trial court's order entering summary judgment.
Affirmed.
MAY, J., and GATES, MICHAEL L., Associate Judge, concur.
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333 S.W.3d 22 (2010)
Kendra M. REAM-NELSON, Appellant,
v.
Joshua NELSON, Respondent.
No. WD 71811.
Missouri Court of Appeals, Western District.
November 16, 2010.
*24 Craig D. Ritchie, for Appellant.
Ryan G. Wilson, for Respondent.
Before Division Two: JOSEPH M. ELLIS, Presiding Judge, ALOK AHUJA, Judge and KAREN KING MITCHELL, Judge.
JOSEPH M. ELLIS, Judge.
Kendra Ream-Nelson ("Mother") appeals from a judgment entered in the Circuit Court of Buchanan County denying her motion to modify the custody provisions of the decree dissolving her marriage to Joshua Nelson ("Father"). Mother also appeals from the circuit court's denial of her motion to have Father held in contempt for failure to comply with provisions of the dissolution decree.
*25 Prior to dissolution, Mother and Father were married for sixteen years. Two children were born of the marriage: Kody, born March 24, 1993, and Josette, born January 25, 1998.
After a physical altercation with Mother, in July 2008, Father pleaded guilty to a domestic assault charge and was placed on probation for two years subject to the jurisdiction of a "Domestic Violence Court." On November 20, 2008, the Circuit Court of Buchanan County entered its judgment dissolving the marriage between Mother and Father. The court awarded joint legal custody to both parties. Mother was awarded sole physical custody of the children, and Father was granted weekly visitation rights.
On February 24, 2009, Father filed a motion to modify the decree of dissolution and for contempt alleging that Mother was failing to comply with the provisions of the dissolution decree. That motion was subsequently dismissed by Father prior to hearing. On April 10, 2009, Mother filed her answer and cross-motion to modify custody and visitation and for contempt. Mother claimed that a substantial change in circumstances had occurred that warranted awarding her full legal custody over the children and requested that all of Father's visitation be supervised, asserting twenty-four different claims of misconduct against Father. She also claimed that Father was in contempt for failing to utilize his best efforts to refinance a home that had been owned by the couple in order to remove her name from the mortgage and had failed to make some of the monthly payments on her 2008 Toyota Forerunner.
After conducting an evidentiary hearing on Mother's motion on October 1, 2009, the circuit court entered its judgment finding that the allegations in Mother's motion "were wholly unsupported at Hearing by competent and substantial evidence." The court found that Mother had failed to demonstrate a change in the circumstances of Mother or the children that would allow for modification of custody. The court further found that Father's inability to refinance the house or make the car payment was not willful and was due to Father's financial and business difficulties, and was, therefore, not contemptuous. Mother brings two points on appeal.[1]
In her first point, Mother claims that the trial court's erroneously found that Mother had failed to demonstrate a sufficient change had occurred in the circumstances of herself or the children to warrant a change in legal custody. Mother argues that the weight of the evidence established that she and Father are unable to communicate.
"As in other judge-tried cases, our standard of review in a modification of custody proceeding is governed by Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976)." Durbin v. Durbin, 226 S.W.3d 876, 878 (Mo.App. W.D.2007) (internal quotation omitted). "The trial court's ruling will be affirmed unless there is no substantial evidence to support it, it is against the weight of the evidence, or it declares or applies the law incorrectly." Id. (internal quotation omitted). "In reviewing the trial court's judgment, we must view the evidence and all reasonable inferences drawn therefrom in the light most favorable to the trial court's judgment and disregard all evidence and inferences to the contrary." *26 Hamer v. Nicholas, 186 S.W.3d 884, 886 (Mo.App. W.D.2006).
"We give greater deference to the trial court in child custody cases than in other types of cases because the trial court is in the best position to judge the credibility of the parties, their sincerity, character, and other intangibles which may not be revealed by the record." Durbin, 226 S.W.3d at 879 (internal quotations omitted). "The judgment must be affirmed under any reasonable theory supported by the evidence and should be set aside only upon a firm belief that the trial court's judgment was incorrect." Hamer, 186 S.W.3d at 886 (internal quotation omitted). "We exercise extreme caution in considering whether a judgment should be set aside on the grounds that it is against the weight of the evidence, and will do so only upon a firm belief that the judgment was wrong." Ronquille v. Ronquille, 263 S.W.3d 770, 774 (Mo.App. W.D.2008) (internal quotation omitted).
"`Under § 452.410.1, a court may not modify a prior custody decree unless it finds, on the basis of facts which have arisen subsequent to [that] decree, that (1) a change has occurred in the circumstances of the child or his custodian and (2) a modification of custody is in the best interests of the child.'"[2]Spire v. Adwell, 36 S.W.3d 28, 31 (Mo.App. W.D. 2000) (quoting Mobley v. Phillips, 942 S.W.2d 399, 400-01 (Mo.App. W.D.1997)). "A motion to change from joint custody to sole custody requires a showing that the change in circumstances is substantial." Hightower v. Myers, 304 S.W.3d 727, 734 n. 6 (Mo. banc 2010). "[T]he parent requesting the change of custody has the burden of proving the change in circumstances warranting custody modification." Bather v. Bather, 170 S.W.3d 487, 493 (Mo.App. W.D.2005). Thus, in ruling on a motion to modify from joint legal to sole legal custody, the trial court must first determine whether the evidence establishes that a substantial change has occurred in circumstances of the child or the child's custodian; and, if so, it must then consider whether the best interests of the child would be served by modifying custody. Fortner v. Fortner, 166 S.W.3d 615, 618 (Mo.App. W.D.2005).
Prior to the entry of the original dissolution decree, after a physical altercation with Mother, in July 2008, Father pleaded guilty to a domestic assault charge and was placed on probation for two years subject to the jurisdiction of a "Domestic Violence Court." The details of that incident were not placed in evidence before the circuit court in the dissolution or modification proceedings. According to both Father and Mother's testimony in the evidentiary hearing, under the initial terms of his probation, Father was prohibited from communicating with Mother about anything other than the children. After Mother felt that Father was calling about the children too frequently, Father agreed to be further limited to no more than two telephone calls per day about the children. Subsequently, Father sent a letter to Mother setting forth the things that he felt were positive about their marriage. As a result of that letter and Father calling her three times in a day on one occasion, Mother pursued and obtained a full no *27 contact order against Father in the domestic violence court.
Following the evidentiary hearing on her motion to modify custody, the circuit court found:
It goes without saying that the conditions of probation to which [Father] is subject in a "Domestic Violence Court" case curtail his ability to contact [Mother] for any reason. However, under this Court's JUDGMENT, not only are both parents encouraged to honestly and openly communicate with one another regarding financial matters related to the dissolution but also as to areas dealing with complying with the Joint Custody Arrangement.
[Mother] has used this prohibition against communication by [Father] as both a sword and a shield for her to refrain from her duty to communicate with [Father] under the JUDGMENT. [Mother]'s generic, emotional account of incidences of physical and mental abuse by [Father] consisted of vague and non-specific conclusions without bolster by articulated facts save for such conduct as [Father] writing [Mother] a note in which he informed her he wished to think about the good things which were part of their marriage and exceeding a permissible two (2) telephone calls per day by one telephoning her three (3) times, both of which constituted technical violations of his probation conditions and resulted in punitive actions against [Father] by the "Domestic Violence Court." While this Court was never benefited with the details of the occurrence which lead to [Father]'s term of probation, such had occurred prior to the time of the dissolution of the marriage and, this Court must assume, was considered at the time [Mother] and [Father] entered into their joint custodial arrangement.
Notwithstanding, the conditions of probation in the aforementioned case, it would appear that [Mother], not [Father] may be the party in violation of the provisions of the custody arrangement provided in the JUDGMENT; an arrangement which was agreed upon by the parties and, as provided for by Sec. 452.375.6 RSMo., approved by this Court as being in the best interests of the children less than one (1) year ago.
* * *
This Court is unable to detect the presence of a change of circumstances of the children or [Mother] such as meets the burden established by Sec. 452.410.1 RSMo., necessitating the modification she requests to serve the best interests of the children.
Section 452.375.1(2) defines "joint legal custody" as a situation in which "the parents share the decision-making rights, responsibilities, and authority relating to the health, education and welfare of the child, and, unless allocated, apportioned, or decreed, the parents shall confer with one another in the exercise of decision-making rights, responsibilities, and authority." Sutton v. Sutton, 233 S.W.3d 786, 790 (Mo. App. E.D.2007). The uncontroverted testimony of both Father and Mother established that Father and Mother did not have any communication from the end of February 2009 until the evidentiary hearing on October 1, 2009. Regardless of who was responsible for that breakdown in communication,[3] it was a total communication breakdown nonetheless. No joint parenting *28 had occurred in at least seven months. While Father testified to his belief that he and Mother had reached a point where they would be able to effectively communicate, the fact that communication had not occurred in such a long period and that there continued to be no communication between the parents was indeed a significant change in the circumstances that warranted consideration of whether a modification in the custody decree was in the best interests of the children. "The parties' inability to communicate, cooperate, and make shared decisions concerning their children's welfare makes joint legal custody inappropriate, and a breakdown of parental communication and cooperation is sufficient, in and of itself, to constitute a change in circumstances which can afford the basis for modifying a prior decree." Id. (internal quotation omitted); see also Margolis v. Steinberg, 242 S.W.3d 394, 398 (Mo.App. E.D.2007); Hamer, 186 S.W.3d at 887; McCauley v. Schenkel, 977 S.W.2d 45, 50 (Mo.App. E.D.1998).
Accordingly, the judgment is reversed, and the cause is remanded to the circuit court to consider whether a change of custody would be in the children's best interests, giving due consideration to the public policy stated in § 452.375.4 and the eight statutory factors listed in § 452.375.2. "In that regard, it is for the trial court to decide, in the exercise of its discretion, whether to reopen the record and receive additional evidence on remand." Hamer, 186 S.W.3d at 889 (internal quotation omitted).
In her second point, Mother claims that the trial court erred in denying her motion for contempt against Father. Mother argues that the circuit court's finding that Father's inability to satisfy his obligation to have her name removed from the mortgage was not willful or contemptuous is against the weight of the evidence.
As in any court tried matter, in a civil contempt proceeding, "[t]his court will affirm the judgment unless there is no substantial evidence to support the decision, the decision is against the weight of the evidence, or the decision erroneously declares or applies the law." Walters v. Walters, 181 S.W.3d 135, 138 (Mo.App. W.D.2005). "A trial court's judgment in a civil contempt proceeding will not be disturbed on appeal absent a clear abuse of discretion." Id. (internal quotation omitted). "Judicial discretion is abused when the trial court's ruling is clearly against the logic of the circumstances then before the court and is so arbitrary and unreasonable as to shock the sense of justice and indicate a lack of careful consideration." Stuart v. Ford, 292 S.W.3d 508, 513 (Mo. App. S.D.2009) (internal quotation omitted). "If reasonable persons can differ about the propriety of the action taken by the trial court, then it cannot be said that the trial court abused its discretion." Id. (internal quotation omitted).
"A party alleging contempt establishes a prima facie case for civil contempt when the party proves: (1) the contemnor's obligation to perform an action as required by the decree; and (2) the contemnor's failure to meet the obligation." Walters, 181 S.W.3d at 138. "The alleged contemnor then has the burden of proving that person's failure to act was not due to her own intentional and contumacious conduct." Id.
Father readily acknowledged during the hearing his obligation under the dissolution decree to refinance the house to have Mother's name removed from the mortgage and his failure to meet that obligation. He also acknowledged not having been able to pay off the debt on the marital house and to having missed payments on Mother's car. Accordingly, the burden *29 shifted to Father to demonstrate that his failure to perform was not due to his own intentional and contumacious conduct.
"Whether or not [sic] Father's conduct was intentional and contumacious is a fact-driven inquiry." Basham v. Williams, 239 S.W.3d 717, 727 (Mo.App. S.D.2007). Father stated at the hearing that financial problems and business difficulties had made it impossible for him to comply with all of the provisions of the decree at once. Father testified that he had IRS tax liens against him totaling approximately $200,000.00, that business for his business was down eighty percent, that the business no longer had any employees, that he was running the business out of his home, and that he was barely able to make the payments to keep the business running. He testified that his debt to income ratio was too high to refinance after the decree was entered and that the IRS had demanded a payment of $12,400.00 to subordinate their interest in the property. Father further testified that he had placed the house up for sale and that, if it didn't sell, he would take whatever steps were necessary to resolve the situation within sixty days, possibly pursuing a deed in lieu of foreclosure or a short sale. The trial court found Father's testimony credible and that Father's failure to comply with the provisions of the dissolution decree was not willful or intentional.
Mother claims that Father's satisfaction of other debts assigned to him, including the $20,000 equalization payment owed to her under the judgment and his payment of other marital and nonmarital debts, demonstrates his behavior was intentional and contumacious because he could have satisfied his obligations related to the house and her car instead. She cites cases in which a trial court entered a contempt judgment where the spouse had options available to them that would allow them to satisfy the judgment.
The trial court accepted as credible Father's testimony that his debt to income ratio as well as the IRS subrogation prevented Father from refinancing the home. Accordingly, the trial court was entitled to find that the steps taken by Father were all reasonable and necessary for him to refinance the home and settle the marital debt thereupon. The trial court found that, due to his debt and financial problems, Father lacked the wherewithal to satisfy his obligations related to the house and car contained in the dissolution decree.
We defer to the trial court's credibility determinations and its weighing of the evidence. Stuart, 292 S.W.3d at 514. Viewing the evidence in accordance with our standard of review, we cannot conclude that the trial court's decision was against the weight of the evidence or that the decision is otherwise "clearly against the logic of the circumstances then before the court and is so arbitrary and unreasonable as to shock the sense of justice and indicate a lack of careful consideration." Id. at 513 (internal quotation omitted). Point denied.
As noted in our treatment of Appellant's first point, the trial court erred in finding that a substantial change in the circumstances of the children or the custodial spouse had not occurred. Accordingly, the judgment is reversed, and the cause is remanded to the circuit court to consider whether a change of custody would be in the children's best interests, giving due consideration to the public policy stated in § 452.375.4 and the eight statutory factors listed in § 452.375.2. "In that regard, it is for the trial court to decide, in the exercise of its discretion, whether to reopen the record and receive additional evidence on *30 remand." Hamer, 186 S.W.3d at 889 (internal quotation omitted).
All concur.
NOTES
[1] Father has elected not to file a brief on appeal. "There is no penalty for a respondent failing to file a brief, however, this Court is forced to adjudicate Mother's claim of error without the benefit of whatever argument Father might have raised." Basham v. Williams, 239 S.W.3d 717, 721 n. 3 (Mo.App. S.D.2007).
[2] Section 452.410.1, governing the modification of custody, provides, in relevant part:
[T]he court shall not modify a prior custody decree unless it has jurisdiction under the provisions of section 452.450 and its finds, upon the basis of facts that have arisen since the prior decree or that were unknown to the court at the time of the prior decree, that a change has occurred in the circumstances of the child or his custodian and that the modification is necessary to serve the best interests of the child.
[3] The welfare of the children is the primary consideration in making a determination related to custody, and "custody should not be used to reward or punish either party." In re Marriage of Kroeger-Eberhart v. Eberhart, 254 S.W.3d 38, 48 (Mo.App. E.D.2007).
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Dissenting Opinion by
Judge Menoer:
I respectfully dissent. The appellant here seeks only two items of information from the State Employes’ Retirement Board. He seeks (1) the names of retirees and (2) the addresses of retirees. Unlike the plaintiffs in McMullan v. Wohlgemuth, 444 Pa. 563, 281 A.2d 836 (1971), and its progeny cases, he does not seek any information relative to the disbursement of funds by any agency of the Commonwealth.
*247Appellant asserts Ms right to the information sought on the basis that a record of names and addresses of state retirees is a public record as defined in Section 1 of the so-called Right-to-Know Law, Act of June 21, 1957, P.L. 390, as amended, 65 P.S. §66.1 (2):
(2) ‘Public Record.’ Any account, voucher or contract dealing with the receipt or disbursement of funds by an agency or its acquisition, use or disposal of services or of supplies, materials, equipment or other property and any minute, order or decision by an agency fixing the personal or property rights, privileges, immunities, duties or obligations of any person or group of persons: Provided, That the term ‘public records’ shall not mean any report, communication or other paper; the publication of which would disclose the institution, progress or result of an investigation undertaken by an agency in the performance of its official duties, •except those reports filed by agencies pertaining to safety and health in industrial plants; it shall not include any record, document, material, exhibit, pleading, report, memorandum or other paper, access to or the publication of which is prohibited, restricted or forbidden by statute law or order or decree of court, or which would operate to the prejudice or impairment of a person’s reputation or personal security, or which would result in the loss by the Commonwealth or any of its political subdivisions or commissions or State or municipal authorities of Federal funds, excepting therefrom however the record of any conviction for any criminal act.
A list of the names and addresses of any group of persons is simply not encompassed by the definition *248of “public record” and, accordingly, appellant is not entitled to such information under the provisions of the Right-to-Know Law.1
It has been the disbursement of public funds that has undergirded the decisions in this area,2 with the exception of two cases, Friedman v. Fumo, 9 Pa. Commonwealth Ct. 609, 309 A.2d 75 (1973), and Young v. Armstrong School District, 21 Pa. Commonwealth Ct. 203, 344 A.2d 738 (1975), which I now believe were incorrectly decided.
In Friedman v. Fumo, we permitted the inspection and copying of the list of persons who had taken the Department of State’s examination for qualification as a certified public accountant. We did so on the reasoning that the Supreme Court, in McMullan v. Wohlgemuth, supra note 2, had concluded that the general definition of “public record” in the Right-to-Know Law was broad enough to encompass the records there sought, and we could perceive no distinction between the records of names of persons on welfare and lists of names of persons who have taken accountancy examinations. However, it seems to me that the distinction we overlooked was that in McMullan more was sought than a list of names of persons on welfare, namely, the respective amounts of public assistance disbursed from public funds, and it was this vital aspect of disbursement of public funds that qualified the information sought as a public record as that term has been defined by the Legislature.
After having decided Friedman v. Fumo, supra, it was quite understandable that we followed its holding in permitting access to a list of the kindergarten pu*249pils enrolled in the Armstrong School District. Young v. Armstrong School District, 21 Pa. Commonwealth Ct. 203, 344 A.2d 738 (1975). However, “just because a path is well beaten is no proof it’s the right one.”3
In West Shore School District v. Homick, 23 Pa. Commonwealth Ct. 615, 353 A.2d 93 (1976), we carefully analyzed the definition of “public record” and, in the words of the dissenters, “depart [ed] from the inclusive concept of ‘public record’ which we have applied in Friedman v. Fumo, 9 Pa. Commonwealth Ct. 609, 309 A.2d 75 (1973) and again more recently in Young v. Armstrong School District, 21 Pa. Commonwealth Ct. 203, 344 A.2d 738 (1975).”
I hold to the view that we should continue to adhere to the definition of “public record” which the Legislature placed in the Right-to-Know Law and “depart from the inclusive concept of ‘public record’ which we have applied in [Friedman and Young].”
Therefore, I file this dissent since I am now of the view that a list of names and addresses does not constitute a public record and the adjudication of the State Employes’ Retirement Board refusing access to such information should be affirmed.
Opinion by
Judge Wilkinson, Jr.
following reargument, January 25, 1978:
This matter was before our Court on March 10, 1977 with a decision and order, dated April 25, 1977, as follows:
Now, April 25, 1977, the adjudication of the State Retirement Board, dated April 7, 1976, refusing Fred Mergenthaler access to a list of retirees in order to copy such list is modified and the Board is hereby ordered to allow Fred Mergenthaler access to minutes of the Board *250meetings to obtain tbe names of retirees and to tbe files of retirees in order to obtain tbeir addresses. Should it become necessary to remove confidential data from the files, this shall be done by the Board, at the expense of appellant, prior to the allowance of access to these files.
The opinion, together with a dissenting opinion by Judge Mencer, is reported in 33 Pa. Commonwealth Ct. 237, 372 A.2d 944 (1977). Cross-motions for re-argument were granted and the case is before us for reconsideration having been re-argued.
We find no reason to modify our opinion or order as previously filed.
Accordingly, we enter the following
Order
Now, January 25, 1978, the order of this Court, entered April 25, 1977, in the above matter is confirmed.
65 P.S. §§66.1-.4.
McMullan v. Wohlgemuth, 453 Pa. 147, 308 A.2d 888 (1973); Moak v. Philadelphia Newspapers, Inc., 18 Pa. Commonwealth Ct. 599, 336 A.2d 920 (1975); Kanzelmeyer v. Eger, 16 Pa. Commonwealth Ct. 495, 329 A.2d 307 (1974).
Salada Tag Lines.
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47 So.3d 1109 (2010)
STATE of Louisiana in the Interest of D.E.
No. 45,809-JAC.
Court of Appeal of Louisiana, Second Circuit.
September 22, 2010.
Rehearing Denied October 28, 2010.
George E. Harp, Justin H. Courtney, for Confidential Party D.E.
Ross E. Shacklette, for Appellants, Charlie Gentry & Janet Gentry.
W. Glen Mangham, for Plaintiff-Appellee State of Louisiana Department of Social Services.
Kammer & Huckabay by Pugh T. Huckabay, III, for Defendant-Appellee, Miranda Jo, Gentry Burchett.
Weems, Schimpf, Gilsoul, Haines, Landry & Carmouche by Carey T. Schimpf, for Defendant-Douglas Joe "DJ" Estey, Jr.
Before BROWN, MOORE and LOLLEY, JJ.
*1110 LOLLEY, J.
Charlie and Janet Gentry, grandparents of the minor child D.E., appeal the judgment of the Caddo Juvenile Court, Parish of Caddo, State of Louisiana, removing them from the litigation and awarding domiciliary custody of the minor child to Douglas Estey, Jr., the child's father. For the following reasons, we dismiss the appeal.
FACTS
Miranda Gentry Burchette ("the mother") and Douglas "D.J." Estey, Jr. ("the father") are the biological parents of the minor child D.E. who is currently 11 years old. Both parents have a history of substance abuse and the two collectively decided to leave D.E. in the care of the maternal grandparents, Charlie and Janet Gentry ("the Gentrys"), when the child was a baby. This decision was followed by an Interim Order by the First Judicial District Court for Caddo Parish, Louisiana granting the Gentrys custody of D.E.
In early 2006 the Gentrys attempted to adopt D.E. While the mother consented to the adoption, the father of D.E. opposed it and sought to modify the custody decree that was currently in place, thereby staying the adoption proceeding. This custody litigation continued intermittently through 2009 in the district court.
The child remained in the custody and care of the Gentrys until D.E.'s paternal grandfather, Douglas Estey, Sr., filed a complaint with the Office of Community Services ("OCS") alleging lack of supervision, physical abuse, and sexual abuse of both D.E. and his half sister J.H., who was also in the custody of the Gentrys. Both children were subsequently removed from the Gentrys' home and placed in the custody of the Department of Social Services ("DSS") pursuant to an Instanter Order.
At a hearing on October 7, 2009, the juvenile court continued the custody of both children with the State while recommending foster care placement. On October 27, 2009, the State filed a petition alleging that the children were in need of care. At the appearance to answer the allegations, the Gentrys, the mother, and Jason Henley (the father of J.H.), denied the allegations while the father of D.E. admitted the children were in need of care and moved for custody of D.E. On December 9, 2009, the Gentrys and the mother jointly filed a motion for return of child custody requesting that custody of J.H. be returned to the mother. The juvenile court granted this motion and dismissed the child in need of care proceedings in regard to J.H. The Gentrys then stipulated, without admitting the allegations against them, that D.E. was in need of care.
A disposition hearing followed on January 13, 2010. At this hearing the juvenile court found that the Gentrys were no longer the legal custodians of the children, nor were they seeking custody of the children, and were, therefore, not parties to the proceedings. They were subsequently asked to leave the courtroom but remain at the courthouse as potential witnesses for the hearing. Counsel for the Gentrys objected to this classification, claiming that the Gentrys did in fact seek custody of D.E. The juvenile court then questioned a representative from OCS to determine what the Gentrys had done in furtherance of attempting to regain custody of D.E. The court found the Gentrys had not complied with the case plan and also that placement with the Gentrys was not recommended by OCS. Accordingly, the juvenile court sustained its ruling that the Gentrys were not parties to the proceeding. The disposition hearing ensued.
*1111 On March 12, 2010, the juvenile court rendered a written judgment of disposition placing D.E. in the joint custody of both his mother and his father, with his father as the domiciliary/custodial parent. Subsequently D.E. was moved to Indiana to reside with his father. The Gentrys filed this appeal which was answered by D.E. and the father of D.E. in opposition. The mother did not appeal the ruling.
DISCUSSION
The right to appeal a juvenile court proceeding is conferred upon a party to the proceedings or any other party in interest. La. Ch. C. art. 331. The right to appeal, therefore, is not conferred upon nonparties to the proceeding.
It is undisputed that the Gentrys have been very instrumental in D.E.'s life: they provided a home for the child from the time he was very young; they bonded with the child; and, they actively participated in his life. However, this involvement does not necessarily confer upon the Gentrys the status of parties to the juvenile proceedings regarding him. Once there was an allegation made that the child was in need of care, and the Gentrys stipulated that the child was in fact in need of care while in the Gentrys' custody, the child was removed from the custody of the Gentrys and placed in the custody of the State of Louisiana pending a dispositional hearing. At this point the Gentrys were no longer parties to the proceeding as they were not parents, nor did they have custody of the child. The juvenile court properly excluded the Gentrys from the disposition proceeding as they were no longer parties. La. Ch. C. art. 679.
It would have been at this point that the Gentrys should have intervened if they wished to become parties to the proceeding. The juvenile court may allow any interested party for good cause shown to intervene in a child in need of care proceeding. La. Ch. C. art. 697. The Gentrys did no such thing. When the Gentrys' counsel stated that the couple wished to be considered for custody of D.E., this was not itself an intervention, and, therefore, is not enough for the Gentrys to be deemed parties to the proceedings. If the Gentrys had attempted to intervene and were then denied this opportunity through the discretion of the juvenile court, this decision by the juvenile court could have been raised and considered on appeal. However, because no action to intervene was taken, the Gentrys were not parents to the minor child, and the Gentrys no longer had custody of the minor child, they were not parties to the proceeding and have no right to an appeal before this court.
While it may appear that La. C.C.P. art. 2086[1] confers upon a person who could have intervened the right to appeal, there is an additional requirement. The person must also be aggrieved. Emmons v. Agricultural Ins. Co. 245 La. 411, 425, 158 So.2d 594, 599 (1963). As stated in Emmons, supra at 425, 158 So.2d 594, "The sole object of an appeal is to give an aggrieved party to a suit recourse to a superior tribunal for the correction of a judgment of an inferior court . . ." Here, the Gentrys were not recommended for placement by OCS and they were the very caretakers when the abuse occurred by which D.E. was deemed to be in need of care. Additionally, the father of D.E. has made material changes in his life and in his relationship with his son. When a child is found to be in need of care, the overriding consideration for placement is *1112 the health and safety of the child. La. Ch. C. art. 681. The juvenile court determined that the child's health and safety were best served by placement with the parents. Therefore, because the Gentrys were not considered for placement, the decision to place the child with his parents does not injure the Gentrys. The Gentrys were not aggrieved by the decision of the juvenile court disposition hearing; thus, they lack the right to appeal on this theory as well.
As the juvenile court stated in its comments after the granting of the motion and order for appeal:
The Court grants the appeal of the Judgment of Adjudication and Disposition because the Motion for Appeal was timely filed within 15 days of issuance of notice of the Amended Judgment. However, the Court notes that the maternal grandparents, Charlie and Janet Gentry, stipulated to the Judgment of Adjudication. Moreover, following adjudication and removal of the children from the Gentry's [sic] custody, the Court found the Gentrys not to be proper parties to the litigation, as they were no longer guardians of the children and they were not "parents" as defined by the Children's Code. The Gentrys neither participated in, nor were their rights effected [sic] by the disposition. (Citations omitted; original emphasis).
Therefore, under La. C.C.P. art. 2162, because the appellant has no right to appeal, this appeal is dismissed. As a result of this dismissal a discussion of the other assignments of error raised by the Gentrys is pretermitted.
CONCLUSION
Considering the foregoing, the appeal by Charlie and Janet Gentry is dismissed. All costs of these proceedings are assessed to the Gentrys.
APPEAL DISMISSED.
APPLICATION FOR REHEARING
Before BROWN, WILLIAMS, DREW, MOORE and LOLLEY, JJ.
Rehearing denied.
NOTES
[1] Juvenile court proceedings are governed by the Louisiana Children's Code; however, when procedures are not provided for by the Children's Code, the Louisiana Code of Civil Procedure governs. La. Ch. C. Art 104.
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43 So.3d 48 (2010)
EVANS
v.
STATE.
No. 2D08-5890.
District Court of Appeal of Florida, Second District.
August 25, 2010.
Decision Without Published Opinion Affirmed.
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44 So.3d 650 (2010)
FRIENDS OF PERDIDO BAY, INC. and James Lane, Appellants,
v.
FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellee.
No. 1D07-4198.
District Court of Appeal of Florida, First District.
September 22, 2010.
Marcy LaHart, West Palm Beach, for Appellants.
David K. Thulman and W. Douglas Beason, Assistants General Counsel, Department of Environmental Protection, Tallahassee, for Appellee.
PER CURIAM.
International Paper Company appealed a final order of the Florida Department of Environmental Protection which had denied a wastewater discharge permit and related authorizations requested by International Paper to upgrade and operate its Cantonment, Florida paper mill under the *651 National Pollutant Discharge Elimination System program. Friends of Perdido Bay and James Lane cross appealed arguing that section 403.088, Florida Statutes (2007), is unconstitutional. International Paper has voluntarily dismissed its appeal; thus, the only matter before us is the cross-appeal challenging the constitutionality of section 403.088. Because the Friends of Perdido Bay and Lane were the prevailing parties below, they were neither adversely affected by any provision of the order under review nor face any consequence here by the application of section 403.088. See section 120.68(1), Florida Statutes (2007) ("A party who is adversely affected by final agency action is entitled to judicial review."). As a result, they have no standing to bring this appeal. Dep't of Health v. Fresenius Med. Care Holdings, Inc., 935 So.2d 636, 637 (Fla. 1st DCA 2006); Fla. Chapter of the Sierra Club v. Suwannee Am. Cement Co., Inc., 802 So.2d 520, 521-23 (Fla. 1st DCA 2001). "It is fundamental that a person may not challenge the constitutionality of a statute `unless his rights are in some way injuriously and directly affected' by the operation of the statute." Southeast Volusia Hosp. Dist. v. State, Dep't of Ins., 432 So.2d 592, 598 (Fla. 1st DCA 1983) (quoting E.M. Watkins & Co., Inc. v. Bd. of Regents, 414 So.2d 583, 588 (Fla. 1st DCA 1982)). Save Anna Maria, Inc. v. Department of Transportation, 700 So.2d 113 (Fla. 2d DCA 1997), relied upon by Friends of Perdido Bay and Lane, is distinguishable. In that case, the Department of Environmental Protection rejected the hearing officer's contrary finding on public interest and ruled that the bridge project was "clearly in the public interest." Id. at 115. Here, the Department accepted the administrative law judge's finding that the public interest criteria of section 403.088 had not been met. Accordingly, we dismiss this appeal.
DISMISSED.
HAWKES, C.J., BENTON, and VAN NORTWICK, JJ., concur.
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41 So.3d 743 (2009)
Debra OWENS
v.
HOOTERS RESTAURANT et al.[1]
1060871.
Supreme Court of Alabama.
September 18, 2009.
Rehearing Denied January 22, 2010.
Tyrone Townsend, Birmingham, for appellant.
Brian A. Wahl of Stewart M. Cox of Bradley Arant Rose & White LLP, Birmingham, for appellee Hooters Restaurant.
PER CURIAM.
AFFIRMED. NO OPINION.
See Rule 53(a)(1) and (a)(2)(E), Ala. R.App. P.
LYONS, WOODALL, STUART, SMITH, BOLIN, PARKER, MURDOCK, and SHAW, JJ., concur.
COBB, C.J., concurs specially.
COBB, Chief Justice (concurring specially).
I write specially to note why I conclude, after a careful examination of the record in this case, that the summary judgment in favor of Hooters Restaurant is due to be affirmed. This Court reviews summary judgments under the following standard:
"This Court's review of a summary judgment is de novo. Williams v. State Farm Mut. Auto. Ins. Co., 886 So.2d 72, 74 (Ala.2003). We apply the same standard of review as the trial court applied. Specifically, we must determine whether the movant has made a prima facie showing that no genuine issue of material fact exists and that the movant is entitled to a judgment as a matter of law. Rule 56(c), Ala. R. Civ. P.; Blue Cross & Blue Shield of Alabama v. Hodurski, 899 So.2d 949, 952-53 (Ala.2004). In making such a determination, we must review the evidence in the light most favorable to the nonmovant. Wilson v. Brown, 496 So.2d 756, 758 (Ala. 1986). Once the movant makes a prima facie showing that there is no genuine issue of material fact, the burden then shifts to the nonmovant to produce `substantial evidence' as to the existence of a genuine issue of material fact. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989); Ala. Code 1975, § 12-21-12."
Dow v. Alabama Democratic Party, 897 So.2d 1035, 1038-39 (Ala.2004).
The facts in this case, viewed most favorably to Debra Owens, as the nonmovant, show the following. On March 3, 2004, Owens's automobile was struck from behind by another automobile operated by John Michael Williams. Sometime before the accident, Williams had been celebrating a promotion in his job with some coworkers at a Hooters restaurant. The accident occurred approximately six-tenths of a mile from the restaurant. The investigating officer's report indicated that Williams was "traveling at a high rate of speed and switching from lane to lane" before hitting Owens's automobile; the officer administered a breath test to Williams, which resulted in a .16 blood-alcohol reading. Owens and her husband testified that Williams smelled of alcohol at the site of the accident and that he was slurring his speech and staggering after the accident. The officer determined that Williams was under the influence of alcohol *744 and arrested Williams at the site. Williams subsequently pleaded guilty to a charge of driving under the influence.
Owens sued Hooters, alleging that Hooters had violated Rule 20-X-6-.02(4), Ala. Admin. Code (Alcoholic Beverage Control Board), which states that "[n]o [Alcoholic Beverage Control] Board on-premises licensee, employee or agent thereof shall serve any person alcoholic beverages if such person appears, considering the totality of the circumstances, to be intoxicated." Owens alleges that Hooters violated Rule 20-X-6-.02(4) by serving alcohol to an allegedly visibly intoxicated Williams, which is actionable under Alabama's Dram Shop Act, § 6-5-71, Ala.Code 1975. That Code section provides, in pertinent part:
"(a) Every wife, child, parent or other person who shall be injured in person, property or means of support by any intoxicated person or in consequence of the intoxication of any person shall have a right of action against any person who shall, by selling, giving or otherwise disposing of to another, contrary to the provisions of law, any liquors or beverages, cause the intoxication of such person for all damages actually sustained, as well as exemplary damages."
(Emphasis added.)
In its defense of Owens's complaint, Hooters moved for a summary judgment, arguing that Owens had not satisfied her burden of proof because, Hooters said, she failed to present any evidence supporting her allegation that Hooters had violated § 6-5-71, Ala.Code 1975, by serving Williams alcohol when he was visibly intoxicated.[2] The trial court granted Hooters' motion for a summary judgment. The evidence in this case strongly supports the conclusion that Williams was intoxicated at the scene of the accident; it might even be inferable that Williams was intoxicated when he left the Hooters restaurant. However, the record contains no evidence that would support an inference that any employee of Hooters served Williams alcohol while he was visibly intoxicated. Owens has presented no affidavit by any of Williams's fellow patrons or any Hooters employee to suggest that on the night of the accident Williams was served alcohol while he was visibly intoxicated. Further, Owens's attempt to support her argument in this case by attaching restaurant receipts to her reply brief in this appeal is ineffectual, because this Court's review is limited to only materials in the record.[3] Appellate courts are not permitted to consider matters outside the record. See, e.g., Etherton v. City of Homewood, 700 So.2d 1374, 1378 (Ala.1997). "`"[A]ttachments to briefs are not considered part of the record and therefore cannot be considered on appeal."'" Roberts v. NASCO Equip. Co., 986 So.2d 379, 385 (Ala.2007) (quoting Morrow v. State, 928 So.2d 315, 320 n. 5 (Ala.Crim.App.2004), quoting in turn Huff v. State, 596 So.2d 16, 19 (Ala. Crim.App.1991)). See also Ex parte Ruggs, 10 So.3d 7 (Ala.2008). Accordingly, I must concur in the affirmance of the summary judgment.
NOTES
[1] "Hooters Restaurant" was the only named defendant in this action.
[2] In Odom v. Blackburn, 559 So.2d 1080 (Ala. 1990), the Court held that evidence supporting an inference that the defendant club had served the patron who injured the plaintiff while he was "visibly intoxicated" was necessary for the plaintiff to create a genuine issue of material fact under § 6-5-71 against the club's motion for a summary judgment.
[3] Owens attached copies of several receipts to her reply brief in this case. She asserts that these receipts show that Williams remained at the Hooters restaurant for approximately three hours, during which time he and another restaurant patron at his table were served six pitchers of beer.
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533 N.W.2d 617 (1995)
STATE of Minnesota, Respondent,
v.
Shannon Noah BOWLES, Appellant.
C0-93-2105.
Supreme Court of Minnesota.
June 29, 1995.
Hubert H. Humphrey, III, Atty. Gen., St. Paul, Michael O. Freeman, Hennepin County Atty., Mark V. Griffin, Asst. County Atty., Minneapolis, for respondent.
John M. Stuart, State Public Defender, Evan W. Jones, Asst. Public Defender, Minneapolis, for appellant.
Considered and decided by the court en banc.
ORDER
WHEREAS, by opinion filed April 21, 1995, the above-entitled matter was remanded to the trial court for supplementation of the record, State v. Bowles, 530 N.W.2d 521 (Minn.1995); and
WHEREAS, this court is satisfied that the verdict returned by the jury was the "true and correct" verdict of all of the jurors, including juror # 4,
IT IS HEREBY ORDERED that the judgment of conviction is affirmed.
IT IS FURTHER ORDERED that appellant's motion for additional briefing and oral argument be, and the same is, denied.
BY THE COURT:
/s/ Alan C. Page
Associate Justice
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40 So. 3d 428 (2010)
David LANDRY
v.
CITY OF SCOTT.
No. 10-47.
Court of Appeal of Louisiana, Third Circuit.
June 2, 2010.
*429 Christopher Richard Philipp, Attorney at Law, Lafayette, LA, for Defendant/Appellant, City of Scott.
James Michael Stefanski, Edwards, Stefanski, et al., Crowley, LA, for Plaintiff/Appellee, David Landry.
Court composed of JOHN D. SAUNDERS, JIMMIE C. PETERS, and ELIZABETH A. PICKETT, Judges.
SAUNDERS, Judge.
This is a workers' compensation case where the employee injured his shoulder within the course and scope of his employment in April of 1998. Although the employee had other medical conditions prior to the work accident, they did not prevent him from working. After this work accident, the employee never returned to work, and his condition deteriorated.
The workers' compensation judge (WCJ) found that the employee's various medical diagnosis that rendered him unemployable were causally related to the shoulder injury that occurred in April of 1998. Thus, the WCJ determined that the employee was permanently and totally disabled under La.R.S. 23:1221(2)(c). The employer appealed, asserting two assignments of error. We find that the record supports the WCJ's judgment, and, therefore, affirm.
FACTS AND PROCEDURAL HISTORY:
David Landry (Landry) was employed by the City of Scott (Scott) on April 23, 1998. On that date, Landry was operating a backhoe. After having dug a hole with the backhoe, Landry fell into the hole and injured his shoulder.
Landry underwent a surgical repair of his rotator cuff by Dr. Charles Olivier, an orthopedic surgeon, and thereafter, both before and after the surgery, was treated by Dr. Linda Oge, his general practitioner. Although gainfully employed prior to this accident, Landry's medical condition worsened to where he was determined by Social Security to be totally disabled. He has been receiving Social Security benefits since that determination, and his medical bills have been paid by his wife's insurance.
Since the accident, Scott has paid Landry temporary, total disability benefits and supplemental earnings benefits with one interruption of those benefits not relevant to this proceeding. Scott terminated Landry's benefits after 520 weeks of paying benefits, alleging that it had fulfilled its obligation to Landry.
Landry then filed a disputed claim for workers' compensation benefits, contending that he was totally and permanently disabled under La.R.S. 23:1221(2)(c). The matter was tried on June 24, 2009. The issue before the WCJ was whether Landry's other medical problems that arose or worsened following his accident were causally related to the work injury suffered in April of 1998.
The WCJ ruled that Landry was totally and permanently disabled and that his disability was due to medical conditions casually related to Landry's initial shoulder injury. Scott has appealed this judgment, alleging the following two assignments of error:
ASSIGNMENTS OF ERROR:
1. The WCJ erred when it concluded that Landry proved, by clear and convincing evidence, unaided by any presumption of disability, that his work accident caused him to be permanently and totally disabled.
*430 2. The WCJ erred when it considered Landry's unrelated medical conditions in determining the status of disability.
ASSIGNMENT OF ERROR NUMBERS ONE AND TWO:
In its first assignment of error, Scott contends that the WCJ erred in concluding that Landry proved, by clear and convincing evidence, unaided by any presumption of disability, that his work accident caused him to be permanently and totally disabled. In its second assignment of error, Scott asserts that the WCJ erred in considering Landry's unrelated medical conditions in determining the status of disability. Scott's second assignment of error assumes that Landry's medical conditions are unrelated to his work injury. Whether the WCJ was proper in finding that these medical conditions were related to Landry's initial shoulder injury is necessarily reviewed by this court in addressing Scott's first assignment of error. Therefore, as Scott did in its brief, we will address both assignments under a single heading.
A WCJ's determination of whether an employee is totally and permanently disabled is a question of fact and, as such, is subject to the manifest error, clearly wrong standard of review. Granger v. Nelson Logging, 96-223 (La.App. 3 Cir. 12/4/96), 685 So. 2d 400. Louisiana Revised Statutes 23:1221(2)(c) states, in pertinent part, the following:
[Compensation for permanent total disability shall be awarded only if the employee proves by clear and convincing evidence, unaided by any presumption of disability, that the employee is physically unable to engage in any employment or self-employment, regardless of the nature or character of the employment or self-employment, including, but not limited to, any and all odd-lot employment, sheltered employment, or employment while working in any pain, notwithstanding the location or availability of any such employment or self-employment.
In this case before us, the WCJ ruled that Landry had proved, without the aid of a presumption of disability, by clear and convincing evidence, that he was permanently, totally disabled. The WCJ based his ruling on a finding that Landry was unemployable due to Landry's weight gain, pain, depression, knee injury, memory loss and other neurological symptoms that were causally related to his on-the-job shoulder injury. Scott argues that this finding was in error, as it is unsupported by the evidence. In order to be successful in this appeal, Scott must show that the WCJ was unreasonable in reaching these conclusions.
After a thorough review of the record, we find sufficient evidence to uphold the WCJ's determination that Landry was "physically unable to engage in any employment or self-employment." La.R.S. 23:1221(2)(c). That evidence is the testimony of Harris N. Rowzie, a licensed rehabilitation counselor who saw Landry prior to trial. Rowzie testified to the following:
Q [I]t was your understanding that... [Landry's] problems were exacerbated, as put in [Dr. Oge's] letteras per her letter, itself, correct?
A Yeah, that's my understanding.
Q Okay. And from a vocational standpoint, what does that mean?
A Well, it basically means that he's ... in such a place, he's got so many different conditions that I ... can'tI was just trying to put somebody to work. And I basically try to look at the Banks' criteria, going down the seven criteria that they ... had done: He can't go back to his past relevant *431 work. He can't find other work in a... similar job with a different company. He's basically, because of all the other injuries, he's not trainable. At the eleventh ... grade level, I think it would be facetious to try to put him intointo a work of hisofof
[WCJ]:
Q So, he's unemployable?
A something. So, I think he is unemployable.
[WCJ]:
Q There's a difference in disabled and unemployable. Are you saying he's unemployable?
A I think he is. Yes, sir.
Given this testimony, we find no error by the WCJ in finding that Landry was "unemployable." Next, we must establish whether there exists a reasonable basis in the record for the WCJ to find that Landry's status as "unemployable" is due to his work accident.
As we stated previously, our analysis of this issue subsumes the question presented in Scott's second assignment of error, i.e., that the WCJ erred in considering Landry's unrelated medical conditions in determining the status of disability. This is so because should we find that Landry's medical conditions are related to his work injury, then the WCJ was proper in considering them. An opposite finding would require that we find credence in Scott's second assignment of error.
After reviewing the record and considering the applicable standard of review, we find ample evidence to uphold the WCJ's judgment. The testimony of Landry provides part of our basis for affirming the WCJ. Landry testified on his behalf to the following:
Q Counsel asked you questions about agave you a list of medical problems that you were being treated for. You did notthose medical problems that you were treated for prior to your accident in April of 1998 never kept you from working; is that correct?
A No, sir, it sure didn't.
Q And is it also correct that after the accident, all of your symptoms and problems increased?
A Sure did. Got real bad [sic]. It's bad now.
Q The way you are right now is not the way you were in April of 1998; is that correct?
A No, sir.
Dr. Linda Oge, Landry's treating physician, was not deposed. Rather, the parties stipulated that Dr. Oge's testimony would consist of a letter signed by her. This letter, dated May 14, 2009, was written by Rowzie. The letter's contents follow:
This is to confirm our rehabilitation conference of 7 May 2009 in which we discussed Mr. Landry's physical condition.
If you recall, I stated that my reading of the file indicated he had multiple diagnosis concurrent to a worker's compensation claim in which he injured his right shoulder and tore his rotator cuff. The question was could the initial diagnosis along with pain be a contributing cause to the other physical and mental diagnosis, which he has, and also was the knee injury concomitant with the worker's comp injury. You stated that with his weight gain, his pain, and depression also raised his blood pressure, as well as caused further problems of sleep apnea, which caused further combination of problems with GERD and possibly some memory loss and other neurological symptoms.
If this letter is accurately stated about this client, I would appreciate your ascent by signing in the space provided. Please date this. Additionally, if *432 you feel there are other comments that need to be made and/or my understanding of our meeting was incorrect or in error, please signify what you feel was in error or needed some modification and write it in the space provided.
This letter did not have any comments or suggestions entered by Dr. Oge. Further, the letter was signed by Dr. Oge and dated May 26, 2009. Rowzie, when questioned on the contents of the letter that he had written, testified to the following:
Q Now, you met with Dr. Oge, at her office, for thirty minutes on or about May 7, 2009; is that correct?
A That's correct.
....
Q Okay. And you apparently posed some hypothetical questions or some questions to her concerning her opinion regarding ... these other problems, as it related to the shoulder?
A Right.
Q Okay. And, because I'm reading ... from your letter where you recapitulated her response, and it looks like you said that the question you wanted her to address was ... whether the initial diagnosis, and I assume you're referring to [Landry's] shoulder; is that right?
A That's correct.
Q Okay. Whether his shoulder, along with pain, could be a contributing cause to the other physical and mental diagnosis which he has?
A That's correct.
Q Okay. When you say "physical and mental diagnosis that he has," you're referring to the pre-existing conditions we went through with Mr. Landry during his direct testimony, which was fibromyalgia, the rheumatoid arthritis, the avascular necrosis, et cetera?
A Correct.
Q Okay. And she told you that in her opinion, the way you phrased the question, that his weight gain and his pain and his depression raised his blood pressure?
A Yes.
Q Okay. And his weight gain, his pain and his depression caused further problems with his sleep apnea?
A Correct.
Q And his pain and weight gain and depression caused problems with gastroesophageal reflux disease?
A Correct. GERD.
Q GERD? And possibly some memory loss, those other
A Right.
Q Whatwhat was her scientific basis for arriving at that conclusion?
A I think it was more of her experiential background dealing with people who have been removed from the workforce. She'd seen that when they were removed from the workforce that they would have concomitant problems with high blood pressure, weight gain, depression, those three, especially. With him, it'sits's like a slow downward spiral.
....
Q So, I'm just asking you, the scientific basis of Dr. Oge's conclusions. And your answer is, that she's probably basing it on her experience in treating David Landry?
A Correct.
Landry and Rowzie's testimony, coupled with the letter signed by Dr. Oge, provide a reasonable basis for the WCJ to find that Landry was permanently and totally disabled under La.R.S. 23:1221(2)(c). Given this evidence, it is not unreasonable for the WCJ's to find that Landry's weight gain, *433 pain, depression, knee injury, memory loss, and other neurological symptoms were causally related to his on-the-job shoulder injury, and those conditions rendered Landry unemployable. Accordingly, we find that Scott's assignments of error both lack merit.
ANCILLARY MATTER:
Landry, in his answer to Scott's appeal, requested attorney's fees. We deny this request.
Louisiana Revised Statute 23:1201(F) provides, in pertinent part:
Failure to provide payment in accordance with this Section ... shall result in the assessment of ... reasonable attorney fees for each disputed claim.... An award of penalties and attorney fees at any hearing on the merits shall be res judicata as to any and all claims for which penalties may be imposed under this Section which precedes the date of the hearing. Penalties shall be assessed in the following manner:
(1) Such penalty and attorney fees shall be assessed against either the employer or the insurer, depending upon fault. No workers' compensation insurance policy shall provide that these sums shall be paid by the insurer if the workers' compensation judge determines that the penalty and attorney fees are to be paid by the employer rather than the insurer.
(2) This Subsection shall not apply if the claim is reasonably controverted or if such nonpayment results from conditions over which the employer or insurer had no control.
"The determination of whether an employer should be cast with penalties and attorney fees is essentially a question of fact which will not be reversed absent evidence of manifest error." Ardoin v. Kipling Korner Grocery, 01-1596, p. 3 (La. App. 3 Cir. 4/17/02), 824 So. 2d 371, 374 (citation omitted). When a judgment is silent regarding a request for attorney's fees, it must be construed as a denial of that request. Desoto v. Desoto, 04-1248 (La.App. 3 Cir. 2/2/05), 893 So. 2d 175.
Landry's pre-trial statement listed "Pentalties and attorney's fees for wrongful termination of compensation benefits" under the heading "Issues to be Litigated at the Hearing." The WCJ's judgment was silent regarding whether Landry was entitled to attorney's fees. Thus, the WCJ's silence is equivalent to a judgment denying Landry's request.
In his answer to appeal, Landry states, "Counsel for David Landry prays for attorney's fees in the amount of SEVEN THOUSAND FIVE HUNDRED and NO/100 ($7,500.00) DOLLARS; and that as thus amended the amended said judgment be affirmed and the appellant be condemned to pay the costs." It is indeterminate whether Landry is requesting attorney's fees for work done on appeal or requesting that this court amend the WCJ's judgment to award Landry attorney's fees for the case below. Regardless, we deny his request because the WCJ was not manifestly erroneous in concluding that Scott reasonably controverted the case below, and we find that the appeal by Scott, while unsuccessful, was also reasonably controverted.
CONCLUSION:
Scott raised two assignments of error, that the WCJ erred in concluding that Landry proved, by clear and convincing evidence, unaided by any presumption of disability, that his work accident caused him to be permanently and totally disabled and that the WCJ erred in considering Landry's unrelated medical conditions in determining the status of disability. We found no merit to either assignment.
*434 Additionally, Landry requested attorney's fees. We deny this request. All costs of this appeal are assessed to Scott.
AFFIRMED.
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48 So. 3d 93 (2010)
Fernando Augusto GUSMAO, Appellant,
v.
STATE of Florida, Appellee.
No. 5D09-3439.
District Court of Appeal of Florida, Fifth District.
October 29, 2010.
Rehearing Denied December 2, 2010.
Fernando A. Gusmao, Windermere, pro se.
Bill McCollum, Attorney General, Tallahassee, and Anthony J. Golden, Assistant Attorney General, Daytona Beach, for Appellee.
PER CURIAM.
Fernando Augusto Gusmao appeals from his conviction and sentence on a charge of grand theft of over $100,000. We have carefully considered each issue raised on appeal, and find no error. With respect to Gusmao's hearsay arguments, the challenged documents were properly *94 admitted under the hearsay exception for business records, section 90.803(6), Florida Statutes (2008), and the other challenged statements as admissions by a party opponent. § 90.803(18)(a), Fla. Stat. (2008).[1] Next, Gusmao complains that the trial court erred by allowing checks that he wrote in the amounts of $130,000 and $160,000 to be referred to as "worthless." Not only was there no objection to this characterization at trial, but the evidence clearly supported the description. Gusmao's banking records showed that he did not have sufficient funds in the accounts on which the checks were written to cover them. Finally, Gusmao argues that the State did not present sufficient evidence of his intent to commit the crime, so that his motion for judgment of acquittal should have been granted. We agree with the State that there would have been sufficient circumstantial evidence of Gusmao's criminal intent to submit the case to the jury even without Gusmao's admission. See Brewer v. State, 413 So. 2d 1217 (Fla. 5th DCA 1982) (en banc), rev. denied, 426 So. 2d 25 (Fla.1983). Given Gusmao's out-of-court admission to the crime, this argument completely lacks merit.[2]
AFFIRMED.
ORFINGER, LAWSON, and EVANDER, JJ., concur.
NOTES
[1] On appeal, Gusmao also cites Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004), as did his trial counsel below, as a basis for prohibiting testimony as to his own out-of-court admissions during trial. Since there is apparently at least one attorney who views this as a valid argument, we note that the Sixth Amendment's Confrontation Clause is in no way implicated when the state offers a defendant's own out-of-court statements as evidence at trial.
[2] Although Gusmao testified to a more innocent explanation of events at trial, in deciding the motion for judgment of acquittal the trial court properly viewed the evidence "in the light most favorable to the state." L.R.W. v. State, 848 So. 2d 1263, 1265-66 (Fla. 5th DCA 2003).
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220 F. Supp. 2d 129 (2002)
Charlene LATHROP, Plaintiff,
v.
ONONDAGA COUNTY; Onondaga Community College; Public Safety Institute; Central New York Police Academy; Richard Flanagan, individually and in his official capacity as Director of the Public Safety Institute and Central New York Police Academy; and Katherine Lapp, in her official capacity as Commissioner of the State of New York Division of Criminal Justice Services, Defendants.
No. 5:99-CV-586(FJS/GLS).
United States District Court, N.D. New York.
September 12, 2002.
*130 *131 Satter & Andrews, LLP, Syracuse, NY (Richard A. Maroka, of counsel), for plaintiff.
Office of the New York, State Attorney General, Syracuse, NY (Maria Moran, of counsel) for Defendant Lapp.
MEMORANDUM-DECISION AND ORDER
SCULLIN, Chief Judge.
I. INTRODUCTION
The only remaining claims in this action are Plaintiff's eighth and tenth causes of action, which allege that Defendants discriminated against her on the basis of her gender and retaliated against her for filing a complaint of discrimination with the New York Division of Human Rights ("DHR") and the Equal Employment Opportunity Commission ("EEOC") in violation of her First and Fourteenth Amendment rights.[1] Plaintiff seeks prospective equitable relief from Defendant Katherine Lapp, in her official capacity as Commissioner of the New York State Division of Criminal Justice Services ("DCJS").[2] Specifically, Plaintiff requests that DCJS certify her as a police officer.
Presently before the Court are DCJS's motion for summary judgment and Plaintiff's cross-motion for partial summary judgment. The Court heard oral argument in support of, and in opposition to, these motions on June 14, 2002. At that time, the Court granted DCJS's motion for summary judgment with respect to Plaintiff's Fourteenth Amendment due process and equal protection claims and reserved *132 decision with respect to Plaintiff's First Amendment retaliation claim. The following constitutes the Court's written decision with respect to the remaining claim.
II. BACKGROUND
On December 23, 1996, Plaintiff was provisionally appointed a police officer in the Village of Marcellus. A police officer must complete an approved basic course for police officers within one year of her appointment and obtain a certificate of completion attesting to such completion from DCJS or forfeit her provisional appointment and be precluded from permanent appointment.[3]See N.Y. Gen. Mun. Law § 209-q(1); N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.7.
Plaintiff enrolled in and attended the Central New York Police Academy ("Academy") from January until May 1997 in an effort to complete the basic course and obtain certification from DCJS. Plaintiff successfully completed all of the basic course requirements except for the "defensive tactics" examination, the final examination that the Academy administered as part of its basic course. The defensive tactics test was comprised of six scenarios of varying degrees of difficulty designed to evaluate the proficiency of each candidate in defensive tactics.
When Plaintiff first took the defensive tactics examination in May 1997, she successfully completed the first five scenarios but not the sixth. As per Academy practice, all the candidates who had failed the defensive tactics examination, including Plaintiff, were provided with an opportunity to retake the examination. Approximately one week after she first took the examination, Plaintiff retook the test and once again failed.
By letter dated May 22, 1997, the Academy informed Plaintiff that she could retest in defensive tactics at any time within one year of her appointment date; i.e., by December 23, 1997. See Affidavit of Richard A. Maroko, sworn to January 4, 2001 ("Maroko Jan. Aff."), at Exh. "G." Plaintiff began training soon after she received the letter with the intention of retesting. However, by letter dated July 29, 1997, the Academy rescinded its offer of retesting, expressly because Plaintiff had filed a claim of discrimination against the Academy.[4]See Maroko Jan. Aff. at Exh. "K." Specifically, the letter, which was signed by Richard H. Flanagan, Director, Central New York Police Academy, stated: "[m]y letter to you dated 22 May, 1997 offering to retest [Plaintiff] is hereby rescinded. We will not retest [Plaintiff] while this issue is in litigation.... While this matter is in litigation, [Plaintiff] will not be admitted into any courses offered by the Central New York Police Academy or the Public Safety Institute." See id.[5] As a result of this letter, Plaintiff was unable to schedule a retest and complete the basic course within one year of her appointment.
On December 13, 1997, Chief of Police Lathrop, the Chief of Police of the Village *133 of Marcellus and Plaintiff's husband, wrote to DCJS, seeking an extension of time for Plaintiff to complete the basic course. He explained that Plaintiff had experienced problems completing defensive tactics and that he had talked to Sgt. Michael Pollman at the Academy on December 11, 1997, who had informed him that the Academy had "reevaluated other recruits on various tasks and will do the same for [Plaintiff] as soon as she is ready." See Affidavit of Harry Lathrop, sworn to January 4, 2001 ("H. Lathrop Aff."), at Exh. "D." DCJS responded by letter dated January 12, 1998. In that letter, Deputy Commissioner Burrell rejected Plaintiff's request, stating that "[t]he circumstances described in your letter cannot be considered exigent as defined by the regulations for the Basic Course for Police Officers. Accordingly, I am without regulatory authority to approve a time extension for [Plaintiff's] basic training."[6]See Maroko Jan. Aff. at Exh. "N" at 2.
Upon receiving Deputy Commissioner Burrell's response, Chief Lathrop sent DCJS a second, supplemental request for an extension dated January 15, 1998. In that letter, Chief Lathrop stated that he believed that the circumstances surrounding Plaintiff's failure to timely complete the basic course at the Academy constituted exigent circumstances. He explained that Plaintiff was unable to timely complete the basic course because she "is in litigation with the academy and this is why `the academy will not let her retest.'" See Maroko Jan. Aff. at Exh. "O." Attached to this letter was Director Flanagan's July 29, 1997 letter, which stated that the Academy would not allow Plaintiff to retest during the course of her litigation with the Academy.
Deputy Commissioner Burrell forwarded Chief Lathrop's letter to Mr. Digman for a response. On January 27, 1998, Mr. Digman wrote an internal memo regarding this letter, in which he stated that
[a]pparently Chief Lathrop does not want to take "no" for an answer. As you know, his wife wrote to us several times in the past, rehashing the same old arguments [regarding an unrelated Civil Service issue]. We finally decided not to respond to her anymore, we have not heard from her since. I think that we should take the same approach with Chief Lathrop because every time we respond to him we invite another response. We have to draw the line somewhere or we will have a pen pal for life.
See Maroko Jan. Aff. at Exh. "Q."
Apparently acting on this recommendation, DCJS did not respond to Chief Lathrop's January 1998 letter.
Ten months later, Plaintiff's counsel, after consultation with the Onondaga County Attorney's Office, sent a third letter to DCJS dated October 22, 1998, supplementing the January 15, 1998 request, containing Director Flanagan's letter. See Maroko Jan. Aff. at Exh. "S." The letter explained that Plaintiff and the Academy had agreed to a retest to be administered by a mutually agreeable examiner. See id. The letter also renewed the request for an extension of time based upon the circumstances surrounding Plaintiff's failure to timely complete the basic course, specifically noting that Plaintiff alleged that the recission of the opportunity to retest because of her complaint of discrimination was unlawful retaliation. See id.
By letter dated November 16, 1998, two days after Plaintiff had passed the retest, *134 DCJS responded, again declining to extend Plaintiff's appointment period. See Maroko Jan. Aff. at Exh. "T." The letter stated that after considering the previous information and Plaintiff's submissions, DCJS would not reconsider its original determination that there existed no exigent circumstances warranting an extension. See id.
On December 4, 1998, Director Flanagan sent a letter to DCJS, in which he noted that Plaintiff was listed on the enclosed original class roster as not having completed the arrest techniques requirements of the course. See Maroko Jan. Aff. at Exh. "U." Director Flanagan explained that
On 11-14-98 [Plaintiff] was re-evaluated. At that time, [Plaintiff] passed the arrest techniques component. George Korthas of the Oswego County Sheriff's Department evaluated her. He is a certified FBI Defensive Tactics instructor who serves as an evaluator for this Academy and who evaluated [Plaintiff] using this academy's guidelines.
I request that [Plaintiff's] status now indicate she has successfully completed the Basic Course for Police Officers.
See id.
On the same day, Director Flanagan faxed yet another copy of his July 29, 1997 letter to DCJS. Had DCJS provided Plaintiff with a one-year extension when it was first requested to do so, Director Flanagan's request that Plaintiff be issued a certification of completion would have been timely.
By letter dated December 21, 1998, DCJS once again refused to take any action. See Maroko Aff. at Exh. "W." DCJS asserted that
[t]o this date, the Division of Criminal Justice Services has not been presented with any documents or information which supports an approval of an extension of the time period within which [Plaintiff] was to complete her training.
Consequently, [Plaintiff's] training record cannot be amended to reflect a satisfactory completion of the Basic Course for Police Officers.
See id. at 1-2.
Thus, DCJS refused to issue Plaintiff the certification she required.
III. DISCUSSION
Plaintiff claims that DCJS is liable to her because it was deliberately indifferent to her constitutional rights. Specifically, Plaintiff asserts that even though DCJS had actual knowledge that the Academy and Director Flanagan had retaliated against her for filing a complaint of discrimination with the DHR and the EEOC in violation of her First Amendment right to petition the government for redress, DCJS refused to grant her request for an extension of time in which to complete the basic course and subsequently refused to certify her as a police officer.[7]
There are two distinct parts to Plaintiff's First Amendment retaliation claim against DCJS. First, the Court must determine whether Plaintiff has established that a person acting under color of state law has deprived her of a constitutional right. See Soto v. Schembri, 960 F. Supp. 751, 756 (S.D.N.Y.1997) (citation omitted). Second, the Court must determine whether DCJS may be held liable for that action based upon the requirements for municipal liability set forth in Monell v. Dep't of Soc. Servs. of City of N.Y., 436 U.S. 658, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). See id.
*135 The Court will address each part of Plaintiffs claim in turn.
A. The constitutional deprivation[8]
To prove that she was retaliated against in violation of the First Amendment, Plaintiff must establish "`(1) that the speech or conduct at issue was protected, (2) that the defendant took adverse action against the plaintiff, and (3) that there was a causal connection between the protected speech and the adverse action.'" Garcia v. S.U.N.Y. Health Scis. Ctr. of Brooklyn, 280 F.3d 98, 106-07 (2d Cir. 2001) (quoting Dawes v. Walker, 239 F.3d 489, 492 (2d Cir.2001)) (other citation omitted).
In the present case, Plaintiff alleges (1) that she engaged in a protected activity when she filed a claim of discrimination with the DHR and the EEOC against the Academy,[9] (2) that Director Flanagan and the Academy took an adverse action against her by refusing to retest her in defensive tactics, and (3) that there is a causal connection between the protected speech and the adverse action as conclusively demonstrated by Director Flanagan's July 29, 1997 letter, which specifically stated that the Academy would not retest Plaintiff because of the ongoing litigation. Based upon these allegations, there can be no dispute that Plaintiff has established a First Amendment violation. Therefore, the Court will turn to the second part of Plaintiff's § 1983 claim the liability of DCJS under Monell.
B. Municipal liability under § 1983[10]
To succeed on a municipal liability claim under § 1983, a plaintiff must *136 prove three elements: "(1) that an official policy or custom is in place; (2) that there is a causal link between plaintiff['s] alleged constitutional injury and the policy or custom; and (3) that plaintiff[] in fact suffered a constitutional injury." People United for Children, Inc. v. City of N.Y., 108 F. Supp. 2d 275, 302 (S.D.N.Y.2000) (citing Zahra v. Town of Southold, 48 F.3d 674, 685 (2d Cir.1995) (citations omitted)). A municipality cannot be held liable under a respondeat superior theory. See Soto, 960 F.Supp. at 756. Rather, a municipality may be held liable only "`when execution of a government's policy or custom, whether made by its lawmakers or by those whose edicts or acts may fairly be said to represent official policy, inflicts the injury.'" Id. (quoting Monell, 436 U.S. at 694, 98 S. Ct. at 2037) (other citation omitted). As the court noted in Soto, the Supreme Court has set forth a number of guiding principles to assist courts in making this determination:
"First, ... municipalities may be held liable under § 1983 only for acts for which the municipality itself is actually responsible, `that is, acts which the municipality has officially sanctioned or ordered.' ... Second, only those municipal officials who have `final policymaking authority' may by their actions subject the government to § 1983 liability.... Third, whether a particular official has `final policymaking authority' is a question of state law.... Fourth, the challenged action must have been taken pursuant to a policy adopted by the official or officials responsible under state law for making policy in that area of the city's business...."
Id. at 757 (quoting City of St. Louis v. Praprotnik, 485 U.S. 112, 123, 108 S. Ct. 915, 924, 99 L. Ed. 2d 107 (1988) (internal citations to Pembaur v. Cincinnati, 475 U.S. 469, 106 S. Ct. 1292, 89 L. Ed. 2d 452 (1986) (emphasis in original))) (footnote omitted).
A court can identify individuals who have policymaking authority "by their receipt of such authority through express legislative grant, or through their delegation of policymaking authority from those to whom the power has been expressly granted." Id. Moreover, "a municipal policy may be found where there is a `widespread practice that, although not authorized by written law or express municipal policy, is so permanent and well settled as to constitute a custom or usage with the force of law.'" Id. (quoting Praprotnik, 485 U.S. at 126-27, 108 S. Ct. at 926 (internal quotation marks omitted)).
Generally, a single act cannot establish municipal liability, unless it was a municipal policymaker who acted. See id. (citing Pembaur, 475 U.S. at 480, 106 S. Ct. at 1298). If the employee who took the action at issue was not a final policymaker, "`the city could be liable only for the policymaker's delegation and supervision, not the subordinate's exercise of authority.'" Id. (quoting Walker, 974 F.2d at 296 (citing Praprotnik, 485 U.S. at 127, 108 S. Ct. at 926)). "[O]f course, a municipality is liable where the policymaker ratifies a subordinate's decisions or acts." Id. (citation omitted). As the Second Circuit has noted, "`[i]n order to hold a municipality liable under § 1983 for the conduct of employees below the policymaking level, a plaintiff must show that the violation of his constitutional rights resulted from a municipal policy or custom.'" Id. (quoting Dwares, 985 F.2d at 100 (internal quotations and citations omitted)). Thus, "`[w]hen an official's discretionary decisions *137 are constrained by policies not of that official's making, those policies, rather than the subordinate's departure from them, are the acts of the municipality.'" Id. at 759 (quoting Praprotnik, 485 U.S. at 127, 108 S. Ct. at 926) (other citation omitted).
In the present case, Plaintiff's claim against DCJS is based upon a single act DCJS's refusal to grant her an extension of time in which to complete the basic course.[11] Thus, Plaintiff must establish that Deputy Commissioner Burrell is the final policymaker at DCJS responsible for determining what constitutes exigent circumstances and for deciding whether to grant requests for extensions of time pursuant to N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.7(b).[12] In addition, Plaintiff must establish that there is a causal link between Deputy Commissioner Burrell's refusal to grant her an extension of time, even after learning that Director Flanagan and the Academy had retaliated against her for filing a claim of discrimination, and the violation of her First Amendment right to petition the government for redress. Finally, Plaintiff must prove that she suffered a constitutional injury.
With respect to the first element of her claim, Plaintiff asserted at oral argument that Deputy Commissioner Burrell was the final policymaker at DCJS with the authority to decide whether to grant requests for extensions of time in which to complete the basic course. Although DCJS did not object to this characterization of Deputy Commissioner Burrell's scope of responsibility, the Court must determine for itself whether state law provides Deputy Commissioner Burrell with this authority. See Soto, 960 F.Supp. at 757 n. 4 ("The determination of whether individual actors hold policymaking authority is a question of law for the judge to decide." (citations omitted)).
Section 836 of New York Executive Law provides that the Commissioner of DCJS "shall be the chief executive officer of and in sole charge of the administration of [DCJS]." N.Y. Exec. Law § 836(2) (McKinney 1996). Pursuant to that same section, "[t]he commissioner may appoint such deputies, directors, assistants and other officers and employees, ... as he may deem necessary, [and] prescribe their powers and duties, ..." N.Y. Exec. Law *138 § 836(4) (McKinney 1996). In addition, the Commissioner of DCJS
shall, with the general advice of the council, and, in the case of subdivisions one, two and three, only in accordance with rules and regulations promulgated by the governor pursuant to section eight hundred forty-two: ... 3. Certify police officers ... who have satisfactorily completed basic training programs and issue certificates to such police officers...
N.Y. Exec. Law § 841(3) (McKinney 1996 & Supp.2002).
At her deposition, Commissioner Lapp stated that she spends very little time on issues related to the Office of Public Safety, which is the division of DCJS that is responsible for maintaining the training curriculum for police officers. See Transcript of the Deposition of Katherine Lapp, dated July 11, 2000 ("Lapp Tr."), attached as Exh. "A" to the Affidavit of Richard A. Maroko, sworn to April 23, 2001 ("Maroko Apr. Aff."), at 12. She also testified that Deputy Commissioner Burrell was the primary decision maker with respect to the functions within the Office of Public Safety. See id. Commissioner Lapp also stated that she would leave decisions regarding whether to extend an individual's appointment period or to certify her as a police officer to Deputy Commissioner Burrell and others in his office. See id. at 18. Similarly, at his deposition, Deputy Commissioner Burrell stated that it was within his discretion, based upon information provided to him by his staff, to decide whether a particular reason constituted exigent circumstances. See Transcript of Deposition of Jerry Burrell, dated June 26, 2000, attached to the Maroko Jun. Aff. at Exh. "B" at 51.[13] Based upon the applicable provisions of the New York Executive Law and the rules and regulations promulgated thereunder, as well as Deputy Commissioner Burrell's admission as to the scope of his authority, the Court concludes that Deputy Commissioner Burrell is the final policy maker with respect to the issues in this case and that, therefore, his actions can be imputed to DCJS. Accordingly, the Court concludes that Plaintiff has established the first element of her claim.
With respect to the second element of her claim, Plaintiff acknowledges that at the time that Deputy Commissioner Burrell denied her initial request for an extension of time to complete the basic course, he did not know that Director Flanagan and the Academy had retaliated against Plaintiff in violation of her First Amendment rights. However, she argues that Deputy Commissioner Burrell's decision to ignore Chief Lathrop's resubmission of this request in January 1998 clearly demonstrates deliberate indifference to her First Amendment rights. Plaintiff bases this argument on that fact that attached to Chief Lathrop's letter was a copy of Director Flanagan's July 29, 1997 letter, which conclusively established that the Academy and Director Flanagan had retaliated against her and that, based upon this letter, Deputy Commissioner Burrell had actual knowledge that Plaintiff's First Amendment rights had been violated.
*139 Moreover, Plaintiff argues that had DCJS granted her request for an extension of time to complete the basic course once it had actual knowledge that Director Flanagan and the Academy had retaliated against her, she would have completed the basic course within the one year extension period and, therefore, would have been entitled to receive a certificate of completion from DCJS.[14] Based upon these facts, the Court concludes that Plaintiff has proven the second element of her claim.
With respect to the third element of her claim, as noted above, there is no dispute that Plaintiff suffered a constitutional injury. The only issue is whether she suffered this injury as a result of DCJS's deliberate indifference to her constitutional rights. Based upon the particular facts of this case, the Court finds that DCJS is responsible under Monell for Plaintiff's constitutional injury because it was deliberately indifference to her constitutional rights. Chief Lathrop's January 1998 letter to DCJS was not a second, separate request for an extension of time but rather was intended to supplement his December 1997 request for an extension on Plaintiff's behalf by setting forth what he considered to be exigent circumstances. Once Deputy Commissioner Burrell received Chief Lathrop's January 1998 letter, which included a copy of Director Flanagan's July 29, 1997 letter, Deputy Commissioner Burrell had actual knowledge that the Academy and Director Flanagan had retaliated against Plaintiff, and, therefore, he was required to engage in a reasonable course of action to ensure that Plaintiff's filing of a claim of discrimination did not prevent her from completing the basic course and receiving a certificate of completion from DCJS within the appropriate time-frame. Deputy Commissioner Burrell's decision not to respond to this request was patently unreasonable given the information he had. Likewise, his response to Plaintiff's attorney's October 22, 1998 letter, which included another copy of Director Flanagan's July 29, 1997 letter, that he would not reconsider his original determination because Plaintiff had not shown that there were any exigent circumstances warranting an extension of time was also unreasonable. Finally, Deputy Commissioner Burrell's refusal to provide Plaintiff with a certificate of completion after receiving Director Flanagan's December 4, 1998 letter, stating that Plaintiff had successfully completed the basic course, based, once again, upon Deputy Commissioner Burrell's contention that Plaintiff had not shown exigent circumstances, clearly demonstrates that DCJS was deliberately indifferent to Plaintiff's constitutional rights.
For all these reasons, the Court concludes that Plaintiff has established that DCJS is liable to her for the violation of her First Amendment right to petition the government for redress; i.e., that the constitutional injury that Plaintiff suffered was caused by the actions of the final policymaker at DCJS with the authority to decide what constituted exigent circumstances for the purposes of granting an extension of time in which to complete the basic course. Accordingly, the Court *140 holds that DCJS must issue a certificate of completion to Plaintiff, certifying that she has completed the basic course pursuant to N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.6(f) ("Upon certification by a director stating that a police officer has satisfactorily completed all basic course requirements, the commissioner shall issue a certificate of completion to such police officer.").
IV. CONCLUSION
After carefully considering the file in this matter, the parties' submissions and oral arguments, and the applicable law, and for the reasons stated herein and at oral argument, the Court hereby
ORDERS that Defendant's motion for summary judgment is GRANTED with respect to Plaintiff's Fourteenth Amendment due process and equal protection claims; and the Court further
ORDERS that Defendant's motion for summary judgment is DENIED with respect to Plaintiff's First Amendment retaliation claim; and the Court further
ORDERS that Plaintiff's motion for partial summary judgment is GRANTED with respect to her First Amendment retaliation claim; and the Court further
ORDERS that Defendant Lapp, in her official capacity as Commissioner of the State of New York Division of Criminal Justice, is to issue a certificate of completion to Plaintiff, pursuant to N.Y. Comp. Codes R. & Regs. tit. 9, § 6020.6(f), within twenty days of the date of this Order; and the Court further
ORDERS that the Clerk of the Court is to enter judgment and close this case.
IT IS SO ORDERED.
NOTES
[1] In her eighth cause of action, Plaintiff claims that Defendants discriminated against her on the basis of her gender pursuant to a custom or practice under color of law in deliberate, reckless and/or callous indifference to her well-established rights under § 1983. In her tenth cause of action, Plaintiff claims that Defendants retaliated against her pursuant to a custom or practice under color of law in deliberate, reckless, and/or callous indifference to Plaintiff's well-established rights under § 1983.
[2] Since Plaintiff is suing Ms. Lapp in her official capacity only, the Court will refer to Defendant as DCJS.
[3] DCJS is the agency that is statutorily authorized to "[c]ertify police officers ... who have satisfactorily completed basic training programs and issue certificates to such police officers ..." N.Y. Exec. Law § 841(3) (McKinney 1996 and Supp.2002). DCJS does not independently assess the qualifications or performance of individual police officer candidates; it merely certifies that the individual has completed a basic course that DCJS has approved. Accordingly, upon the certification of an academy director stating that a candidate has satisfactorily completed the basic course, DCJS issues a certificate of completion. See N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.6(f).
[4] Plaintiff refers to this letter as the "smoking gun" letter.
[5] Director Flanagan noted in his letter that he was rescinding his offer to retest Plaintiff "upon advice of the Onondaga County Department of [L]aw[.]" See Maroko Jan. Aff. at Exh. "K."
[6] The regulations provide that "[i]llustrative of exigent circumstances are: the officer's inability to complete a basic course for health reasons or the temporary unavailability of a training program within a reasonable distance from the officer's place of employment." N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.7(b).
[7] Plaintiff acknowledges that under § 1983 she cannot recover money damages against DCJS. Therefore, she seeks only prospective injunctive and equitable relief; i.e., an order requiring DCJS to certify her as a police officer.
[8] As the Court noted at oral argument, it agrees with Plaintiff that for purposes of her First Amendment claim against DCJS she should be considered a student and not an employee. Thus, the public concern doctrine does not apply to her claim. See Garcia v. S.U.N.Y. Health Scis. Ctr. of Brooklyn, 280 F.3d 98, 106 (2d Cir.2001) ("the public concern doctrine does not apply to student speech in the university setting, ..., but is reserved for situations where the government is acting as an employer, ..." (internal citations omitted)).
[9] Plaintiff's First Amendment retaliation claim is based upon her right to petition the government for redress, which is a constitutionally protected right. See Genas v. State of N.Y. Dep't of Corr. Servs., 75 F.3d 825, 833 (2d Cir.1996) (citations omitted).
[10] Rather than rely upon Monell to support her claim against DCJS, Plaintiff relies upon the Second Circuit's decision in Gant v. Wallingford Bd. of Educ., 195 F.3d 134 (2d Cir. 1999), to argue that her § 1983 claim should be analyzed under the same deliberate indifference standard applicable to claims under Title IX. Although Gant is instructive, the Court disagrees with Plaintiff that Gant is directly on point. In particular, the Court notes that the court in Gant specifically did not address the appropriate standard for determining the liability of the Wallingford Board of Education. See Gant, 195 F.3d at 140 n. 4 ("[b]ecause we conclude below that a jury could not reasonably find that school officials acted with deliberate indifference, we do not decide the standard under which the Wallingford Board of Education might be held liable for the deliberate indifference of its agents."). To a certain extent, DCJS's position with respect to the retaliatory actions of Director Flanagan and the Academy is analogous to the position of the Wallingford Board of Education vis-a-vis the discriminatory acts of the students and parents against the plaintiff in that case. Therefore, the Court finds that Gant left open the question that the Court must answer in the present case the standard under which DCJS might be held liable for its alleged deliberate indifference to the retaliatory acts of Director Flanagan and the Academy, neither of which is an agent of DCJS.
Moreover, the Court finds that Gant is distinguishable on its facts and that its reasoning is confined to the particular setting in which Gant occurred a public secondary school. Therefore, the Court disagrees with Plaintiff's contention that Gant requires that the Court analyze her § 1983 claim under the "same" deliberate indifference standard applicable to Title IX cases. Rather, the Court concludes that Monell provides the appropriate standard to use in analyzing Plaintiff's claim against DCJS.
[11] Deputy Commissioner Burrell initially denied Plaintiff's request for an extension of time in which to complete the basic course by letter dated January 12, 1998. He subsequently upheld his decision in November 1998 and refused to certify Plaintiff as a police officer in December 1998. Although Deputy Commissioner Burrell actually made three decisions with respect to Plaintiff, all three decisions were based upon a single reason Plaintiff's failure to demonstrate that exigent circumstances prevented her from completing the basic course within one year of the date of her appointment. Therefore, these three decisions are properly considered to be a single action for purposes of this analysis.
[12] Section 6020.7(b) provides that
[a] police officer who, because of exigent circumstances, is unable to complete a basic course within the one-year period prescribed by subdivision (a) of this section may apply through his or her employer for an extension of this period by the commissioner. Such applications shall be made in writing and must describe the circumstances which necessitate the application. Illustrative of exigent circumstances are: the officer's inability to complete a basic course for health reasons or the temporary unavailability of a training program within a reasonable distance from the officer's place of employment. If the commissioner determines that circumstances warrant extension of the one-year period, he or she may grant approval of such extension. In no instance shall this period be extended beyond a total of two years from the initial date of appointment as a police officer, except as otherwise required by law.
N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.7(b).
[13] After oral argument, the Court instructed the parties to submit short letter-briefs on the issue of whether Deputy Commissioner Burrell was the final policymaker responsible for determining what constitutes exigent circumstances and for deciding whether to grant requests for extensions of time to complete the basic course for police officers pursuant to N.Y. Comp.Codes R. & Regs. tit. 9, § 6020.7. Defendant confirmed that the Commissioner was the final policymaker within DCJS and that she had delegated decisions regarding extensions of time to complete the basic course for police officers to Deputy Commissioner Burrell. See Defendant's Letter to the Court dated June 26, 2002.
[14] Had DCJS granted Plaintiff a one-year extension, she would have had until December 23, 1998 to complete the basic course. Plaintiff was retested and passed the defensive tactics examination on November 14, 1998, and Director Flanagan wrote to DCJS on December 4, 1998, stating that Plaintiff had successfully completed the basic course. Had DCJS responded to this letter as it normally would have rather than continuing to argue that Plaintiff had failed to demonstrate exigent circumstances warranting an extension of time in which to complete the basic course DCJS would have issued Plaintiff a certificate of completion with the statutorily mandated time period.
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47 So. 3d 1206 (2010)
Johnny McCULLOUGH, Appellant
v.
STATE of Mississippi, Appellee.
No. 2009-KA-01645-COA.
Court of Appeals of Mississippi.
November 23, 2010.
*1207 Greg E. Beard, attorney for appellant.
Office of the Attorney General by W. Glenn Watts, Jackson, attorney for appellee.
Before MYERS, P.J., ISHEE and ROBERTS, JJ.
MYERS, P.J., for the Court:
¶ 1. Johnny McCullough was convicted of two counts of gratification of lust for the touching of "Jane," his step-granddaughter.[1] The jury acquitted McCullough of five other counts alleging that he had touched two of his natural granddaughters. The Union County Circuit Court sentenced McCullough to fifteen years' imprisonment for each count, with the sentences to run concurrently. McCullough now appeals, arguing that the jury's verdict is against the overwhelming weight of the evidence and that he received constitutionally ineffective assistance of counsel at trial.
FACTS
¶ 2. McCullough was born on December 6, 1945, and he was sixty-three years of age at the time of trial. McCullough, his wife, and his two sons and their families lived in three homes on the same sixty-nine-acre tract in Union County, Mississippi. McCullough's sons, Billy and Jamie, each had several children from multiple marriages. McCullough and his sons were truck drivers, though Billy and Jamie apparently *1208 worked other jobs at times. McCullough was a Baptist minister and had preached at a local church from 1981 to about 1998, when McCullough began preaching on a local radio station. At times, McCullough and his wife would care for their grandchildren and step-grandchildren.
¶ 3. Jane was Jamie's stepdaughter, a child of his ex-wife, Billie Jean. Jane was sixteen years of age at the time of trial. Jamie had raised Jane since she was two or three years old, and after Billie Jean and Jamie were divorced in late 2006,[2] Jamie kept custody of Jane and his three children by Billie Jean. In July 2007, Jamie married Cynthia "Cindy" Chandler, but by some time that year, they had separated. Though they apparently reconciled at times, Jamie and Cindy were later divorced, and shortly thereafter Jamie married Paula, his brother Billy's ex-wife.
¶ 4. The allegations against McCullough came to light after McCullough took "Ashley," Cindy's daughter (Jamie's stepdaughter) on a trucking haul to Miami, Florida, in May 2008. The trip was to take two or three days. Some time during the trip, Ashley called Cindy and told her that McCullough had touched her breasts, undone her pants, and licked her vagina. She stated that this had happened in the cabin of the truck at a Walmart parking lot. McCullough had said it was a game and had warned her not to tell anyone. Ashley and Cindy spoke with Jamie,[3] and the parents agreed that Ashley would have to finish out the trip, as Ashley didn't know exactly where she was and they had no safe way to get her away from McCullough. They instructed Ashley to resist any further advances by bundling up in a sheet. Cindy testified that she frequently called Ashley and McCullough during the remainder of the trip but was careful not to let McCullough know that she was aware he had touched her daughter.
¶ 5. While Ashley was still on the road with McCullough, she told her mother that she had spoken to "Brittany," one of her stepsisters, on the phone, and Brittany had told her that McCullough had touched her as well. Brittany was Jamie's and Billie Jean's daughter. She was a year younger than Ashley, and the two were close friends. At the time, Brittany was staying at McCullough's home. She told Ashley and Cindy that McCullough began touching her in late 2007, when Cindy and Jamie had separated. Cindy and Jamie also spoke to Jane, who reported that McCullough had touched her while purporting to pray for her. Jane stated that McCullough would touch her breasts and vagina and rub them with what he called "praying oil." She stated that this had been going on since she was about nine years of age; Jane was fifteen when she reported the abuse in May 2008.
¶ 6. "Courtney," Billy and Paula's daughter, also accused McCullough of touching her while purporting to pray for her. She stated that McCullough had started fondling her breasts when she was twelve or thirteen years of age. At trial, Courtney was only able to remember one instance where McCullough had touched her vagina, while she accompanied him on a trucking trip to North Carolina in the summer of 2007.[4]
*1209 ¶ 7. Jane, Ashley, Brittany, and Courtney were interviewed on July 22, 2008, by Angie Floyd, a social worker and forensic interview specialist at the Family Resource Center in Tupelo. Each of the girls disclosed the abuse in an account substantially similar to her testimony at trial. Floyd determined that each of the children's accounts were consistent with victims of child sexual abuse, and she found no evidence of coaching. Floyd also interviewed "Debra" and "Ellen," who did not disclose any abuse. Debra, who was eight years of age at the time of the interview, is Jamie and Billie Jean's youngest child. Ellen, Billy and Paula's oldest daughter, was sixteen at the time of the interview. She had been living with McCullough and his wife since her parents' divorce, but she denied that McCullough had touched her. Video recordings of the interviews were introduced into evidence at the trial.
¶ 8. The theory of McCullough's defense was that Billie Jean and Cindy, his son Jamie's ex-wives, had put the children up to accusing McCullough to punish Jamie for adultery and to get Billie Jean custody of her children. McCullough also brought out testimony suggesting that the children were angry with Jamie for keeping a strict household and for marrying Paula, his brother's ex-wife.
¶ 9. McCullough testified in his own defense. He denied touching any of the girls, and he averred that he had never taken any child with him while driving his truck. He stated that carrying passengers was against company policy and that he would have been fired if he had carried a child with him on long trips. McCullough admitted that he sometimes prayed for the children, but he averred that his wife had always been present. He testified that while praying, he would touch them on the head only. McCullough's wife and his son, Jamie, gave supporting testimony.
¶ 10. McCullough was tried on seven counts of gratification of lust. He was acquitted of five counts relating to the fondling of Brittany and Courtney and convicted of two counts for touching Jane. This appeal followed.
DISCUSSION
1. Weight of the Evidence; Inconsistent Verdicts
¶ 11. McCullough argues that the jury's verdict is against the overwhelming weight of the evidence.
¶ 12. "The jury is charged with the responsibility of weighing and considering conflicting evidence, evaluating the credibility of witnesses, and determining whose testimony should be believed." Smith v. State, 3 So. 3d 815, 818 (¶ 13) (Miss.Ct.App. 2009) (quoting Ford v. State, 737 So. 2d 424, 425 (¶ 8) (Miss.Ct.App.1999)). The Mississippi Supreme Court has discussed appellate review of the weight of the evidence supporting a jury's verdict, stating:
When reviewing a denial of a motion for a new trial based on an objection to the weight of the evidence, we will only disturb a verdict when it is so contrary to the overwhelming weight of the evidence that to allow it to stand would sanction an unconscionable injustice.... However, the evidence should be weighed in the light most favorable to the verdict. A reversal on the grounds that the verdict was against the overwhelming weight of the evidence, unlike a reversal based on insufficient evidence, does not mean that acquittal was the only proper verdict. Rather ... [the reviewing] court simply disagrees with the jury's resolution of the conflicting testimony. *1210 This difference of opinion does not signify acquittal any more than a disagreement among the jurors themselves. Instead, the proper remedy is to grant a new trial.
Bush v. State, 895 So. 2d 836, 844 (¶ 18) (Miss.2005) (internal citations and quotations omitted). The court has cautioned that a challenge to the weight of the evidence "is addressed to the discretion of the court, which should be exercised with caution, and the power to grant a new trial should be invoked only in exceptional cases in which the evidence preponderates heavily against the verdict." Id. (quoting Amiker v. Drugs For Less, Inc., 796 So. 2d 942, 947 (¶ 18) (Miss.2000)).
¶ 13. On appeal, McCullough makes two distinct arguments under this issue. The first is largely a rehashing of the theory of his defense at trial: that Jane was induced to falsely accuse him by Cindy and Billie Jean. McCullough offers nothing new; he simply points out that there was conflicting testimony as to whether he committed the alleged acts. This is insufficient, as "[t]he jury is the sole judge of the weight of the evidence and the credibility of the witnesses." Nix v. State, 8 So. 3d 141, 146 (¶ 26) (Miss.2009) (quoting Mohr v. State, 584 So. 2d 426, 431 (Miss. 1991)).
¶ 14. In his second argument, McCullough appears to urge that the jury's verdicts were inconsistent. We do not agree. Each of the girls testified to separate events, and each was subjected to thorough cross-examination regarding her particular allegations. The State's theory may very well have been that each victim was telling the truth, but it would not be inconsistent for the jury to find Jane's testimony credible while it harbored reasonable doubts as to whether the State had proved every element of the offense regarding Brittany's and Courtney's allegations. As the supreme court stated in Groseclose v. State, 440 So. 2d 297, 300 (Miss.1983):
Jurors are permitted, indeed have the duty, to resolve the conflicts in the testimony they hear. They may believe or disbelieve, accept or reject the utterances of any witness. No formula dictates the manner in which jurors resolve conflicting testimony into finding of fact sufficient to support their verdict. That resolution results from the jurors hearing and observing the witnesses as they testify, augmented by the composite reasoning of twelve individuals sworn to return a true verdict. A reviewing court cannot and need not determine with exactitude which witness or what testimony the jury believed or disbelieved in arriving at its verdict. It is enough that the conflicting evidence presented a factual dispute for jury resolution.
¶ 15. Even if we were to find the verdicts inconsistent, which we do not, we note that "inconsistent or even contradictory verdicts are not, in and of themselves, reasons to overturn a criminal conviction." Dubose v. State, 22 So. 3d 340, 352 (¶ 38) (Miss.Ct.App.2009). All that is required to support an inconsistent or contradictory verdict is that the evidence was sufficient to support the counts on which a conviction was returned. Id. That is beyond dispute in this case.
¶ 16. After a thorough review of the record, we are satisfied that the jury's verdicts are not against the overwhelming weight of the evidence. This issue is without merit.
2. Ineffective Assistance of Counsel
¶ 17. In his final issue, McCullough argues that he received constitutionally ineffective assistance of counsel at trial. He cites only a single instance of allegedly ineffective conduct: McCullough *1211 alleges that his attorney possessed an audio recording of Brittany stating, at Jamie's urging, that Cindy had "forced" her and the other girls to accuse McCullough. McCullough alleges that his attorney was ineffective for failing to use this recording at trial.
¶ 18. McCullough placed a compact disc containing this recording in his record excerpts, and he attached an affidavit executed by Jamie that describes the circumstances of the recording and its use at trial. But McCullough admits that neither the recording nor the affidavit are actually part of the record on appeal. This Court is limited to the trial court record in our review of the claim. Jackson v. State, 42 So. 3d 613, 615 (¶ 8) (Miss.Ct.App.2010). Of course, McCullough cannot make them part of the record by simply attaching copies to his briefs filed with this Court. Our supreme court had stated that "we must decide each case by the facts shown in the record, not assertions in the brief, however sincere counsel may be in those assertions. Facts asserted to exist must and ought to be definitely proved and placed before us by a record, certified by law; otherwise, we cannot know them." Mason v. State, 440 So. 2d 318, 319 (Miss. 1983).
¶ 19. Mississippi Rule of Appellate Procedure 22(b) states:
Issues which may be raised in post-conviction proceedings may also be raised on direct appeal if such issues are based on facts fully apparent from the record. Where the appellant is represented by counsel who did not represent the appellant at trial, the failure to raise such issues on direct appeal shall constitute a waiver barring consideration of the issues in post-conviction proceedings.
"Where the record is insufficient to support a claim of ineffective assistance, the appropriate conclusion is to deny relief, preserving the defendant's right to argue the same issue through a petition for post-conviction relief." Wynn v. State, 964 So. 2d 1196, 1200 (¶ 9) (Miss.Ct.App.2007) (internal quotations omitted). We cannot address this ineffective assistance claim on direct appeal. McCullough can raise it in a motion for post-conviction relief, if he chooses to do so. We therefore deny relief on this issue without prejudice.
¶ 20. THE JUDGMENT OF THE CIRCUIT COURT OF UNION COUNTY OF CONVICTION OF COUNT IV, GRATIFICATION OF LUST, AND SENTENCE OF FIFTEEN YEARS; AND COUNT V, GRATIFICATION OF LUST, AND SENTENCE OF FIFTEEN YEARS, ALL IN THE CUSTODY OF THE MISSISSIPPI DEPARTMENT OF CORRECTIONS, WITH THE SENTENCES TO RUN CONCURRENTLY, IS AFFIRMED. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE APPELLANT.
KING, C.J., LEE, P.J., IRVING, GRIFFIS, BARNES, ISHEE, ROBERTS, CARLTON AND MAXWELL, JJ., CONCUR.
NOTES
[1] We will use fictitious names throughout this opinion to protect the identity of minor victims of sexual abuse.
[2] Jamie actually testified his divorce from Billie Jean was in December 2007, but this date is inconsistent with his testimony and others. It appears to have been a mistake.
[3] In his testimony at trial, Jamie denied that this conversation had occurred. He testified instead that his father had never taken any children on trips like the ones described.
[4] This ultimately led to an amendment of the indictment to conform to the proof offered at trial, as the original indictments had specifically alleged vaginal contact in Mississippi.
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111 P.3d 97 (2005)
141 Idaho 412
Edythe RAHAS, Plaintiff-Appellant,
v.
Charles T. VER METT, individually and as President of Idaho Funding Corporation, an Idaho corporation, Defendant-Respondent, and
Les Bois Leasing, Inc., an Idaho corporation; LB II, Inc., an Idaho corporation; Eugene Heil, dba PB Enterprises, a partnership; John Does Corporations I through X and John Does I through X, Defendants.
No. 30221.
Supreme Court of Idaho, Boise, January 2005 Term.
March 7, 2005.
Rehearing Denied May 4, 2005.
*98 Fuller Law Office, Twin Falls, for appellant. Greg J. Fuller argued.
Ringert, Clark Chartered, Boise, for respondent. James G. Reid argued.
BURDICK, Justice.
This case arises from a suit to recover on a judgment entered against Idaho Funding Corporation (Idaho Funding). Edythe Rahas obtained a judgment against Idaho Funding for its default on a promissory note executed by the president of Idaho Funding, Charles T. Ver Mett, in his official capacity. In this action Rahas sued Idaho Funding and Ver Mett seeking to pierce the corporate veil and to collect from Ver Mett personally on the judgment. Rahas failed to prove her case at trial and the district court entered a judgment in Ver Mett's favor. Upon prevailing at trial, Ver Mett motioned the district court for an award of attorney fees and costs pursuant to I.C. §§ 12-120(3) and (5) and I.R.C.P. 54. After initially denying the motion, and upon Ver Metts' motion for reconsideration, the district court awarded Ver Mett $48,723.50 in attorney fees and costs. Rahas timely appealed. We reverse.
FACTS AND PROCEDURAL BACKGROUND
In 1992, Rahas agreed to loan William Strack $150,000, but only through a third party, Idaho Funding. A promissory note was executed between Rahas and Idaho Funding for $150,000. The promissory note provided that "[t]he `borrower' will pay all collection costs including reasonable attorney fees, court costs, recovery costs or any other costs of collecting the indebtedness." Ver Mett signed the promissory note in his official capacity. Idaho Funding then entered into another promissory note with Strack and loaned him the $150,000. Idaho Funding would realize a small profit from the transaction due to the difference in interest rates between the two notes.
Following Strack's default on the loan in December 1994, Idaho Funding stopped making payments on its note to Rahas. Rahas sued Idaho Funding and obtained a judgment against them for the principal amount $128,760.14. The district court awarded $22,150 in attorney fees and $1,196.50 in costs. A judgment was entered against Idaho Funding for $152,106.64. Idaho Funding obtained a judgment against Strack for his default on its promissory note.
*99 On November 27, 1998, Rahas started this lawsuit and sued Ver Mett and Idaho Funding seeking to hold Ver Mett personally liable for the judgment obtained against Idaho Funding. Rahas alleged three different alternative causes of actions: fraudulent transfer of assets, fraud, and a claim to pierce the corporate veil of Idaho Funding. At the time of trial Rahas pursued only the third theory. The case was tried to the district court without a jury on January 24, 2002.
On August 23, 2002, the district court issued its memorandum decision and order finding Rahas failed to meet her burden of proving that it was appropriate to grant the equitable remedy sought and to pierce the corporate veil. The district court viewed both Rahas and Ver Mett as victims of Strack, with Ver Mett being the more aggrieved victim. However, the district court did not believe Rahas had pursued the matter frivolously in that Ver Mett's shortcomings in not observing the corporate formalities and in undercapitalizing Idaho Funding after November 14, 1996, were substantial and serious issues.
Ver Mett moved the district court for an award of attorney fees and costs. After additional briefing and argument on the issue, the district court granted Ver Mett's request for attorney fees and costs pursuant to I.C. § 12-120(3) and I.R.C.P. 54. The district court awarded Ver Mett $48,723.50 in total for attorney fees and costs. The district court entered a judgment for that amount on November 14, 2003. Rahas timely appealed.
ISSUES
I. DID THE DISTRICT COURT ERR IN AWARDING VER METT ATTORNEY FEES PURSUANT TO I.C. § 12-120(3)?
II. SHOULD VER METT BE AWARDED ATTORNEY FEES ON APPEAL?
STANDARD OF REVIEW
The issue presented on appeal involves the interpretation and application of I.C. § 12-120. Determining a statute's meaning and applying law to undisputed facts constitute matters of law. SE/Z Const., L.L.C. v. Idaho State University, 140 Idaho 8, 12, 89 P.3d 848, 852 (2004). This Court exercises free review over questions of law. Kelly v. Silverwood Estates, 127 Idaho 624, 631, 903 P.2d 1321, 1328 (1995).
ANALYSIS
Rahas argues the district court erred in awarding attorney fees pursuant to I.C. § 12-120(3). Rahas asserts two theories to reverse the district court. First, the note did not relate to the purchase or sale of goods. Secondly, the note involved a purely personal matter and not a commercial transaction.
If the statutory language is unambiguous, "the clearly expressed intent of the legislative body must be given effect, and there is no occasion for a court to consider rules of statutory construction." The plain meaning of a statute therefore will prevail unless clearly expressed legislative intent is contrary or unless plain meaning leads to absurd results.
Gillihan v. Gump, 140 Idaho 264, 266, 92 P.3d 514, 516 (2004) (internal citations omitted).
Idaho Code § 12-120(3) provides:
In any civil action to recover on an open account, account stated, note, bill, negotiable instrument, guaranty, or contract relating to the purchase or sale of goods, wares, merchandise, or services and in any commercial transaction unless otherwise provided by law, the prevailing party shall be allowed a reasonable attorney's fee to be set by the court, to be taxed and collected as costs.
The term "commercial transaction" is defined to mean all transactions except transactions for personal or household purposes. The term "party" is defined to mean any person, partnership, corporation, association, private organization, the state of Idaho or political subdivision thereof.
(Emphasis added).
Attorney fees and costs may not be awarded unless authorized by statute or by contract. Allison v. John M. Biggs, Inc., 121 Idaho 567, 568, 826 P.2d 916, 917 (1992). The Idaho Legislature has authorized an *100 award of attorney fees only in limited circumstances. Idaho Power Co. v. Idaho Pub. Utils. Comm., 102 Idaho 744, 751, 639 P.2d 442, 449 (1981). Idaho Code § 12-120(3) "allow the courts to set attorney fees in civil damage suits under certain conditions." Id. The prevailing party is entitled to attorney fees where an action is brought to recover on the following: (1) open account; (2) account stated; (3) note; (4) bill; (5) negotiable instrument; (6) guaranty; (7) contract relating to the purchase or sale of goods, wares, merchandise; (8) contract for services; and (9) commercial transaction. In determining if attorney fees are appropriate in a commercial transaction, this Court has adopted a two-part test. "First, the commercial transaction must be integral to the claim, and second, the commercial transaction must provide the actual basis for recovery." Iron Eagle Development, LLC v. Quality Design Systems, Inc., 138 Idaho 487, 493, 65 P.3d 509, 515 (2003).
In this action Rahas sued Idaho Funding and Ver Mett seeking to pierce the corporate veil and to collect from Ver Mett personally on the judgment. This case is not an action to recover on a note nor does a commercial transaction provide any basis for an award of attorney fees. Rahas already successfully sued on the note and was awarded both attorney fees and costs. The note merged into the judgment extinguishing the note. Allison, 121 Idaho at 568, 826 P.2d at 917. Suit on a judgment is not one of the enumerated actions identified in I.C. § 12-120(3) and therefore the district court erred in awarding attorney fees.
Idaho Funding argues the gravamen of the lawsuit was the note and therefore it is entitled to attorney fees.
A court is not required to award reasonable attorney fees every time a commercial transaction is connected with a case. "The critical test is whether the commercial transaction comprises the gravamen of the lawsuit; the commercial transaction must be integral to the claim and constitute a basis upon which the party is attempting to recover."
Bingham v. Montane Resource Associates, 133 Idaho 420, 426, 987 P.2d 1035, 1041 (1999) (internal citations omitted).
The complaint does not allege any commercial transaction and is not based upon the noteit is based upon a judgment. Although, the gravamen test has never been formally adopted for attorney fees pursuant to a note under I.C. § 12-120(3), the gravamen of this case was not the note. The note was not the basis for recovery. Therefore, we need not examine if that legal theory applies to the award of attorney fees pursuant to a note.
CONCLUSION
This court reverses and vacates the district court's judgment for attorney fees and costs. Costs, but no attorney fees on appeal to Rahas.
Chief Justice SCHROEDER and Justices TROUT, EISMANN and JONES, concur.
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10-30-2013
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42 So. 3d 59 (2010)
Willie COMMON, Appellant
v.
Yolanda Powell COMMON, Appellee.
No. 2008-CA-00471-COA.
Court of Appeals of Mississippi.
August 17, 2010.
*61 Angela Givens Williams, attorney for appellant.
Marc L. Boutwell, Kimberly Pine Turner, attorneys for appellee.
Before LEE, P.J., BARNES and ROBERTS, JJ.
LEE, P.J., for the Court:
FACTS AND PROCEDURAL HISTORY
¶ 1. Willie Common and Yolanda Common were married in 1994 and separated in 2004. Willie and Yolanda agreed to a divorce on the ground of irreconcilable differences. The parties agreed that Yolanda would have primary physical custody of the couple's four minor children with Willie having visitation rights. The issues of alimony, property division, and child support were left for the chancellor's determination.
¶ 2. The chancellor ordered Willie to pay $774.48 per month in child support and $28,000 in lump-sum alimony, payable in ninety monthly installments of $312 per month. Yolanda was awarded the marital home and property, the household furnishings, a 2003 GMC Envoy, a 1998 Mitsubishi, and her retirement account. Yolanda was also awarded responsibility for the debt on the marital home, lot, and GMC Envoy. Willie was awarded a 2002 Chevrolet Tahoe, a savings account, the cash he had on hand, and all personal property in his possession.
¶ 3. Aggrieved with the chancellor's judgment, Willie now appeals, asserting the following: (1) the chancellor erred in granting temporary alimony; (2) the chancellor's determination of marital property and valuation of the property was erroneous; and (3) the chancellor erred in awarding alimony to Yolanda.
STANDARD OF REVIEW
¶ 4. "This Court will not disturb the findings of a [c]hancellor unless the [c]hancellor was manifestly wrong, clearly erroneous or an erroneous legal standard was applied." Bell v. Parker, 563 So. 2d 594, 596-97 (Miss.1990).
DISCUSSION
I. TEMPORARY ALIMONY
¶ 5. Willie argues that the chancellor erroneously relied on a prior agreement made by his counsel without his knowledge as the basis for awarding temporary alimony.
¶ 6. A hearing was held on March 2, 2006, to determine temporary support. Willie asserts that the attorneys for the parties met privately in the judge's chambers and agreed that Willie would pay half of the mortgage payment. Willie testified that he did not give his attorney permission to make such an agreement. Willie confronted his counsel, but his counsel did not return his phone calls. Willie later discovered that his attorney had been disbarred. An order was entered on September 14, 2006, stating that pursuant to the March 2, 2006, hearing, the parties had agreed on the issue of temporary support. The order also stated that Willie and his counsel had failed and/or refused to sign the order. The order stated that Willie was to pay Yolanda $305 per month in temporary support, which was half of the amount of the monthly mortgage payment.
*62 ¶ 7. We find that the temporary order has no bearing on this appeal. This appeal is from the order entered on February 29, 2008. Although Willie referenced the temporary order at the hearing, he made no objections to the order, and he did not seek credit for the amount he believed to be erroneous. The temporary order was not considered by the chancellor in determining alimony. "[W]here a [party] fails to object to an issue at the trial, the issue is waived on appeal." Hillier v. Minas, 757 So. 2d 1034, 1041 (¶ 22) (Miss.Ct.App. 2000). We find that this issue is barred as it is being raised for the first time on appeal.
II. MARITAL PROPERTY
¶ 8. Willie argues that the chancellor erred in her identification and distribution of the marital assets. Specifically, Willie argues that Yolanda's 2003 GMC Envoy was erroneously classified as marital property, and the chancellor relied on guess work to determine the value of the parties' assets.
¶ 9. Before property is divided, it must be classified as marital or separate property under Hemsley v. Hemsley, 639 So. 2d 909, 914 (Miss.1994). Marital property is defined as "any and all property acquired or accumulated during the marriage." Id. at 915. As for assets acquired after a couple separates, the supreme court has held:
Assets acquired after an order for separate maintenance should be considered the separate property of the parties, absent a showing of either (1) contribution to the acquisition of the asset by the other spouse as contemplated in our decisions in Ferguson v. Ferguson, 639 So. 2d 921, 928-29 (Miss.1994), and Magee v. Magee, 661 So. 2d 1117, 1123 (Miss.1995) or, (2) acquisition of the asset through the use of marital property.
Godwin v. Godwin, 758 So. 2d 384, 386 (¶ 7) (Miss.1999) (footnote omitted). This principle also applies to temporary support orders. Barnett v. Barnett, 908 So. 2d 833, 841 (¶ 17) (Miss.Ct.App.2005).
¶ 10. Although a date is not given, the parties are in agreement that the GMC Envoy was purchased by Yolanda after entry of the temporary order. No evidence was presented that Willie had contributed to the purchase of the vehicle or that he had acquired it as marital property through use. We agree with Willie that the chancellor erred in categorizing the GMC Envoy as marital property. But we find that the error was harmless as the GMC Envoy had a negative value. According to Yolanda's 8.05 financial statement, the GMC Envoy was worth $21,000, and the debt owed was $22,000. Thus, Willie suffered no negative consequence due to its inclusion as marital property.
¶ 11. Willie next argues that the chancellor erred in her valuation of the marital assets, including the GMC Envoy and associated debt. Conflicting evidence was presented regarding the value of the marital assets. For example, Yolanda testified that the marital home was worth $22,000; her financial statement stated the value was $30,000; and in 2004, she claimed it was worth $59,000. The amount owed on the mobile home was $56,000. Willie testified that he had done an online appraisal which valued the home at $47,490. Willie attempted to present the online appraisal of the mobile home, but the chancellor would not allow it to be introduced into evidence on the ground that it was hearsay. The chancellor stated during the hearing, "if there is a conflict as to the value of this mobile home I'm going to order that it be appraised." An appraisal was not ordered. As for the lot on which the home is located, Yolanda testified *63 that it was worth nothing. She had originally placed a value of $7,000 on the lot. Willie estimated the lot was worth $8,000. The chancellor used an average of Yolanda's value of zero and Willie's value to determine the value was $4,000.
¶ 12. Willie argues that the chancellor committed reversible error by making a ruling on the value of the assets solely from the 8.05 financial statements filed by the parties. However, the chancellor cannot be blamed for the failure of the parties to present evidence of valuation. Faced with similar circumstances, this Court held as follows in Dunaway v. Dunaway, 749 So. 2d 1112, 1121 (¶ 28) (Miss.Ct.App.1999):
[T]he chancellor, faced with proof from both parties that was something less than ideal, made valuation judgments that find some evidentiary support in the record. To the extent that the evidence on which the chancellor based his opinion was less informative than it could have been, we lay that at the feet of the litigants and not the chancellor. The chancellor appears to have fully explored the available proof and arrived at the best conclusions that he could, and we can discover no abuse of discretion in those efforts that would require us to reverse his valuation determinations.
¶ 13. It was not the chancellor's duty to obtain appraisals of the marital property. Willie cannot now complain that the chancellor's valuations are unfair when no reliable evidence of the value of the property was presented at trial. This issue is without merit.
III. ALIMONY
¶ 14. Willie argues that if the chancellor would have properly considered the factors set out in Cheatham v. Cheatham, 537 So. 2d 435, 438 (Miss.1988), the award of lump-sum alimony would have been denied. Willie also argues that the chancellor failed to take into consideration his inability to pay.
¶ 15. The factors set out in Cheatham are as follows:
1. Substantial contribution to accumulation of total wealth of the payor either by quitting a job to become a housewife, or by assisting in the spouse's business.
2. A long marriage.
3. Where recipient spouse has no separate income or the separate estate is meager by comparison.
4. Without the lump sum award the receiving spouse would lack any financial security.
Id. (internal citations omitted).
¶ 16. The chancellor did not cite the Cheatham factors; rather, the chancellor cited Hemsley, 639 So.2d at 912-13, which states the factors for awarding periodic alimony. However, we find sufficient findings of fact by the chancellor to support the award of lump-sum alimony based on the Cheatham factors.
¶ 17. The chancellor awarded Yolanda lump-sum alimony as an equalizer, since Yolanda was awarded the debt on the marital home and lot. The home was worth less than the amount owed. The chancellor noted that Yolanda worked three jobs, attended school part time, and cared for the children. At the time of the hearing, Yolanda had quit all but one job due to health issues of one of the children. The chancellor noted that given Yolanda's current financial situation, Yolanda could not provide for her children with only the statutory child-support award. The chancellor found that Yolanda should not have to work extra jobs to provide for her children. The chancellor stated: "Since Yolanda... has primary physical custody, she must have the time to devote to this task. She cannot provide care for the *64 minor children if she is forced to spend all of her time working outside of the home."
¶ 18. Willie argues that regardless of Yolanda's financial situation, he lacks the ability to pay alimony. Willie testified that his monthly expenses including child-support payments outweigh his monthly income, despite receiving help with living expenses from his girlfriend. Both Yolanda and Willie have estates with negative values. However, Willie's annual income at the time of trial was $51,000, and Yolanda's annual income was $27,000. Willie's income is substantially higher than Yolanda's income, and he is in less debt than Yolanda. Also, Willie testified that he had a savings and retirement account. We cannot find that the chancellor was manifestly wrong or clearly erroneous in awarding lump-sum alimony to Yolanda. We find that Willie's assertion that he lacks the ability to pay alimony is without merit.
¶ 19. THE JUDGMENT OF THE HOLMES COUNTY CHANCERY COURT IS AFFIRMED. ALL COSTS OF THIS APPEAL ARE ASSESSED TO THE APPELLANT.
KING, C.J., MYERS, P.J., IRVING, GRIFFIS, BARNES, ISHEE, ROBERTS, CARLTON AND MAXWELL, JJ., CONCUR.
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01-03-2023
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10-30-2013
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https://www.courtlistener.com/api/rest/v3/opinions/2534644/
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50 So. 3d 369 (2010)
Clarence BENNETT, Jr., Appellant
v.
STATE of Mississippi, Appellee.
No. 2006-KA-00054-COA.
Court of Appeals of Mississippi.
December 14, 2010.
Justin Taylor Cook, attorneys for appellant.
Office of the Attorney General by John R. Henry Jr., attorney for appellee.
Before MYERS, P.J., ISHEE and ROBERTS, JJ.
ISHEE, J., for the Court:
¶ 1. Clarence Bennett Jr. was convicted of aggravated assault and possession of a firearm by a convicted felon in the Circuit Court of Bolivar County, Mississippi, Second Judicial District. He was sentenced to twelve years on the conviction of aggravated assault and three years on the conviction of possession of a firearm by a convicted felon, with the sentences to run concurrently, all in the custody of the Mississippi Department of Corrections (MDOC). Bennett appeals his conviction of aggravated assault on the basis that the jury's verdict is against the overwhelming weight of the evidence. Finding no error, we affirm.
FACTS
¶ 2. On the morning of April 6, 2005, Bennett was arrested for disturbing the peace at his Cleveland, Mississippi, apartment complex. According to the record, the Cleveland Police Department received a call that Bennett had instigated a heated argument between himself and Myron Hall, who lived near Bennett in the same apartment complex, regarding Bennett improperly parking his vehicle at the apartment complex. Police officers responded to the call and arrested Bennett, who was released on bond shortly thereafter.
¶ 3. Later that day, Hall returned to the apartment he shared with his girlfriend and their children after he had picked up *370 the children from school. Hall and his girlfriend both testified that he was accompanying the children into the apartment when Bennett opened his door and said: "If you see that tall man again, tell him I got [sic] something for him." Hall responded: "Tell the man I got [sic] something right here." Hall and his girlfriend stated that Bennett then stepped out of his apartment and fired several shots at Hall. Hall further testified that he was unarmed at all times and attempted to avoid injury by turning to run inside his apartment. Nonetheless, Hall suffered a "graze wound" to his back, for which he was treated and quickly released.
¶ 4. Conversely, Bennett testified that the morning incident, wherein he was arrested for disturbing the peace, was initiated by Hall. Bennett explained that as he left his apartment to take out his garbage on the morning of the shooting, Hall began an argument with him regarding the location of Bennett's parked vehicle and its interference with Hall's girlfriend's parking space. Bennett stated that during the argument, Hall became increasingly agitated, began cursing at Bennett, and then approached him with a knife, at which point Bennett ran inside his apartment.
¶ 5. Bennett further testified that some time later, police officers arrived at his door and arrested him for disturbing the peace, despite his insistence of innocence. After he was bailed out of jail, Bennett claims to have visited a relative's house, where he drank approximately one quarter of a pint of liquor. He then left and stated that upon returning to his apartment, he saw Hall in front of the apartment building, playing with his daughter. Bennett admitted he then pulled a pistol from his car and cautiously backed away from Hall with the gun hidden behind his back. Bennett testified that Hall leapt toward him, forcing him to shoot Hall in self-defense.
¶ 6. When asked what Bennett recalled about the testimony he had given the police officers at the scene of the shooting, Bennett admitted he could not remember his exact testimony as he was intoxicated at the time of the shooting. However, at Bennett's sentencing, he told the trial court he was not attempting to shoot Hall; rather, he was attempting to shoot "a young gangster thug."
¶ 7. Bobby Riley, a neighbor in Bennett and Hall's apartment complex, testified at the trial regarding her observation of the shooting. Riley was present in her apartment on the day in question. She testified that she heard loud arguing between Bennett and Hall and also two shots fired; then she saw Hall attempting to escape inside his apartment. She stated that she did not see a knife or any other object in Hall's hand, and she did not see who had fired the shots.
¶ 8. Officer Rhett Nelson, with the Cleveland Police Department, also testified at the trial. On the morning in question, he responded to the call that Bennett was disturbing the peace. He arrived at Bennett's apartment and asked Bennett to explain the problem between himself and Hall. Officer Nelson observed distinct signs of Bennett's intoxication, and he recalled that Bennett began yelling at passersby and ranting about his dislike for Hall and Hall's girlfriend. Officer Nelson then arrested Bennett for disturbing the peace and stated that en route to the police station, Bennett announced he should solve his dispute by shooting Hall and Hall's girlfriend.
¶ 9. Later that day, Officer Nelson responded to the call that Hall had been shot. Upon arriving at the scene, Hall and his girlfriend identified Bennett as the shooter and pointed Officer Nelson in the *371 direction of Bennett's apartment. Upon arresting Bennett in his apartment, Officer Nelson observed a nine-millimeter-shell casing outside the apartment door and Bennett's nine-millimeter handgun and holster were later found in Bennett's apartment.
¶ 10. On November 17, 2005, after a jury trial was held on the matter, Bennett was found guilty of aggravated assault and possession of a firearm by a convicted felon. On December 12, 2005, the trial court sentenced Bennett to twelve years for aggravated assault and three years for possession of a firearm by a convicted felon, with the sentences to run concurrently, all in the custody of the MDOC. Bennett appealed his conviction of aggravated assault and filed a motion for a judgment not withstanding the verdict (JNOV) or, in the alternative, for a new trial. The trial court denied his post-trial motion.
¶ 11. Thereafter, Bennett filed his notice of timely appeal; however, his counsel failed to file a brief, and Bennett's appeal was dismissed under Mississippi Rule of Appellate Procedure (2)(a)(2). In September 2007, Bennett filed a motion for an out-of-time appeal, which was denied. In October 2008, Bennett appealed the denial of his motion for an out-of-time appeal. The Mississippi Supreme Court granted the appeal and reinstated Bennett's original appeal. This Court now reviews Bennett's appeal, which is based upon his claim that the jury's verdict of guilty for aggravated assault is against the overwhelming weight of the evidence.
STANDARD OF REVIEW
¶ 12. This Court recognizes that the decision to grant or deny a motion for a new trial is within the sole discretion of the trial court. Hill v. State, 912 So. 2d 991, 994 (¶ 19) (Miss.Ct.App.2004) (citing McClain v. State, 625 So. 2d 774, 778 (Miss. 1993)). Accordingly, this Court utilizes an abuse-of-discretion standard of review in determining whether or not to grant or deny a motion for a new trial. Id. at 995 (¶ 25). A new trial should only be granted if "the verdict is so contrary to the overwhelming weight of the evidence that failure to grant the motion [for a new trial] would result in unconscionable injustice." Id. (citation omitted). In deciding whether a verdict is against the overwhelming weight of the evidence, "this Court must view all evidence in the light most consistent with the verdict." Id.
DISCUSSION
¶ 13. In this case, it is undisputed that Bennett shot Hall. Bennett, Hall, and Hall's girlfriend testified at the trial of the matter that Bennett was the shooter. Accordingly, the jury was essentially only charged with determining whether or not Bennett shot Hall in self-defense. The jury heard testimony from Bennett that he was drunk and that he and Hall had engaged in an argument on the morning of the shooting. The jury also heard testimony from Officer Nelson that Bennett was arrested for disturbing the peace following his argument with Hall and that, on the way to the police station, Bennett stated that he should shoot Hall and Hall's girlfriend. Hall further testified that he was unarmed at the time of the shooting testimony that was corroborated by Hall's girlfriend as well as his neighbor, Riley. Officer Nelson also confirmed the weapon used to shoot Hall was Bennett's nine-millimeter gun, which was found in Bennett's apartment and the shell casing of which was discovered outside of Bennett's apartment door directly after the shooting.
¶ 14. Bennett argues the testimonies of Hall and his girlfriend were unreliable, as both witnesses had a stake in the outcome *372 of the case. Additionally, Bennett argues the testimony of Riley should have been disregarded because of minor inconsistencies in her testimony and because she testified that she did not see who had shot Hall. Nonetheless, witness credibility is a matter for the jury to consider and determine. Jackson v. Daley, 739 So. 2d 1031, 1039 (¶ 29) (Miss.1999). This Court will not set aside a verdict merely on account of a conflict in the facts. Price v. State, 892 So. 2d 294, 297-98 (¶ 15) (Miss.Ct.App. 2004).
¶ 15. Accordingly, there is nothing in the record before this Court to demonstrate that the verdict convicting Bennett of aggravated assault is against the overwhelming weight of the evidence. Therefore, we affirm Bennett's convictions and sentences.
¶ 16. THE JUDGMENT OF THE CIRCUIT COURT OF BOLIVAR COUNTY OF CONVICTION OF COUNT I, AGGRAVATED ASSAULT, AND SENTENCE OF TWELVE YEARS, AND COUNT II, POSSESSION OF A FIREARM BY A CONVICTED FELON, AND SENTENCE OF THREE YEARS, WITH THE SENTENCES TO RUN CONCURRENTLY IN THE CUSTODY OF THE MISSISSIPPI DEPARTMENT OF CORRECTIONS, IS AFFIRMED. ALL COSTS OF THIS APPEAL ARE ASSESSED TO BOLIVAR COUNTY.
KING, C.J., LEE AND MYERS, P.JJ., IRVING, GRIFFIS, BARNES, ROBERTS, CARLTON AND MAXWELL, JJ., CONCUR.
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47 So. 3d 294 (2009)
EX PARTE GREGORY BERNARD HOLLIS
No. 1080206 (CR-07-1670).
Supreme Court of Alabama.
January 9, 2009.
DECISION WITHOUT PUBLISHED OPINION
Cert. denied.
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10-30-2013
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47 So. 3d 573 (2010)
LOUISIANA GRANITE YARD, INC., Plaintiff-Appellee
v.
LA GRANITE COUNTERTOPS, L.L.C., Defendant-Appellant.
No. 45,482-CA.
Court of Appeal of Louisiana, Second Circuit.
August 18, 2010.
Rehearing Denied September 16, 2010.
*576 The Smitherman Law Firm, L.C., Shreveport, LA, by Donald Lee Brice, Jr., for Appellant.
Tyler & Johnson, L.L.C., Shreveport, LA, by Tommy J. Johnson, for Appellee.
Before GASKINS, CARAWAY and PEATROSS, JJ.
CARAWAY, J.
The plaintiff retailer/installer of granite filed suit for trade name infringement against a competing business incorporated by a former employee. Plaintiff seeks to enjoin defendant's use of plaintiff's trade names. Following a preliminary injunction hearing, the trial court enjoined defendant from using, displaying or advertising the trade names of plaintiff. This appeal by defendant ensued.
Facts
In December of 2004, David Randall Cook incorporated a retail granite business specializing in granite countertops, called Louisiana Granite Yard, Inc. (hereinafter LGY).[1] Cook's wife, Somsri, operated a restaurant next door to Louisiana Granite Yard. From June of 2005 to February of 2008, Somsri's brother, Sompong Sitkrongwong ("Mark"), began working for the two businesses. While working at LGY, Mark met with customers, answered phones, took payments, performed computer input, measured jobs and created computer drawings.
In mid-February 2008, Cook terminated Mark's employment. Subsequently in late February 2008, Mark incorporated his own granite business calling it LA Granite Countertops, L.L.C. ("LA Countertops").[2] Initially, Mark utilized his home address as the business address. On March 31, 2008, however, he changed the business address after he secured leased premises some 4.3 miles from LGY.
In September and October of 2008, the Louisiana Secretary of State approved LA Granite and Louisiana Granite as trade names for Cook's business. Based upon allegations that Mark was utilizing LGY's trade names (LA Granite and Louisiana Granite), LGY instituted suit for trade name infringement against LA Countertops on November 3, 2008. LGY alleged that LA Countertops used its "trade names, LA Granite and Louisiana Granite, in its day to day business activities," and that the use of its trade names caused "actual confusion, mistake and/or deception" *577 to LGY clients. Specifically, plaintiff alleged LA Countertops was receiving payment in the name of LA Granite and answered the phone using both trade names. In a supplemental petition, LGY also raised claims of unfair trade practices and alleged that the name LA Granite Countertops, L.L.C., caused confusion to the public. Alleging that such activity was likely to injure the business reputation of LGY and dilute its business market, LGY prayed for injunctive relief under La. R.S. 51:222, et seq., relating to the use of the names and telephone numbers and damages and attorney fees. LA Countertops answered the suit and filed a reconventional demand against LGY seeking the cancellation of the trade names Louisiana Granite and LA Granite.
On September 28, 2009, the trial court conducted a hearing on LGY's motion for preliminary examination. At the hearing, Cook, his wife, Somsri, and Mark testified in addition to numerous customers of the two businesses. Specifically, LGY presented the testimony of three customers who were confused about the names of the two businesses.
Melanie Petchak testified that in August of 2008 she purchased granite from LGY. Because of a change order, she tried to contact LGY. She looked in the phone book for the telephone number and called LA Countertops instead. Petchak testified that she was confused over the names of the two companies. On cross-examination, the witness admitted that she did not compare addresses before she called. She knew the name of LGY as Louisiana Granite.
Diana Roath also testified that she purchased granite from LGY. When she and her husband attempted to locate LGY, they were unable to find it. She called a number from a 2007 newspaper ad. The individual who answered the phone identified the business as LA Granite and gave her directions to LGY. She asked the person who answered the phone if she had reached "Louisiana Granite" and he said responded that the business was LA Granite. She asked if LA stood for Louisiana and he responded in the negative. Roath's husband, Terry Roath, testified consistently with his wife.
Diane Cook, Cook's sister, testified the she had worked for LGY answering the phone. When answering the phone, she utilized the names LA Granite, Louisiana Granite and Louisiana Granite Yard. Cook estimated that she received at least two "confused" customer calls per week. She also testified that she called LA Countertops and heard that they answered the phone under the name LA Granite.
Mark testified that he could not recall whether he referred to LGY as LA Granite or Louisiana Granite during the time he worked for his brother-in-law. Later, Mark testified that he had referred to the business as Louisiana Granite Yard, but not LA Granite Yard. Mark identified documents he prepared for a client which were entitled LA Granite Yard, but he claimed that he did not notice the details of the document. He later testified that he put the name LA Granite Yard on the documents at the request of Cook. Mark identified 34 documents including price quotes, drawings, bills, checks and deposit slips from November 2005 to February 2008, containing the names LA Granite, Louisiana Granite or Louisiana Granite Yard.
Mark testified that he never recalled customers referring to the business as LA Granite Yard or LA Granite. Nor did he answer the phone with LA Granite. Mark recalled Petchak's phone call and admitted that he had called his sister concerning Petchak's inquiry.
*578 Mark testified that he never held his business out as LA Granite or Louisiana Granite. He advertised his company in newspapers and the phone book utilizing the full name, "LA Granite Countertops." He never instructed his clients to make checks payable to LA Granite, although he identified four checks which were made payable to LA Granite. Mark also identified numerous corporate documents which included the entire name of his company.
Somsri Cook testified that the names, LA Granite, Louisiana Granite and Louisiana Granite Yard were used to refer to LGY from the company's inception in 2005. She identified approximately 250 pages of copies of checks and deposit slips dated June of 2005-September of 2008, made out to LA Granite Yard, Louisiana Granite Yard, LA Granite, Louisiana Granite, La. Granite and La. Granite Yard. She knew that during his employment, Mark answered the business phone as LA Granite or Louisiana Granite.
In July of 2008, one of Mark's customers mistakenly brought in a payment check to LGY. It was written to "LA Granite." Somsri also testified that in July of 2009, a granite supplier sent a facsimile to LGY with the name of LA Countertops relating to an order made by LGY. A business card vendor also erroneously left a voice message at LGY for LA Countertops. In August and September of 2008 two LGY customers erroneously called LA Countertops to change LGY orders. Somsri testified that customers called her with confusion over the two company names. Somsri identified the sign which was presently in front of LGY which read LA. Granite, Yrd. She testified that the sign had been used by the business since late 2005. A photograph of the sign was introduced into evidence.
On cross-examination Somsri identified the phone book ads of LGY which advertised the company as Louisiana Granite Yard. Defendants submitted telephone book ads for both businesses dating from 2007-2010. Both businesses were listed on the same pages in the 2009-2010 phone book under the headings Counter Tops and Granite, under their respective names, Louisiana Granite Yard and LA Granite Countertops.
David Cook testified that he has tried to establish the business identity of his company with the names Louisiana Granite and LA Granite. He identified the sign in front of the business which he recalled had been there since May of 2005. Cook testified that LGY does business in Shreveport, Bossier City and Webster Parish. Cook recalled that the LGY phone was answered with Louisiana Granite and LA Granite, although LA Granite was primarily used. He also testified that Mark answered the telephone LA Granite when he worked for LGY. Cook noticed that the incidents of confusion increased when both companies were listed in the telephone book.
After considering the evidence and testimony, the trial court granted a preliminary injunction in favor of LGY, as follows:
[R]estraining, enjoining, and prohibiting said entity, its owners, agents, employees, and all persons, firms or corporations acting or claiming to act in its behalf, or in concert with said entity from using, displaying, advertising, and/or referring to in any manner and/or capacity the trade names of "LOUISIANA GRANITE" and/or "LA GRANITE" and, more specifically, from using the "LA GRANITE" within the name of the defendant, LA GRANITE COUNTERTOPS, L.L.C.
The court fixed a $20,000 bond and denied enjoining the use of LA Countertops' telephone number. LA Countertops appeals the issuance of the preliminary injunction *579 and, alternatively, contests the amount of the bond.
Discussion
I. Merits of Preliminary Injunction
In Louisiana, an entity's corporate name registered under Title 12, the Louisiana Corporations and Associations Law, shall be distinguishable from the name of any corporation or other limited liability company or trade name previously registered with the secretary of state under La. R.S. 12:23B and 1306A(3). Likewise trade names can be registered pursuant to Title 51, Chapter 1, Part IV, Trade Names, Trade Marks and Domain Names, if the Secretary of State finds that the trade name is available for use. La. R.S. 51:213, 215. Under those provisions, the term "trade name" means a word, name, symbol, device or any combination thereof used by a person to identify his business, vocation or occupation and distinguish it from the business, vocation or occupation of others. La. R.S. 51:211D. The term trade name is applicable to the particular business and its good will. Gulf Coast Bank v. Gulf Coast Bank & Trust Co., 94-2203 (La.4/10/95), 652 So. 2d 1306.
Under Louisiana law, however, the mere registration of a the trade name confers only procedural advantages.[3] Substantive rights in a trade name may be acquired only by actual usage. Bobby and Ray Williams Partnership, L.L.P., v. Shreveport Louisiana Hayride Co., L.L.C., 38,866 (La.App.2d Cir.9/22/04), 882 So. 2d 676; Givens Jewelers, Inc. v. Givens, 380 So. 2d 1227 (La.App. 2d Cir.1980), writ denied, 383 So. 2d 800 (La.1980); Couhig's Pestaway Co., supra; Gallo v. Safeway Brake Shops of Louisiana, Inc., 140 So. 2d 912 (La.App. 4th Cir.1962). This is because the protection of trademarks and trade names under the law of unfair competition is based on the proprietary interest one has in the mark or name and such protection is based on equity and does not require statutory provisions. Gulf Coast Bank, supra at 1311-1312. Thus, the registration by one party, or the lack of registration by the other, is not decisive to the right of either party to use the trademark or trade name. Couhig's Pestaway Co., supra.
The Louisiana Supreme court has sanctioned a cause of action for trade name infringement. Because, however, that cause of action is not "existent in the statutory scheme,"[4] it exists in the "jurisprudentially developing law of trade names as part of the law of unfair competition." Gulf Coast Bank, supra at 1312.
The law of unfair competition protects trade names against unfair use, simulation, *580 or imitation. New Orleans Checker Cabs v. Mumphrey, 205 La. 1083, 18 So. 2d 629 (1944); Boogie Kings v. Guillory, 188 So. 2d 445 (La.App. 3d Cir.1966), writ denied, 249 La. 761, 191 So. 2d 140 (1966). In the context of trademarks, which are accorded the same protections as trade names, the Louisiana Supreme Court long ago discussed the law of unfair competition in Handy v. Commander, 49 La. Ann. 1119, 22 So. 230 (1897):
The law applicable to trade-marks is very well stated in Trade-Mark Cases, 100 U.S. 82, 25 L. Ed. 550, in which Mr. Justice Miller, speaking for the court, said: `The right to adopt and use a symbol or a device to distinguish the goods or property made or sold by the person whose mark it is, to the exclusion of use by all other persons, has been long recognized by the common law and the chancery courts of England and of this country, and by the statutes of some of the states. It is a property right, for the violation of which damages may be recovered in an action at law, and the continued violation of it will be enjoined by a court of equity, with compensation for past infringement. This exclusive right was not created by the act of congress, and does not depend upon it for its enforcement. The whole system of trade-mark property, and the civil remedies for its protection, existed long anterior to that act, and have remained in full force since its passage. These propositions are so well understood as to require neither the citation of authorities nor elaborate argument to prove them.'
The court further stated:
The trade-mark may be, and generally is, the adoption of something already in existence as the distinctive symbol of the party using it. At common law the exclusive right to it grows out of its use, and not its mere adoption.
The law's protection against unfair competition by the use of another's trade name rests upon the deceit or fraud which the newcomer in the business practices, not only upon the one already established in the business, but also upon the public. Boogie Kings, supra.
Whether there has been a trade name infringement centers upon the distinctiveness of the name used. Trade names are often classified in categories of generally increasing distinctiveness: (1) generic; (2) descriptive; (3) suggestive; (4) arbitrary; or (5) fanciful. Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992); Gulf Coast Bank, supra.
The general rule regarding distinctiveness is clear. An identifying mark is distinctive and capable of being protected if it either (1) is inherently distinctive or (2) has acquired distinctiveness through secondary meaning. Two Pesos, Inc., supra. Secondary meaning is used generally to indicate that a mark or dress has come through use to be uniquely associated with a particular manufacturer's product or service. To establish secondary meaning, a plaintiff must show that, in the minds of the public, the primary significance of a product feature or term is to identify the source of the product rather than the product itself. Id. Louisiana courts have looked to the appearance and actual similarity of the name or marks, evidence of actual confusion, as well as actual fraudulent intent, and the geographic area in which the businesses operate in relation to each other. Gulf Coast Bank, supra. Other factors which are appropriately considered by the courts are similarity of product, identity of retail outlets and purchasers, identity of advertising media, strength or distinctiveness of the mark or *581 name, defendant's intent and similarity of design Id.
A generic term is the name of a particular genus or class of which an individual article, service or business is but a member. Generic terms are considered to be in the public domain and are not susceptible to appropriation for exclusive use and thus are not given trademark or trade name protection.
A suggestive term suggests, rather than describes, a characteristic of the goods, services or business and requires an effort of the imagination by the consumer in order to draw a conclusion as to the nature of the goods, services, or business. Suggestive marks or names are considered inherently distinctive and need not acquire secondary meaning to be protected. Arbitrary or fanciful terms bear no relationship to the product, service or business to which it applies, and like suggestive ones, are considered inherently distinctive and are accorded protection without having to prove secondary meaning. Gulf Coast Bank, supra.
Descriptive terms identify a characteristic or quality of an article, service or business. Though ordinarily not protectable, a descriptive name may become a valid, protectable trade name if it acquires a secondary meaning. Included in the category of descriptive terms which must have secondary meaning in order to be afforded protection as a trade name are geographic terms. Gulf Coast Bank, supra.
An injunction is a harsh, drastic, and extraordinary remedy, and should issue only where the party seeking it is threatened with irreparable loss or injury without adequate remedy at law. Greenberg v. DeSalvo, 254 La. 1019, 229 So. 2d 83 (La.1969), cert. denied, 397 U.S. 1075, 90 S. Ct. 1521, 25 L. Ed. 2d 809 (1970); LaFreniere Park Foundation v. Friends of Lafreniere Park, Inc., 97-152 (La.App. 5th Cir.7/29/97), 698 So. 2d 449, writ denied, 97-2196 (La.11/21/97), 703 So. 2d 1312. A preliminary injunction is an interlocutory procedural device designed to preserve the existing status pending a trial of the issues on the merits of the case. Lafreniere Park Foundation, supra. The trial court has great discretion to grant or deny the relief. Id.
La. C.C.P. art. 3601 provides in pertinent part that, an injunction shall issue in cases where irreparable injury, loss or damage may otherwise result to the applicant, or in other cases specifically provided by law. Clearly, absent specific authorization by law, an injunction will not issue without a showing of irreparable injury. West v. Town of Winnsboro, 252 La. 605, 211 So. 2d 665 (1967); Lafreniere Park Foundation, supra.
In order to obtain a preliminary injunction a plaintiff must show that he will suffer irreparable harm if the injunction is not granted, that he is entitled to the relief sought, and he must make a prima facie showing that he will prevail on the merits. Lafreniere Park Foundation, supra. In contrast, the issuance of a permanent injunction takes place only after a trial on the merits in which the burden of proof is a preponderance of the evidence. Mary Moe, L.L.C. v. Louisiana Bd. of Ethics, 03-2220 (La.4/14/04), 875 So. 2d 22. Thus, because an applicant for a preliminary injunction need make only a prima facie showing, less proof is required that in an ordinary proceeding for a permanent injunction. Gaumnitz v. Williamson, 36,177 (La.App.2d Cir.8/14/02), 824 So. 2d 531; Monroe Real Estate & Dev't Co. v. Sunshine Equipment Co., 35,555 (La.App.2d Cir.1/23/02), 805 So. 2d 1200; *582 Hailey v. Panno, 472 So. 2d 97 (La.App. 5th Cir.1985).
For purposes of determining whether preliminary injunction is warranted, "irreparable injury" means that the moving party cannot be adequately compensated in money damages for his injury or suffers injuries which cannot be measured by pecuniary standards. Lafreniere Park Foundation, supra. Where one relies on secondary meaning to establish the distinctiveness of the name, in order to enjoin another's use of a similar name, proof of a likelihood of consumer confusion is required. Gulf Coast Bank, supra.
In this case, the sequence of the corporate name actions by the Secretary of State for the key phrases "Louisiana Granite" and "LA Granite" was, as follows:
December 2004Corporate name issuance to
"Louisiana Granite Yard, Inc."
February 2008Corporate name issuance to
"LA Granite Countertops, L.L.C."
September/October 2008Approval of LGY's trade name use for
"LA Granite" and "Louisiana Granite"
Thus, if approval by the Secretary of State was the controlling test for a resolution of this case, LGY first obtained formal use of the phrase "Louisiana Granite," and LA Countertops first received approval for use of the phrase "LA Granite" in connection with their respective business entities. However, contrary to LA Countertops' assertions, the Secretary of State's actions do not resolve this dispute as shown by the above jurisprudence.
Despite the concluding terms "yard" and "countertops" in the respective names of the parties' business entities, LGY claims that defendant's choice of the principal component of its name, "LA Granite," and the defendant's use of that name and the name "Louisiana Granite," create an infringement upon the distinctiveness and use of "Louisiana Granite" in LGY's name and business. Clearly, LGY's appropriation of "Louisiana Granite" within its formal corporate name and its use of that phrase in its business name and operations since 2004 justifies the preliminary injunctive relief preventing LA Countertops' use of "Louisiana Granite" as a business trade name. The phrase has its own distinctiveness and had acquired secondary meaning by its use in the Shreveport/Bossier market. LA Countertops was shown to have employed the phrase "Louisiana Granite" at times in conducting its business, and the above jurisprudence supports the affirmance of the trial court's injunction against the defendant concerning the use of that phrase.
A closer issue is presented regarding the defendant's use of the key phrase, "LA Granite," as its trade name. First, the established use of "Louisiana Granite" by LGY involves a name identifying a "granite" business (a generic concept) with "Louisiana," a formal descriptive name, geographically identifying the business as located in our state. As stated above, there is a distinctiveness in the combination of those words as "Louisiana Granite" and a clear secondary meaning for this phrase as a business trade name used by LGY since 2004. Although the defendant's use of the capitalized letters "L" and "A" can be pronounced and communicated as "L" and "A," the Louisiana customer might also easily interpret "LA Granite" as the same as "Louisiana Granite," since "La." is the abbreviation for our state name. Thus, there is some confusion in the words alone created by the defendant's choice of the name "LA Granite."
Secondly, LGY produced prima facie evidence of its prior trade name use of "LA *583 Granite" and thus distinctiveness through secondary meaning which LGY had obtained in the marketplace prior to the formation of LA Countertops. The evidence reviewed above consisting of the name plate on the outside of LGY's place of business and the use of "LA Granite" in the business is admittedly not so overwhelming. However, this was evidence of a secondary meaning which was not clearly rebutted by defendant. The higher burden of proof for a permanent injunction might produce a different outcome. Yet, at the preliminary injunction stage, the confusion caused by the abbreviation of the state name and the direct employment of the trade name "LA Granite" by LGY in the marketplace prior to LA Countertops' formation, provided the trial court with sufficient evidence for the grant of injunctive relief.
Finally, although the two formal corporate names are distinguished by the words "Countertops" and "Yard," the primary name component of each business involves Louisiana Granite. The defendant's infringement on LGY's established use of its trade name for that key component may be presently enjoined during the pendency of this action.
II. Insufficiency of Bond
On appeal, Mark argues that the $20,000 preliminary injunction bond set by the trial court in accordance with La. C.C.P. art. 3610[5] should be increased to not less than $80,000. In oral reasons for judgment, after granting the preliminary injunction in favor of LGY, the trial court set the bond at $20,000. No oral objection to the amount was made by counsel at that time. A written judgment memorializing the ruling followed on November 3, 2009. Without any further objection by Mark, LGY obtained an order from the court for the placement of the cash bond into the registry of the court.
It is well established that the amount of the preliminary injunction bond addresses itself to the discretion of the trial court. Hall v. Fertility Institute of New Orleans, 94-1135 (La.App. 4th Cir.12/15/94), 647 So. 2d 1348. Moreover, La. C.C. P. art. 5123 requires any person in interest wishing to test the sufficiency of a bond furnished as security in a judicial proceeding to rule the party furnishing the bond into the trial court in which the proceeding was brought to show cause why the bond should not be deemed insufficient. Because no such rule to show cause is evident from the record before us, Mark is precluded from now raising the issue of the sufficiency of the bond on appeal. Hall v. Fertility Institute of New Orleans, supra.
Conclusion
For the foregoing reasons, the judgment of the trial court is affirmed. Costs of this appeal are assessed to appellant.
AFFIRMED.
APPLICATION FOR REHEARING
Before BROWN, WILLIAMS, GASKINS, CARAWAY and PEATROSS, JJ.
Rehearing denied.
NOTES
[1] In November of 2008, the name of the corporation was changed to Louisiana, Granite Yard, Inc.
[2] The L and A are intended to be pronounced separately.
[3] It has been held that the determination by the Secretary of State that the names of two corporations are not deceptively similar is not conclusive or binding on the court, but is persuasive and entitled to some weight. Couhig's Pestaway Co. v. Pestaway, Inc., 278 So. 2d 519 (La.App. 3d Cir. 1973); but see, Glenn Morris and Wendell H. Holmes, Business Organizations, 7 Louisiana Civil Law Treatise, § 8.05 (2009), suggesting that no weight be given at all to such acceptance on the question of likelihood of confusion in the relevant marketplace.
[4] La. R.S. 51:222 provides that any person who shall use without the consent of the registrant, any reproduction, counterfeit, copy, or colorable imitation of a mark registered with the Secretary of State in connection with the sale, offering for sale, or advertising of any goods or services on or in connection with which such use is likely to cause confusion or mistake or to deceive as to the source or origin of such goods or services may proceed by suit to enjoin the manufacture, use, display or sale of any counterfeits or imitations thereof and any court of competent jurisdiction may grant injunctions to restrain such manufacture, use display or sale as may be by the said court deemed just and reasonable. (Emphasis added).
[5] La. C.C.P. art. 3610 provides that a preliminary injunction shall not issue unless the applicant furnishes security in the amount fixed by the court, except where security is dispensed with by law. The security indemnifies the person wrongfully restrained or enjoined for costs and damages.
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41 So.3d 516 (2010)
James McKINLEY
v.
KLEIN STEEL, INC.
No. 09-CA-930.
Court of Appeal of Louisiana, Fifth Circuit.
March 23, 2010.
*517 William R. Mustian, III, Attorney at Law, Metairie, LA, for Plaintiff/Appellee.
Bradley P. Naccari, Attorney at Law, Metairie, LA, for Defendant/Appellant.
Panel composed of Judges EDWARD A. DUFRESNE, JR., CLARENCE E. McMANUS, and MARC E. JOHNSON.
EDWARD A. DUFRESNE, JR., Chief Judge.
This is a worker's compensation proceeding which resulted in a determination favorable to James McKinley, the employee-claimant. His employer-appellant, Klein Steel, Inc., now appeals that determination. For the following reasons, we affirm. We further award an additional $2,000 in attorney fees for legal services on this appeal.
The undisputed facts are as follows. On August 15, 2007, claimant was carrying a stair railing on his job when he stumbled and hit his head on a stair structure. His co-worker at the site drove him back to the employer's office to report the injury. Martha Klein, the owner's wife, told claimant to report to North Oaks Medical Center for treatment, and he did so. Bella Holden, the admitting clerk at the hospital, testified that claimant identified his employer as Klein Steel and gave her a telephone contact number. The number given was that of a Klein Steel cell phone which was provided to claimant when he was employed by the company. She called this number and got a voice mail from a Robert Stafford. Stafford was a former Klein employee to whom the phone had previously been assigned, and his voice mail message was still on it at the time of this accident. Holden left a call back message but never received one. She said she never mentioned a drug test to claimant, and to her knowledge claimant never refused such a test.
After treatment, claimant returned to Klein Steel and spoke to Martha Klein again. She asked if he had been given a drug test and he said no, and further that no one had said anything about such a test at the hospital. She was surprised by his answer and called the hospital to find out why the test had not been given. However, she did not send claimant back to the hospital for a test, nor did she even suggest that he return for a test.
When she called the hospital, Klein spoke to Mariem Lovewhite, a staff coordinator, who said she would look into why no drug test was conducted. In late August, Lovewhite sent Klein the results of her inquiry, which were that Holden had called the contact number given to her by claimant and left a message, but no return call was ever received.
As to claimant's injury, he was initially treated for a scalp laceration. He was discharged with a light duty restriction, and Martha Klein testified that her husband offered to find something for claimant to do with the restrictions, but no specific job was shown to have been offered. *518 Claimant did not return to work after the accident.
On September 18, 2007, claimant was seen by Dr. Lori Summers, a neurosurgeon. On November 26, 2007, he underwent the first of two surgeries for spinal disc problems related to his injury. In February of 2008, Dr. Summers notified the worker's compensation adjuster that claimant had been unfit for any work from the time she first saw him on September 18.
Worker's compensation was paid to claimant from the time of the accident until September 5, 2007, at which time his "light duty" status was not continued by the original treating physician. However, upon the November 26 surgery, benefits were recommenced and apparently are continuing. Also, all medicals have been paid. However, the insurer refused to pay benefits for the period of September 18, 2007, to November 26, 2007. Claimant brought this claim to recover benefits for this period.
The Worker's Compensation Judge ruled that claimant was entitled to temporary total disability benefits from September 18, to November 26, 2007. She also ruled that defendants had failed to reasonably controvert claimant's entitlement to such benefits, and awarded a penalty of $2,000, and attorney fees of $3,000. Defendants have now appealed this judgment, and claimant has answered the appeal seeking an additional $2,000 in attorney fees for appellate work in this court.
Appellant's theory of the case is that claimant gave fictitious employer information to the hospital admitting clerk, Bella Holden, in order to prevent her from verifying his worker's compensation status, and to further circumvent the employer from requesting that a drug test be done. Specifically, it asserts that claimant gave his company cell phone number and the name of Robert Stafford as the employer contact person, knowing that this person was no longer employed by Klein.
To support this theory it introduced the hospital admit form and a computer generated lists of calls and correspondence related to the claim. The admit form shows that Klein Steel was claimant's employer and lists that company's phone number as that for claimant's cell phone. Nowhere on that form does the name Robert Stafford appear. In fact, the only mention of Robert Stafford in the entire hospital file appears in one of the computer generated items entered by Bella Holden and dated August 15, 2007, which simply states "called work Robert Stafford @ 1-28pm n/o left message." Holden testified on direct examination that she recalled claimant giving her Stafford's name as the contact person. However, when it was suggested on cross-examination that she may have picked up the name from the voice mail she gave a somewhat convoluted explanation that this would have been somehow illegal. It was also undisputed that the voice mail on the phone did give the name of Robert Stafford to the caller.
Claimant, for his part, testified that he did not know who Robert Stafford was, but did know a former Klein employee named Bob. Martha Klein testified that Stafford had not worked at the company for about a year before the incident at issue here, and could not recall whether claimant's and Stafford's employment had ever overlapped. Claimant also introduced two prior admission forms to the hospital for non-work related problems, one on July 25, 2007, and another on August 10, 2007. The admit forms for both give the same information as that appearing on the August 15, 2007, form as to Klein being his *519 employer and the "Stafford" phone number.
After hearing the above evidence, the judge ruled that Bella Holden's testimony was not given weight because it was "incredulous." She noted that there was absolutely no evidence to establish that claimant had been offered a drug test and refused it, and further noted that upon his return to Klein Steel he freely stated that no drug test had been offered or administered. Martha Klein corroborated this testimony, and admitted that she did not send him back to the hospital for such a test. Also weighing in the judge's decision was the fact that claimant had given the same employer name and phone number on two prior hospital admissions which were not worker's compensation related. She summarized her findings as to the intoxication issue by stating that "there was no evidence of intoxication, no request for a drug test, no refusal to take a drug test, and no testimony or evidence of any appearance of drug or alcohol usage by claimant on August 15, 2007." As to claimant's entitlement to benefits between September 18, 2007, and November 26, 2007, she found that there was no contradictory medical evidence to refute claimant's injury and resulting disability during this period. She finally concluded that there was a failure to reasonably controvert claimant's entitlement to benefits during that time frame and awarded benefits, penalties, and attorney fees.
When issues on appeal involve factual determinations, the standard of review is "manifest error." Stobart v. State through Dept. of Transp. and Develop., 617 So.2d 880 (La.1993). Moreover, when there are two permissible views of the evidence, the trier of fact's determination cannot be manifestly erroneous. Id.
Here, the trier of fact made a specific finding that the testimony of Bella Holden was highly problematical, and did not give it much weight. When considering this determination as to this testimony in light of the entire record, we find no manifest error, and therefore must affirm that finding.
The laws which appellant cites to justify its refusal to pay benefits are La. R.S. 23:1081, related to the intoxication defense, and La. R.S. 23:1208, related to false statements. As to the intoxication defense, section (7)(b) provides that if the employee refuses to submit to a drug test a presumption of intoxication arises. The trier of fact found that no such test was either offered or refused, and the record overwhelmingly supports this finding. Thus, no presumption of intoxication ever arose, there was no other evidence to establish intoxication, and the trial judge correctly rejected this defense.
As to false statements, the jurisprudence is clear that the statement must be false, it must be willfully made, and it must be made for the purpose of obtaining benefits. Resweber v. Haroil Const. Co., 94-2708 (La.9/5/95), 660 So.2d 7. The trier of fact found that claimant did not willfully make any false statement for purposes of obtaining benefits. Again, the record provides ample factual support for this conclusion, and it is clearly not manifestly erroneous.
The final issues on appeal concern the awards of penalties and attorney fees. Such determinations are factual, and therefore subject to the manifest error standard of review. Blanchard v. Rental Service Corp., USA, 5-460 (La.App. 5 Cir. 1/17/06), 920 So.2d 911. In the present case there was ample evidence to support the determination that the employer did not reasonably controvert the claim. The defense's entire theory of the matter was based on the mere speculation that claimant *520 had lied to the admit clerk at the hospital to circumvent the administration of a drug test. However, benefits were paid from November 26, 2007, including the costs of two surgeries, based on the same information known to the adjuster during that time frame. Further, in February of 2008, the surgeon notified the adjuster that claimant was totally disabled from the time of his first visit to her on September 18, 2007, and there was absolutely no contrary medical opinion of record. We therefore affirm these awards.
Claimant has also answered the appeal seeking additional attorney fees of $2,000 for work on appeal. We deem this figure to be reasonable and therefore make that additional award.
For the foregoing reasons the judgment of the Office of Worker's Compensation awarding claimant benefits, penalties and attorney fees is hereby affirmed. Claimant is also awarded an additional $2,000 in attorney fees for work before this court.
AFFIRMED.
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