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197 P.3d 905 (2008)
BAZIL
v.
DETROIT DIESEL CENT. REMANUFACTURING.
No. 99613.
Court of Appeals of Kansas.
December 19, 2008.
Decision without published opinion. Affirmed.
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122 F.3d 1074
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.Dudley Earl THOMAS, Plaintiff-Appellant,v.LAS VEGAS METROPOLITAN POLICE DEPARTMENT; G. Sherwood,Officer; M. Wildemann, Officer; D. Reid,Officer; T. Wilson, Officer; L.Cricket, Officer, Defendants-Appellees.
No. 96-15989.
United States Court of Appeals, Ninth Circuit.
Submitted Aug. 25, 1997**Decided Aug. 29, 1997.
Appeal from the United States District Court for the District of Nevada, No. CV-93-00172-PMP; Philip M. Pro, District Judge, Presiding.
Before: SCHROEDER, FERNANDEZ, and RYMER, Circuit Judges.
1
MEMORANDUM*
2
Nevada state prisoner Dudley Earl Thomas appeals pro se the district court's summary judgment for defendants in Thomas's 42 U.S.C. § 1983 action alleging that defendants violated his Fourth Amendment rights when they searched and arrested him without probable cause. The district court granted qualified immunity for individual police officers and summary judgment for the Las Vegas Metropolitan Police Department ("LVMPD",). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.
3
We review de novo the district court's grant of qualified immunity and summary judgment, see Trevino v. Gates, 99 F.3d 911, 916 (9th Cir.1996), cert. denied, 117 S.Ct. 1249 (1997), and we may affirm on any basis supported by the record, see First Pac. Bank v. Gilleran, 40 F.3d 1023, 1024 (9th Cir.1994).
4
Because Thomas failed to raise a genuine issue of material fact regarding the existence of a government policy, practice, or custom authorizing LVMPD police officers to perform illegal searches and seizures, we affirm the district court's summary judgment for the LVMPD. See Trevino, 99 F.3d at 918-21.
5
Thomas contends that the district court erred by granting qualified immunity to defendants Wildemann, Reid, and Sherwood because they lacked probable cause to arrest him. We disagree.
6
Probable cause exists when "the facts and circumstances within the arresting officer's knowledge are sufficient to warrant a prudent person to believe a suspect has committed, is committing, or is about to commit a crime." United States v. Hoyos, 892 F.2d 1387, 1392 (9th Cir.1989).
7
In support of their summary judgment motion, Wildemann, Reid, and Sherwood submitted an affidavit stating that, while they were in an unmarked police car, they observed Thomas and a juvenile complete what appeared to be a drug transaction in the courtyard of an apartment that was well-known by LVMPD police officers for its gang and drug activities. Defendants drove into the courtyard to investigate. After they pulled into the courtyard, defendants were approached by Thomas and his companion. Defendants stated that, based upon their experiences dealing with drug trafficking in the area, they believed that Thomas and his companion sought to effectuate a drug transaction. Defendants immediately identified themselves as police officers and detained both individuals for questioning. During questioning, defendants observed that Thomas appeared to be under the influence of a controlled substance, and they smelled alcohol on the minor's breath. Defendants also stated that, after conducting a search incident to arrest on both individuals, they recovered fourteen rocks of cocaine from the minor and $675.00 from Thomas, who acknowledged that he was unemployed and could not explain the amount of money in his possession. Defendants subsequently arrested both individuals.
8
In opposing summary judgment, Thomas submitted his affidavit and described his version of the events that preceded his arrest. Thomas asserted that he had never taken drugs and was not under the influence of a controlled substance on the night of his arrest. Thomas admitted that he was in the apartment's courtyard with several other people, but denied that he had completed a drug transaction before defendants arrived. Thomas also admitted that he approached defendants' car, but denied that he intended to effectuate a drug deal. Thomas's assertions, however, do not raise a material factual dispute with respect to whether defendants had probable cause to arrest him. See id. at 1392-93.
9
We conclude that, under the totality of the circumstances, a prudent person would have believed that defendants had probable cause to detain, search, and subsequently arrest Thomas. See id. at 1393; see also United States v. Garza, 980 F.2d 546, 550 (9th Cir.1992). Accordingly, we affirm the district court's summary judgment for defendants Wildemann, Reid, and Sherwood based upon qualified immunity. See White v. Pierce County, 797 F.2d 812, 815-16 (9th Cir.1986).
10
We affirm the district court's summary judgment for defendants Wilson and Cricket. We conclude that Wilson and Cricket. did not violate Thomas's Fourth Amendment rights by perpetuating an unconstitutional arrest when they transported Thomas to the police station, because the initial arrest was supported by probable cause. Cf. Schulz v. Lamb, 591 F.2d 1268, 1271-72 (9th Cir.1978) (holding that, in a diversity action for false arrest and imprisonment, a police officer who unknowingly assists another officer in perpetuating an unlawful arrest is also liable to plaintiff for damages arising from that arrest).
AFFIRMED.1
**
The panel unanimously finds this case suitable for decision without oral argument. See Fed. R.App. P. 34(a); 9th Cir. R. 34-4
*
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir. R. 36-3
1
We deny defendants' request under 42 U.S.C. § 1988 for attorney fees
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TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-11-00346-CR
William Joseph Silva, Appellant
v.
The State of Texas, Appellee
FROM THE DISTRICT COURT OF WILLIAMSON COUNTY, 277TH JUDICIAL DISTRICT
NO. 10-1324-K277, HONORABLE KEN ANDERSON, JUDGE PRESIDING
M E M O R A N D U M O P I N I O N
A jury convicted appellant, William Joseph Silva, of possessing a controlled
substance, methamphetamine, in an amount of 400 grams or more, with intent to deliver. See Tex.
Health & Safety Code Ann. § 481.112 (West 2010). Following the punishment phase of trial, which
included evidence of appellant's three prior felony convictions, the jury assessed his punishment at
confinement for life in prison. On appeal, appellant asserts in one issue that the evidence was
insufficient to sustain the jury's verdict. Appellant argues that there was insufficient evidence to
prove he knowingly possessed the methamphetamine found in the undercarriage of the car he was
driving. We will affirm the judgment of conviction.
BACKGROUND
On September 15, 2010, Matt Hartgrove, a detective with the Williamson County
Sheriff's Department, was patrolling Interstate Highway 35 when he observed appellant driving
"nervously" in a 2000 silver Volkswagen Passat. Hartgrove testified that, unlike other drivers on
the road, appellant would not acknowledge him, but instead looked like a "deer-in-the-headlights,"
staring straight ahead and "grasping the steering wheel at ten-and-two." The Passat had rosary beads
and an air freshener hanging from the rearview mirror, and Hartgrove described the car as typical
of the "clean," inconspicuous vehicles often used by drug traffickers. Believing the rosary beads and
the air freshener to be a traffic violation, Hartgrove followed appellant up the highway while
obtaining the car's registration information. The registration search showed that the car had recently
been registered under the name Shellbie Velez in Brownsville, Texas. This information heightened
Hartgrove's suspicions because, based on his experience, recent registration of a car is another
indication that the car might be used for drug trafficking. Further, Hartgrove knew from his
experience in narcotics interdiction that Brownsville is an area that experiences heavy drug
trafficking. During the time that Hartgrove had checked the car's registration, appellant had slowed
from the speed limit of 70 miles per hour to 55 or 60 miles per hour. Hartgrove pulled up next to
appellant's car, but appellant refused to acknowledge Hartgrove or make eye contact with him.
Hartgrove then pulled back into appellant's "blind spot," whereupon appellant began to look around,
apparently trying to discover where Hartgrove had gone. While looking around, appellant swerved
his car over the white lines, forcing other cars to make evasive moves to avoid hitting him. Based
on the perceived traffic violation created by the rosary beads and appellant's failure to maintain a
single lane of traffic, Hartgrove initiated a traffic stop.
Appellant pulled his car to the shoulder of the highway and promptly informed
Hartgrove that his driver's license was suspended. Appellant stated that he was driving from
Brownsville to Dallas to retrieve an 18-wheeler for his uncle, who owned a trucking company in
Mexico. When Hartgrove asked what would happen to the Passat in Dallas, appellant answered that
he was planning to leave the car there. Hartgrove found this explanation unusual, particularly
because the Passat was not registered in appellant's name. Hartgrove testified that throughout this
exchange, appellant exhibited signs of nervousness: yawning, stretching, wiping his face, putting
his hands in his pockets, and fidgeting with his hands. Appellant denied that there were any drugs
or money in the car and invited Hartgrove to search the car. Hartgrove found no contraband in the
interior of the car, but felt on the undercarriage of the car what he believed to be a "bondo type
material" that is commonly used to conceal "trap doors, compartments, [and] welds." At this time,
Hartgrove called members of the Williamson County Sheriff's Office Narcotics Unit and a K-9 unit
to the scene.
Sergeant Gary Hatson testified that, upon inspecting the exterior of the car, he noticed
that the undercarriage of the car was coated with a rubberized material often used by drug traffickers
to conceal welding marks and newly constructed undercarriage compartments. In the interior of the
car, Hatson found a Nextel Boost prepaid phone. Hatson testified that drug traffickers often use
prepaid phones to avoid signing cellular contracts, which require identifying information. Also in
the interior of the car was a Mexican energy drink, a Mexican newspaper from that day, and a single
key in the ignition. Hatson explained at trial that "drug mules" will often carry only a single key as
opposed to a key chain.
After the drug dog gave a positive alert on the vehicle, the detectives took the Passat
to a tire shop to inspect it more thoroughly. There, they found a compartment in the undercarriage
of the car that contained 18 individually wrapped bundles of methamphetamine. In total, the
packages weighed nearly 42 pounds and had a street value of nearly 1.6 million dollars. Hatson
testified that this was the largest drug seizure he had ever seen and that, in his experience, a
drug distribution network would not allow an unwitting person to transport that amount
of methamphetamine.
At the Williamson County Jail, Detective James Knutson interrogated appellant.
Appellant seemed "bored," and Knutson "got the impression that [appellant] was pretty much
dismissive of the fact that [Knutson] was there questioning him about 42 pounds of
methamphetamine in his car." Knutson testified that when he asked appellant about his family,
however, appellant got emotional and responded by saying something about "his family being
killed." Knutson took this to mean, "If I cooperate with you, you know they're going to kill my
family." Throughout the interrogation, appellant's cell phone kept ringing in its direct connect,
walkie-talkie feature and Knutson could hear voices in Spanish, although he could not understand
what they were saying.
DISCUSSION
When reviewing the sufficiency of the evidence, we view the evidence in the light
most favorable to the verdict and determine whether any rational fact finder could have found the
essential elements of the offense beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319
(1979); Brooks v. State, 323 S.W.3d 893, 912 (Tex. Crim. App. 2010). This standard requires the
reviewing court to defer to the jury's determinations of the credibility and weight of testimony.
Brooks, 323 S.W.3d at 899. If the historical facts support conflicting inferences, we must presume
that the fact finder resolved such conflicts in favor of the verdict. See Jackson, 443 U.S. at 326.
To prove unlawful possession of a controlled substance, the State must show that the
defendant (1) exercised care, control, and management over the contraband, and (2) that the accused
knew the substance he possessed was contraband. See Poindexter v. State, 153 S.W.3d 402, 405
(Tex. Crim. App. 2005). Whether the evidence is direct or circumstantial, "it must establish, to the
requisite level of confidence, that the accused's connection with the drug was more than just
fortuitous." Brown v. State, 911 S.W.2d 744, 747 (Tex. Crim. App. 1995).
Normally, mere presence at the location where contraband is found is insufficient to
establish knowledge. See Evans v. State, 202 S.W.3d 158, 162 (Tex. Crim. App. 2006). However,
when a defendant is exerting exclusive control over a vehicle, it may be inferred that he has
knowledge of what is in that vehicle and he may be deemed to have possessed any contraband found
in it. See Menchaca v. State, 901 S.W.2d 640, 652 (Tex. App.--El Paso 1995, pet. ref'd);
Castellano v. State, 810 S.W.2d 800, 806 (Tex. App.--Austin 1991, no pet.) (citing United States
v. Richardson, 848 F.2d 509, 513 (5th Cir. 1988)). Although knowledge of the contraband may be
inferred from the defendant's exclusive control of the vehicle, some courts have cautioned that sole
reliance on the defendant's control of the vehicle should not be used to show knowledge when the
contraband is found in a hidden compartment. See Castellano, 810 S.W.2d at 806; United States
v. Olivier-Becerril, 861 F.2d 424, 426-27 (5th Cir. 1988); United States v. Del Aguila-Reyes,
722 F.2d 155, 157 (5th Cir. 1983). When contraband is found in a hidden compartment of a vehicle
in which the defendant was the sole occupant, courts have often required a showing of "additional
factors indicating knowledge such as circumstances indicating a consciousness of guilt on the part
of the defendant." See Menchaca, 901 S.W.2d at 652.
Here, in addition to appellant's exclusive possession of and control over the car,
additional facts existed that support appellant's knowledge of the contraband. First, appellant
exhibited nervous behavior while driving and later when speaking with Detective Hartgrove. Also,
appellant made somewhat incriminating statements during his interrogation about his family being
killed. Appellant asserts that the nervous behavior and incriminating statements stemmed from his
fear of going to jail because of his suspended license and that the jury could have reasonably made
this inference from the evidence. However, the State is not required to disprove all possible
inferences, and it is assumed that the jury resolved all inferences in support of the verdict. See Wise
v. State, 364 S.W.3d 900, 903 (Tex. Crim. App. 2012). Further, the jury may have found the
inferences urged by the State to be more credible in light of appellant's statement that he was coming
from Brownsville and the evidence that he had been in Mexico that day (the Mexican energy drink
and Mexican newspaper).
The jury also had before it evidence of the prepaid cell phone, the single key, and
Sergeant Hatson's testimony that such items are often used in drug trafficking. Additionally,
there was appellant's seeming lack of concern or surprise about the fact that 42 pounds
of methamphetamine had been found in his car. A reasonable inference of knowledge of
contraband can be made from a lack of concern or surprise over such circumstances. See Menchaca,
901 S.W.2d at 652; Del Aguila-Reyes, 722 F.2d at 158. Finally, there was the information about the
weight and value of the methamphetamine and Sergeant Hatson's testimony that it was unlikely for
a drug-distribution network to allow an unwitting person--i.e., one without knowledge of the
contraband--to transport such a large amount of drugs. It was therefore reasonable for the jury to
infer from this evidence that appellant was not ignorant of the contraband in his car but rather had
knowingly possessed the drugs. See Castellano, 810 S.W.2d at 806; Del Aguila-Reyes, 722 F.2d
at 157.
The evidence, taken together, permitted the jury to conclude that appellant knew the
vehicle he was driving contained contraband.
CONCLUSION
Viewing the evidence in the light most favorable to the jury's verdict, we conclude
that a reasonable jury could have found, beyond a reasonable doubt, that the essential elements of
possession--control and knowledge--existed. We overrule appellant's issue and affirm the
judgment of conviction.
_____________________________________________
J. Woodfin Jones, Chief Justice
Before Chief Justice Jones, Justices Pemberton and Rose
Affirmed
Filed: August 17, 2012
Do Not Publish
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769 N.E.2d 639 (2002)
STATE of Indiana, Appellant-Plaintiff,
v.
James R. GLASS, Appellee-Defendant.
No. 21A01-0201-CR-43.
Court of Appeals of Indiana.
June 10, 2002.
*640 Steve Carter, Attorney General of Indiana, Michael Gene Worden, Deputy Attorney General, Indianapolis, Indiana, Attorneys for Appellant.
Frederick Vaiana, Voyles, Zahn, Paul Hogan & Merriman, Indianapolis, Indiana, Attorney for Appellee.
OPINION
VAIDIK, Judge.
Statement of the Case
The State appeals from an order granting a motion to suppress evidence seized after James R. Glass was stopped by an officer responding to a dispatcher's call. The State contends that the officer was justified in relying upon information provided by the dispatcher to make the stop. Because the telephone call from an unnamed person did not in itself contain sufficient indicia of reliability, and because the police officer did not independently confirm the reliability of the caller or the salient information provided, we affirm.
Facts and Procedural History
At approximately 1:30 p.m. on January 1, 2000, Connersville Police Officer Dana Fluery received a dispatch advising him of a "suspicious vehicle for reckless driving." Tr. p. 9. Accordingly to Fluery, dispatch knew the identity of the caller and "gave a description of the vehicle to be on the lookout for." Tr. p. 13. Officer Fluery found Glass driving the described vehicle in the 900 block of Eastern Avenue in Connersville. The officer followed Glass for approximately one block, but witnessed no traffic violations or inappropriate driving. Nevertheless, Officer Fluery activated his emergency lights. Glass stopped in the roadway, then followed Fluery's direction and drove into a nearby lot.
Officer Fluery approached Glass and requested his driver's license and vehicle registration. Glass produced a recently expired driver's license. Fluery observed that Glass was shaking and his eyes were bloodshot. At Officer Fluery's request, Glass exited his vehicle. After pulling himself out, Glass leaned against the vehicle, still shaking. He volunteered that he had a handgun in the vehicle and produced his permit. Officer Fluery asked if Glass had other weapons, and Glass responded in the negative.
When Fluery performed a pat down search, he felt a hard rectangular-shaped object in the front groin area of Glass's trousers. The officer "presumed it could have been, anything, it could have been a weapon or a knife." Tr. p. 12. Glass did not respond to questioning about the object, and he appeared more nervous to the officer. Through the top of Glass's trousers, Fluery "felt and [saw] a wooden box type object." Tr. p. 12. Fluery removed the box containing a green leafy substance *641 and a smoking device. Glass agreed to submit to a chemical test, and he was transported to the Fayette Memorial Hospital for a drug screen. Test results were positive for THC. Subsequent testing of the green leafy substance revealed the presence of marijuana or hashish.
The State charged Glass with possession of marijuana as a Class A misdemeanor,[1] reckless possession of paraphernalia as a Class A misdemeanor,[2] and operating a vehicle with a controlled substance or metabolite in his body as a Class C misdemeanor.[3] Glass moved to suppress all evidence, arguing that the detention and search occurred without reasonable suspicion. At the hearing on the motion, Officer Fluery testified he neither knew nor had worked with the person initiating the report. The caller did not testify and remains unidentified. Following the hearing, the trial court entered findings with its order granting Glass's motion to suppress.
The State filed two motions to reconsider, both of which were denied. Upon the State's motion, the trial court dismissed the case. This appeal followed.[4]
Discussion and Decision
The State challenges the order granting Glass's motion to suppress. In the suppression hearing, the State had the burden of demonstrating the constitutionality of the measures it used to secure evidence. State v. Ashley, 661 N.E.2d 1208, 1211 (Ind.Ct.App.1995). In order to prevail on appeal, the State must show that the trial court's ruling on the suppression motion is contrary to law. State v. Smith, 638 N.E.2d 1353, 1355 (Ind.Ct.App. 1994), reh'g denied. This court accepts the factual findings of the trial court unless they are clearly erroneous. Williams v. State, 745 N.E.2d 241, 244 (Ind.Ct.App. 2001). In reviewing the trial court's decision, we consider the evidence most favorable to the ruling together with any adverse evidence that is uncontradicted. State v. Dodson, 733 N.E.2d 968, 970-71 (Ind.Ct.App.2000), reh'g denied.[5]
At issue in this case is an investigatory stop. The Fourth Amendment to the United States Constitution prohibits "unreasonable searches and seizures" by the Government, and its safeguards extend to brief investigatory stops of persons or vehicles that fall short of traditional arrest. United States v. Arvizu, 534 U.S. 266, 122 S.Ct. 744, 750, 151 L.Ed.2d 740 (2002) (citations omitted). However, a police officer may briefly detain a person for investigatory *642 purposes without a warrant or probable cause if, based upon specific and articulable facts together with rational inferences from those facts, the official intrusion is reasonably warranted and the officer has a reasonable suspicion that criminal activity "may be afoot." Terry v. Ohio, 392 U.S. 1, 21-22, 30, 88 S.Ct. 1868, 20 L.Ed.2d 889 (1968) (quoted in Francis v. State, 764 N.E.2d 641, 644 (Ind.Ct.App. 2002)).
Cases recognize that reasonable suspicion is a "somewhat abstract" concept, not readily reduced to "a neat set of legal rules." Arvizu, 122 S.Ct. at 751 (citations omitted). When making a reasonable-suspicion determination, reviewing courts examine the "totality of the circumstances" of the case to see whether the detaining officer had a "particularized and objective basis" for suspecting legal wrongdoing. Id. at 750 (citation omitted). The reasonable suspicion requirement is met where the facts known to the officer at the moment of the stop, together with the reasonable inferences arising from such facts, would cause an ordinarily prudent person to believe that criminal activity has occurred or is about to occur. Francis v. State, 764 N.E.2d 641, 644 (Ind.Ct.App. 2002). We review the trial court's ultimate determination regarding reasonable suspicion de novo. Arvizu, 122 S.Ct. at 751; Williams, 745 N.E.2d at 244.
Here, the trial court granted the motion to suppress based upon our decision in Washington v. State, 740 N.E.2d 1241 (Ind.Ct.App.2000), trans. denied. In Washington, an anonymous informant reported a possible drunk driver to the Lafayette State Police Post. The informant, whose identity and reliability were unknown, advised that the driver was in a black and white Cadillac with a particular license plate number traveling southbound on Interstate 65. An off-duty police officer received the call and stationed himself at the roadside. When the Cadillac passed, the officer followed the car for approximately one-half mile and verified the license number. Without observing any evidence of drunken or erratic driving, the officer stopped the Cadillac. In concluding that the officer did not have reasonable suspicion to stop the car, we held:
[A]n anonymous telephone tip, absent any independent indicia of reliability or any officer-observed confirmation of the caller's prediction of the defendant's future behavior, is not enough to permit police to detain a citizen and subject him or her to a Terry stop and the attendant interruption of liberty required to accomplish it.
Id. at 1246 (ending footnote deleted).
The State disputes the relevance of Washington, and argues instead that State v. Eichholtz governs this case. 752 N.E.2d 163 (Ind.Ct.App.2001). There, Lenny Thatch was driving southbound on Meridian Street in Indianapolis when he observed a driver of a white Le Baron pull onto the street. The second driver repeatedly crossed the centerline into the northbound lanes and repeatedly drove onto the curb on the right side of the road. While following the car, Thatch called 911 and reported the erratic driving. In addition to the car's description, Thatch gave the dispatcher the car's license plate number and its location. Thatch also provided his name and described his own vehicle. Thatch remained on the line until a police officer arrived. The officer observed Thatch's car following a Le Baron bearing the reported license plate number. Without having witnessed any erratic driving or traffic violations, the officer stopped the Le Baron.
Our court recognized that, unlike the anonymous informant in Washington, Thatch identified himself to the 911 operator *643 in such a manner that he could have been held legally responsible if he had filed a false police report. Id. at 167. We also pointed out that the police officer was able to confirm specific information about both cars and their location. Id. Thus, we held that the officer had reasonable suspicion to conduct the stop without having personally confirmed the erratic driving. Id. at 168.
The reasonable suspicion inquiry is determined on a case-by-case basis. Francis, 764 N.E.2d at 644. Thus, neither Washington nor Eichholtz directly controls the case before us. Nevertheless, we examine the facts presented in light of those cases.
In contrast to Washington, the dispatcher here knew the identity of the caller. Although we cannot discern if Officer Fluery also knew the caller's identity, an investigative stop may be based upon the collective information known to the law enforcement organization as a whole. See Kindred v. State, 524 N.E.2d 279, 292 (Ind. 1988) (discussing probable cause, but citing United States v. Hensley, 469 U.S. 221, 105 S.Ct. 675, 83 L.Ed.2d 604 (1985) for application of rule in the context of reasonable suspicion). Even if we impute such knowledge to Officer Fluery, however, the trial court merely found that "the police knew the name." Appellant's App. p. 64. Unlike in Eichholtz, the identity of the caller was never verified. Further, the caller's reliability was unknown.
Generally, information gleaned from a telephone caller differs from that obtained in a face-to-face encounter. In the latter situation, a trained officer has the opportunity to assess credibility and motive by observing facial expressions and subtle body language. See, e.g., Bogetti v. State, 723 N.E.2d 876 (Ind.Ct.App.2000) (holding that a Terry stop was warranted where a person reported directly to a police officer at a restaurant that a driver who had just left in a white semi-truck "may be intoxicated"). Here, at the time of the stop, Fluery did not know whether the caller was a concerned citizen, a prankster, or an imposter. Further we cannot discern whether the caller identified himself in such a way as to place his credibility at risk or as to subject himself to criminal penalties.
In Eichholtz, the police officer visually confirmed that the caller was following the alleged offender and, thus, could reasonably have observed errant driving patterns. No such confirmation occurred in this case. The fact that a named caller with an untested reputation called the police does not in itself establish reasonable suspicion.[6]
We next review the content and reliability of the information offered by the caller. The transcript shows that Officer Fluery was not permitted to recount the dispatcher's exact words. He merely testified that the dispatcher "gave a description of the vehicle" allegedly driving recklessly, which at some point he "found." Tr. p. 13.
*644 Without more, we cannot determine whether Fluery identified Glass's vehicle based upon the color and make of the car, its age, its license plate, its location or direction of travel, a description of the occupant, or a combination of those factors. Nor can we determine the elapse of time between the dispatch and Fluery's identification of the vehicle.
Although the police may have possessed more information, we must base our decision on the record before us. The State merely showed that the caller described a car sufficiently to permit Officer Fluery to identify a similar vehicle. The officer followed the vehicle for about one block without observing any driving irregularities. Officer Fluery did not personally observe facts to verify the reliability of the caller or the reliability of any significant information provided by the caller.[7] To the extent that the caller predicted future conduct, it did not occur.
Reasonable suspicion requires more than conjecture. On the record created, the State has not demonstrated that Officer Fluery had an objective and articulable suspicion that Glass had committed, was committing, or was about to commit legal wrongdoing. The investigative stop violated Glass's Fourth Amendment rights. The trial court's decision to suppress evidence seized was not contrary to law.
By our decision today, we do not intend to discourage citizens from reporting incidents involving driving irregularities. With the advent of cell phones, drivers quickly can call police to initiate timely investigation and possible prevention of death or injury. The responding state action, however, must comply with the dictates of the Fourth Amendment.
Judgment affirmed.
RILEY, J., and MATTINGLY-MAY, J., concur.
NOTES
[1] Ind.Code § 35-48-4-11(1).
[2] Ind.Code § 35-48-4-8.3(c).
[3] Ind.Code § 9-30-5-1(b) (recodified at 9-30-5-1(c)).
[4] The State appeals under Indiana Code § 35-38-4-2(5), which authorizes the State to appeal the trial court's suppression of evidence where the suppression effectively precludes further prosecution. State v. Morris, 732 N.E.2d 224, 226 n. 1 (Ind.Ct.App.2000).
[5] The State asserts that, because it is appealing from a negative judgment, this court considers only the evidence most favorable to the judgment. We recognize that nearly identical language is found in a number of our cases. See State v. Estep, 753 N.E.2d 22, 25 (Ind.Ct. App.2001); State v. Eichholtz, 752 N.E.2d 163, 164 (Ind.Ct.App.2001); State v. Harris, 702 N.E.2d 722, 726 (Ind.Ct.App.1998); State v. Farber, 677 N.E.2d 1111, 1114 (Ind.Ct.App. 1997), trans. denied; State v. Ashley, 661 N.E.2d 1208, 1211 (Ind.Ct.App.1995); State v. Smith, 638 N.E.2d 1353, 1355 (Ind.Ct.App. 1994), reh'g denied. However, omitting uncontradicted adverse evidence from our analysis is inconsistent with the "totality of the circumstances" approach articulated in United States v. Arvizu, 534 U.S. 266, 122 S.Ct. 744, 151 L.Ed.2d 740 (2002), discussed infra. Accordingly, we utilize the standard set forth in Dodson, 733 N.E.2d at 970-71.
[6] In drawing this conclusion we are cognizant of our supreme court's statement: "Where police officers in the street act in good faith reliance on a dispatch from their own or another police agency that a crime has been committed, there is no need to show the source of the dispatcher's information or the reliability of the dispatcher's informant." Moody v. State, 448 N.E.2d 660, 663 (Ind. 1983). To the extent the quoted language suggests that every call to a dispatcher is sufficient in itself to satisfy the Fourth Amendment, it paints Fourth Amendment jurisprudence with too broad a brush. See Whiteley v. Warden, Wyo. State Penitentiary, 401 U.S. 560, 91 S.Ct. 1031, 28 L.Ed.2d 306 (1971) (holding that police officer did not have probable cause for a warrantless arrest based upon a state police bulletin originating from an informant's tip).
[7] The State directs us to Glass's statement that he had passed a car that then followed him into Connersville. According to the State, Glass's testimony shows the information provided by the caller was based upon personal observation. Our concern today, however, is not with Glass's knowledge at the time of the stop but, rather, with Officer Fluery's knowledge. Francis, 764 N.E.2d at 644. Fluery did not mention having seen the caller's vehicle.
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08-1378-ag
Lin v. Holder
BIA
Ferris, IJ
A075 968 295
A098 776 209
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER
MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals
for the Second Circuit, held at the Daniel Patrick Moynihan
United States Courthouse, 500 Pearl Street, in the City of
New York, on the 22 nd day of January, two thousand ten.
PRESENT:
JOHN M. WALKER, JR.,
ROBERT A. KATZMANN,
DEBRA ANN LIVINGSTON,
Circuit Judges.
_________________________________________
MIN LIN AND JIANWU WU,
Petitioners,
v. 08-1378-ag
NAC
ERIC H. HOLDER, JR., 1 UNITED STATES
ATTORNEY GENERAL,
Respondent.
_________________________________________
FOR PETITIONERS: John Chang, New York, N.Y.
FOR RESPONDENT: Gregory G. Katsas, Assistant
Attorney General, Linda S. Wernery,
Assistant Director, Lindsay B.
Glauner, Trial Attorney, Office of
Immigration Litigation, United
States Department of Justice,
Washington, D.C.
1
Pursuant to Federal Rule of Appellate Procedure
43(c)(2), Attorney General Eric H. Holder, Jr., is
automatically substituted for former Attorney General
Michael B. Mukasey as respondent in this case.
UPON DUE CONSIDERATION of this petition for review of a
Board of Immigration Appeals (“BIA”) decision, it is hereby
ORDERED, ADJUDGED, AND DECREED, that the petition for review
is DENIED.
Min Lin and Jianwu Wu, both natives and citizens of the
People’s Republic of China, seek review of the March 10,
2008 order of the BIA, affirming the October 16, 2006
decision of Immigration Judge (“IJ”) Noel A. Ferris, which:
(1) pretermitted Wu’s application for asylum; (2) denied
Lin’s application for asylum; and (3) denied both
petitioners’ applications for withholding of removal. In re
Min Lin and Jianwu Wu, Nos. A075 968 295, A098 776 209
(B.I.A. Mar. 10, 2008), aff’g Nos. A075 968 295, A098 776
209 (Immig. Ct. N.Y. City Oct. 16, 2006). We assume the
parties’ familiarity with the underlying facts and
procedural history in this case.
Under the circumstances of this case, we review the
IJ’s decision as modified and supplemented by the BIA’s
decision, i.e., minus the arguments for denying relief that
the BIA rejected. See Xue Hong Yang v. U.S. Dep’t of
2
Justice, 426 F.3d 520, 522 (2d Cir. 2005); Yan Chen v.
Gonzales, 417 F.3d 268, 271 (2d Cir. 2005). The applicable
standards of review are well-established. See 8 U.S.C.
§ 1252(b)(4)(B); Corovic v. Mukasey, 519 F.3d 90, 95 (2d
Cir. 2008); Bah v. Mukasey, 529 F.3d 99, 110 (2d Cir. 2008).
As a preliminary matter, in their brief, petitioners do
not challenge the agency’s decision to pretermit Wu’s
application for asylum. In addition, petitioners do not
challenge the agency’s adverse credibility determination
with respect to Lin’s claim of past persecution. Therefore,
the only issues remaining before us are whether the agency
erred in finding that petitioners do not have a well-founded
fear of future persecution based on the birth of their two
U.S. children, and whether the IJ violated their due process
rights.
With respect to petitioners’ fear of forced
sterilization based on the birth of their children, we find
no error in the agency’s conclusion that they failed to
demonstrate their eligibility for relief. To establish
asylum eligibility based on a fear of future persecution, an
applicant must show that he or she subjectively fears
persecution and that this fear is objectively reasonable.
Ramsameachire v. Ashcroft, 357 F.3d 169, 178 (2d Cir. 2004).
3
Petitioners’ arguments are based largely on evidence they
submitted on appeal to the BIA. However, the BIA refused to
consider that evidence because it was not previously
unavailable. See 8 C.F.R. § 1003.2(c). Petitioners have
abandoned any challenge to the agency’s decision in that
respect because they do not argue in their brief before this
Court that the BIA abused its discretion by concluding that
petitioners failed to demonstrate that their evidence was
previously unavailable. See Yueqing Zhang v. Gonzales, 426
F.3d 540, 541 n.1, 545 n.7 (2d Cir. 2005). As to the
evidence petitioners submitted before the IJ, we have
previously reviewed the agency’s consideration of similar
evidence and have found no error in its conclusion that it
is insufficient to establish an objectively reasonable fear
of persecution. See Jian Hui Shao v. Mukasey, 546 F.3d 138,
156-65 (2d Cir. 2008). Thus, the agency did not err in
finding that petitioners failed to establish eligibility for
relief based on the birth of their children. Id.
Finally, we find no merit in petitioners’ argument that
the IJ violated their due process rights. Although we will
remand “when an IJ’s conduct results in the appearance of
bias or hostility such that we cannot conduct a meaningful
review of the decision below,” Islam v. Gonzales, 469 F.3d
4
53, 55 (2d Cir. 2006), the conduct Petitioners describe does
not rise to that level. While we agree with the agency that
some of the IJ’s comments, particularly regarding the birth
of petitioners’ children and petitioners’ decision to send
their children to China, were “unduly critical in tone,” we
have reviewed the transcript of the proceedings and do not
find that these comments demonstrate such bias or hostility
that we cannot conduct a meaningful review. See Francolino
v. Kuhlman, 365 F.3d 137, 143-44 (2d Cir. 2004)
(“‘[E]xpressions of impatience, dissatisfaction, annoyance,
and even anger, that are within the bounds of what imperfect
men and women . . . sometimes display’ do not establish bias
or partiality.”) (quoting Liteky v. United States, 510 U.S.
540, 555-56, 114 S. Ct. 1147, 127 L. Ed.2d 474 (1994)); see
also Abdulrahman v. Ashcroft, 330 F.3d 587, 597 (3d Cir.
2003) (“Although the language used by the IJ during the
hearing . . . does reflect an annoyance and dissatisfaction
with Abdulrahman’s testimony that is far from commendable,
[it] do[es] not rise . . . to a violation of due process.”);
cf. Guo-Le Huang v. Gonzales, 453 F.3d 142, 148 (2d Cir.
2006) (ordering remand “because of the IJ’s apparent bias
and hostility toward” the petitioner).
5
For the foregoing reasons, the petition for review is
DENIED. As we have completed our review, the pending motion
for a stay of removal in this petition is DISMISSED as moot.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
6
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134 Ariz. 490 (1982)
657 P.2d 903
Lorene CLARK, as Personal Representative of the Estate of Harold M. Clark, deceased, and Harold Frizzell, Plaintiffs/Appellants,
v.
LeRoy J. ROSSOW and Margaret M. Rossow, husband and wife; Consociation for the Ideal Life Church of Minnesota, a corporation, and Adonis Corporation, a Massachusetts corporation, Defendants/Appellees. Harold M. CLARK and Harold Frizzell, Plaintiffs/Appellants,
v.
LeRoy J. ROSSOW and Margaret M. Rossow, husband and wife, Defendants/Appellees.
No. 2 CA-CIV 4303.
Court of Appeals of Arizona, Division 2.
October 12, 1982.
Rehearing Denied November 18, 1982.
Review Denied January 5, 1983.
*491 Sidney L. Kain, Tucson, for plaintiffs/appellants.
Seefeldt & Neal by Michael M. Neal, Tucson, for defendants/appellees.
OPINION
BIRDSALL, Judge.
This appeal arises out of two actions in the Superior Court in Pima County. In case No. 174230 the plaintiffs, Harold M. Clark[1] and Harold Frizzell, secured a money judgment for $27,159.73 against the defendants LeRoy J. Rossow and Margaret M. Rossow, husband and wife. This judgment was entered October 10, 1980, and was not appealed. The judgment creditors, appellants here, attempted to collect the judgment by garnishment proceedings in case No. 174230 and by a separate action, No. 191621, in which they alleged that the judgment debtors, Rossow, the appellees here, had made a fraudulent conveyance to the appellees Consociation For the Ideal Life Church of Minnesota and Adonis Corporation. They sought to have that conveyance set aside so they could execute on that real property in Pima County.
The appellees responded in the earlier case with a motion to have the judgment declared void. Since Mr. Rossow had been adjudged bankrupt in Minnesota, the judgment was discharged. That motion was granted. On September 1, 1981, the trial court entered an order declaring the judgment null, void and of no force or effect as to both Mr. and Mrs. Rossow.
In case No. 191621 the appellees moved for summary judgment on the theory that the prior judgment was void. Since the fraudulent conveyance complaint is predicated on an obligation claimed to be owing from the appellees Rossow to the appellants (the judgment in No. 174230) and there is no such obligation, the trial court properly dismissed the complaint. The fraudulent conveyance act, A.R.S. § 44-1001, et seq. does not create a new claim. If a claim does not exist there is no remedy. Jorden v. Ball, 357 Mass. 468, 258 N.E.2d 736 (1970); Laidley v. Heigho, 326 F.2d 592 (9th Cir.1963). The appellees Rossow were no longer creditors of the appellants. Only a creditor, that is, one having a claim, A.R.S. § 44-1001(3), may attack a conveyance as fraudulent. The appellants' reliance on cases such as United States v. Midwest Livestock Producers Coop., 493 F. Supp. 1001 (E.D.Wis. 1980) and Mathews Cadillac v. Phoenix of Hartford Ins., 90 Cal. App.3d 393, 153 Cal. Rptr. 267 (1979) is misplaced. These cases deal with the liability of a third party for the debt. In the *492 instant case there is no allegation that the grantees were liable for the obligation represented by the void judgment.
Affirmed.
HOWARD, C.J., and HATHAWAY, J., concur.
NOTES
[1] Clark died while the case was pending and Lorene Clark as Personal Representative of his estate was substituted in his stead.
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620 So.2d 1051 (1993)
FLORIDA EAST COAST RAILWAY COMPANY, a Florida corporation, Appellant,
v.
DEPARTMENT OF REVENUE, State of Florida, Appellee.
No. 91-3921.
District Court of Appeal of Florida, First District.
June 18, 1993.
Rehearing Denied July 27, 1993.
*1052 Fred H. Kent, Jr. of Kent, Hayden, Facciolo & McMorrow, Jacksonville, for appellant.
*1053 Robert A. Butterworth, Atty. Gen., Tallahassee; C.A. Daw, Sp. Asst. Atty. Gen., of Chandler, Dillion & Allyn, Chartered, Boise, ID, Lee R. Rohe, Asst. Atty. Gen., Tallahassee, for appellee.
PER CURIAM.
Florida East Coast Railway Company (FEC) appeals a final judgment upholding valuation of its railroad property by the Department of Revenue (DOR) for ad valorem tax purposes for the years 1987 and 1988. The primary issues for our consideration focus upon FEC's contentions: (1) that DOR's unit rule method of railroad assessment results in a "going concern" tax on the railroad which is unauthorized by law; (2) that the trial court imposed an improper burden of proof upon FEC because DOR's valuation failed to consider comparable sales, one of the eight criteria for assessment which must be considered pursuant to section 193.011, Florida Statutes (1987); and (3) that DOR's valuation was invalid because in utilizing the income approach to valuation, DOR failed to use the actual income of FEC, did not use the income of comparable railroads in computing the capitalization rate, and did not appraise FEC's property as of January 1 of the tax years in question. For the reasons that follow, we affirm the judgment of the trial court.
FEC is a Florida corporation which operates a railroad between Jacksonville and Miami, with total trackage in excess of 700 miles. FEC is a Class I railroad (based upon ICC classification) which means that it has gross annual revenues in excess of $93.5 million. The FEC is a wholly-owned subsidiary of Florida East Coast Industries, a publicly-held Florida corporation, which is listed on the New York Stock Exchange. FEC also owns real estate which is not used in connection with its railroad operation, the valuation of which is not at issue in this case.
DOR's valuation of the railroad for the year 1987 resulted in an assessed value of $207,902,000 reduced to a value of $190,902,000 after an administrative conference with DOR. The assessed value was then equalized as required by 49 U.S.C. § 11503, to arrive at a final value of $159,152,490. Similarly, the valuation for 1988 by DOR was $224,373,000, reduced to $181,577,000, and equalized pursuant to 49 U.S.C. § 11503 to $150,964,663.
Being dissatisfied with the 1987 assessment, FEC filed an action in the Circuit Court of Leon County seeking to set aside the 1987 assessment as unlawful, and seeking a determination by the court of the correct assessed value and the tax legally due on its property. A similar action was filed with respect to the 1988 valuation. Jurisdiction of the circuit court was invoked under the provisions of section 194.171, Florida Statutes (1987).
In its complaints, FEC alleged that its property had been assessed far in excess of its just value as determined pursuant to section 193.085, Florida Statutes (1987), the rules and regulations of the Department of Revenue, and the United States Code provisions above mentioned. The complaints also alleged that the assessments were so excessive and unjust as to be both discriminatory and confiscatory. Specifically, FEC alleged that DOR's actions in arriving at the assessments were in violation of sections 193.085, 195.027 and 195.032, Florida Statutes (1987), as well as the regulations of DOR, and Article VII, sections 1 and 4, Constitution of the State of Florida, and Article I, section 8 and the Fourteenth Amendment of the Constitution of the United States, and 49 U.S.C. § 11503, in that FEC was being invidiously discriminated against and denied equal protection under the law. The complaints further alleged that FEC had paid to DOR an amount in taxes equal to the just value of its property for the years in question.
The two cases were consolidated for trial, and the court heard testimony over a period of approximately one week, which included the testimony of expert witnesses for both sides, and voluminous exhibits, including the expert appraisers' written reports, schedules, mathematical calculations, and financial data relied upon by them in *1054 arriving at their appraisals. Although there were numerous points of dispute concerning DOR's valuation process, the two major points of concern raised by FEC during the progress of the hearing were that in arriving at valuation based upon the income approach, DOR did not capitalize FEC's actual earnings or income, but instead, through various techniques, arrived at the investor expected or "normal" earnings of FEC; and that in its valuation based upon the market approach, DOR failed to consider comparable sales of railroads, but instead based its valuation upon the stock and debt approach to value. FEC also made legal arguments, particularly in its motion for rehearing, objecting to DOR's valuation of the railroad as a "going concern," while purporting to be utilizing the unit rule method of valuation.
In the final judgment, the court determined that FEC had failed to carry its burden of proving, by the greater weight or preponderance of the evidence, that the appraisal of DOR could not be supported by any reasonable hypothesis. Accordingly, FEC failed to overcome the presumption of correctness attaching to DOR's valuations, and the relief sought by FEC was denied.
I.
"GOING CONCERN" TAX
FEC argues that the unit rule method of assessment used by DOR does not result in the assessment of FEC's property,[1] but rather, determines the value of the entire railroad as a "going concern," which includes not only the value of FEC's property, but also measures the efficient use of its land and equipment, the management skills of its supervisors, and the quality of service rendered by its employees.
While acknowledging the existence of DOR's duly promulgated rules authorizing a unit rule method of assessment[2] FEC nevertheless contends that there is no statutory authority for this method of assessment. Here, FEC argues that while the statute relied upon by DOR as authority for its rules, section 193.085(4), is a valid statute, the statute simply does not authorize a unit rule or "going concern" valuation of railroad property.[3] Alternatively, FEC contends that if DOR's interpretation of section 193.085(4) is accepted as providing legislative authority for a "going concern" tax on railroads, the statute would be in violation of the "single subject" rule of Article III, section 6, Florida *1055 Constitution,[4] and would also be in violation of Article VII, section 4, which requires that tax laws secure a "just valuation" of property for ad valorem taxation.[5]
We find these and FEC's other arguments addressed to the "going concern" issue without merit.[6] First, we think it is appropriate to dispose of FEC's contention that the unit rule method of valuation, even if authorized by Florida law, does not authorize a "going concern" valuation as used by DOR's appraiser, Mr. Ziegler. Examination of the testimony of FEC's appraisal expert, Mr. Moore, reveals that he used the same unit rule method of valuation as did DOR's expert. Mr. Moore was questioned and gave answers on cross-examination as follows:
Q. First, I would like to ask you a couple of conceptual questions about your appraisal of the Florida East Coast Railroad.
Did you appraise it as a unit under the unit rule in Florida?
A. Yes the railroad?
Q. Yes.
A. Yes.
Q. And in doing so, did you value all of the real and personal property, all the tangible and intangible property?
A. As far as we know, we took into account all of the factors that the law requires, yes. We valued it, the railway as an operating railroad.
Q. As a going concern?
A. As an operating railroad.
Q. That is not my question. Did you value it as a going concern?
A. We valued it as a going railroad. It was operating as a railroad, and we valued it on the unit value basis.
Q. Did you value specifically its franchise and its location and its competitive position?
A. We took into account, Mr. Daw, all of the factors which, in our opinion, would lead us to a fair value for the railroad. That included all aspects, some of them most of them tangible, some of them intangible.
Thus, the unit rule method approach, as interpreted and utilized by FEC's expert, was indistinguishable from the approach used by DOR's expert. While the agreement on the use of this method of assessment by both parties' experts does not establish the legality of its use, FEC's argument that DOR's assessment by this method was not in accordance with Florida law is seriously undermined.
We think FEC's position is further undermined by the long history of unit rule assessment of railroads both in Florida and in most of the other states. As stated in Simpson v. Loftin, 160 Fla. 20, 33 So.2d 230, 232 (1948):
The gist of the unit system of taxation as so defined, requires that the value of the railroad system as a whole, be first determined and such value is then apportioned *1056 or distributed on the basis outlined to the counties, districts, municipalities, and other governmental units. Its purpose is to treat the physical properties, intangible properties, and capital stock of the railroad as a unit for taxation and to distribute the assessed value thereof to the counties and other units of government in proportion to mileage. Such a system is in general use throughout the country and is approved by all the courts of last resort, including the Supreme Court of the United States. (Citations omitted).
Notwithstanding the approval of the unit rule method as illustrated by the above quotation from Simpson v. Loftin, and other early cases, FEC contends that with the adoption of a new Florida Constitution in 1968, and substantial revision of the taxation statutes, the unit rule method was abandoned. We are unable to agree.
FEC fails to point out what provisions of the 1968 Florida Constitution or the amended statutes wrought this change, and we have failed to discover such changes in our reading. Section 195.01, Florida Statutes (1941), which was in effect when Simpson v. Loftin was decided, provided for an annual return by railroad companies of the track and terminal facilities in each county and the locomotive engines, cars and other personal property used in the operation of the railroad, together with its value. The statute also authorized the Railroad Assessment Board, in the event the state comptroller found the returns incomplete or incorrect, to assess the properties, and further authorized the comptroller to apportion the value of the properties among the several counties through which the railroad ran, based upon the miles of track in each county. Simpson v. Loftin, 33 So.2d at 232.
Through revision and renumbering of the statutes in subsequent years, much of the substance of section 195.01 of the 1941 statutes became incorporated in subsection 193.085(4)(a), Florida Statutes (1987). This subsection provides for annual returns to DOR by "[a]ll railroad and railroad terminal companies maintaining tracks or other fixed assets in the state and subject to assessment under the unit rule method of valuation" (emphasis supplied), and further provides that DOR "shall make an annual assessment of all operating property,"[7] of the railroad, such assessment to be apportioned to each county "based upon actual situs and, in the case of property not having situs in a particular county, shall be apportioned based upon track miles." DOR is further directed by the statute to promulgate rules to ensure the proper valuation and apportionment of the railroad's property, including the form and content of returns.
Pursuant to section 193.085, DOR has promulgated rules which clearly prescribe a unit rule method of valuation for railroads. The unit rule method of valuation, which was used by DOR in assessing FEC's property, is defined by section 12D-2.001(8) as follows:
UNIT RULE METHOD OF VALUATION An appraising method used to value an entire operating property, considered as a whole with minimal consideration being given to the aggregation of the values of separate parts. The rights, franchises, and property essential to the continued business and purpose of the entire property being treated as one thing having but one value in use.
In addition to the foregoing, rule 12D-2.006 also contains provisions specifying use of the unit rule method of valuation. Pertinent portions of the rule are found in subsections (1)(a) and (b), as follows:
(a) The Department shall examine the returns required by these regulations and such other information as the Department may obtain and shall determine the just value of the railroad and railroad terminal's entire operating system, whether located entirely within this State or partially within this State. Just value *1057 shall be determined by application of the unit rule method of valuation.
(b) In application of the unit rule method of valuation, the Department shall consider the value indications obtained from three approaches to the system value, i.e., (1) cost approach, (2) market or stock and debt approach, (3) capitalized earnings or income approach, assuming there is enough conclusive evidence within the respective approach to render it a valid indicator of value... .
It is also noteworthy that although many changes were made when the state adopted its 1968 Florida Constitution, the "just valuation" provision found in Article VII, section 4 was not new, since a similar provision is found in Article IX, section 1, Florida Constitution of 1885.
We think it is significant that in Department of Revenue v. General American Transportation Corporation, 521 So.2d 112 (Fla. 1988), the most recent decision addressing the assessment of railroads, the court specifically recognized the unit rule method of assessment in Florida, stating:
Under the provisions of section 193.085(4), Florida Statutes (1979), the cars of resident railroads are taxed by the unit rule method... .
Id. at 114.
Finally, although FEC contends that the unit rule method referred to in the earlier cases referred only to a "central assessment" of railroads, rather than a "going concern" assessment, as we have noted above, there is no record basis for a finding as to what difference in valuation, if any, would be produced by assessment under these two purportedly different approaches. We therefore conclude that the trial court properly rejected FEC's objections to DOR's "going concern" assessments.
II.
BURDEN OF PROOF FAILURE TO CONSIDER COMPARABLE SALES
In the final judgment finding the tax assessments valid, the trial court undertook an evaluation of DOR's assessment in the light of the eight criteria set forth in section 193.011 and, using a "two prong analysis," first determined that the burden of proof upon FEC was dependent upon whether DOR considered the eight criteria set out in the statute, in which case the presumption of correctness favored DOR's assessment. The presumption of correctness, the court stated, could then be rebutted only by proof which negates every reasonable hypothesis of value consistent with the assessment, citing Schultz v. TM Florida-Ohio Realty Ltd. Partnership, 577 So.2d 573 (Fla. 1991); Florida East Coast Ry. Co. v. Green, 178 So.2d 355 (Fla. 1st DCA 1965). If DOR failed to consider any of the eight criteria, then, according to the court's ruling, FEC's burden of proof was to establish its values by a simple preponderance of the evidence. The second prong, according to the trial court, would be an analysis of whether FEC negated every reasonable hypothesis supporting DOR's valuations.
The trial court found, as to the first prong, that all of the eight criteria set out in section 193.011 were appropriately considered by DOR; and as to the second prong, that FEC had failed to overcome the resulting presumption of correctness in favor of DOR's valuations. More particularly, the court found that section 193.011(1), dealing with the "cash value" of the property, defined as what a willing purchaser would pay a willing seller, incorporates the three standard appraisal approaches to the valuation of property, which are the income, market (stock and debt) and cost approaches. The court also determined that DOR's evidence indicated that the income approach to valuation was considered the most significant and reliable indicator of value of FEC's property, as did the evidence presented by FEC. The court also noted that DOR determined value using the income approach through direct capitalization, which the court found was an accepted "unit-rule" valuation technique.
From the briefs and arguments on this point, we first observe that the parties *1058 generally agree with the trial court's "two-prong" analysis of the controlling law with respect to the burden of proof. FEC sharply disagrees, however, with the trial court's finding that DOR appropriately considered all eight criteria found in section 193.011, urging that Mr. Ziegler, DOR's appraiser, admitted that in preparing his valuation he did not look for comparable sales of railroads. This, FEC maintains, demonstrates his failure to consider the "cash value" criterion of section 193.011(1). FEC further takes issue with the trial court's ruling that the "cash value" criterion incorporates the three standard appraisal approaches to the valuation of property, asserting instead that this criterion contemplates only a "market" approach, and that only comparable sale information can be utilized to satisfy this criterion. Significantly, FEC does not disagree with the trial court's finding that the income approach to valuation was considered by both parties' experts as the most reliable indicator of value, nor does FEC disagree with the court's finding that the direct capitalization method of determining value under the income approach, as used by DOR, is an accepted "unit-rule" valuation technique.
We find FEC's arguments unpersuasive when considered in the light of the reasonable requirements of the statutes, as applied to the facts before the trial court. In arriving at "just valuation," as required under section 4, Article VII of the Florida Constitution, the property appraiser (DOR) is required by section 193.011 to take into consideration eight factors, the first being:
(1) The present cash value of the property, which is the amount a willing purchaser would pay a willing seller, exclusive of reasonable fees and costs of purchase, in cash or the immediate equivalent thereof in a transaction at arm's length.
Florida case law indicates, as argued by FEC, that where there are sales of comparable properties, the property appraiser, "must perform a standard appraisal using normal techniques." Bystrom v. Valencia Center, Inc., 432 So.2d 108, 110 (Fla. 3d DCA 1983). See also, Florida Rock Industries, Inc. v. Bystrom, 485 So.2d 442, 445-46 (Fla. 3d DCA 1986), and Ozier v. Seminole County Property Appraiser, 585 So.2d 357, 359 n. 2 (Fla. 5th DCA 1991). The court in Bystrom v. Valencia Center, Inc. was concerned with the weight and effect to be given to evidence of market value based upon comparable sales, as opposed to evidence indicating a lesser value based upon the "present use" factor stated in section 193.011(2). In that case, as in Florida Rock and Ozier, supra, there was ample evidence of comparable sales.[8]
In the case before us, although FEC's expert in his written appraisal report and in his testimony attempted to utilize sales information under the "market" approach, the record is devoid of evidence from which it can be determined that these sales could be considered as "comparable." The point is made quite succinctly in DOR's brief by quoting from four pages of the transcript of testimony given by Mr. Moore, FEC's expert appraiser. Mr. Moore admitted that he made no inspection of any of the railroad properties sold, and no analysis of the terminal cities served by these rail lines; that he knew nothing of the track structure or its condition, and did not know what, if any, rolling stock was included in any of the sales; that he knew nothing about whether the price paid in any sale was affected by slow orders, or by hazardous material exposures, or to what extent the price was affected by transfer of existing contracts, customer defections from reroutings on parallel lines, or use of other transportation carriers such as barge or truck lines. In fact, from our examination of Mr. Moore's entire testimony, we are unable to find evidence establishing that any of Mr. Moore's reported sales met the threshold requirement of comparability the presence *1059 of a willing purchaser and a willing seller, in an arm's length transaction. The absence from FEC's brief of any discussion or analysis of these railroad sales which FEC categorizes as comparable to FEC is understandable, since the factual predicate for any such meaningful comparison does not appear in the record.[9]
Further, as pointed out by DOR's experts, the sales data used by Mr. Moore were of Class II and III, rather than Class I railroads, and FEC made no showing that Class I railroads sold at a time proximate to the assessment dates. Additionally, Mr. Goodwin, an expert in the field of railroad appraisal, testified for DOR that the sales reported by Mr. Moore were not of entire railroads, and that none represented sales of railroad properties comparable to that of FEC.
Finally, Mr. Ziegler, DOR's appraiser, testified that while he did not look for individual purchases and sales of railroads to obtain market approach data, he did use common stock prices in arriving at market value under the stock and debt approach. He stated, however, that it is extremely difficult to "come up with comparable sales," but that he did feel that he had "come up with comparable sales" in the sense that he did consider the stock and debt method.
Viewing the evidence in the light most favorable to DOR, as we must on appeal, we conclude that the trial court did not err in finding that DOR's appraisal satisfied all statutory requirements. As a mere observation, the evidence suggests that it may be at best difficult, and at worst impossible, to find comparable sales of entire railroads. Accordingly, aside from the fact that DOR's rule requires the use of the stock and debt method, it is not surprising that DOR's appraiser turned to the stock and debt approach in making his appraisal. As explained by the court in Union Pacific Railroad Company v. State Tax Commission of Utah, 716 F. Supp. 543 (D.Utah 1988):
The stock and debt approach is a substitute market approach. Because of the infrequent sales of railroad properties, the absence of an organized market for such properties and the lack of accurate, current information about sales of railroad properties as such, appraisers must look to a substitute source for accurate information. There is an organized market for the purchase and sale of fractional ownership interests in railroad properties; shares or ownership interest in debt, bonds and such are bought and sold with some regularity. A specialist in dealing with such shares on an organized exchange `makes a market' for them... . An appraiser uses such market information as some indication of value. (Emphasis in original).
Id. at 548.
Of course, we need look no further than the decision of this court in Florida East Coast Ry. Co. v. Green, supra, to find that Florida has long used, with court approval, the stock and debt method to determine the value of railroad properties for tax assessment purposes. Furthermore, the trial court in the case before us had expert testimony that the stock and debt method was accepted by appraisers of railroad property. We reject FEC's contention that the "market" approach criterion of section 193.011(1) is not satisfied, in an appropriate case, by the use of the stock and debt method. Here, DOR's rule 12D-2.006 specifically mandates the use of this method, and DOR's expert evidence of value based upon this method was admitted at the trial below without objection.[10]
We reject, therefore, FEC's contention that by using stock and debt, rather than comparable sales, DOR failed to consider all the criteria mandated by section *1060 193.011. Although it may not be necessary to our decision, we also note our disagreement with FEC's contention that in the assessment of railroads, compliance with section 193.011(1) can be accomplished solely by consideration of comparable sales. As aptly stated by the court in Vero Beach Shores, Inc. v. Nolte, 467 So.2d 1041, 1042 (Fla. 4th DCA 1985):
While all of the statutory factors must be considered in making an appraisal under the statutory scheme, they may be variously weighted by the appraiser or discarded entirely where they are not, under the circumstances, probative of present value.
In the case before us, DOR assessed FEC's property pursuant to DOR's duly promulgated rule, the constitutional validity of which has not been challenged below or on appeal, utilizing stock and debt as a substitute market approach; and both expert appraisers testifying for DOR stated that this was an accepted appraisal method for determining the market value of railroad property.
Accordingly, we find that the trial court correctly found that DOR considered all of the eight statutory criteria in making its assessments, and that the burden of proof was upon FEC to overcome the presumptive correctness of the assessments. Moreover, we agree with the trial court's further conclusion that FEC failed to overcome the presumption of correctness which attached to DOR's appraisal, a conclusion well-supported in the record. Significantly, even though FEC's attempted use of comparable sales was ineffective, as above indicated, DOR's value was still within the range of values reflected by FEC's sales information.
III.
FAILURE TO CONSIDER "ACTUAL" INCOME
FEC argues that DOR's appraiser, Mr. Ziegler, used false income figures in his capitalization formula, resulting in a higher valuation. FEC's net operating income for 1987 was $18,819,235. Mr. Ziegler used a "typical" adjusted net income figure of $19,400,000, about $600,000 higher than FEC's actual income for that year. For 1988, FEC's net operating income was $19,418,000. Mr. Ziegler used an adjusted income figure of $20,683,618, or $1,265,000 higher than actual income. As noted by FEC, Mr. Ziegler testified that he was trying to emulate the typical buyer by forecasting income. He explained:
If an investor is trying to buy a railroad, he wants to make a reasonable estimate of what future income he is going to receive from that business, and he wants to try to determine what is the income as of the end of that year, a reasonable income to be used to capitalize.
In the final judgment, the court found that DOR's use of the investor expected or "normal" earnings of FEC, rather than its actual earnings, was not a departure from the statutory criteria, and that this was also an approved technique used by appraisers in this field. As to the requirement of section 193.011(7), the consideration of the income from the property, the court found that DOR did obtain and did consider the actual earnings of the property, and having done so, the requirements of the statute were satisfied. In other words, the court found, although the statute mandates that the actual income be "considered," the statute does not require that actual income be used in the capitalization formula used by DOR's appraiser in arriving at value of the property.
We find no error in the trial court's ruling on this point. FEC's contention that the property appraiser must use actual income of the property for the year of the assessment is not borne out by the case law cited. In Bystrom v. Hotelerama Associates Ltd., 431 So.2d 176 (Fla. 3d DCA 1983), the court affirmed the trial judge's ruling that the presumption of validity of the assessment was overcome when the property owner proved that the taxing authority failed to obtain, although available, actual income data on the assessed property when utilizing an income approach to valuation, and did not make up for this deficiency by alternative methods. In Bystrom v. Equitable Life Assurance Society *1061 of United States, 416 So.2d 1133 (Fla. 3d DCA 1982), the court held that actual income of the property is relevant in reaching a valuation that conforms to the willing buyer-willing seller concept. Significantly, the Equitable decision found that the trial court erred in excluding the taxing authority's use of actual income in forecasting the income of the property, which the taxing authority's witness testified was necessary in arriving at just valuation under the income approach.
In the present case it is undisputed that DOR's appraiser received and considered FEC's actual income figures for the years in question. It is equally clear that the requirement of section 193.011(7), that the property appraiser must "take into consideration" the "income from said property," was fully satisfied. As explained by the court in Valencia Center, Inc. v. Bystrom, 543 So.2d 214, 216-7 (Fla. 1989):
In arriving at fair market value, the assessor must consider, but not necessarily use, each of the factors set out in section 193.011. (Citation omitted). The particular method of valuation, and the weight to be given each factor, is left to the discretion of the assessor, and his determination will not be disturbed on review so long as each factor has been lawfully considered and the assessed value is within the range of reasonable appraisals. (Citation omitted).
We find helpful to an understanding of this issue the following discussion from a current appraisal text cited and quoted in DOR's answer brief concerning the use of income:
To apply any capitalization procedure, a reliable estimate of income expectancy must be developed. Although some capitalization procedures are based on the actual level of income at the time of the appraisal rather than a projection of future income, an appraiser must still consider the future outlook. Failure to consider future income would contradict the principle of anticipation, which holds that value is the present worth of future benefits. Historical income is significant, so is current income, but the ultimate concern is the future. The earning history of a property is important only insofar as it is accepted by buyers as an indication of the future. Current income is a good starting point, but the direction of income and the expected rate of change are critical to the capitalization process.
The Appraisal of Real Estate, Ninth Ed., Ch. 19, P. 429 (A.I.R.E.A. 1987). Florida case law supports the principle that future income is the determinant of present value. See, e.g., Schultz v. TM Florida-Ohio Realty Ltd., 577 So.2d 573 (Fla. 1991); Bystrom v. Equitable Life Assurance Society of United States and Bystrom v. Valencia Center, Inc., supra.
We conclude, from our consideration of the arguments and authorities discussed above, that the trial court did not err in deciding that DOR's appraisal appropriately took into account the income factor in valuing FEC's property.
IV.
CONCLUSION
We have considered FEC's additional arguments, including its contentions that DOR's appraiser did not consider railroads comparable to FEC in determining a capitalization rate used in the income approach, and in the stock and debt approach; and that DOR's appraisal method could not result in a value of FEC's property as of January 1 of the tax year, as required by statute. Here, FEC focuses upon DOR's use of financial data relative to Class I railroads, contending that FEC is "out of league" with these railroads, and that Class II and Class III railroads are more comparable to FEC and should have been considered. On these and other issues voluminous testimony and extensive argument was presented and considered by the trial court, and we do not presume to have such expertise as would permit us upon mere examination of the cold record to second-guess the trial court's evaluation of the evidence and rendition of judgment. On appellate review we are guided by the rule that the trial court's findings of fact and conclusions of law are presumptively *1062 correct and will not be overturned unless they are clearly erroneous. Zinger v. Gattis, 382 So.2d 379 (Fla. 5th DCA 1981); and Neimark v. Abramson, 403 So.2d 1057 (Fla. 3d DCA 1980). The judgment of the trial court is, accordingly,
AFFIRMED.
SMITH, ALLEN and WOLF, JJ., concur.
NOTES
[1] In support of this argument, FEC relies in part upon expressions to this effect found in ITT World Communications v. San Francisco, 37 Cal.3d 859, 210 Cal. Rptr. 226, 693 P.2d 811 (1985), and County Board of Arlington County v. Common Wealth of Virginia, Department of Taxation, 240 Va. 108, 393 S.E.2d 194 (1990). In ITT, the court stated:
[W]e conclude that unit taxation is properly characterized not as the taxation of real property or personal property or even a combination of both, but rather as the taxation of property as a going concern. (Emphasis in original).
In the County Board decision, the court noted the incompatibility of the unit approach with the Virginia system of taxation of railroad properties, citing the ITT decision and quoting that court's observation that the unit method is "simply not real property taxation either in substance or in form." Id. at 197.
Our review of the ITT decision convinces us that while the court's characterization of "unit taxation" was pertinent to the issue being decided, the case does not involve the taxation of railroads, and does not disapprove the use of unit rule assessment such as employed by DOR in the case at bar. In County Board, the court invalidated an assessment based upon the unit method because that method of appraisal did not determine the fair market value of the railroad's property in its particular location as required by the Constitution of Virginia. In footnote 4 of its opinion, in response to the taxing authority's argument that the unit method was in use in a number of other states, the court observed that no citation had been given of jurisdictions with constitutional and statutory provisions similar to those in Virginia; and that neither Virginia's constitution nor its statutes contain any reference to the unit method of assessing real estate of public service corporations.
[2] See Rule 12D-2.001(8), and 12D-2.006, F.A.C. Significantly, the complaints filed by FEC in the circuit court contain no reference to the existence or validity of these rules.
[3] FEC argues that section 193.085(4) at most authorizes only a "central assessment" of railroad property, which FEC maintains is distinct from a unit rule method of assessment.
[4] FEC's "single subject" argument is misplaced. The statute in question, section 193.085, has been codified and reenacted for publication in the Florida Statutes. Article III, section 6 does not require sections of the Florida Statutes to conform to the single subject requirement. Santos v. State, 380 So.2d 1284 (Fla. 1980).
[5] As noted by FEC in its brief, "just value," as used in the Florida Constitution is synonymous with "fair market value." Powell v. Kelly, 223 So.2d 305, 308 (Fla. 1969), and Walter v. Schuler, 176 So.2d 81 (Fla. 1965).
[6] FEC contends, among other things, that DOR's valuation resulted in double assessment of certain of its intangible personal property, which is subject to separate assessment under Chapter 199, Florida Statutes; and that its exempt intangible property is being assessed and taxed, since the "going concern" valuation includes intangibles such as franchises, good will and other rights, contrary to the two (2) mills limitation of Article VII, section 2, Florida Constitution, and that it exceeds the 1.5 mill rate imposed on all other taxpayers under section 199.032, Florida Statutes.
As to the "double taxation" argument, the record does not support this claim. Neither does the record support FEC's contentions with regard to the assessment of exempt intangible property, since there is no evidence of a separate valuation of exempt intangibles, the only reference to such intangibles being in the testimony of the expert witnesses for DOR and FEC to the effect that their valuations of the railroad as a "going concern" included the value of all real and personal property used in operation of the railroad viewed as an entity, with such franchises and agreements as were essential to its operation.
[7] The term "operating property" is defined in the statute as including all property, rights of way, tracks, rolling stock, etc., "and other property directly related to the operation of the railroad." Section 193.085(4)(a), F.S.
[8] It is noteworthy that in Bystrom v. Valencia Center, Inc., the court pointed out, albeit parenthetically, that "market" evidence could mean either sales or income data. This contradicts FEC's somewhat categorical argument that the "market" approach contemplates only the use of comparable sale information. Significantly, the evidence in the case before us established that the stock and debt method was an accepted alternate "market" approach.
[9] Mr. Moore's written appraisal reports contain tables listing the purported comparable sales. However, these listings include only the names of the purchasers and sellers, the gross annual revenues of the railroad in question, the miles of trackage involved in the sale, and the purchase price paid.
[10] In fact, FEC's expert, Mr. Moore, also arrived at a value of FEC's property using this method, although he did criticize its use.
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Case: 15-12987 Date Filed: 02/23/2017 Page: 1 of 10
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 15-12987
Non-Argument Calendar
________________________
D.C. Docket No. 9:98-cr-08050-DMM-1
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
ELWOOD COOPER,
Interested Party - Appellant,
BRIAN BETHEL,
a.k.a. Brian Rolle,
WENDELL SAUNDERS,
Defendants.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(February 23, 2017)
Case: 15-12987 Date Filed: 02/23/2017 Page: 2 of 10
Before MARCUS, MARTIN and JILL PRYOR, Circuit Judges.
PER CURIAM:
Elwood Cooper, proceeding pro se, is a federal prisoner serving a life
sentence. He appeals from the district court’s order in a separate, but related,
criminal case denying his motions seeking to unseal the transcript of certain grand
jury testimony. On appeal, he argues that he should have been given access to the
grand jury testimony because it would show that (1) his sentence should be
reduced under Amendment 782 to the Sentencing Guidelines and (2) he is entitled
to money that his co-conspirators forfeited to the government. Because the district
court did not abuse its discretion in denying Cooper’s motions, we affirm.
I. FACTUAL BACKGROUND
This case is one of several appeals by Cooper. Because Cooper argues that
the district court should have unsealed grand jury testimony so that he could use it
in two related cases, we give a brief history of Cooper’s criminal conviction and
his recent challenges to his life sentence and the forfeiture of his co-conspirators’
currency to the government.
A. Cooper’s Criminal Conviction
Cooper was convicted in 1998 in federal court for his role in an ongoing
conspiracy to import cocaine into the United States. He is currently serving a life
sentence. In May 2015, Cooper filed a motion for a sentence reduction pursuant to
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18 U.S.C. § 3582(c)(2) based on Amendment 782 to the Sentencing Guidelines,
which reduced the base offense level for most drug offenses. The government
opposed the motion, arguing that based on the finding at Cooper’s sentencing
hearing about the quantity of drugs attributable to him, his sentence remained the
same under the new drug quantity tables set forth in Amendment 782. The district
court agreed and denied Cooper’s motion. Cooper has appealed, and his appeal is
currently pending before the Court in another case.
B. Bethel’s and Saunders’s Indictment
In this case, Cooper’s co-conspirators, Brian Bethel and Wendell Saunders,
were indicted in 1998 for their role in the drug smuggling conspiracy. In 2001, the
district court dismissed the indictment against Bethel on the government’s motion.
In 2014, the district court dismissed the indictment against Saunders on the
government’s motion.
C. Bethel’s and Cartwright’s Conviction
Bethel and Frank Cartwright were indicted in 2000 in a separate case related
to the same conspiracy. The indictments against Bethel and Cartwright sought
forfeiture of property and proceeds obtained as a result of the charged criminal
activity. Both Bethel and Cartwright pled guilty to the charges against them and
consented to the forfeiture of $2.4 million and $2.5 million, respectively, in U.S.
currency that the government had seized.
3
Case: 15-12987 Date Filed: 02/23/2017 Page: 4 of 10
In 2001, after the district court entered judgment against Bethel and a
preliminary order of forfeiture, the government filed proof of publication of notice
regarding Bethel’s forfeited interest in the $2.4 million. In 2006, after the district
court entered judgment against Cartwright and a preliminary order of forfeiture,
the government filed proof of publication of notice regarding Cartwright’s
forfeited interest in the $2.5 million. No ancillary petitions challenging the
forfeitures were filed within 30 days of the publication of notice.
Years later, Cooper filed petitions challenging the forfeiture. In the
petitions, Cooper argued that because he was the de facto leader of the drug
conspiracy, he had a superior legal interest in the currency as compared to Bethel
and Cartwright and that the seizure that gave rise to the forfeiture was illegal. The
government moved to dismiss the petitions, arguing, among other reasons, that
they were untimely. The district court denied Cooper’s petitions. Cooper
appealed.
While the appeal of the denial of the forfeiture petitions was pending,
Cooper filed an emergency motion in the district court to unseal the transcripts
from Bethel’s and Cartwright’s sentencing hearings, claiming that the information
would assist him in his appeal. The district court denied the motion, and Cooper
appealed that decision as well. We consolidated these two appeals and affirmed
the district court’s orders denying the petition and refusing to unseal the sentencing
4
Case: 15-12987 Date Filed: 02/23/2017 Page: 5 of 10
hearing transcripts. See United States v. Cooper, Nos. 14-13683, 15-12049, 2017
WL 491148 (11th Cir. Feb. 7, 2017).
D. Procedural History
In this case, in which Bethel and Saunders were indicted and the indictments
subsequently were dismissed, Cooper filed two emergency motions in 2015
seeking to unseal the transcript of grand jury testimony from DEA Agent Raymond
Cantena. In the first motion, Cooper claimed that Cantena’s grand jury testimony
was relevant to Cooper’s appeal of the denial of his forfeiture petitions. While the
first motion was pending, Cooper filed the second motion, asserting that Cantena’s
testimony would assist him in showing that the district court should resentence him
pursuant to Amendment 782 of the Sentencing Guidelines.1
The government opposed Cooper’s motions but addressed only why Cooper
had no need for Cantena’s grand jury transcript with regard to the resentencing and
overlooked that Cooper also claimed he needed the testimony for the forfeiture
appeal. Before the time elapsed for Cooper to file a reply brief, the district court
entered an order summarily denying Cooper’s motions. This is Cooper’s appeal.
1
When Cooper filed the second motion, his motion seeking a resentencing pursuant to
Amendment 782 was pending before the district court.
5
Case: 15-12987 Date Filed: 02/23/2017 Page: 6 of 10
II. STANDARD OF REVIEW
We review for abuse of discretion a district court’s order governing the
disclosure of grand jury documents. United States v. Aisenberg, 358 F.3d 1327,
1338 (11th Cir. 2004).
III. ANALYSIS
In this appeal, Cooper seeks access to a sealed transcript of testimony
presented to a grand jury. In general, grand jury materials are secret, even after the
grand jury has concluded its operations. See Douglas Oil Co. of Cal. v. Petrol
Stops Nw., 441 U.S. 211, 218 (1979) (“[T]he proper functioning of our grand jury
system depends upon the secrecy of grand jury proceedings.”). Federal Rule of
Criminal Procedure 6(e) codifies this secrecy principle and generally prohibits the
disclosure of grand jury material. See Aisenberg, 358 F.3d at 1346-47. To pierce
grand jury secrecy, the party seeking disclosure must demonstrate, among other
things, that “the need for disclosure outweighs the need for, and public interest in,
secrecy.” Id. at 1348. To carry this burden, “the party seeking disclosure of grand
jury material must show a compelling and particularized need for disclosure.” Id.
“To show a compelling and particularized need, the private party must show
circumstances had created certain difficulties peculiar to this case, which could be
alleviated by access to specific grand jury materials, without doing
disproportionate harm to the salutary purpose of secrecy embodied in the grand
6
Case: 15-12987 Date Filed: 02/23/2017 Page: 7 of 10
jury process.” Id. (internal quotation marks omitted). We must also keep in mind
that the district court “has substantial discretion in determining whether grand jury
materials should be released.” Id. (internal quotation marks omitted).
The district court did not abuse its discretion in denying Cooper’s motions
because he failed to carry his burden of showing a particularized need for
disclosure of Cantena’s grand jury testimony. Cooper argues that he needed the
testimony to show that (1) he should have been resentenced under 18 U.S.C.
§ 3582(c)(2) and Amendment 782 to the Sentencing Guidelines and (2) he was
entitled to the forfeited currency. We reject both arguments.
We cannot say that Cooper had a particularized need for the grand jury
materials to support his motion seeking a sentence reduction. A district court has
discretion under 18 U.S.C. § 3582(c)(2) “to reduce the term of imprisonment of an
already incarcerated defendant when that defendant was sentenced based on a
sentencing range that was subsequently lowered by the Sentencing Commission.”
United States v. Bravo, 203 F.3d 778, 780 (11th Cir. 2000). But “a sentencing
adjustment undertaken pursuant to [§] 3582(c)(2) does not constitute a de novo
resentencing.” Id. at 781.
Here, Cooper sought a sentence reduction under § 3582(c)(2) based on
Amendment 782, which reduced the base offense level for most drug offenses. See
United States v. Maiello, 805 F.3d 992, 994 (11th Cir. 2015). Cooper argues that
7
Case: 15-12987 Date Filed: 02/23/2017 Page: 8 of 10
the grand jury testimony would show that the wrong quantity of drugs had been
attributed to him at his original sentencing and that he should have received a
lower sentence considering the correct quantity of drugs. But the question of
whether the correct amount of drugs was attributed to a defendant is not at issue in
a resentencing pursuant to § 3582(c)(2) and Amendment 782 because the
resentencing is limited solely to calculation of the defendant’s offense level under
the new drug quantity tables using the quantity of drugs previously attributed to the
defendant. Accordingly, we reject Cooper’s argument that he had a compelling
and particularized need for the grand jury testimony in connection with his
§ 3582(c)(2) motion for a sentence reduction based on Amendment 782.
Cooper also failed to demonstrate a particularized need for the grand jury
material to support his appeal of the denial of his forfeiture petitions.2 He claims
that the grand jury testimony would show that he was entitled to the forfeited
property. But Cooper filed a motion in the district court seeking to unseal the
grand jury transcript after the district court dismissed and denied his petitions for
forfeiture. Normally an appellant cannot rely on evidence that he did not present to
the district court, see generally Ross v. Kemp, 785 F.2d 1467, 1474 (11th Cir.
2
Cooper argues that because the government failed to address this argument before the
district court, it abandoned any opposition, and we must grant him access to the sealed grand jury
testimony. Not so. We may affirm the district court for any reason supported by the record. See
United States v. Barsoum, 763 F.3d 1321, 1338 (11th Cir. 2014).
8
Case: 15-12987 Date Filed: 02/23/2017 Page: 9 of 10
1986), and there are no extenuating circumstances here that would justify a
departure from that rule.
Furthermore, Cooper’s petitions were dismissed as untimely rather than on
the merits. Cooper has offered no explanation how anything in the transcript
would render his petitions timely. A third party is required to file a petition within
30 days of the final publication of notice or his receipt of direct written notice,
whichever is earlier. See 21 U.S.C. § 853(n)(2); United States v. Davenport, 668
F.3d 1316, 1320 (11th Cir. 2012) (“If a third party fails to file a petition within the
prescribed 30-day deadline, her interests are forfeited.”). Here, Cooper’s petitions
were too late because he waited years after final publication of notice. Cooper
cannot demonstrate a particularized need for the grand jury transcript, as he has
offered no explanation how the transcript could show that his petitions were
timely. 3
3
Cooper also argues that the district court erred because it denied his motions for access
to the grand jury transcripts before he had an opportunity to file his reply brief. Under the
district court’s local rules, Cooper had seven days to file a reply brief, see S.D. Fla. Local Rule
7.1(c), but the district court denied Cooper’s motions before the time period for his reply had
expired. Even assuming that the district court erred by ruling before receiving Cooper’s reply,
we see no reversible error because Cooper has not shown that the error affected his substantial
rights. See Fed. R. Crim. P. 52(a) (“Any error . . . that does not affect substantial rights must be
disregarded.”). We cannot say that the error affected Cooper’s substantial rights because he has
not shown that his reply brief would have changed the outcome.
9
Case: 15-12987 Date Filed: 02/23/2017 Page: 10 of 10
IV. CONCLUSION
The district court did not abuse its discretion by denying Cooper’s motions
because he failed to show a particularized need for the grand jury transcript.
Accordingly, we affirm.
AFFIRMED.
10
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810 S.W.2d 870 (1991)
WEST TEXAS REHABILITATION CENTER and John Davidson, Appellants,
v.
P.J. ALLEN, Carolyn Allen, Raymond Goddard and Betty Goddard, Appellees.
No. 3-90-196-CV.
Court of Appeals of Texas, Austin.
June 12, 1991.
*871 David Stubbeman, Wagstaff, Alvis, Stubbeman, Seamster & Longacre, Abilene, for appellants.
Jill Beckett Cochran, McGinnis, Lochridge & Kilgore, Austin, for appellees.
Before CARROLL, C.J., and ABOUSSIE and KIDD, JJ.
KIDD, Justice.
This is a will construction case. Appellees brought a suit for a declaratory judgment construing the will of Golda Mae Allen. The appellees, beneficiaries under the residuary clause of the will, sought a declaration that the independent executor of Allen's estate made an improper and excessive distribution of the estate to West Texas Rehabilitation Center ("WTRC"). The probate court granted appellees' motion for summary judgment and declared that, under the terms of the will, the independent executor improperly distributed $120,871.20 to WTRC. WTRC appeals the summaryjudgment ruling. We will affirm the judgment of the probate court.
THE CONTROVERSY
Golda Mae Allen died on October 23, 1987. She was a widow and had no children. She was, however, survived by relatives, some of whom are the appellees in this case. The decedent's will was admitted to probate on November 9, 1987. John Davidson was appointed independent executor in accordance with the terms of the will.
Paragraph two of the will provides for specific cash bequests totalling $30,000 that were to be derived from "money to be paid from funds on deposit to my credit at my death in any and all financial institutions *872 or brokerages [sic] houses...." One of these bequests is a gift of $10,000 to WTRC.
Paragraph three of the will, which is the primary source of controversy between the parties, states:
If, after payment of my debts, funeral expenses, and taxes, not enough funds remain for the preceding specific money bequests to be paid in full, I direct my Independent Executor to prorate the amounts. I direct my Executor to determine the percentage each gift is of the total dollars bequeathed in this will, multiply such percentage by the total dollars available for distribution, and pay each legatee the resulting reduced sum. If more money is available for distribution than is bequeathed by me in this Will, I give, devise and bequeath such funds to
WEST TEXAS REHABILITATION CENTER....
Paragraph four of the will, a standard residuary clause, bequeaths the residue of the estate to the appellees.
The inventory, appraisal, and list of claims prepared by the independent executor show, on the date of the decedent's death, the estate consisted of a checking account with a balance of $10,644.69, a real estate lien note, a Merrill Lynch cash management account, and miscellaneous property.
The Merrill Lynch account statement for the period including the decedent's date of death reflects the following balances:
Cash $348.07
Cash Management Account Funds $46,591.00
Other Money Funds
Priced Investments $133,957.00
The category of "Other Money Funds Priced Investments" consisted of stocks, bonds, and mutual funds.[1] The independent executor determined that the entire Merrill Lynch account passed under paragraphs two and three of the will. He therefore sold the stocks, bonds, and mutual funds in the priced investments account and distributed the proceeds from the sale to WTRC.
The appellees filed suit against the independent executor and WTRC,[2] alleging that only the portion of the Merrill Lynch account styled "Cash" and "Cash Management Account Funds" passed under paragraphs two and three of the will. The appellees argued that paragraphs two and three were intended only to dispose of the "money" or "funds" the decedent owned upon her death and asserted that, pursuant to the residuary clause, they were entitled to the proceeds of the sale of the stocks, bonds, and mutual funds that were in the "Other Priced Investments" portion of the account.
The appellees moved for summary judgment, arguing that, as a matter of law, the executor misconstrued the will and made an improper and excessive distribution to WTRC. The probate court agreed, and held that paragraphs two and three of the will disposed of only the estate's "cash on hand or cash held in financial institutions or brokerage houses." Thus, all of the estate's stocks, bonds, and mutual funds did not pass under the provisions of paragraphs two and three of the will, but instead passed to the beneficiaries named in the residuary clause. The court ordered WTRC to return $120,871.20 to the executor, and the executor was ordered to distribute this amount to the appellees. The court also ordered WTRC to pay the appellees' attorney's fees.
On appeal, WTRC makes two general arguments. WTRC argues in six points of error that the probate court erred in granting summary judgment for appellees because the entire Merrill Lynch Account, including stocks, bonds, and mutual funds, passed pursuant to paragraphs two and three of the will. WTRC argues in point of *873 error seven that the court erred in ordering WTRC to pay the appellees' attorney's fees.
DISCUSSION AND HOLDING
To sustain a summary judgment the movant must establish, as a matter of law, that no genuine issue of material fact exists. Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733, 734 (Tex.1985). We are limited in our consideration of issues and facts. Hudson v. Wakefield, 711 S.W.2d 628, 630 (Tex.1986). We will review the summary-judgment record to determine whether a disputed material fact issue exists that would preclude summary judgment. Bayouth v. Lion Oil Co., 671 S.W.2d 867, 868 (Tex.1984). We must accept as true the nonmovant's version of the evidence. Sabine Pilot, 687 S.W.2d at 734. Every reasonable inference must be indulged in favor of the nonmovants and any doubts must be resolved in their favor. Bayouth, 671 S.W.2d at 868.
The testator's intent governs the interpretation of the will. McGill v. Johnson, 799 S.W.2d 673, 675 (Tex.1990); Stewart v. Selder, 473 S.W.2d 3, 7 (Tex.1971). The sense in which the testator used the words in the will is the primary consideration in interpreting the meaning of those words. Stewart, 473 S.W.2d at 7. We must determine the meaning of the testator's words, by the four corners of the will, if possible. Frost Nat. Bank of San Antonio v. Newton, 554 S.W.2d 149, 154 (Tex. 1977). Thus, we must find the intention of the testator in the words of the will, and for that reason her other declarations are admissible only to resolve specific problems of interpretation such as equivocation or latent ambiguity. See Stewart, 473 S.W.2d at 7.
In determining the testator's intent, we will consider the entire instrument and, if possible, harmonize every provision with all other provisions, and give them their proper effect. Republic National Bank of Dallas v. Fredericks, 155 Tex. 79, 283 S.W.2d 39, 43 (Tex.1955); Hancock v. Krause, 757 S.W.2d 117, 119-20 (Tex.App. 1988, no writ). WTRC argues that the decedent's will, by its "four corners," clearly indicates her intent to bequeath all of the assets in the Merrill Lynch account to WTRC. In the alternative, WTRC contends that the will is ambiguous and that a question of fact exists precluding a summary judgment. In support of these arguments, WTRC asserts that the term "money," as used in paragraphs two and three of the will, includes the stocks, bonds, and mutual funds in the Merrill Lynch account. We disagree.
Courts have generally construed the testamentary terms "money" and "cash" to mean only coins, paper money and demand deposits. See Stewart, 473 S.W.2d at 7; Thompson v. Thompson, 149 Tex. 632, 236 S.W.2d 779, 790 (Tex.1951); Foy v. Clemmons, 365 S.W.2d 384, 386 (Tex.Civ.App. 1963, writ ref'd n.r.e.); Zahn v. National Bank of Commerce of Dallas, 328 S.W.2d 783, 792 (Tex.Civ.App.1959, writ ref'd n.r. e.). In Stewart, the decedent's will left specific gifts of property to certain individuals, and "any cash, after expenses and debts are paid" to a relative of the decedent. An inventory of the decedent's estate revealed that, upon his death, the decedent owned uncashed checks, several bank accounts, and stocks and bonds. The supreme court noted that it is presumed that a decedent intends any property owned to pass by the terms of the will and not by intestacy. 473 S.W.2d at 9. Nevertheless, the court held that the term "cash" was to be attributed its usual and ordinary meaning, which is coins, paper money, and checks and demand deposits in banks and savings institutions. The court also noted that the term "money" normally means cash or coin. The only time these definitions might be altered is if the record establishes essential facts to demonstrate that the decedent intended to attribute an alternative meaning to the words. Thus, because the term "cash" did not include stocks and bonds, the securities passed according to the intestacy statutes. Id. at 9.
The appellees argue that the following clause from paragraph three, standing alone, unambiguously demonstrates that *874 the decedent intended only money to pass under paragraphs two and three of the will:
If, after payment of my debts, funeral expenses, and taxes, not enough funds remain for the preceding money bequests to be paid in full, I direct my Independent Executor to prorate the amounts. I direct my Executor to determine the percentage each gift is of the total dollars bequeathed in this Will, multiply such percentage by the total dollars available for distribution, and pay each legatee the resulting reduced sum. If more money is available for distribution than is bequeathed by me in this Will, I give, devise and bequeath such funds to West Texas Rehabilitation Center....
(Emphasis added.) We agree. It is clear that the decedent was using the terms "money" and "funds" interchangeably. She unambiguously provided for the money she owned to pass under paragraphs two and three of the will; she intended the remainder of the property she owned, including the stocks, bonds, and mutual funds in the "Other Priced Investments" portion of the Merrill Lynch account, to pass to the beneficiaries named in the residuary clause. There was, therefore, no genuine issue of material fact to be decided by the trier of fact. The probate court correctly held that the executor should have distributed the stocks, bonds, and mutual funds contained within the Merrill Lynch account to the appellees. We overrule points of error one through six.
WTRC argues in its seventh point of error that the probate court erred in awarding attorney's fees to the appellees. The court ordered WTRC to pay attorney's fees pursuant to the declaratory judgment statute, which provides, "In any proceeding under this chapter, the court may award costs and reasonable and necessary attorney's fees as are equitable and just." Tex. Civ.Prac. & Rem.Code Ann. 37.009 (1986). We may not reverse the probatecourt award except upon a clear showing of an abuse of discretion. Oake v. Collin County, 692 S.W.2d 454, 455 (Tex.1985); Jennings v. Minco Technology Labs, Inc. 765 S.W.2d 497, 503 (Tex.App.1989, writ denied). Based upon this record, we hold that the trial court did not abuse its discretion in awarding the appellees attorney's fees on an equitable and just basis. We overrule the seventh point of error. Appellees' cross-point of error complaining that the amount of attorneys' fees was insufficient is also overruled.
The probate-court judgment is affirmed.
NOTES
[1] The Merrill Lynch account statement shows that the decedent owned the following equities upon her death: 1000 shares of Gulf States Utilities stock, 2627 shares of Duff & Phelps Selected Utilities Fund, and 2746 shares of the Liberty All Star Equity Fund. The statement shows that under the heading "mutual funds" the decedent owned 50,585 shares of Merrill Lynch Unit Investment Trusts and 5077 shares of the Merrill Lynch Retirement Income Fund.
[2] We will hereinafter refer to the appellants collectively as WTRC unless otherwise noted.
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688 F.2d 1206
CENTRAL MICROFILM SERVICE CORPORATION, Appellant,v.BASIC/FOUR CORPORATION, a Delaware corporation, Appellee.CENTRAL MICROFILM SERVICE CORPORATION, Appellee,v.BASIC/FOUR CORPORATION, a Delaware corporation, Appellant.In Re CENTRAL MICROFILM SERVICE CORPORATION, a Missouricorporation, Petitioner.
Nos. 81-1822, 81-1868 and 81-1984.
United States Court of Appeals,Eighth Circuit.
Submitted May 20, 1982.Decided Sept. 24, 1982.
William I. Rutherford, Lashly, Caruthers, Thies, Rava & Hamel, P.C., St. Louis, Mo., for plaintiff-appellant cross-appellee.
Morton D. Baron, Thomas R. Jayne, Thompson & Mitchell, St. Louis, Mo., Gerald Walpin, Marvin R. Lange, Susan J. Schwartz, Rosenman, Colin, Freund, Lewis & Cohen, New York City, for defendant-appellee cross-appellant.
Before LAY, Chief Judge, HEANEY, Circuit Judge, and BECKER,* Senior District Judge.
HEANEY, Circuit Judge.
1
In May of 1978, Basic/Four Corporation terminated its dealership agreement with Central Microfilm Service Corporation (CMS) and CMS filed a complaint alleging breach of contract and fraud. The first trial of these claims resulted in a substantial verdict in favor of CMS, which was set aside by the district court. The second trial resulted in a similar though smaller award for CMS, after which the district court ordered CMS to accept a remittitur or proceed to a third trial. CMS now seeks review of both proceedings, and Basic/Four cross-appeals, seeking judgment notwithstanding the verdict. We dismiss the appeal and cross-appeal for lack of jurisdiction, but grant CMS's petition for mandamus and direct that judgment be entered in the full amount of the verdicts returned in the second trial.
2
A. Factual Background and Jurisdiction.
3
In 1975, CMS and Basic/Four reached a written agreement pursuant to which CMS served as Basic/Four's dealer in the St. Louis market, selling the latter's computer hardware and accompanying software packages to small businesses. Basic/Four's products initially were not well known in that market and early sales (at upwards of $45,000 per package) were very slow. CMS bore the costs of introducing the product, building a client base, developing local software programmers trained on Basic/Four's equipment and generally establishing the product in the St. Louis market. Although sales gradually increased, CMS never reached the point where it turned a profit on its computer dealership.
4
The dealership agreement included six-month sales quotas and allowed termination in the event such quotas were not attained in any one period. From the outset, CMS performed well below quota. In early 1977, CMS considered getting out of the computer business, but Basic/Four indicated that it wanted CMS to continue as its dealer. From time to time throughout the relationship, Basic/Four would suggest various personnel and other changes at CMS, most of which were adopted. Some of such changes were adopted in early 1978. In May, 1978, however, Basic/Four terminated the dealership for failure to meet quota and opened an in-house branch sales operation.
5
CMS filed the present breach of contract action, contending, under an estoppel theory, that Basic/Four waived its right to terminate for not meeting quota. CMS also alleged fraud, contending that Basic/Four had, by January of 1977, decided to open a branch operation in St. Louis and fraudulently induced CMS to continue as dealer until that event occurred. On the contract claim, CMS sought to recover the net losses it incurred as a dealer from 1975 through the termination. On the fraud claim, it sought to recover the same type of losses, but only for the period after January, 1977, when the fraud allegedly commenced.
6
The case proceeded to trial and, in May, 1979, a jury returned a verdict awarding CMS $261,000 on the contract claim, $73,000 in actual damages on the fraud claim and $750,000 in punitive damages on the fraud claim ($1,094,000 total). Sixteen months after the verdict, the district court rejected Basic/Four's motion for judgment notwithstanding the verdict (j.n.o.v.), but granted its alternative request for a new trial. The stated reasons for ordering a new trial1 were that (1) the jury was erroneously instructed so as to allow an overlap or double recovery on actual damages, and (2) the punitive damage award was excessive.
7
A second trial was held and CMS again prevailed on its contract and fraud claims, this time recovering $182,000 on the contract count, $78,000 in actual damages on the fraud count and.$390,000 in punitive damages for the fraud ($650,000 total). Basic/Four again moved for j.n.o.v. or a new trial, contending inter alia that certain instructions were erroneous, that Basic/Four was entitled to j.n.o.v. as a matter of law, and that the verdict was excessive. The district court rejected each principal contention raised in Basic/Four's motion. It ruled, however, that CMS's expenditures for software services were not required by the dealership agreement and were not requested by Basic/Four-and hence, losses related to such services were not recoverable. Excluding such losses would reduce the actual damages for fraud by $40,587. Because the jury appeared to have calculated the punitive damage award at five times the actual fraud damages, the court also made a corresponding proportionate reduction in punitive damages, i.e., to five times the reduced figure of actual damages. The court did not, however, enter a reduced judgment. Instead, it ordered a third trial unless CMS accepted a remittitur in accordance with the determination as to software losses.2
8
CMS declined to accept the remittitur and now seeks reversal of that order and reinstatement of judgment on the verdicts returned in either the first or second trial. Basic/Four initially moved to dismiss the appeal for lack of jurisdiction. We denied that motion without prejudice to Basic/Four's right to assert its jurisdictional claim on the appeal. Basic/Four chose not to press the jurisdictional issue and cross-appealed, contending it is entitled to judgment as a matter of law.3 Both parties have fully briefed and argued the case on the merits. Before we address the merits, a threshold question is whether there is jurisdiction to review the judgments below.
9
Review by appeal generally follows the entry of final judgment in the district court. Here, however, the court coupled its remittitur with a contingent new trial order. The latter is considered an interlocutory order which is not ordinarily appealable. See, e.g., Allied Chemical Corporation v. Daiflon, Inc., 449 U.S. 33, 34, 101 S.Ct. 188, 189, 66 L.Ed.2d 193 (1980); Richardson v. Communication Workers of America, 469 F.2d 333, 334 (8th Cir. 1972). They are immediately appealable, however, in the narrow circumstances in which such orders are entered without authority. See Peterman v. Chicago, Rock Island & Pacific Ry. Co., 493 F.2d 88, 91-92 (8th Cir. 1974). Here, CMS contends the second new trial order was entered without authority because the district court did not comply with the notice requirement under Rule 59.
10
Under Rule 59, a district court may, within ten days after entry of judgment, order a new trial on its own motion. When a court acts entirely on its own initiative, i.e., when no party has timely moved for a new trial, the ten-day limit is strictly enforced. Peterman v. Chicago, Rock Island & Pacific Ry. Co., supra, 493 F.2d at 91-92 (absent a timely new trial motion, there is no authority to order a new trial outside the ten-day period). When a party has timely moved for a new trial but the court orders such relief on a ground not raised in the motion, the court is deemed to have acted on its own initiative. Under Rule 59, however, the court has authority to act outside the ten-day limit in this circumstance, provided it gives the parties notice and an opportunity to be heard and specifies the grounds on which it grants the new trial. See Wright & Miller, Fed. Prac. & Proc. § 2813.
11
The unsettled question is the effect of a court's failure to comply with the notice requirement when it grants a new trial on a ground not raised in the motion for such relief. At least one court implicitly has construed the notice requirement to be jurisdictional rather than procedural, such that failure to provide notice renders the order immediately reviewable on the merits. See Harkins v. Ford Motor Company, 437 F.2d 276, 277 (3d Cir. 1970) (expressly reserving whether, "in every case," this is the effect of a failure to give notice). Commentators, however, have argued that a court's lack of notice under Rule 59 "should not make its action a nullity." Wright & Miller, supra, at § 2813, n. 73; see also Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (II), 81 Harv.L.Rev. 591, 604 (1968).
12
We need not decide whether the notice requirement under Rule 59 is jurisdictional or procedural because, here, the purpose of such requirement was substantially achieved. It is arguably true that the district court's order for a third trial was granted on a ground not clearly raised in Basic/Four's motion and that there was no prior notice given by the court as to the issue relied upon in the court's decision. CMS moved for reconsideration, however, raising the objections which it would have raised if given prior notice. In giving consideration to such objections, the district court's actions comport with the basic purpose of the notice requirement. Accordingly, we decline to adopt a rule which would render new trial orders immediately appealable where the only defect is a technical lack of notice and such defect is cured by a subsequent opportunity to be heard. Because the new trial order is not immediately appealable, we dismiss the present appeal and cross-appeal for lack of jurisdiction.
13
CMS alternatively petitions for a writ of mandamus. Mandamus review generally is available only in extraordinary circumstances and such review of new trial orders in particular is "rarely" justified. Allied Chemical Corporation v. Daiflon, Inc., supra, 449 U.S. at 36, 101 S.Ct. at 191. Because the right to mandamus must be "clear and indisputable," a district court's action generally must be "blatantly wrong" to justify mandamus relief; arguable error within the scope of trial court discretion is not a proper basis for mandamus. Cf. Allied Chemical Corporation v. Daiflon, Inc., supra, 449 U.S. at 35-36, 101 S.Ct. at 190-191; General Motors Corp. v. Lord, 488 F.2d 1096, 1100 n. 2 (8th Cir. 1974). Other factors which bear on the appropriateness of mandamus review include the need to correct error which is likely to recur and to provide guidelines for the resolution of novel and important questions. See Schlagenhauf v. Holder, 379 U.S. 104, 111-112, 85 S.Ct. 234, 238-239, 13 L.Ed.2d 152 (1964); La Buy v. Howes Leather Co., 352 U.S. 249, 254-255, 258, 77 S.Ct. 309, 312-313, 314, 1 L.Ed.2d 290 (1957); General Motors Corp. v. Lord, supra, 488 F.2d at 1099. Perhaps the most fundamental concern is the avoidance of piecemeal litigation and disturbance of the orderly administration of the courts-key policies underlying the final judgment rule. See Allied Chemical Corporation v. Daiflon, Inc., supra, 449 U.S. at 36, 101 S.Ct. at 191. Finality is not served, however, by needless relitigation and it is proper to consider whether appellate review is "fundamental to further conduct of the case." Gillespie v. United States Steel Corporation, 379 U.S. 148, 152-154, 85 S.Ct. 308, 310-312, 13 L.Ed.2d 199 (1964); Fireman's Fund Insurance Co. v. Aalco Wrecking Co., Inc., 466 F.2d 179, 187 (8th Cir. 1972).
14
Consideration of the foregoing factors makes mandamus review in this case not only appropriate but compelling. The conditional order for a third trial was not based on the type of finding which is traditionally deemed a matter of trial court discretion. When a district court finds that a verdict is excessive in relation to actual injuries, or that a jury was confused by erroneous instructions, or prejudiced by erroneously admitted evidence, a new trial based on such findings is not often reversed because the very nature of the finding is a discretionary matter closely tied to the trial court's observation of the proceedings. See, e.g., General Motors Corp. v. Lord, supra, 488 F.2d at 110; Solomon Dehydrating Co. v. Guyton, 294 F.2d 439, 446-447 (8th Cir.), cert. denied, 368 U.S. 929, 82 S.Ct. 365, 7 L.Ed.2d 192 (1961). Here, however, the district court found that the jury was properly instructed, that the punitive damage award was not excessive and that the evidence supported the verdict as a whole. The sole ground for ordering a third trial was the inclusion of software losses in the award for actual damages. The court did not find that such losses were improperly measured-indeed, the evidence showed, the jury found and the court accepted that these losses totaled a sum certain of $40,587.00. It ruled, rather, that the software services were not recoverable because they were "required neither by the Agreement nor at the request of defendant." This is a discrete question of law and fact, the resolution of which is clear on the record and does not turn on a trial court's proximity to the proceedings.
15
Mandamus review in this case, moreover, will facilitate the purposes of the final judgment rule. The matter has twice been tried to a jury and the evidence was substantially the same at both trials. Twice the plaintiff has prevailed on its contract and fraud claims, obtaining substantial awards of actual and punitive damages. The only outstanding issues are CMS's contention that its software losses were properly recoverable and Basic/Four's claims that it was entitled to j.n.o.v. as a matter of law, that the punitive damage award was excessive and that the jury was given erroneous instructions. Each of these issues has been squarely decided by the district court and a third trial would resolve nothing which has not already been resolved by the district court or the jury. Appellate review is thus "fundamental to further conduct of the case." Absent review, a third trial would present the type of needless relitigation which is antithetical to the final judgment rule. Moreover, in light of the district court's post-trial rulings, a third trial would be conducted with virtually the same instructions and evidence as at the second trial, so if the parties' assertions of error are valid, a fourth trial could well be necessary. An important issue is also presented on which guidance for future cases is appropriate: whether generally a new trial rather than a reduced judgment should be ordered when the only alleged defect involves a discrete question of law and fact relating to a sum certain in damages.
16
In light of all the foregoing considerations, we find that mandamus review is both appropriate and necessary.
17
B. The First Trial.
18
Issues arising out of the first trial do not require extensive discussion. In setting aside the results of that trial, the district court found that the jury was wrongly instructed so as to allow a double recovery on the contract and fraud claims. This arose because on the contract claim, recovery was had for all losses incurred between 1975 and the 1978 termination; while on the fraud claim, recovery was had for the same type of losses incurred during a subset of the contract period (i.e., after the fraud allegedly commenced in January, 1977). The result was a $73,000 overlap which CMS concedes it was not entitled to recover. See Greenwood Ranches, Inc. v. Skie Construction Co., Inc., 629 F.2d 518, 521 (8th Cir. 1980).
19
The district court set forth other grounds for a new trial but we need not review them because the double recovery problem was sufficient to warrant the grant of a new trial.4 It is true, as CMS suggests, the court might have simply reduced the award of actual damages by the amount of the overlap. It is fairly arguable, however, that the double recovery confused the jury so as to affect the figure for punitive damages as well. Under these circumstances, we cannot say it was an abuse of discretion to correct the conceded error by ordering a new trial rather than by reducing the amount of damages.5
20
C. The Second Trial.
21
The verdicts following the second trial were for CMS in the amount of $182,000 on the contract count and, on the fraud count, $78,000 in actual damages and.$390,000 in punitive damages. The court ruled that the only defect in these verdicts was inclusion of software losses in the recovery for actual damages on the fraud count. No mention of this issue was made by the district court in the first new trial order nor at any point prior to issuance of the second new trial order.
22
At both trials, CMS sought to establish as damages the net losses it incurred from dealership operations. The basic proof of such losses was offered by CMS's chief accountant, who presented detailed figures as to sales revenue, direct costs and overhead allocations. Basic/Four disputed much of this evidence, arguing, for example, that too much overhead was allocated to the computer dealership operations, that various marketing and personnel recruiting expenses reflected bad judgment or unnecessary expenditures, and that software services were generally mismanaged. The particular claim as to software services was that more effective use of independent software vendors would have been less costly than the in-house programmers developed by CMS. The record includes correspondence and testimony showing that Basic/Four initially recommended hiring in-house programming staff and at later points urged greater reliance on independent vendors. CMS had to provide software services, but how to do so was within its discretion. As with the other disputed items, the reasonableness of specific software expenditures is a fact question for the jury. We note that the actual damages awarded in the two trials were remarkably similar-$261,000 in the first trial and $260,000 in the second.6 The district court analyzed most of the disputed items in terms of the reasonableness of the jury's award and the sufficiency of the evidence. On every item examined in this manner, the court affirmed the jury's determination.
23
The court did deny recovery, however, for one item. It ruled that CMS's substantial investment in software services "was required neither by the Agreement nor at the request of defendant. Accordingly, the Court finds that the jury award in Count V improperly included $40,587.00 in losses for computer software services." This determination is clearly wrong.
24
The dealership agreement expressly required CMS to provide "adequate software programming to meet the requirements of purchasers." In addition, the summary of the dealership program which Basic/Four distributed prior to reaching the agreement, and the course of dealings between these parties thereafter, leave no doubt that CMS alone had the duty, if it was to serve as a dealer, to obtain and provide software services which would adapt the basic systems to the particular needs of customers.
25
Basic/Four concedes this much, as it must. It attempts to construe the court's ruling to be a determination that CMS was grossly inefficient in handling software services, as Basic/Four had argued at trial. There was indeed a factual dispute at trial as to independent versus in-house software services, which the jury resolved against Basic/Four.7 If, as Basic/Four argues, the district court sought to set aside the jury's determination by substituting its view as to a lower figure for software services, CMS might with good cause argue that such an action unreasonably invades the province of the jury. But the court did not purport to do so. It did not deem some software expenditures reasonable and others unreasonable, nor did it make a partial reduction in the award for such items. The court expressly tallied all software revenues during the period of the fraud, subtracted all software costs and denied all recovery for the difference-expressly ruling that it did so because the software expenditures were not required under the agreement. The court's action is thus clear, as is the error on which it rests.
26
The court also ruled that the second verdict award of.$390,000 in punitive damages was based on sufficient evidence and was not excessive. It directed a reduction in this award only to correspond to the mistaken reduction in actual damages. The reasoning was that because the jury awarded punitive damages at five times the actual fraud damages, and because the actual damages were reduced to exclude software losses, a proper punitive award should be only five times the reduced amount of actual damages. See Ogilvie v. Fotomat Corp., 641 F.2d 581, 585 (8th Cir. 1981). We need not decide whether such corresponding reductions are always necessary or appropriate, because here, there is no basis for the reduction once the error is corrected as to the software losses.
27
Apart from the software exclusion, the district court's rulings fully upheld the punitive and actual damages. The district court rejected every claim advanced by Basic/Four as to instructions, the weight of the evidence, the need for a new trial and the asserted right to j.n.o.v.8 Thus, once the software error is corrected, CMS is entitled to judgment in the full amount awarded at the second trial ($650,000), and a writ of mandamus should issue in accord therewith. Such a writ would not be proper, however, if Basic/Four's claims of error are valid. In other words, the order for a third trial would not constitute an abuse of discretion if there were prejudicial errors as alleged by Basic/Four. Accordingly, we turn to the claims raised by Basic/Four.
28
The principal contention of Basic/Four is that it was entitled to j.n.o.v. as a matter of law on both the contract and fraud counts. The district court carefully considered and rejected these claims, properly emphasizing that one "must view the evidence in the light most favorable to sustaining the jury's findings and must give the prevailing party the benefit of every reasonable inference which may be drawn from the evidence." Davis v. Burlington Northern, 541 F.2d 182, 186 (8th Cir.), cert. denied, 429 U.S. 1002, 97 S.Ct. 533, 50 L.Ed.2d 613 (1976). We agree that Basic/Four is not entitled to j.n.o.v.
29
As to the contract count, Basic/Four contends that an estoppel was not established because (1) Basic/Four did not engage in conduct inconsistent with exercising its right of termination, (2) any estoppel was effectively revoked by certain reassertions of the right to terminate for failure to meet quota, and (3) there was insufficient evidence of reliance or injury.
30
With respect to the reliance and injury issues, we agree with the district court that there was sufficient evidence to create a jury question. The more arguable claim is, essentially, that Basic/Four encouraged CMS to do only what it was required to do as a dealer,9 and that it expressly reserved the right to terminate on quota grounds, such that it cannot be estopped to terminate on grounds of the sales quota. There is evidence to support this theory of the case, but there is more than sufficient evidence to support the jury's verdict.
31
Briefly, the evidence shows that Basic/Four repeatedly declined to terminate for failure to meet quota; that it was actively involved in CMS's operations throughout the period; and, indeed, that just months before termination, Basic/Four urged CMS to hire new sales staff and remodel its facilities. CMS adopted most of these changes and could reasonably view Basic/Four's urgings as evincing an intent to continue the dealership notwithstanding that sales had been and remained below quota. A jury certainly could find that CMS adopted many of Basic/Four's suggestions in reliance on non-termination under the quota clause. It is also important that in early 1977, following a sustained period of low sales and failure to meet a probationary quota, Basic/Four met with CMS, declined to terminate and expressly stated that it wanted CMS to continue as dealer. Thus, a jury could find that CMS reasonably believed it would be continued as dealer if it continued in good faith to promote Basic/Four's products.
32
The few specific reservations of a right to terminate for failure to meet quota constitute only one factor to be weighed against the other evidence of estoppel-Basic/Four's repeated non-termination when sales were worse, its expressions of a desire to continue CMS as dealer and its affirmative conduct which by its nature evinces a determination to continue CMS as dealer notwithstanding the sales quota. In short, we agree with the district court that it was for the jury to decide whether there was a breach of contract by estoppel.
33
As to the fraud count, Basic/Four contends it is entitled to j.n.o.v. on numerous grounds, all of which rest on fundamental mischaracterizations of CMS's fraud theory. The fraud allegedly commenced in January, 1977, when Basic/Four met with CMS following failure to meet a probationary sales quota. Basic/Four expressly represented that, notwithstanding such failure, it wanted CMS to continue as its dealer. Basic/Four characterizes this representation as an isolated representation which, even if fraudulent when made, effectively expired in the face of subsequent events, e.g., when the next quota period arose, when the initial three-year term of the contract expired, or when Basic/Four made subsequent reassertions of a right to terminate on quota grounds. It also argues that there could be no reliance and the representation could not be material nor be the proximate cause of injury, because whatever conduct was induced on the part of CMS was, in any event, required performance under the dealership contract.
34
CMS, however, characterizes the January, 1977, meeting as a "cross-roads" session, coming after failure to meet what Basic/Four had established in the way of a probationary quota. Up to this point, CMS had lost over $180,000 on the dealership and at least one senior CMS officer was considering getting out of the dealership rather than attempt to recoup such losses by investing more funds. One alternative, of course, was to invest more and salvage the dealership through a longer-term turnaround. It appears that at least some CMS officials expected Basic/Four to announce its desire to terminate in the face of continuing difficulties and quota non-attainment. Basic/Four opened the meeting by announcing its desire, notwithstanding the sales problems, to have CMS continue as its dealer. Over the following sixteen months, Basic/Four encouraged CMS's efforts and urged specific personnel and marketing changes, most of which were adopted, and sales gradually improved.
35
In CMS's view, the January meeting and subsequent urgings reflected a mutual commitment to a good faith, longer-term turnaround of the dealership. The fraud allegation is that as of the January, 1977, meeting, Basic/Four had decided to turn the St. Louis market into a branch sales operation and that Basic/Four deliberately and falsely induced CMS to continue as dealer until such operation was ready to be established. Although the timing and certainty of Basic/Four's plans were disputed, there is substantial evidence on which a jury could find such a fraudulent scheme: an unsuccessful search, prior to the January meeting, to find a replacement for CMS; a senior-level determination to locate branch offices in several metropolitan markets, including St. Louis; a search for a branch manager in mid-1977 which Basic/Four later called premature and arguably disavowed; evidence of discussions within Basic/Four regarding a willingness to increase the quota if necessary to justify termination once the branch operation was ready to be implemented; and just months before the termination, Basic/Four's specific urgings to CMS to fire certain personnel and hire new sales staff, actions which were adopted and which by their nature take time to yield results. In short, a jury could reasonably find that Basic/Four's course of conduct throughout the period from January, 1977, through the termination was calculated to induce CMS to continue as dealer and that such conduct was fraudulent from at least January onward. In other words, a jury could find that Basic/Four induced CMS to continue to absorb the start-up costs of introducing the products (in expectation of a longer-term turnaround) while Basic/Four intended to terminate CMS and establish an in-house operation.
36
There simply is no merit to Basic/Four's claims that a finding of materiality, reliance and proximate cause is precluded because CMS merely performed as it was required to perform under the dealership contract. As of January, 1977, CMS had lost over $180,000 and had an arguable legal right to get out of the dealership at that point. See, e.g., Feld v. Henry S. Levy & Sons, Inc., 37 N.Y.2d 466, 373 N.Y.S.2d 102, 335 N.E.2d 320 (1975); Bloor v. Falstaff Brewing Corp., 601 F.2d 609, 612-613, n. 7 (2d Cir. 1979). If CMS knew that Basic/Four intended to install a branch operation in St. Louis, CMS almost certainly would have sought to terminate. We need not and do not hold that CMS had an indisputable right to terminate on these grounds, but there certainly is more than a colorable basis for doing so. The jury, thus, could find that the entire sixteen-month continuation would not have occurred but for the fraudulent misrepresentations.10
37
We recognize that a jury might have found that some of the parties' conduct between January, 1977, and the termination effectively put CMS on notice as to Basic/Four's intentions or otherwise made reliance unreasonable in whole or in part. The evidence is mixed, however, and we cannot say it is so one-sided that it compels a judgment for Basic/Four as a matter of law. These issues have been vigorously litigated and twice submitted to juries which on both occasions found Basic/Four liable for fraud and awarded very similar amounts in actual damages-$73,000 in the first trial and $78,000 in the second. Such determinations will not lightly be set aside, especially upon appellate review.
38
Basic/Four also contends that the jury instructions with respect to liability were erroneous and prejudicial. We disagree. The district court followed Missouri Approved Instructions (MAI). See Scott v. Conroy, 577 F.2d 13, 16, n. 2 (8th Cir. 1978). As the court noted, the principal purpose in doing so was to simplify the framework of issues for the jury and allow the parties to more fully set forth their respective positions within such framework. As to the estoppel claim, the instructions directed the jury to decide the factual disputes which were critical to recovery, e.g., whether Basic/Four engaged in certain conduct and made certain representations, as alleged; whether such conduct induced CMS reasonably to believe that the contract would not be terminated on quota grounds; and whether CMS relied on Basic/Four's statements and acts and, in so doing, used ordinary care.
39
The foregoing instructions adequately presented the estoppel issue as it has been formulated under Missouri law. Missouri courts have held that "the substance of estoppel is the inducement of another to act to his prejudice." White v. Smith, 440 S.W.2d 497, 504 (Mo. App. 1969) (emphasis in original, citations omitted). This issue was squarely submitted. The Missouri cases consistently construe an estoppel claim to have three elements: (1) an act or statement inconsistent with the right later asserted; (2) reliance on such act or statement; and (3) injury. See, e.g., Chrysler Credit Corp. v. Friendly Ford, Inc., 535 S.W.2d 110, 112 (Mo. App. 1976) (citations omitted). Here, the issues of reliance, injury and the basic facts giving rise to the estoppel were expressly submitted under the instructions. The court did not expressly instruct as to the nature of the inconsistency element, but we find no prejudice in this respect. The nature of the inconsistency was self-evident and fully litigated by the parties: Were Basic/Four's conduct and statements consistent with its actions under the termination clause or did such conduct waive its rights under that clause? To state the issue is to state the inconsistency. Moreover, a finding of inconsistency was a necessary, albeit implicit, element of the instructions. For the jury to find for CMS, it specifically had to find that Basic/Four's conduct induced CMS to reasonably believe it would not be terminated under the quota clause. Such a finding necessarily implies that Basic/Four's conduct was not consistent with terminating CMS under that clause. Under these circumstances, the failure to expressly instruct as to inconsistency did not prejudice Basic/Four and is not reversible error. Cf. Hinkeldey v. Cities Service Oil Co., 470 S.W.2d 494, 502 (Mo. 1971) (not every controverted element need be instructed upon when it is established as a matter of law).11
40
Basic/Four also asserts it was error not to instruct that the estoppel-creating conduct must be "absolute and unequivocal;" that opinions and inferences are insufficient to establish estoppel; and that conduct susceptible of two constructions, one of which is consistent with the right sought to be estopped, does not form an estoppel. There is some support in Missouri case law for consideration of these factors. See Peerless Supply Co. v. Industrial Plumbing & Heating Co., 460 S.W.2d 651, 667 (Mo. 1970). The court, in its discretion, might well have instructed the jury that in determining inducement and reliance, it should consider such factors.12 The only elements consistently held to be necessary to an estoppel claim, however, relate to the estoppel-creating facts, inducement and reliance, elements on which the court did instruct the jury. See id. at 666; Chrysler Credit Corp. v. Friendly Ford, Inc., supra, 535 S.W.2d at 112; White v. Smith, 440 S.W.2d 497, 503-504 (Mo. App. 1969). We cannot say that the district court omitted elements that are clearly required under Missouri law, nor that, read as a whole, the instructions misled or confused the jury or otherwise failed to present the issues necessary to their verdict.
41
As to the fraud claim, the court instructed that to find for CMS, the jury must find (a) that Basic/Four represented to CMS that it would continue as dealer, intending CMS to rely thereon; (b) that such representation was false and Basic/Four knew it was false when made; (c) that the representation was material to CMS in making expenditures for the selling of Basic/Four's products; (d) that CMS relied on such representation and, in so doing, used ordinary care; and (e) that CMS was injured as a direct result of such representation. This instruction plainly covers the elements that are essential to a fraud claim under Missouri law and that were in dispute here. See, e.g., Walsh v. Ingersoll Rand Co., 656 F.2d 367, 369 (8th Cir. 1981); Slater v. KFC Corp., 621 F.2d 932 (8th Cir. 1980).
42
Basic/Four contends it was reversible error not to instruct that an additional required element was CMS's lack of knowledge as to the falsity of Basic/Four's representation. The "hearer's ignorance of falsity" is an element of fraud. See, e.g., Slater v. KFC Corp., supra, 621 F.2d at 936. Here, however, that issue was not in dispute. No one contends that as of the January, 1977, meeting (at which Basic/Four represented that it wanted CMS to continue as dealer) CMS had knowledge of Basic/Four's plan to establish a branch operation or otherwise knew that the representation at that meeting was false. Basic/Four's claim as to CMS's knowledge actually relates to reliance, i.e., that the subsequent conduct at some point put CMS on notice as to Basic/Four's true intentions or, at least as to the possibility Basic/Four would terminate on quota grounds. Because there was no claim that CMS had knowledge of falsity at the time of the representation, we cannot find that omitting an instruction on that element was prejudicial to Basic/Four. See Gottlieb v. Hyken, 448 S.W.2d 617, 620 (Mo. 1970) (facts not in dispute need not be included in instructions).
43
Basic/Four also complains that the fraud instructions did not define "reliance" and did not address a number of factors which weigh against a finding of reasonable reliance, e.g., that written assertions of a right to terminate on quota grounds may outweigh contrary oral representations; that the possibility of nonrenewal under the contract may affect the extent of reliance which would be deemed reasonable; and that a representation is not the proximate cause of injury if the injuries would have occurred regardless of the representation. These factors are not essential legal elements of a fraud claim but rather are evidentiary factors bearing on the reasonableness of reliance. The significance of these factors was fully argued to the jury by the parties. In our view, had Basic/Four requested a simple, neutral instruction directing the jury to consider such factors, the district court should have given such an instruction. Basic/Four did not do so, however. It submitted an extensive list of highly argumentative instructions which effectively required unjustified commentary on the evidence and which were virtually verdict-directing in their character. It was well within the district court's discretion to reject such submissions. See, e.g., Barnes v. Marshall, 467 S.W.2d 70, 78-79 (Mo. 1971); Gottlieb v. Hyken, 448 S.W.2d 617, 620 (Mo. 1970); Wright v. Farmers Co-Op of Arkansas and Oklahoma, 620 F.2d 694, 696-697 (8th Cir. 1980) (in diversity, state law controls the substance of jury instructions, but the grant or denial of an instruction is a procedural matter for determination under federal law).
44
In sum, as to both the fraud and contract claims, the district court properly submitted to the jury-in simple, neutral terms-all of the ultimate factual issues which were necessary to the jury's determination of CMS's claims under Missouri law. The parties, in developing the evidence and in presenting closing arguments, clearly presented their positions on how the details of their dealings bear on the question of estoppel, fraud and, in particular, on the reasonableness of reliance. Twice juries have found for CMS on both claims. We cannot say that such findings are against the weight of the evidence, wrong as a matter of law, or attributable to erroneous instructions on the controlling legal principles. The instructions were consistent with MAI practice and there is no showing that the jury was misled or confused. Accordingly, we cannot say the district court erred in upholding the jury's finding of liability.
45
The only remaining issue is damages. The district court ruled that the benefit-of-the-bargain rule of damages is controlling, but the theory actually pursued was a reliance or out-of-pocket loss theory. In reviewing the damage award, we look to the evidence actually adduced, the instructions actually given and the award actually made-not to labels or rationalizations offered outside the trial itself.
46
Both parties litigated damages on an out-of-pocket loss theory. CMS introduced no evidence of future profits and sought no recovery on such a basis. It introduced evidence detailing its specific costs and overhead allocations as well as its revenue from sales of hardware and software services. Basic/Four's evidence essentially consisted of disputing whether certain expenditures were sound, whether certain overhead was properly allocable to the dealership and, more generally, whether CMS's losses were due to its own ineptness and failures rather than to reasonable business practices. The jury instructions were very simple: on the contract count, the jury was directed to award "such sum as you believe will fairly and justly compensate plaintiff for any damage you believe plaintiff sustained as a direct result of such breach of contract;" and as to fraud, to award "all amounts as shown by the evidence which are the direct and actual consequence of plaintiff having acted on the truth on such representation." See Jurcich v. General Motors Corp., 539 S.W.2d 595, 601 (Mo. App. 1976). These general directions, in tandem with the parties' development of the case, make clear that the damages were to be measured on an out-of-pocket loss basis. Moreover, because the jury awarded as actual damages almost precisely the net loss figures proffered by CMS, it is also clear that the jury rejected Basic/Four's contentions.
47
Most of Basic/Four's assertions relating to damages are an attempt to relitigate fact questions which the jury resolved against it. The district court found no compelling reason to set aside those determinations; nor do we. Apart from such matters, Basic/Four contends that the district court should have given more specific guidance to the jury in measuring damages. Missouri law, however, expressly permits the use of the generalized instruction given in this case when, as here, the parties have clearly presented the nature of the dispute as to damages. See, e.g., Boten v. Brecklein, 452 S.W.2d 86, 93 (Mo. 1970). On this record, there is no doubt that if out-of-pocket losses are a proper theory of recovery, then damages were properly submitted and the award made was a reasonable one.
48
Basic/Four contends that the award should be set aside because it does not reflect the traditional benefit-of-the-bargain measure which is the general rule in Missouri. See, e.g., Slater v. KFC Corp., supra; Smith v. Tracy, 372 S.W.2d 925, 938 (Mo. 1963). Missouri courts, however, have permitted alternative measures of damages when the "bargain theory" measure, "because of the peculiar circumstances of the case involved," would not accurately measure the loss sustained. Schroeder v. Zykan, 255 S.W.2d 105, 110 (Mo. App. 1953); see also Hough v. Jay-Dee Realty and Investment, Inc., 401 S.W.2d 545 (Mo. App. 1966); Security Stove & Mfg. Co. v. American Ry. Express Co., 227 Mo.App. 175, 51 S.W.2d 572, 573, 576 (1932). In our view, the present case is just such a "peculiar" one in which the out-of-pocket loss theory is appropriate.
49
As to fraud in a transaction, the typical "bargain theory" measure is the difference between the actual value and the represented value of the subject of the transaction. See Smith v. Tracy, supra, 372 S.W.2d at 938. Such a measure simply makes no sense in this case, given the nature of the fraud. Basic/Four did not make representations as to specific values or as to particular facts directly relating to such values. It fraudulently induced CMS to continue as a dealer and the harm from such continuation is best measured by the net losses incurred as result of it.
50
The contract count is a quite different theory. The essence of that claim is wrongful termination-that quite apart from the fraudulent inducement to continue, CMS did continue and was wrongfully prevented from reaching the recoupment or turnaround point. In effect, the claim is that Basic/Four appropriated the benefit of CMS's efforts to introduce the product, leaving CMS to incur the start-up costs without the longer term return. Lost profits might ordinarily be the proper measure for recovery but, here, the dealership had only operated for a few years, had yet to reach the break-even point and profit margins were not susceptible to precise measurement. Although a lost-profits theory might often result in a larger recovery than under the out-of-pocket theory, here, lost profits might well be speculative. The more certain measure which comes closest to putting CMS where it would have been but for the breach is the out-of-pocket loss theory. See Restatement of Contracts (First) § 333, comment (b). Thus, in our view, the damage award was based on a proper theory.
51
As to punitive damages, Basic/Four disputes the adequacy of the instructions and the propriety of the.$390,000 award. Neither contention is persuasive.
52
The court instructed that if the jury found for CMS on the fraud claim, then it "may" award punitive damages if the fraud was "wilful, wanton or malicious." The instructions also defined "malice" as the "doing of a wrongful act intentionally without just cause or excuse." The court also admonished the jury, in a more general instruction, not to let passion, prejudice or sympathy enter into their deliberations. This instruction expresses the proper standard under Missouri law. See, e.g., Beggs v. Universal CIT Corporation, 409 S.W.2d 719, 722 (Mo. 1966).
53
There is no merit to the claim that by using the disjunctive "or" between the terms "wilful, wanton or malicious," the jury was instructed to award punitive damages simply upon finding that Basic/Four's misrepresentations were made knowingly. The instruction must be read as a whole and doing so leaves no doubt that the jury was instructed that it must find legal malice before awarding punitive damages. Cf. Wright v. Farmers Co-Op of Arkansas and Oklahoma, supra, 620 F.2d at 697 (reviewing court must read and consider the charge as a whole and a single error may be cured by consideration of the entire charge).
54
Nor was Basic/Four entitled to an instruction that a good faith exercise of a contract right cannot give rise to punitive damages. This proposition has support in the abstract under Missouri law. See Pollock v. Brown, 569 S.W.2d 724 (Mo. 1978). The fraud issue here, however, focuses on the inducement, in January, 1977, and thereafter, of continued efforts by CMS when Basic/Four had already decided to establish branch operations in St. Louis. Whether the fraud at that time was intentional and without just cause is the key inquiry, not Basic/Four's state of mind as of the termination. If the jury believed CMS's theory that Basic/Four had made the branch operation decision by January, 1977, the false inducement to continue and subsequent termination when the branch was set up could not have been in good faith.
55
Finally, Basic/Four was not entitled to an instruction that punitive damages are disfavored in the law. This may be true and it may affect a court's assessment of the reasonableness of a punitive award, but Basic/Four points to no Missouri rule or case requiring instruction on the point. Moreover, as we have noted, "(u)nder Missouri law, the question of whether or not punitive damages shall be awarded and, if so, in what amount, rests peculiarly in the discretion of the jury." Northern v. McGraw-Edison Co., 542 F.2d 1336, 1349-1350 (8th Cir. 1976) (citations omitted). Here, the district court found that the punitive award was not excessive and was justified by the evidence. We agree. Two juries have rendered verdicts in this case, the first awarding $750,000 in punitive damages and the second,.$390,000 in such damages. Basic/Four has failed to show why the latter verdict is so unreasonable or grossly disproportionate to the actual injuries that it must be set aside.
56
Thus, we find no merit to Basic/Four's claims of error in connection with the second trial and, accordingly, a third trial would not be warranted on the basis of such contentions. The only error was the partial reduction in the verdicts returned in that trial. CMS's petition for mandamus is therefore granted and the district court is directed to enter judgment in favor of CMS in the full amount of the verdicts returned in the second trial.
*
The Honorable William H. Becker, United States Senior District Judge, Western District of Missouri, sitting by designation
1
Additional reasons were disclosed during subsequent proceedings but are not material here in light of our holding as to the first new trial order. See, infra, at 1213-1214
2
Under the remittitur, judgment would be for $182,000 on the contract count, $37,413 in actual and $187,065 in punitive damages on the fraud count (totaling $406,478, or a reduction of more than $240,000 from the second jury verdict)
3
We do not suggest that the jurisdictional issue was, or could be, abandoned
4
The court also ruled that the $750,000 punitive damage award was unduly excessive, in part because it was greater than the amount prayed for in the complaint. We note that an award is not excessive merely because it exceeds the amount stated in the prayer for relief. See, e.g., Troutman v. Modlin, 353 F.2d 382, 383, 384-385 (8th Cir. 1965). The court also found the punitive award to be disproportionate to the actual injury inflicted, constituting an abuse of discretion on the part of the jury-a determination which we need not review in light of our holding
5
Compare the second new trial order, infra, at note 8
6
In the first trial, total actual damages are reflected in the contract count (which then overlapped with the recovery on the fraud count, see, supra, at 1213-1214. In the second trial, the jury was instructed to reduce the contract count recovery by the amount of any actual damages awarded on the fraud count, to avoid double recovery. Thus, the total awarded at the second trial is the sum of actual damages on the contract and fraud counts
7
Because the jury awarded virtually all amounts requested as actual damages, we must assume they rejected Basic/Four's arguments for arriving at a smaller figure
8
Thus, unlike the first new trial order, the second order reflects a full and final determination by the district court of every factual and legal claim raised by the parties. The sole alleged defect involved a discrete issue which no one contends confused the jury or otherwise affected the verdict or any of the proceedings. Under these circumstances, particularly where a case has twice been tried to a jury, we think the better practice is to order a reduction in judgment rather than a new trial. Of course, where other factors warrant a new trial, such relief may be ordered. Here, however, in view of the district court's post-trial rulings, a third trial constitutes clearly useless relitigation and it was an abuse of discretion to order it
9
This is the core reasoning behind the claim that Basic/Four's conduct was not inconsistent with its right to terminate for failure to meet quota
10
There is no merit to the contention that because the initial three-year period of the dealership expired, a new contract was formed which somehow cut off the fraud claim as a matter of law. The contract renewed automatically absent notice to the contrary. Thus, it operated as an extension of the agreement and not formation of a wholly new contract and, in any event, Basic/Four never sought to terminate under the renewal clause. Nor does the "risk" of nonrenewal defeat, as a matter of law, the claim that CMS relied upon fraudulent inducements to continue the relationship. Here, CMS contends that Basic/Four waived its right to terminate on quota grounds and falsely induced CMS to believe that the relationship would continue in good faith in an attempt to establish a successful dealership. If, as the jury found, CMS believed and relied in this manner, it is at least reasonable to find that CMS also believed Basic/Four would not suddenly terminate under the nonrenewal clause. Moreover, the nonrenewal clause presented a potential opportunity for either party to terminate and the existence or non-exercise of such opportunity is simply another factor for the jury to consider in determining the reasonableness of reliance
11
We do not suggest that an estoppel was established as a matter of law. The nature of the inconsistent acts, however, was factually established such that the only issue was the effect of such acts in terms of inducement and reliance
12
Basic/Four did not submit simple, neutral instructions in this regard. It submitted argumentative instructions which required unjustified commentary on the evidence and which all but directed a verdict in favor of Basic/Four. The district court was well within its discretion in rejecting such submissions. See, e.g., Barnes v. Marshall, 467 S.W.2d 70, 78-79 (Mo. 1971) ("instructions shall be simple, brief, impartial, free from argument")
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Order Michigan Supreme Court
Lansing, Michigan
July 29, 2014 Robert P. Young, Jr.,
Chief Justice
148964 Michael F. Cavanagh
Stephen J. Markman
Mary Beth Kelly
Brian K. Zahra
____________________________________ Bridget M. McCormack
David F. Viviano,
In re Petition of Sanilac County Treasurer Justices
for Foreclosure of Certain Parcels of
Property Due to Unpaid 2010 and Prior
Years’ Taxes, Interest, Penalties and Fees.
____________________________________
SANILAC COUNTY TREASURER,
Petitioner-Appellee,
v SC: 148964
COA: 316814
Sanilac CC: 12-034524-CZ
JENNIFER MEGIE,
Respondent-Appellant.
____________________________________/
On order of the Court, the application for leave to appeal the February 11, 2014
judgment of the Court of Appeals is considered, and it is DENIED, because we are not
persuaded that the questions presented should be reviewed by this Court.
I, Larry S. Royster, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
July 29, 2014
h0721
Clerk
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228 Cal.App.3d 1049 (1991)
279 Cal. Rptr. 246
THE PEOPLE, Plaintiff and Respondent,
v.
LUIS FERNANDO AGUILAR, Defendant and Appellant.
Docket No. D012311.
Court of Appeals of California, Fourth District, Division One.
March 22, 1991.
*1050 COUNSEL
Teri D. Pate, under appointment by the Court of Appeal, for Defendant and Appellant.
John K. Van de Kamp, Attorney General, Richard B. Iglehart, Chief Assistant Attorney General, Harley D. Mayfield, Assistant Attorney General, Steven H. Zeigen and Esteban Hernandez, Deputy Attorneys General, for Plaintiff and Respondent.
OPINION
HUFFMAN, Acting P.J.
After the trial court denied his motion to suppress evidence (Pen. Code,[1] § 1538.5) produced as a result of an *1051 impoundment inventory search of his car, Luis Fernando Aguilar (Aguilar) pleaded guilty to one count of possessing stolen property (§ 496). The court suspended imposition of sentence and granted him two years' probation. He appeals, contending the court erred in denying his motion to suppress. We agree and therefore reverse the judgment.
BACKGROUND
The following facts are taken from the transcript of the preliminary hearing.
About 8:30 on a November evening, Officer Duran was patrolling Calipatria in Imperial County. He noticed four people carrying something which he thought was a television set. A television set had been reported stolen a few days earlier, and he thought the people were carrying that set. He saw something being put into the trunk of an older model Chevrolet, and two people get into the car and drive off. He followed the car.
The driver of the car stopped at an intersection beyond the limit line and made a right turn without signalling. Duran stopped the car and asked the driver, Aguilar, for his license and registration. Aguilar did not produce a license. Duran ran his name through a computer and discovered his license was suspended. Duran arrested Aguilar for driving with a suspended license.
Duran told Aguilar his car would be towed, and asked for the keys to do an inventory search for the towing company. After some prodding, Aguilar gave Duran the key to the trunk. Duran opened the trunk and saw what looked like a brand new toolbox. He was unable to open the box and asked Aguilar for the key. Aguilar said he did not have the key with him. Aguilar also said the toolbox was his. Duran told Aguilar the toolbox looked expensive and would be taken to the police department for safekeeping.[2] While Duran was driving Aguilar to the county jail, Aguilar said the toolbox was not his and he had obtained it about two days earlier.
Duran testified at the preliminary hearing he followed Aguilar's car because he suspected criminal activity and wanted to investigate; he intended to stop the car as soon as he saw a traffic violation; one of the reasons he had the car towed, i.e., impounded, was so he could look in the trunk (he never gave any other reasons for the impound); and he was required to conduct an inventory of every towed vehicle. Duran said he had discretion *1052 to decide whether to have a vehicle towed when the driver was stopped, i.e., cited, for a driving violation; there were written policies as to the exercise of such discretion; he had not seen the policies; and he had 90 percent of the vehicles towed.
Aguilar noticed a motion in superior court to suppress the toolbox and his statements in relation thereto. The parties submitted the motion on the preliminary hearing transcript. The court denied the motion.
Aguilar pleaded guilty to receiving stolen property, and the remaining charged count, driving when privilege suspended for driving under the influence (Veh. Code, § 14601.2, subd. (a)) was dismissed. The court suspended imposition of sentence and granted a two-year probation. This appeal followed.
DISCUSSION
(1a) Aguilar contends the warrantless search of the trunk of his car pursuant to an admittedly pretextual traffic stop was unreasonable. We agree. As the Ninth Circuit said in United States v. Hellman (9th Cir.1977) 556 F.2d 442, "it is clear from the testimony of the searching officer that the citation, the impounding and the inventorying all were for `an investigatory police motive.' This alone is sufficient to conclude that the warrantless search of the car was unreasonable." (Id. at p. 444.)
So it is in the case here. It is clear from Duran's testimony that the arrest and the impound were for "an investigatory police motive." As to the inventory, although Duran testified he was required to inventory every vehicle he impounded, this does not justify the inventory, but merely narrows the inquiry to the impound and the events leading thereto.
The People rely on the United States Supreme Court's opinions in South Dakota v. Opperman (1976) 428 U.S. 364 [49 L.Ed.2d 1000, 96 S.Ct. 3092] and Colorado v. Bertine (1987) 479 U.S. 367 [93 L.Ed.2d 739, 107 S.Ct. 738]. However, those opinions do not support the search here.
In South Dakota v. Opperman, supra, 428 U.S. 364, police officers impounded and searched an unoccupied car after they had ticketed it twice for illegal parking. In holding the search was reasonable, the court noted "there is no suggestion whatever that this standard procedure, essentially like that followed throughout the country, was a pretext concealing an investigatory police motive." (Id. at p. 376 [49 L.Ed.2d at p. 1009].)
In Colorado v. Bertine, supra, 479 U.S. 367, a police officer arrested the driver of a van for driving under the influence, and another officer searched *1053 the van pending its impound. Departmental regulations required inventory of impounded vehicles, but gave the officers discretion to choose between impounding a vehicle and locking it in a public parking place. In upholding the search the court reasoned:
"Nothing in Opperman or Lafayette [(Illinois v. Lafayette (1983) 462 U.S. 640)] prohibits the exercise of police discretion so long as that discretion is exercised according to standard criteria and on the basis of something other than suspicion of evidence of criminal activity. Here, the discretion afforded the Boulder police was exercised in the light of standardized criteria, related to the feasibility and appropriateness of parking and locking a vehicle rather than impounding it. [Fn. omitted.] There was no showing that the police chose to impound Bertine's [vehicle] in order to investigate suspected criminal activity." (Colorado v. Bertine, supra, 479 U.S. at pp. 375-376 [93 L.Ed.2d at p. 748].)
The People argue Duran acted lawfully in "conform[ing] with a policy practiced 90 percent of the time to safeguard the seized property." However, this begs the question. First, Duran did not testify the impound "policy" was practiced 90 percent of the time, nor did he give any reasons for the policy. He testified he impounded 90 percent of the time; he had not seen the policy; and one of the reasons he impounded Aguilar's car was to look in the trunk.
Moreover, even if the Calipatria Police Department had a policy requiring the impound of all vehicles whose drivers had been cited, the policy would not necessarily be reasonable. (See People v. Steeley (1989) 210 Cal. App.3d 887, 891 [258 Cal. Rptr. 699]: "unreasonable procedures do not ipso facto become standard, and therefore legal, merely because they are contained in a written directive.")
(2) "It is well settled that inventories of impounded vehicles are reasonable where the process is aimed at securing or protecting the car and its contents. [Citation.] Such searches are unreasonable and therefore violative of the Fourth Amendment when used as a ruse to conduct an investigatory search. (Colorado v. Bertine, supra, 479 U.S. at pp. 371-372....)" (People v. Steeley, supra, 210 Cal. App.3d at pp. 891-892.)
(1b) Here, as we have noted, because inventories were required of all impounded vehicles, we focus on the purpose of the impound rather than the purpose of the inventory. Duran testified one, if not the only, purpose of the impound was to conduct an investigatory search. Accordingly, the impound and the resulting search were unreasonable, and the trial court should have granted Aguilar's motion to suppress the evidence produced as *1054 a result of the search, namely the toolbox and his statements in relation thereto.
DISPOSITION
The judgment is reversed.
Froehlich, J., and Nares, J., concurred.
A petition for a rehearing was denied April 8, 1991.
NOTES
[1] All statutory references are to the Penal Code unless otherwise indicated.
[2] Pete Schoonover, the owner of the toolbox, testified it was a Waterloo box; Waterloo is "the Cadillac of the line"; and the box had Proto tools in it. Apparently, it took two people to bring the box into the courtroom.
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15‐3396
MERRILL C. ROBERTS,
Petitioner‐Appellant,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent‐Appellee.
____________________
Appeal from the United States Tax Court.
No. 12010‐11 — Elizabeth C. Paris, Judge.
____________________
ARGUED APRIL 1, 2016 — DECIDED APRIL 15, 2016
____________________
Before POSNER, EASTERBROOK, and WILLIAMS, Circuit
Judges.
POSNER, Circuit Judge. The Internal Revenue Code allows
a taxpayer to deduct “all the ordinary and necessary expens‐
es paid or incurred during the taxable year in carrying on
any trade or business.” 26 U.S.C. § 162(a). But if the activity
giving rise to the expenses “is not engaged in for profit,” sec‐
tion 183 permits deduction of expenses incurred in the activ‐
ity “only to the extent that the gross income derived from
such activity [i.e., the not‐for‐profit activity] for the taxable
2 No. 15‐3396
year exceeds the deductions.” 26 U.S.C. § 183(a), (b)(2). The
activities governed by section 183 are usually referred to as
“hobbies,” and the provisions we’ve just quoted allow hob‐
by expenses to be deducted from hobby profits but not from
any other income that the taxpayer may have.
A provision specific to horse racing states that “in the
case of an activity which consists in major part of the breed‐
ing, training, showing, or racing of horses,” “if the gross in‐
come derived from an activity for [2] or more of the taxable
years in the period of [7] consecutive taxable years which
ends with the taxable year exceeds the deductions attributa‐
ble to such activity (determined without regard to whether
or not such activity is engaged in for profit), then … such ac‐
tivity shall be presumed … for such taxable year to be an ac‐
tivity engaged in for profit.” 26 U.S.C. § 183(d). But this pre‐
sumption does not figure in the present case because the
taxpayer’s horse‐racing operation yielded no profits in any
of the four years covered by the trial record, or, so far as ap‐
pears, in any preceding years (except very small profits in
1999).
In 2014 the Tax Court held that the taxpayer, petitioner
Merrill Roberts, had deducted the expenses of his horse‐
racing enterprise on his federal income tax returns for 2005
and 2006 erroneously because the enterprise was a hobby
rather than a business. The court assessed tax deficiencies of
$89,710 for 2005 and $116,475 for 2006. But it also ruled that
his business had ceased to be a hobby, and had become a
bona fide business, in 2007, and the Internal Revenue Service
has not challenged Roberts’ bona fides since, as far as we
know. Though now in his seventies, he continues to operate
No. 15‐3396 3
his horse‐racing business. His appeal challenges the assess‐
ments for 2005 and 2006.
From 1969, when he was about 28, to the mid‐1990s,
Roberts, who is a Hoosier, grew to be a successful owner and
operator of restaurants, bars, and nightclubs in Indianapolis.
He began withdrawing from the business in the mid‐1990s,
though he remained a paid consultant to the new owners. In
1998 or 1999 a thoroughbred racehorse association invited
him to a dinner and to a tour of a race track facility, trying to
interest him in entering the horse‐racing business. His inter‐
est aroused, in 1999 he bought his first two horses, for $1000
each, and in the first year netted $18,000 in earnings from
racing them. He also built a horse track on land that he
owned in Indianapolis. Two years later his stock of racing
horses had increased to 10 and he also had acquired a breed‐
ing stallion. The following year he passed the state’s li‐
censed‐trainer test (a test described as “rigorous” by the Tax
Court) and obtained his horse‐training license.
In 2005 he decided to build a bigger and better horse‐
training facility on his land. But encountering opposition
from the City of Indianapolis, he abandoned that idea and
instead in the following year bought a much larger (180‐
acre) tract of land called the “Mooresville property” for
about $1 million. Between the acquisition of the new land
and the end of the year he invested between $500,000 and
$600,000 in improvements for the training of racehorses on
his property. He trained the horses himself (remember that
he’d become a licensed horse trainer)—he even bathed them
himself. He stated without contradiction that he spent 12
hours a day working with the horses on race days and about
8 hours a day on other days. He was also involved (though
4 No. 15‐3396
peripherally) in lobbying the Indiana legislature on behalf of
horse racing. The goal of the lobbying, achieved in 2007, was
legislation that would permit slot machines at racetracks.
Because part of the revenue generated by the slot machines
would be added to the purse money (the money received by
owners of horses that win races), Roberts could expect to
benefit financially from the advent of the slot machines. In
the same period he served on the boards of two professional
horse‐racing associations in what the Tax Court’s opinion
describes as “leadership roles.”
Roberts’ horse‐racing activities, which included board‐
ing, breeding, training, and racing horses—racing them not
only in Indiana but also in other states, particularly Ken‐
tucky—were not profitable in the two‐year period that is the
focus of his appeal. In 2005 his expenses exceeded his earn‐
ings by $153,420. The loss declined to $30,604 in 2006 but in‐
creased to $98,251 in 2007 and to $291,888 in 2008—though
it’s important to bear in mind that 2007 and 2008 are not in‐
volved in the appeal. He deducted the losses on his tax re‐
turns from his other income, mainly income from consulting
in the restaurant business and from renting and selling real
estate.
The record ends in 2008, when Roberts had a considera‐
ble loss owing to his horses’ being quarantined for much of
the race season. Apparently the Internal Revenue Service has
challenged no deductions of expenses of his horse‐racing
business that Roberts began taking in 2007.
The Tax Court’s ruling that Roberts’ horse‐racing enter‐
prise was a hobby in 2005 and 2006 but became a business in
2007 and remained so in 2008, and apparently has been one
in every year since given the IRS’s failure to challenge his
No. 15‐3396 5
horse‐racing deductions for any year since 2008, is untena‐
ble; it amounts to saying that a business’s start‐up costs are
not deductible business expenses—that every business starts
as a hobby and becomes a business only when it achieves a
certain level of profitability. Yet Roberts’ 2007 “business”
(conceded to be such by the Tax Court) did not begin that
year, but rather evolved from his decision in 2005 to build a
larger training facility and his attempt to do so on his exist‐
ing property (which however the City of Indianapolis pre‐
vented); the large land purchase that he had made in 2006;
and the improvements (enabled by the purchase) in his
horse‐training facility that he had made that year. The Tax
Court’s finding that his land purchase and improvements
were irrelevant to the issue of profit motive until he began
using the new facilities is unsupported and an offense to
common sense. He intended the land and improvements for
his horse‐racing business, and intent to make a profit is what
makes an activity a business. The fact that he became in‐
volved in horse racing because he was greatly reducing his
involvement in his original business (thus signaling a career
change), and the further fact that he assisted in lobbying de‐
signed to increase the profitability of horse racing, also con‐
tradict the hobby hypothesis.
The Tax Court acknowledged that “the startup phase and
unforeseen expenses balance the history of large losses, and
[therefore that] this factor [the losses] is neutral for all tax
years in issue,” and that “by tax year 2005 petitioner devoted
time and effort appropriate to demonstrate a profit objective
for all the tax years in issue” (emphasis added). We cannot
square these statements with the court’s decision. For imag‐
ine a person who wants to profit from being a landlord but
must take two years to acquire land and build the building.
6 No. 15‐3396
No one would say that his rental business was a “hobby” for
the first two years because no tenant could move in and as a
result he could obtain no income and thus no profit until
year three. But that’s what the Tax Court ruled in this case.
Remarkably in light of its ultimate ruling, the court said
that “petitioner did not purchase the [Mooresville] property
[in 2006] to have a place to enjoy the golden years of his re‐
tirement but instead purchased the property to run a busi‐
ness” (emphasis added). Inconsistently the opinion later
states that “petitioner’s profit objective was first shown in
2007 when he began operating his horse‐related activities at
the Mooresville property.” The judge seems not to have un‐
derstood that the decision to build the facility, and its con‐
struction, are also indications of a profit motive.
Further undermining its conclusion, the court remarked
that the “petitioner knew that prize purses were increasing
in Indiana. In other words, the ultimate profit potential
would significantly increase. Further, one of petitioner’s
horses was nominated to run in the Triple Crown Races,
showing that his horses have the potential to race at a very
high level and possibly earn significant profits. Accordingly,
petitioner’s expectation of future profits was consistent with
the existence of a profit objective for all the tax years in issue”
(emphasis added; footnote omitted). This was the same point
the court had made in a passage we quoted earlier (though
the court might have qualified it by noting that if prize purs‐
es were increasing, this might attract more competition in
horse racing, which might lower profits). “All the tax years
in issue” include of course 2005 and 2006.
We mustn’t be too hard on the Tax Court. It felt itself im‐
prisoned by a goofy regulation (26 C.F.R. § 1.183–2, Treas.
No. 15‐3396 7
Reg. § 1.183–2: Activity Not Engaged in for Profit Defined;
see, e.g., Faulconer v. Commissioner, 748 F.2d 890 (4th Cir.
1984)) that we feel bound to set forth in its full tedious
length:
(b) Relevant factors. In determining whether an activity
is engaged in for profit, all facts and circumstances with
respect to the activity are to be taken into account. No one
factor is determinative in making this determination. In
addition, it is not intended that only the factors described
in this paragraph are to be taken into account in making
the determination, or that a determination is to be made on
the basis that the number of factors (whether or not listed
in this paragraph) indicating a lack of profit objective ex‐
ceeds the number of factors indicating a profit objective, or
vice versa. Among the factors which should normally be
taken into account are the following:
(1) Manner in which the taxpayer carries on the activity.
The fact that the taxpayer carries on the activity in a busi‐
nesslike manner and maintains complete and accurate
books and records may indicate that the activity is en‐
gaged in for profit. Similarly, where an activity is carried
on in a manner substantially similar to other activities of
the same nature which are profitable, a profit motive may
be indicated. A change of operating methods, adoption of
new techniques or abandonment of unprofitable methods
in a manner consistent with an intent to improve profita‐
bility may also indicate a profit motive.
(2) The expertise of the taxpayer or his advisors. Prepara‐
tion for the activity by extensive study of its accepted
business, economic, and scientific practices, or consultation
with those who are expert therein, may indicate that the
taxpayer has a profit motive where the taxpayer carries on
the activity in accordance with such practices. Where a
8 No. 15‐3396
taxpayer has such preparation or procures such expert ad‐
vice, but does not carry on the activity in accordance with
such practices, a lack of intent to derive profit may be indi‐
cated unless it appears that the taxpayer is attempting to
develop new or superior techniques which may result in
profits from the activity.
(3) The time and effort expended by the taxpayer in carrying
on the activity. The fact that the taxpayer devotes much of
his personal time and effort to carrying on an activity, par‐
ticularly if the activity does not have substantial personal
or recreational aspects, may indicate an intention to derive
a profit. A taxpayer’s withdrawal from another occupation
to devote most of his energies to the activity may also be
evidence that the activity is engaged in for profit. The fact
that the taxpayer devotes a limited amount of time to an
activity does not necessarily indicate a lack of profit mo‐
tive where the taxpayer employs competent and qualified
persons to carry on such activity.
(4) Expectation that assets used in activity may appreciate in
value. The term profit encompasses appreciation in the
value of assets, such as land, used in the activity. Thus, the
taxpayer may intend to derive a profit from the operation
of the activity, and may also intend that, even if no profit
from current operations is derived, an overall profit will
result when appreciation in the value of land used in the
activity is realized since income from the activity together
with the appreciation of land will exceed expenses of op‐
eration. See, however, paragraph (d) of § 1.183–1 for defi‐
nition of an activity in this connection.
(5) The success of the taxpayer in carrying on other similar
or dissimilar activities. The fact that the taxpayer has en‐
gaged in similar activities in the past and converted them
from unprofitable to profitable enterprises may indicate
No. 15‐3396 9
that he is engaged in the present activity for profit, even
though the activity is presently unprofitable.
(6) The taxpayer’s history of income or losses with respect to
the activity. A series of losses during the initial or start‐up
stage of an activity may not necessarily be an indication
that the activity is not engaged in for profit. However,
where losses continue to be sustained beyond the period
which customarily is necessary to bring the operation to
profitable status such continued losses, if not explainable,
as due to customary business risks or reverses, may be in‐
dicative that the activity is not being engaged in for profit.
If losses are sustained because of unforeseen or fortuitous
circumstances which are beyond the control of the taxpay‐
er, such as drought, disease, fire, theft, weather damages,
other involuntary conversions, or depressed market condi‐
tions, such losses would not be an indication that the activ‐
ity is not engaged in for profit. A series of years in which
net income was realized would of course be strong evi‐
dence that the activity is engaged in for profit.
(7) The amount of occasional profits, if any, which are
earned. The amount of profits in relation to the amount of
losses incurred, and in relation to the amount of the tax‐
payer’s investment and the value of the assets used in the
activity, may provide useful criteria in determining the
taxpayer’s intent. An occasional small profit from an activ‐
ity generating large losses, or from an activity in which the
taxpayer has made a large investment, would not general‐
ly be determinative that the activity is engaged in for prof‐
it. However, substantial profit, though only occasional,
would generally be indicative that an activity is engaged in
for profit, where the investment or losses are comparative‐
ly small. Moreover, an opportunity to earn a substantial ul‐
timate profit in a highly speculative venture is ordinarily
sufficient to indicate that the activity is engaged in for
10 No. 15‐3396
profit even though losses or only occasional small profits
are actually generated.
(8) The financial status of the taxpayer. The fact that the
taxpayer does not have substantial income or capital from
sources other than the activity may indicate that an activity
is engaged in for profit. Substantial income from sources
other than the activity (particularly if the losses from the
activity generate substantial tax benefits) may indicate that
the activity is not engaged in for profit especially if there
are personal or recreational elements involved.
(9) Elements of personal pleasure or recreation. The pres‐
ence of personal motives in carrying on of an activity may
indicate that the activity is not engaged in for profit, espe‐
cially where there are recreational or personal elements in‐
volved. On the other hand, a profit motivation may be in‐
dicated where an activity lacks any appeal other than prof‐
it. It is not, however, necessary that an activity be engaged
in with the exclusive intention of deriving a profit or with
the intention of maximizing profits. For example, the
availability of other investments which would yield a
higher return, or which would be more likely to be profit‐
able, is not evidence that an activity is not engaged in for
profit. An activity will not be treated as not engaged in for
profit merely because the taxpayer has purposes or moti‐
vations other than solely to make a profit. Also, the fact
that the taxpayer derives personal pleasure from engaging
in the activity is not sufficient to cause the activity to be
classified as not engaged in for profit if the activity is in
fact engaged in for profit as evidenced by other factors
whether or not listed in this paragraph.
Notice in the introductory paragraph (the one labeled
“Relevant factors”) that “No one factor is determinative”
and that not “only the factors described in this paragraph are
No. 15‐3396 11
to be taken into account in making the determination” (em‐
phasis added) whether the taxpayer’s activity is a business
or a hobby. In other words, the test is open‐ended—which
means that the Tax Court was not actually required to apply
all of those factors to Roberts’ horse‐racing enterprise. It
could have devised its own test, with its own factors, as long
as it explained why the factors that “should normally be tak‐
en into account” were insufficient.
Notice too that the factors in the Treasury Regulation
overwhelmingly favor Roberts’ claim that even in 2005 and
2006 his horse‐racing enterprise was a business. He conduct‐
ed it in a businesslike way (factor 1). He prepared by exten‐
sive study (to obtain a training license) (factor 2). He largely
withdrew from his previous businesses in order to devote
“most of his energies” to his horse‐racing enterprise (factor
3). He expected to derive an eventual profit from the enter‐
prise, including profit in the form of appreciation of the val‐
ue of the land and buildings used in the enterprise (factor
4)—it’s not as if he were a billionaire indifferent to the mod‐
est profit that probably was all he could expect from horse
racing. Entering the restaurant business on a small scale in
his twenties, Roberts had suffered setbacks that prevented
his business from being an immediate success—indeed his
first restaurant burned down and the insurance settlement
was too small to enable him to rebuild it as a full‐service es‐
tablishment. Yet he “grew” the business to large dimensions
over time, a pattern consistent with his attempting to repeat
the process in his horse‐racing venture in 2005 and 2006 (fac‐
tor 5). “A series of losses during the initial or start‐up stage
of the activity may not necessarily be an indication that the
activity is not engaged in for profit” (factor 6)—that’s this
case, all right. A “substantial profit, though only occasional,
12 No. 15‐3396
would generally be indicative that an activity is engaged in
for profit” (factor 7). The Tax Court awarded this factor to
Roberts because he earned money from racing his first two
horses and the growth in the prize purses (owing to the slot
machines) could be expected to increase his income in the
future; that one of his horses was nominated to run in the
Triple Crown Races suggested that his horses might eventu‐
ally achieve greater success.
“The fact that the taxpayer does not have substantial in‐
come or capital from sources other than the activity may in‐
dicate that an activity is engaged in for profit” is factor 8. In
2005 and 2006 Roberts reported adjusted gross income of
$297,881 and $1,359,339 even after deducting his horse‐
racing losses, but he happened to have sold a large piece of
land in 2006, and the Tax Court found that he is “not an ex‐
cessively wealthy individual.” The court concluded that this
factor favored the IRS, but we believe the existence of other
income has little weight when many other factors indicate a
profit objective.
As for the last factor—“the availability of other invest‐
ments which would yield a higher return, or which would
be more likely to be profitable, is not evidence that an activi‐
ty is not engaged in for profit. An activity will not be treated
as not engaged in for profit merely because the taxpayer has
purposes or motivations other than solely to make a profit.
Also, the fact that the taxpayer derives personal pleasure
from engaging in the activity is not sufficient to cause the
activity to be classified as not engaged in for profit if the ac‐
tivity is in fact engaged in for profit as evidenced by other
factors whether or not listed in this paragraph.” This is sen‐
sible since obviously many businessmen derive pleasure,
No. 15‐3396 13
self‐esteem, and other nonmonetary “goods” from their
businesses, and horse racing is just the kind of business that
would generate such “goods” for participants such as the
owners and trainers (Roberts is both) of the horses.
About factor 9 the court added that “there is likely no
profit objective where the taxpayer combines horse racing
with social and recreational activities.” That is contrary to
what factor 9 says, and in addition no social or recreational
activities engaged in by Roberts are listed, let alone de‐
scribed, by the court. The court does say that “petitioner’s
involvement with the professional horse racing associations
demonstrates that he engaged in some social aspect of the
industry,” but that’s like saying that serving on a corporate
board of directors is a “social” activity.
So: nine factors—all actually either supportive of or at
least consistent with Roberts’ claim that his horse‐racing en‐
terprise even as early as 2005 was a business, not a hobby. It
may have been a fun business, but fun doesn’t convert a
business to a hobby. If it did, Facebook would be a hobby,
Microsoft and Apple would be hobbies, Amazon would be a
hobby, etc. ad infinitum.
Even the Tax Court deemed only two factors to favor the
Internal Revenue Service—8 and 9, and we’ve seen that nei‐
ther supported the court’s determination that Roberts was a
hobbyist until 2007. Numerous remarks in its opinion,
moreover, support the existence of a profit motive, as when
the court said that between 1999 and 2001—the period in
which Roberts increased his stock of horses from 2 to 10—he
was “enticed by the profit potential of racing more horses.”
Profit goes with businesses, not hobbies. The court also re‐
marked that “around the time petitioner bought the Morris
14 No. 15‐3396
Street property [where he started his horse‐racing enter‐
prise], he was contemplating a career change.” A person de‐
ciding whether to take up a hobby is not “contemplating a
career change.” A hobby is not a career.
And remember the dinner that Roberts attended at the
invitation of the thoroughbred horse‐race association? About
this event the Tax Court remarked that told by the associa‐
tion of “the potential financial gains associated with the ac‐
tivity,” Roberts “was interested in the financial prospect of
horse racing” (emphasis added). It was shortly after that that
he bought his first two horses, yet as we noted in the preced‐
ing paragraph he was “enticed by the profit potential of rac‐
ing more horses.” The court further remarked that “petition‐
er credibly testified that he spent significant effort and time
to match the right horse to the right race. He spent this time
matching each horse to a race with the expectation of making a
profit” (emphasis added).
The court careens from profit motive to pleasure motive
and back. All that emerges from the opinion and the record,
so far as bears on profit motive or the absence thereof, is that
Roberts enjoys his new career. But “a business will not be
turned into a hobby merely because the owner finds it
pleasurable; suffering has never been made a prerequisite to
deductibility. Success in business is largely obtained by
pleasurable interest therein.” Jackson v. Commissioner, 59 T.C.
312, 317 (1972).
Considering that most commercial enterprises are not
hobbies, the Tax Court would be better off if rather than
wading through the nine factors it said simply that a busi‐
ness that is in an industry known to attract hobbyists (and
horse racing is that business par excellence), and that loses
No. 15‐3396 15
large sums of money year after year that the owner of the
business deducts from a very large income that he derives
from other (and genuine) businesses or from trusts or other
conventional sources of income, is presumptively a hobby,
though before deciding for sure the court must listen to the
owner’s protestations of business motive. For an analysis
along these lines see our decision in Estate of Stuller v. United
States, 811 F.3d 890, 896–98 (7th Cir. 2016).
The Tax Court’s judgment, insofar as it upholds the defi‐
ciencies assessed against the petitioner by the Internal Reve‐
nue Service for business deductions in 2005 and 2006, is re‐
versed with instructions to void the deficiencies.
| {
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} |
611 F.Supp. 532 (1985)
A.J. CUNNINGHAM PACKING CORPORATION; Chicago Dressed Beef Co., Inc.; Continental Food Products, Inc.; and Florence Beef Company, Plaintiffs,
v.
CONGRESS FINANCIAL CORPORATION and Philadelphia National Bank, Defendants.
PIERCE TRADING COMPANY, Plaintiff,
v.
CONGRESS FINANCIAL CORPORATION and Philadelphia National Bank, Defendants.
Civ. A. Nos. 84-2061, 84-2063.
United States District Court, W.D. Pennsylvania, Civil Division.
May 28, 1985.
*533 Michael Malakoff, Michael Fishbein, John P. Curran, Philadelphia, Pa., for plaintiffs.
Eric A. Shaffer, Pittsburgh, Pa., Morton L. Gitter, New York City, for defendant Congress Financial.
Richard DiSalle, Henry J. Kupperman, Philadelphia, Pa., for defendant Philadelphia Nat. Bank.
OPINION
SIMMONS, District Judge.
I.
Plaintiffs brought these above-captioned actions against the Defendants Congress Financial Corporation and Philadelphia National Bank on August 29, 1984, alleging violations of RICO [Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.] common law deceit, and misrepresentation. Plaintiffs claim that between September, 1979, and January, 1981, Defendants made false representations to Plaintiffs concerning the financial strength and capitalization of American International Meat Importers, Inc. (AIMI), and a related company, American International Meat Co. (AIMC), which misrepresentations the Plaintiffs allege that they relied upon in selling meat to AIMI on a credit basis.
Defendants have moved for summary judgment, contending that the above-captioned cases are time-barred by the two year limitations period in Pennsylvania applicable to common law fraud. It is the Defendants' contention that by January 27, 1981, the date bankruptcy petitions were filed by AIMI, the Plaintiffs knew, or should have known, of the alleged misrepresentations regarding the financial condition of AIMI, and that the Plaintiffs thereafter had until January 27, 1983 to file a timely complaint.
Oral argument has been held on all of the motions for summary judgment, briefs have been submitted in support of the respective positions, and the matter is now ready for decision by this Court. The Defendants contend that at the relevant time, the period of limitations for common law fraud in Pennsylvania was two years; Plaintiffs, however, claim that the appropriate limitations period at the relevant time was six years. Plaintiffs concede that they were on notice of the facts giving rise to their claim for relief more than two, but less than six years before the above-captioned cases were commenced.
II.
It is uncontested that there is no specified period of limitations for cases brought under RICO, and it is likewise uncontested that in cases brought under RICO, the common law fraud action is the most analogous state cause of action appropriate to effectuate the remedial purposes of RICO. See Board of Regents v. Tomanio, 446 U.S. 478, 483-84, 100 S.Ct. 1790, 64 L.Ed.2d 440 (1980); Polite v. Diehl, 507 F.2d 119, 122 (3d Cir.1974) (en banc). Plaintiffs acknowledge that there is no dispute as to any fact material to the resolution of Defendants' motions, and the only matter to be resolved by this Court is the question of law of whether at the relevant time, the two year or six year limitations period applied to actions for common law fraud in Pennsylvania.
The Pennsylvania Supreme Court has never addressed this question of the applicable limitations period for common law fraud in Pennsylvania subsequent to the enactment of the 1976 Judicial Code, so this Court must predict how the Pennsylvania Supreme Court would decide the matter, and in so predicting, this Court must accord the decisional law of lower state courts "proper regard" but not conclusive effect. Safeco Insurance Company of *534 America v. Wetherill, 622 F.3d 685, 688 (3d Cir.1980); McKenna v. Ortho Pharmaceutical Corporation, 622 F.2d 657, 661 (3d Cir.1980).
Relevant to the consideration of the above-captioned cases are certain statutory provisions: 12 P.S. § 31, 42 Pa.C.S.A. § 5524(3), 42 Pa.C.S.A. § 5524(3) as amended, and 42 Pa.C.S.A. § 5527.
A two year limitations period is provided in 42 Pa.C.S.A. § 5524 (Purdon 1981), as follows:
The following actions and proceedings must be commenced within two years:
. . . . .
(3) An action for taking, detaining or injuring personal property, including actions for specific recovery thereof.
A six year limitations period is set forth in 42 Pa.C.S.A. § 5527 (Purdon 1981), which contains a residual provision:
The following actions and proceedings must be commenced within six years:
. . . . .
(6) Any civil action or proceeding which is neither subject to another limitation specified in this subchapter nor excluded from the application of a period of limitation by section 5531 (relating to no limitation).
These two sections, sections 5524 and 5527, were created by the Judicial Code, Act of July 9, 1976, Act No. 142, 1976 Pa.Laws 586, and became effective on June 27, 1978. However, any proceeding where the statute of limitations was reduced could be commenced within one year after the effective date of the enactment, or the period heretofore limited by statute, whichever was less. Section 25(a) and 25(b) of Act 1976, July 9, P.L. 586, No. 142. The Official Source Notes indicate that section 5524(3) was derived from 12 P.S. § 31.
Prior to the 1976 enactment of the Pennsylvania Judicial Code, the limitations period for common law fraud was six years, as set forth in 12 P.S. § 31:
§ 31. Personal actions, when to be brought.
All actions of trespass quare clausum fregit, all actions of detinue, trover and replevin, for taking away goods and cattle, all actions upon account and upon the case . . ., all actions of debt grounded upon any lending, or contract without specialty, all actions of debt, for arrearages of rent, ... and all actions of trespass, of assault, menace, battery, wounding and imprisonment ... shall be commenced and sued within the time and limitation hereafter expressed, and not after; that is to say, the said actions upon the case, other than for slander, and the said actions for account, and the said actions for trespass, debt, detinue and replevin, for goods or cattle, and the said actions of trespass quare clausum fregit ... within six years next after the cause of such actions or suit, and not after. And the said actions of trespass, of assault, menace, battery, wounding, imprisonment, or any of them, within ... two years next after the cause of such actions or suit, and not after; ....
12 P.S. § 31 (1953).
The Pennsylvania statute, 42 Pa.C.S.A. § 5524(3), which mandates a two year limitations period for actions involving "taking, detaining or injuring personal property" does not specifically mention an action for fraud, and so, if it is not included under the provisions of section 5524, an action for common law fraud would be subject to the residual limitations period expressed in 42 Pa.C.S.A. § 5527(6), which specifies that a six year limitations period is applicable.
To further complicate matters, in 1982 the Pennsylvania legislature amended 42 Pa.C.S.A. § 5524 to include the following among the actions and proceedings which must be commenced within the two year limitations period:
(7) Any other action or proceeding to recover damages for injury to person or property which is founded on negligent, intentional, or otherwise tortious conduct or any other action or proceeding sounding in trespass, including deceit or fraud,.... *535 42 Pa.C.S.A. § 5524(7) (Supp.1984-85). As amended, 1982, December 20, P.L. 1049, No. 326, Art. II, § 201, effective in 60 days.
Section 403 of the Act of December 20, 1982, provided in part that the amendment "shall apply only to causes of action which accrue after the effective date of this act." As of February 18, 1983, then, the limitations period for fraud and deceit in Pennsylvania was clearly two years.
The Pennsylvania Supreme Court has never addressed the issue of whether a two year or a six year limitations period applies during the time period between the effective date of the enactment of section 5524 (June 27, 1978) and the effective date of the 1982 amendment to section 5524 (February 18, 1983). The Superior Court of Pennsylvania in Bickell v. Stein, 291 Pa.Super.Ct. 145, 435 A.2d 610 (1981), assumed the applicability of the two year limitations period without otherwise discussing the matter. Some federal courts have held that a two year limitations period is applicable, while others have held that the limitations period is six years. See, e.g., Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir.1981); Culbreth v. Simone, 511 F.Supp. 906 (E.D.Pa. 1981) (Giles, J.); D'Iorio v. Adonizio, 554 F.Supp. 222 (M.D.Pa.1982) (Caldwell, J.); Eisenberg v. Gagnon, 564 F.Supp. 1347 (E.D.Pa.1983); Bernicker v. Pratt, 595 F.Supp. 1034 (E.D.Pa.1984) (Lord, J.), for cases applying the six year limitations period. See, e.g., Fickinger v. C.I. Planning Corporation, 556 F.Supp. 434 (E.D.Pa. 1982) (Shapiro, J.); Malley-Duff Associates, Inc. v. Crown Life Insurance Co., Civil Action Number 81-439, Memorandum Opinion (W.D.Pa. March 23, 1984) (Bloch, J.), for cases applying a two year limitations period.
III.
In Biggans v. Bache Halsey Stuart Shields, 638 F.2d 605 (3d Cir.1980), an action was brought by a customer claiming damages from a brokerage house for excessive trading of a customer's account. The United States Court of Appeals for the Third Circuit recognized the problem created by the Pennsylvania Judicial Code with respect to the limitations period for fraud, but declined to resolve it:
Under the new scheme, it is unclear whether the two-year period applicable to actions for "taking, detaining or injuring personal property . . ." id. § 5524(3) or the six-year catch-all provision, id § 5527(6), applies to an action based on common law fraud.... We need not decide that issue because it would not make a difference under the circumstances presented here. If the six-year catch-all provision applies, the limitations period is the same under both the old and new statutes. Even if the two-year statute is generally applicable to fraud actions it would be inapplicable in this case because of the operation of the transition section,....
638 F.2d at 607 n. 2.
This problem was next addressed by the Third Circuit in Sharp v. Coopers & Lybrand, 649 F.2d 175, 191-92 (3d Cir.1981), where the Court cited Biggans, supra, as authority for a six year limitations period for common law fraud. However, because the cause of action in Sharp accrued in 1973, well before the effective date established by the Pennsylvania Judicial Code, the effect of the Pennsylvania Judicial Code on the limitations period for fraud was not discussed or considered. Sharp, therefore, is of no assistance in resolving the issues presently before this Court.
In Bickell v. Stein, 291 Pa.Super.Ct. 145, 435 A.2d 610 (1981), the Superior Court of Pennsylvania simply assumed that 42 Pa.C. S.A. § 5524(3), the two year limitations period for "taking, detaining or injuring personal property" was the applicable limitations period for a cause of action based on fraud, and the Court then focused on whether in that case there were sufficient facts alleged to justify the tolling of the statutory limitations period. 291 Pa.Super. at 149-151, 435 A.2d 610.
The issue of the applicable limitations period was specifically analyzed by Judge Shapiro in Fickinger v. C.I. Planning Corporation, 556 F.Supp. 434, 438 (E.D.Pa. *536 1982). The Court made reference to the Pennsylvania Superior Court opinion of Bickell, supra, and determined that the decision in Bickell was in accord with the policy of the Pennsylvania legislature in revising the limitations period, as was evidenced by the Explanatory Memoranda of the Pennsylvania Bar Association's Special Committee on the Judicial Code, which stated:
[P]eriods applicable to conversion of or injury to personal property and waste or trespass to real property are reduced from six years to two years to conform to the modern principle that claims based on conduct, and hence heavily relying on unwritten evidence, should have relatively short statutes of limitations, so as to bring them to trial (after allowance for trial delays) before memories have faded.
556 F.Supp. at 439.
The Fickinger Court was persuaded that the limitations period for fraud in Pennsylvania was shortened from six years to two years by the enactment of 42 Pa.C.S.A. § 5524(3):
Sometimes representations alleged to have been fraudulent are written but often they are oral. Whether or not the representations themselves were in writing, proof of reliance generally depends upon the plaintiff's memory of the defendants' conduct and the reaction to such conduct. Proof of the elements of fraud may present even more problems of lapsed memory than proof of physically-manifested torts; this suggests that the Legislature intended to place fraud in the same category as such torts.
Id.
The reasoning in Fickinger was cited with approval by Judge Bloch of this district in Malley-Duff Associates, Inc. v. Crown Life Insurance Co., Civil Action Number 81-439 (W.D.Pa. March 23, 1984) (presently on appeal). On the other hand, Bernicker v. Pratt, 595 F.Supp. 1034 (E.D. Pa.1984) and Culbreth v. Simone, 511 F.Supp. 906 (E.D.Pa.1981), both discussed the limitations period for common law fraud in Pennsylvania, but concluded that the six year limitations period rather than the two period was applicable. Culbreth held that in the absence of any state law precedent or clearly manifested legislative intent, a change in the limitations period could not be presumed. Bernicker, supra, cited Fickinger but declined to follow it, accepting instead the reasoning of Judge Giles in Culbreth, supra. Although Culbreth was decided prior to the Pennsylvania Superior Court's decision in Bickell, supra, Judge Lord in Bernicker nevertheless relied on Culbreth, believing that Bickell was not a definitive and authoritative state law precedent and therefore holding:
The inclusion of fraud within the two-year statute can be done only by reliance on omission and implication. Neither the language of the Judicial Code nor its legislative history makes clear whether the legislature intended to alter the statute of limitations for actions for common law fraud, and there is no satisfactory state court decision interpreting the statute. I can only conclude that the limitations period for fraud has not been drastically reduced from six to two years.
Bernicker, 595 F.Supp. at 1037.
Of the other cases advocating the six year limitations period rather than the two year period, two of these are inapplicable. D'Iorio v. Adonizio, 554 S.Supp. 222 (M.D. Pa.1982), relied on Sharp v. Coopers & Lybrand, supra, which as this Court has already noted, did not arise under the new limitations period, contained in section 5524(3), and Eisenberg v. Gagnon, 564 F.Supp. 1347 (E.D.Pa.1983), was premised on the reasoning stated in D'Iorio.
This Court notes that on December 20, 1982, the Pennsylvania legislature amended 42 Pa.C.S.A. § 5524, to add a provision to that section which specifically included actions for deceit and fraud within the scope of the two year limitations period contained in that section, however, the causes of action in the above-captioned cases arose prior to the effective date of the 1982 amendment, so that amendment is inapplicable here. None of the cases which advocated the six year limitations period discussed or *537 took into account the effect of the 1982 amendment, or considered whether the 1982 amendment could be interpreted as indicating that the legislature intended a two year limitation period for fraud claims when it enacted the 1976 Judicial Code. Plaintiffs place strong reliance on the fact that section 5524(7) was not given retroactive effect, but was instead to take effect 60 days after its enactment, and therefore contend that the intent to make the two year limitations period applicable to common law fraud was first manifested by the Pennsylvania Legislature in 1982.
This Court is of the opinion that section 5524(7) was added to section 5524 in order to clarify that deceit and fraud are actions in trespass which are therefore subject to the two year limitations period contained in section 5524. It is significant that when the 1976 Judicial Code was enacted it became effective two years after enactment, and appropriate provisions were then made for the commencement of actions where the time for bringing suit was reduced by the 1976 enactment:
(a) Any civil action or proceeding:
(1) the time heretofore limited by statute for the commencement of which is reduced by any provision of this act; ...
. . . . .
may be commenced within one year after the effective date of this act, or within the period heretofore limited by statute, whichever is less.
Section 25(a) of Act 1976, July 9, P.L. 586, No. 142 [Emphasis added].
This indicates that in 1976 the Pennsylvania legislature intended to reduce certain limitations periods. Since no such provisions for the commencement of actions whose time for bringing suit was reduced were contained in the 1982 amendment, the statutory revisions of 1976 therefore evidence the legislative intent to reduce the period of limitations for fraud, an action in trespass, from six years to two years.
This Court believes that the Pennsylvania Supreme Court, if faced with the question, would choose the two year limitations period rather than the six year limitations period for common law fraud, and further believes that the Fickinger decision properly takes into account Bickell, supra, as well as the intent of the Pennsylvania legislature as evidenced by the language of section 5524. The 1982 amendment clearly evidences the intent of the Pennsylvania legislature to clarify the 1976 revisions to the limitations period, which 1976 revision changed the limitations period from six years to two years. Since the basis of the causes of action alleged in the instant cases are that the financial conditions of certain companies were misrepresented, and since it is uncontested that bankruptcy proceedings were filed at the end of January, 1981, Plaintiffs were put on notice of the alleged fraudulent misrepresentations by February, 1981 at the latest. Indeed, the Plaintiffs concede that they were on notice of the facts giving rise to their claim for relief more than two years before the above-captioned cases were commenced. The two year limitations period began to run in February, 1981, and these actions filed August 29, 1984 were therefore filed untimely. The motions of the Defendants for Summary Judgment will be granted, and an appropriate Order will be entered.
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Case: 13-3099 Document: 50 Page: 1 Filed: 03/18/2014
NOTE: This order is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
ZENOBIA C. ZIEGLER,
Petitioner,
v.
DEPARTMENT OF THE TREASURY,
Respondent.
______________________
2013-3099
______________________
Petition for review of the Merit Systems Protection
Board in No. DC0752110645-I-1.
______________________
ON MOTION
______________________
ORDER
Zenobia C. Ziegler moves unopposed for reinstatement
of this appeal.
This appeal was dismissed for failure to file the joint
appendix. Ziegler has now submitted the joint appendix.
Accordingly,
IT IS ORDERED THAT:
Case: 13-3099 Document: 50 Page: 2 Filed: 03/18/2014
2 ZIEGLER v. TREASURY
(1) The motion to reinstate is granted. The dismissal
order is vacated, the mandate is recalled, and appeal No.
2013-3099 is reinstated.
(2) The joint appendix submitted on January 8, 2014,
as Exhibit 1 to the motion for reinstatement may be
submitted by counsel through CM/ECF within 14 days of
the date of this order. *
FOR THE COURT
/s/ Daniel E. O’Toole
Daniel E. O’Toole
Clerk of Court
s25
*The
court notes that the joint appendix should con-
tain the official caption designating the Department of
Treasury as the respondent.
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629 S.W.2d 940 (1982)
Thomas Connor NOLAN, II, Appellant,
v.
The STATE of Texas, Appellee.
No. 67665.
Court of Criminal Appeals of Texas, Panel No. 2.
March 10, 1982.
Rehearing Denied April 14, 1982.
*941 Michael C. Barrett, Dallas, for appellant.
Henry Wade, Dist. Atty. & Deborah E. Farris & Richard Worthy, Asst. Dist. Attys., Dallas, Robert Huttash, State's Atty., Austin, for the State.
Before ONION, P.J., and TOM G. DAVIS and CLINTON, JJ., concur.
OPINION
CLINTON, Judge.
This is a credit card abuse case. V.T.C.A. Penal Code, § 32.31(b)(1)(B).[1] Convicted on his plea of guilty and judicial confession, which is a mirror image of the allegations made in the indictment, appellant now contends that the judgment should be reversed on one or more of five grounds of error that contend for one reason or another the trial court erred in overruling his motion to quash the indictment. Finding no error in any of that, we will affirm the judgment.
Tracking the statutory language made applicable by what we must presume are facts of the matter,[2] the indictment alleges that on a given date appellant
"... did unlawfully, knowingly and intentionally with intent to fraudulently obtain property, namely: produce ... from Kathy Pittman, the owner of said property, present to Kathy Pittman and thereby use a Bank Americard credit card number XXXX-XXX-XXX-XXX with knowledge that such credit card had been revoked and cancelled..."
Beginning August 15, 1980, there are docket sheet entries resetting the case successively for "Guilty Plea" until September 26, 1980. On that day appellant filed his motion to quash which predicates the grounds of error presented in his appellate brief.[3] From the "Statement of Facts Plea *942 of Guilty" we learn that appellant presented his motion to the trial court from the following reported exchange that precedes all else transcribed by the court reporter, viz:
"THE COURT: Is there any argument on the Motion to Quash?[4]
[DEFENSE]: No, sir.
THE COURT: The Court will overrule or deny the Motion to Quash."
The court then called the case for trial and both sides announced ready. Appellant waived arraignment, was admonished fully and particularly with reference a plea bargain agreement[5] and entered his plea of guilty; the State offered and without objection the court admitted appellant's written judicial confession.[6] The trial court found appellant guilty as charged and assessed his punishment precisely in terms of the plea bargain agreement.
In these circumstances we are impelled by Craven v. State, 613 S.W.2d 488 (Tex.Cr.App.1981) to overrule the first four grounds of error, for "the record before us will not shed any light on the ultimate issue of prejudice to substantial rights of appellant, though there be error in denying the motion to quash," id., at 490; Article 21.19, V.A.C.C.P.[7]
The fifth ground of error, however, challenges the indictment on a matter of substance, and that must be addressed. It is asserted that the statutory language on which the indictment is based is "unconstitutionally vague and ambiguous in that it does not sufficiently define the terms `presents or uses'," thereby making it impossible for one to determine whether what is denounced is presenting and using a revoked or cancelled credit card "for the purpose of payment or for the purpose of identification in connection with the issuance of a sight draft or check or for any other purpose."[8]
For its part, the State correctly points out that a statute will not be found vague and indefinite merely because the words or phrases are not specially defined, citing Koah v. State, 604 S.W.2d 156, 162 (Tex.Cr. App.1980), and then argues that it is enough that statutory language "can be measured by common understanding and practices, or construed in sense generally understood." A section of the Code Construction Act, which we are enjoined by V.T.C.A. Penal Code, § 1.05(b) to apply, is to that effect, Article 5429b-2, § 2.01, V.A. C.S., and we are also to consider certain presumptions prescribed by id., § 3.01[9] and the matters enumerated in id., § 3.03.[10]
Practically all principles for measuring whether a statutory provision is void for vagueness are collected in Papachristou v. City of Jacksonville, 405 U.S. 156, 92 S.Ct. 839, 31 L.Ed.2d 110 (1972). Their essence is that when persons of ordinary intelligence must necessarily guess at its meaning and differ as to its application, a statutory provision is so flawed that it grants unfettered discretion to law enforcement officers. Howard v. State, 617 S.W.2d 191, 192 (Tex. Cr.App.1979). Applying the pertinent guidelines in the Code Construction Act, supra, we find the statutory provision is not impermissibly vague.
*943 The vice § 32.31(b)(1)(B) aims to eradicate is offending conduct in the nature of theft. See Practice Commentary following § 32.31. Its essence is scienter: "intent to obtain property ... fraudulently ... with knowledge that the [credit] card ... has been revoked or cancelled." The "bodily movement" of such a person who "presents or uses" a revoked or cancelled credit card is an act, V.T.C.A. Penal Code, § 1.07(a)(1),[11] which completes the offense. In this context there is nothing vague or ambiguous in stating the act that is an element of the offense in terms of "presents or uses," for they are words of such common usage that the simple act of presenting or using may be clearly understood.
Appellant's contention looks behind the act to find uncertainty in what he calls its "purpose." Though "purpose" is not an element of an offense identified by id., § 1.07(a)(13),[12] as a possible ingredient of an element, "purpose" is included in the scienter prescriptions pointed out above. Thus, under id., § 6.03(a) one acts with intent when it is his "conscious objective" to engage in the conduct or cause the result, and under § 6.03(b) one acts with knowledge when he is aware that his conduct is "reasonably certain" to cause the result. So, when the statute proscribes presenting or using a credit card with intent to obtain property fraudulently by one who knows the card has been revoked or cancelled there is nothing uncertain about the "purpose" for which the act is done.
Accordingly, we hold that the part of § 32.31(b)(1)(B) implicated here is not void for vagueness. The fifth ground of error is overruled.
The judgment of conviction is affirmed.
NOTES
[1] As pertinent to the indictment, appellant's written judicial confession and his grounds of error, the statute denounces the conduct of one who "with intent to obtain property ... fraudulently... presents or uses a credit card with knowledge that the card ... has been revoked or cancelled." A "credit card" is "an identification card ... or any other device authorizing a designated person or bearer to obtain property or services on credit," id., § 32.31(a)(2).
[2] The facts of the matter were not developed otherwise than through appellant's written judicial confession. The only transcription of the notes of the court reporter in the record before us is entitled "Statement of Facts Plea of Guilty."
[3] The first four grounds of error assail the indictment for failing to set forth an offense in plain and intelligible words in that it does not allege in what manner the Bank Americard was "presented" and "used," in that it does not sufficiently explain what is intended so as to enable him to ascertain with particularity what offense is charged in order to permit him to defend himself, in that the offense is charged inferentially and by implication and in that it does not meet the constitutional requirement of Article I, § 10 that an accused be given notice of the nature and cause of the accusation against him. The fifth ground of error contends that the statutory provision underlying the allegations of the indictment is unconstitutional in that it does not sufficiently define the terms "presents or uses."
[4] All emphasis is supplied throughout by the writer of this opinion unless otherwise indicated.
[5] The bargain had been reduced to writing, was executed and is in the record.
[6] Omitting the conclusionary adverb "unlawfully," the written judicial confession sworn and subscribed to by appellant follows the indictment verbatim.
[7] The legislative admonition is that an indictment "shall not be held insufficient, nor shall the trial, judgment or other proceedings thereon be affected, by reason of any defect of form which does not prejudice the substantial rights of the defendant."
[8] Emphasis by appellant.
[9] Such as "a just and reasonable result" and "a result feasible of execution" are intended.
[10] One is the "object sought to be attained" and another is "consequences of a particular construction."
[11] "(1) `Act' means a bodily movement ... and includes speech."
[12] The elements of an offense are:
"(A) the forbidden conduct;
(B) the required culpability;
(C) any required result; and
(D) the negation of any exception to the offense."
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569 F.Supp. 821 (1983)
Guy R. WILLIS, Plaintiff,
v.
SHEARSON/AMERICAN EXPRESS, INC., Defendant.
No. C 83-640-D.
United States District Court, M.D. North Carolina, Durham Division.
August 31, 1983.
*822 James B. Maxwell and Mark R. Morano, of Maxwell, Freeman, Beason & Morano, Durham, N.C., for plaintiff.
Everett J. Bowman and John R. Wester, of Fleming, Robinson, Bradshaw & Hinson, Charlotte, N.C., Peterson, Young, Self & Asselin, Atlanta, Ga., for defendant.
MEMORANDUM OPINION AND ORDER
HIRAM H. WARD, Chief Judge.
This matter came before the Court on defendant's Motion to Stay Proceedings Pending Arbitration or To Dismiss (July 19, 1983). Defendant asserts that a stay is appropriate under section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, because plaintiff's claims arise out of or relate to a brokerage account subject to a contractual agreement between the parties to arbitrate any such controversies. Plaintiff resists the motion on the grounds that the arbitration agreement does not include his claims of fraud, fraud in the inducement, and breach of fiduciary duty and his prayer for punitive damages. The Court concludes that sections 2 and 3 of the Federal Arbitration Act compel granting defendant's motion to stay.
In his Complaint, removed from state court on July 13, 1983, plaintiff alleged that he invested funds in July, 1982, in an account managed by the defendant as a result of assurances by defendant's agents of the account's safety, that in September, 1982, he became concerned about the economic health of his account and made inquiries with the defendant about the account's status, that the defendant's agents caused him to believe his account's status was satisfactory, and that later, in November, 1982, when he received an account performance chart, he learned of very substantial losses in his account, at which time it was too late to avoid the losses. Plaintiff has not alleged that defendant fraudulently induced him to agree to the arbitration clause found at paragraph 13 of the Customers Agreement (Motion to Stay Proceedings Pending Arbitration or to Dismiss, Exhibit A). Plaintiff signed the agreement. Paragraph 13 provides:
This agreement shall inure to the benefit of your successors and assigns, shall be binding on the undersigned, my heirs, executors, administrators and assigns, and shall be governed by the laws of the State of New York. Unless unenforceable due to federal or state law, any controversy *823 arising out of or relating to my accounts, the transactions with you or me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the National Association of Securities Dealers, Inc. or the Boards of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange, Inc. as I may elect. If I do not make such election by registered mail addressed to you at your main office within 5 days after demand by you that I make such election, then you may make such election. Judgement upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.
Section 2 of the Federal Arbitration Act provides that "[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Section 3 compels "a federal court in which suit has been brought `upon any issue referable to arbitration under an agreement in writing for such arbitration' to stay the court action pending arbitration once it is satisfied that the issue is arbitrable under the agreement." Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 400, 87 S.Ct. 1801, 1804, 18 L.Ed.2d 1270, 1275 (1967). Hence, before the federal act becomes applicable to a controversy the Court must be satisfied that there is a written agreement providing for arbitration of the agreement and that the contract containing the arbitration provision evidences a transaction involving interstate commerce. American Home Assurance Co. v. Vecco Concrete Construction Co., 629 F.2d 961, 963 (4th Cir.1980).
Plaintiff did not raise an issue whether the parties' contract is one evidencing a transaction in interstate commerce. Nevertheless, the interstate character of the contract is evident. This is a diversity action between a resident plaintiff and a foreign securities broker. See Corey v. New York Stock Exchange, 493 F.Supp. 51 (W.D.Mich. 1980), aff'd, 691 F.2d 1205 (6th Cir.1982) (action involving sale of securities).
The arbitration provision found at paragraph 13 covers the issues raised by the Complaint. The provision is extraordinarily broad as to the matters subject to arbitration. It covers "any controversy arising out of or relating to ..." the account. (Emphasis added). Furthermore, the provision cannot reasonably be restricted solely to breach of contract questions since by its terms it covers any controversy arising out of or relating to the account agreement "or the breach thereof ...." In any event, the law is quite clear that "under the Federal Arbitration Act ... arbitration clauses should be read broadly and arbitration should not be denied in the absence of clear and express exclusions." Spring Hope Rockwool, Inc. v. Industrial Clean Air, Inc., 504 F.Supp. 1385, 1387 (E.D.N.C.1981); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., ___ U.S. ___, ___, 103 S.Ct. 927, 941, 74 L.Ed.2d 765, 785 (1983).
Plaintiff pointed out that the account agreement provides at paragraph 13 that it "shall be governed by the laws of the State of New York" and cited authority that under New York law arbitrators cannot award punitive damages even if agreed upon by the parties. Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 353 N.E.2d 793, 386 N.Y.S.2d 831 (1976). Based upon these two facts and the fact that he seeks punitive damages, plaintiff contends that arbitration is not proper.
The Garrity case dealt only with the powers of arbitrators under state law. The court did not address their powers, if any, under federal law. Federal law, the Federal Arbitration Act, applies to the arbitration provision in the parties' account agreement since that agreement is a written contract evidencing a transaction in interstate commerce. Although the parties to a contract can agree that a certain state's law will govern the resolution of issues submitted to arbitration (i.e., plaintiff's entitlement to punitive damages, assuming *824 New York law applies), federal law governs the categories of claims subject to arbitration. Supak & Sons Manufacturing Co. v. Pervel Industries, Inc., 593 F.2d 135, 137 (4th Cir.1979); Becker Autoradio USA, Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir.1978). Federal law controls resolution of issues concerning the arbitration provision's interpretation, construction, validity, revocability, and enforceability. If an issue is arbitrable under federal law, it remains so despite contrary state law. When faced with an application for a stay, a federal court may only determine issues relating to the making and performance of the arbitration agreement. Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. at 404, 87 S.Ct. at 1806, 18 L.Ed.2d at 1277. The Supreme Court in Prima Paint stated that granting a stay in the face of contrary state law does not violate the Erie doctrine, since Congress had authority to empower federal courts to grant stays when the conditions of sections 2 and 3 of the Federal Arbitration Act are met pursuant to the Commerce Clause. The fact that this case was removed from a state court does not change this result. Stokes v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 523 F.2d 433 (6th Cir.1975); 9 U.S.C. §§ 2 & 3.
Defendant's motion acknowledges that plaintiff's "alleged claims clearly arise out of or relate to his account ...." Brief in Support of Motion to Stay Proceedings Pending Arbitration or to Dismiss at 2 (August 2, 1983). The Court agrees that the broad arbitration provision includes claims for punitive damages. Hence, the parties by their contract have authorized any arbitrator who may hear this matter to award punitive damages. See Totem Marine Tug & Barge, Inc. v. North American Towing, Inc., 607 F.2d 649, 651 (5th Cir.1979) (arbitrators derive their authority from the scope of the contractual agreement); Lundgren v. Freeman, 307 F.2d 104, 109-110 (9th Cir.1962) (scope of arbitrator's authority rests on the parties' agreement); International Union of Operating Engineers v. Mid-Valley, Inc., 347 F.Supp. 1104 (S.D.Tex. 1972) (scope of authority extended solely to determine if breach of contract had occurred and not to award exemplary damages). The Court perceives no public policy reason persuasive enough to justify prohibiting arbitrators from resolving issues of punitive damages submitted by the parties. Concluding that arbitrators may determine such issues comports with the principle that under the federal act "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration ...." Moses H. Cone Memorial Hospital v. Mercury Construction Co., ___ U.S. at ___, 103 S.Ct. at 941, 74 L.Ed.2d at 785.
Plaintiff contends that the arbitration clause does not apply here because he has alleged fraud in the inducement to enter into the account agreement. The Supreme Court rejected this contention in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270, holding that a general attack on a contract for fraud is to be decided under the applicable arbitration provision as a severable part of the contract. The court should adjudicate claims of fraud in the inducement to agree to the arbitration provision, a claim plaintiff did not raise.[1]
Plaintiff's contention that claims of fraud and breach of fiduciary duty are not proper subjects for arbitration is unpersuasive for reasons previously indicated. The broad language in the parties' arbitration agreement strikingly resembles the language in the provision at issue in the Prima Paint case where the Supreme Court stated that the provision covered a claim of fraud. See Acevedo Maldonado v. PPG Industries, Inc., 514 F.2d 614, 616 (1st Cir.1975) (considering the arbitration provision's broad language, it is immaterial whether claims are in contract or tort); Dorton v. Collins & Aikman *825 Corp., 453 F.2d 1161, 1170 (6th Cir.1972) (stay appropriate even if action is for fraud); Merritt-Chapman & Scott Corp. v. Pennsylvania Turnpike Commission, 387 F.2d 768, 770 (3d Cir.1967) (claims of fraud and negligence are not outside scope of clause). Plaintiff's claims are clearly "related to" the account agreement. Without the agreement there could hardly exist a fiduciary relationship. Cf. Mediterranean Enterprises, Inc. v. Ssangyong, 708 F.2d 1458 (9th Cir.1983) ("arising hereunder" language in arbitration clause covers claim of breach of fiduciary duty).
Arbitration will provide plaintiff with a forum for his claims. More than likely, resolution of his claims in that forum will be speedier and less expensive than in a judicial proceeding. If plaintiff fears not getting a fair hearing before an arbitrator, then, if experience sustains this fear, he will have a chance to present that fact in court. Bear v. Hayden, Stone, Inc., 526 F.2d 734, 736 (9th Cir.1975); 9 U.S.C. § 10.
IT IS, THEREFORE, ORDERED that defendant's motion to stay be, and the same hereby is, GRANTED and that this action be, and the same hereby is, STAYED PENDING ARBITRATION.
The parties shall advise the Court of the resolution of any arbitration proceeding in this matter.
NOTES
[1] Cases cited by plaintiff to support his contention are totally inapposite. Both Murphy v. Morris, 12 N.J.Super. 544, 80 A.2d 128 (1951) and George Engine Co. v. Southern Shipbuilding Corp., 350 So.2d 881 (La.1977) concerned the effect of state law only. Indeed, in the latter case the state court commented on the variance between its holding and the federal law announced in Prima Paint.
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"pile_set_name": "FreeLaw"
} |
552 F.2d 402
47 A.L.R.Fed. 559, Fed. Sec. L. Rep. P 95,900
Susan TANNENBAUM, Plaintiff-Appellant,v.Robert G. ZELLER et al., Defendants-Appellees.
No. 576, Docket 75-7503.
United States Court of Appeals,Second Circuit.
Argued Feb. 9, 1976.Finally Submitted May 20, 1976.Decided March 4, 1977.
1
Leonard I. Schreiber, New York City (Abraham J. Brill, New York City, of counsel), for Susan Tannenbaum.
2
Marvin Schwartz, New York City (Mark I. Fishman and Sullivan & Cromwell, New York City, of counsel), for F. Eberstadt & Co., Inc., F. Eberstadt & Co., Managers and Distributors, Inc., and Robert G. Zeller.
3
Robert D. Mercurio, New York City (E. Roger Frisch, and Walsh & Frisch, New York City, of counsel), for Chemical Fund, Inc.
4
Harvey L. Pitt, Gen. Counsel, Paul Gonson, Associate Gen. Counsel, Jacob H. Stillman, Asst. Gen. Counsel, Edward A. Scallet, Atty., SEC, Washington, D. C., for Securities and Exchange Commission, amicus curiae.*
5
Before LUMBARD and TIMBERS, Circuit Judges, and BRYAN, District Judge.**
FREDERICK van PELT BRYAN, District Judge:
6
The plaintiff in this derivative action is a shareholder of Chemical Fund Inc., a mutual fund (the Fund). She sued on behalf of the Fund against the Fund's investment adviser, F. Eberstadt & Co., Managers and Distributors, Inc., its parent company, F. Eberstadt & Co., Inc., and Robert G. Zeller, a principal of the Fund, its investment adviser, and the parent company, for alleged unlawful failure to recapture portfolio brokerage commissions for the benefit of the Fund and for alleged inadequate disclosure of the Fund's brokerage practices to Fund shareholders.
7
After trial without a jury before Judge Robert L. Carter in the Southern District of New York on the question of liability only, judgment was entered dismissing the complaint. Judge Carter's opinion below is reported at 399 F.Supp. 945 (S.D.N.Y.1975). Plaintiff appeals from that judgment.
8
The appeal presents troublesome questions concerning the duties of investment advisers and directors of mutual funds with respect to recapture of portfolio brokerage commissions for the benefit of the fund. The applicable legal principles were largely laid down by this court in Judge Friendly's comprehensive opinion in Fogel v. Chestnutt, 533 F.2d 731 (2d Cir. 1975), cert. denied, 429 U.S. 824, 97 S.Ct. 77, 50 L.Ed.2d 86, 45 U.S.L.W. 3250 (1976), which approved with some qualifications the holdings of the First Circuit in Moses v. Burgin, 445 F.2d 369 (1st Cir.), cert. denied, 404 U.S. 994, 92 S.Ct. 532, 30 L.Ed.2d 537 (1971), the only previous court of appeals decision dealing with the recapture problem. A basic question here is whether application of the Fogel and Moses principles to the facts in the case at bar requires reversal of the dismissal of the complaint by the court below.
9
The essential questions which we find presented and our rulings thereon are as follows:
10
(A) Did the manager and interested Fund directors have a duty to recapture excess commissions for the benefit of the Fund either under the Fund's charter or under the various agreements between the Fund and the adviser?
11
We hold they did not.
12
(B) Did the manager and interested directors violate their duty of disclosure to the independent directors under Moses and Fogel ?
13
We hold they did not.
14
(C) Did failure to recapture violate section 36 of the Investment Company Act of 1940?
15
We hold it did not.
16
(D) Did the proxy statements for the years 1967-1971 violate the disclosure provisions of the federal securities laws?
17
We hold they did and remand for determination of what damages, if any, were caused by such violations.
I.
18
At the outset, a review of the background of the recapture problem in the mutual fund industry is in order. Since Judge Friendly's opinion in Fogel, and the authorities there cited,1 cover this subject in considerable detail, the discussion here will be limited to what is essential for an understanding of the problems presented in this case.
19
The mutual fund industry is in many ways unique, which in part explains the specific federal regulatory legislation concerning it. See, e. g., Investment Company Act of 1940, 15 U.S.C. § 80a-1, et seq.; Investment Advisers Act of 1940, 15 U.S.C. § 80b-1, et seq. A mutual fund is a "mere shell," a pool of assets consisting mostly of portfolio securities that belongs to the individual investors holding shares in the fund. The management of this asset pool is largely in the hands of an investment adviser, an independent entity which generally organizes the fund and provides it with investment advice, management services, and office space and staff. The adviser either selects or recommends the fund's investments and rate of portfolio turnover, and operates or supervises most of the other phases of the fund's business. The adviser's compensation for these services is a fee which is usually calculated as a percentage of the fund's net assets, and thus fluctuates with the value of the fund's portfolio. Portfolio transactions are carried out by brokers selected by the adviser, who receive commissions at the regular rates therefor. The sale of fund shares to new investors is generally the responsibility of a "principal underwriter" who is usually the adviser itself or a close affiliate. Actual sales are made by brokers or dealers selected by the underwriter, and the sales charge or "load" is divided between the selling broker or dealer and the underwriter.2
20
This management structure contrasts sharply with that of a typical corporation. In the usual corporate situation, the interests of management and shareholders are identical on most matters. Since the officers who run the corporation are paid directly by the corporation and usually have a substantial equity investment in it, they devote themselves to profit maximization and thus act in the best interests of both the corporation and themselves. Control of a mutual fund, however, lies largely in the hands of the investment adviser, an external business entity whose primary interest is undeniably the maximization of its own profits.
21
While the management and shareholders of a mutual fund have certain parallel interests (such as improving the quality of investment performance by increasing the value of the fund's portfolio and thus raising both the value of fund shares and the investment adviser's fee), there are important areas in which their interests may conflict. These include the level of management fees and sales charges, and various aspects of portfolio transactions. Mundheim, Some Thoughts on the Duties and Responsibilities of Unaffiliated Directors of Mutual Funds, 115 U.Pa.L.Rev. 1058, 1059-60 (1967). The situation caused by this unique mutual fund structure was serious enough to prompt the observation by the First Circuit that "self-dealing is not the exception but, so far as management is concerned, the order of the day." Moses v. Burgin, supra, at 376. See Galfand v. Chestnutt Corp., 545 F.2d 807, 808 (2d Cir. 1976).
22
Congress sought to minimize the possibilities of abuse of position by mutual fund managers by means of the Investment Company Act of 1940, 15 U.S.C. § 80a-1, et seq. This statute expanded the disclosure provisions already applicable to the industry under the Securities Act of 1933, 15 U.S.C. § 77a, et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq., and imposed specific requirements as to the structure and operation of mutual funds. See Comment, Mutual Funds and Independent Directors: Can Moses Lead to Better Business Judgment?, 1972 Duke L.J. 429, 433-35. Thus what was then section 10 of the Investment Company Act of 1940, 54 Stat. 806, required that at least 40 percent of a mutual fund's board of directors not be officers or employees of the investment company or "affiliated" with its investment adviser. This key provision was designed to place the unaffiliated directors in the role of "independent watchdogs" who would assure that, in accordance with the preamble of the Investment Company Act, mutual funds would operate in the interest of all classes of their securities holders, rather than for the benefit of investment advisers, directors, or other special groups. The Act also placed specific restrictions on insider transactions, 15 U.S.C. § 80a-17, and required that the contracts governing the relationship between a fund and its investment adviser be approved by investors and reexamined periodically, 15 U.S.C. § 80a-15(a).3
23
While the 1940 Acts succeeded in correcting a number of obvious abuses which had been prevalent in the mutual fund industry prior to their enactment, it became apparent in the early 1960's that problems still remained. Believing that the existing regulatory scheme then relying on "unaffiliated" directors to police the industry had proved inadequate, the SEC set in motion a series of developments which raised for the first time the question of the recapture of portfolio brokerage commissions for the benefit of the fund, and eventually culminated in the Securities Act Amendments of 1975.
24
In Fogel, Judge Friendly summarized the origins of the recapture controversy:
25
At the root of the recapture problem was the historic practice of the New York Stock Exchange (NYSE) and other exchanges of charging a fixed rate of commission on each share traded regardless of the size of the transaction (except for the odd-lot differential). Since the costs of executing an order do not vary in accordance with size, the large sales and purchases at the command of investment advisers of mutual funds were particularly attractive orders. At first fund managers allocated their brokerage business to reward brokers who had been helpful in selling the fund's shares, in furnishing advice, or in doing both; orders allocated as rewards were known as "reciprocals." However, as the business grew, the practice of reciprocals resulted, especially for the large funds, in using too many brokers, some of whom were not the best qualified to execute the particular order placed with them. Hence there developed the practice of relying on a few executing brokers who were then instructed to "give-up" a portion of their commissions, sometimes as much as 75%, to another broker whom the fund manager wished to reward. On NYSE this was permitted only in favor of another member, but six of the seven regional exchanges permitted "give-ups" in favor of non-members as well, provided they were members of the National Association of Securities Dealers, Inc. (NASD).
26
533 F.2d at 735 (footnote omitted).
27
The proper use of the "excess" portion of brokerage commissions that over and above what a broker would charge for his execution services were it not for the exchanges' fixed rates of commission soon became a central question. Judge Friendly notes SEC awareness of the issue as early as 1963 when it issued its Report of the Special Study of Securities Markets, H.R.Doc.No.95 Pt. 4, 88th Cong., 1st Sess. (1963). The SEC there concluded:
28
1. The pattern of reciprocal business in the mutual fund industry is unique. The economies of the volume of securities transactions generated by the mass purchasing power of the funds for the most part are of minor benefit to the funds themselves. The primary beneficiaries are their investment advisers and their frequently related principal underwriters who to a large extent use reciprocity to reward the sales efforts of fund retailers, thereby increasing their own rewards. The use by fund advisers of investment advice and research provided by brokerage firms in return for fund brokerage, without diminution of their investment advisory fees, is another indication of the manner in which they are the primary beneficiaries of reciprocal business. This unbalanced reciprocal structure is a direct outgrowth of a minimum commission rate structure which prohibits volume discounts and rebates. In the broad study of the commission rate structure recommended to the Commission in chapter VI-I, appropriate consideration should be given to the desirability and appropriate form of a volume discount from the viewpoint of mutual funds.
29
Id. at 234, quoted in Fogel, supra, at 735-36.
30
The SEC's first explicit pronouncement on the subject of recapturing excess brokerage commissions came in late 1966, in its Report on the Public Policy Implications of Investment Company Growth (PPI), H.R.Rep.No.2337, 89th Cong., 2d Sess. (1966). The commission detailed the give-up and reciprocal practices which were being used to reward brokers furnishing sales and research services to mutual funds. It then described the mechanisms that some mutual funds had developed for recapturing excess commissions for the funds' direct cash benefit which relied upon exchange rules permitting the reduction of the adviser's fee by some portion of brokerage commissions it received as give-ups or for actual execution and concluded that this course of action probably conferred greater benefits on the fund shareholders than alternative use of excess commissions. The SEC also observed, however, that until such time as these recapture procedures became widespread in the industry, any adviser-underwriter to a dealer-distributed fund who utilized them would find certain dealers disinclined to promote sales of its fund's shares since they could more profitably promote those of its competitors which did not recapture commissions.4
31
At the same time that it viewed with approval the efforts of some mutual funds to turn reciprocal and give-up practices to the direct cash advantage of shareholders, the Commission stated a broader view that
32
certain aspects of these practices, particularly the customer-directed give-up, impair the orderly and proper functioning of the securities markets themselves.
33
PPI at 185. Accordingly, the SEC gave notice that "it believes that exchange rules must be changed so as to preclude customer-directed give-ups." PPI at 186.
34
The next development came when SEC Securities Exchange Act Release No. 8239 (Jan. 26, 1968) proposed a rule 10b-10 which, if it had been adopted, would have required a fund manager to recapture brokerage commissions whenever it was capable of so doing.5 The release reasoned that mutual fund managers were under a fiduciary duty to utilize available recapture techniques. It also called for comment on a NYSE proposal to introduce a volume discount in brokerage commissions and make several changes in NYSE rules to limit give-ups and eliminate other reciprocal practices because of the distortions they caused in the market. The SEC viewed the NYSE proposal as essentially an alternative to its own proposed rule 10b-10. Fogel v. Chestnutt, supra, at 739-40.
35
Later in 1968 the SEC finally accepted NYSE proposals for a volume discount on orders exceeding 1,000 shares and other alterations in rates, and withdrew its proposed rule 10b-10. NYSE abolished customer-directed give-ups effective December 5, 1968, as did the regional exchanges shortly thereafter.
36
In 1969, the Commission continued to address the question of the duty of funds to recapture. In SEC Securities Exchange Act Release No. 8746 (Nov. 10, 1969), quoted in Fogel, supra, at 741, the General Counsel for the SEC, Philip A. Loomis, Jr., stated:
37
You first ask whether mutual fund management has a fiduciary duty to acquire a stock-exchange seat directly or through an affiliate, in order to utilize this means to recapture brokerage which in turn will be offset against management charges. We do not believe that management has this duty if in the exercise of its best business judgment management determines that it is not in the best interests of the fund to create such an affiliate. Proposed Rule 10b-10, as published for comment on January 26, 1968, to which you refer, has been withdrawn.
38
The release went on to note the Commission's understanding that the exchange rules abolishing give-ups did not prohibit the existing arrangements which a few mutual funds had made for the recapture of a portion of their commissions. It also cautioned that if a mutual fund management did acquire a seat on a regional exchange whose rules permitted the recapture of commissions through the use of that seat, there might be circumstances under which recapture would be required and management would not be free to retain revenues derived from that source for itself.
39
The next significant event occurred in 1972 when the SEC issued a Policy Statement on the Future Structure of the Securities Markets (Feb. 2, 1972). The Fogel opinion, supra, at 741-43, sets forth the pertinent passages in detail, and little would be gained by repeating them here. Suffice it to say that the Commission advocated the discontinuance of the use of portfolio brokerage to promote the sale of mutual fund shares, and the elimination of institutional memberships on the exchanges insofar as they were employed primarily as vehicles for obtaining recapture of commissions.
40
In response to this policy statement, the National Association of Securities Dealers proposed a rule abolishing the use of reciprocals to reward sales promotion by making sale of fund shares neither a qualifying nor disqualifying factor in the allocation of portfolio transactions. This rule became effective on July 15, 1973. The reaction to the other thrust of the policy statement, however, was quite different:
41
By contrast, the validity of the SEC's conclusions on the evil of institutional memberships, which were quite at variance with the earlier pronouncements we have quoted, was vigorously challenged, notably by Elkins Wetherill, president of the PBW Stock Exchange, see Wetherill and Hendon, Institutional Membership and the Experience of the Philadelphia-Baltimore-Washington Stock Exchange, 13 Boston College Ind. & Com.Rev. 959 (1972). Senator Williams introduced a bill, S. 3169, 92d Cong. 2d Sess. (1972), which would remove the SEC's power to restrict institutional membership until one year after the effectiveness of a rule requiring negotiated rates on all transactions exceeding $100,000. Nevertheless, the SEC promulgated Rule 19b-2, effective March 29, 1973, forcing every exchange to "require every member of such exchange to have as the principal purpose of its membership the conduct of public business."
42
Fogel v. Chestnutt, supra, at 743 (footnote omitted).
43
The final development was the Securities Act Amendments of 1975, which generally forbade exchange transactions for one's own account or that of an associate, as well as the imposition of fixed rates of commission by national securities exchanges the cause of the whole problem. See Fogel v. Chestnutt, supra, at 734-44.6
44
Thus, the problem of recapture of mutual fund portfolio brokerage commissions became intertwined with and to a considerable extent absorbed by the broader problem of general policy with respect to the effect of brokerage commission allocations on the securities markets. In this connection, the stance of the SEC on the recapture question has considerable significance.
45
The Commission's position cannot be fairly characterized as consistent. The amicus brief filed by the SEC on this appeal at the request of the court frankly admits this and attributes the "possibly conflicting views" of the Commission on the recapture question to its dual responsibilities under the Investment Company Act and the Securities Exchange Act. A portion of that brief is instructive:
46
Under the (Investment Company Act), the Commission focused primarily on the effect of the allocation of brokerage commissions on mutual funds, their advisers and their shareholders. At the same time, however, the Commission was more broadly concerned under the Securities Exchange Act with the effect of brokerage allocation on the securities markets. From the latter perspective, the Commission was concerned with such matters as the appropriateness of fixed commission rates, the effect of such commissions on the structure of the securities markets, and the role of the Commission as an economic regulator.
47
As the Commission's thinking developed on these broader policy issues, and market characteristics continued to change and evolve, the Commission revised its prior positions to accommodate its market concerns. Undoubtedly, some persons regarded the Commission's later conduct as inconsistent with its prior positions on the narrower issues arising under the Investment Company Act.
48
The Commission's brief traces this "duality of approach" throughout all its discussion on recapture, and notes the agency's final determination to treat the practice as a problem of commission rates and market structure, rather than as a mutual fund problem. It concedes that
49
it is difficult to find guidance in the context of this lawsuit, involving a specific fact situation raising questions of the fiduciary obligation of investment advisers in many of the Commission's general statements on the recapture problem.
50
The SEC points out, however, that the history of its response to the recapture problem is not unimportant since "it illustrates the dynamic and constantly changing background in which the defendants' actions in this case must be judged."
51
With the foregoing background in mind, we turn to the specifics of the case before us.
II.
52
Chemical Fund, Inc., a Delaware corporation, is an open-end, diversified investment company or mutual fund registered with the SEC under the Investment Company Act of 1940. Its investment objective is to attain growth of capital and income through investment in companies specializing in certain aspects of the sciences. As an "open-end" investment company, the Fund is required under sections 5(a)(1) and 2(a)(32) of the Investment Company Act, 15 U.S.C. §§ 80a-5(a)(1), -2(a)(32), to stand ready at all times to redeem its shares for their "net asset value", computed in accordance with the rules and regulations of the SEC, 17 C.F.R. §§ 270.22c-1, .2a-4. As of December 31, 1965, the Fund had total net assets of $433,849,751. At the time of trial, the Fund's total net assets were more than $700,000,000.
53
The Fund's investment adviser or manager and the distributor of its shares is, and has been for many years, F. Eberstadt & Co., Managers & Distributors, Inc. (M&D), a Delaware corporation. Pursuant to a written advisory contract, M&D makes investment advisory recommendations to the Fund's board of directors, and, subject to the approval of the board, manages the business and affairs of the Fund. It also furnishes the Fund with office space and ordinary clerical and bookkeeping services. As is customary in the industry, the compensation paid by the Fund to M&D for its services as the Fund's manager is based upon a percentage of the Fund's net assets, with an incentive adjustment for the Fund's investment performance.7 At all relevant times M&D has been a member of the NASD.
54
Pursuant to a written distribution contract with the Fund, M&D arranges for the sale of Fund shares to the public through independent securities dealers at a price equal to net asset value plus a sales charge or commission. Under the terms of the distribution agreement, M&D retains less than a quarter of the sales charge and allows the balance to dealers who sell Fund shares.8
55
The parties have stipulated that at all times since at least January 1, 1965, when plaintiff's allegations commence, a majority of the Fund's board of directors have been neither "affiliated" nor "interested" persons within the meaning of the Investment Company Act. These unaffiliated or disinterested Fund directors were characterized by Judge Carter as men of repute in business and the professions.9
56
The defendant F. Eberstadt & Co. Inc. (Eberstadt), M&D's parent company, originally a partnership but later a Delaware corporation, is and has been since 1962 a member firm of the NYSE and a member of the NASD. Eberstadt later became a member of the American Stock Exchange as well.
57
Robert G. Zeller, the only individual defendant served, is vice-chairman of the Fund's board of directors, vice-chairman of M&D's board, and chairman of the board and chief executive officer of Eberstadt.
58
Except in unusual circumstances, whenever the Fund wishes to purchase or sell securities for its portfolio it is necessary for M&D to select a broker to execute the transaction or to deal directly with a dealer who owns or wishes to purchase the particular securities being purchased or sold. Total brokerage commissions paid in connection with such portfolio transactions on the NYSE (on which 80% of the transactions were executed), the American Stock Exchange, and regional exchanges ranged from $339,860 in 1965 to $1,291,735 in 1973.
59
The parties have stipulated that, in selecting brokers for the execution of portfolio transactions, M&D's primary concern has always been securing the best price and quality of execution available to the Fund, i. e., the best execution.10 Only when two or more executing brokers could provide equal price and quality of execution were other criteria considered in the selection of brokers.
60
Until July 15, 1973, the criteria employed in selecting a broker were the broker's sales of Fund shares to the public and the usefulness of research and statistical services which it provided to the Fund through M&D. After July 15, 1973, as previously indicated, an NASD rule, binding on both M&D and Eberstadt as members, eliminated sale of Fund shares as a qualifying or disqualifying factor in the selection of executing brokers.
61
The brokerage commissions paid by the Fund when the sale of shares was a criterion for selecting an executing broker fluctuated from $271,910 in 1965 to $462,613 in 1970. The commissions paid by the Fund when research and statistical services provided were criteria for selecting an executing broker fluctuated from $40,977 in 1965 to $91,662 in 1970. During 1971 and 1972 over 98% of the Fund's portfolio brokerage in each year was allocated as "reciprocals" to brokers who either sold Fund shares or supplied statistical and research information.
62
As we have seen, prior to December 5, 1968, it was common practice for a mutual fund or its manager to direct executing brokers on the NYSE and other national securities exchanges to "give-up" part of their commissions to other exchange members who had sold shares to the public or who had provided useful research or statistical material, but who had not participated in any way in the execution of the transaction on the exchange. The give-ups on Fund portfolio transactions from 1965 to 1968 exceeded the following amounts:
63
Year Amount
1965 $ 81,686
1966 136,200
1967 214,600
1968 246,600
64
The NYSE permitted member firms who served as investment advisers to credit against the investment advisory fee some portion of the commissions earned by the member firm for the execution of portfolio transactions on behalf of the investment advisory client. Accordingly, the NYSE would have permitted M&D to credit against the management fee payable to it by the Fund some portion of any brokerage commissions earned by its parent Eberstadt in the execution of the Fund's portfolio transactions and, prior to the time when give-ups were abolished, a portion of any give-ups received by Eberstadt with respect to Fund brokerage business. Prior to December 5, 1968 such recapture would not have required participation by Eberstadt in the execution of portfolio transactions. After December 5, 1968, when give-ups were abolished, recapture was still available although then, appellant asserts, participation by either Eberstadt or M&D in portfolio transactions would have been necessary.11
65
Well aware of this possibility of recapture, the board of directors of the Fund, with the concurrence of the unaffiliated and non-interested directors, consistently directed that Eberstadt not act as broker in the execution of Fund portfolio transactions nor receive give-ups from other brokers in connection with Fund portfolio transactions.
66
Plaintiff, a shareholder of record of the Fund continuously since at least 1965, seeks to hold M&D, Eberstadt, and Zeller liable to the Fund for their part in implementing this decision of the unaffiliated and non-interested directors to forego recapture.12 Jurisdiction was laid under section 44 of the Investment Company Act of 1940, as amended, 15 U.S.C. § 80a-43; section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa; and section 22 of the Securities Act of 1933, 15 U.S.C. § 77v.
67
Plaintiff first contended that by causing the Fund to forego recapture and allocate commissions to reward brokers who sold Fund shares and supplied it with research and statistical information, the defendants violated the management and distribution agreements then in force between the Fund and M&D, provisions of the Fund's certificate of incorporation, and fiduciary duties imposed upon them by both the Investment Company Act of 1940 and common law. Plaintiff also claimed that the defendants failed to disclose accurately and fully to the unaffiliated or non-interested directors and to the shareholders the uses to which brokerage commissions were being put and the alternatives to those uses.
68
At the trial before Judge Carter, plaintiff rested her case in chief solely on the documentary evidence contained in 163 exhibits. The defendants called four witnesses: Zeller, Robert M. Maynard, a partner in Price Waterhouse & Company, auditors of the Fund; and Professors Roger F. Murray and Bertrand Fox, unaffiliated or non-interested Fund directors. In rebuttal, the plaintiff called Burt Dorsett, another independent13 Fund director.
69
Judge Carter found "no basis for liability under either the federal securities law or the common law." 399 F.Supp. at 956. Accordingly, he entered judgment for the defendants dismissing the complaint. This appeal followed.
III.
70
On this appeal appellant contends (1) that the failure to recapture violated the Fund's advisory and distribution contracts with M&D; (2) that the failure to recapture violated the Fund's certificate of incorporation; (3) that the defendants breached their fiduciary duties to the Fund in their dealings with the independent directors regarding recapture; and (4) that the defendants violated the disclosure provisions of the securities laws by failing to keep the shareholders of the Fund properly informed as to the recapture problem. We will address these contentions seriatim.
A.
71
A key contention of appellant is that by allocating brokerage commissions and give-ups to reward dealers for selling shares and providing the Fund with research and statistical information, albeit at the direction of the independent directors on the Fund's board, the defendants violated the management and distribution contracts with the Fund. Appellant argues that, under these agreements, M&D was obligated to pay all the expenses relating to the promotion and sale of Fund shares and to provide research and statistical services to the Fund at its own expense. Through its allocation of the Fund asset of brokerage, appellant asserts, M&D profited at the expense of the Fund to the extent that it was able to avoid using its own funds to purchase sales promotion, research, and statistical services needed to discharge its contractual obligations. Appellant relies heavily on this allegation of self-dealing to support her other claims of breach of fiduciary duty and inadequate disclosure.
72
Appellees contend that both parties to the management and distribution agreements at all times contemplated that brokerage would be allocated by the investment adviser to obtain sales promotion, research, and statistical services. They claim that this understanding was in accordance with the generally prevailing method of business in the industry, and that this usage added implicit terms to the management and distribution contracts. Judge Carter found that the allocation of brokerage for these purposes was done
73
with the unaffiliated directors having all the facts and specifically approving the practice . . . .
74
399 F.Supp. at 955. He concluded that the management and distribution agreements had not been violated.
75
The management and distribution agreements are silent on the subject of allocation of excess portfolio commissions. Since the industry usage of brokerage is not inconsistent with the pertinent provisions of the agreements,14 evidence as to its existence and the parties' awareness of it during negotiations was properly admitted to clarify the intentions of the parties, Lowell v. Twin Disc, Inc., 527 F.2d 767, 770 (2d Cir. 1975), and to annex provisions in accord with the usage to those expressed in the agreements, 3 A. Corbin, Contracts § 556 (1960); 5 S. Williston, Contracts §§ 648, 652 (3d ed. 1961). Contrast Kama Rippa Music, Inc. v. Schekeryk, 510 F.2d 837, 841-42 (2d Cir. 1975).
76
The uncontradicted testimony of defendant Zeller was that the amount of compensation awarded to M&D under the distribution contract
77
was arrived at by a negotiation process in light of all of the circumstances, including the services which the adviser got from outside sources.
78
One of the "circumstances" he specified was the "known industry facts." He also testified that, while there was no explicit provision in the advisory contract which gave M&D the right to use a portion of brokerage commissions to reward firms that assisted it in providing research, such a provision "was implicit in the negotiation of the management fee." Zeller characterized the Fund's use of give-ups as "simply part of the brokerage practices of the times."
79
In response to a question concerning the compensation paid M&D under its management contract for research and statistical services, Dr. Roger F. Murray, an independent director of the Fund, testified as follows:
80
The amount we were paying them was for what they could do, and they could not be an expert in all fields, and if they didn't have the benefit of those give-ups or commission business to use for getting outside additional facilities we would have had to raise their fee and make . . . arrange for them to buy them, because we were convinced it was essential to the performance of the fund that that kind of exposure to other ideas get into the decision-making process of the fund.
81
He stated that while no explicit contractual provision authorized such use of brokerage, it was "fully understood that that would be done," and was made "explicit and clear in the prospectus and in the proxy statements. . . ." The record fully supports this assertion.15
82
Appellant adduced no evidence to rebut the testimony that the allocation of brokerage business and give-ups by M&D on the basis of shares sold and services rendered was customary in the industry and specifically contemplated by the Fund's management and distribution agreements. Appellees' evidence to this effect stands uncontradicted and, on this record, the conclusion that the agreements were not violated is sustained.16 Compare Moses v. Burgin, 316 F.Supp. 31, 59-60 (D.Mass.1970), rev'd on other grounds, 445 F.2d 369 (1st Cir.), cert. denied, 404 U.S. 994, 92 S.Ct. 532, 30 L.Ed.2d 547 (1971).17
B.
83
Appellant's next argument can be disposed of briefly. Relying on Moses v. Burgin, supra, at 374, she contends that defendants' allocation of commissions to compensate dealers for sales promotion and research violated an express provision of the Fund's certificate of incorporation that requires it to receive not less than "net asset value" for each share sold.18 The Moses court observed that
84
(i)f Fund receives the asset value of new shares, but at the same time rewards the selling broker with give-ups that it has a right to recapture for itself, then the net income Fund receives from the process of selling a share is less than asset value. The existing shareholders have contributed by paying more than otherwise necessary on Fund's portfolio transactions to the cost of the sale, which was supposed to have been borne by the new member alone.
85
445 F.2d at 374.
86
In Fogel, Judge Friendly rejected this reasoning and held that
87
(a)lthough the argument is not without force, we think it presses too far. The term "net asset value" is one of art in the mutual fund industry and is elaborately defined in the certificate of incorporation. The objective of the charter provision was to prevent dilution of per share net asset value by the issuance of new shares at a discount; defendants' failure to recapture part of the commissions on portfolio transactions does not result in such dilution. Plaintiffs' real complaint is not that new shareholders did not pay net asset value but that the Adviser, for selfish motives, refrained from handling portfolio transactions in a manner that would have diverted a portion of the commissions to itself, with an attendant decrease in the advisory fee in substance a charge of breach of a fiduciary duty resulting in corporate waste.
533 F.2d at 744-45.19
88
His holding is equally applicable in the case at bar and disposes of this contention of the appellant.
C.
89
Appellant next contends that the conduct of the defendants in implementing the Fund's decision to forego recapture constituted a breach of fiduciary duty under both the Investment Company Act and common law.20 To resolve this issue, we must determine whether the Investment Company Act imposed on the Fund and the persons who controlled it an absolute duty to recapture excess brokerage commissions, and, if not, whether the decision to forego recapture here is justifiable as a proper exercise of the informed discretion reposed in the board of directors of a mutual fund under the Act.
90
Section 36 of the Investment Company Act of 1940, which prohibited "gross misconduct or gross abuse of trust" as originally enacted,54 Stat. 841, and "breach of fiduciary duty involving personal misconduct" as amended in 1970, 15 U.S.C. § 80a-35, established a federal standard of fiduciary duty in dealings between a mutual fund and its adviser. Fogel v. Chestnutt, supra, at 745, citing Brown v. Bullock, 294 F.2d 415, 421 (2d Cir. 1961), and Rosenfeld v. Black, 445 F.2d 1337, 1345 (2d Cir. 1971), petition for cert. dismissed, 409 U.S. 802, 93 S.Ct. 24, 34 L.Ed.2d 62 (1972). In its original form, this section authorized SEC injunctive actions and, by implication,21 private damage actions by investors against fiduciaries who failed to meet its standards. The remedial 1970 amendment of the section added a subsection (b) which explicitly granted a private right of action to recover unreasonable compensation paid by a fund to its investment adviser. Congress did not intend this modification to abrogate the private action already recognized under the Act for other types of breach of fiduciary duty. See Fogel v. Chestnutt, supra; Moses v. Burgin, supra, at 373, 373 n.7, 384; S.Rep.No.184, 91st Cong., 1st Sess. 16 (1969), U.S.Code Cong. & Admin.News 1970, p. 4897; H.R.Rep.No.1382, 91st Cong., 2d Sess. 38 (1970). But see Monheit v. Carter, 376 F.Supp. 334, 342 (S.D.N.Y.1974). Consequently, appellant's claim of breach of duty under the Act is properly before the court.
91
We have found nothing in the structure or legislative history of the Investment Company Act which indicates that Congress meant to remove the question of how best to use the brokerage generated by portfolio transactions from the informed discretion of the independent members of a mutual fund's board of directors. Nor do the opinions in Fogel and Moses suggest that the Act compelled recapture of commissions for the Fund's direct cash benefit as a matter of law.
92
It is true that, in response to the management's argument that even if recapture were practical the directors still had a right to choose between recapturing of give-ups for the fund's direct benefit and awarding them to brokers for its indirect benefit, the Moses court stated that "if recovery was freely available to (the fund), the directors had no such choice." 445 F.2d at 374. This conclusion, however, was based solely on the First Circuit's interpretation of that fund's charter as mandating recapture, see supra at 415-416, and not upon the fiduciary obligations imposed under the Investment Company Act. When the question of the fiduciary duty of the investment adviser under the Act was addressed in Moses and Fogel, the inquiry of both courts was into the adequacy of the disclosure of the possibilities of recapture by the managers to the independent directors of the mutual fund. Plainly, such full and effective disclosure was required so that the independent directors could exercise informed discretion on the question of recapture vel non, thus performing the watchdog function envisaged for them by Congress.22 See, e. g., Moses v. Burgin, supra, at 383; Fogel v. Chestnutt, supra, at 749-50. The violation of section 36 perceived in both cases resulted from management's failure to disclose sufficiently to the independent directors the possibilities of recapture, and not from the breach of an absolute duty to recapture imposed by the Act.
93
While we thus conclude that the Investment Company Act did not remove the recapture decision from the discretion of the Fund's board of directors,23 such discretion is by no means unrestrained. As previously mentioned, independent directors can perform their function under the Act only when they exercise informed discretion, and the responsibility for keeping the independent directors informed lies with the management, i. e., the investment adviser and interested directors. See, e. g., 15 U.S.C. § 80a-15(c). This responsibility is particularly pressing when the matter in question is one on which the interests of the management and the mutual fund may be at odds. As stated by Judge Aldrich in Moses :
94
Whatever may be the duty of disclosure owed to ordinary corporate directors, we think the conclusion unavoidable that Management defendants were under a duty of full disclosure of information to these unaffiliated directors in every area where there was even a possible conflict of interest between their interests and the interests of the fund. This duty could not be put more clearly than was stated by the SEC in 1965.
95
"The Investment Company Act's requirement as to unaffiliated directors, if its purposes are not to be subverted, carries with it the obligation on the part of the affiliated directors, and the investment adviser itself, to insure that unaffiliated directors are furnished with sufficient information so as to enable them to participate effectively in the management of the investment company." Imperial Financial Services, Inc. CCH Fed.Sec.L.Rep. P 77,287 at 82,464 (SEC 1965).
96
Except where it may be fairly assumed that every unaffiliated director will have such knowledge, effective communication is called for. And, in testing that assumption, it must be borne in mind that they are not full time employees of the fund and it may be as with Fund's unaffiliated directors that neither their activities nor their experience are primarily connected with the special and often technical problems of fund operation. If management does not keep these directors informed they will not be in a position to exercise the independent judgment that Congress clearly intended. The only question can be whether the matter is one that could be thought to be of possible significance.
97
445 F.2d at 376-77.
98
Fogel recognized that PPI had raised such a question which "could be thought to be of possible significance" and on which the interests of a mutual fund and its adviser were in clear conflict. 533 F.2d at 749. Consequently, the investment adviser was obliged to disclose fully in order to assure that the independent directors supplied an independent check on management and adequately represented and protected the shareholder in fund decisions. Assuming such disclosure, Judge Friendly concluded that
99
(the) minimum requirement to enable the Fund's independent directors to discharge these duties with respect to recapture was a careful investigation of the possibilities performed with an eye eager to discern them rather than shut against them, and, if these possibilities were found to be real, a weighing of their legal difficulties and their economic pros and cons. . . .
100
If this had been done and the independent directors had concluded that, because of legal doubts, business considerations or both, the Fund should make no effort at recapture, we would have a different case. But when there has been inadequate communication to the independent directors, it is no defense to the Adviser and those exercising control over it that a decision not to recapture, taken after proper communication, would have been a "reasonable business judgment."
101
533 F.2d at 749-50 (footnotes omitted).
102
Thus the decision to forego recapture here did not violate the fiduciary obligations of either the Fund's adviser or directors under section 36 of the Investment Company Act if the independent directors (1) were not dominated or unduly influenced by the investment adviser; (2) were fully informed by the adviser and interested directors of the possibility of recapture and the alternative uses of brokerage; and (3) fully aware of this information, reached a reasonable business decision to forego recapture after a thorough review of all relevant factors.24 We now turn to the record in this case to see if these conditions were met.
103
The documentation of the disclosure to the independent directors on the subject of recapture begins with the issuance of PPI by the SEC on December 2, 1966. Copies of the report were distributed to the directors of the Fund, as was a December 5, 1966 memorandum from M&D assessing PPI's impact. This memorandum pointed specifically to the SEC proposal to preclude give-ups. It was followed almost immediately, on January 9, 1967, by a second memorandum from M&D to the directors. M&D there noted that "Chemical Fund's turnover rate is substantially below not only the mutual fund average but the average rate for the entire Stock Exchange," and made the following summary of the PPI proposal to prohibit give-ups:
104
We believe, therefore, that the recommendations of the SEC would benefit both funds in that the volume discount would reduce the cost of operation and the elimination of give-ups would make the funds more competitive from a sales standpoint since they would be purchased on a performance basis rather than a reciprocal business basis, a practice in which Chemical Fund has not been competitive with the industry because of the low amount of brokerage commissions available. The SEC apparently looks with favor on the practice of using brokerage business on portfolio transactions to reduce the cost of management. It strongly endorses the method of operation of the Broad Street complex in which the partners of J. & W. Seligman receive substantial profits from the brokerage business carried out for the investment companies in that complex. It does not refer in this connection to the risks of excessive portfolio turnover nor to the pending derivative stockholder suits against this complex based on the theory that the funds could save money by using the third market or direct trades. The Report also points out that IDS is now a member of the Pacific Coast Exchange with the fund receiving the full profit on this brokerage business and the fact that the United Fund Group is also a member of the Pacific Coast Exchange with the fund receiving 50% of the profit. They refer to the fact that the brokerage subsidiaries do substantial amounts of Pacific Coast Exchange business for brokers who execute orders for the funds on other exchanges. (emphasis added).
105
The memorandum ended with a recommendation that the fund "continue the practice of using give-ups until such time as the SEC or Congress shall rule against that practice."
106
By October 17, 1967, M&D determined that in order to help formalize the board's annual consideration of the management and distribution contracts, it would prepare a memorandum outlining the comparative performance record of the Fund, comparative cost of operation, and the use of brokerage commissions to secure sales, research, and other services. M&D was by then fully aware, because of actions taken by both the SEC and competitor funds, that the board of directors itself should consciously make the decision whether or not to recapture.
107
Consequently, at the November 29, 1967 board meeting of the Fund, the chairman, the late Ferdinand Eberstadt, suggested that the independent directors consider appointing a subcommittee to review the operations of the Fund and M&D with a view toward reporting to the board prior to its next consideration of renewal of the management and distribution agreements. The independent directors chose from their number a subcommittee consisting of Dr. Murray and Mr. Dorsett to conduct such a review of operations.
108
On January 26, 1968, SEC Securities Exchange Act Release No. 8239, announcing proposed rule 10b-10 which would have mandated recapture when possible, see supra at p. 408, was issued. The subcommittee of the Fund's board reviewing operations, Murray and Dorsett, then requested Sullivan & Cromwell, counsel to the fund, and also to Eberstadt and M&D, to review the Fund's brokerage practices.
109
Sullivan & Cromwell responded with an opinion letter to the board dated February 20, 1968, which follows in its entirety:
110
You have asked us to review the method by which F. Eberstadt & Co., Managers & Distributors, Inc. (the "Manager") places brokerage orders for Chemical Fund, Inc. (the "Fund") and directs the allocation of a portion of the brokerage commissions arising therefrom to brokers other than the broker executing the order. As you know, F. Eberstadt & Co., the sole stockholder of the Manager, became a member of the New York Stock Exchange in 1962 and, since that time, as a matter of policy, has not executed brokerage orders for the Fund or requested or received "give-ups" on business done for the Fund by other brokers on the New York or other stock exchanges.
111
We have reviewed Securities Exchange Act Release No. 8239, dated January 26, 1968, which discusses, among other things, the level and structure of commission rates on the New York Stock Exchange, the practice of reciprocity and "give-ups", and the possibility of a manager receiving commissions or "give-ups" in connection with a fund's portfolio transactions in reduction of the management fee by all or a portion of such brokerage commissions or "give-ups". The Release also proposes the adoption of Rule 10b-10 under the Securities Exchange Act of 1934. We understand that you have received a copy of this Release. We have also examined the Investment Company Act of 1940 and such other matters of law as we have considered appropriate.
112
On the basis of the above and assuming that the Board of Directors has considered all the relevant facts concerning this matter, including the possibility of adopting alternate methods of handling the Fund's brokerage business whereby a portion of the commissions might be used to reduce the management fee, and assuming further that, as a result of such consideration, the Board of Directors has come to the conclusion as a matter of reasonable business judgment that it is in the best interest of the Fund and its shareholders that the continuation of the present method of placing brokerage orders and directing "give-ups" be approved, it is our opinion that such approval would be lawful.
113
The board of directors of the Fund met on February 21, 1968, and the subcommittee previously appointed to review the operations of the Fund and M&D prior to the board's consideration of the management and distribution agreements submitted its report in writing. In this and subsequent years M&D furnished this subcommittee with copies of its financial statements for several preceding years, and various schedules comparing the expenses of M&D with other publicly owned companies in the field and the Fund's performance and expense ratio with those of certain other common stock growth funds. M&D also reviewed with the subcommittee the amount of portfolio brokerage commissions and the method of allocating such commissions. In addition, the subcommittee considered the opinion letter of Sullivan & Cromwell regarding the various matters referred to in SEC Securities Exchange Act Release No. 8239.25
114
The Murray/Dorsett report went into a lengthy consideration of what use should be made of brokerage commissions:
115
In Release No. 8239 dated January 26, 1968, the SEC discusses the level and structure of commission rates on the New York Stock Exchange, the practice of reciprocity and "give-ups" and the possibility of a manager receiving commissions or "give-ups" in connection with a fund's portfolio transactions in reduction of the management fee by all or a portion of such brokerage commissions or "give-ups". We have studied this Release and the proposal to issue Rule 10b-10 on the subject of give-ups and we also read the opinion of Messrs. Sullivan & Cromwell addressed to the Board of Directors of Chemical Fund dated February 20, 1968 dealing with this subject.
116
In 1967, as fully disclosed in the proxy statement, the Fund paid brokerage commissions of $618,000. Of this amount $510,000 was allocated to dealers based on the volume of Fund shares sold. The allocation of brokerage business and the use of directed give-ups can be regarded as additional compensation to dealers who sell Fund shares. This is a long established practice of the business, which has been followed by Chemical Fund with the full knowledge of the Board and the stockholders. In addition to the information regularly provided in proxy statements, prospectuses and Form N-1R, the manager has reported from time to time and the Board has approved these practices. The specific allocations to individual brokers are made by the fund's officers without prior review by the directors but in accord with the general policy approved by the Board.
117
We quote from the SEC release as follows: "Many mutual fund managers believe that so long as this type of sales incentive can be given to dealers, competition among mutual fund managers for the favor of dealers will make it difficult, if not impossible, for any individual fund manager to fail to provide such compensation to dealers, both members and nonmembers of exchanges, selling shares of his funds." We agree completely with this statement. Regardless of the merits of this method of doing business, it is not practical to attempt a change for Chemical Fund at this time even though we recognize that it would be possible to request the manager to execute some portfolio transactions as a member of the New York Stock Exchange or request give-ups on portfolio transactions which would be credited against the amount of the management fee.
118
We believe that the directors must look upon this question realistically and in proper perspective. Chemical Fund has a very low portfolio turnover rate. The Board retains close control over that rate of turnover. We are mindful of the fact that through the portfolio committee as presently constituted the unaffiliated directors have, in effect, power over portfolio transactions and this power has been frequently exercised. Therefore, management does not really exercise complete control over the generation of commission business for the purpose of stimulating sales. While we recognize fully that allocation of the purchase and sale orders is an additional resource to the distributor, we are not impressed with either its size or the possibility of abuse. We propose therefore, no change in this arrangement and recommend approval of a continuation of the past practice of leaving the allocation of brokerage commission business to the officers of the Fund.
119
The report concluded by recommending renewal of the existing contracts for another year.
120
The interested directors withdrew from the meeting during the discussion of the management and distribution agreements. After discussion, the board, with only independent directors voting, unanimously approved the continuance until March 31, 1969 of the existing management and distribution agreements.
121
At a board meeting on July 17, 1968, Dr. Murray made reference to hearings being conducted by the SEC with respect to the level of NYSE commission rates and the use of give-ups by mutual fund managers and distributors. He reminded the board that this subject had been dealt with in the February 21, 1968 subcommittee report, and stated that he saw no reason to make any change in the practice of leaving the allocation of brokerage business to the officers of the Fund, as recommended in that report. After discussion, the unaffiliated directors again unanimously approved the continuation of this practice.
122
On December 5, 1968, the constitution of the NYSE was amended to prohibit customer directed give-ups. In a cover letter dated January 10, 1969 which accompanied the material furnished for the annual review of operations, Francis S. Williams, then chairman of M&D, informed the Murray/Dorsett subcommittee that the use of give-ups was abandoned on December 5, 1968 to conform to the new NYSE stance. He also suggested to the unaffiliated directors that it was in the best interests of the Fund and its shareholders
123
to have the Manager direct the brokerage business in such a way as to obtain the best price and execution. However, in selecting such brokers the extent to which such dealers have sold shares of the Fund or have provided statistical and research information will continue to be important factors.
124
The subcommittee's written report of February 19, 1969 accepted this recommendation.
125
The cover letter from M&D of January 9, 1970 and the subcommittee's report of January 22, 1970 were similar to their 1969 counterparts,26 and basically recommended continuation of existing policies. At a board meeting on February 18, 1970, the unaffiliated directors, relying on this subcommittee report, unanimously adopted a new management agreement and approved the continuance of the existing distribution agreement.
126
The cover letter of January 15, 1971 accompanying the material furnished by M& D to the subcommittee to review operations stated that a summary of Judge Wyzanski's district court opinion in Moses v. Burgin, supra, had been recently distributed to the board of directors. The district court there held that the decision to recapture or not was a matter of business judgment for the board of directors, and that the board members did not breach their fiduciary duties by permitting portfolio brokerage to be used to acquire statistical information and assist sales provided that best execution was obtained. The letter pointed out to the subcommittee the possibility of recapture, but recommended that the unaffiliated directors continue the current use of brokerage commissions. The subcommittee to review operations, which now consisted of Murray and Driscoll, prepared a written report to the board dated February 17, 1971 which recommended no change in the method of directing brokerage business. It noted that, because of a relatively low rate of portfolio turnover, the volume of commissions paid was small for a mutual fund of Chemical Fund's size, and reasoned that
127
(w)ith so many proposals under discussion regarding negotiated commission rates, institutional membership, and the possibility of "unbundling," we believe that it would be unwise to alter present arrangements.
128
The report also suggested, however, that the subject of brokerage allocation "be reviewed promptly in light of any developments during the year."
129
At the board meeting of June 16, 1971, the chairman, Williams, referred to the First Circuit's decision in Moses v. Burgin, copies of which had been previously mailed to the directors. Copies of the Sullivan & Cromwell opinion letter dated February 20, 1968 were again distributed to the board at the meeting. Williams suggested that in the light of Judge Aldrich's decision it would be advisable to appoint a committee of unaffiliated directors to again review the Fund's practices with respect to brokerage, to consult with Sullivan & Cromwell regarding brokerage practices, and to consider the various alternatives available. A committee of independent directors, consisting of Dr. Murray as chairman, Driscoll, and Fox, was then appointed.
130
On July 21, 1971, Robert C. Porter, then president of the Fund, reported to the board that a meeting had been scheduled with the NYSE to explore the question of whether it would be permissible, if the Fund did some of its brokerage business with Eberstadt as a member of the Exchange, to credit a portion of the commissions against the management fee payable by the Fund. He also reviewed a proposed settlement, involving recapture by means of executing portfolio transactions on regional exchanges, in a case against two other funds.
131
On July 30, 1971, Porter received from David D. Huntoon, assistant vice-president and associate director of the NYSE, a proposed "Educational Circular" stating the Exchange's position on using commissions to reduce investment advisory fees. In essence, the circular stated that this was not a prohibited rebative practice "to the extent that the investment advisory fee is for investment advice or other services routinely covered by commissions." The letter from Huntoon accompanying the proposed educational circular stated that a meeting could be arranged to discuss the circular's contents.
132
On August 5, 1971, "The Securities Markets A Report, With Recommendations" by William McChesney Martin, Jr. (the Martin Report), was submitted to the Board of Governors of the NYSE. This study, in sharp contrast to existing NYSE practice as illustrated by the July 30, 1971 proposed Educational Circular, recommended prohibition of member firm management of mutual funds as well as institutional membership, and prohibition of crediting commissions against any fee charged for investment advice. Martin Report at 25.
133
The Martin Report thus added several more pieces to the recapture puzzle. M&D sent a memorandum to the subcommittee appointed to review the Fund's brokerage practices on August 17, 1971. It indicated that management was still reviewing with the NYSE the permissibility under its rules of using a portion of brokerage commissions to reduce advisory fees, and that Sullivan & Cromwell was exploring the possibility of working out such an arrangement through the Pacific Coast Stock Exchange or other regional stock exchanges by means of some form of preferred rate arrangement for NASD members. It also raised several other "unsettled" factors for the subcommittee's consideration:
134
1. The Martin report has just been issued and recommends that members of the NYSE spin-off the management of investment companies from the brokerage business.
135
2. The 1970 amendments to the Investment Company Act directed the NASD to consider the scale of distribution fees for registered investment companies and this study is now in progress.
136
3. The present commission rate structure of the NYSE is now under review by the SEC.
137
4. The effect of negotiated commissions is still not fully developed and the question of whether the $500,000 level will be reduced to a substantially lower level is still to be determined.
138
5. The language of the Fidelity Management case (Moses v. Burgin ) indicated that the directors may have no choice in these matters because of charter provisions and the question of whether the Certificate of Incorporation can be amended to give the directors such a choice is now being considered by counsel.
139
It concluded by expressing M&D's recommendation that the explorations of recapture arrangements with the NYSE and regional exchanges be diligently pursued, but that no final decisions changing the methods of distribution or handling brokerage business be made until some of the quoted uncertainties were clarified.
140
On December 13, 1971, M&D furnished the subcommittee to review operations, which now consisted of Murray and Coles, with its annual compendium of information on the Fund's performance. The cover letter indicated that Sullivan & Cromwell's research into the fifth "unsettled" factor resulted in its recommendation that the Fund's certificate of incorporation be amended "to make explicit the powers of the Board of Directors with respect to the determination of how portfolio brokerage of the Fund shall be used." It stated that the proposed amendments incorporated the board's policy of refraining from recapture despite its recognition of available recapture techniques.
141
At a board meeting held on December 15, 1971, it was reported that a number of mutual fund management companies were currently obtaining preferred rate non-member status on regional stock exchanges in order to recapture part of the portfolio brokerage commissions for the benefit of their funds. It was pointed out that several lawsuits against management companies over brokerage practices were being settled on the basis that part of the portfolio brokerage would be recaptured through a NYSE affiliate of the manager or through preferred rate non-member status on a regional exchange. It was also stated that the SEC was expected to announce its position on this matter early in 1972 after the conclusion of hearings in Washington.
142
At the annual meeting of the Fund held on March 14, 1972, the stockholders were asked
143
to consider and vote upon a proposal made by the Board of Directors to amend the Amended Certificate of Incorporation of the Corporation to clarify provisions thereof as to the powers of the Board of Directors in the allocation of portfolio brokerage for the Corporation.
144
By vote of a wide margin of the outstanding shares entitled to vote, a resolution so amending the certificate was adopted.27 A proposed amendment to the management agreement providing that no brokerage business could be done with the firm of F. Eberstadt & Co. Inc. without the specific approval of a majority of the unaffiliated directors also carried.
145
The record shows that this pattern of periodic consideration of the recapture question continued during the remainder of 1972 and in 1973 and 1974, with the possibility of recapture being raised by M&D, considered by the subcommittee of independent directors, and finally rejected by the independent directors as a whole.
146
Testimony elicited at trial to a large extent repeated what was already reflected in the documentary evidence. Certain gaps were, however, filled in.
147
Zeller testified that as early as the latter part of 1962 the possibility of offsetting give-ups against the management fee was "discussed and discussed with the board." He stated that the subject was thereafter "reexamined at least once a year, and I think oftener (sic)."
148
The main theme running throughout Zeller's testimony was that because of the Fund's relatively low portfolio turnover rate during the period of time covered by the complaint and throughout its history, it had less brokerage to allocate than its competitors and consequently was "at a very great disadvantage in getting sales cooperation, research cooperation, statistical information . . . ." He continued:
149
Now, whether it was better to use that brokerage for those purposes or whether it was better from the standpoint of the stockholders to use some part of that brokerage to reduce the management compensation payable to Eberstadt was the closest kind of business decision, and it was made in favor of using the brokerage to protect the kind of performance that Chemical Fund has had since its inception.
150
Dr. Murray testified that the brokerage policy of the Fund, determined specifically by the independent directors, was to delegate to the manager the specific allocation of commission business within guidelines established by the board of directors. Those guidelines were that the manager was at all times to "seek best execution for the purchase or sale transaction," and that, subject to that overriding consideration, it was encouraged to use brokerage commission business prior to mid-1973 to stimulate sales of Fund shares, and, throughout the entire period,
151
to secure statistical and other services and to obtain investment information, investment research recommendations from the broker-dealer community.
152
When asked how many times methods of recapture of brokerage commissions were discussed by the Fund's board, Murray replied:
153
I don't believe I could accurately estimate the number of occasions, but, obviously, they were discussed annually at the time when we discussed renewal of the management and distribution contract, and then in between, as whenever we read or heard about or talked about some of the changes in or suggested changes in the regulatory environment or in legal decisions. So that there must have been three or four more other times a year in which these questions would be formally discussed at board meetings or at portfolio committee meetings or at the luncheon table.
154
He then enumerated the reactions of the board to specific regulatory and legal developments, including its view that it did not wish to follow the proposals made in the SEC release accompanying proposed rule 10b-10, its consultation with counsel to confirm the propriety of this view, and its subsequent satisfaction at the withdrawal of the proposed rule 10b-10 and what it perceived as a complete retreat by the SEC from its former position.
155
Murray testified at length concerning his reasons for being "unalterably opposed" to having Eberstadt act as broker for the Fund or receive give-ups on its behalf. He stated that it "opened up the possibility of a conflict of interest situation" in which Eberstadt traders would have to choose between giving priority to the orders of the Fund or one of their other customers. He also saw conflict of interest problems in negotiating commissions at arm's length when a parent and subsidiary were both involved in a transaction.
156
Murray referred to a possibility that if Eberstadt alone were used to execute Fund portfolio transactions, other brokers might anticipate the Fund's investment decisions. He also said that if brokerage business were given exclusively or predominantly to Eberstadt,
157
other broker-dealers would have no incentives to seek out the opportunity to perform services for Chemical Fund, to provide it with investment information, to provide it with statistical and other kinds of services that would be of assistance in the management of the portfolio.
158
Moreover, he asserted, up until mid-1973 brokerage allocations had been instrumental in producing the sales of new shares and accompanying positive cash flow. Murray viewed these as vitally important to the quality of performance of the Fund because they eliminated any need for untimely liquidation of portfolio investments in order to meet demands for redemption of existing shares.
159
The reputation of the Fund would also have been damaged by placing its commission business with Eberstadt or having Eberstadt receive give-ups on the Fund's behalf, according to Murray. Investors and the public would suspect churning of the portfolio in order to generate an enlarged volume of commission business.
160
Finally, Dr. Murray pointed to the "overriding consideration that the commission structure was not there to stay." He reasoned that
161
under these circumstances, it would be an especially foolish step for the directors of Chemical Fund to take to impair the effectiveness of the ongoing organization for what was obviously going to be an extremely short-lived and temporary minor dollar saving to the fund . . . .
162
Murray confirmed that the board had considered preferred rate non-member status on regional exchanges, but that he had decided, prior to learning that this method of recapture was available, that it should not be used because placing portfolio transactions on regional exchanges "would damage . . . best execution." His reasoning became evident in the following exchange:
163
The Court: Dr. Murray, . . . I want to be sure I understand the purport of your testimony. Were you as convinced that the giving of the execution contract to Eberstadt and obtaining give-ups from them would be so disadvantageous for the various reasons that you set out that you would not do so, unless you were convinced that you were compelled to do it by some rule or regulation of law? That is what I glean from your testimony. Is that correct?
164
The Witness: That is precisely an accurate statement, sir. I think that exactly follows the thread of what I have been trying to say, and that is the reason why, for example, I was not interested in pursuing some of these avenues, because I had decided no matter what the avenue permitted, we should not do it in this Fund.
165
The testimony of Bertrand Fox, another independent director, corroborated that of Dr. Murray and enumerated basically the same reasons for foregoing recapture.28
166
(1)
167
As previously mentioned, it was stipulated by the parties that during the period in question a majority of the Fund's board of directors was neither "affiliated" nor "interested" within the meaning of the Investment Company Act. At the trial, appellant never seriously challenged the factual independence of these directors from M&D.
168
The record shows that while the independent directors received information on the possibilities of recapture and recommendations against it from M&D, all such material was presented in a neutral, even-handed fashion. Contrast Fogel v. Chestnutt, supra; Papilsky v. Berndt, 71 Civ. 2534 (S.D.N.Y., decided June 24, 1976).
169
The evidence demonstrates that the independent directors separately considered the subject, investigated it by way of their subcommittees, and arrived at their own conclusion that recapture should not be undertaken. This was a well-qualified board and its determinations did not merely rubber-stamp the recommendations of M&D. We conclude that the independent directors were not dominated or unduly influenced by the investment adviser.
170
(2)
171
In his opinion below, Judge Carter found that "(t)here is no evidence of non-disclosure by M&D to the unaffiliated directors in this case . . . ."399 F.Supp. at 950. This finding of fact is fully supported by substantial evidence.
172
The record demonstrates that M&D promptly brought every administrative, judicial, and legislative development pertaining to recapture to the attention of the Fund's board, including its independent directors. Such communication was "full" and "effective" under the Moses test, see supra at p. 418, which governs disclosures by management to the fund when the interests of the two may conflict. The independent directors were fully aware early in the game that recapture was possible by having Eberstadt either execute portfolio transactions or receive give-ups, or by resort to a regional exchange technique, and we conclude that the second prong of the applicable test that the independent directors were fully informed by the adviser and the interested directors of the possibility of recapture and the alternative uses of brokerage has been met.
173
(3)
174
There remains the question of whether, under the standards laid down by Judge Friendly in Fogel, see supra at p. 418, the independent directors reached a reasonable business judgment to forego recapture after being informed of all relevant factors and thoroughly reviewing them.
175
There were four principal business reasons which convinced the independent directors to forego recapture.29 These reasons were (1) that recapture would have involved the Fund in conflicts of interest in fact and in appearance; (2) recapture would have an adverse impact on the sale of the Fund's shares; (3) it was in the best interests of the Fund to allocate brokerage for research; and (4) imminent changes in the structure of the securities industry made it unwise to change the Fund's long-standing brokerage policies against recapture.
176
The directors' view that recapture would have involved the Fund in conflicts of interest in fact and in appearance was based on several factors. It was feared that shareholders would suspect churning if the Fund used an affiliated broker to recapture and that consistent use of Eberstadt to execute portfolio transactions might permit other investors to anticipate Fund investment decisions. There was also concern that best execution would suffer if an affiliate were used as executing broker.
177
While the prospects of suspected churning and anticipation by others of Fund investment decisions were remote, they were not unreasonable apprehensions. Moreover, there was a real possibility that the obligation of obtaining the best execution might be jeopardized through close affiliation between a broker-dealer and the investment company,30 and that possibility alone could warrant ruling out such a method of recapture. We note also that concern with eliminating any unnecessary appearance of conflicts of interest in an area already "fraught" with them, Galfand v. Chestnutt Corp., supra, 545 F.2d at 808, is not an unreasonable supplementary business consideration.
178
The directors also feared that recapture would have an adverse effect on the sale of the Fund's shares. The question of how large a fund should become by increasing its sales is highly debatable. Fogel v. Chestnutt, supra, at 756 n.33. The PPI report acknowledged that competitive considerations relative to sales might argue against recapture. Such considerations were stronger in the case of funds which, like Chemical Fund, had relatively low rates of portfolio turnover and thus little brokerage available for distribution as sales incentives in the first place. In addition, the directors felt that proceeds from new sales were needed to avoid untimely portfolio liquidations and that, since there are economies of scale in managing a portfolio, an increase in the size of the fund would decrease the management costs per dollar. The board's conclusion that recapture might decrease the sale of shares and eventually harm the Fund's performance was reasonable.
179
The directors' judgment to continue the existing practice of allocating brokerage to obtain additional research was also reasonable. That general practice was confirmed in the Policy Statement of the SEC on the Future Structure of the Securities Market (February 2, 1972), 37 Fed.Reg. 5286, 5290. See also SEC Securities Exchange Act Release 9598 (May 9, 1972), containing an interpretation of the Future Structure policy statement on this point. Moreover, section 28(e)(1) of the Securities Exchange Act of 1934, 15 U.S.C. § 78bb(e)(1), which was added by the Securities Act amendments of 1975, permits an investment adviser to cause an account to pay a broker an amount of commission for effecting a securities transaction in excess of the commission another broker might have charged, as long as the adviser determines in good faith that the commission was reasonable in relation to the value of both the brokerage and research services provided by such broker.
180
Finally, the view of the directors that imminent changes in the structure of the industry made it unwise to change the Fund's brokerage policies may not be entitled to much weight. Nevertheless, in the light of the many and often contradictory administrative, legislative and judicial pronouncements on the subject of recapture, this is a factor to be taken into account when evaluating the reasonableness of the business judgment reached by the directors which they recognized as a very close question.
181
The independent directors also sought the advice of counsel on the recapture question. It is true that such advice was not given by wholly disinterested counsel since Sullivan & Cromwell represented M&D and Eberstadt as well as the Fund itself. Thus, "it would have been . . . better to have the investigation of recapture methods and their legal consequences performed by disinterested counsel furnished to the independent directors." Fogel v. Chestnutt, supra, at 750. Here, however, counsel correctly advised the independent directors as to the applicable law and the necessity for reaching a reasonable business judgment on the recapture question. The fact that counsel were not disinterested does not vitiate the reasonableness of the judgment which the independent directors reached here. See Fogel v. Chestnutt, supra, at 749-50.
182
In its amicus brief, the SEC, although critical of some of the reasons advanced for the decision not to recapture, concluded that the reasons considered in the aggregate supported the directors' decision. Among the reasons which the SEC considered valid were the desirability of obtaining additional research, the possibly adverse effect of adopting a recapture policy on sales and on portfolio performance, and the requirement of obtaining the best execution.
183
It should be borne in mind that the question here is not whether, as a matter of hindsight, the determination of the independent directors was correct. The question is whether the decisions by these directors to forego recapture were reasonable considered at the time and under the circumstances in which they were reached.
184
We conclude that the Fogel test governing the determination of the independent directors not to recapture was satisfied in this case. There was full disclosure by the Fund's adviser as to the possibilities of recapture and the methods available to accomplish it. All material dealing with the question was placed before the independent directors and fully considered by them. They were correctly advised by counsel as to the applicable legal standards. They carefully weighed the relative advantages and disadvantages of recapture and the economic pros and cons involved. Their decision to forego recapture was a reasonable business judgment.31
185
Since all three prongs of the applicable test have been met, we agree with Judge Carter that the decision to forego recapture did not violate the fiduciary obligations of either the Fund's adviser or its interested directors under section 36 of the Investment Company Act, and affirm his holding to that effect.
D.
186
Appellants' final contention is that the court below erred in not holding M&D, Eberstadt and Zeller liable to the Fund for the issuance to its shareholders of false and misleading proxy statements and prospectuses. In this derivative action, brought on behalf of the Fund, we see no basis upon which the Fund could recover for deficiencies in its prospectuses. We will, therefore, treat this contention as attacking only the adequacy of the proxy statements. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Galfand v. Chestnutt Corp., supra.
187
It is charged that proxy statements issued to the Fund's shareholders omitted to state material facts as to the opportunities to recapture portfolio brokerage commissions for the benefit of the Fund, the methods available for such recapture, and the board's decisions to forego recapture. The material facts so omitted, says the appellant, were necessary in order to make the proxy statements not false and misleading within the meaning of SEC rule 14a-9, 17 C.F.R. § 240.14a-9(a), as made applicable to investment companies.32
188
The question of the adequacy of the information furnished to shareholders in proxy statements is not disposed of by our holding that the defendants did not breach their fiduciary duties relative to the decisions of the independent directors to forego recapture. The management of an investment company also is obliged under rule 14a-9 to furnish its shareholders with all information necessary to enable them to make an informed judgment on questions concerning investment contracts presented to them at annual meetings. See Galfandv. Chestnutt Corp., supra, at 812; Mills v. Electric Auto-Lite Co., supra, 396 U.S. at 381, 90 S.Ct. 616. We must therefore examine the various proxy statements to determine whether or not they conform to the requirements of rule 14a-9.
189
In 1966, 1970, 1971, 1972, and 1973, new investment advisory contracts with M& D or renewals or amendments of existing contracts were submitted for approval by the Fund's shareholders at annual meetings pursuant to section 15(a) of the Act, 15 U.S.C. § 80a-15(a). The shareholders also had the statutory right at any time to terminate the current advisory contract or seek its renegotiation under section 15(a)(3). Brown v. Bullock, supra, at 417. In all the years from 1966 to 1974, inclusive, the proxy statements issued for the annual shareholders meetings contained statements concerning the M&D management contract and the Fund's portfolio brokerage practices. Directors of the Fund were also elected by the shareholders annually.
190
The February 4, 1966 proxy statement, issued before the publication of PPI by the SEC, devoted the following separate section to the subject of Fund brokerage:
191
For the year 1965, brokerage fees paid by the Fund on the purchase and sale of the Fund's portfolio securities amounted to $339,860. There is no undertaking or agreement to allocate such business to dealers on any prescribed basis. However, the extent to which such dealers have sold shares of the Fund or have provided statistical research or other services are important factors in such allocation. Subject to obtaining the best execution, $271,910 was allocated to dealers based on the volume of Fund shares sold and $40,977, representing approximate value, to dealers who provided statistical research or other services to the Manager. The Manager has informed the Fund that these services do not reduce the expense of the Manager by a material amount. Officers of the Fund are responsible for the allocation of brokerage business and placement of brokerage orders.
192
It is the current intention of the Fund to continue the practice set forth above. However, it is the policy of the Fund that no brokerage business will be placed with any dealer if, in the opinion of the Fund the most favorable price and execution would not be obtained.
193
The February 7, 1967 proxy statement, issued some two months after PPI, and the February 9, 1968 proxy statement, contained brokerage sections nearly identical to the 1966 version except for the specific figures reported.
194
The February 10, 1969 proxy statement followed this pattern in practically identical language. In addition, it provided information as to the Fund's portfolio turnover rate for the past three years and stated:
195
While the Fund does not presently intend to purchase or sell any securities through the firm of F. Eberstadt and Co., it may do so in the future but, if so, only in its capacity as broker with respect to transactions on a securities exchange at regular exchange commissions and charges.
196
The February 19, 1970 and March 31, 1971 proxy statements were virtually identical to their 1969 counterpart on the subject of portfolio brokerage.
197
The January 27, 1972 proxy statement contained a separate section proposing an amendment to the Fund's certificate of incorporation designed to make explicit what was said to be the implicit power of the board of directors to determine how portfolio brokerage commissions should be allocated. See supra n. 27. The statement announced that the board intended to continue existing brokerage practices and did not plan to
198
make any provision for recapture through an affiliated broker of any part of the brokerage commissions paid by the Fund.
199
This was the first mention of recapture possibilities in any of the proxy statements.
200
In addition, the 1972 proxy statement contained a somewhat expanded discussion of portfolio brokerage and portfolio turnover rate:Brokers receive commissions at standard rates on portfolio transactions up to $500,000 and at negotiated rates on transactions in excess of this amount since April 1, 1971. For the fiscal year ended December 31, 1971 brokerage fees paid by the Fund on the purchase and sale of the Fund's portfolio securities amounted to $920,767. The Fund has also executed portfolio transactions with dealers acting as principals in the "third market" and directly with institutions in the "fourth market". The Fund does not deal exclusively with any particular broker-dealer or group thereof. The Fund always seeks to place portfolio transactions where it can obtain the best net price which results from the most favorable combination of price, commission and execution and deals directly with a principal market maker in connection with over-the-counter transactions. The Fund's Board of Directors and the Manager consider that, subject to obtaining the best price, execution and commission, allocation of brokerage to brokers who have sold shares of the Fund or have provided statistical and research information is, and presently continues to be, of benefit to the Fund and its shareholders. In many instances the broker who provides the best execution also provides statistical and research information and also may have sold shares of the Fund. To the extent possible, the Manager selects broker-dealers who have provided a broad range of services to the Fund. It is impossible therefore to determine the precise amount of brokerage that was allocated for any single service. Officers of the Manager, who are also officers of the Fund, are responsible for the allocation of brokerage business and placement of brokerage orders, subject at all times to obtaining the best price and execution. The Fund's portfolio turnover rate, exclusive of short-term notes, for the last three fiscal years was 10.3% for 1969, 12.1% for 1970 and 13.2% for 1971.
201
As indicated above, the Board of Directors has directed the Manager not to have the Fund purchase or sell any portfolio securities through the firm of F. Eberstadt & Co., Inc., the parent of the Manager. The Board, of course, has the right to determine in the future that some other course of action might be desirable.
202
The final two proxy statements with which we are concerned, dated February 7, 1973 and February 8, 1974, respectively, reflected the amendment to the Fund's certificate of incorporation in 1972 and the NASD rule change in 1973. They informed the shareholders that the Fund's board had the power, under the certificate of incorporation, to determine brokerage policy; that the board had instructed M&D that sales of Fund shares should not be a qualifying or disqualifying factor in the selection of brokers who executed portfolio transactions; that the choice must be made strictly on the basis of the value and quality of the brokerage services rendered; and that in many instances the brokers selected may have provided statistical and research information and may or may not have sold shares of the Fund. They also repeated the statement that the board had directed M&D not to have the Fund purchase or sell any portfolio securities through the Eberstadt firm, although it had the right to determine some other course of action in the future.
203
At trial, Zeller testified that the shareholders were not advised that up to 1968 give-ups were being directed to brokers who had not participated in the execution because
204
it was not considered material. . . . (I)t was simply a matter of rewarding brokers for services furnished through the adviser, through the management, to the fund. Whether that was done directly through the give-up mechanism we did not consider a material item.
205
In response to a question by the court as to whether the shareholders were advised that it was not the Fund's practice to allow give-ups to Eberstadt, Zeller stated:
206
No; (they) were not, your Honor, for the very reason . . . that the question was really whether any brokerage revenues flowed to the parent corporation, you see, and whether they flowed by any give-up or direct order was not considered either by us or our counsel to be sufficiently material to be put in the prospectus. You see, as long as we weren't getting brokerage, there was no disclosure problem. That was our judgment and the judgment of our lawyers. Had we gotten brokerage, then you would have had to disclose that.
207
Dr. Murray's testimony on disclosure to the shareholders was in substantial accord with that of Mr. Zeller.
208
In his opinion below, Judge Carter observed that
209
while the full implications of the (brokerage) policy were not spelled out, the policy was announced to the shareholders in every prospectus issued since 1965 (emphasis added).33
210
339 F.Supp. at 953. He found that the January 27, 1972 proxy statement relating to the amendment of the certificate of incorporation and referring to recapture was not false and misleading. Though he apparently held that the disclosure provisions of the federal securities acts had not been violated by the earlier proxy statements, he did not specifically address himself to the question of whether the pre-1972 proxy statements (as opposed to prospectuses) omitted material facts.34
211
In TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), the Supreme Court formulated the following test for determining the materiality of omissions in proxy statements:
212
(A)n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. This standard is fully consistent with Mills general description of materiality as a requirement that "the defect have a significant propensity to affect the voting process." It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.35
213
Id., 426 U.S. at 449, 96 S.Ct. at 2133, 48 L.Ed.2d at 766, (footnote omitted). The Court went on to say that this ultimate determination of materiality requires
214
delicate assessment of the inferences a "reasonable shareholder" would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact.
215
Id.
216
As previously mentioned, at the annual meetings in the years 1966, 1970, 1971, 1972, and 1973, the shareholders were specifically asked to approve management agreements. During the entire period in question, moreover, the shareholders had the statutory right to terminate or renegotiate the current management contracts under section 15(a) of the Act, 15 U.S.C. § 80a-15(a). In addition, there was an annual election of directors who had the power to continue existing management agreements without further shareholder approval unless the shareholders took affirmative action to terminate or renegotiate them.
217
During the years from 1965 to 1971, inclusive, the proxy statements issued to the shareholders made no reference to the fact that brokerage commissions were recapturable, the methods available to effect recapture, the board's periodic decisions to forego recapture, or the board's reasons for so deciding. While each of these proxy statements contained a description of the Fund's existing portfolio brokerage practices, the shareholders were not informed of the alternatives to these practices. Specifically, the 1966, 1967 and 1968 proxy statements, while stating the amount of brokerage allocated to promote sales and obtain additional research and statistical material and the intention to continue these practices, made no allusion to the alternative of recapture for the Fund's benefit by directing give-ups to Eberstadt or otherwise, the board's rejection of these alternatives, and its reasons for rejecting them. The addition in the 1969, 1970 and 1971 proxy statements of a reference to the Fund's intention not to do portfolio business through Eberstadt did not explain the significance of this fact or even mention that recapture for the benefit of the Fund was an available alternative.
218
The opportunity for recapture and the methods by which it could be accomplished bore directly on the management agreement and what action the shareholders would take respecting it. The disclosure of the recapture alternatives was necessary in order for the shareholders to make an informed decision on whether or not to approve the new management contracts or whether or not to continue or renegotiate the current ones.
219
We have already held that the management and distribution agreements contemplated the allocation of brokerage by M&D to secure sales, additional research, and statistical services, and that the shareholders were informed of this in proxy statements. The shareholders should also have been informed that by approving these agreements they were foregoing an opportunity to effect recapture and thus lower advisory fees even if, as management contends, such fees might eventually have to be adjusted to give M&D additional funds to secure the services needed to maintain the Fund's performance which would no longer be obtained by allocating brokerage.
220
We do not go so far as to hold that every possible alternative to a particular policy must be spelled out in a proxy statement. See Doyle v. Milton, 73 F.Supp. 281 (S.D.N.Y. 1947). We recognize that such a rule would indeed tend to defeat the purposes of the proxy rules by
221
bury(ing) the shareholder in an avalanche of trivial information a result that is hardly conducive to informed decisionmaking.
222
TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 448, 96 S.Ct. at 2132, 48 L.Ed.2d at 765-66.
223
But, in our view, the same considerations of clear conflict of interest between the adviser and the Fund which required management to supply the independent directors with full information concerning the recapture question so that they could reach an informed judgment on the subject also mandated disclosure to the shareholders of the recapture alternatives and the board's decisions thereon.
224
Management recognized that the decision to forego available recapture opportunities was a significant and controversial one which involved substantial amounts of money. We have already seen the care taken to assure that this decision was legally permissible and the product of a carefully considered exercise of business judgment by a fully informed group of independent directors. We have also noted management's acknowledgment that the decision reached was "the closest kind of business decision." Yet, despite the repeated and extensive disclosures to the independent directors about recapture, the subject was never presented to the shareholders until 1972. This contravened the policy of the Investment Company Act as declared in its preamble,36 rendered ineffectual the shareholders' approval of the management agreements, and deprived the shareholders of their right to terminate or seek renegotiation of the agreements under section 15(a)(3) of the Act, 15 U.S.C. § 80a-15(a)(3).
225
Under the circumstances here, disclosure of the fact that there were recapture opportunities which the Board had chosen to forego would have altered significantly the total mix of information available to a reasonable investor. There was a substantial likelihood that such disclosure would have assumed actual significance in a reasonable investor's deliberations concerning the management agreements. We view the omissions of any statements as to the recapture alternatives as "so obviously important to an investor, that reasonable minds cannot differ on the question of materiality." TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 450, 96 S.Ct. at 2133, 48 L.Ed.2d at 766, and find such omissions material as a matter of law.
226
The proxy statements for 1972, 1973 and 1974 are in a different posture. While it failed to detail the available recapture techniques and the board's prior consideration of the issue, the 1972 proxy statement raised the possibility of recapture in its discussion of the proposed amendment to the Fund's certificate of incorporation, and Judge Carter concluded that it was not false and misleading.
227
After viewing the facts omitted in the 1972 proxy statement against the disclosures that were made, see TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 450-452, 96 S.Ct. at 2133-2134, 48 L.Ed.2d at 767-68, and giving appropriate weight to the assessments of the trier of the facts, see TSC Industries, Inc. v. Northway, Inc., supra, 426 U.S. at 450, 96 S.Ct. at 2133, 48 L.Ed.2d at 766, we cannot say that there was such a substantial likelihood that a reasonable shareholder would have considered these omissions either important in deciding how to vote or as so significantly altering the "total mix" of information available that the district judge's finding that they were not material was erroneous under Northway. We reach the same conclusion with respect to the 1973 and 1974 proxy statements, which came after the stockholders had been put on notice as to the possibility of recapture and approved the certificate amendment explicitly providing for board control over allocation of brokerage omissions.
228
We hold that the proxy statements for the annual meetings in the years 1967, 1968, 1969, 1970 and 1971 were false and misleading under rule 14a-9 because of the omission of material facts. See Galfand v. Chestnutt Corp., supra; Gerstle v. Gamble-Skogmo, Inc., supra. We therefore reverse the holding of the court below that the proxy statements for these years did not violate the disclosure provisions of the federal securities laws. Responsibility for such omissions begins with the February 7, 1967 proxy statement since it is clear from the record that by then management and the independent directors had sufficient time to consider and react to the PPI report and make appropriate disclosures to the shareholders. See Fogel v. Chestnutt, supra, at 755, 755 n. 30; Moses v. Burgin, supra, at 385.
229
The case is remanded to the district court for determination of what damages, if any, were caused to the Fund by the proxy statements we have held to be in violation of rule 14a-9. See Mills v. Auto-Lite Co., supra; Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374 (2d Cir. 1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975).
*
The amicus brief of the Securities and Exchange Commission (SEC) was filed at the request of the court on May 7, 1976
**
Frederick van Pelt Bryan, of the Southern District of New York, sitting by designation
1
See also Deutsch, Fogel v. Chestnutt: The Meaning of an Opinion, 4 Sec.Reg.L.J. 375 (1977)
2
"Sales load" is defined in section 2(a)(35) of the Investment Company Act, 15 U.S.C. § 80a-2(a)(35) as
the difference between the price of a security to the public and that portion of the proceeds from its sale which is received and invested or held for investment by the issuer. . . .
3
In 1970, section 2(a)(19), 15 U.S.C. § 80a-2(a)(19), was added to the Act defining the term "interested person" to include those having close family or substantial financial or professional relationships with investment companies, their investment advisers, principal underwriters, officers, and employees. This concept was substituted for the "non-affiliated" requirements for fund directors under section 10 of the Act so as to require that the board be composed of at least 40 percent "non-interested" persons
4
This important passage of PPI, quoted in full in Fogel, supra, at 736, is reproduced here for the sake of both clarity and convenience:
(a) Use of brokerage commissions to benefit the funds
(i) Reducing advisory fees. As has been noted, subsidiaries of four adviser-underwriters that maintain their own retail sales forces among them three of the largest, Investors Diversified Services, Inc., Waddell & Reed, Inc., and Channing Financial Corp., as well as the smaller Imperial Financial Services, Inc. are now members of the Pacific Coast Stock Exchange. These subsidiaries execute orders for the funds on the Pacific Coast Stock Exchange. More important, however, they obtain a considerable amount of nonfund business from broker-dealers who are dual members of the Pacific Coast Stock Exchange and other exchanges in return for fund brokerage business on other exchanges, primarily the NYSE. All the net profits of IDS's subsidiary and about 40 to 50 percent of the net profits of Waddell & Reed's and of Imperial Financial Services' subsidiaries have been applied to reduce advisory fees payable by the funds in those complexes.
Widespread emulation by institutional investors of the precedent set by these four complexes could have a marked effect on the economics of the securities industry. Within the framework of the existing commission rate structure it is a method whereby mutual fund shareholders can derive greater benefits than they have heretofore received from fund brokerage commissions. However among dealer-distributed funds the important role that portfolio brokerage plays in the competition for dealer favor has kept fund managers, with few exceptions, from using exchange memberships to reduce costs of the funds.
Similar competitive factors have also operated against the use, for the benefit of the funds and their shareholders, of regional exchange rules permitting give-ups to any member of the NASD on transactions executed on those exchanges. It would not be inconsistent with those rules for dealer-distributed funds to direct give-ups to their adviser-underwriters, all of whom are NASD members, for the purpose of applying these give-ups to reduce the advisory fees payable by the funds. Unless and until such procedures become widespread, any adviser-underwriter to a dealer-distributed fund who chose to utilize fund brokerage in this manner would place itself at a disadvantage in competing for the interest of nonmember dealers in selling the fund shares which it distributes.
PPI at 172-73 (Footnotes omitted).
5
This is the SEC's interpretation of the proposed rule. Such an affirmative duty to recapture, however, does not emerge so clearly from its text. See Fogel v. Chestnutt, supra, at 739
6
The SEC rescinded rule 19b-2 in response to congressional reports accompanying these amendments
7
The management fees for the years 1965 through 1969 were
YEAR AMOUNT
1965 $1,160,563
1966 1,268,590
1967 1,428,228
1968 1,505,231
1969 1,521,868
On March 20, 1970, and March 14, 1971, respectively, the schedule of fees to be paid to M&D was revised. The management fees for each of the years 1970 through 1973 were:
YEAR AMOUNT
1970 $1,662,203
1971 2,247,468
1972 3,097,640
1973 3,631,470
8
For the years 1965 through 1973, the Fund paid gross commissions to M&D (on the sale of the Fund's shares as distinguished from portfolio transactions) and M&D re-allowed to non-affiliated dealers, the amounts indicated below:
APPROX. COMM. APPROX. COMM.
YEAR PAID M&D RE-ALLOWED
1965 $ 1,678,000 $1,443,000
1966 2,126,000 1,677,000
1967 1,599,000 1,237,000
1968 1,441,000 1,118,000
1969 1,328,000 1,034,000
1970 2,099,000 1,620,000
1971 3,166,000 2,434,000
1972 6,335,000 4,885,000
1973 10,751,000 8,251,000
9
This view was substantiated by his summary of their backgrounds:
Dr. James S. Coles, director since 1968, currently President of Research Corporation, a foundation for the advancement of science, and before that President of Bowdoin College; Burt N. Dorsett, director since 1966, currently Vice President and Senior Investment Officer for College Retirement Equities Fund, and former Vice President for Investments at the University of Rochester; Alfred E. Driscoll, director since 1957, currently Chairman of the New Jersey Turnpike Authority and former governor of New Jersey; Dr. Bertrand Fox, director since 1970, recently retired Professor of Investment Banking at Harvard University Graduate School of Business Administration; Dr. Roger F. Murray, director since 1959, Professor of Banking and Finance at the Columbia University Graduate School of Business, formerly Vice President, responsible for portfolio management at Bankers Trust Co., and at one time manager of the investment portfolio of the Teachers Insurance and Annuity Association & College Retirement Equities Fund; Whitman Hobbs, director since 1972, John N. Martin, Franz Schneider, long time director, and Julian Avery, director until 1968, holding responsible positions in various corporate business institutions; Dr. Howard Rusk, director since 1962, well-known authority on rehabilitation and other medical questions; Leroy Marek, director from 1959-1973, a consultant on scientific problems and issues; and James J. Minot, director from 1968-1970, senior partner in Paine, Webber, Jackson & Curtis, Inc.
399
F.Supp. at 947
10
It was also stipulated that during the period in question no commission paid by the Fund exceeded the minimum commission prescribed by the constitution and rules of the exchange on which the particular transaction was executed
11
The parties stipulated in this case that, during the period of time covered by the complaint, several techniques whereby excess brokerage commissions could be recaptured for the benefit of the Fund were available. At trial, basically three separate available techniques were discussed, all of which depended to some extent on rules of the New York, American, and regional stock exchanges which permitted the crediting of some portion of brokerage commissions on portfolio transactions received by an investment adviser against its management fee. First, prior to December 5, 1968 when give-ups were permissible, the Fund could have directed the brokers who executed portfolio transactions for it on the New York Stock Exchange to give up part of the commission to Eberstadt, a member firm of the NYSE, to be applied against the M&D advisory fee. Second, even after the abolition of give-ups, the Fund could have placed its portfolio transactions directly with Eberstadt for execution and directed it to reduce the management fee payable to M&D by the excess portion of the fixed commission. Third, the Fund could have executed portfolio transactions on the regional exchanges and had Eberstadt or M&D, as members of the NASD, receive give-ups before December 5, 1968, or qualify for "preferred rate non-membership" status and a reduced rate of commissions thereafter
12
Chemical Fund, Inc. is a nominal defendant and appellee in this action, but our references to "defendants" and "appellees" will not include it unless specifically noted
13
The word "independent" hereafter will be used to describe directors who were neither "affiliated" nor "interested" within the meaning of the Investment Company Act. See supra at 406 and n.3
14
The Fund's management agreement provided on January 1, 1965, and with minor changes not significant here continued to provide:
. . . . §
2
The Manager shall furnish to the Board of Directors and officers of the Investment Corporation advice and recommendations with respect to the acquisition, by purchase, exchange, subscription or otherwise, of securities, and advice and recommendations with respect to other aspects of the business and affairs of the Investment Corporation; and shall, subject to the Board of Directors of the Investment Corporation, manage and supervise the business and affairs of the Investment Corporation
3
The Manager shall supply the Board of Directors and officers of the Investment Corporation with all statistical information reasonably required by them and reasonably available to the Manager; shall furnish the Investment Corporation with an office, and with ordinary clerical and bookkeeping services at such office; and shall authorize and permit any of its directors, officers and employees, who may be elected as directors or officers of the Investment Corporation, to serve in the capacities in which they are elected. All services to be furnished by the Manager under this Agreement may be furnished through the medium of any such directors, officers or employees of the Manager
. . . .whi
5
As compensation for the services performed and the facilities furnished by the Manager, including the services of any consultants retained by the Manager, effective January 1, 1965, the Investment Corporation shall pay the Manager . . . a quarterly fee, as per the following rates, of the average daily net assets of the Investment Corporation
The Fund's distribution agreement provided on January 1, 1965, and with minor changes not significant here continued to provide:
6
The Distributor shall assume and pay, or reimburse the Investment Corporation for, the following expenses of the Investment Corporation:
A. Costs of qualifying the shares of the Investment Corporation for sale and, if necessary or advisable in connection therewith, of qualifying the Investment Corporation as a dealer or broker, in such states as shall be selected by the Distributor and fees payable to each state for continuing the qualification therein until the Distributor notifies the Investment Corporation that it does not wish such qualification continued.
B. Costs of printing all copies of the Prospectus and of preparing and printing all other sales literature, if any, printed at the instruction of the Distributor.
C. Counsel fees and expenses in connection with the foregoing.
The Distributor shall also pay all its own costs and expenses and, generally, all costs and expenses connected with the sale of shares of the Investment Corporation, excluding issuance, transfer and registry charges and taxes, delivery and remittance expenses, and the costs of stock certificates, except that, the Distributor shall pay all expenses incurred in connection with splitting the shares of the Investment Corporation. (emphasis added).
15
The 1965 prospectus stated that "brokerage business is allocated to dealers partly on the basis of Fund shares sold and partly on services rendered." Subsequent prospectuses included similar statements as well as specification of the dollar amounts or, in 1972, percentages of brokerage allocated to dealers on the basis of shares sold and services rendered. The 1973 prospectus stated, as was then the case, that selection of brokers by the Fund was made "strictly on the basis of the value and quality of the brokerage services rendered," rather than on the basis of sales promotion. The proxy statements from 1966 on made corresponding, although more limited, disclosures
These contemporaneous disclosures obviously support the conclusion that the rate of M&D's compensation under the advisory and distribution contracts was fixed with the knowledge that M&D would allocate brokerage to reward dealers providing it with additional research and sales promotion for the Fund's benefit. The whole course of dealing between the adviser and the Fund is to the same effect.
16
It is worth noting that while the SEC took no position on the interpretation of the Fund's advisory contract in its amicus brief, it acknowledged that
most advisory contracts in the mutual fund industry contained relatively standard provisions, including one on research, and . . . it was nevertheless the general practice in the industry to pay for research with excess brokerage commissions.
Even appellant conceded in her reply brief that the practice was widespread in the industry, although she contends that most mutual funds chose not to defend it when challenged by litigation.
17
Unlike Judge Wyzanski, we believe that, unless the parties agreed otherwise, industry usage supplied the management and distribution contracts with additional terms authorizing the allocation of brokerage and give-ups by the investment adviser to promote sales and obtain services so long as this was legally permissible. We also conclude, however, that the contracts as thus construed do not violate section 15 of the Investment Company Act, 15 U.S.C. § 80a-15
18
Article Eighth, Section B 5(b) of the Fund's charter, has at all times provided that the board of directors shall have power to authorize the issuance or sale of shares from time to time "for a consideration, per share, to the (Fund) not less than the asset value, per share, of the outstanding shares of the (Fund)."
19
Judge Friendly also noted a comment on Moses which questioned the soundness of this "charter" argument in view of the fact that the First Circuit in that case apparently rested its finding of liability on the lack of full disclosure to the independent directors, rather than on the charter provision alone. See Fogel v. Chestnutt, supra, at 744 n.12
20
Since we find the standards applicable to fiduciaries under the Investment Company Act at least as stringent as those at common law, see Galfand v. Chestnutt Corp., supra, at 811, we shall restrict our consideration of appellant's breach of fiduciary duty argument to the standards laid down by the Investment Company Act
21
Tanzer v. Huffines, 314 F.Supp. 189 (D.Del.1970); Brown v. Bullock, 194 F.Supp. 207 (S.D.N.Y.), aff'd, 294 F.2d 415 (2d Cir. 1961)
22
We note that after observing that "a change from independent brokerage to an affiliated broker is not a matter to be lightly undertaken," 445 F.2d at 374, the Moses court stated that sound business reasons supported the judgment of the fund's directors that portfolio transactions should not be executed through an affiliated broker. 445 F.2d at 375. See also Schlusselberg v. Colonial Management Associates, Inc., 389 F.Supp. 733, 737 (D.Mass.1974). The Moses court also rejected the contention that it was unlawful to allocate "reciprocals" to unaffiliated brokers "in proportion to their success in selling . . . shares to the public," so long as the mutual fund obtained best execution. 445 F.2d at 372 n. 5
23
In her supplemental brief, appellant somewhat surprisingly states that
it has never been plaintiff's contention that Section 36 (or Section 36(a), as amended) removes the question of recapture as a matter of statutory law from the ambit of directors' discretion.
24
This is the test proposed by the SEC, and we find that it encompasses both the Moses test of the adequacy of the disclosure of the possibilities of recapture by the adviser to the independent directors, and the Fogel test of the "minimum requirement" for the discharge of the independent directors' duties after such disclosure has been made
25
Copies of the release and opinion letter were forwarded to each director
26
In the interim, SEC Securities Exchange Act Release No. 8746, the Loomis letter stating that management has no fiduciary duty to acquire a stock exchange seat for recapture purposes if its best business judgment is to the contrary, see supra at 408, had been issued
27
As amended, Section B of Article Eighth of the Amended Certificate of Incorporation provided the board of directors with the power:
8
To determine in their (sic) discretion the manner and purposes of the allocation of brokerage commissions to be paid by the Fund and the selection of the brokers and dealers that shall receive or share directly or indirectly in any such commissions and the basis of such receiving or sharing therein, including, but not limited to, sales of shares of the Fund and any other funds having the same investment adviser and statistical and other information and wire and other services provided to the Fund or the Manager
The proxy statement dated January 27, 1972 stated that the purpose of this amendment was
to make explicit that which has always been implicit, namely, that the Board of Directors of the Fund (more than 50% of whom are otherwise unaffiliated with the Fund or its Manager) has the power to determine how the portfolio brokerage of the Fund shall be used. In the opinion of the Board of Directors of the Fund, it is in the best interest of the Fund to continue the brokerage practices which it has followed since inception under which all portfolio transactions have been carried out by brokers who are not affiliated with the Manager and Distributor of the Fund and not to make any provision for recapture through an affiliated broker of any part of the brokerage commissions paid by the Fund.
Accordingly, as reflected in the proposed new Management Agreement discussed below, the Board of Directors has directed the Manager not to have the Fund purchase or sell any portfolio securities through the firm of F. Eberstadt & Co., Inc., the parent of the Manager, which is a member of the New York and American Stock Exchanges. As indicated under "Allocation of Portfolio Brokerage and Portfolio Turnover Rate" below in this proxy statement, the Fund's Board of Directors and the Manager consider that, subject to obtaining the best price, execution and commission, allocation of brokerage to dealers who have sold shares of the Fund or have provided statistical and research information has been and presently continues to be of benefit to the Fund and its shareholders. The Fund's Manager has been authorized by the Board of Directors to select in the Manager's discretion the brokers or dealers that shall execute portfolio transactions or share directly or indirectly in commissions with respect thereto, and to determine the basis of such sharing, subject in each case to obtaining the best execution taking into consideration, among other things, price (including any brokerage commission), size of the transaction and need for speed in execution. The Board, of course, would have the right to determine in the future that some other course of action might be desirable.
28
The testimony of Dorsett, a third independent director who was called in rebuttal by the plaintiff, shed little light on the board's deliberations
29
See discussion of Dr. Murray's testimony, supra at pp. 425-426
30
This possibility was recognized as early as 1966 in the PPI Report. See PPI at 189-90
31
There is an important distinction between the case at bar and this court's recent decision in Arthur Lipper Corp. v. SEC, 547 F.2d 171 (2d Cir., 1976). Here, the Fund's independent directors decided to use excess brokerage commissions generated by portfolio transactions to secure additional sales promotion, research, and other services. They recognized, when negotiating the management and distribution contracts, that this might provide M&D with some incidental advantages, but concluded that this use of brokerage would confer greater benefits on the Fund than an immediate reduction in the advisory fee. In contrast, the arrangement in Lipper "was a bald diversion to the manager of sums belonging to the investment company", Arthur Lipper Corp. v. SEC, supra, at 180, with the mutual fund receiving no arguable benefit in return
32
As Chief Judge Kaufman stated in Galfand, supra, at n.14:
Rule 14a-9, 17 C.F.R. § 240.14a-9(a) was promulgated by the Securities and Exchange Commission pursuant to § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and provides:
§ 240.14a-9. False or misleading statements.
(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.
The Rule is pertinent here by virtue of Section 20(a) of the Investment Company Act, 15 U.S.C. § 80a-20(a), and the Commission's Rule 20a-1, 17 C.F.R. § 270.20(a)-1, making the proxy rules applicable to securities issued by registered investment companies.
It may be noted that the SEC's amicus brief did not address the issue of the adequacy of disclosure to the shareholders.
33
As previously noted, supra, n. 15, the 1965 prospectus stated that brokerage was allocated partly on the basis of Fund shares sold and partly on services rendered. It also included the following passage which did not appear in proxy statements until 1969:
(W)hile the Fund has never purchased or sold any securities through the firm of F. Eberstadt & Co. in the past, it may do so in the future but, if so, only in its capacity as broker with respect to transactions on a national securities exchange at regular exchange commissions and charges.
These statements were substantially repeated in the 1966, 1967, 1968, 1969, 1970, and 1971 prospectuses. The 1972 and 1973 prospectuses reflected the changes in the Fund's certificate of incorporation and in the permissibility of selecting brokers on the basis of sales. They also indicated that Eberstadt and M&D did not participate in the Fund's brokerage.
34
This may well have been because appellant's claims of inadequate disclosure to the shareholders, while raised below, were not framed as clearly as they have been on appeal and were not pressed by appellant as actively as her other claims of liability
35
The Court, citing Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1301-02 (2d Cir. 1973), rejected the test of materiality ("all facts which a reasonable shareholder might consider important") applied in Northway by the Seventh Circuit as setting too low a threshold, and viewed as misplaced that court's reliance on Mills v. Electric Auto-Lite Co., supra, as support for that broad definition of materiality
36
15 U.S.C. § 80a-1(b) provides:
. . . it is declared that the national public interest and the interest of investors are adversely affected
(1) when investors . . . vote, refrain from voting . . . securities issued by investment companies without adequate, accurate, and explicit information, fairly presented, concerning the character of such securities and the circumstances, policies . . . of such companies and their management . . . .
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IN THE SUPREME COURT OF THE STATE OF NEVADA
ROBERT ADAM MCGUFFEY, No. 70428
Appellant,
vs.
JAMES GREGORY COX, DIRECTOR
OF N.D.O.C.,
FILED
Respondent. JUN 2 7 2016
ORDER DISMISSING APPEAL
This appeal was docketed in this court on May 20. 2016,
without payment of the requisite filing fee. On that same day a notice was
issued directing appellant to pay the filing fee within ten days. The notice
further advised that failure to pay the filing fee within ten days would
result in the dismissal of this appeal. To date, appellant has not paid the
filing fee or otherwise responded to this court's notice. Accordingly, cause
appearing, this appeal is dismissed.
It is so ORDERED.
CLERK OF THE SUPREME COURT
TRACE K LINDEMAN
BY (StaiL Vb‘n.ou
cc: Hon. Nancy L. Porter, District Judge
Robert Adam McGuffey
Attorney General/Carson City
Elko County Clerk
SUPREME COURT
OF
NEVADA
CLERK'S ORDER
(0)-1947 Zcor2-
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233 P.3d 853 (2010)
Hajrudin KUSTURA, Gordana Lukić, Maida Memiević, Petitioners,
v.
DEPARTMENT OF LABOR AND INDUSTRIES, Respondent.
Enver Metrovac, Petitioner,
v.
Department of Labor and Industries and Board of Industrial Insurance Appeals, Respondents.
Ivan Ferenćak, Petitioner,
v.
Department of Labor and Industries and Board of Industrial Insurance Appeals, Respondents.
Emira Resulović, Petitioner
v.
Department of Labor and Industries, Respondent.
Ferid Maić, Petitioner
v.
Department of Labor and Industries, Respondent.
Nos. 81478-3, 81480-5, 81481-3, 81758-8, 81759-6.
Supreme Court of Washington, En Banc.
Argued October 20, 2009.
Decided June 17, 2010.
*855 Ann Pearl Owen, Ann Pearl Owen, P.S., Seattle, WA, for Petitioners.
Spencer Walter Daniels, Johnna Skyles Craig, Jay Douglas Geck, Office of the Attorney General, Olympia, WA, Masako Kanazawa, John R. Wasberg, Office of the Attorney General, Seattle, WA, for Respondents.
Christie Lynn Snyder, Nancy Lynn Talner, Sarah A. Dunne, Seattle, WA, Amicus Counsel for ACLU of Washington Foundation.
Pamela Jo DeVet, Franklin Dennis Cordell, Gordon Tilden Thomas & Cordell L.L.P., Seattle, WA Amicus Counsel for ACLU of Washington Foundation & Washington State Court Interpreter and Translator Society.
Kelly Ann Owen, Bellingham, WA, Katherine Frances Laner, Seattle, WA, Patrick Michael Pleas, Wenatchee, WA, Amicus Counsel for Northwest Justice Project.
Paula Tuckfield Olson, Law Office of Paula T. Olson, Tacoma, WA, Amicus Counsel for Washington Self-Insurer Association.
Bryan Patrick Harnetiaux, Michael J. Pontarolo, Spokane, WA, Kelby Dahmer Fletcher, Stokes Lawrence, Seattle, WA, Amicus Counsel for Washington State Association for Justice Foundation & Washington State Trial Lawyers Association Foundation.
George M. Ahrend, Ahrend Law Firm, P.L.L.C., Moses Lake, WA, Amicus Counsel for Washington State Association for Justice Foundation.
J.M. JOHNSON, J.
¶ 1 This case requires us to define the contours of government-paid interpreter services for limited English proficiency (LEP) individuals under chapter 2.43 RCW. Petitioners are all LEP individuals who filed workers' compensation claims with the Department of Labor and Industries (Department). The Department determined each worker's compensation benefit, and petitioners appealed those decisions to the Board of Industrial Insurance Appeals (Board). Petitioners proceeded through the appeals process, raising a variety of claims, including a claim for government-paid interpreter services, for all interactions with the Department and the Board during the workers' compensation claims process. The first Court of Appeals decision to address this claim, Kustura v. Dep't of Labor & Indus., 142 Wash.App. 655, 175 P.3d 1117 (2008), found no right to such expansive interpreter services under chapter 2.43 RCW. Relying on Kustura, the succeeding Court of Appeals decisions came to the same conclusion.
¶ 2 We hold that nonindigent LEP individuals' statutory right to government-paid interpreter services under chapter 2.43 RCW is triggered when a government agency initiates a legal proceeding involving the LEP individual. Here, neither the Department nor the Board initiated a legal proceeding, so the nonindigent petitioners had no statutory right to interpreter services. However, if the Board in its discretion appoints an interpreter to assist an LEP party at an appeal hearing, current regulations require the Board to pay for the interpreter's services, and chapter 2.43 RCW requires the Board to permit the interpreter to translate whenever necessary to assist the LEP individual at the hearing. This provision of interpreter services at a board hearing does not depend on indigency nor does it extend beyond the hearing itself. We affirm the result of the Court of Appeals' decisions in Kustura and the subsequent cases on the scope of the statutory right to government-paid interpreter services.
FACTUAL AND PROCEDURAL HISTORY
¶ 3 This is a civil case, not a criminal case. Petitioners Hajrudin Kustura, Gordana Lukić, Maida Memiević, Enver Metrovac, Ivan Ferenćak, Emira Resulović, and Ferid Maić are LEP individuals who speak Bosnian. Each was injured at his or her workplace, and each filed a claim with the Department seeking a workers' compensation award. The Department investigated to determine petitioners' workers' compensation benefits. During the course of the Department's actions, some petitioners received some department-paid interpreter services, but no petitioner received free services for all aspects of the Department's investigation. Petitioners *856 appealed the Department's decisions to a board industrial appeals judge (IAJ). The Department and the Board are separate governmental agencies. Petitioners were not found to be indigent, and all were represented by counsel during the workers' compensation claims process before the Department and the Board.
¶ 4 The IAJ held hearings on the record.[1] Interpreters were provided for the petitioners at these hearings, but interpreter services were not provided by the IAJ for petitioners' communications with counsel and in one case were not provided for some witness testimony. In each case, IAJ decisions were appealed to the full Board, then to the superior court, and, in turn, to the Court of Appeals. The first and lead decision published by the Court of Appeals was Kustura, 142 Wash.App. 655, 175 P.3d 1117.[2]Kustura held that chapter 2.43 RCW did not provide petitioners a statutory right to interpreter services paid for by the government because petitioners were the "initiating" parties of the administrative proceedings and department workers' compensation determinations are not "legal proceedings" within the meaning of RCW 2.43.020(3). Id. at 680, 175 P.3d 1117.
¶ 5 The Kustura decision also held that if the Board, in its discretion, appoints an interpreter at appeal hearings, WAC 263-12-097 and chapter 2.43 RCW require the Board to permit the interpreter to assist throughout the hearing, including translating witness testimony and assisting communication between the LEP individual and his or her attorney. Id. at 681, 175 P.3d 1117. The Court of Appeals decisions in the other cases followed Kustura's analysis and conclusions regarding the proper scope of interpreter services. Metrovac v. Dep't of Labor & Indus., 142 Wash.App. 693, 176 P.3d 536 (2008); Ferenćak v. Dep't of Labor & Indus., 142 Wash.App. 713, 175 P.3d 1109 (2008); Resulović v. Dep't of Labor & Indus., noted at 144 Wash.App. 1005, 2008 WL 1778229 (2008); Maić v. Dep't of Labor and Indus., noted at 144 Wash.App. 1008, 2008 WL 1778315 (2008).[3]
¶ 6 We consolidated petitioners' cases and granted review limited to the question of the scope of the right to government-provided interpreter services at the department and board levels. Kustura v. Dep't of Labor & Indus., 165 Wash.2d 1001, 198 P.3d 511 (2008). This issue is governed by chapter 2.43 RCW and WAC 263-12-097.
ANALYSIS
¶ 7 Statutory interpretations are questions of law reviewed de novo. State v. Armendariz, 160 Wash.2d 106, 110, 156 P.3d 201 (2007). We note at the outset that the legislature has codified a policy broadly securing the rights of LEP individuals who need interpreter services during legal proceedings. See RCW 2.43.010. However, the legislature has also provided specific statutory guidance to define the contours of the rights to government paid services. This specific guidance is directly applicable to the current controversy. "A specific statute will supersede a general one when both apply." Waste Mgmt. of Seattle, Inc. v. Utils. & Transp. Comm'n, 123 Wash.2d 621, 630, 869 P.2d 1034 (1994) (citing Gen. Tel. Co. of Nw., Inc. v. Utils. & Transp. Comm'n, 104 Wash.2d 460, 464, 706 P.2d 625 (1985)). We therefore begin our analysis with the applicable specific statutory provisions. To do otherwise would be to pretend to respect the legislature's intent while ignoring the clearest indication of that intent as codified by the legislature.
1. Statutory Right to Government-Paid Interpreter Services
¶ 8 RCW 2.43.040 is clear that LEP individuals only have a statutory right to government-paid interpreter services when they are involved in a legal proceeding initiated by the State:
*857 (2) In all legal proceedings in which the non-English-speaking person is a party... the cost of providing the interpreter shall be borne by the governmental body initiating the legal proceedings.
(3) In other legal proceedings, the cost of providing the interpreter shall be borne by the non-English-speaking person unless such person is indigent according to adopted standards of the body.
RCW 2.43.040 (emphasis added). Subsection (2) allocates the cost of interpreter services to the government if the government entity initiates an action that is properly characterized as a legal proceeding, a term defined by RCW 2.43.020(3). (See infra note 7). Thus, for an LEP individual to have a statutory right to interpreter services at government expense, the government action must (1) be initiated by the government entity and (2) satisfy the definition of a "legal proceeding."[4] If the government action is not a legal proceeding or if a legal proceeding is initiated by an LEP, the LEP bears the cost of interpreter services. RCW 2.43.040(3).[5]
a. Initiation of proceedings
¶ 9 Petitioners do not meet the statutory requirements to be entitled to government-paid interpreter services under RCW 2.43.040 because petitioners initiated claims to both the Department and the Board. When a worker is injured on the job, the statutorily required course of action is for the worker to report the accident to the worker's employer, who in turn is required to report the accident to the Department. RCW 51.28.010(1). However, the legislature has recognized that injured workers generally report their injuries to physicians, who then report to the Department. RCW 51.28.015(1)(a). "Upon receipt of such notice of accident, the [D]epartment shall immediately forward to the worker or his or her beneficiaries or dependents notification, in nontechnical language, of their rights" regarding compensation. RCW 51.28.010(2). The worker may seek workers' compensation benefits by filing a claim with the Department within one year from the date of the accident. RCW 51.28.020, .050. If a worker disagrees with the Department's workers' compensation decision, the worker may appeal to the Board. RCW 51.52.050, .060.
¶ 10 Petitioners argue that the Department initiates the workers' compensation decision process by sending information to injured workers and that the Department's action initiates the Board's appeal hearings. These arguments are not an accurate description of the statutory claim and appeal processes.[6] If a worker is injured on the job, the worker is statutorily required to make a report, which is transmitted to the Department. Upon receipt of a report, the Department is statutorily required to send the worker information regarding the worker's rights. These informational disclosures trigger no administrative proceeding and are always preceded and induced by a petitioner's report of an injury. Aside from the worker's accident report triggering the Department's disclosure, neither of these actions has any further legal ramifications for the Department or the claimants. The act that actually triggers and thus initiates the Department's workers' compensation decision process is the worker's act of filing a claim with the Department. As the workers/petitioners were the parties who triggered the Department's decision-making process, the Department did not initiate the administrative proceedings involving the petitioners.
¶ 11 Petitioners additionally argue that, upon receiving a report of a workplace injury, *858 the Department conducts an investigation under RCW 51.04.020(6), which requires the investigation of "serious injuries" at the workplace. This argument also fails. There is no indication that any investigations were made until after petitioners filed their claims. Additionally, if such an investigation occurred before a claim was filed, it would not trigger the Department's administrative action; petitioners would still be required to file a claim under RCW 51.28.020 to initiate the claims process. In any event, we decline to read facts into the record merely because they could have occurred, especially where petitioners have had ample opportunity to build the record. Here, the claims process did not and could not begin until the petitioners filed their claims. Only once a claim is filed does the claims process officially begin. Thus, petitioners' claim filings initiated the processes.
¶ 12 Petitioners make no additional arguments that the Board is the initiating party of the Board's appeal hearings. In these cases here, petitioners appealed the Department's decisions to the Board, and the Board took no action until moved by the petitioners. Thus, the Board did not initiate the appeal hearings.
¶ 13 Petitioners were denied no statutory right to government-paid interpreter services because neither the Department nor the Board initiated any proceedings involving the petitioners as required by RCW 2.43.040.
b. Legal Proceeding
¶ 14 Because of the preceding analysis, it is unnecessary for this court to determine whether the Department's actions were legal proceedings within the statutory definition provided in RCW 2.43.020(3).[7] However, we note that the right under RCW 2.43.040 for LEP individuals to receive government-paid interpreter services requires both (1) that the government entity initiate the action and (2) that the action satisfy the statutory definition of a "legal proceeding." If either of these conditions is not satisfied, then a nonindigent LEP individual is responsible for interpreter costs in administrative proceedings under chapter 2.43 RCW.
¶ 15 As RCW 2.43.040 specifically addresses and definitively establishes that petitioners are not statutorily entitled to government-paid interpreter services at the department or board level, we do not analyze the issue under the general policy provisions of RCW 2.43.010.
2. Conditional Right to Government-Paid Interpreter Services
¶ 16 Though petitioners have no statutory right to government-paid interpreter services at either the department or board level, petitioners do have a right to paid interpreter services throughout a hearing if the Board in its discretion appoints an interpreter at the Board's hearings. This right comes from the interplay between RCW 2.43.030(1) and WAC 263-12-097.
¶ 17 RCW 2.43.030(1) defines the scope of the right to an appointed interpreter's services in a legal proceeding:
Whenever an interpreter is appointed to assist a non-English-speaking person in a legal proceeding, the appointing authority shall, in the absence of a written waiver by the person, appoint a certified or a qualified interpreter to assist the person throughout the proceedings.
(Emphasis added.) If the Board appoints an interpreter to assist an LEP individual in a legal proceeding, including board hearings, the Board "shall" appoint the interpreter to assist the LEP "throughout the proceedings." Here, the Board, in its discretion, decided to appoint interpreters to assist petitioners at their hearings. However, the IAJ forbade interpreter services for some attorney-client communication and, in one case, barred translation of witness testimony other than that of the petitioner. Communicating with counsel and understanding testimony offered during a hearing are both legitimate aspects of a legal proceeding, and the mandatory *859 language of RCW 2.43.030(1) does not permit the Board to appoint an interpreter and then restrict the scope of the interpreter's services during a hearing. If the Board appoints an interpreter at appeals hearings, chapter 2.43 RCW requires the Board to allow interpreter services for all aspects of the hearing, including translating attorney-client communications and testimony of all witnesses.[8]
¶ 18 The Board has discretion to appoint and pay for an interpreter at a Board hearing even if not statutorily required to do so. WAC 263-12-097, provided below in pertinent part, provides the contours of this discretion:
(1) When ... a non-English-speaking person as defined in chapter 2.43 RCW is a party or witness in a hearing before the board of industrial insurance appeals, the industrial appeals judge may appoint an interpreter to assist the party or witness throughout the proceeding.
....
(4) The board of industrial insurance appeals will pay interpreter fees and expenses when the industrial appeals judge has determined the need for interpretive services as set forth in subsection 1.
WAC 263-12-097 (emphasis added). Subsection (1)'s permissive language gives the Board discretion to appoint an interpreter for a party or witness, regardless of whether the "initiating the legal proceedings" requirement of RCW 2.43.040(2) is satisfied. However, this discretion does not extend to the scope of services the interpreter may provide, which as stated above, is governed by RCW 2.43.030(1). The mandatory language in WAC 263-12-097(4) requires the Board to pay for interpreter services if the Board elects to appoint an interpreter. Read with RCW 2.43.030(1), the rule that arises is if the Board decides to appoint an interpreter, the Board shall pay for the associated interpreter costs and must allow the interpreter to translate "whenever necessary to assist the claimant during the hearing."[9]Kustura, 142 Wash.App. at 681, 175 P.3d 1117. However, this right is limited to the hearing itself. Nothing in chapter 2.43 RCW or WAC 263-12-097 requires paid interpreter services outside of the actual board hearing. Our holding is thus limited to the hearing itself and does not extend to any hearing preparation, including interviews, medical evaluations, and preparing or responding to discovery.[10]
CONCLUSION
¶ 19 The petitioners as claimants initiated interactions with both the Department and the Board. As petitioners were not indigent, they therefore had no statutory right to interpreter services at government expense under chapter 2.43 RCW.
¶ 20 However, the Board has discretion to appoint interpreters for LEP individuals. If the Board exercises its discretion and appoints interpreters, RCW 2.43.030(1) requires the Board to allow the interpreter to provide services throughout the proceeding, including attorney-client communications, but this requirement does not extend beyond the hearing itself. Finally, WAC 263-12-097 requires the Board to pay for any interpreter services it provides. We affirm the result of the Court of Appeals decisions on the issue of government-provided interpreter services.
*860 WE CONCUR: BARBARA A. MADSEN, Chief Justice, CHARLES W. JOHNSON, GERRY L. ALEXANDER, SUSAN OWENS, MARY E. FAIRHURST, Justices, and CHRISTINE QUINN-BRINTNALL, Justice Pro Tem.
CHAMBERS, J. (dissenting).
¶ 21 The court's opinion today misreads carefully crafted statutes so as to deny non-English speaking workers in our state a significant benefit the legislature intended to provide: the ability to meaningfully participate in the workers' compensation process with the assistance of translators. I respectfully dissent.
¶ 22 I would start our analysis with the legislature's own statement of purpose:
It is hereby declared to be the policy of this state to secure the rights, constitutional or otherwise, of persons who, because of a non-English-speaking cultural background, are unable to readily understand or communicate in the English language, and who consequently cannot be fully protected in legal proceedings unless qualified interpreters are available to assist them.
RCW 2.43.010. This is expansive language and should guide our reading of related statutes. Similarly, it has long been the law of the State that the workers' compensation statute is to be interpreted liberally in favor of the injured worker:
This court is committed to the doctrine that our workmen's compensation act [(laws of 1927, ch. 310)] should be liberally construed in favor of its beneficiaries. It is a humane law and founded on sound public policy, and is the result of thoughtful, painstaking, and humane considerations, and its beneficent provisions should not be limited or curtailed by a narrow construction.
Hilding v. Dep't of Labor & Indus., 162 Wash. 168, 175, 298 P. 321 (1931); accord Lightle v. Dep't of Labor & Indus., 68 Wash.2d 507, 510, 413 P.2d 814 (1966) ("We are committed to the rule that the Industrial Insurance Act [(Title 51 RCW)] is remedial in nature and its beneficial purposes should be liberally construed in favor of beneficiaries.") (citing Wilber v. Dep't of Labor & Indus., 61 Wash.2d 439, 446, 378 P.2d 684 (1963)). In my view, the same principle should apply to statutes that are necessary for the implementation of the act, such as chapter 2.43 RCW.
¶ 23 Turning to that chapter, "Except as otherwise provided in this section, when a non-English-speaking person is involved in a legal proceeding, the appointing authority shall appoint a qualified interpreter." RCW 2.43.030(1)(c). "`Legal proceeding' means a proceeding in any court in this state, grand jury hearing, or hearing before an inquiry judge, or before an administrative board, commission, agency, or licensing body of the state or any political subdivision thereof." RCW 2.43.020(3). Finally, relevantly, "In all legal proceedings in which the non-English-speaking person is a party ... the cost of providing the interpreter shall be borne by the governmental body initiating the legal proceeding." RCW 2.43.040(2). Thus, if workers' compensation proceedings are proceedings initiated by the State or any political subdivision thereof, non-English-speaking claimants are entitled to interpreters.
¶ 24 Read liberally, as we must, the department initiates the proceedings. RCW 51.28.010(1) obligates employers, not employees, to notify the department if an employee has been injured and has received medical treatment. At that point, the department initiates proceedings. RCW 51.28.010(2) ("Upon receipt of such notice of accident, the department shall immediately forward to the worker ... notification, in nontechnical language, of their rights under this title."). RCW 2.43.040(2)'s requirement that a government agency initiate proceedings is satisfied.
¶ 25 Next, a workers' compensation action is a legal proceeding. The statute defines "`[l]egal proceeding'" liberally to include "a proceeding ... before an administrative board ... [or] agency." RCW 2.43.020(3). These claimants appeared before an administrative board in a proceeding initiated by the State. They appeared in a legal proceeding.
¶ 26 The claimants were entitled to workers' compensation. Their English was limited. *861 They should have been provided interpreters to secure their rights.
¶ 27 I respectfully dissent.
I CONCUR: RICHARD B. SANDERS, Justice.
NOTES
[1] These hearings were the only hearings held at the administrative level.
[2] The Court of Appeals in Kustura consolidated claims raised by Hajrudin Kustura, Gordana Lukić, and Maida Memiević.
[3] Resulović and Maić are unpublished opinions governed by RCW 2.06.040.
[4] It is undisputed that an LEP individual falls within the scope of a "non-English-speaking person" within the meaning of chapter 2.43 RCW.
[5] Indigent status may require different analysis under the express provision of RCW 2.43.040(3). Because none of the petitioners were found in any of the proceedings below to be indigent, we do not discuss the impact of indigent status upon LEP individuals' rights under chapter 2.43 RCW at this time.
[6] As the Department and the Board are separate administrative bodies involved in different functions, it is highly questionable whether the actions of one can initiate a proceeding on behalf of the other. However, because the Department did not initiate any proceedings here, we need not reach this question in this case.
[7] RCW 2.43.020(3) states that a "`[l]egal proceeding' means a proceeding in any court in this state, grand jury hearing, or hearing before an inquiry judge, or before an administrative board, commission, agency, or licensing body of the state or any political subdivision thereof." It is undisputed that the Board's hearings were legal proceedings.
[8] The Board initially maintained that the IAJ could restrict interpreter assistance from some aspects of the hearing. See Kustura, 142 Wash. App. at 681, 175 P.3d 1117. However, respondents represented at oral argument that the Board's position changed after the Kustura decision's holding to the contrary. See also Answer of Resp't Bd. of Indus. Ins. Appeals to Pet. [Ferenćak] Am. Pet. for Review at 12-13.
[9] We note that the right to government-paid interpreter services in this context is based on a regulation, not on chapter 2.43 RCW. If the regulation is changed, then the right to government-provided interpreter services at legal proceedings not initiated by the government may be impacted.
[10] The Court of Appeals arrived at the same holding solely on the grounds of WAC 263-12-097(1). Kustura, 142 Wash.App. at 681, 175 P.3d 1117. Although this subsection does include the phrase "throughout the proceeding," the discretionary "may" in the statute suggests that other readings are possible. We decide this case based on the clearer, mandatory language of RCW 2.43.030(1). We do not address the Court of Appeals' interpretation of WAC 263-12-097.
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331 F.2d 135
ALEXANDER SCHROEDER LUMBER COMPANY, Appellant,v.MINERALES y METALES, S.A.I.C., Appellee.MINERALES y METALES, S.A.I.C., Appellant,v.DeCON, INC., et al., Appellees.
No. 20843.
United States Court of Appeals Fifth Circuit.
April 20, 1964.
Robert A. Hall, Houston, Tex. (Baker, Botts, Shepherd & Coates, Houston, Tex., of counsel), for appellant and appellee Alexander Schroeder Lumber Co.
M. W. Parse, Jr., Houston, Tex. (Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., of counsel), for Minerales y Metales.
Before BROWN, MOORE* and GEWIN, Circuit Judges.
LEONARD P. MOORE, Circuit Judge:
1
This action was brought by Minerales y Metales, S.A.I.C. (Minerales) against Alexander Schroeder Lumber Company (Schroeder) and DeCon, Inc. (DeCon) for the conversion of 334 bundles of Argentine walnut lumber. The trial court, sitting without a jury, found Schroeder and DeCon jointly and severally liable to Minerales in the amount of $11,000, plus interest and costs. Schroeder's appeal challenges the lower court's determination of liability and its computation of damages; Minerales appeals on the damage issue alone. DeCon has not appealed.
2
George Barrington, R. D. Anderson and DeCon were engaged in importing Argentine walnut to Houston, Texas. In 1961 they entered into a contract with Schroeder for the delivery and sale in Houston of a shipment of 334 bundles of walnut lumber of varying grades and cost. Initially, Minerales had only agreed to handle Barrington's shipping arrangements, but subsequently purchased from him the bundles that were for Schroeder. Relying on Barrington's representations, Minerales sent to its bank for collection a draft drawn on Schroeder, an invoice addressed to Schroeder and a bill of lading showing that the bundles had been consigned to Minerales. When the five gondola cars carrying the lumber arrived at the railroad siding adjacent to Schroeder's lumber yard, Schroeder refused the shipment because of its dissatisfaction with the quality. Neither DeCon nor Schroeder accepted the draft.
3
On May 27, 1961, after the documents had arrived in Houston, but prior to the arrival of the lumber, DeCon had filed a petition in the District Court of Harris County, Texas, in which it claimed ownership of the lumber and named as defendants Anderson, Barrington, the Texas National Bank (which then held the documents) and the Railroad. Although DeCon knew of the outstanding draft, Minerales was not made a defendant. The same day, DeCon caused to be issued a writ of sequestration directing the sheriff to take the lumber into his possession. The sheriff did so as soon as the shipment arrived at Schroeder's siding. Pending determination of the Harris County action, DeCon executed a replevy bond and, thereafter, Schroeder, at DeCon's request, unloaded the shipment, broke open the bundles, and arranged to have 123 of them "re-manufactured." This last step was deemed necessary because, as Schroeder's vice-president said, a portion of the purportedly finished lumber amounted to "logs, just sawn logs." Minerales at no time requested Schroeder or DeCon to return the lumber. While Schroeder admitted receiving 334 bundles, only 45,000 of the 69,000 board feet originally shipped remained at the Schroeder lumber yard at the time of the trial.
4
The trial court found in brief that as a matter of law Minerales had title as a bona fide purchaser from Barrington as well as constructive possession as evidenced by the bill of lading. Schroeder's rights were no greater than those of DeCon, and having shown no justification, Schroeder's taking was a conversion. Finally, the trial court concluded that Schroeder and DeCon had not carried the burden of proving the whereabouts of the missing 20,000-odd board feet shown to have been shipped from South America and, consequently, included the missing portion in its damage award.
5
Schroeder launches its attack on the trial court's finding that it is liable for converting the lumber on two separate theories. It contends that it never asserted the ownership, dominion or control requisite to a conversion. In the alternative, Schroeder seeks to justify its actions on several grounds: that it was DeCon's bailee, merely acting as it was directed; that it was justified in relying on the writ of sequestration and replevy bond; and that under these circumstances Minerales was required to make a demand for the lumber as a prerequisite to bringing the suit. Schroeder does not challenge the trial court's conclusion that the lumber belonged to Minerales and that Minerales had the right to immediate possession
6
The argument that Schroeder did not assert the proscribed dominion and control over the lumber is as unimpressive here as it evidently was at trial. There was evidence that after initially refusing to accept the shipment, Schroeder unloaded it from the railroad cars, moved it to its premises and broke open the bundles. In addition, it arranged to transport 123 of the 334 bundles to a mill for re-manufacturing at its expense. As altered, the lumber was returned to Schroeder's lumber yard where it remained for nearly two years until trial.
7
It would be difficult to conclude that such treatment of the property of another does not amount to a conversion as that concept is generally defined, namely, the wrongful exercise of dominion or control over property to the exclusion of the exercise of such rights by the owner. See, e. g., Ferrous Products Co. v. Gulf States Trading Co., 323 S.W.2d 292, 295 (Tex. Civ.App.1959), aff'd, 332 S.W.2d 310 (1960); Cantrell v. Broadnax, 306 S.W. 2d 429 (Tex.Civ.App.1957); Prosser, Torts § 15 at 71-73 (2d ed. 1955). The question remains whether Schroeder's actions were justified and whether Minerales was required to make a demand for the return of the lumber.
8
In asserting that it acted only as DeCon's bailee, Schroeder seeks the protection generally accorded the bailee who wrongfully, although innocently, takes possession of goods from his bailor. See Restatement, Torts § 230 (1934). This principle, however, does not apply where the bailee exercises the degree of control shown here and goes so far as to cause a portion of the bailment to be transformed from "sawn logs" into lumber and does not apply where the purported bailee receives the goods intending to acquire the proprietary interest in them for itself. Restatement, Torts, § 229 and Comment b. The trial court could well have decided from the evidence that Schroeder looked upon and handled the lumber with a view to acquiring it for itself, and that it was hardly the innocent and disinterested bailee it claimed to be. Most apparent is the fact that Schroeder's usual business was that of buying and selling lumber, and was not that of a warehouseman or other commercial bailee. And, as to the transaction in question, its President testified that after refusing to take delivery under the original contract, Schroeder again negotiated with DeCon for the purchase of the lumber and, when it had been re-manufactured, agreed to pay DeCon $7,651.14.
9
Schroeder further attempts to justify its action by pointing to its reliance on DeCon's replevy bond. However, the sequestration proceedings in the state court had no validity as to Minerales, the owner, which was not made a party. See Vickery v. Crawford, 93 Tex. 373, 55 S.W. 560, 49 L.R.A. 773 (1900); Bassham v. Evans, 216 S.W. 446 (Tex. Civ.App.1919); cf. Hopping v. Hicks, 190 S.W. 1119 (Tex.Civ.App.1917) (writ refused). Schroeder, no matter how innocent, exercised dominion at its peril. See Fenley v. Ogletree, 277 S.W.2d 135 (Tex.Civ.App.1955) (writ refused); Kimbell Milling Co. v. Greene, 162 S.W. 2d 991 (Tex.Civ.App.1942), aff'd 141 Tex. 84, 170 S.W.2d 191 (1943). And, since Schroeder's handling of the lumber constituted an unjustified, wrongful conversion, demand and refusal were not a prerequisite to the suit. See Hicks Rubber Co., Distributors v. Stacy, 133 S.W.2d 249 (Tex.Civ.App.1939); Cotten v. Heimbecher, 48 S.W.2d 402 (Tex.Civ. App.1932).
10
Both parties challenge the trial court's award of damages. It appears that Minerales shipped from Argentina 334 bundles or, as otherwise stated in various documents, approximately 69,000 board feet. Deducting 5 per cent for remanufacturing the 334 bundles that arrived at the Schroeder siding should have contained about 66,000 board feet. However, only 45,000 board feet were at Schroeder's yard at the time of trial. The trial court held that the 20,000-odd missing feet were deemed converted by Schroeder and DeCon, and to compute damages it projected the average value of the 45,000 feet to the missing 20,000 feet. Schroeder contends that damages should be based on 45,000 feet. Minerales argues that the 69,000-foot figure was proper but that Schroeder should be deemed to have converted 20,000 feet of the best grade lumber and that the average price should not have been used to project the value of the lost portion.
11
We find the trial court's computation abundantly fair to both parties. Had it not been for the conversion, the difficulty in proof would never have arisen, and Schroeder had the burden of showing that less than 69,000 feet arrived. Cf. Allied Bldg. Credits, Inc. v. Grogan Builders Supply Co., 365 S.W.2d 692 (Tex.Civ.App.1963) (writ refused); South Chester Tube Co. v. Texhoma Oil & Ref. Co., 264 S.W. 108 (Tex.Civ. App. 1924). Minerales' assumption that Schroeder has converted 20,000 feet of the highest grade lumber finds no support in the record.
12
Conceptually as well as practically, a successful suit for conversion amounts to a forced sale. Therefore, the judgment of the district court must be amended to provide that upon payment of the money judgment, ownership of the lumber shall vest in Schroeder and DeCon as their interests shall appear. In all other respects, the judgment is affirmed.
Notes:
*
Of the Second Circuit, sitting by designation
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994 F.Supp. 878 (1998)
Wayne T. FOBAR, Plaintiff,
v.
CITY OF DEARBORN HEIGHTS, et al., Defendants.
No. 97-CV-71430-DT.
United States District Court, E.D. Michigan, Southern Division.
February 25, 1998.
William A. Roy, Bloomfield Hills, MI, for Plaintiff.
Norman C. Kohlstrand, Dearborn, MI, Jack Timmony, Detroit, MI, for Defendants.
OPINION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT
ROSEN, District Judge.
I. INTRODUCTION
Plaintiff Wayne T. Fobar brings this discrimination action under the Americans with Disabilities Act ("ADA") to recover a regular retirement pension. The parties have stipulated *879 to the facts, and now bring Cross-Motions for Summary Judgment.
II. FACTS
The parties have stipulated to the following facts.
Plaintiff Wayne T. Fobar was employed by the City of Dearborn Heights ("City") as a police officer on January 5, 1970. The City of Dearborn Heights Police and Fire Pension Board ("Retirement Board") administered all pensions for the police officers and firefighters employed by the City. The Retirement System was established by the voters of the City, effective July 1, 1965, by the adoption of Public Act 345 of 1937, as amended (M.C.L. § 38.551 et al.) ("Act 345"). Act 345 provides that the Retirement Board shall be a corporate body and is vested with the authority and fiduciary responsibility for the administration, management and operation of the Retirement System. The payment of retirement benefits to members and their beneficiaries is governed by provisions contained in Act 345, applicable collective bargaining agreements, and applicable federal and state law. The Retirement Board many not change the terms of the Retirement System and is vested only with the authority to grant those benefits which are authorized by the provisions of the Retirement System.
This case is brought pursuant to, and jurisdiction is predicated on, 42 U.S.C.A. § 12101 et seq., commonly known as the Americans with Disabilities Act. On June 13, 1995, within 180 days of the date of the discriminatory act complained of, Plaintiff filed a Charge of Discrimination with the Equal Employment Opportunity Commission ("EEOC") encompassing the complaints. On January 31, 1997 the EEOC issued plaintiff a right to sue letter. (Ex. A).
Fobar suffered several injuries while on the job as a Dearborn police officer. The cumulative effect of these injuries was that the Retirement System granted Fobar a duty disability pension effective November 15, 1985. (Ex. B).
Pursuant to Retirement System's rules and procedures and Act 345 Section 6(1)(g), M.C.L.A. § 38.556(1)(g), upon attaining the age of 55 years, a police officer on duty disability pension is converted to a regular disability pension terminating at the death of the officer. The officer is not allowed an election, which includes an automatic 60% surviving spouse pension.
Section 6(2)(d) of Act 345 provides in pertinent part:
Upon retirement for disability as provided in this subdivision, a member who has not attained 55 years of age shall receive a disability retirement pension of 50% of the member's average final compensation, which shall be determined according to subsection (1)(f), and shall be payable until the member becomes 55 years of age. Upon becoming 55 years of age, the disabled member shall receive a disability retirement pension computed according to subsection (1)(e). In computing the disability retirement pension, the member shall be given service credit for the period of receipt of a disability retirement pension before attainment of 55 years of age. If a member retired after attaining 55 years of age on account of disability, as provided in this subdivision, the member shall receive a disability retirement pension computed according to subsection (1)(e), notwithstanding that the member may not have 25 years of service credit. The disability retirement pension provided for in this subdivision is subject to subdivisions (f) and (g).
Section 6(2)(g) of Act 345 provides:
Within 60 days before a member becomes 55 years of age, or before retirement from service if retirement occurs after the member becomes 55 years of age, a disabled member who is retired as provided in subdivision (d) or (e) may elect to continue to receive a disability retirement pension as a benefit terminating at death, to be known as a regular disability pension, or may elect to receive the actuarial equivalent, at that time, of a regular disability pension in a reduced disability pension payable throughout life pursuant to an option provided in subsection (1)(h).
Accordingly, a disability retiree, upon attaining age 55, may elect to receive a regular disability pension which terminates upon *880 death or may elect to receive a reduced disability pension and select an option benefit as provided in Section 6(1)(h) in pertinent part as follows:
(i) Option I. Upon the death of a retired member, his or her reduced retirement pension shall be continued throughout the life of and paid to the person, having an insurable interest in the retired member's life, that the member nominated by written designation duly executed and filed with the retirement board before the effective date of the member's retirement.
(ii) Option II. Upon the death of a retired member, 1/2 of his or her reduced retirement pension shall be continued throughout the life of and paid to the person, having an insurable interest in the retired member's life, that the member nominated by written designation duly executed and filed with the retirement board before the effective date of the member's retirement.
Hence, there are no provisions which entitle a surviving spouse of a disability retiree to receive 60% of the retirement benefits the disability was receiving.
Pursuant to Defendants' rules and procedures and Section 6(1)(h) of Act 345, a regular retiree attaining the age of 55 years is awarded an automatic 60% surviving spouse pension. Regular retirees are permitted to elect options which vary the amount of the surviving spouse pension and the corresponding pension amounts. Section 6(1)(h) of Act 345 provides in pertinent part:
Before the effective date of the member's retirement as provided in this subsection, but not after the effective date of the member's retirement, a member may elect to receive his or her benefit in a pension payable throughout the member's life, called a regular retirement pension, or the member may elect to receive the actuarial equivalent, computed as of the effective date of retirement, of the member's regular retirement pension in a reduced retirement pension payable throughout the member's life, and nominate a survivor beneficiary, pursuant to an option provided in this subdivision. Upon the death of a retirant who retires on or after July 1, 1975, and who is receiving a regular retirement pension, his or her spouse, if living, shall receive a pension equal to 60% of the regular retirement pension the deceased retirant was receiving.
Age and service retirees who elect to receive a regular pension benefit do not have their benefits reduced to provide for the 60% surviving spouse benefit.
Accordingly, a surviving spouse of a retiree who was receiving a regular retirement pension [i.e., having met the age and service requirements (age 50 and 25 years of service) and elected to receive a regular retirement pension], shall receive a pension equal to 60% of the regular retirement pension the deceased retirant was receiving.
On December 13, 1994, prior to his 55th birthday, Fobar submitted correspondence to the Retirement System electing to receive a regular disability pension upon his attainment of age 55. Plaintiff's letter states that he elects a 60% surviving spouse benefit. (Ex. C).
At its meeting of January 18, 1995, the Retirement System resolved to: (1) convert Plaintiff's duty disability pension to a regular disability pension effective January 18, 1995; (2) give Plaintiff an opportunity to elect an Option 1 or Option II; (3) direct Legal Counsel to forward correspondence to Plaintiff noting the inaccuracies of his claims and advising him of his options; and (4) direct the Board's actuary to complete and forward the appropriate calculations to Plaintiff. (Ex. D).
On January 21, 1995, Lt. Gust on behalf of the retirement Board, sent Fobar a letter enclosing an application. (Ex. E). On January 31, 1995, Fobar returned the complete application with a letter of explanation.
The actuary sent the calculations to the Retirement Board with correspondence dated February 8, 1995. (Ex. G). On February 10, 1995, the Retirement Board notified Fobar of the amounts offered under the various elections. (Ex. H). The Retirement Board's Legal Counsel forwarded correspondence to Plaintiff, dated February 10, 1995, advising him that the automatic 60% surviving spouse benefit as contained in Section 6(1)(h) is not *881 applicable to duty disability retirees. (Ex. I). Fobar elected Option II under a reservation of right. (Ex. I). He receives $1,613.93 per month under this option.
III. ANALYSIS
A. ADA Discrimination Claims
The ADA is a federal anti-discrimination statute enacted by Congress to the remove barriers which previously prevented qualified individuals with disabilities from enjoying the same employment opportunities available to non-disabled individuals. 29 C.F.R. Pt. 1630, App. "Like the Civil Rights Act of 1964 that prohibits discrimination on the bases of race, color, religion, national origin, and sex, the ADA seeks to ensure access to equal employment opportunities based on merit. It does not guarantee equal results, establish quotas, or require preferences favoring individuals with disabilities over those without disabilities." Id. The irreducible purpose of the Act is to ensure that individuals otherwise qualified for employment opportunities cannot be denied those opportunities on account of their disabilities. 29 C.F.R. Pt. 1630.1(a), App.
1. ADA Title I
Plaintiff alleges that the City's failure to provide the automatic 60% surviving spouse benefit to disabled retirees, while providing it to non-disabled employees, violates the ADA's prohibition against discrimination. The discrete issue presented in this portion of the case is whether or not Mr. Fobar, a former employee who was placed on disability because of a physical condition which precluded him from continuing to work as a police officer, is a "qualified individual with a disability" such that he has standing to sue under the ADA.
Title I of the ADA prohibits discrimination "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.A. § 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.A. § 12111(8).[1]
According to the interpretative guidelines, the determination of whether an employee is a "qualified individual with a disability" requires a two step inquiry:
The first step is to determine if the individual satisfies the prerequisites for the position, such as possessing the appropriate educational background, employment experience, skills, licenses, etc. * * * The second step is to determine whether or not the individual can perform the essential functions of the position held or desired, with or without reasonable accommodation. The purpose of this second step is to ensure that individuals with disabilities who can perform the essential functions of the position held or desired are not denied employment opportunities because they are not able to perform marginal functions of the position. House Labor Report at 55.
29 C.F.R. Pt. 1630.2(m), App. The "essential functions" are those functions which the individual who holds the position must be able to perform, and that could not be removed without fundamentally altering that position. 29 C.F.R. Pt. 1630.2(n), App.
A plain reading of the ADA's definitions indicates that Mr. Fobar is not a qualified individual with a disability because he could not perform "the essential functions of the employment position." In fact, Plaintiff does *882 not dispute that he was granted his disability pension based upon his admission that he was medically disabled from performing the essential functions of a police officer. In support of his application for pension benefits, Plaintiff submitted medical reports confirming that he could no longer carry out his duties, which led the City's Pension Board to adopt the following motion:
XX-XX-XXX Motion by Dersa, supported by Peretto, that the Board accept the medical reports which indicate, by a majority opinion that Wayne Fobar is physically incapacitated for further performance of duty as a Police Officer, that the incapacity is likely to be permanent, and Mr. Fobar should be retired.
(Defendants' Brief, p. 3-4). According to the Act's definitions, an employee incapable of performing the essential functions of his or her job is not a qualified individual with a disability. Therefore, as it is undisputed that Mr. Fobar cannot perform the essential duties of his job, he is not a qualified individual with a disability, and is not covered by the ADA.
This interpretation of the plain language of the statute is supported by the Sixth Circuit's decision in Parker v. Metropolitan Life Insurance Company, 99 F.3d 181 (6th Cir. 1996),[2] in which a former employee, Ms. Parker, brought an action against her former employer for cutting off long-term disability benefits after two years because her disability was mental rather than physical. Ms. Parker was deemed to be totally disabled and could not perform the essential functions of her job. A portion of the court's ruling held that Ms. Parker did not have standing to sue under Title I because she was not a qualified individual with a disability. In affirming the district court's ruling, the court stated:
Under the District Court's interpretation of the plain meaning of that statute, Ms. Parker was at no time a "qualified individual with a disability." At the time she could "perform the essential functions" of her job, she was not disabled for purposes of her long term disability claim, and therefore was not covered by the Disabilities Act, and at the time her insurance benefits were terminated, she could no longer perform her job.
Parker, 99 F.3d at 185.
It is important to note that in Parker the court specifically rejected the argument that because the ADA prohibits discrimination in fringe benefits, and because most long-term disability benefits are reserved for people who are unable to hold substantial employment for which they are qualified, that "virtually no employee could ever challenge discrimination in the provision of long-term disability benefits." Parker, 99 F.3d at 186. Fobar makes a similar argument in the instant suit. In Parker, the Sixth Circuit faced precisely this issue in rejecting the EEOC's interpretation of the statute in its amicus brief:
The EEOC states at page twelve of its brief that, "To be covered under Title I of the statute, an employee need only be able to `perform the essential functions of the employment position that such individual holds or desires.'" (quoting 42 U.S.C.A. § 12111(8)). It then suggests that Ms. Parker is not seeking to invoke the statute to allow her to obtain or retain what one would ordinarily think of as an "employment position." Both sides agree that she cannot continue to work at all. Thus, the Plaintiff and EEOC suggest that she is invoking the statute in an effort to retain the "employment position" of "benefit recipient." The term does not appear anywhere in the statute itself. The concept of an employment position entitled "benefits recipient" appears to be creative thinking on the part of Plaintiff and the EEOC. They argue that the Plaintiff is qualified to hold this position because she has satisfied all the non-discriminatory eligibility criteria by working for Schering, becoming a participant in the LTD plan, and paying her premiums as required.
*883 Plaintiff's proposed construction of the statute is not persuasive. The concept of "benefits recipient" as an "employment position" relies on a convoluted construction of the statutory language, which conflicts with the plain meaning of the words. Perhaps the drafters of the statute intended that Ms. Parker's situation bring her within the coverage of the Disabilities Act. If that is the case, they failed to provide definitions that lend themselves to doing so. Unfortunately, Congress may not have taken this situation into account. Such an oversight, however, is for Congress to remedy. We should not try to rewrite the statute in a way that conflicts with what appears to be fairly clear language.
Parker, 99 F.3d at 187-88. Thus, the ADA, although prohibiting discrimination in the area of fringe benefits, does not apply to people who are no longer able to perform the essential functions of their jobs. See also, Miller v. Illinois Dept. of Corrections, 107 F.3d 483 (7th Cir.1997) (correctional officer in medium security prison, who became blind and required a seeing-eye dog and could no longer perform many duties that officers were required to perform, was not qualified individual with a disability and thus was not protected by ADA, even if warden fired her for improper purpose); Cochrum v. Old Ben Coal Co., 102 F.3d 908 (7th Cir.1996) (employee failed to establish that he could perform job with or without reasonable accommodation and, therefore, failed to establish he was "qualified individual" under ADA; employee admitted he could not perform work duties with permanent physical restrictions required by physician, none of requested accommodations was reasonable, and given employee's physical restrictions, no other union positions which employee could have performed were available); Weiler v. Household Finance Corp., 101 F.3d 519 (7th Cir. 1996) (employee was unable to perform essential functions of her position and no accommodation would allow her to do so, and thus she was not "qualified individual with a disability," as required to maintain ADA claim, where employee's psychotherapist informed employer on numerous occasions that employee could not return to work with employer in any position, employee never contacted employer to disagree with that assessment, and she conceded her inability to work in response to request to admit); Rogers v. International Marine Terminals, Inc., 87 F.3d 755 (5th Cir.1996) (employee who was unavailable for work at time of his discharge due to ankle problems was not able to perform essential functions of his job and, therefore, was not "qualified individual with a disability" within meaning of ADA); Gonzales v. Garner Food Services, Inc., 89 F.3d 1523 (11th Cir.1996) (former employee who was a participant in employer's health plan by virtue of his former employment was not a "qualified individual with a disability" within the meaning of the ADA); Beauford v. Father Flanagan's Boys' Home, 831 F.2d 768, 771 (8th Cir.1987), cert. denied, 485 U.S. 938, 108 S.Ct. 1116, 99 L.Ed.2d 277 (1988) (court ruled that definition of qualified in the ADA should be interpreted the same as in the Rehabilitation Act, which does not provide protection for employees who are no longer able to do their jobs).
Despite the Sixth Circuit precedent directly refuting his argument, Plaintiff relies upon Graboski v. Guiliani, 937 F.Supp. 258 (S.D.N.Y.1996), in which the court rejected the above interpretation of the ADA. In Graboski, the defendants contended that the plaintiffs, who were disability retirees, were not covered by Title I because they were unable to perform the essential functions of their former jobs, and that former employees were excluded from coverage. In rejecting the argument the court stated:
Such a crabbed view of the ADA's coverage would undermine the statute's unambiguous remedial purpose. Title I of the ADA expressly prohibits discrimination in the provision of fringe benefits. 42 U.S.C.A. § 12112(b)(2); see also 29 C.F.R. § 1630.4(f). As certain fringe benefits (such as pensions and health insurance continuation) are meaningful only post-employment, it is only logical that the statute's coverage reaches the period when the employment benefits are to be reaped. Moreover, the definition of "employee" under the ADA parallels that under Title VII, 42 U.S.C.A. § 2000e et seq., and was intended to be given the "same meaning." *884 [Cites omitted]. Under Title VII, "discrimination related to or arising out of an employment relationship, whether or not the person discriminated against is an employee at the time of the discriminatory conduct" is actionable. Pantchenko v. C.B. Dolge Co., Inc., 581 F.2d 1052, 1055 (2d Cir.1978) [other cites omitted]. Accordingly, several courts have held that discrimination in connection with post-employment benefits is actionable by former employees under Title VII. [Cites omitted]. The definition of the term "otherwise qualified" in Title I of the ADA was not intended to distinguish this employment discrimination law from Title VII by abrogating coverage of former employees challenging discrimination arising out of the employment relationship.
Graboski, 937 F.Supp. at 266.
Plaintiff further argues that the Supreme Court's recent decision in Robinson v. Shell Oil Co., 519 U.S. 337, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997), supports the interpretation put forth in Graboski. In Robinson, the Court was called upon to determine whether § 704(a) of Title VII of the Civil Rights Act, which makes it unlawful for an employer to discriminate against its "employees," includes former employees, such that an employee could bring suit against his employer for post-employment actions allegedly taken in retaliation for the employee having filed suit with the EEOC. Robinson, 117 S.Ct. at 845. The Court ruled that while the term "employees" as used in Title VII was ambiguous, the "broader context of Title VII and the primary purpose of § 704(a)" led the Court to hold that former employees are included within the coverage of § 704(a). Robinson, 117 S.Ct. at 845.
Presumably, Plaintiff believes that by analogy former employees can sue under the ADA. Assuming arguendo that Plaintiff is correct, that does not, ipso facto, warrant a "revisitation" of the Parker decision for three reasons. First, the issue presented here is not simply whether a former employee comes within the definition of "employee," but rather, whether an individual unable to perform the essential functions of his job is a "qualified individual with a disability." In short, the analogy Plaintiff attempts to draw is tenuous because the Court here must interpret a definition unique to the ADA. Second, absent a clear ruling from the Supreme Court overturning the rationale in Parker, this court is bound by the Sixth Circuit's unequivocal decision in that case. That ruling is consistent with the plain language of the statute, the overwhelming majority of case law, and the interpretative guidelines. While other viable interpretations of the statute may exist, the Sixth Circuit's ruling does not fail to give each word in the statute meaning by ignoring the phrase "fringe benefits," as Plaintiff argues. In fact, the Sixth Circuit specifically considered and rejected this argument in the Parker decision, and noted that Plaintiff's interpretation of the statute requires a convoluted reading of the statute. Furthermore, the Sixth Circuit's interpretation does not result in a patently absurd interpretation of the statute as Plaintiff contends. Third, unlike the decision in Robinson, which was interpreting an ambiguous definition, the definition in the instant case is clear: a "qualified individual with a disability" is an individual with a disability who can perform the essential functions of the employment position in question. See, 42 U.S.C.A. § 12111(8). Here, Mr. Fobar does not fit within the definition because he cannot perform the essential functions of a police officer. Therefore, he does not have standing to sue under the ADA because he does not fit within the Act's definition of a qualified individual with a disability.
2. ADA Title II
Plaintiff also contends that Defendant violated Title II of the Act by discriminating against Plaintiff by denying him the benefit of a 60% surviving spouse pension, which is available to regular retirees but not disability retirees. The discrete issue presented in this portion of the case is whether Mr. Fobar fits under the ADA's definition of a "qualified individual with a disability," i.e., an individual with a disability who meets the essential eligibility requirements for the receipt of the automatic 60% surviving spouse benefit.
Under Title II of the ADA "no qualified individual with a disability shall, by reason *885 of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity." 42 U.S.C.A. § 12132.[3] Under this Title, the term "qualified individual with a disability" means "an individual with a disability who, with or without reasonable modifications to rules, policies, or practices, the removal of architectural, communication, or transportation barriers, or the provision of auxiliary aids and services, meets the essential eligibility requirements for the receipt of services or the participation in programs or activities provided by a public entity." 42 U.S.C.A. § 12131(2). In short, an individual with a disability who meets the essential eligibility requirements to receive some benefit cannot be denied that benefit on account of his or her disability or otherwise.
The parties agree that a surviving spouse of a retiree, who is receiving a regular pension because he or she met the age and service requirements (age 55 and 25 years of service), shall receive a pension equal to 60% of the regular retirement pension the deceased was receiving automatically. See, § 6(1)(h) of Act 345. According to Defendants, Mr. Fobar has not met the eligibility requirements because he had only 15 years of service before he became disabled. If he had accrued 25 years of service before becoming disabled he would have received the regular retirement pension. Accordingly, the benefit is not denied to any individual who makes the age and service requirements.
Plaintiff contends that he has met the eligibility requirements to receive the automatic 60% surviving spouse pension because under Section 6(2)(d) of Act 345, persons on duty disability pension are given "service credit for the period of receipt of disability retirement pension before attainment of 55 years of age...." But what Plaintiff neglects to mention is that § 6(2)(d) allows service credit toward recovering a disability pension, not the regular pension. Section 6(2)(d) states:
Upon retirement for disability as provided in this subdivision, a member who has not attained 55 years of age shall receive a disability retirement pension of 50% of the member's average final compensation, which shall be determined according to subsection (1)(f), and shall be payable until the member becomes 55 years of age. Upon becoming 55 years of age, the disabled member shall receive a disability retirement pension computed according to subsection (1)(e). In computing the disability retirement pension, the member shall be given service credit for the period of receipt of a disability retirement pension before attainment of 55 years of age. If a member retired after attaining 55 years of age on account of disability, as provided in this subdivision, the member shall receive *886 a disability retirement pension computed according to subsection (1)(e), notwithstanding that the member may not have 25 years of service credit. The disability retirement pension provided for in this subdivision is subject to subdivisions (f) and (g).
Mr. Fobar, who retired due to his physical incapacitation in 1985 after only 15 years of service, only qualifies for the disability pension, which does not offer the automatic 60% surviving spouse pension benefit offered under the regular pension.
Ultimately, therefore, the issue is whether it is permissible for a disability retirement plan to provide a lower level of benefits than the same employer's regular retirement plan. While little case law exists on this issue, the EEOC which has received a large number of inquiries regarding the application of the ADA to disability and service requirements, issued a Notice entitled "Questions and Answers About Disability and Service Requirement Plans Under the ADA." EEOC Notice 915.002 (May 5, 1995). The Notice provided the following questions and answers:
Q. If an employer provides a disability retirement plan, is it permissible under the ADA for that plan to provide lower levels of benefits than the same employer's service retirement plan? Lower benefit levels may take different forms. For example:
a service retirement plan might enable any employee with 20 or more years of service to retire with an annuity equal to 50% of the individual's highest annual compensation. But, the disability retirement plan, payable when illness or injury prevents the individual from continuing work, might provide an annuity equal only to 45% of the individual's highest annual compensation;
* * * * * *
A. None of these examples would violate the ADA under any theory of discrimination. The ADA does not require that service retirement plans and disability retirement plans provide the same level of benefits, because they are two separate benefits which serve different purposes.
Q. Why don't differences in the plans cited above constitute discrimination against a qualified individual with a disability?
A. There is not disability discrimination because none of the plans make distinctions based on whether or not the individual is covered under the ADA. Thus, in the first example, the service retirement plan is available to all employees who have attained 20 or more years of service. A qualified individual with a disability who works 20 or more years receive the same service retirement benefit as a person not covered by the ADA who works 20 or more years. Similarly, the disability retirement plan is available to everyone who becomes unable to work because of illness or injury. Therefore, the employer does not violate the ADA simply by providing different benefits under service and disability retirement plans
Notice 915,002, p. 2-3.
The EEOC's interpretative guidelines clearly state that retirement systems such as Defendants' do not violate the ADA by providing lower pension benefits under its disability pension plans. The rationale underlying that determination is that the disabled employee is not receiving lower benefits because of his disability, but because he failed to meet the essential age and service eligibility requirements for receiving those benefits.
In Graboski v. Guiliani, 937 F.Supp. 258 (S.D.N.Y.1996), the court squarely addressed the same issue presented here. In Graboski, the plaintiffs were retired disabled firemen who were excluded from Variable Supplemental Benefits (retirement benefits) available only to plan beneficiaries who retired "for service," thus excluding disability retirees. The plaintiffs contended that the exclusion of disability retirees from eligibility for retirement benefits constituted discrimination. Citing EEOC Notice 915.002, the court ruled in favor of the defendant, stating:
Under these EEOC guidelines, the VSF statutes facially are compatible with Title I of the ADA. There is no dispute that firefighter retirees who have served at least twenty years and are disabled have the option to choose either retirement for service or the category of disability retirement *887 for which he or she is qualified. The eligibility for VSF payments accompanying retirement for service on or after October 1, 1968 thus is available on equal terms to persons who have disabilities and those who do not. Consequently, the CODE is not discriminatory.
In the instant case, all employees, including disabled employees, may qualify for the regular pension so long as they meet the age and service requirements. Thus, because the City's pension program does not treat employees with disabilities any differently than other employees, the program does not discriminate.[4]
The Graboski court also noted that, given the reasonability of the EEOC's interpretation of the statute in Notice 915.002, the court was bound to lend deference to that interpretation:
This Court is bound to defer to reasonable interpretations of Title I of the ADA proffered by the EEOC, the regulatory agency charged with its administration. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. 467 U.S. 837, 844, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). There is nothing unreasonable about the EEOC's view. It gives effect to one of the primary goals of the ADA eradicating the exclusion of people with disabilities from opportunities afforded to persons without disabilities. [Footnote omitted] See 42 U.S.C.A. § 12112(b)(1)-(7) (defining various forms of discrimination that operate to exclude to persons with disabilities from employment-related opportunities and benefits); id. § 12132 (focus on exclusion from benefits of services, programs or activities of a public entity). All persons disabled or not who have served twenty years are eligible to retire on a basis that would include entitlement to VSF payments. No one who has served less than twenty years may retire on a basis that does so. That is not actionable discrimination.
Graboski, 937 F.Supp. at 268. See also, Felde v. City of San Jose, 839 F.Supp. 708 (N.D.Cal.1994), aff'd, 66 F.3d 335, 1995 WL 547698 (9th Cir.1995) (the plaintiff was not discriminated against because he had been afforded the option to receive the contested benefit on the same terms available to others without disabilities). This Court finds the EEOC's interpretation of the statute logically sound, and shows substantial deference to that interpretation. As such, the Court rules that the City's retirement system does not violate Title II of the ADA because the system does not discriminate on the basis of disability.
IV. CONCLUSION
Therefore, because, as a matter of law, Plaintiff's claims do not constitute discrimination in violation of the ADA, Plaintiff's Motion for Summary Judgment is DENIED, and Defendants' Motion for Summary Judgment is GRANTED. The case is DISMISSED WITH PREJUDICE.
NOTES
[1] This prohibition specifically extends to prevent discrimination in the area of fringe benefits. See, 42 U.S.C.A. § 12112(b), which states:
As used in subsection (a) of this section, the term "discriminate" includes
(2) participating in a contractual or other arrangement or relationship that has the effect of subjecting a covered entity's qualified applicant or employee with a disability to the discrimination prohibited by this subchapter (such relationship includes a relationship with an employment or referral agency, labor union, an organization providing fringe benefits to an employee of the covered entity, or an organization providing training and apprenticeship programs);.... [Emphasis added].
[2] In Parker, rehearing en banc was granted, 107 F.3d 359 (6th Cir.1997), and affirmed after the rehearing, 121 F.3d 1006 (6th Cir.1997). Neither of those decisions disturbed the original panel's disposition of the Title I issues in Parker v. Metropolitan Life Insurance Company, 99 F.3d 181 (6th Cir.1996).
[3] There has been some dispute over whether or not Title II of the ADA applies to discrimination in employment. Some courts have held that it does not create a separate cause of action for employment related suits, presumably because they can be brought under Title I. See, e.g., Doe v. University of Maryland Medical Sys., Corp., 50 F.3d 1261 (4th Cir.1995); Decker v. University of Houston, 970 F.Supp. 575 (S.D.Tex.1997); Iskander v. Rodeo Sanitary District, 1995 WL 56578 (N.D.Cal. Feb.7, 1995), aff'd. 121 F.3d 715, 1997 WL 469636 (9th Cir.1997). But a very recent decision by the Eleventh Circuit succinctly and thoroughly explained how the statutory language, the Department of Justice regulations, and several court opinions support the view that Title II does state a cause of action for employment discrimination. Bledsoe v. Palm Beach County, 133 F.3d 816 (11th Cir.1998). See also, McNely v. Ocala Star-Banner Corp., 99 F.3d 1068 (11th Cir.1996), cert. denied, ___ U.S. ___, 117 S.Ct. 1819, 137 L.Ed.2d 1028 (1997); Wagner v. Texas A & M University, 939 F.Supp. 1297 (S.D.Tex.1996); Dertz v. City of Chicago, 912 F.Supp. 319 (N.D.Ill.1995); Ethridge v. State of Alabama, 847 F.Supp. 903 (M.D.Ala.1993); Finley v. Giacobbe, 827 F.Supp. 215 (S.D.N.Y.1993).
In this case, Defendants do not contest Plaintiff's argument that Title II creates a cause of action for employment related claims. However, Plaintiff's Complaint does not state a separate cause of action for Titles I and II. Plaintiff stated in a footnote: "The complaint filed in this action does not differentiate between Title I and Title II claims. Fobar has filed a motion to amend his complaint to differentiate these claims, if this court believes such differentiation is necessary." But Plaintiff never filed a motion to amend his Complaint, and, therefore, a differentiation of the claims at the summary judgment stage seems somewhat unfair. However, Defendants do not raise this issue, as they attack Plaintiff's claims by arguing that he did not meet the essential eligibility requirements to receive the 60% surviving spouse pension.
[4] Although the above passage from Graboski refers to Title I of the Act, as opposed to Title II, the logic is nonetheless applicable as the issues are identical. Furthermore, as is apparent from Plaintiffs Complaint, which fails to separate his Title I and Title II claims, there is an abundance of confusion surrounding which section claims such as Plaintiff's fall under.
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Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
1-30-2003
Jarrett v. Secretary Army
Precedential or Non-Precedential: Non-Precedential
Docket 02-3019
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"Jarrett v. Secretary Army" (2003). 2003 Decisions. Paper 834.
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NOT PRECEDENTIAL
THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 02-3019
_______________
CLARENCE E. JARRETT,
Plaintiff-Appellant,
v.
THOMAS E. WHITE, Honorable,
Secretary of the Army,
_______________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
(D.C. Civil No. 01-800)
District Judge: The Honorable Gregory M. Sleet
_______________
Submitted Under Third Circuit LAR 34.1(a)
January 23, 2003
(Filed: January 30, 2003)
BEFORE: NYGAARD, AMBRO, and LOURIE, * Circuit Judges.
_______________
*
Honorable Alan D. Lourie, Circuit Judge for the United States Court of Appeals for
the Federal Circuit, sitting by designation.
OPINION OF THE COURT
_______________
PER CURIAM.
DECISION
Clarence E. Jarrett appeals from the decision of the United States District Court for
the District of Delaware dismissing certain counts of his complaint and granting summary
judgment in favor of the defendant on the remaining counts. Jarrett v. White, No. 01-800,
slip op. at 17 (D. Del. June 17, 2002). Because jurisdiction over this appeal lies in the
United States Court of Appeals for the Federal Circuit, not this court, we transfer the
appeal to the Federal Circuit.
DISCUSSION
Mr. Jarrett served in the Army from August 2, 1967, to April 3, 1969, at which time
he was removed from the Army with an undesirable discharge. Id. at 3, 5. This case arises
from Jarrett’s attempts to upgrade the nature of his discharge from undesirable to
honorable.
Soon after his discharge, in 1970, Jarrett requested that the Army Discharge Review
Board upgrade his discharge. Id. at 5. The Review Board denied his request on March 18,
1971, id.; however, Jarrett alleges that he never received the Review Board’s
decision, and that he therefore assumed that his discharge had been upgraded. Only in
2
1997, when Jarrett sought and was denied medical treatment at a veterans hospital on the
ground that he had been undesirably discharged, according to Jarrett, did he realize that his
discharge status had not been changed.
Thereafter, on May 10, 1999, Jarrett applied to the Army Board for Correction of
Military Records (“ABCMR”) for a change in his discharge status. The ABCMR, however,
denied Jarrett’s request in a decision dated July 20, 2000. Id. On December 3, 2001,
Jarrett filed suit in the United States District Court for the District of Delaware, seeking
review of the ABCMR’s decision on several statutory bases, including the Administrative
Procedure Act (“APA”), 5 U.S.C. § 701; the Privacy Act, 5 U.S.C. § 552a(d); and the Little
Tucker Act, 28 U.S.C. § 1346. Jarrett’s Little Tucker Act claim included a claim for
monetary damages in an amount of up to $10,000. Id. at 1. The court granted the Army
summary judgment on Jarrett’s APA challenge, id. at 16, and dismissed Jarrett’s Privacy
Act and Little Tucker Act claims on the ground that they were untimely. Id. at 8 (Little
Tucker Act), 11 (Privacy Act). Following the Federal Circuit’s decision in Hurick v.
Lehman, 782 F.2d 984 (Fed. Cir. 1992), the court held that Jarrett’s cause of action under
the Little Tucker Act accrued at the time of his discharge in 1969, and that his 2001
complaint was therefore well after the date of the Little Tucker Act’s six-year statute of
limitations, as specified in 28 U.S.C. § 2501. Jarrett, slip op. at 8-11.
Jarrett has appealed the district court’s decisions on his APA and Privacy Act
claims. He concedes his Little Tucker Act claim, for purposes of this appeal, pending the
Federal Circuit’s consideration whether Hurick should be overruled, see Martinez v. United
States, 272 F.3d 1335 (Fed. Cir. 2001) (order inviting parties and amici to file briefs
3
addressing whether Hurick should be overruled). Jarrett asserts that this court has
jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. Although the Army has not
challenged Jarrett’s jurisdictional assertion, we are obliged to examine that question sua
sponte to assure ourselves that we have the power to decide this appeal. Club Comanche,
Inc. v. Virgin Islands, 278 F.3d 250, 255 (3d Cir. 2002). We conclude that we do not.
The Little Tucker Act confers concurrent jurisdiction over certain claims against the
United States on both the district courts and the United States Court of Federal Claims.
With certain exceptions not relevant here, that act provides that:
The district courts shall have original jurisdiction, concurrent with the United
States Court of Federal Claims, of:
***
(2) Any other civil action or claim 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 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) (2000).1
One of Jarrett’s claims was expressly based on the Little Tucker Act. Count IV of
his complaint sought correction of his military records and “appropriate relief,” including
“any back pay and allowances up to and including the amount of $10,000.000 [sic], interest
and the costs of this action.” Amended Discharge Review Complaint at 11, Jarrett (No. 01-
8000). Jarrett’s other claims rested on different jurisdictional bases, viz., the APA and the
Privacy Act. Nonetheless, Jarrett invoked the district court’s jurisdiction in part under the
1
The so-called Big Tucker Act is codified at 28 U.S.C. § 1491 and grants the Court of
Federal Claims exclusive jurisdiction over similar monetary claims against the United States
regardless of the amount at stake.
4
Little Tucker Act.
Because the district court’s jurisdiction was based at least partially on the Little
Tucker Act, appellate jurisdiction rests exclusively in the Federal Circuit. This is so
because, with certain exceptions not relevant here, 28 U.S.C. § 1295(a) provides that:
The United States Court of Appeals for the Federal Circuit shall have
exclusive jurisdiction —
***
(2) of an appeal from a final decision of a district court of the United
States . . . if the jurisdiction of that court was based, in whole or in part, on
section 1346 of this title . . . .
28 U.S.C. § 1295(a)(2) (2000) (emphases added). In United States v. Hohri, 482 U.S. 64
(1987), the Supreme Court construed that statutory language, stating, “We hold that a mixed
case, presenting both a nontax Little Tucker Act claim and an FTCA [Federal Torts Claim
Act] claim, may be appealed only to the Federal Circuit.” Id. at 75-76. The same result
follows regardless of the nature of the other federal question claims (i.e., whether they be
FTCA, APA, or Privacy Act claims). See Chabal v. Reagan, 822 F.2d 349, 354 (3d Cir.
1987) (“[W]hen a monetary claim against the United States covered by the Little Tucker
Act has been joined with a non-monetary claim in the district court, the Federal Circuit has
exclusive jurisdiction over the appeal. . . . The regional circuits have uniformly recognized
that all such appeals should be transferred to the Federal Circuit.”) (citations omitted); see
also Rothe Dev. Corp. v. Dep’t of Def., 262 F.3d 1306, 1316 (Fed. Cir. 2001) (“Under 28
U.S.C. § 1295(a)(2) (1994), this court has exclusive jurisdiction to hear appeals and decide
all issues raised in cases in which the district court’s subject matter jurisdiction is ‘based,
in whole or in part,’ on the Tucker Act, 28 U.S.C. § 1346(a)(2) (1994).”).
5
Jarrett’s conditional concession of the Little Tucker Act claim for purposes of this
appeal does not alter our jurisdictional analysis. The district court’s jurisdiction was based
on Jarrett’s complaint. Subsequent events, especially those occurring after a Notice of
Appeal was filed from the district court’s decision, cannot alter the district court’s
jurisdiction basis. Westmoreland Hosp. Ass’n v. Blue Cross of W. Pa., 605 F.2d 119, 123
(3d Cir. 1979).
We are aware of the case of Hahn v. United States, 757 F.2d 581 (3d Cir. 1985), in
which this court did review non-Tucker Act claims in an ostensibly mixed case having Little
Tucker Act claims and other claims. In Hahn, the plaintiff brought suit in the district court
seeking both monetary and non-monetary relief. Id. at 585. On appeal, the court held that
the monetary claim exceeded the $10,000 limit of the Little Tucker Act and remanded that
portion of the case “to either permit the plaintiffs to amend their complaint to waive
damages in excess of $10,000, or to transfer those claims to the [Court of Federal
Claims].” Id. at 590. It went on to review the merits of the non-monetary claims, but did so
because the size of the plaintiff’s monetary claim meant that the district court’s jurisdiction
could not have been based at all on the Little Tucker Act; instead, the district court’s
jurisdiction was based on the other, non-monetary, claims. See also Shaw v. Gwatney, 795
F.2d 1351, 1356 (8th Cir. 1986). This case, unlike Hahn, but like the subsequent decision
in Hohri by the United States Supreme Court, presents a genuine mixed case of a Little
Tucker Act claim within its statutory monetary limit as well as other claims, and is
therefore appealable only to the Federal Circuit because the district court’s jurisdiction
was truly based in part on the Little Tucker Act. The Hahn court itself noted that under
6
facts essentially the same as in this case, jurisdiction would lie in the Federal Circuit.
Hahn, 757 F2d. at 588 n.3 (“If plaintiffs have effectively waived claims in excess of
$10,000, then appellate jurisdiction would reside exclusively with the Court of Appeals for
the Federal Circuit.”) (citing 28 U.S.C. § 1295).2
Because we hold that the Federal Circuit, not this court, has exclusive jurisdiction
over this appeal, we hereby transfer the appeal to the Federal Circuit, pursuant to 28 U.S.C.
§ 1631.
2
We also note that Hahn was decided before the Supreme Court in Hohri expressed
disfavor of “bifurcated appeals,” as might result under the Hahn approach. Hohri, 482 U.S.
at 69 n.3.
7
TO THE CLERK:
Please file the foregoing opinion.
__________________________________
Circuit Judge
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OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Honorable Wm. J. Lawson
Seoretary of State
Austin, Texes
Denr Sirt Attention: Hr. Wll
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(2008)
Nicole MATHIAS, Plaintiff,
v.
ALLEGHENY VALLEY SCHOOL, Defendant.
Civil Action No. 06-4849.
United States District Court, E.D. Pennsylvania.
May 16, 2008.
MEMORANDUM AND ORDER
ANITA B. BRODY, District Judge.
Plaintiff Nicole Mathias ("Mathias") brought this action against Defendant Allegheny Valley School ("AVS") alleging: (1) sexual harassment under Title VII; (2) gender discrimination and retaliation under Title VII; (3) intentional infliction of emotional distress; (4) negligence; and (5) gender discrimination, sexual harassment, and retaliation under the Pennsylvania Human Relations Act ("PHRA"). Jurisdiction is proper under 28 U.S.C. §§ 1331 and 1367. Currently before me is AVS's motion for summary judgment on all counts. Because Mathias does not raise or discuss her state law negligence claim in her response to AVS's motion for summary judgment, I consider this claim withdrawn.
I. BACKGROUND
For purposes of summary judgment, "the nonmoving party's evidence `is to be believed, and all justifiable inferences are to be drawn in [that party's] favor.'" Hunt v. Cromartie, 526 U.S. 541, 552, 119 S.Ct. 1545, 143 L.Ed.2d 731 (1999) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Here, the facts are stated in the light most favorable to Mathias, and all reasonable inferences are drawn in Mathias' favor. Anderson, 477 U.S. at 255, 106 S.Ct. 2505.
On July 11, 2005, AVS hired Mathias as a House Manager Aide at its Susquehanna group home ("Susquehanna"). Mathias was hired as a full time employee to work on Saturdays and Sundays from 7:00 a.m. to 11:00 p.m.[1] Mathias had the same working hours as Lawanda McGlone ("McGlone"), another House Manager Aide at Susquehanna. The direct supervisor of Mathias and McGlone was Flora Figueroa ("Figueroa"), the House Manager at Susquehanna. As House Manager, Figueroa resided at Susquehanna. Although Figueroa was off duty on Saturdays and Sundays, she spent most of her time during weekends at Susquehanna.
In September, 2005, Figueroa began acting inappropriately toward Mathias. The following is a list of the offensive incidents involving Figueroa that Mathias could recall:
Figueora told Mathias that Mathias' "cooking was so good that she already had money, all that she needed was a strap on to take me away from my husband." (Mathias Dep., p. 104, lines 14-17).
Figueroa told Mathias that her "husband... wasn't ... fucking her right. And that she was ready to try women." (Mathias Dep., p. 98, lines 21-24).
Figueroa told Mathias that "she could only climax so to speak through oral sex." (Mathias Dep., p. 99, lines 21-23).
Figueroa referred to Mathias and McGlone as "broke bitches" and said that "if she had our ass and our titties that she would not be working for Allegheny Valley School." (Mathias Dep., p. 110, lines 19-23).
Figueroa asked Mathias and McGlone, "what are you guys, lesbians or something?" (Mathias Dep., p. 115, lines 15-17).
Figueroa "slightly brushed up against" Mathias' chest when she was reaching to get something in a cabinet. (Mathias Dep., p. 122, lines 8-15).
Although Mathias told Figueroa, on one occasion, that a comment she made was offensive, generally Mathias ignored these incidents and continued with her work. After each of these incidents, Mathias was able to complete her shift and perform her job duties. Mathias found Figueroa's comments demeaning and offensive and they left her feeling discouraged. As a result of Figueroa's actions, Mathias became angry and she developed headaches and anxiety over coming to work. However, Mathias never reported the comments made by Figueora to any of her supervisors.
On the weekend of December 10, 2005, Mathias failed to report to work on either Saturday or Sunday. Mathias felt unable to continue working at Susquehanna because of Figueroa's comments. Mathias was aware of AVS's policy that required her to call in advance to report her absence; however, she felt unable to call because she could not handle speaking to Figueroa. AVS had the following attendance policy in its Employee Manual:
I. Reporting Off Duty Procedure
Employees must report off each and every time (day) they will not be coming to work as scheduled, at least one hour prior to their scheduled shift....
II. AWOL
If an employee does not report off work... that employee will be considered AWOL (Away Without Official Leave). Being AWOL will result in disciplinary action, up to and including termination....
In the first instance of an employee being AWOL, said employee must present an excuse acceptable to Allegheny Valley School for being away without official leave. Failure to present an excuse which is acceptable to Allegheny Valley School will result in termination....
For the second instance of AWOL, employee will be immediately terminated, regardless of the excuse.
On December 13, 2005, AVS's Human Resources Manager, Helene Bertino ("Bertino"), sent the following letter to Mathias:
You did not report to work as scheduled, nor report off work correctly since December 10, 11, 2005 per Allegheny Valley School policy (see attached). This is considered AWOL ["Absent Without Official Leave"].
If you do not present an excuse acceptable to Allegheny Valley School for your AWOL you will be immediately terminated. In the event you do present an excuse acceptable to Allegheny Valley School, please be advised that your second instance of AWOL will result in immediate termination regardless of the excuse therefore.
If you do not contact Richard Snyder, by December 17, 2005, you will be considered to have abandoned your position.
After Mathias received this letter, on approximately December 14, 2005, Mathias' husband, George Mathias ("G.M.") contacted Administrator, Richard Snyder ("Snyder"). Mathias did not ask her husband to call Snyder and when Snyder asked to speak to Mathias directly, she declined to speak with Snyder. In this conversation, G.M. reported to Snyder that Figueroa had called Mathias a lesbian and that Figueroa's husband had called Mathias Aunt Jemima. G.M. asked Snyder, "is this the type of business that they run where employees taunt their other employees?" (G.M. Dep., p. 22, lines 3-5).
Mathias never contacted Richard Snyder or anyone else at AVS to discuss the letter that she received from the Human Resources Manager, Bertino. Additionally, Mathias never personally reported any sexual harassment to AVS during her employment or after her termination. On December 20, 2005, AVS mailed a Change of Status form to Mathias, which indicated that AVS had terminated Mathias' employment on December 19, 2005 because she had been AWOL.
II. LEGAL STANDARD
Summary judgment should be granted under Federal Rule of Civil Procedure 56(c) "if, after drawing all reasonable inferences from the underlying facts in the light most favorable to the non-moving party, the court concludes that there is no genuine issue of material fact to be resolved at trial and the moving party is entitled to judgment as a matter of law." Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir.1997). A factual dispute is "genuine" if the evidence would permit a reasonable jury to find for the non-moving party. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In order to survive summary judgment, a plaintiff must make a showing "sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court must draw all reasonable inferences in the non-moving party's favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
III. DISCUSSION
Mathias' complaint contains allegations of sexual harassment and retaliation under both Title VII and the PHRA. Because Title VII and the PHRA have identical legal standards, I combine the discussion of Mathias' claims under Title VII and the PHRA.[2]
A. Sexual Harassment in Violation of Title VII and the PHRA
Title VII makes it unlawful for an employer "to discriminate against any individual with respect to his or her compensation, terms, conditions, or privileges of employment, because of such individual's... sex." 42 U.S.C. § 2000e-2(a)(1). "A plaintiff who claims that she has been sexually harassed has a cause of action under Title VII if the sexual harassment was either a quid pro quo arrangement, or if the harassing was so pervasive that it had the effect of creating an intimidating, hostile, or offensive work environment." Andrews v. City of Philadelphia, 895 F.2d 1469, 1482 (3d Cir.1990). In this case, Mathias asserts a hostile work environment claim.
To establish a hostile work environment claim, a plaintiff must demonstrate that: "(1) the employee[ ] suffered intentional discrimination because of [her] sex; (2) the discrimination was pervasive and regular; (3) the discrimination detrimentally affected the plaintiff; (4) the discrimination would detrimentally affect a reasonable person of the same sex in that position; and (5) the existence of respondeat superior liability." Id.
After reviewing the evidence, I find that genuine issues of material fact exist as to the elements necessary to prove the existence of a hostile work environment claim. Therefore, I deny AVS's motion for summary judgment on this claim.
B. Retaliation in Violation of Title VII and the PHRA
Title VII makes it unlawful for an employer "to discriminate against any of his employees . .. because he has opposed any practice made an unlawful employment practice by this subchapter, or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this subchapter." 42 U.S.C. § 2000e-3(a). In deciding a discriminatory retaliation claim, this Court must use the burden shifting test set forth in McDonnell Douglas v. Green, 411 U.S. 792. 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). Woodson v. Scott Paper Co., 109 F.3d 913, 920 (3d Cir.1997).
The McDonnell Douglas framework proceeds in three stages. First, the plaintiff must establish a prima facie ease for unlawful discrimination. McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. 1817. To establish a prima facie case of discriminatory retaliation, the plaintiff must demonstrate that:, "(1) he or she engaged in a protected employee activity; (2) the employer took an adverse employment action after or contemporaneous with the protected activity; and (3) a causal link exists between the protected activity and the adverse action." Weston v. Pennsylvania, 251 F.3d 420, 430 (3d Cir.2001). If the plaintiff succeeds in establishing a prima facie case, the burden shifts to the employer to "articulate some legitimate, nondiscriminatory reason" for the adverse action. See McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. 1817. If the employer succeeds in articulating a legitimate, nondiscriminatory reason, the burden then shifts back to the plaintiff to demonstrate that this reason is in fact pretext. Id. at 804, 93 S.Ct. 1817.
Mathias alleges that AVS terminated her employment in retaliation for the report her husband made to Snyder regarding Figueora's inappropriate conduct toward Mathias.[3] Assuming arguendo that Mathias has established a prima facie case,[4] the burden then shifts to AVS to articulate a legitimate, nondiscriminatory reason for Mathias' discharge. As explained by the Third Circuit, "[t]his is a `relatively light burden' that the employer satisfies ... by introducing evidence, which taken as true, would permit the conclusion that there was a nondiscriminatory reason for the unfavorable employment decision. The employer need not prove that the tendered reason actually motivated its behavior...." Fuentes v. Perskie, 32 F.3d 759, 763 (3d Cir.1994) (emphasis in original).
AVS asserts that it discharged Mathias because she failed to show up for work on the weekend of December 10, 2005 and did not call in advance to notify her supervisor that she would be absent. Mathias was aware of the policy in the Employee Manual that required her to report any upcoming absence prior to her shift. In addition, AVS's Employee Manual had a policy that if an employee did not report to work or notify a supervisor in advance of the absence, the employee would be considered Absent Without Official Leave ("AWOL") and face possible termination.
On December 13, 2005, AVS sent a letter to Mathias restating its AWOL policy and notifying her that she would be discharged if she did not contact Richard Snyder by December 17, 2005 with an acceptable excuse for her absence. On December 19, 2005, after Mathias failed to contact Richard Snyder, AVS discharged Mathias. Based on this evidence, I find that AVS had a legitimate, nondiscriminatory reason for Mathias' termination.
Because I find that AVS has successfully set forth a legitimate, nondiscriminatory reason for Mathias' discharge, the burden shifts to Mathias to establish that AVS's explanation for her termination is pretextual. The standard for proving pretext "places a difficult burden on the plaintiff." Fuentes, 32 F.3d at 765. This is because "the non-moving plaintiff must demonstrate such weaknesses, implausibilities, inconsistencies, incoherencies, or contradictions in the employer's proffered legitimate reasons for its action that a reasonable factfinder could rationally find them unworthy of credence, and hence infer that the employer did not act for [the asserted] non-discriminatory reasons." Id. (internal quotation and citation omitted; emphasis in original). According to the Third Circuit, to defeat summary judgment, "the plaintiff must point to some evidence, direct or circumstantial, from which a factfinder could reasonably either (1) disbelieve the employer's articulated legitimate reasons; or (2) believe that an invidious discriminatory reason was more likely than not a motivating or determinative cause of the employer's action." Id. at 764.
Mathias provides no evidence to discredit AVS's proffered reason for discharge, nor does she provide any invidious discriminatory reason for her discharge. In fact, Mathias concedes that: (1) she was aware of AVS's written policy that required her to report an absence prior to the start of the shift that she planned to miss; (2) she never contacted anyone at AVS before missing work on the weekend of December 10, 2005; (3) she received a letter from AVS warning her that she would be terminated unless she provided an acceptable excuse for her absences by December 17, 2005; and (4) she never contacted AVS after receiving the letter.
The evidence demonstrates that AVS's AWOL policy appeared in its Employee Manual and specifically stated that an employee's first instance of being AWOL would result in her termination if she failed to provide an acceptable excuse for the absence. Additionally, deposition testimony reveals that AVS routinely issues 35-40 AWOL letters a year and strictly enforces its AWOL policy. Mathias provides no evidence to dispute these facts.
Even if Mathias could establish a prima facie case for discriminatory retaliation, I find that Mathias is unable to show that AVS's legitimate, nondiscriminatory reason for her discharge is pretextual. Therefore, I grant AVS's motion for summary judgment on this claim.
C. Intentional Infliction of Emotional Distress ("IIED")[5]
For a plaintiff to prevail on a claim of IIED, the conduct must (1) be intentional or reckless; (2) be extreme and outrageous; and (3) cause severe emotional distress. Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 85 (3d Cir.1987). According to the Third Circuit, "[t]he gravamen of the tort of intentional infliction of emotional distress is that the conduct complained of must be of an extreme or outrageous type." Cox v. Keystone Carbon Co., 861 F.2d 390, 395 (3d Cir.1988) (internal quotations omitted). Additionally, "[i]t has been said that `the conduct must be 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 society.'" Id. (quoting Buczek v. First Nat'l. Bank of Mifflintown, 366 Pa.Super. 551, 531 A.2d 1122, 1125 (1987)). According to the Supreme Court of Pennsylvania, "courts have been chary to allow recovery for intentional infliction of emotional distress.... Cases which have found a sufficient basis for a cause of action of intentional infliction of emotional distress have had presented only the most egregious conduct." Hoy v. Angelone, 554 Pa. 134, 720 A.2d 745, 753-54 (1998). "Described another way, it has not been enough that the defendant has acted with intent which is tortious or even criminal, or that he has intended to inflict emotional distress, or even that this conduct has been characterized by malice, or a degree of aggravation that would entitle the plaintiff to punitive damages for another tort." Id. at 754 (internal quotations omitted).
As observed by the Third Circuit, "it is extremely rare to find conduct in the employment context that will rise to the level of outrageousness necessary to provide a basis for recovery for the tort of intentional infliction of emotional distress." Id. Further, "as a general rule, sexual harassment alone does not rise to the level of outrageousness necessary to make out a cause of action for intentional infliction of emotional distress .... The extra factor that is generally required is retaliation for turning down sexual propositions" Andrews, 895 F.2d at 1487.
Mathias alleges that Figueroa made five offensive comments to her and once slightly brushed up against her chest, which may have been done unintentionally. While Figueroa's alleged actions are inappropriate, they clearly are not "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 society." Cox, 861 F.2d at 395. My finding that this conduct is not extreme or outrageous comports with the Third Circuit's observation that IIED is extremely rare in the employment context. Although an employer's conduct may rise to level of outrageousness necessary for an IIED claim in a sexual harassment case in which an employer retaliates against an employee who turns down a sexual proposition, Figueroa never propositioned Mathias and, as discussed above, the retaliation claim is untenable. Because the conduct at issue was neither extreme nor outrageous so as to go beyond all possible bounds of decency, Mathias' IIED claim fails as a matter of law. Therefore, I grant AVS's motion for summary judgment on this claim.
ORDER
AND NOW, this 16th day of May, 2008, it is ORDERED that AVS's Motion of Defendant for Summary Judgment (Doc. #23) is:
DENIED as to the claim of a hostile work environment under Title VII and the PHRA;
GRANTED as to the claim of retaliation under Title VII and the PHRA; and
GRANTED as to the claim of intentional infliction of emotional distress.
NOTES
[1] For the first two weeks of her employment, Mathias attended orientation. During this orientation, Mathias attended a session reviewing the contents of the Employee Manual. At this session, Mathias received a copy of AVS's Employee Manual to take home and review for one night; however she was not allowed to keep the manual and was not told how she could obtain a copy of it in the future. The Employee Manual contained both non-discrimination and non-harassment policies. On July 22, 2005, Mathias signed a statement confirming that she had read the manual and that she agreed to comply with its policies and procedures.
[2] According to the Third Circuit, "[t]he proper analysis under Title VII and the Pennsylvania Human Relations Act is identical, as Pennsylvania courts have construed the protections of the two acts interchangeably." Weston v. Pennsylvania, 251 F.3d 420, 426 n. 3 (3d Cir.2001).
[3] Mathias also alleges that during her employment at AVS, Figueroa changed her job duties and gave her more difficult tasks. Mathias contends that this change in job duties is proof of retaliation by AVS. However, this retaliation claim fails as a matter of law because Mathias never engaged in any protected activity before the alleged changes in her job duties were made.
[4] It is unlikely that Mathias can establish a prima facie case of retaliation because she never reported any alleged harassment to anyone at AVS either before or after her discharge; hence she did not engage in a protected activity. Mathias contends that she has established a prima facie case of retaliation because her husband engaged in the protected activity that caused AVS's retaliation against her when he called Snyder to report Figueroa's behavior. However, according to the Third Circuit, Title VII prohibits third-party retaliation claims and requires that "the individual who was discriminated against must also be the individual who engaged in protected activity." Fogleman v. Mercy Hosp., Inc., 283 F.3d 561, 568 (3d Cir.2002).
[5] Because IIED is a state tort, I analyze this claim according to Pennsylvania state law. Although it is unsettled whether the tort of IIED exists in Pennsylvania, for the purposes of this motion, I will assume that it does. See Taylor v. Albert Einstein Medical Center, 562 Pa. 176, 754 A.2d 650 (2000).
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21 F.Supp.2d 1040 (1998)
Nancy HUMPHRIES, Plaintiff,
v.
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, Defendant.
No. 1:97CV00012 ERW.
United States District Court, E.D. Missouri, Southeastern Division.
June 8, 1998.
*1041 Malcolm H. Montgomery, Johnson & Montgomery, Cape Girardeau, MO, for plaintiff.
Karen A. Baudendistel, Armstrong & Teasdale, St. Louis, MO, for defendant.
MEMORANDUM AND ORDER
WEBBER, District Judge.
This matter is before the Court on defendant's motion for summary judgment [document # 16].
Plaintiff Nancy Humphries brought this cause of action against defendant Northwestern Mutual Life Insurance Company ("Northwestern") in the Circuit Court of Cape Girardeau County, Missouri on December 18, 1996. Plaintiff is the beneficiary under a life insurance policy issued by defendant. Plaintiff alleges that defendant has failed and refused to pay to plaintiff the death benefits provided under the terms of the policy. On January 21, 1997, defendant removed this cause to this Court. Defendant now moves for summary judgment.
I. Standard
The standards applicable to summary judgment motions are well settled. Pursuant to Federal Rule of Civil Procedure 56(c), a court may grant a motion for summary judgment if all of the information before the court shows "there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The initial burden is placed on the moving party. City of Mt. Pleasant, Iowa v. Associated Elec. Co-op., Inc., 838 F.2d 268, 273 (8th Cir.1988) (moving party has the burden of clearly establishing the non-existence of any genuine issue of fact material to a judgment in its favor). Once this burden is discharged, if the record does in fact bear out that no genuine dispute exists, the burden then shifts to the non-moving party who must set forth affirmative evidence and specific facts showing there is a genuine dispute on that issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Buford v. Tremayne, 747 F.2d 445, 447 (8th Cir.1984).
Once the burden shifts, the non-moving party may not rest on the allegations in its pleadings, but by affidavit and other evidence must set forth specific facts showing that a genuine issue of material fact exists. Fed. R.Civ.P. 56(e). The non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When evaluating a motion for summary judgment, the Court must view the facts in the light most favorable to the party against whom the motion is directed, giving such party the benefit of all reasonable inferences to be drawn from the facts. Portis v. Folk Constr. Co., 694 F.2d 520, 522 (8th Cir.1982). With these principles in mind, the Court now turns to an examination of the facts.
II. Facts
On or about November 9, 1995, Ronald Humphries signed an application for life insurance with Northwestern Mutual. Mr. Humphries' wife, Nancy, was named as the beneficiary. On the application for the policy, Mr. Humphries falsely answered a question regarding his driving history. He indicated that within the last five years he had not been in a motor vehicle accident, been charged with a moving violation of any motor vehicle law, or had his license restricted, suspended or revoked, when in fact he had been convicted of driving while intoxicated on May 1, 1995, and his license was suspended effective July 9, 1995.
On July 26, 1996, Mr. Humphries died in a one-car accident. Mr. Humphries' blood alcohol level was determined to be .229, and John Carpenter, the Cape Girardeau County Coroner, concluded that Mr. Humphries' death was alcohol related.
On or about September 3, 1996, plaintiff furnished to defendant proof of decedent's death, and demanded payment of the proceeds and benefits as provided in the policy *1042 in the amount of $250,000. Defendant refused to pay plaintiff the death benefits provided under the terms of the policy. Plaintiff thereafter filed this action to collect on the policy.
III. Discussion
Defendant contends that summary judgment should be granted in its favor because decedent misrepresented in his application that he had never been convicted for driving while intoxicated, and he died as a direct result of driving while intoxicated. Defendant asserts that plaintiff offers no evidence that decedent died of a heart attack or sleep apnea[1], and that any suggestion of such by plaintiff is mere speculation.
Plaintiff maintains that pursuant to § 376.580 RSMo, a matter allegedly misrepresented in an insurance policy must contribute to the cause of death, and whether the misrepresentation did contribute is a question for the trier of fact. Therefore, plaintiff asserts that it is for the jury to determine whether decedent's alleged misrepresentation regarding his DWI conviction directly contributed to his death.
In Missouri, a misrepresentation made in obtaining an insurance policy does not render the policy void unless the matter misrepresented actually contributed to the event which causes the policy to become due in this case, decedent's death. § 376.580 RSMo; Derickson v. Fidelity Life Ass'n, 77 F.3d 263, 264 (8th Cir.1996). Whether the misrepresentation so contributed is a question for the jury. Id. (citing Bellamy v. Pacific Mut. Life Ins. Co., 651 S.W.2d 490, 493 n. 2 (Mo.1983)). However, the Court must determine whether the evidence authorizes submission of the case to the jury. Id. (citing Winger v. General American Life Ins. Co., 345 S.W.2d 170, 182 (Mo.1961)).
The Court finds that plaintiff has not carried its burden of showing that a genuine issue of material fact exists as to the causation of decedent's death. See Anderson, 477 U.S. at 249, 106 S.Ct. 2505. Plaintiff does not allege any specific facts which suggest that decedent's death was caused by a heart attack, his sleep apnea, or any other reason. Construing the facts in a light most favorable to plaintiff, the Court finds that decedent's condition of sleep apnea and family history of heart attacks, alone, without any specific facts causally linking these factors to the accident, do not present sufficient evidence where a reasonable jury could find that such was the cause of decedent's death. Therefore, defendant's motion for summary judgment shall be granted.
Accordingly,
IT IS HEREBY ORDERED that defendant's motion for summary judgment [document # 16] is GRANTED.
JUDGMENT
In accordance with the Memorandum and Order of this Court filed on this date and incorporated herein,
IT IS HEREBY ORDERED, ADJUDGED and DECREED that defendant Northwestern Mutual Life Insurance Company ("Northwestern") shall have judgment against plaintiff Nancy Humphries, and that plaintiff's claim for relief against Northwestern is DISMISSED with prejudice.
NOTES
[1] "A temporary suspension of breathing occurring repeatedly during sleep that often affects overweight people or those having a neurological disorder." The American Heritage College Dictionary (3rd ed.1993).
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24 Ill. App.3d 666 (1974)
321 N.E.2d 74
THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellee,
v.
JOHN WILLIAMS, Defendant-Appellant.
No. 73-234.
Illinois Appellate Court Third District.
December 6, 1974.
Rehearing denied January 7, 1975.
*667 James Geis and Richard Steck, both of State Appellate Defender's Office, for appellant.
Martin Rudman, State's Attorney, of Joliet (Ludwig J. Kuhar, Assistant State's Attorney, of counsel), for the People.
Reversed and remanded.
Mr. JUSTICE ALLOY delivered the opinion of the court:
1 Defendant, John Williams, appeals from a conviction and sentence for aggravated battery which occurred at the Stateville Penitentiary. Appellant was charged with aggravated battery under section 12-4(a) of the Criminal Code (Ill. Rev. Stat. 1973, ch. 38, par. 12-4(a)), which requires proof that "a person who, in committing a battery, intentionally or knowingly, causes great bodily harm." Section 12-3 of the Criminal Code (Ill. Rev. Stat. 1973, ch. 38, par. 12-3) defines simple battery as either causing bodily harm by physical contact or the making of an insulting or provoking contact with another. The substantive difference between the two charges is that aggravated battery requires harmful conduct which results in severe bodily harm while ordinary or simple battery simply requires harmful contact. Simple battery is a Class A misdemeanor and aggravated battery is a Class 3 felony.
*668 Appellant, an inmate, sought to go to a certain church service at Stateville Penitentiary. Officer King advised defendant Williams that he had come too late and that he should go to his cell. Defendant refused to leave and Officer King then called for a lieutenant. Lieutenant Sharp came to Cell House E where Officer King was stationed. Defendant refused to allow Lieutenant Sharp to take him to an investigation area. He requested an explanation for Sharp's suggestion that defendant had violated a disciplinary rule of the prison. After a brief exchange (during which Sergeant Fisher entered) defendant walked toward the door to the right of Lieutenant Sharp. After walking a few steps, Williams then turned and hit Sharp and Sharp fell to the floor.
The testimony was conflicting as to Williams' role. Sharp testified that the defendant was to his right slightly behind him when he was struck on the right cheek bone and jaw. King corroborated the testimony and added that Williams had apparently used his left arm and a backswing. Defendant disagreed and stated that he hit Sharp on the left side of his face with his right hand. He also stated that a recent operation on his left arm reduced the strength in his left arm. Others saw defendant strike Sharp. After Sharp fell down, King tried to grab the defendant but was also knocked down. A struggle ensued between Williams and Officers King, Fisher and Sharp. When Sharp sought to telephone for help, defendant struck him for the second time. Other officers arrived and led defendant from the room.
A few minutes before the defendant was subdued, Officer Fisher had received a message that several inmates were approaching the cell house brandishing baseball bats and that three officers, on their way to pick up appellant, had been assaulted. The trouble was not over when Sharp passed in that direction, but Sharp testified he received no injuries at that time. The testimony of Officer Fisher as to that event was curtailed by the court as being beyond the scope of the direct testimony. Counsel for defendant sought to examine Officer Fisher on that event on cross-examination, but the testimony was curtailed by the court as being beyond the scope of the direct examination, which did not cover the matters referred to.
Defendant admitted striking complainant Lt. Sharp twice during the altercation. His defense to the charge of aggravated battery was that the blows he struck were not the cause of the severe damage which was admittedly suffered by Sharp and which was required to convict under section 12-4(a) of the Criminal Code. Appellant contends that the evidence presented for the defense, if believed, would permit the jury to convict on the offense of simple battery, which is a lesser included offense within the definition of section 12-4(a) covering aggravated battery. *669 (People v. Gnatz, 8 Ill. App.3d 396, 290 N.E.2d 392.) Defendant therefore asserts that the court erred when it refused a battery instruction tendered by defendant and the verdict form tendered by him for the reason that the evidence entitled him to such an instruction. The injury suffered by Lieutenant Sharp was described by the doctor as a blowout fracture and an injury to the bone above the right eye. The attending doctor stated that it would take a tremendous force to inflict such an injury but also said the injury could occur as a result of a fall.
2 With respect to the issue relating to the instruction on the lesser included offense, if there is any evidence which tends to prove the lesser rather than the greater offense, defendant is normally entitled to such an instruction. (People v. Papas, 381 Ill. 90, 44 N.E.2d 896.) The evidence in this case appears to strongly indicate that the defense of defendant could not be sustained. Defendant contends, however, that he is entitled to an instruction even though he may not have been entitled to be convicted only on the lesser charge as a matter of law. He points out that there was some evidence (his own testimony) which created an issue of fact and that he was entitled to a jury determination on this issue. The contention of defendant is based on the premise that he struck Lieutenant Sharp only on the left side of the face and that the opposite or right side of the face suffered the severe damage. Defendant was entitled to have the jury pass on the question of whether or not he was guilty of a simple battery or aggravated battery on the basis of the evidence as presented in the trial court.
3, 4 It appears that defendant tendered a verdict form as to simple battery but did not tender a battery issue instruction of the character illustrated in Illinois Pattern Instructions Criminal No. 11.06. In the event that defendant had tendered a battery instruction which did not conform to the IPI form, then the court should have prepared and submitted an instruction to cover the issue. (People v. Joyner, 50 Ill.2d 302.) In the Joyner case, the supreme court of this State concluded that the failure to tender an instruction on a lesser included offense in conformity with IPI did not prevent a remand for a new trial with direction to instruct the jury on the lesser offense so long as the evidence warranted the instruction, where defendant had tendered at the trial, an instruction on the lesser offense which was defective. Assuming also that no battery instruction was tendered, fundamental fairness requires such procedure, notably in this type of case. A trial should be had where a jury is adequately instructed on the issues of battery and aggravated battery so that there could be no conclusion that the ultimate decision resulted from a technicality.
5, 6 On the issue of whether defendant is right in his contention that *670 the court erred by not permitting defense counsel from pursuing, on cross-examination of Fisher, matters relating to the incident outside the cell house, we do not believe that the position taken by defendant is sound. The objective of the cross-examination was undertaken to elicit some evidence which would suggest an alternative cause of the injury suffered by Sharp. The direct testimony of Fisher was concerned solely with the occurrences within the cell house. The latitude which a party is given on cross-examination is within the sound discretion of the trial court (People v. Curtis, 123 Ill. App.2d 384, 259 N.E.2d 397). Any error, therefore, with respect to this matter would be harmless. If counsel for defendant sought to develop the other line of questioning, he could easily have called the same witness to testify for the defense.
7, 8 A final claim of error is raised by defendant to the effect that the trial court abused its discretion when it refused appellant's motion for discovery of the names of occurrence witnesses. While discovery rules do not expressly require the discovery of occurrence witnesses, a trial judge in his discretion can order such discovery under Supreme Court Rule 412 (Ill. Rev. Stat. 1973, ch. 110A, par. 412). (See also Krupp v. Chicago Transit Authority, 8 Ill.2d 37.) In the cause before us, defendant apparently tried to obtain the names from the officers who were present, but those persons were unable to recall which inmates were at the cell house at the time of the incident. It appears, however, that since the "broad purpose of discovery procedure was to de-emphasize the adversary quality of litigation and to reassert the higher aim of ascertaining the truth," as set forth in Monier v. Chamberlain, 66 Ill. App.2d 472, 480, aff'd, 35 Ill.2d 351, we believe that defendant should have been granted the requested discovery, if available.
We conclude, therefore, that this cause should be remanded for a new trial for the reasons stated. Accordingly, the judgment of the Circuit Court of Will County is reversed and remanded for a new trial.
Reversed and remanded.
STOUDER and DIXON, JJ., concur.
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Fourth Court of Appeals
San Antonio, Texas
JUDGMENT
No. 04-17-00338-CV
Travis CROW, Britt A. Crow, Laurian Crow Edison, and Karen A. Kraft,
Appellants
v.
Heddie Knappick LOOKADOO, Lisa Knappick Lucas, Mary Brown, Margaret Brown Nugent,
Charles Brown, Joseph Gallagher, Josephine Brown Noll, Pamela Gallagher Palmer, and Irene
B. Zoeller,
Appellees
From the 218th Judicial District Court, La Salle County, Texas
Trial Court No. 14-10-00188-CVL
Honorable Donna S. Rayes, Judge Presiding
BEFORE JUSTICE BARNARD, 1 JUSTICE ALVAREZ, AND JUSTICE RIOS
In accordance with this court’s opinion of this date, this appeal is REINSTATED on the
docket of this court; the judgment issued on August 28, 2018 in this appeal is WITHDRAWN; and
this appeal is DISMISSED. See TEX. R. APP. P. 42.1(a)(1), (c). The costs of this appeal are taxed
against appellant. See TEX. R. APP. P. 43.4.
SIGNED August 7, 2019.
_____________________________
Irene Rios, Justice
1
Not participating.
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Opinion filed December 13, 2018
In The
Eleventh Court of Appeals
__________
No. 11-18-00091-CV
__________
IN RE DAN DIPPREY, CURTIS PRIDDY,
KEN HILL, AND KEN HILL INVESTMENT GROUP, INC.
Original Mandamus Proceeding
OPINION
This mandamus proceeding arises from a suit filed by Relators: Dan Dipprey,
Curtis Priddy, Ken Hill, and Ken Hill Investment Group, Inc. Relators are members
of a property owners association known as The Cliffs Property Owners’ Association,
Inc. They filed suit against the real parties in interest: Double Diamond, Inc., Double
Diamond Management Corporation, Double Diamond Utilities Co., R. Mike Ward,
and Cliffs Golf, Inc., concerning the governance of the property owners association.
We note at the outset that the property owners association is not a party to either the
underlying suit or this original proceeding.
Relators have filed a petition for writ of mandamus seeking to vacate the trial
court’s order of March 28, 2018. Among other things, this order sets out a ruling by
1
the trial court concerning the tabulation of votes for owners of timeshare estates at a
meeting of the members of the property owners association. This meeting was to
occur during the pendency of the underlying suit.1 Relators contend that the trial
court has erred in its construction of the articles of incorporation of the bylaws and
of the property owners association with respect to the tabulation of votes. We deny
Relators’ request for mandamus relief.
Mandamus is an “extraordinary” remedy that is “available only in limited
circumstances.” Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992) (orig.
proceeding). A writ of mandamus will issue only if the trial court clearly abused its
discretion and the relator has no adequate remedy on appeal. In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding). With respect
to the first requirement, a trial court abuses its discretion if it reaches a decision so
arbitrary and unreasonable as to amount to a clear and prejudicial error of law. In re
Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig. proceeding)
(per curiam). In addition, because a trial court has no discretion in determining what
the law is or in applying it to the facts, a trial court abuses its discretion if it fails to
correctly analyze or apply the law. See Prudential, 148 S.W.3d at 135; see also In
re J.B. Hunt Transp., Inc., 492 S.W.3d 287, 294 (Tex. 2016) (orig. proceeding).
With respect to the second requirement, the cost and delay of pursuing an appeal
will not, in themselves, render appeal an inadequate alternative to mandamus review.
In re Entergy Corp., 142 S.W.3d 316, 321 (Tex. 2004) (orig. proceeding). We do
not reach Relators’ contention that the trial court has clearly abused its discretion
1
The trial court’s order of March 28, 2018, is also the subject of an interlocutory appeal filed by the
real parties in interest as Cause No. 11-18-00105-CV. Our opinion in this original proceeding has no
bearing on the merits of the interlocutory appeal.
2
because we conclude that Relators have not established that they do not have an
adequate remedy by appeal.2
The trial court’s ruling that is the subject of this original proceeding is an
interlocutory ruling by the trial court made during the pendency of the underlying
suit. The adequacy of appeal as a remedy for an alleged clear abuse of discretion in
an interlocutory ruling involves a balance of jurisprudential considerations. In re
Prudential, 148 S.W.3d at 136. An appellate remedy is “adequate” when any
benefits to mandamus review are outweighed by the detriments. Id. When the
benefits outweigh the detriments, appellate courts must consider whether the
appellate remedy is adequate. Id.
“As a general rule, mandamus does not lie to correct incidental trial court
rulings when there is a remedy by appeal.” In re Entergy, 142 S.W.3d at 320 (citing
Bell Helicopter Textron, Inc. v. Walker, 787 S.W.2d 954, 955 (Tex. 1990)). As
noted by the Texas Supreme Court in In re Prudential:
Mandamus review of incidental, interlocutory rulings by the trial courts
unduly interferes with trial court proceedings, distracts appellate court
attention to issues that are unimportant both to the ultimate disposition
of the case at hand and to the uniform development of the law, and adds
unproductively to the expense and delay of civil litigation.
148 S.W.3d at 136. “The reluctance to issue extraordinary writs to correct incidental
trial court rulings can be traced to a desire to prevent parties from attempting to use
the writ as a substitute for an authorized appeal.” In re Entergy, 142 S.W.3d at 320.
Appellate courts will not exercise mandamus jurisdiction over interlocutory trial
court rulings absent “special, unique circumstances” that mandate intervention. Id.
at 321.
2
We express no opinion concerning whether the trial court has correctly interpreted the articles of
incorporation and bylaws. As noted in our opinion, this is an issue that we have not reached.
3
An appeal is inadequate when parties are in danger of permanently losing
substantial rights. In re Van Waters & Rogers, Inc., 145 S.W.3d 203, 211 (Tex.
2004) (orig. proceeding). “Such a danger arises when the appellate court would not
be able to cure the error, when the party’s ability to present a viable claim or defense
is vitiated, or when the error cannot be made part of the appellate record.” Id. As
observed by the Austin Court of Appeals, “the most frequent use of mandamus relief
by the supreme court involves cases in which the very act of proceeding to trial—
regardless of the outcome—would defeat the substantive right involved.” In re
Empower Texans, Inc., No. 03-18-00220-CV, 2018 WL 1802515, at *3 (Tex.
App.—Austin Apr. 17, 2018, orig. proceeding) (mem. op.) (listing the circumstances
wherein the supreme court has recently granted mandamus relief for interlocutory
trial court rulings).
Relators contend that they do not have an adequate remedy by appeal because
the trial court’s order “may well determine the governance” of the property owners
association. They assert that this situation is similar to cases involving injunctions
and the requirement of showing irreparable harm. See Sonwalker v. St. Luke’s Sugar
Land Partnership, L.L.P., 394 S.W.3d 186, 201 (Tex. App.—Houston [1st Dist.]
2012, no pet.) (cited by Relators). Relators essentially assert that they will be
irreparably harmed by the trial court’s legal interpretation for tabulating votes of the
members.
We disagree with Relators’ analysis that their position will be irreparably
harmed. The proper tabulation of votes is a matter that can be litigated at the trial
on the merits which has not yet occurred. We note that Relators have subsequently
relitigated the legal question presented in this mandamus proceeding in a hearing
before the trial court on June 21, 2018. Furthermore, the trial court’s ruling would
not seem to impair Relators’ presentation of evidence at trial or their ability to litigate
4
the matter on appeal. It would appear that all votes/proxies cast can be preserved
for the trial court or jury to consider at the trial on the merits.
The trial court’s task of interpreting the articles of incorporation and bylaws
for the property owners association is one typically undertaken by a trial court in the
summary judgment context. Issues resolved by summary judgment are typically not
subject to mandamus review. See In re Gibson, 533 S.W.3d 916, 921 (Tex. App.—
Texarkana 2017, orig. proceeding). Any error arising from an incidental trial court
ruling concerning the legal interpretation of documents is a matter that typically can
be corrected on appeal. To hold otherwise would be permitting Relators to pursue
an impermissible interlocutory appeal of the trial court’s interlocutory order. See In
re Entergy, 142 S.W.3d at 320; see also In re Brar, 463 S.W.3d 921, 923 (Tex.
App.—Dallas 2015, orig. proceeding) (“Granting the relief relator seeks would
result in nothing more than the piecemeal resolution of the suit.”). Accordingly, we
deny Relators’ requested mandamus relief solely on the basis that this is not the sort
of exceptional case that warrants the extraordinary remedy of mandamus.
JOHN M. BAILEY
CHIEF JUSTICE
December 13, 2018
Panel consists of: Bailey, C.J.,
Willson, J., and Wright, S.C.J.3
Willson, J., not participating.
3
Jim R. Wright, Senior Chief Justice (Retired), Court of Appeals, 11th District of Texas at Eastland,
sitting by assignment.
5
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American Airlines Fed. Credit Union v Costello (2018 NY Slip Op 03335)
American Airlines Fed. Credit Union v Costello
2018 NY Slip Op 03335
Decided on May 9, 2018
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on May 9, 2018
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
JOHN M. LEVENTHAL, J.P.
JEFFREY A. COHEN
ROBERT J. MILLER
HECTOR D. LASALLE, JJ.
2015-02887
2015-08090
(Index No. 8679/11)
[*1]American Airlines Federal Credit Union, respondent,
vMichael Costello, et al., defendants, Susan Costello, appellant.
Fred M. Schwartz, Smithtown, NY, for appellant.
Rosicki, Rosicki & Associates, P.C., Plainview, NY (Catherine Gran and Andrew Morganstern of counsel), for respondent.
DECISION & ORDER
In an action to foreclose a mortgage, the defendant Susan Costello appeals from (1) an order of the Supreme Court, Nassau County (Thomas A. Adams, J.), dated June 29, 2014, which (a) granted the plaintiff's motion for summary judgment on the complaint and dismissing the affirmative defenses asserted by the defendants Michael Costello and Susan Costello in their joint answer, and for an order of reference, and (b) denied her cross motion, in effect, pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against her for failure to state a cause of action, and (2) an order of the same court, also dated June 29, 2014, which, among other things, upon the granting of that branch of the plaintiff's motion which was for an order of reference, appointed a referee.
ORDERED that the first order dated June 29, 2014, is modified, on the law, by deleting the provision thereof granting the plaintiff's motion for summary judgment on the complaint and dismissing the affirmative defenses asserted by the defendants Michael Costello and Susan Costello in their joint answer, and for an order of reference, and substituting therefor a provision denying the plaintiff's motion on the ground that no substitution had been made for the deceased defendant; as so modified, the first order dated June 29, 2014, is affirmed; and it is further,
ORDERED that the second order dated June 29, 2014, is reversed, on the law; and it is further,
ORDERED that one bill of costs is awarded to the defendant Susan Costello.
The plaintiff commenced this action against, among others, the defendants Michael Costello and Susan Costello (hereinafter together the homeowners) to foreclose a mortgage. In addition to the judicial sale of the subject property, the complaint sought a deficiency judgment against the homeowners.
After the action was commenced, the defendant Michael Costello died. The plaintiff thereafter moved for summary judgment on the complaint and dismissing the affirmative defenses [*2]asserted by the homeowners in their joint answer, and for an order of reference.
The defendant Susan Costello opposed the plaintiff's motion, arguing, among other things, that the death of Michael Costello automatically stayed the proceedings in the action pending the substitution of a legal representative for that deceased defendant. She also cross-moved, in effect, pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against her.
In the first order appealed from, the Supreme Court granted the plaintiff's motion and denied Susan Costello's cross motion. In the second order appealed from, the court, inter alia, appointed a referee to compute the amount due to the plaintiff on the note and mortgage.
As a general matter, "the death of a party divests a court of jurisdiction to act, and automatically stays proceedings in the action pending the substitution of a legal representative for that decedent pursuant to CPLR 1015(a)" (NYCTL 2004-A Trust v Archer, 131 AD3d 1213, 1214; see CPLR 1015, 1021; Aurora Bank FSB v Albright, 137 AD3d 1177, 1178; U.S. Bank N.A. v Esses, 132 AD3d 847, 847-848; JPMorgan Chase Bank, N.A. v Rosemberg, 90 AD3d 713, 714). "[A]ny determination rendered without such a substitution will generally be deemed a nullity" (Singer v Riskin, 32 AD3d 839, 840; see Aurora Bank FSB v Albright, 137 AD3d at 1178; NYCTL 2004-A Trust v Archer, 131 AD3d at 1214).
Here, the defendant Michael Costello died before the plaintiff's motion was made and before the orders appealed from were issued. Since a substitution had not been made, the Supreme Court should not have determined the merits of the plaintiff's motion, even to the extent that the plaintiff sought relief against the other defendants (see Aurora Bank FSB v Albright, 137 AD3d at 1178; U.S. Bank Natl. Assn. v Esses, 132 AD3d at 847-848; NYCTL 2004-A Trust v Archer, 131 AD3d at 1214; JPMorgan Chase Bank, N.A. v Rosemberg, 90 AD3d at 714). Furthermore, although this Court has recognized, under certain limited circumstances, that "where a party's demise does not affect the merits of a case, there is no need for strict adherence to the requirement that the proceedings be stayed pending substitution" (U.S. Bank N.A. v Esses, 132 AD3d at 848), those circumstances are not present here (see Aurora Bank FSB v Albright, 137 AD3d at 1178; U.S. Bank N. A. v Esses, 132 AD3d at 847-848; cf. HSBC Bank USA v Ungar Family Realty Corp., 111 AD3d 673, 673; Bank of N.Y. Mellon Trust Co. v Ungar Family Realty Corp., 111 AD3d 657, 658-659; DLJ Mtge. Capital, Inc. v 44 Brushy Neck, Ltd., 51 AD3d 857, 858).
The plaintiff's remaining contentions are either improperly raised for the first time on appeal or based on matter dehors the record (see generally Salatino v Pompa, 134 AD3d 692, 693). Accordingly, the Supreme Court should have denied the plaintiff's motion on the ground that no substitution had been made for the deceased defendant. Since the failure to lift the automatic stay also required the denial of Susan Costello's cross motion on the same procedural ground, we do not disturb the portion of the order denying that cross motion.
LEVENTHAL, J.P., COHEN, MILLER and LASALLE, JJ., concur.
ENTER:
Aprilanne Agostino
Clerk of the Court
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/s
Fourth Court of Appeals
San Antonio, Texas
July 23, 2015
No. 04-14-00561-CV
Noe GARCIA and Iris Garcia,
Appellants
v.
Gloria GARCIA,
Appellee
From the 229th Judicial District Court, Duval County, Texas
Trial Court No. DC-12-335
Honorable Ana Lisa Garza, Judge Presiding
ORDER
Sitting: Patricia O. Alvarez, Justice
Luz Elena D. Chapa, Justice
Jason K. Pulliam, Justice
The panel has considered the Appellee’s Motion for Rehearing, and the motion is
DENIED.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 23rd day of July, 2015.
___________________________________
Keith E. Hottle
Clerk of Court
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TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-01-00324-CV
Sharon Ann Ferrel, Appellant
v.
Paul A. Ferrel, Appellee
FROM THE DISTRICT COURT OF COMAL COUNTY, 207TH JUDICIAL DISTRICT
NO. C2000-824A, HONORABLE WILLIAM E. BENDER, JUDGE PRESIDING
PER CURIAM
Appellant Sharon Ann Ferrel has filed a motion to dismiss her appeal. Accordingly,
we dismiss the appeal. Tex. R. App. P. 42.1(a)(2).
Before Justices Kidd, B. A. Smith and Puryear
Dismissed on Appellant's Motion
Filed: August 30, 2001
Do Not Publish
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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
FEBRUARY 26, 2008
No. 06-14187 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 96-00477-CR-UUB
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JOSEPH S. TRAVERS,
a.k.a. LARRY THOMAS
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(February 26, 2008)
Before TJOFLAT, ANDERSON and HULL, Circuit Judges.
PER CURIAM:
On May 20, 1999, appellant, having been convicted by a jury on seven
counts of mail fraud, eight counts of bankruptcy fraud, one count of equity
skimming, and eleven counts of money laundering, was sentenced by the district
court to concurrent prison sentences of seventy-eight months on the money
laundering counts and sixty months on the mail fraud and bankruptcy fraud counts
and to a three-year term of supervised release. Included in the sentencing package
was an order requiring appellant to pay restitution to the Veterans Administration
and the Department of Housing and Urban Development in the total sum of
$571,049.
On November 10, 2005, after appellant had been released from prison, the
probation officer monitoring his term of supervised release petitioned the district
court to revoke his supervised release on the ground that he had failed to comply
with conditions of his release, in that (1) he filed false monthly reports, (2)
answered untruthfully the probation officer’s inquiries, and (3) failed to make
required restitution payments. The court referred the matter to a magistrate judge,
who held an evidentiary hearing at which the probation officer, a deputy district
court clerk, appellant and his wife testified. See magistrate judge’s Report and
Recommendation (“R&R”). The judge credited the testimony of the probation
officer and the deputy clerk, found appellant’s testimony false “in all material
respects, ” and concluded that appellant had “violated each of the three conditions
2
of supervised release set-forth in the [petition for revocation.]. Id. The district
court affirmed and adopted the R&R , revoked appellant’s supervised release,
sentenced appellant to prison for three months, and imposed a new thirty-three
months term of supervised release. Appellant now appeals.
Appellant asks us to set aside the court’s judgment on the ground that there
was no evidence that he intentionally violated the conditions of supervised release;
in fact, the evidence was that he made a good faith attempt to comply with those
conditions. Citing his own testimony and that of his wife, he contends that (1) it is
uncontroverted that he purchased money orders to make all of his restitution
payments; (2) he made additional payments when he learned that all of his money
orders had not been received by the court clerk’s office; and (3) he did not bring
his account current merely to avoid an adverse decision in his revocation
proceeding. Put another way, the magistrate judge had no basis for discrediting
his testimony.
A district court’s revocation of supervised release is reviewed for an abuse
of discretion. United States v. Frazier, 26 F.3d 110, 112 (11th Cir. 1994). A court
may revoke a term of supervised release if it “finds by a preponderance of the
evidence that the person violated a condition of supervised release.” United States
v. Almand, 992 F.2d 316, 318 n.6 (11th Cir. 1993) (quotation omitted); see also
3
United States v. Robinson, 893 F.2d 1244, 1245 (11th Cir. 1990) (holding that in a
probation revocation proceeding, “all that is required is that the evidence
reasonably satisfy the judge that the conduct of the probationer has not been as
good as required by the conditions of the probation; evidence that would establish
guilt beyond a reasonable doubt is not required” (quotation omitted)). Moreover,
“[a] district court’s findings of fact are binding on this [C]ourt unless clearly
erroneous.” Almand, 992 F.2d at 318 (quotation omitted).
The magistrate judge found appellant’s testimony unworthy of belief. The
evidence fully supported that finding, and the district court properly adopted it.
Appellant violated the conditions of his supervised release. The judgment of the
district court is, accordingly,
AFFIRMED.
4
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SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
444
CAF 11-01102
PRESENT: SMITH, J.P., LINDLEY, SCONIERS, AND MARTOCHE, JJ.
IN THE MATTER OF ALICE TRIPLETT,
PETITIONER-RESPONDENT,
V MEMORANDUM AND ORDER
DARRYL SCOTT, RESPONDENT-APPELLANT.
DEBORAH J. SCINTA, ORCHARD PARK, FOR RESPONDENT-APPELLANT.
DENIS A. KITCHEN, JR., WILLIAMSVILLE, FOR PETITIONER-RESPONDENT.
CARLA E. HIGGINS, ATTORNEY FOR THE CHILD, BUFFALO, FOR JIHAD S.
Appeal from an order of the Family Court, Erie County (Kevin M.
Carter, J.), entered March 25, 2011 in a proceeding pursuant to Family
Court Act article 6. The order, among other things, granted
petitioner custody of the subject child.
It is hereby ORDERED that the order so appealed from is
unanimously modified on the law by vacating those parts stating that
the order is entered upon the default of respondent and that
respondent failed to appear before Family Court, and as modified the
order is affirmed without costs.
Memorandum: In this proceeding pursuant to Family Court Act
article 6, respondent father appeals from an order that, inter alia,
granted sole custody of the subject child to petitioner mother.
Initially, we reject the contention of the mother and the Attorney for
the Child that the appeal must be dismissed on the ground that it was
entered upon the father’s default. Although the order on appeal is
denominated an “Order of Custody and Visitation on Default,” Family
Court repeatedly stated during the proceedings and in its bench
decision that the father was not in default. It is settled that,
where “an order and decision conflict, the decision controls” (Matter
of Christina M., 247 AD2d 867, 867, lv denied 91 NY2d 812; see Matter
of Alexis H., 90 AD3d 1679, 1679; Matter of Van Orman v Van Orman, 19
AD3d 1167, 1168). In any event, “[t]he record establishes that the
father was represented by counsel, and we have previously determined
that, [w]here a party fails to appear [in court on a scheduled date]
but is represented by counsel, the order is not one entered upon the
default of the aggrieved party and appeal is not precluded” (Matter of
Balls v Doliver, 72 AD3d 1618, 1618-1619 [internal quotation marks
omitted]; see Matter of Hopkins v Gelia, 56 AD3d 1286). Consequently,
the order incorrectly reflects that it is entered upon the default of
-2- 444
CAF 11-01102
the father and that the father failed to appear before Family Court to
answer the petition inasmuch as his attorney appeared in court to
represent him, and we therefore modify the order accordingly.
The father’s contention that the court abused its discretion in
conducting the hearing in his absence “is without merit. The [father]
in fact appeared by counsel and, although [he] had notice of the
hearing, [he] chose not to attend” (Matter of Stiles v Edwards, 74
AD3d 1869, 1870; cf. Matter of Kendra M., 175 AD2d 657, 658).
Contrary to the father’s further contention, the court properly
awarded sole custody to the mother. The court’s determination after a
hearing that the best interests of the child are served by awarding
sole custody to the mother is entitled to great deference (see
Eschbach v Eschbach, 56 NY2d 167, 173-174), “particularly in view of
the hearing court’s superior ability to evaluate the character and
credibility of the witnesses” (Matter of Thillman v Mayer, 85 AD3d
1624, 1625). Here, the bench decision demonstrates that the court
engaged in a “careful weighing of [the] appropriate factors” (Matter
of Pinkerton v Pensyl, 305 AD2d 1113, 1114), and its determination has
a sound and substantial basis in the record (see Betro v Carbone, 5
AD3d 1110, 1110; Matter of Thayer v Ennis, 292 AD2d 824, 825).
Entered: April 20, 2012 Frances E. Cafarell
Clerk of the Court
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909 F.2d 1477
Appeal of Reynolds (Walter Scott)
NO. 90-3101
United States Court of Appeals,Third Circuit.
JUL 06, 1990
1
Appeal From: W.D.Pa.
2
AFFIRMED.
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139 F.2d 65 (1943)
MUSSELMAN HUB-BRAKE CO.
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 9503.
Circuit Court of Appeals, Sixth Circuit.
December 1, 1943.
*66 Wayland K. Sullivan, of Cleveland, Ohio (Wayland K. Sullivan and Ray T. Miller both of Cleveland, Ohio, on the brief), for petitioner.
Louise Foster, of Washington, D. C. (Samuel O. Clark, Jr., Sewall Key, Helen R. Carloss, and Newton K. Fox, all of Washington, D. C., on the brief), for respondent.
Before ALLEN, HAMILTON, and MARTIN, Circuit Judges.
HAMILTON, Circuit Judge.
Petitioner, an Ohio corporation, which kept its accounts and made its tax returns on the accrual basis, became currently indebted for the years 1937, 1938 and 1939, inclusive, to its controlling stockholder for patent royalties and interest, which sums it credited on its books. Sometime in February 1938, and for each of the subsequent years here in question, petitioner, on advice of its tax auditor, gave to its creditor within two and one-half months after the close of the tax year, demand promissory notes for the debts.
During all of the tax years petitioner was solvent, and its notes had a cash par value. The creditor stockholder reported in gross income the par value of the notes received by him each year.
Petitioner, in its income and excess profits tax returns for the years 1937 to 1939, inclusive, deducted the respective amounts, which the Commissioner of Internal Revenue disallowed. The United States Tax Court sustained the commissioner and petitioner appeals.
Sections 23(a) (1), (b) of the Revenue Acts of 1936 and 1938, Internal Revenue Code, 26 U.S.C.A. § 23(a) (1), (b), permit deductions from gross income of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business and all interest paid or accrued during the taxable year. Section 24(c) (1) of the Revenue Acts of 1936 and 1938, Internal Revenue Code, 26 U.S.C.A. § 24(c) (1), denies as deductions all expenses allowable under Section 23(a) or interest incurred under 23(b) unless paid within the taxable year, or within two and one-half months after the close thereof.
The question on this appeal is whether, under the facts in this case, Section 24(c) of the Revenue Act of 1936 as amended by Section 301 of the Revenue Act of 1937, prohibits deductions allowable under Section 23(a) (1), (b).
Prior to 1937, all revenue acts made deductible from gross income all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business and all interest paid or accrued within the taxable year on indebtedness.
The Joint Committee on tax evasion and avoidance of the 75th Congress found that many corporations credited on their books to their controlling stockholder incurred business expenses and accrued interest and deducted them from gross income without the stockholder including such items in his gross income for the current year, and that the corporation paid the credits to the stockholder in a subsequent year when his net income was low, which resulted *67 in the stockholder shifting his taxable income from a high to a low bracket.
The committee also found that some debtors kept their accounts on an accrual basis and the creditor reported his income on a cash basis which resulted in the debtor taking the deduction in one taxable year and the creditor reporting the income in another. The committee found too that in some cases corporations made credits on their books to their controlling stockholder of items deductible from gross income and such credits were subsequently extinguished with the result that they were at no time reported by the stockholder. (Hearings Before Joint Committee on Tax Evasion and Avoidance, 75th Cong. 1st Sess. pp. 241, 242, Ways and Means Committee Report No. 1546, 75th Cong. 1st Sess. pp. 16, 29.)
In order to protect the revenue and remove inequalities, the Congress passed the statute with which we are here concerned which, in substance, provides that where the relationship between the parties is such that losses from sales or exchanges between them are not deductible or where the creditor is on a cash basis, that accrued expenses and interest are not deductible by a debtor on the accrual basis, unless actually paid within two and one-half months after the close of the debtor's taxable year. The precise language of the provision is found in the footnote.[*] The Ways and Means Committee expressed the opinion that hardships, if any, because of the time requirement, would be rare since such debts would normally be paid within the two and one-half months, if incurred in the ordinary course of business. (Report of Joint Committee on Tax Evasion and Avoidance, 75th Cong. 1st Sess. p. 16.)
The purpose of statutory construction is to harmonize the law and save apparently conflicting statutes from ineffectiveness. Burnet v. Guggenheim, 288 U. S. 280, 286, 53 S.Ct. 369, 77 L.Ed. 748.
Taxing statutes must be applied within reasonable limits and construed in the light of their purpose. One designed to prevent tax avoidance may, under some circumstances, be liberally interpreted in favor of the taxpayer by confining its scope to the object of its creation.
It is necessary to read Sections 23 (a) (1) and 24(c) (1) together in order to arrive at the intention of the Congress under the long established rule that the purpose of the enactment is to be deduced from a view of every material part of the statute on the subject. Helvering v. Rebsamen Motors, Inc., 8 Cir., 128 F.2d 584.
We are not here concerned with the rule that deductions are a matter of legislative grace and therefore the taxpayer must bring a claimed deduction clearly within the terms of the statute, because the statutes we are considering all relate to deductions. When Section 23 is applied, the deductions in question are clearly allowable, but for Section 24(c). So, the rule applies that the two sections should be integrated to carry into effect their combined purpose. Anderson v. Pacific Coast S & S Co., 225 U.S. 187, 203, 32 S.Ct. 626, 56 L.Ed. 1047.
Section 24(c) modified the general rule stated in Section 23(a) (1), by prohibiting the deductions allowable under the latter section, unless payments were made within the prescribed period, and the relationship between the debtor and creditor, in the matter of accounting or stock ownership, was as defined in Section 24(c) (2) or (c) (3).
The word "paid" found in Section 24(c) (1) must be defined in its context setting and in the light of the legislative history of the enactment to determine whether, within its meaning, the deduction *68 by the debtor must be paid in cash to the creditor, or made available to him in such form as would require him to include the debtor's deduction in the creditor's gross income. Helvering v. Hutchings, 312 U.S. 393, 396, 61 S.Ct. 653, 85 L.Ed. 909. In the case at bar the creditor made his returns on a cash basis and the debtor made its returns on an accrual basis. The creditor was the owner of a majority of petitioner's voting stock; therefore, the deductions claimed by the petitioner are not allowable unless "paid" as that word is used in Section 24(c) (1).
The rule that words and phrases used in a statute are to be taken and understood in their plain, ordinary and popular sense, is not always to be followed in construing the language of taxing statutes. If it is clear from the purpose of the statute, read in the light of the whole subject to which it relates, that Congress used the words therein in a broad or different sense from that which would ordinarily be attributed to them, such words and phrases must be given the meaning intended by the Congress. Applying this rule and using the keys found in Sections 23 and 24(c) (2) and (3), and the legislative history of 24, to unlock the meaning of the word "paid," it would seem that Congress meant that the debts were paid when the deductions constituted income actually or constructively received by the creditor. In other words, if the debtor credited to the account of the creditor sums under circumstances which would require reporting income constructively received or the creditor received property, either tangible or intangible, having a cash value equal to the deduction claimed by the debtor, the deduction would be allowable under the statute, because the creditor would be required to include these sums in his gross income.
To construe the word "paid" to mean that the payment must be in cash, is to distort the statute. The statute here in question is not for the purpose of classifying taxpayers but is for the purpose of bringing about uniformity among taxpayers in the matter of allowable deductions.
The Treasury Department has ruled the deduction of the creditor is "paid" if the debtor is required in the same tax year to include the sum in his income. (Regulations 101, Art. 2466, T.D. 4790, C.B. 1938-1, p. 83, amending Regulations 94, Regulations 103, Sec. 19.24-6. I.T. 3242, C.B. 1939-1, p. 172.)
It is well settled that income subject to a taxpayer's unfettered command and which he is free to enjoy may be taxed as his income although not paid to him in cash. Corliss v. Bowers, 281 U. S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916. Likewise, notes or other evidences of indebtedness received for services, rents, interest or royalties constitute income to the amount of their fair market value. Helvering v. Bruun, 309 U.S. 461, 468, 60 S.Ct. 631, 84 L.Ed. 864; Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462, 469, 53 S.Ct. 257, 77 L.Ed. 428. Respondent urges that the effect of the statute in question is to put an accrual taxpayer on a cash basis, during the two and one-half months succeeding the end of the taxable year, and in support of this contention, he relies on Massachusetts Mut. Life Ins. Co. v. United States, 288 U.S. 269, 53 S.Ct. 337, 338, 77 L.Ed. 739. In the cited case the taxpayer kept its accounts and reported its income on the cash basis, and sought to deduct from gross income interest which it had credited to its policyholders, but had not paid. The court decided that the phrase of "all interest paid or accrued" was to be construed according to the taxpayer's method of accounting and that accrued interest could only be deducted by a taxpayer reporting its income on the accrual basis.
The court in its opinion, referred to Regulations 69, Article 51, which provided in substance that income credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time, is subject to tax for the year when credited or set apart, but the court refused to follow the regulation for the reason stated that it had not theretofore been applied in any case where income had been credited to another by a taxpayer employing the cash receipts and disbursement method of accounting, and for the further reason that the regulation had not been invoked to require policyholders to report as income the dividends or interest credited to them and that no tax had been demanded of them until the actual receipt of the money. The court concluded by saying, "The constructive payment is, we think, untenable."
The cases of Eckert v. Burnet, 283 U. S. 140, 51 S.Ct. 373, 75 L.Ed. 911, and *69 Helvering v. Price, 309 U.S. 409, 60 S. Ct. 673, 84 L.Ed. 836, also relied on by the respondent are not in point here. In the former case, the petitioner and his partner who were on a cash basis, were joint indorsers of notes issued by a corporation formed by them, which notes the corporation was unable to pay. Petitioner and his partner, in settlement of the liability, made a joint note for the sum due the bank in lieu of the old note. Petitioner claimed the right to deduct half the sum paid as a debt ascertained to be worthless and charged off within the taxable year.
In the latter case, respondent, who reported his income on a cash basis, was liable to a bank as a guarantor and substituted his new note for the old, claiming the par value of the note as a deduction. The court decided in each case that the taxpayer's method of accounting prevented the deduction.
The revenue statutes make it imperative that net income shall be computed upon the basis of the taxpayer's annual accounting period in accordance with the method of accounting regularly employed by the taxpayer (26 U.S.C.A. Int.Rev. Code, § 41). It is also settled beyond cavil that a taxpayer may not accrue receipts or expenditures if he keeps his accounts on a cash basis, Massachusetts Mutual Life Ins. Co. v. United States, supra, but if on an accrual basis, the taxpayer is required to accrue both income and deductions. The method of accounting followed by the taxpayer in all the cases relied on by respondent was the premise of the court's decision.
Those cases were not concerned with the applicability of the rule of constructive payment which is of controlling importance in the case at bar. On this point, it is a relevant factor that the controlling stockholder reported in his gross income the deductible items which petitioner had claimed in its income tax return. There was no tax evasion in fact, and the evil which the enactment of Section 24 sought to remedy was not present.
As we view the applicability of the statute to the facts here, it is unnecessary to place a restrictive interpretation upon the word "paid." Clearly under the rule of constructive payment, the notes with a readily realizable value of par were more than a mere accrual of indebtedness on the books of petitioner.
Both the substance and form of the transactions which concern us show that the amounts credited to the account of the stockholder, for which notes were subsequently given, were treated by him and the petitioner as actual payments, because interest was credited by petitioner to the stockholder and was added to subsequent notes. Jacobus v. United States, C.C., 9 F.Supp. 41, 80 Ct.Cl. 357. The order of the Board is reversed for further proceedings consistent with this opinion.
NOTES
[*] Unpaid expenses and interest. In computing net income no deduction shall be allowed under section 23(a), relating to expenses incurred, or under section 23(b), relating to interest accrued
"(1) If such expenses or interest are not paid within the taxable year or within two and one half months after the close thereof; and
"(2) If, by reason of the method of accounting of the person to whom the payment is to be made, the amount thereof is not, unless paid, includible in the gross income of such person for the taxable year in which or with which the taxable year of the taxpayer ends; and
"(3) If, at the close of the taxable year of the taxpayer or at any time within two and one half months thereafter, both the taxpayer and the person to whom the payment is to be made are persons between whom losses would be disallowed under section 24(b)."
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276 F.Supp.2d 700 (2003)
Scott Michael BARBER, Petitioner,
v.
Thomas BIRKETT, Respondent.
No. 01-40367.
United States District Court, E.D. Michigan, Southern Division.
August 6, 2003.
*701 *702 *703 Scott Barber, Carson City, MI, Pro se.
Brenda E. Turner, Brad H. Beaver, Michigan Department of Attorney General, Habeas Corpus Division, Lansing, MI, for Thomas Birkett, Warden, Respondent.
OPINION AND ORDER DENYING PETITION FOR WRIT OF HABEAS CORPUS
GADOLA, District Judge.
Petitioner, a state inmate currently incarcerated at the Boyer Road Correctional Facility in Carson City, Michigan, has filed a petition for the writ of habeas corpus, pursuant to 28 U.S.C. § 2254. For the reasons set forth below, the Court will deny the petition.
I. PROCEDURAL BACKGROUND
Following a jury trial in Wexford County Circuit Court, Petitioner was convicted of carrying a concealed weapon and resisting and obstructing a police officer. On April 24, 1997, he was sentenced as a habitual offender, fourth, to twenty to forty years imprisonment for the carrying a concealed weapon conviction and ten to fifteen years imprisonment for the resisting and obstructing a police officer conviction.
Petitioner filed an appeal of right in the Michigan Court of Appeals, presenting the following four claims:
I. Mr. Barber's convictions must be reversed where the trial court allowed illegally obtained evidence to be introduced at trial over defense counsel's timely and proper objections.
II. Mr. Barber's sentences must be vacated because they are disproportionate to the seriousness of the offenses, where the trial court sentenced Mr. Barber as a habitual offender fourth or subsequent offense to serve 20 to 40 years for carrying a concealed weapon and to serve concurrently 10 to 15 years for resisting and obstructing a police officer.
III. Mr. Barber's habitual offender fourth or subsequent offense must be vacated where the trial court allowed the prosecutor to add a new felony on the day of sentencing.
IV. Mr. Barber should be resentenced where the trial court relied upon crimes that were unproven and did not result in a conviction for the basis of imposing this excessive sentence.
The Michigan Court of Appeals affirmed Petitioner's convictions and sentences on May 21, 1999. People v. Barber, No. 203130, 1999 WL 33444311, at *9 (Mich.Ct. App. May 21, 1999) (per curiam). Petitioner then filed an application for leave to appeal in the Supreme Court of Michigan, presenting these same claims. The Supreme Court of Michigan denied leave to appeal on March 29, 2000. People v. Barber, 461 Mich. 1003, 610 N.W.2d 928 (2000). Thereafter, Petitioner filed a petition for a writ of certiorari in the Supreme *704 Court of the United States, which denied the petition on June 29, 2000. Barber v. Michigan, 530 U.S. 1281, 120 S.Ct. 2755, 147 L.Ed.2d 1017 (2000).
On June 26, 2001, Petitioner filed a motion for relief from judgment in the state trial court, presenting the following eight claims:
I. Defendant was denied his right to counsel of choice in violation of the Sixth and Fourteenth Amendments to the United States Constitution and Const.1963, Art. 1, § 20.
II. Defendant was denied due process of law in violation of the Fifth and Fourteenth Amendments to the United States Constitution and Const.1963, Art. 1, § 17 when the trial judge instructed the jury that a lawful arrest was made with respect to the charge of resisting and obstructing a police officer.
III. Defendant's conviction for resisting and obstructing a police officer is invalid where there is insufficient evidence that the officer was effecting a lawful arrest.
IV. Defendant was denied due process in violation of the Fourteenth Amendment to the United States Constitution and Const.1963, Art. 1, § 17 when his sentence was based in large part on inaccurate information.
V. Defendant was denied due process and a full and fair opportunity to litigate his Fourth Amendment claim of unlawful seizure in violation of the Sixth and Fourteenth Amendments to the United States Constitution and Const.1963, Art. 1, § 20 when the Michigan Court of Appeals applied the incorrect standard of review to the trial court's fact finding with regard to defendant's claim.
VI. Defendant was denied due process in violation of the Fourteenth Amendment and Const.1963, Art. 1, § 17 where the prosecutor was permitted to amend the habitual offender information on the day of sentencing in violation of Michigan statute and due process notice requirements.
VII. Defendant was denied the effective assistance of counsel in violation of the Sixth Amendment to the United States Constitution and Const.1963, Art. 1, § 20.
VIII. Appellate counsel rendered ineffective assistance of counsel.
The trial court denied the motion on July 11, 2001. Petitioner then filed an application for leave to appeal in the Michigan Court of Appeals, presenting these same claims. The Michigan Court of Appeals denied leave to appeal on October 29, 2001. Thereafter, Petitioner filed an application for leave to appeal in the Supreme Court of Michigan, which also denied leave to appeal on April 29, 2002. People v. Barber, 466 Mich. 856, 644 N.W.2d 759 (2002).
On December 28, 2001, while his application for leave to appeal was pending with the Supreme Court of Michigan, Petitioner filed a petition for the writ of habeas corpus in this Court. He then filed a motion to hold his petition in abeyance while he exhausted his state court remedies. The Court denied this motion on February 8, 2002; however, the Court allowed Petitioner to move to reopen his habeas corpus petition within sixty days of exhausting his state court remedies. After exhausting his state court remedies, Petitioner filed a motion to reopen habeas corpus proceeding. On June 11, 2002, the Court granted the motion, and ordered Respondent to file an answer. Respondent has now filed an answer *705 and the petition is ready for review by this court.
In his habeas corpus petition, Petitioner presents the following eight claims:
I. Defendant was denied his right to counsel of choice in violation of the Sixth and Fourteenth Amendments to the United States Constitution.
II. Defendant was denied due process of law in violation of the Fifth and Fourteenth Amendments to the United States Constitution when the trial judge instructed the jury that a lawful arrest was made with respect to the charge of resisting and obstructing a police officer.
III. Defendant's conviction for resisting and obstructing a police officer is invalid where there is insufficient evidence that the officer was effecting a lawful arrest.
IV. Defendant was denied due process in violation of the Fourteenth Amendment to the United States Constitution when his sentence was based in large part on inaccurate information.
V. Defendant was denied due process and a full and fair opportunity to litigate his Fourth Amendment claim of unlawful seizure in violation of the Sixth and Fourteenth Amendments to the United States Constitution when the Michigan Court of Appeals applied the incorrect standard of review to the trial court's fact finding with regard to the defendant's claim.
VI. Defendant was denied due process in violation of the Fourteenth Amendment where the prosecutor was permitted to amend the habitual offender information on the day of sentencing in violation of the Michigan statute and due process notice requirements.
VII. Defendant was denied the effective assistance of counsel in violation of the Sixth Amendment to the United States Constitution.
VIII. Defendant was denied the effective assistance of appellate counsel in violation of the Sixth Amendment to the United States Constitution and Const.1963, Art. 1, § 20.
II. FACTUAL BACKGROUND
The Michigan Court of Appeals set forth the facts pertinent to Petitioner's conviction as follows:
In the course of investigating a break-in at an automobile dealership, Michigan State Police Trooper Glen Goldner encountered defendant walking southbound along U.S. 131. Although Goldner did not suspect that defendant had been involved in the break-in when he first saw him, he believed he might have information on the crime, so he beckoned to defendant to approach him. As defendant approached Goldner, he stuck his thumbs in his pants pockets. As defendant came within six to seven feet of Goldner, Goldner observed a bulge in defendant's pants pocket which resembled a gun. Goldner instructed defendant not to move, and put his hand in defendant's pocket to feel the object, which turned out to be a loaded .32 revolver. As Goldner seized the gun, defendant pushed Goldner backward and fled. He was later apprehended in a swamp.
Barber, 1999 WL 33444311, at *1.
III. ANALYSIS OF MOTION FOR EVIDENTIARY HEARING
In the present action, Petitioner moved for an evidentiary hearing. Petitioner seeks a hearing to present evidence regarding his claims that he was denied *706 counsel of choice, and that he received ineffective assistance of trial and appellate counsel.
Rule 8 of the Rules Governing Section 2254 Cases in the United States District Courts provides, in pertinent part:
[A]fter the answer and the transcript and record of state court proceedings are filed, [the Court] shall, upon a review of those proceedings and of the expanded record, if any, determine whether an evidentiary hearing is required. If it appears that an evidentiary hearing is not required, the judge shall make such disposition of the petition as justice shall require.
Rule 8, Rules Governing Section 2254 Cases.
A federal court may not conduct an evidentiary hearing where the petitioner has failed to develop the factual record in state court, except under limited circumstances, including where the petitioner diligently attempted to develop the factual basis, but was unable to do so. Williams v. Taylor, 529 U.S. 420, 437, 120 S.Ct. 1479, 146 L.Ed.2d 435 (2000). "Diligence . . . depends upon whether the prisoner made a reasonable attempt, in light of the information available at the time, to investigate and pursue claims in state court." Id. at 435, 120 S.Ct. 1479. In addition, a federal court may conduct an evidentiary hearing only if the facts underlying the claim, if true, would establish a constitutional error. Sawyer v. Hofbauer, 299 F.3d 605, 610 (6th Cir.2002).
In this case, the Court finds that an evidentiary hearing is unnecessary for a just resolution of Petitioner's claims that he was denied the right to counsel and that his appellate counsel rendered ineffective assistance. With respect to these claims, Petitioner does not assert any facts which, if true, would establish a constitutional error. The Court finds that, with respect to Petitioner's ineffective assistance of trial counsel claim, Petitioner failed to develop the record in state court and failed to exercise diligence in attempting to do so. Petitioner's appellate counsel filed a brief on appeal in which this claim was not presented and no request was made for an evidentiary hearing. Further, Petitioner, himself, filed a supplemental brief on direct appeal in state court, in which he presented two claims related to sentencing issues. Petitioner did not even assert a claim regarding a potential plea agreement, nor did he move for an evidentiary hearing regarding this claim even though the facts forming the basis of this claim were known to him at the time. Thus, because Petitioner has failed to develop a factual record in state court and did not exercise diligence in attempting to develop a factual record, the Court will deny Petitioner's motion for an evidentiary hearing.
IV. ANALYSIS OF HABEAS CORPUS PETITION
A. Legal Standard
The standard for reviewing applications for the writ of habeas corpus is provided for in 28 U.S.C. § 2254(d). This section states:
An application for a writ of habeas corpus on behalf of a person in custody pursuant to the judgment of a State court shall not be granted with respect to any claim that was adjudicated on the merits in State court proceedings unless the adjudication of the claim-
(1) resulted in a decision that was contrary to, or involved an unreasonable application of, clearly established Federal law, as determined by the Supreme Court of the United States; or
(2) resulted in a decision that was based on an unreasonable determination of the facts in light of the evidence *707 presented in the State court proceedings.
28 U.S.C. § 2254(d).
Therefore, federal courts are bound by a state court's adjudication of a petitioner's claims unless the state court's decision was contrary to or involved an unreasonable application of clearly established federal law. Franklin v. Francis, 144 F.3d 429 (6th Cir.1998). Additionally, this Court must presume the correctness of state court factual determinations. 28 U.S.C. § 2254(e)(1);[1]see also Cremeans v. Chapleau, 62 F.3d 167, 169 (6th Cir.1995) ("We give complete deference to state court findings unless they are clearly erroneous").
The Supreme Court of the United States has explained the proper application of the "contrary to" clause as follows:
A state-court decision will certainly be contrary to [the Supreme Court's] clearly established precedent if the state court applies a rule that contradicts the governing law set forth in our cases. . . . A state-court decision will also be contrary to this Court's clearly established precedent if the state court confronts a set of facts that are materially indistinguishable from a decision of this Court and nevertheless arrives at a result different from [the Supreme Court's] precedent.
Williams v. Taylor, 529 U.S. 362, 405-06, 120 S.Ct. 1495, 146 L.Ed.2d 389 (2000).
With respect to the "unreasonable application" clause of § 2254(d)(1), the Supreme Court held that a federal court should analyze a habeas claim under the "unreasonable application" clause when "a state-court decision unreasonably applies the law of this Court to the facts of a prisoner's case." Id. at 409, 120 S.Ct. 1495. The Supreme Court defined "unreasonable application" as follows:
[A] federal habeas court making the "unreasonable application" inquiry should ask whether the state court's application of clearly established federal law was objectively unreasonable . . . An unreasonable application of federal law is different from an incorrect application of federal law . . . Under § 2254(d)(1)'s "unreasonable application" clause, then, a federal habeas court may not issue the writ simply because that court concludes in its independent judgment that the relevant state-court decision applied clearly established federal law erroneously or incorrectly. Rather, that application must also be unreasonable.
Id. at 409-11, 120 S.Ct. 1495 (emphasis original).
B. Procedural Default
Respondent argues that Petitioner's first, second, third, fourth, and seventh habeas claims are barred from federal review because they are procedurally defaulted. The doctrine of procedural default provides:
In all cases in which a state prisoner has defaulted his federal claims in state court pursuant to an independent and adequate state procedural rule, federal habeas review of the claims is barred unless the prisoner can demonstrate cause for the default, and actual prejudice as a result of the alleged violation of federal law, or demonstrate that failure to consider the claims will result in a fundamental miscarriage of justice.
Coleman v. Thompson, 501 U.S. 722, 750, 111 S.Ct. 2546, 115 L.Ed.2d 640 (1991). Such a default may occur if the state prisoner *708 fails to comply with a state procedural rule that required him to have done something at trial to preserve the purported error for appellate review, e.g., to make a contemporaneous objection or to file a motion for a directed verdict. United States v. Frady, 456 U.S. 152, 167-69, 102 S.Ct. 1584, 71 L.Ed.2d 816 (1982); Simpson v. Sparkman, 94 F.3d 199, 202 (6th Cir.1996). Application of the cause and prejudice test may be excused "[i]f a petitioner presents an extraordinary case whereby a constitutional violation resulted in the conviction of one who is actually innocent." Rust v. Zent, 17 F.3d 155, 162 (6th Cir.1994); see also Murray v. Carrier, 477 U.S. 478, 496, 106 S.Ct. 2639, 91 L.Ed.2d 397 (1986).
For the doctrine of procedural default to apply, a firmly established state procedural rule applicable to the petitioner's claim must exist, and the petitioner must have failed to comply with that rule. Warner v. United States, 975 F.2d 1207, 1213-14 (6th Cir.1992). Further, the last state court from which the petitioner sought review must have invoked the state procedural rule as a basis for its decision to reject review of the petitioner's federal claim. Coleman, 501 U.S. at 729-30, 111 S.Ct. 2546. If the last state court judgment contains no reasoning, but simply affirms the conviction in a standard order, the federal habeas court must look to the last reasoned state court judgment rejecting the federal claim and apply a presumption that later unexplained orders upholding the judgment or rejecting the same claim rested upon the same ground. Ylst v. Nunnemaker, 501 U.S. 797, 803, 111 S.Ct. 2590, 115 L.Ed.2d 706 (1991).
The Court first considers Petitioner's fourth habeas claim in which he asserts that the trial court relied upon inaccurate information in sentencing him. Respondent argues that this claim was presented for the first time on collateral review and that it was barred from review by Michigan Court Rule 6.508(D). In his supplemental brief before the Michigan Court of Appeals on direct appeal, Petitioner argued that the sentencing court improperly considered uncharged crimes when sentencing Petitioner, and improperly concluded that, based upon some tools and the gun found in his possession, Petitioner was intent on committing some criminal activity that day. See Pet'r Supp. Bf. at 405. The Michigan Court of Appeals denied this claim on the merits. See Barber, 1999 WL 33444311, at *6. Petitioner raised the same claim in his application for leave to appeal to the Supreme Court of Michigan. Thus, the Court finds that the claim was presented to the Michigan courts on direct review, and the merits of that claim were addressed by the Michigan Court of Appeals. Therefore, the Court holds that the claim was not procedurally defaulted in state court and will address the merits of the claim below.
On the other hand, Petitioner's first, second, third, and seventh claims were presented for the first time on collateral review. The last state court to issue a reasoned opinion regarding these claims was the Supreme Court of Michigan, which denied leave to appeal because "[t]he defendant has failed to meet the burden of establishing entitlement to relief under MCR 6.508(D)." Barber, 466 Mich. at 856, 644 N.W.2d at 759. The United States Court of Appeals for the Sixth Circuit has held that Rule 6.508(D) is a firmly established and regularly followed state ground precluding subsequent federal habeas review absent a showing of cause and prejudice where the rule was in effect at the time of a petitioner's direct appeal. Luberda v. Trippett, 211 F.3d 1004, 1007 (6th Cir.2000) (citing Rogers v. Howes, 144 F.3d 990 (6th Cir.1998)); see also Simpson v. Jones, 238 F.3d 399, 408 (6th Cir.2000) *709 (a succinct judgment, such as the one here, is sufficient to invoke the procedural default doctrine). Rule 6.508(D) was enacted in 1989, and Petitioner was convicted in 1997. Thus, Rule 6.508(D) was a firmly established and regularly followed state procedural bar at the time of Petitioner's conviction and direct appeal. Accordingly, the state court's judgment clearly rested on a procedural bar and the doctrine of procedural default is invoked.
Therefore, this Court may not review Petitioner's first, second, third, and seventh habeas claims unless (1) he has established cause for the default and actual prejudice as a result of the alleged violation of federal law or (2) he has demonstrated that failure to consider these claims will result in a fundamental miscarriage of justice. Coleman, 501 U.S. at 750, 111 S.Ct. 2546.
1. Cause and Prejudice Review
In the instant case, Petitioner claims that his appellate counsel's ineffectiveness constitutes "cause." While "cause" is generally "something external to the petitioner, something that cannot fairly be attributable to him, . . ." [a]ttorney ignorance or inadvertence is not `cause' because the attorney is the petitioner's agent when acting, or failing to act, in furtherance of the litigation, and the petitioner must bear the risk of attorney error. Id. at 753-54, 111 S.Ct. 2546 (citations omitted). "Attorney error that constitutes ineffective assistance of counsel is cause, however." Id. at 754, 111 S.Ct. 2546.
To establish that a counsel was ineffective, a habeas petitioner must prove that (1) "counsel's performance was deficient" and (2) "counsel's errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable." Strickland v. Washington, 466 U.S. 668, 687, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984). A strong presumption exists that counsel afforded the defendant reasonable professional assistance:
Judicial scrutiny of counsel's performance must be highly deferential. It is all too tempting for a defendant to second-guess counsel's assistance after conviction or adverse sentence, and it is all too easy for a court, examining counsel's defense after it has proved unsuccessful, to conclude that a particular act or omission of counsel was unreasonable. A fair assessment of attorney performance requires that every effort be made to eliminate the distorting effects of hindsight, to reconstruct the circumstances of counsel's challenged conduct, and to evaluate the conduct from counsel's perspective at the time. Because of the difficulties inherent in making the evaluation, a court must indulge a strong presumption that counsel's conduct falls within the wide range of reasonable professional assistance; that is, the defendant must overcome the presumption that, under the circumstances, the challenged action might be considered sound trial strategy.
Id. at 689, 104 S.Ct. 2052 (citations omitted). To satisfy the second prong of the Strickland test, a petitioner must show that "there is a reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different. A reasonable probability is a probability sufficient to undermine confidence in the outcome." Id. at 694, 104 S.Ct. 2052. Therefore, "an ineffective-assistance-of-counsel claim cannot survive so long as the decisions of a defendant's trial counsel were reasonable, even if mistaken." Moss v. Hofbauer, 286 F.3d 851, 859 (6th Cir.2002).
Petitioner claims that his appellate counsel was ineffective for failing to raise his first, second, third, and seventh habeas claims on direct appeal. Nonetheless, a petitioner does not have a constitutional *710 right to have appellate counsel raise every non-frivolous issue on appeal. Jones v. Barnes, 463 U.S. 745, 754, 103 S.Ct. 3308, 77 L.Ed.2d 987 (1983). The reasoning behind this rule is clear:
For judges to second-guess reasonable professional judgments and impose on appointed counsel a duty to raise every "colorable" claim suggested by a client would disserve the . . . goal of vigorous and effective advocacy. . . . Nothing in the Constitution or our interpretation of that document requires such a standard.
Id. at 754, 103 S.Ct. 3308. Strategic and tactical choices on appeal are "properly left to the sound professional judgment of counsel." United States v. Perry, 908 F.2d 56, 59 (6th Cir.1990).
The Court now turns to Petitioner's defaulted claims (i.e., his first, second, third, and seventh habeas claims) to determine whether appellate counsel was ineffective and, thereby, whether Petitioner has established "cause."
a. First Claim: Counsel of Choice Claim
Petitioner first claims that his appellate counsel was ineffective in failing to present on appeal the claim that Petitioner was denied his Sixth Amendment right to counsel of choice. On March 7, 1997, the trial court heard Petitioner's motion for return of property, in which Petitioner sought the return of $5,000 seized at the time of his arrest. The court denied the motion because the money was relevant to a continuing investigation and might be used as evidence or restitution. Petitioner argues that because the motion was denied, he could not afford to retain a counsel of his choice.
It is well-established that "[t]he right to counsel of choice, unlike the right to counsel . . . is not absolute. An indigent defendant has no right to have a particular attorney represent him and therefore must demonstrate `good cause' to warrant substitution of counsel." United States v. Iles, 906 F.2d 1122, 1130 (6th Cir.1990). When reviewing whether a court abused its discretion in denying a defendant's motion to substitute counsel, a court generally considers, "the timeliness of the motion, the adequacy of the court's inquiry into the defendant's complaint, and whether the conflict between the attorney and client was so great that it resulted in a total lack of communication preventing an adequate defense. . . . Further, consideration of such motions requires a balancing of the accused's right to counsel of his choice and the public's interest in the prompt and efficient administration of justice." Id. at 1131 n. 8 (internal quotations omitted).
Petitioner could not afford counsel absent the return of the $5,000, and the court held that the money could not, in the interests of justice, be returned at that time. The court also found that Petitioner's appointed counsel was providing adequate representation. Thus, Petitioner has failed to show that the court abused its discretion in declining to have the money returned. Consequently, because Petitioner has not shown that this claim had merit, he cannot establish that his appellate counsel was ineffective in failing to present it on direct appeal. Therefore, Petitioner has failed to establish cause to excuse his procedural default with respect to his first habeas claim.
b. Second Claim: Jury Instruction Claim
Petitioner next claims that his appellate counsel was ineffective in failing to argue on appeal that the trial court improperly instructed the jury. Petitioner challenges the instruction that a lawful arrest was made with respect to the charge of resisting and obstructing a police officer. Under Michigan law, the elements of resisting and obstructing a police officer *711 are: (1) that the defendant resisted an officer of the law who was making an arrest; (2) that the person the defendant resisted was an officer of the law; (3) that the defendant knew that the person was an officer of the law; (4) that the defendant knew that the officer was making an arrest; (5) that the defendant intended to resist the officer; and (6) that the arrest the defendant resisted was legal. People v. Anderson, No. 229664, 2002 WL 1747886, at *1 (Mich.Ct.App. July 23, 2002).
The Court has reviewed the trial court's jury instructions and finds that the instructions accurately stated the elements of resisting and obstructing a police officer, as set forth above. Further, the trial court judge did not, as Petitioner alleges, advise the jury that an essential element of the crime had been proven. Instead, the court instructed the jury that there had been some evidence presented that Petitioner had tried to run and hide when police tried to arrest him, but cautioned the jury that a person may run or hide for innocent reasons, such as panic, mistake, or fear. In so advising the jury, the court did not state that this element had been proven; rather, the Court only stated that some evidence had been presented in this regard. The court did not comment on the quality or truth of that evidence. Therefore, this Court concludes that Petitioner's claim that the trial court instructed the jury that an essential element of the crime had been proven lacks merit. Therefore, Petitioner's appellate counsel was not ineffective in failing to present this claim on direct appeal. Thus, Petitioner has failed to establish cause to excuse his procedural default with respect to his second habeas claim.
c. Third Claim: Sufficiency of the Evidence Claim
Petitioner also claims that his appellate counsel was ineffective in failing to argue on appeal that insufficient evidence was presented to support his conviction for resisting and obstructing a police officer. Specifically, Petitioner argues that there was insufficient evidence to prove that the arrest that he was charged with resisting was lawful.
The legal standard for a sufficiency of the evidence challenge is 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." Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979) (emphasis in original). In this case, Trooper Goldner testified that he stopped Petitioner while Petitioner was walking on the side of a highway because he wanted to discuss a report that an individual had broken into cars at a nearby auto dealership. Trooper Goldner motioned for Petitioner to approach him. As Petitioner walked toward him, Trooper Goldner noticed a handgun in Petitioner's pocket. When Petitioner reached him, Trooper Goldner took the gun from Petitioner. Petitioner then pushed Trooper Goldner and fled. Petitioner was arrested shortly thereafter. Viewing this evidence in a light most favorable to the prosecution, the evidence was sufficient for a rational trier of fact to find that the arrest was lawful. Accordingly, Petitioner's appellate counsel was not ineffective for failing to present this claim on direct appeal, and Petitioner has failed to establish cause to excuse his procedural default with respect to his third habeas claim.
d. Seventh Claim: Ineffective Assistance of Trial Counsel Claim
Petitioner further claims that his appellate counsel was ineffective in failing to *712 present a claim of ineffective assistance of trial counsel on direct review. Petitioner alleges that his trial counsel was ineffective in: (1) failing to move for a directed verdict regarding the charge of resisting and obstructing; (2) failing to object to the trial court's reliance on inaccurate sentencing information; (3) failing to object to an amendment to the habitual offender information at sentencing; (4) failing to assert that his right to counsel of choice was violated; (5) failing to object to the jury instruction regarding a lawful arrest; and (6) advising him to reject a plea offer.
First, Petitioner has not shown that trial counsel was ineffective in failing to move for a directed verdict regarding the charge of resisting and obstructing because, as discussed above, sufficient evidence was presented to sustain this charge. Second, as more fully discussed below, Petitioner has failed to show that the trial court relied on inaccurate information at sentencing. Third, contrary to Petitioner's view, the record reflects that Petitioner's counsel did object to the amendment to the habitual offender information at sentencing. Fourth, as discussed above, Petitioner has not shown that his right to counsel of choice was violated; therefore, Petitioner has not shown that trial counsel was ineffective in failing to lodge such an objection. Fifth, as discussed above, Petitioner has failed to show that the jury instruction regarding an unlawful arrest was improper; thus, trial counsel was not ineffective in failing to object in this regard.
Finally, Petitioner argues that his trial counsel was ineffective in advising Petitioner to reject a plea offer in which he would have pled guilty to carrying a concealed weapon and habitual offender, third offense, in exchange for dismissal of the other charges. Petitioner states that his counsel advised him that, (1) because one the predicate felonies listed on the habitual offender, fourth offense, information was incorrect and (2) because the prosecution would not be able to amend the information as the statutorily mandated twenty-one day period had elapsed, Petitioner would not receive any benefit from entering the guilty plea. Nevertheless, the trial court did allow the prosecutor to amend the information. While Petitioner's trial counsel was incorrect in concluding that the information could not be amended, his advice in this regard was not outside the wide range of reasonably competent assistance. Petitioner's appellate counsel challenged the prosecutor's amendment of the information on direct appeal. In a lengthy opinion, the Michigan Court of Appeals ruled that the trial court's decision was not improper. Barber, 1999 WL 33444311, at *7-8. In so ruling, the Michigan Court of Appeals acknowledged precedent that could have been construed to support a contrary conclusion. Id.
The ultimate decision whether to plead guilty rests with a defendant. See Mich. R. Prof'l Conduct 1.2(a). An attorney's obligation in relation to a plea offer is to communicate the terms of the plea offer and inform the defendant of the strengths and weaknesses of the case against him. See Cullen v. United States, 194 F.3d 401, 404 (2d Cir.1999). Petitioner does not allege that his counsel failed to communicate the plea offer or that he wished to plead guilty but was prevented from doing so by his counsel. Instead, Petitioner alleges that counsel's advice regarding the amended information ultimately proved to be incorrect. Given the Michigan Court of Appeals' decision regarding the reasonableness of his counsel's position, the Court holds that this reasoning was not outside the wide range of professionally competent assistance. See Thompson v. Bell, 315 F.3d 566, 580-81 (6th Cir.2003). As a result, the Court concludes that appellate counsel was not *713 ineffective in failing to present this claim on direct appeal.
Accordingly, Petitioner has failed to show that his appellate counsel was ineffective in failing to present the foregoing four claims on direct review; consequently, he has not established cause to excuse his procedural default.
2. Fundamental Miscarriage of Justice Review
Therefore, Petitioner's first, second, third, and seventh habeas claims are barred from review unless Petitioner can establish that a constitutional error resulted in a fundamental miscarriage of justice. Schlup v. Delo, 513 U.S. 298, 115 S.Ct. 851, 130 L.Ed.2d 808 (1995); Coleman, 501 U.S. at 750, 111 S.Ct. 2546. The Supreme Court explicitly has tied the miscarriage of justice exception to procedural default to a petitioner's innocence. Schlup, 513 U.S. at 321, 115 S.Ct. 851. Thus, the petitioner must assert a constitutional error along with a claim of innocence. To make a showing of actual innocence, "a petitioner must show that it is more likely than not that no reasonable juror would have found the petitioner guilty beyond a reasonable doubt." Id. at 327, 115 S.Ct. 851. The Supreme Court further explained this standard as follows:
[A]ctual innocence does not merely require a showing that a reasonable doubt exists in the light of the new evidence, but rather that no reasonable juror would have found the defendant guilty. It is not the district court's independent judgment as to whether reasonable doubt exists that the standard addresses; rather the standard requires the district court to make a probabilistic determination about what reasonable, properly instructed jurors would do. Thus, a petitioner does not meet the threshold requirement unless he persuades the district court that, in light of the new evidence, no juror, acting reasonably, would have voted to find him guilty beyond a reasonable doubt.
Id. (internal quotation omitted). Applying the Schlup standard of actual innocence to Petitioner's case, Petitioner has not presented new evidence to persuade the Court that "no juror, acting reasonably, would have voted to find him guilty beyond a reasonable doubt." Id. Thus, Petitioner's first, second, third, and seventh habeas claims are procedurally defaulted.
C. Merits of Claims Not Procedurally Defaulted
The Court now turns to the merits of the four remaining claims that are not procedurally defaulted i.e., Petitioner's fourth, fifth, sixth, and eighth habeas claims.
1. Fourth Claim: Sentencing Claim
Petitioner claims that he is entitled to the writ of habeas corpus because his constitutional right to be sentenced on the basis of accurate information was violated. Specifically, he alleges that the trial court erred in considering other charges pending against him in fashioning his sentence and in concluding that he was prepared to commit crimes based on the fact that he was carrying a loaded weapon when arrested.
The Supreme Court has long upheld the philosophy that, in sentencing a defendant, "`the punishment should fit the offender and not merely the crime.'" Roberts v. United States, 445 U.S. 552, 556, 100 S.Ct. 1358, 63 L.Ed.2d 622 (1980) (quoting Williams v. New York, 337 U.S. 241, 247, 69 S.Ct. 1079, 93 L.Ed. 1337 (1949)). The Supreme Court has reaffirmed the "`fundamental sentencing principle' that `a judge may appropriately conduct an inquiry broad in scope, largely unlimited either as to the kind of information he may consider, or the source from which it came.'" *714 Roberts, 445 U.S. at 556, 100 S.Ct. 1358 (quoting Williams, 337 U.S. at 250, 69 S.Ct. 1079); see also Potter v. Yukins, 6 Fed.Appx. 295, 296-97 (6th Cir.2001) (sentencing court need not limit itself to consideration of the crime for which a defendant is being sentenced in determining the severity of the sentence to be imposed) (citing United States v. Johnson, 767 F.2d 1259, 1276 (8th Cir.1985) (sentencing court may consider uncorroborated hearsay and criminal activity for which the defendant has not been prosecuted)).
Nonetheless, a sentence imposed on the basis of "`misinformation of constitutional magnitude'" is a violation of Due Process. Roberts, 445 U.S. at 556, 100 S.Ct. 1358 (quoting United States v. Tucker, 404 U.S. 443, 447, 92 S.Ct. 589, 30 L.Ed.2d 592 (1972)); see also United States v. James, 244 F.Supp.2d 817, 819 (E.D.Mich.2003) (Gadola, J.); Draughn v. Jabe, 803 F.Supp. 70, 80 (E.D.Mich.1992) (Gadola, J.). A sentence must be set aside where "the defendant can demonstrate that false information formed part of the basis for the sentence. The defendant must show, first, that the information before the sentencing court was false, and, second, that the court relied on the false information in passing sentence." United States v. Stevens, 851 F.2d 140, 143 (6th Cir.1988); Potter, 6 Fed.Appx. at 296.
Here, Petitioner has failed to show that the factors considered by the trial court at sentencing were materially false or improperly considered. Therefore, Petitioner is not entitled to relief on his fourth habeas claim.
2. Fifth Claim: Habitual Offender Claim
Next, Petitioner claims that he is entitled to habeas relief because the trial court permitted the prosecutor to amend the habitual offender information at sentencing to substitute a prior conviction. Petitioner argues that this deprived him of his rights under the Due Process Clause.
The Michigan Court of Appeals, in addressing this issue in detail, stated:
[D]efendant argues that he cannot be sentenced as a habitual offender, fourth offense, because the trial court allowed the prosecution to add a new felony to the information on the day of sentencing. We disagree. . . .
The prosecutor filed a criminal information against defendant on August 14, 1996. Count IV in that information gave notice that the prosecutor intended to seek sentence enhancement for defendant as an habitual offender who committed a fourth or subsequent offense. That original information alleged that defendant was convicted of breaking and entering, UDAA (unlawful driving away an automobile), and "UDAAiving [sic] & Concealing Stolen Property" on November 11, 1989 in Van Buren County. . . . The first (9/17/97) and second (9/23/97) amended criminal complaints fixed what appeared to be a typographical error by changing the "UDAAiving" conviction to receiving and concealing property.
Defendant did not challenge the accuracy of these alleged prior convictions, including the typographical error, until after a jury convicted him in the present case, slightly more than six months after the original complaint gave notice that the prosecutor intended to seek sentence enhancement. At that time, he claimed that the Van Buren County prosecutor had dismissed the receiving and concealing charge by entering a nolle prosequi. The prosecutor apparently conceded the point when he moved to amend the information to include additional prior felony convictions on April 18, 1997. According to the prosecutor's motion, he was seeking permission to substitute a UDAA conviction for receiving *715 and concealing stolen property and to list a receiving and concealing stolen property conviction from Alabama. The prosecutor explained that the error in the information stemmed from an unclear criminal history regarding defendant.
The trial court observed that the prosecutor's motion to amend the habitual offender notice in the criminal information exceeded the twenty-one day limit imposed by M.C.L. 769.13; M.S.A. 28.1085. However, the trial court found that amending the information would not prejudice defendant because he had been aware that the prosecutor was seeking the habitual offender, fourth offense, sentence enhancement since the first information was filed and the amendment would not increase defendant's potential punishment. The court also noted that defendant had an ongoing opportunity to challenge the accuracy of the convictions listed in count IV and had failed to do so. The court granted the prosecutor's motion. . . .
Defendant argues that M.C.L. 769.13; M.S.A. 28.1085 does not permit a prosecutor to amend notice of an intent to seek habitual offender sentence enhancement more than twenty-one days after filing an information. . . .
[The Michigan Court of Appeals' decision in People v. Ellis, 224 Mich.App. 752, 756-57, 569 N.W.2d 917, 919 (1997)], did not preclude amendment of a timely sentence enhancement information to correct a technical defect where the amendment does not increase the potential sentence. . . .
Here, the amended information did not increase the potential sentence. Defendant does not dispute that he had notice that he was charged as a fourth-time habitual offender. He has not alleged any other sort of prejudice arising from the late amendment. Furthermore, the amendment did not change defendant's habitual offender level; the Legislature has not prescribed any higher level of punishment for defendant than at the fourth-time offender level. Accordingly, the amendment did not change defendant's potential punishment in any way, and the trial court properly granted the prosecutor's motion.
Barber, 1999 WL 33444311, at *8-9.
Here, Petitioner has not shown that the Michigan Court of Appeals' decision that he had notice of the charges against him and that the trial court did not violate his rights by permitting the amendment was contrary to, or an unreasonable application of, United States Supreme Court precedent. Therefore, he is not entitled to habeas relief with respect to his fifth habeas claim.
3. Sixth Claim: Fourth Amendment Claim
Petitioner further argues that he is entitled to habeas relief because he was deprived of a full and fair opportunity to litigate his Fourth Amendment claim in state court when the Michigan Court of Appeals applied the incorrect standard to the trial court's fact finding. "[W]here the State has provided an opportunity for full and fair litigation of a Fourth Amendment claim, a state prisoner may not be granted federal habeas corpus relief on the ground that evidence obtained in an unconstitutional search or seizure was introduced at trial." Stone v. Powell, 428 U.S. 465, 494-95, 96 S.Ct. 3037, 49 L.Ed.2d 1067 (1976). Petitioner contends that Stone does not bar habeas relief because he was not provided a full and fair opportunity to litigate his Fourth Amendment claim in state court.
The Sixth Circuit utilizes a two-step analysis to determine whether a defendant was given a full and fair opportunity to litigate a Fourth Amendment claim in *716 state court: "First, the court must determine whether the state procedural mechanism, in the abstract, presents the opportunity to raise a fourth amendment claim. Second, the court must determine whether presentation of the claim was in fact frustrated because of a failure of that mechanism." Machacek v. Hofbauer, 213 F.3d 947, 952 (6th Cir.2000) (internal quotations omitted). With respect to the second step, the Sixth Circuit does not support routine inquiries by district courts into the correctness of state court decisions as a means of determining whether presentation of a Fourth Amendment claim was frustrated. Riley v. Gray, 674 F.2d 522, 526 (6th Cir.1982). However, "[w]hen a petitioner alleges egregious error in the application of fourth amendment principles," the Sixth Circuit has held that "a federal habeas court might be justified in concluding that an opportunity for a full and fair hearing had not been afforded the petitioner." Id.
Here, Petitioner does not dispute that the Michigan courts provided him with a procedural mechanism to present his Fourth Amendment claim. Instead, he argues that presentation of the claim was frustrated because the Michigan Court of Appeals made an egregious error in its application of Fourth Amendment principles. Specifically, Petitioner alleges that the Michigan Court of Appeals egregiously erred when it applied the incorrect standard with respect to the trial court's factual finding that Trooper Goldner seized Petitioner when he initially motioned for Petitioner to approach him. The Michigan Court of Appeals held that the seizure did not actually occur until Petitioner was only six or seven feet away from Trooper Goldner and Trooper Goldner saw the handgun. Barber, 1999 WL 33444311, at *4. Petitioner argues that the Michigan Court of Appeals improperly applied a de novo standard of review rather than a clearly erroneous standard to this determination, which Petitioner identifies as a factual one. The standard of review applied by the Michigan Court of Appeals is supported by the United States Supreme Court's decision in Ornelas v. United States, 517 U.S. 690, 694-95, 116 S.Ct. 1657, 134 L.Ed.2d 911 (1996). In Ornelas, the Supreme Court held that the determination of whether and when a seizure occurs is a mixed question of law and fact to which a de novo standard of review should be applied. Id. Therefore, Petitioner has failed to show that the Michigan Court of Appeals' decision was so egregious as to amount to a deprivation of a full and fair opportunity to litigate the claim in state court. Thus, Petitioner is not entitled to habeas corpus relief with respect to his sixth habeas claim.
4. Eighth Claim: Ineffective Assistance of Appellate Counsel Claim
Finally, Petitioner alleges that he is entitled to habeas relief because his appellate counsel failed to present obvious and meritorious issues on direct appeal. Specifically, Petitioner alleges that his appellate counsel was ineffective in failing to present his aforementioned first, second, third, and seventh claims for habeas relief on direct review in state court. The Court addressed Petitioner's ineffective assistance of appellate counsel claim above in the context of Petitioner's argument that his appellate counsel's ineffectiveness established cause to excuse his procedural default. The Court held that Petitioner failed to establish that his appellate counsel was ineffective in failing to present these claims on direct review. Consequently, Petitioner is not entitled to relief with respect to his eighth habeas claim.
V. CONCLUSION
ACCORDINGLY, IT IS HEREBY ORDERED that Petitioner's motion for an *717 evidentiary hearing [docket entry 40] is DENIED.
IT IS FURTHER ORDERED that the petition for the writ of habeas corpus is DENIED and the matter is DISMISSED WITH PREJUDICE.
IT IS FURTHER ORDERED that if Petitioner desires to seek a certificate of appealability ("COA"), Petitioner may file a MOTION for a COA within TWENTY-ONE (21) DAYS of filing a notice of appeal and shall support this motion with an appropriate brief, both of which shall comply with the Local Rules of this Court. See Castro v. United States, 310 F.3d 900, 903 (6th Cir.2002) ("We do encourage petitioners as a matter of prudence to move for a COA at their earliest opportunity so that they can exercise their right to explain their argument for issuance of a COA." (emphasis added)). Respondent may file a response with an appropriate brief, both of which shall comply with the Local Rules, within FOURTEEN (14) DAYS of service of Petitioner's motion for a COA.
SO ORDERED.
JUDGMENT
This matter having come before the Court on a petition for the writ of habeas corpus, the Honorable Paul V. Gadola presiding, the issues having been fully presented, the Court being fully advised in the premises, and a ruling having been duly rendered, IT IS ORDERED AND ADJUDGED that the petition for the writ of habeas corpus is DENIED and the matter is DISMISSED WITH PREJUDICE.
NOTES
[1] 28 U.S.C. § 2254(e)(1) provides, in pertinent part: "In a proceeding instituted by an application for a writ of habeas corpus by a person in custody pursuant to the judgment of a State court, a determination of a factual issue made by a State court shall be presumed to be correct."
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IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE
AT JACKSON
Assigned on Briefs November 1, 2016
STATE OF TENNESSEE v. MARCUS DEANGELO LEE
Appeal from the Criminal Court for Shelby County
No. 95-10473, 95-11561, 95-11562 James M. Lammey, Judge
___________________________________
No. W2016-00107-CCA-R3-CD – Filed January 31, 2017
___________________________________
Pro se Petitioner, Marcus Deangelo Lee, appeals from the Shelby County Criminal
Court‟s dismissal of his motion to correct an illegal sentence pursuant to Tennessee Rule
of Criminal Procedure 36.1. On appeal, the Petitioner argues that the trial court erred in
dismissing his motion. Upon review, we affirm the judgment of the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Criminal Court Affirmed
CAMILLE R. MCMULLEN, J., delivered the opinion of the court, in which JOHN EVERETT
WILLIAMS and J. ROSS DYER, JJ., joined.
Marcus Deangelo Lee, Springfield, Missouri, pro se.
Herbert H. Slatery III, Attorney General and Reporter; Rachel E. Willis, Deputy Attorney
General; Amy P. Weirich, District Attorney General; and Glen Baity, Assistant District
Attorney General, for the Appellee, State of Tennessee.
OPINION
On December 11, 1995, the Petitioner pled guilty to possession of cocaine with
intent to sell, possession of a deadly weapon with the intent to employ it during the
commission of a crime, and the sale of cocaine. Pursuant to a plea agreement, the trial
court sentenced the Petitioner to serve concurrent terms of three years, one year, and
three years, respectively, in the county workhouse. This court has previously recounted
part of the Petitioner‟s procedural history as follows:
Since entering his guilty plea, appellant has filed numerous pleadings
challenging his convictions, including a petition for a writ of error coram
nobis, Marcus Deangelo Lee v. State, No. W2006-02031-CCA-R3-CO,
2007 WL 1575220 (Tenn. Crim. App. May 31, 2007); a post-conviction
petition, Marcus Deangelo Lee v. State, No. W2009-00256-CCA-R3-PC,
2009 WL 2517043 (Tenn. Crim. App. Aug. 18, 2009); a motion for delayed
appeal, Marcus D. Lee v. State, No. W2009-02478-CCA-R3-PC, 2010 WL
2219659 (Tenn. Crim. App. May 27, 2010); a motion to reopen his post-
conviction proceedings, Marcus Deangelo Lee v. State, W2011-01003-
CCA-R3-PC, 2011 WL 3849629 (Tenn. Crim. App. Aug. 31, 2011); and a
motion to correct clerical errors in his judgments, State v. Marcus Deangelo
Lee, No. W2011-02160-CCA-R3-CD, 2012 WL 2913361 (Tenn. Crim.
App. July 17, 2012). All of these pleadings were either denied or
dismissed, and this Court affirmed their dispositions.
Marcus Deangelo Lee v. State, No. W2013-01088-CCA-R3-CO, 2014 WL 902450, at *2
(Tenn. Crim. App. Mar. 7, 2014).
Subsequently, the Petitioner filed a “Motion to Correct Clerical Errors in the
Judgment or Entry that Renders the Judgments Void Nunc Pro Tunc,” arguing that two of
his sentences were illegal because he was released on bail when he committed the
offenses, requiring the sentences to be served consecutively. See Id. at *1, *3. This court
found that Rule 36.1 applied retroactively to the Petitioner‟s claim of an illegal sentence
and remanded the case to the trial court. Id. at *6. Upon remand, the trial court found
that the Petitioner‟s sentences were illegal because they should have been imposed
consecutively, but the court denied relief because the Petitioner‟s sentences had expired.
See Marcus Deangelo Lee v. State, No. W2014-00994-CCA-R3-CO, 2015 WL 2330063
(Tenn. Crim. App. May 13, 2015). The Petitioner again appealed, and this court held that
the trial court erred in denying the Petitioner relief pursuant to Rule 36.1 and reversed
and remanded the matter again. Id. at *3-4.
On November 20, 2015, the trial court held a hearing pursuant to the remand order
and determined that it could not rule on the Petitioner‟s issue until the pending Tennessee
Supreme Court decision of State v. Brown was released, which would determine whether
Rule 36.1 applied to expired sentences. On December 2, 2015, the Tennessee Supreme
Court released its opinion in State v. Brown, which held that “Rule 36.1 does not
authorize the correction of „expired‟ illegal sentences.” 479 S.W.3d 200, 213 (Tenn.
2015). On December 17, 2015, the trial court entered an order dismissing the Petitioner‟s
motion pursuant to State v. Brown and “for failure to state a colorable claim since the
alleged illegal sentence has expired.” The Petitioner filed a timely notice of appeal on
January 7, 2016.
ANALYSIS
The Petitioner argues that the trial court erred in dismissing his motion because the
court erroneously determined that his sentence had expired. Additionally, the Petitioner
-2-
contends that this court is without jurisdiction to hear his appeal, that the trial court erred
in intentionally delaying the proceedings, and that the Tennessee Supreme Court‟s
decision in State v. Brown denies the Petitioner due process. We reject all of the
Petitioner‟s arguments and affirm the judgment of the trial court.
Under Rule 36.1 of the Tennessee Rules of Criminal Procedure, “[e]ither the
defendant or the State may, at any time, seek the correction of an illegal sentence[.]”
Tenn. R. Crim. P. 36.1(a). “For purposes of this rule, an illegal sentence is one that is not
authorized by the applicable statutes or that directly contravenes an applicable statute.”
Id. A petitioner is only entitled to a hearing and appointment of counsel “[i]f the motion
states a colorable claim that the sentence is illegal.” Tenn. R. Crim. P. 36.1(b); see
Marcus Deangelo Lee v. State, No. W2013-01088-CCA-R3-CO, 2014 WL 902450, at *6
(Tenn. Crim. App. Mar. 7, 2014). This Court has stated that a colorable claim “is a claim
. . . that, if taken as true, in the light most favorable to the [petitioner], would entitle [the
petitioner] to relief[.]” State v. David A. Brimmer, No. E2014-01393-CCA-R3-CD, 2014
WL 201759, at *2 (Tenn. Crim. App. Dec. 18, 2014) (citing and quoting State v. Mark
Edward Greene, No. M2013-02710-CCA-R3-CD, 2014 WL 3530960, at *3 (Tenn. Crim.
App. July 16, 2014)); Tenn. Sup. Ct. R. 28 § 2(H).
Taking the Petitioner‟s assertions as true and viewing them in the light most
favorable to him, the Petitioner is not entitled to relief because his alleged illegal
sentences expired approximately nineteen years ago. See Brown, 479 S.W.3d at 211
(holding that Rule 36.1 does not expand the scope of relief available for illegal sentence
claims and therefore does not authorize the correction of expired illegal sentences). As
we understand the Petitioner‟s argument, he claims that the State‟s documentation
proving that the Petitioner‟s sentences expired was insufficient. However, the record
reflects that the Petitioner introduced his own documentation at the November 20, 2015
hearing, consisting of a federal order dismissing his petition for federal habeas corpus
relief, and showing that his three-year sentence expired on March 13, 1998.
The Petitioner‟s remaining arguments are also without merit. First, this court has
jurisdiction to hear the Petitioner‟s appeal, which the Petitioner initiated, pursuant to Rule
3 of the Tennessee Rules of Appellate Procedure. Under Rule 36.1, once the trial court
disposes of a motion to correct a sentence, “the defendant or the state may initiate an
appeal as of right pursuant to Rule 3, Tennessee Rules of Appellate Procedure.” Tenn. R.
Crim. P. 36.1(d). Additionally, the trial court did not unreasonably delay its decision
anticipating the release of an outcome dispositive case from the Tennessee Supreme
Court because the Court‟s ruling on that issue would be binding authority on the trial
court. See Tenn. Sup. Ct. R. 4(G)(2). Likewise, despite the Petitioner‟s argument to the
contrary, State v. Brown is controlling legal authority which this court and the trial court
are bound to follow. Accordingly, the Petitioner‟s Rule 36.1 motion failed to state a
-3-
colorable claim because the Petitioner‟s sentences have expired, and the trial court‟s
summary dismissal was proper.
CONCLUSION
Upon review, we affirm the judgment of the trial court.
_____________________________
CAMILLE R. McMULLEN, JUDGE
-4-
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 9, 2009
No. 09-60078 Charles R. Fulbruge III
Summary Calendar Clerk
SYED ALI ABBAS,
Petitioner
v.
ERIC H. HOLDER, JR., U.S. ATTORNEY GENERAL,
Respondent
Petition for Review of the
Board of Immigration Appeals
BIA No. A99-665-432
Before KING, STEWART, and HAYNES, Circuit Judges.
PER CURIAM:*
Syed Ali Abbas seeks review of a Board of Immigration Appeals (BIA)
decision affirming the Immigration Judge’s (IJ) finding that Abbas was
removable and denying his request for withholding of removal. We DENY the
petition for review.
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
No. 09-60078
I. Factual Background
Abbas is a native and citizen of Pakistan. He entered the United States
illegally on December 20, 1999. Immigration officers later discovered Abbas in
Victoria, Texas, where he stated that he was a permanent resident alien of the
United States. When the immigration officers discovered that Abbas was in the
country illegally, they took him into custody. On March 27, 2006, the
Department of Homeland Security served Abbas with a Notice to Appear
alleging removability under § 212(a)(6)(A)(i) of the Immigration and Nationality
Act (INA), because he was an alien neither admitted nor paroled in the United
States. At a preliminary hearing before an IJ, Abbas conceded that removal
was proper because he had entered the United States illegally.1
On August 17, 2007, Abbas filed an application for asylum or withholding
of removal.2 He asserted that he fled persecution in Pakistan because of his
membership in a particular social group and his political opinions, and that he
feared death upon his return.
At his hearing, Abbas testified that, prior to leaving Pakistan, he and his
family were persecuted by Sunni factions because of their association with Shia
Muslims. Abbas testified that when he was fifteen, he was routinely beaten up
by Sunni boys at school. He further testified that in 1997, local Sunnis
established a Sipah-i-Sahab Pakistan (SSP) gang that targeted the Shia.
According to Abbas, he and a friend were brutally attacked by members of the
1
In his brief on appeal, Abbas asserts that he is a lawful permanent resident of the
United States, and that the IJ improperly relied on the Government’s evidence that he entered
the country illegally because the immigration officers did not testify at the hearing. But Abbas
himself testified that he entered the country illegally, and chose not to dispute the
Government’s evidence in support of this finding. Accordingly, Abbas may not raise this issue
on appeal. See Omari v. Holder, 562 F.3d 314, 317 (5th Cir. 2009) (failure to raise an issue
below prevents this court from addressing it on appeal).
2
Abbas appealed only the denial of his motion to withhold removal to the BIA.
Accordingly, Abbas has waived any separate claim for asylum. See Thuri v. Ashcroft, 380 F.3d
788, 793 (5th Cir. 2004) (claims not raised in a petition for review are waived).
2
No. 09-60078
SSP because of their affiliation with the Shia. He also testified that his father
was attacked twice in 2001 because he was engaged in fundraising for the Shia,
and his brother was murdered in that same year because of his participation in
Shia activities.
Abbas also stated that the Pakistani government began successfully
cracking down on the SSP in 1998, and that the organization is now illegal in
Pakistan. Abbas further testified that his participation in Shia activities was
minimal, and that he believed he was attacked because his father volunteered
for the Shia. Abbas explained that his father is no longer active in Shia
fundraising efforts.
In response, the Government introduced a statement made by Abbas at
the time he filed his application for asylum and withholding of removal. In that
statement, Abbas alleged that his father was attacked in 1997, before he entered
the United States. In that same statement, Abbas also alleged that his brother
was killed in 1998, before Abbas left Pakistan. 3 In response to these
discrepancies, Abbas stated that he must have written the dates down
incorrectly because his father told him the whole story over the phone.
The Government also introduced a medical certificate showing that Abbas
was treated by a clinic in Pakistan in November 2002. In addition, the
Government introduced an affidavit from Abbas’s father stating that Abbas was
attacked in November 2002, and was still in Pakistan at that time. Abbas again
explained that he was confused about the dates and must have written it down
wrong.
II. The IJ and BIA Decisions
The IJ found Abbas removable as charged and denied his application for
withholding of removal. The IJ focused on the inconsistencies in Abbas’s
3
The Government also introduced Abbas’s initial statement that he was abducted by
the SSP in 1998, and that the SSP threatened to kill him “just as they killed his brother.”
3
No. 09-60078
statements and concluded that his testimony was neither consistent nor
believable. As an example, Abbas originally stated that his brother was
murdered on February 24, 1998, before Abbas left for the United States and,
indeed, that Abbas was threatened with being “treated like his brother,” i.e.,
murdered. Abbas later filed a different statement alleging that his brother was
murdered on February 24, 2001, well after Abbas had left for the United States,
meaning that the 1998 threat from the SSP could not have been made. In this
context, the IJ found Abbas’s explanation that he could not remember the year
that his brother was murdered to be implausible.
The IJ also noted that Abbas’s own testimony supported a finding that he
was not subject to future persecution. Abbas testified that the Pakistani
government banned the SSP in 1998, and that the government’s efforts to crack
down on SSP gang activity were successful. Abbas further testified that his
father was no longer participating in Shia activities, and did not fear retaliation.
Indeed, he had several family members living without incident in Pakistan at
the time of the hearing. While Abbas stated that he would feel compelled to
volunteer for the Shia if he returned to Pakistan, the IJ noted that this
statement was not credible because Abbas had never participated extensively in
Shia activities.
Finally, the IJ concluded that Abbas and his family were victims of gang
violence, but were not considered members of a particular social group sharing
an immutable characteristic. The IJ further observed that the SSP did not
target all Shia; rather, they appeared to target only Shia engaged in fundraising
efforts.
In sum, the IJ concluded that Abbas “is lying when he says that he was
subjected to persecution by the SSP, and . . . therefore that he has failed to
establish any nexus between his own political/religious activities and
4
No. 09-60078
persecution.” The IJ accordingly denied Abbas’s application for withholding of
removal.
Abbas appealed the decision of the IJ to the BIA. He argued that the IJ
erroneously classified the SSP as a street gang, rather than a “particular social
group.” Alternatively, Abbas alleged that he was subject to persecution because
of his political opinion. Finally, Abbas asserted that the IJ erred by making an
adverse credibility determination. He asserted that any discrepancies in his
testimony were immaterial, and that other evidence in the record supports a
finding that Abbas is entitled to withholding of removal.
The BIA adopted and affirmed the IJ’s decision.4 The BIA found Abbas’s
testimony was not credible. Further, the BIA found that the other evidence in
the record was insufficient to establish a clear probability of persecution.
“Without credible testimony establishing either past persecution or a clear
probability of future persecution,” the BIA concluded that Abbas “ha[d] not
established eligibility for withholding of removal.” The BIA thus dismissed
Abbas’s petition for relief. Abbas filed a timely petition for review.
III. Standard of Review
In a petition for review of a BIA decision, “this court has the authority to
review only the BIA’s decision, not the IJ’s decision, unless the IJ’s decision has
some impact on the BIA’s decision.” Wang v. Holder, 569 F.3d 531, 536 (5th Cir.
2009). In this case, the BIA adopted the IJ’s factual findings and conclusions
of law; accordingly, we may review the IJ’s decision. Id.; Efe v. Ashcroft, 293
F.3d 899, 903 (5th Cir. 2002).
4
The BIA noted that the IJ appeared to conclude as an alternate grounds for denying
Abbas’s petition that he would deny the motion for withholding of removal as a matter of
discretion. The BIA observed that an IJ may not exercise discretion in denying the
withholding of removal, but noted that it was not necessary to reach the issue because of the
adverse credibility determination.
5
No. 09-60078
We review the BIA’s factual conclusion that Abbas is not entitled to
withholding of removal for substantial evidence. Chun v. INS, 40 F.3d 76, 78
(5th Cir. 1994). Under the substantial-evidence standard, this court may not
reverse the BIA’s factual findings unless the evidence compels a reversal. 8
U.S.C. § 1252; Chun, 40 F.3d at 78. Put another way, Abbas must show that the
evidence he presented was so compelling that no reasonable factfinder could
conclude against it. INS v. Elias-Zacarias, 502 U.S. 478, 483-84 (1992).
The INA prohibits the removal of an alien to a country where “the alien’s
life or freedom would be threatened in that country because of the alien’s race,
religion, nationality, membership in a particular social group, or political
opinion.” 8 U.S.C. § 1231(b)(3)(A). To be eligible for withholding of removal, the
alien “must demonstrate a ‘clear probability’ of persecution upon return.” Roy
v. Ashcroft, 389 F.3d 132, 138 (5th Cir. 2004). “A clear probability means that it
is more likely than not that the applicant’s life or freedom would be threatened
by persecution on account of either his race, religion, nationality, membership
in a particular social group, or political opinion.” Id. To qualify for withholding
of removal based on membership in a particular social group, Abbas must show
“that he was a member of a group of persons that share a common immutable
characteristic that they either cannot change or should not be required to change
because it is fundamental to their individual identities or consciousness.”
Mwembie v. Gonzales, 443 F.3d 405, 415 (5th Cir. 2006) (quotation marks and
citation omitted).
Under the REAL ID Act, an applicant’s testimony, by itself, may be
sufficient to sustain the burden of proving grounds for withholding of removal,
“but only if the applicant satisfies the trier of fact that his testimony is credible,
is persuasive, and refers to specific facts sufficient to demonstrate that the
applicant is a refugee.” 8 U.S.C. § 1158(b)(1)(B)(ii). Abbas argues that the IJ’s
adverse credibility determination was based upon minor inconsistencies not
6
No. 09-60078
going to the “heart” of the claim. However, under the REAL ID Act, the IJ may
consider:
the demeanor, candor, or responsiveness of the
applicant or witness, the inherent plausibility of the
applicant’s or witness’s account, the consistency
between the applicant’s or witness’s written and oral
statements (whenever made and whether or not under
oath, and considering the circumstances under which
the statements were made), the internal consistency of
each such statement, the consistency of such
statements with other evidence of record (including the
reports of the Department of State on country
conditions), and any inaccuracies or falsehoods in such
statements, without regard to whether an inconsistency,
inaccuracy, or falsehood goes to the heart of the
applicant’s claim, or any other relevant factor.
§ 1158(b)(1)(B)(emphasis added); see also 8 U.S.C. § 1231(b)(3)(C) (making
§ 1158(b)(1)(B) applicable to determinations of whether an alien has
demonstrated that his or her life or freedom would be threatened under
§ 1231(b)(3)(B)). Thus, whether or not the inconsistencies in Abbas’s testimony
went to the “heart” of his claim, the IJ was entitled to consider those
inconsistencies in determining Abbas’s credibility. Wang, 569 F.3d at 537-38.
In our review of the adverse credibility determination, we must “defer . . . to an
IJ’s credibility determination unless, from the totality of the circumstances, it
is plain that no reasonable fact-finder could make such an adverse credibility
ruling.” Id. at 538 (internal quotation marks and citation omitted).
IV. Merits
Abbas has failed to demonstrate that the evidence compels a reversal of
the IJ’s factual findings. Abbas was the only witness who testified at the
hearing on his application for withholding of removal; accordingly, Abbas’s
credibility was central to the IJ’s decision to deny his application. Reviewing the
7
No. 09-60078
inconsistencies in Abbas’s testimony, we conclude that Abbas has failed to show
that no reasonable fact-finder could conclude that Abbas’s testimony lacked
credibility. Further, we conclude that the BIA’s finding that Abbas failed to
provide the court with credible evidence of persecution is supported by
substantial evidence.
First, Abbas’s testimony was inconsistent on whether his brother was still
alive when Abbas came to the United States. In his initial statement to
immigration officials, Abbas stated that his brother was murdered in 1998.
Abbas further stated that when he (Abbas) was attacked by the SSP in 1998, the
SSP threatened to kill him just like they had killed his brother. But Abbas later
testified that his brother was murdered by the SSP in 2001, meaning that the
1998 threat could not have been made. These inconsistencies do not simply call
into question whether Abbas can correctly remember the date of his brother’s
death; they call into question whether the 1998 attack really occurred and
whether the SSP was responsible for the attack. Accordingly, the IJ’s finding
that Abbas was not a credible witness was not unreasonable. See Nakimbugwe
v. Gonzales, 475 F.3d 281, 285 (5th Cir. 2007); Wang, 569 F.3d at 538 (“[A]n IJ
may rely on any inconsistency or omission in making an adverse credibility
determination.”) (internal quotation marks and citation omitted).
Second, Abbas’s testimony was inconsistent on whether he is subject to the
threat of future persecution. The IJ noted that the SSP has been outlawed, and
the government of Pakistan has begun cracking down on SSP gang members.5
5
We also note, as an alternative basis for holding that Abbas is not eligible for
withholding of removal, that he failed to demonstrate that he would be subject to persecution
by the government or with the government’s acquiescence. See Zhao, 404 F.3d at 306-07. The
evidence introduced at the hearing established that the Pakistani government was taking all
necessary measures to outlaw the SSP and prevent sectarian violence. See Raza v. Gonzales,
484 F.3d 125, 129 (1st Cir. 2007) (“When an asylum claim focuses on non-governmental
conduct, its fate depends on some showing either that the alleged persecutors are aligned with
the government or that the government is unwilling or unable to control them.”); see also
Khalili v. Holder, 557 F.3d 429, 436 (6th Cir. 2009) (petitioner not entitled to withholding of
8
No. 09-60078
Abbas also testified that the Pakistani government had been successfully
working to eliminate the SSP before he left for the United States. He explained
that the government’s efforts had brought stability back to his neighborhood.6
Further, the IJ properly noted the absence of any evidence that Abbas himself
participated in Shia activities, and that fact that Abbas’s father was no longer
active in the Shia community. Without a credible showing that he or his family
would be active in the Shia community and subject to persecution from the SSP
for same, Abbas cannot show that we must set aside the BIA’s finding that he
is not entitled to withholding of removal. See Zhang v. Gonzales, 432 F.3d 339,
345 (5th Cir. 2005). In short, Abbas has failed to show that the IJ and BIA
erred by concluding that Abbas would not be subject to persecution if removed
to Pakistan.
Finally, Abbas argues that the IJ erred by concluding that the SSP is a
gang rather than a particular social group. We need not reach this issue because
we have already determined that the IJ’s adverse credibility findings were based
on substantial evidence, and Abbas has failed to establish a credible threat of
future persecution. Abbas has not provided compelling evidence that the IJ
erred by denying his petition for withholding of removal.
V. Conclusion
Because of the strong deference given to the IJ’s credibility findings and
the absence of evidence requiring a contrary conclusion, we conclude that Abbas
has failed to show that he is entitled to withholding of removal. Therefore, we
DENY review of the order of the BIA.
removal because he presented “insufficient evidence to demonstrate that the government
would be unwilling or unable to control” the persons threatening harm).
6
Abbas also introduced country and international religious reports on the conditions
of Pakistan. These reports also support the finding that the Pakistani government banned the
SSP and is continuing to crack down on any remaining SSP gang members.
9
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411 N.W.2d 294 (1987)
TWIN CITY FEDERAL SAVINGS AND LOAN ASSOCIATION, A United States of America Corporation, Respondent,
v.
Susan B. ZIMMERMAN, a.k.a. Susan B. Bergquist, Appellant.
No. C8-87-500.
Court of Appeals of Minnesota.
September 1, 1987.
James T. Swenson, Minneapolis, for respondent.
William E. Ahlberg, Ahlberg Law Firm, Ltd., Apple Valley, for appellant.
*295 Heard, considered and decided by CRIPPEN, P.J., and LESLIE and LOMMEN[*], JJ.
OPINION
A. PAUL LOMMEN, Acting Judge.
As a condition to receiving a mortgage loan from Northern Federal Savings and Loan Association, now respondent Twin City Federal Savings and Loan Association, (TCF), appellant Susan B. Zimmerman, a.k.a. Susan B. Bergquist (hereafter Bergquist) purchased a mortgage guaranty insurance policy which would pay TCF for a loss it sustained if appellant defaulted on her loan payments. Appellant did default, and respondent commenced foreclosure by action.
The trial court determined TCF was entitled to foreclose on the property, and further stated Bergquist was indebted to TCF for $39,435.54. The court also held TCF was entitled to recover a deficiency judgment from Bergquist if the foreclosure sale proceeds did not cover the amount owed TCF.
Bergquist appeals from the judgment, specifically claiming the trial court erred in determining TCF is entitled to recover a deficiency judgment against her.
FACTS
Appellant obtained a mortgage loan from TCF to finance a condominium. As part of the transaction, appellant agreed to purchase a mortgage guaranty insurance policy issued by Foremost Guaranty Corporation (Foremost) in favor of TCF. Appellant paid an initial premium of $402.50, and made monthly premium payments of $6.44 thereafter, as part of her monthly loan payments.
The mortgage guaranty insurance policy is comprised of two parts: a Commitment for Insurance and a Master Policy. The Master Policy provides that, on appellant's failure to pay four or more consecutive monthly payments due under the terms of the mortgage agreement, and upon notice by TCF and compliance with other claims procedures, Foremost shall pay the loss due to TCF. Foremost has the option of paying either the "the amount of guaranty" set forth in the Commitment of Insurance $32,000, or the principal balance due under the Mortgage Agreement with accumulated interest, real estate taxes, hazard insurance premiums, reasonable and necessary expenses incurred by TCF in preservation of the mortgaged real estate and necessary legal expenses.
As part of the claims procedure, TCF is required, under the terms of the policy, to "bid at any foreclosure sale the amount due to [TCF] under the terms of this policy."
Upon appellant's default, TCF commenced foreclosure by advertisement, but abandoned this proceeding in favor of foreclosure by action. The trial court determined TCF was entitled to foreclose the mortgage, and further held appellant owed TCF:
(1) the mortgage amount, $34,900.04, with interest at the rate of $10.02 per day and late charges at the rate of $12.76 per month from January 20, 1986, to the time of payment;
(2) $1,940.60 in attorney fees; and
(3) $84.50 for other reasonable foreclosure costs.
The court also stated appellant was personally liable for the debt, and if the sale proceeds were insufficient to satisfy the judgment, appellant was liable for the deficiency.
A judicial sale was held, and TCF bid at the sale. TCF had the highest bid, and obtained the property for $23,000. This amount was not the "amount due to [TCF] under the terms of [the Foremost] policy." Bergquist appeals only from the court's determination that she is liable for a deficiency judgment.
ISSUE
Is a mortgagor who pays the premiums for mortgage guaranty insurance in favor of the mortgagee, a third party beneficiary to the contract of insurance between the mortgagee and the insurer?
*296 ANALYSIS
Appellant contends she is a third party beneficiary to the insurance contract between Foremost and TCF. She thus claims TCF should be compelled to look to Foremost for any deficiency from the foreclosure sale.
In Cretex Companies v. Construction Leaders, Inc., 342 N.W.2d 135 (Minn.1984), the Minnesota Supreme Court adopted the intended beneficiary approach outlined in Restatement (Second) of Contracts § 302 (1979). Id. at 139. Section 302 provides in part:
Intended and Incidental Beneficiaries
(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
Restatement (Second) of Contracts § 302(1) (1979).
TCF argues Bergquist is not an intended beneficiary under § 302(a) because Foremost, the promisor, did not promise TCF, the promisee, that Foremost would fulfill any duty owed by TCF to appellant. TCF claims it was appellant who owed a duty to TCF, i.e., to repay her mortgage loan. Foremost, as surety, merely guaranteed partial performance of her duty. Appellant concedes she is unable to recover under this theory.
TCF also argues Bergquist does not meet the requirements of a third party beneficiary under § 302(b) by claiming neither Foremost nor TCF intended to benefit her. Bergquist, however, claims the insurance contract evidences an intent to benefit her because under the policy, Foremost has no subrogation rights against her for any monies paid by Foremost to TCF for losses sustained by TCF from Bergquist's default.
Respondent, however, correctly claims in determining whether the necessary intent is present, courts look to whom performance is to be rendered. As stated in Buchman Plumbing Co. v. Regents of the University of Minnesota, 298 Minn. 328, 215 N.W.2d 479 (1974):
If, by the terms of the contract, performance is directly rendered to a third-party, he is intended by the promisee to be benefited. Otherwise, if the performance is directly rendered to the promisee, the third-party who also may be benefited is an incidental beneficiary with no right of action.
Id. at 335, 215 N.W.2d at 484. In this case, Bergquist paid for an insurance policy by which Foremost promised to pay TCF for a loss TCF would sustain by reason of Bergquist's default on her mortgage. Thus, respondent argues since the performance was to be rendered directly to TCF, Bergquist is only an incidental beneficiary.
We agree. Clearly the parties to the insurance policy intended that Foremost's performance was to be rendered to the lender, not to appellant. See Cretex, 342 N.W.2d at 140-41 (court held materialmen were not third party beneficiaries under a performance bond, stating contracting parties intended the surety's performance to be rendered to the owner, not to the materialmen).
Appellant argues it is unfair to allow TCF to "elect" from whom it desires to collect the deficiency, especially since she was required, as a condition to her loan, to pay the insurance premiums. Under the terms of the policy, only TCF has the right to make a claim against Foremost. TCF is also required to bid at the foreclosure sale the amount of the loss due to it. TCF chose to bid only $23,000. If TCF had complied with the terms of the policy, then it would have bid $32,000 at the foreclosure sale, thus greatly decreasing the amount of any deficiency.
Respondent argues that appellant is in effect claiming that by paying the insurance premiums she was given the ability to walk away from her mortgage for any reason at all, while being relieved of any *297 further obligations. Respondent claims recognition of Bergquist as a third-party beneficiary here would violate public policy. Respondent cites Bituminous Casualty Corp. v. Bartlett, 307 Minn. 72, 240 N.W.2d 310 (1976) in support of its argument that Minnesota law does not permit a party to insure his failure to perform under a contract absent an accident which prevents performance. The Bituminous court stated:
If the single insured is allowed through intentional or reckless acts to consciously control the risks covered by the policy, a central concept of insurance is violated.
Id. at 78, 240 N.W.2d at 313. Although appellant argues TCF is the insured, not herself, the practical effect of compelling TCF to look to Foremost for the deficiency would be to benefit Bergquist as if she were the actual insured.
Although it seems inequitable for TCF to compel a mortgagor to pay in excess of $400.00 for insurance premiums, and then decline to file a claim against the insurer, TCF was under no obligation to seek payment of the debt from the insurer. We note this is not a case where appellant seeks to have the mortgagee estopped from seeking a deficiency judgment against her, based on representations made to her, and upon which she relied, that the mortgagee would file a claim with the insurer upon her default. Absent this type of equitable claim, we fail to see how appellant, a stranger to the contract, can force TCF to look to a third party to recover the debt.
DECISION
Appellant is not a third party beneficiary to the contract of insurance between TCF and Foremost Guaranty Corporation. The trial court did not err in determining appellant was liable to respondent for a deficiency judgment.
Affirmed.
NOTES
[*] Acting as judge of the Court of Appeals by appointment pursuant to Minn. Const. art. 6, § 2.
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822 F.2d 1095
Todd (Allen)v.Mo. Probation & Parole
NO. 87-1684
United States Court of Appeals,Eighth Circuit.
JUN 12, 1987
1
Appeal From: E.D.Mo.
2
DISMISSED.
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976 F.2d 861
UNITED STATES of America, Plaintiff-Appellee,v.Carl A. SMITH, Defendant-Appellant.
No. 91-5410.
United States Court of Appeals,Fourth Circuit.
Argued May 8, 1992.Decided Sept. 24, 1992.As Amended Oct. 27, 1992.
Mary Stanley Feinberg, Asst. U.S. Atty., Charleston, W.Va., argued (Michael W. Carey, U.S. Atty., on brief), for plaintiff-appellee.
Before MURNAGHAN and NIEMEYER, Circuit Judges, and KAUFMAN, Senior United States District Judge for the District of Maryland, sitting by designation.
OPINION
MURNAGHAN, Circuit Judge:
1
Carl A. Smith, the former manager of the West Virginia office of the United States Department of Housing and Urban Development ("HUD"), brought the instant appeal challenging his conviction for receiving a bribe, causing the filing of a false cost certificate for a HUD project, filing false tax returns, and perjury, in violation of 18 U.S.C. § 201(b)(2), 18 U.S.C. §§ 1010 and 2, 26 U.S.C. § 7206(1), and 18 U.S.C. § 1623(a). Primarily, Smith has contended that the district court misinterpreted and misapplied an immunity agreement which he obtained in connection with his testimony against a HUD consultant, Frank Vinson, in an earlier trial. Because we find that the district court misinterpreted the immunity agreement and permitted the Government to base its prosecution of Smith on evidence that was clearly precluded by the immunity agreement, we reverse Smith's conviction.
I.
2
As early as the fall of 1987, federal law enforcement agents had received allegations about misconduct by Smith in his role as Manager of the West Virginia HUD office. However, in 1987 investigators focused attention on Frank Vinson, a HUD consultant. In October of 1989, Vinson went to trial on charges of receiving unlawful gratuities, perjury and wiretapping. The Government subpoenaed Smith, who retained counsel (a former United States attorney) and refused to testify without an immunity agreement. Smith's attorney bargained for and received a use immunity agreement, signed on October 20, 1989, which provides in pertinent part that "The United States will not prosecute of [sic] Mr. Smith for any federal offense based on information now in the possession of the government." After obtaining the immunity agreement, Smith testified at Vinson's trial.
3
Following the Vinson trial, investigators continued examining Maurice Toler, a HUD contractor. In early 1990, an anonymous telephone call tipped off investigators that Toler had bought Smith a farm combine in connection with some HUD projects. The investigation then focused on Smith. It was at that time that investigators began to review HUD telephone records in their possession and discovered a large number of telephone calls from Smith's extension to Toler. Furthermore, investigators found bank records from a Toler-related company that indicated the purchase of a combine for delivery to Smith. Investigators also uncovered evidence of other bribes apparently given to further Toler's success in obtaining and maintaining HUD contracts. Additionally, investigators audited a previously filed Certificate of Actual Cost for a HUD project, known as the Lemma Village, and found that the certificate had been inflated.
4
Subsequently, the United States Attorney's Office notified Smith's attorney that Smith was the target of a grand jury investigation and that indictment was imminent. Smith filed an injunctive action to prevent indictment based upon the October 20, 1989 immunity agreement. The district court denied Smith's request for injunctive relief, and Smith appealed. However, prior to the appeal being heard, Smith was indicted and the appeal was dismissed as moot.
5
Prior to trial, Smith argued to the district court that the immunity agreement precluded the Government from using any information in its possession as of October 20, 1989, when the immunity agreement was signed. The Government argued that only information which on its face indicated wrongdoing was covered by the use immunity agreement. The district court determined that the provision at issue was ambiguous and also determined that both parties should bear equal responsibility for the ambiguity and that neither side would be charged with a greater burden in construing the agreement. The district court went on to accept the Government's interpretation as most reasonable, construing the agreement as precluding the Government from prosecuting Smith based on any information in the possession of any agency of the Government on October 20, 1989, insofar as it would have indicated the commission of a crime on the part of the defendant. Based upon this addition of language to, and interpretation of the immunity agreement, the court permitted the Government to use Smith's perjured testimony which occurred before the grand jury, 1987 and 1988 tax returns, and disclosure statements of Maurice Toler's for HUD projects, all of which were indisputably in the hands of the Government prior to the October 20, 1989 immunity agreement.
6
Based upon the use of such evidence against him at trial, Smith has argued on appeal that the district court afforded a much too narrow interpretation of the immunity agreement and that the introduction of such evidence violated the plain terms of the agreement. The Government, on the other hand, has acknowledged that it used evidence that it had possession of prior to the signing of the immunity agreement; however, the Government has insisted that the use of the information was permissible because the information did not, at the time the agreement was signed, implicate Smith in criminal activity. Thus, the primary issue facing us on appeal is whether the district court's interpretation and application of the immunity agreement was erroneous.
II.
7
In determining whether the district court's interpretation and application of the immunity agreement is correct, we conduct a de novo review, as only questions of law are implicated. See United States v. Blackburn, 940 F.2d 107, 109 (4th Cir.1991). In interpreting immunity agreements, as with plea agreements, we must be mindful of the fact that "the defendant's underlying 'contract' right is constitutionally based and therefore reflects concerns that differ fundamentally from and run wider than those of commercial contract law." United States v. Harvey, 791 F.2d 294, 300 (4th Cir.1986) (citing Mabry v. Johnson, 467 U.S. 504, 509, 104 S.Ct. 2543, 2547, 81 L.Ed.2d 437 (1984)). Furthermore, in federal prosecutions, such as the one involved here, "the courts' concerns run even wider than protection of the defendant's individual constitutional rights--to concerns for the 'honor of the government, public confidence in the fair administration of justice, and the effective administration of justice in a federal scheme of government.' " Id. (citing United States v. Carter, 454 F.2d 426, 428 (4th Cir.1972)). With those principles in mind, we turn to the district court's interpretation of the immunity agreement in question.
8
The provision at issue states: "The United States will not prosecute of [sic] Mr. Smith for any federal offense based on information now in the possession of the government." The district court held a factual hearing, pursuant to Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972), during which Smith's counsel testified that he had sought "full protection" for his client, that he so informed at least one of the Government's attorneys, and that he attempted to obtain a "bath" for his client. The Government attorney testified that his understanding was that the Government was precluded only from utilizing information which would have indicated the commission of a crime on the part of the defendant, although the attorney apparently did not communicate such a position to Smith or his counsel.
9
The district court found that the provision was suggested by the defense attorney and that such language had been utilized by the United States Attorney's Office in earlier nonprosecution agreements. Under such circumstances, the district court concluded that the parties should bear equal responsibility for the ambiguity and that neither side should be charged with a greater burden in construing the agreement. The district court went on to interpret the provision as the Government urged, precluding the Government from prosecuting Smith based on any information in the possession of any agency of the Government on October 20, 1989, insofar as it would have indicated the commission of a crime on the part of the defendant.
10
In examining the provision of the immunity agreement in question, we find that the language employed in the agreement is in fact unambiguous, precluding the Government from prosecuting Smith based on (i.e., using) any information in its possession on October 20, 1989. If information did not form a basis for a federal offense, it would be neither relevant nor admissible. However, a factual inquiry must nonetheless be made to determine whether the parties intended a different meaning than is facially suggested. See Restatement (Second) of Contracts § 214(c) & cmt. b (1979); id. § 212; 3 Corbin on Contracts § 542, at 111.
11
The district court below conducted such a factual inquiry. In the opinion in the instant case, the district court indicated acceptance of the testimony of each side as truthful regarding their intention in employing the language at issue. However, the district court concluded that the Government's interpretation was most reasonable under the circumstances and accordingly adopted it. We conclude, however, that the district court erred in doing so. Having determined that the parties had differing intentions in employing the language at issue, the district court was required to return to the unambiguous meaning of the language. See Restatement (Second) of Contracts § 212 comt. a & illus. 2b.
12
Accordingly, because we find the terms of the agreement unambiguous and because the parties did not both intend a different meaning, we conclude that the district court erred in reading additional language into the immunity agreement, barring prosecution based only on evidence in the Government's possession at the date of signing, insofar as it would have indicated the commission of a crime on the part of the defendant. When a court is faced with unambiguous language like the provision at issue,
13
Neither side should be able, any more than would be private contracting parties, unilaterally to renege or seek modification simply because of uninduced mistake or change of mind. Such an approach is conformable not only to the policies reflected in private contract law from which it is directly borrowed, but also to constitutional concerns of fundamental fairness ... and to the wider concerns expressed in the exercise of supervisory jurisdiction over the administration of federal criminal justice.
14
United States v. Harvey, 791 F.2d 294, 300 (4th Cir.1986).
15
Because the clear language of the immunity agreement prohibited the government from prosecuting Smith using any information in its possession on October 20, 1989, the district court erred in reading additional language into the agreement and in admitting evidence in contravention of the terms of the agreement.1 If the Government had intended to preclude only prosecutions based on evidence in its possession insofar as it indicated the commission of a crime by Smith, the Government surely could have so provided.2 However, it did not. Even the Government may agree to words having, in fact, unpalatable meanings. The Government, having entered an agreement having an unfortunate meaning, asked that the district court relieve it of the agreement. The district court, in effect, rewrote the immunity agreement to give the Government the benefit of a bargain that it did not make. Accordingly, we reverse Smith's conviction because it was tainted by the introduction of evidence clearly prohibited by the terms of the immunity agreement.3 Because we have herein afforded Smith full relief based upon his first point of error, we need not address the other issues he raised on appeal.
16
JUDGMENT REVERSED.
NIEMEYER, Circuit Judge, dissenting:
17
Carl Smith, a regional HUD manager in West Virginia, was convicted by a jury of accepting a $60,000 in-kind bribe, failing to report the income on his income tax returns, and lying to a grand jury. Interpreting broadly a nonprosecution clause contained in a use-immunity agreement, which Smith had obtained in connection with his testimony against co-employees, the majority effectively concludes that Smith obtained immunity from virtually all prosecutions for federal criminal conduct and therefore must be released from any punishment for his crimes. Because I believe firmly that the agreement, on its face and as described by the parties to it, was never intended to reach so far, I would affirm the convictions.
18
* When Carl A. Smith was subpoenaed to give testimony during the prosecution of HUD consultant Frank Vincent, Smith retained Robert King, a former assistant United States attorney, to represent him. In exchange for Smith's cooperation King demanded, on behalf of Smith, a use-immunity agreement in the standard form. He also requested that additional language, previously used by U.S. attorneys, be added to the standard form agreement: "The United States will not prosecute ... Mr. Smith for any federal offense based on information now in the possession of the government." Although Assistant United States Attorney Mary Feinberg suspected Smith at that time of illegal conduct, she concluded that, because her investigation had developed no evidence of wrongdoing, the United States gave up nothing in agreeing not to use against Smith any testimony he gave under the agreement and not to prosecute Smith based on the government's then existing knowledge. The agreement was thus signed on October 20, 1989.
19
Following Frank Vincent's trial, the investigation into the activities of the West Virginia HUD office wound down for a time, until a tip, that Maurice Toler had bought Smith a farm combine in conjunction with some HUD activities, reopened it. The renewed investigation uncovered evidence of not only the bribe which was the subject of the tip but also other gifts in kind from Toler to Smith, as well as other improprieties concerning Toler's work on a HUD project known as Lemma Village. As the result of this information, Smith was indicted.
20
Before trial, Smith invoked the use-immunity agreement to preclude the United States from using any information in the possession of the government as of October 20, 1989, when the agreement was signed. The question considered by the district court was whether in the agreement the phrase "information now in the possession of the government" referred to any information or just incriminating information.
21
After hearing testimony from the parties about their intent when signing the agreement, the district court concluded that because the operative language had previously been used by the U.S. attorney's office but had been requested by Smith's attorney, it was to be construed without favor to either party. The court thereupon held:
22
[T]he United States and Mr. Smith have agreed that the United States will not prosecute Mr. Smith for any federal offense based on information of the commission of any such offense in the possession of the government at the date of the agreement on October 20, 1989.
23
* * * * * *
24
[T]he United States is precluded from using any information which was in the possession of any agency of the government on October 20, 1989 insofar as it would then have indicated the commission of a crime on the part of the defendant.
25
(Emphasis added.)
26
During trial, the district court conducted a hearing each day to determine whether the government's proffered evidence for that day should be excluded by reason of the use-immunity agreement as interpreted by the court. Following this procedure, the district court excluded notes of interviews conducted before October 1989, during the earlier HUD investigation, and certain HUD documents (a Smith memorandum requesting waiver of bidding requirements for Lemma Village, a letter from Toler to Smith seeking quicker HUD payments, and documents and testimony by Smith's deputy about them). The court also excluded testimony about Smith's 1987 and 1988 tax returns by IRS agents who audited them prior to October 1989, although it allowed certain testimony by them on the ground that "none of it would be, in any manner, helpful to the government prosecution of Mr. Smith." The court did, however, admit documents that were in possession of the government which did not indicate the commission of a crime as of October 1989, such as the HUD contract, other standard HUD documents concerning Lemma Village, Smith's tax returns, and a transcript of Smith's grand jury testimony.
27
The jury found Smith guilty on all counts, and the court sentenced him to 54 months imprisonment. This appeal followed.
28
Smith now contends that it was error for the district judge to have interpreted the specially added language in a manner that excluded only incriminating evidence. He contends that the plain language, "information now in possession of the government," means all information in possession of the government on which it would rely to prove a case against Smith. At argument, however, counsel for Smith conceded that some information about Smith, including his name and identification, could not have been intended. For example, had Smith robbed a bank after October 1989, Smith's counsel conceded, the government could use knowledge held prior to October 1989 that the bank was federally insured to prosecute Smith for violating the federal prohibition against robbing a federally insured bank.
II
29
The language of the nonprosecution clause at issue reads:
30
The United States will not prosecute of [sic] Mr. Smith for any federal offense based on information now [October 20, 1989] in the possession of the government.
31
This language is a straightforward agreement not to prosecute specifically identifiable offenses. The offenses are qualified in two respects: (1) they must be federal offenses, and (2) they must be ones that could be prosecuted on October 20, 1989, based on information then in possession of the government. Any other offense is not included within the scope of the agreement. The object of any analysis, therefore, must begin with the identification of those offenses immunized by the agreement, leaving all others for future prosecution.
32
This inquiry need not occupy us long, because the parties agree that as of October 20, 1989, the government did not have information on which to base a prosecution against Smith for any federal offense. It is not surprising that the government witnesses, therefore, testified that the nonprosecution clause of the use-immunity agreement was of no moment. From the government's point of view it was giving up nothing. As Assistant United States Attorney Feinberg said, "I feel he [Smith] is guilty. I have not been able to develop any information that he's guilty so we are not giving up anything." Assistant United States Attorney Wayne Rich testified:
33
I don't know that it [the agreement] was illusory and meant nothing. What it meant was that we agreed not to use any information in our possession which was indicating that Mr. Smith had committed any crimes with inculpatory type information, and since we didn't have any, any information to that effect on October 20, 1989, we, the United States, were not giving up anything by including that provision. That's what it meant.
34
And from Smith's point of view, he was receiving the assurance that the government was not holding back a prosecution that it could later launch after it had obtained the benefits of his cooperative efforts.
35
In determining the proper interpretation of the agreement, it is also useful to understand what the agreement is not. All parties agreed, for instance, that it was not a full transactional immunity agreement, immunizing Smith for all crimes that he may have committed up to that point in time. Smith's attorney testified:
36
Q: Will you agree with me, Mr. King, that that is not a blanket immunity for all offenses as of the date of this agreement?
37
A: Yes.
38
Q: And it's not a transactional immunity agreement in the sense that he is not going to be prosecuted for certain types of offenses, that is, tax offenses or extortion offenses or any other enumerated offenses; is that correct?
39
A: I would characterize it as a nonprosecution agreement.
40
Q: Well, my question--
41
A: I characterize it as a nonprosecution agreement rather than a transactional immunity situation.
42
Smith's attorney went on to point out that a transactional immunity agreement would be broader than that which he actually obtained. The nonprosecution clause is also not an agreement to control the admissibility of evidence or information, or to immunize such information from introduction in any future prosecution. Evidence or information that could be evidence was not the object of the negotiations. Rather the agreement focused on the prosecution of offenses: "The United States will not prosecute ... Mr. Smith for any federal offense...." (Emphasis added.)
43
Again, Smith agrees. His attorney testified:
44
[P]aragraph 3 [the nonprosecution clause] protects him [Smith] from prosecution for any offense based on information in possession of the government on or before the execution of the agreement, October 20, 1989.
45
(Emphasis added.)
46
On October 20, 1989, the government did know that Smith had filed tax returns over the years, had carried out duties of his office as a HUD manager under suspicious circumstances, and had indeed testified before the grand jury. But the known evidence of those activities did not support a prosecution for any federal offense. And about this, Smith agrees. When information subsequently came from a coconspirator to the attention of the government that Smith had committed federal offenses, the offenses could therefore be prosecuted, because they were not included in the specifically designated offenses for which immunity had been given.
47
The majority, overlooking as the object of the agreement the identified offenses for which the government could not prosecute, aimed at the "information-in-possession-of-the-government" language, observing that the word "information" is not qualified by the word "inculpatory," as found by the district court. I would submit that such an analysis is too narrow and fails to take into account the entire sentence. The sentence identifies "information" as that on which a prosecution could be based. While the word "inculpatory" is not used, that intent is certainly conveyed by the language.
48
The effect of the majority's interpretation of the nonprosecution clause is to provide Smith with transactional immunity, or more, and to preclude any future prosecution of Smith for virtually any federal offense, a result never intended by the parties. If Smith were to rob a federally insured bank tomorrow, the majority would have him immunized from prosecution, because the government had information as of October 20, 1989, that the bank was federally insured, a necessary element of federal bank robbery. Not even counsel for Smith has pressed for that interpretation, so conceding at oral argument.
III
49
While I believe that the agreement was only intended to immunize "offenses" and not "information," the majority interpretation, if accepted, leads at most to an ambiguity, leaving the agreement open to interpretation based on extrinsic evidence. See Hartman v. Blankenship, 825 F.2d 26, 29 (4th Cir.1987) (recognizing the helpfulness of extrinsic evidence in interpreting the terms of an ambiguous plea agreement). The district court took evidence about intent and found as a fact that the parties did not intend to immunize the offenses of which Smith was convicted in this case. The court's findings are consistent with at least some of the testimony. For example, Assistant United States Attorney Rich, who negotiated the agreement on behalf of the government, testified that the agreement intended to provide that "any information we [the government] had that showed criminal wrongdoing by Carl Smith wouldn't be used against him." He also testified about the intent that "we [the government] wouldn't use any inculpating information we had in our office against Mr. Smith. And, in fact, since we didn't have any, as Ms. Feinberg indicated, we weren't giving up anything."
50
Our scope of review of the district court's factual findings is narrow, and when those findings are supported by substantial evidence, as in this case, we must affirm.
51
I therefore strongly, but respectfully, dissent.
1
Cf. United States v. Harris, 973 F.2d 333 (4th Cir.1992) (holding that the Government must "prove that it did not use immunized testimony" when prosecuting a defendant protected by a use immunity agreement)
2
The absurdity of the Government's position is illustrated by several of its arguments. First, the Government has argued that since Smith's tax returns did not contain a category denominated as "bribes," the Government did not violate the terms of the immunity agreement because the face of the tax returns provided no incriminating evidence against Smith. Likewise, the Government has maintained that the use of HUD documents, disclosure statements and the Certificate of Actual Cost for the Lemma Project, all of which were in its hands prior to the signing of the agreement, was not prohibited because it had not yet audited the forms and had not yet located the falsifications. Yet prosecution was based on those pieces of information already in the possession of the Government. Such a result is clearly not contemplated by the language of the immunity agreement which Smith signed and relied upon
3
The Government, of course, remains free to retry Smith provided it does not use any information in the possession of any agency of the Government prior to October 20, 1989, the date the use immunity agreement was executed, in such a prosecution
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592 S.W.2d 406 (1979)
Danna McPHERSON, Appellant,
v.
John JUDGE, Temporary Administrator of the Estate of Russell Lance Brown, Deceased, Appellee.
No. 9062.
Court of Civil Appeals of Texas, Amarillo.
December 12, 1979.
Jack Hazlewood, Amarillo, for appellant.
Herman Jesko, Gibson, Ochsner & Adkins, Amarillo, for appellee.
COUNTISS, Justice.
Appellant, Danna McPherson, appeals from a final judgment of the district court dismissing her personal injury suit against appellee, John Judge, in his capacity as temporary administrator of the estate of Russell Lance Brown, deceased. The appeal presents two questions: (1) Does the *407 constitutional county court[1] administering the estate of a deceased defendant have exclusive jurisdiction of a personal injury suit against the estate and (2) if the district court has concurrent jurisdiction with the county court over the case, can the district court abate the case "pending the exercise of jurisdiction" by the county court? We answer both questions in the negative, reverse the judgment of the district court and remand the case with instructions.
McPherson filed this suit on December 6, 1978, against Judge, temporary administrator of Brown's estate, in a district court of Potter County, Texas. She alleged the negligence of the decedent, Brown, in Potter County on August 16, 1977, proximately caused an automobile collision that resulted in personal injuries to her in excess of the minimum jurisdiction of the district court. Judge responded with a plea to the jurisdiction seeking dismissal of the case. He alleged the suit was a claim against the estate and, consequently, the district court had no jurisdiction because the pending administration in the county court of Randall County vested that court with original jurisdiction of all claims against the estate. After a hearing on the plea, the trial court entered an order on January 24, 1979, stating it was "of the opinion that the claim herein asserted should be prosecuted in the court of original jurisdiction in Randall County, Texas" and dismissing the cause.
McPherson's single point of error complains of the trial court's error in sustaining the plea and dismissing the case. Judge's first counterpoint contends the county court of Randall County, sitting as the probate court, has exclusive jurisdiction of this case since it is a claim incident to the Brown estate. In his second counterpoint he contends, alternatively, that the district court has concurrent jurisdiction with the county court, and the case should be abated "pending the exercise of jurisdiction" by the county court.
JURISDICTION
The resolution of the first question before the court depends upon the construction and interpretation of Article 5, Section 8 of the Texas Constitution as amended in 1973, Article 1906(6) of the Texas Revised Civil Statutes Annotated and Section 5 of the Probate Code as amended in 1973, and subsequently, for the purpose of implementing the constitutional amendment. Prior to 1973, a personal injury suit against a decedent's estate was a civil action clearly within the jurisdiction of the district court if monetary damages of five hundred dollars or more were alleged, and was exclusively within its jurisdiction if the alleged damages exceeded one thousand dollars. Tex. Const. art. V, §§ 8, 16; Tex.Rev.Civ.Stat. Ann. arts. 1906, 1950 (Vernon 1964); see Allen v. Denk, 87 S.W.2d 303, 306-07 (Tex. Civ.App.Austin 1935, no writ).
In 1973, Article 5, Section 8 of the Texas Constitution, which establishes the basic civil and criminal jurisdiction of the district court, was amended by the addition of a third paragraph giving the district court general probate jurisdiction under the control of the legislature. The legislature was specifically empowered to "increase, diminish or eliminate the jurisdiction of either the district court or the county court in probate matters ...." Tex.Const. art. V, § 8. Pursuant to that grant of power, the legislature amended Section 5 of the Probate Code, and the pertinent provisions in effect during the dates material to this case read as follows:
* * * * * *
(b) In those counties where there is no statutory probate court, county court at law or other statutory court exercising the jurisdiction of a probate court, all applications, petitions and motions regarding probate, administrations, guardianships, and mental illness matters shall be filed and heard in the county court, except that in contested probate matters, the judge of the county court may on his *408 own motion, or shall on the motion of any party to the proceeding transfer such proceeding to the district court, which may then hear such proceeding as if originally filed in such court. In contested matters transferred to the district court in those counties, the district court, concurrently with the county court, shall have the general jurisdiction of a probate court, and it shall ... settle accounts of executors, transact all business appertaining to deceased persons ... including the settlement, partition, and distribution of estates of deceased persons ... as provided by law. Upon resolution of all pending contested matters, the probate proceeding shall be transferred by the district court to the county court for further proceedings not inconsistent with the orders of the district court.
* * * * * *
(d) All courts exercising original probate jurisdiction shall have the power to hear all matters incident to an estate, including but not limited to, all claims by or against an estate, all actions for trial of title to land incident to an estate and for the enforcement of liens thereon incident to an estate, all actions for trial of the right of property incident to an estate, and actions to construe wills. ..
Tex.Prob.Code Ann. § 5(b), (d) (Vernon Supp. 1978-1979).
Judge contends the foregoing provisions of Section 5 of the Probate Code divest the district court of its traditional jurisdiction over this case and place exclusive jurisdiction in the county court administering the estate. In summary, Judge maintains Section 5(b) requires all "probate matters" to be filed initially in the constitutional county court and Section 5(d) makes a claim against an estate a "probate matter," thereby necessitating its origination in the county court.[2]
Our analysis of the applicable law convinces us the district court has original jurisdiction of this case. The suit is, in a strict sense, a claim against the estate, see Section 3(c) of the Probate Code, but it is an unliquidated claim that does not require presentment to and rejection by the representative of the estate or the probate court as a predicate for judgment under Section 314 of the Probate Code. Texas Baptist Children's Home v. Corbitt, 345 S.W.2d 339, 342 (Tex.Civ.App.Amarillo 1961, writ ref'd n. r. e.); Allen v. Denk, supra, at 306. It is also an ordinary civil action which, under the specific language of Article 5, Section 8 of the Texas Constitution, implemented by Article 1906(6) of the Texas Revised Civil Statutes Annotated, comes within the district court's jurisdiction because it involves the requisite monetary amount.
None of the constitutional or statutory provisions cited above expressly repeal the pertinent parts of Article 5, Section 8 of the Texas Constitution or Article 1906(6) of the Texas Revised Civil Statutes Annotated and divest the district court of this traditional civil jurisdiction. Nor do we find any irreconcilable conflict between the cited provisions requiring us to conclude that Section 5 of the Probate Code attempts a repeal of jurisdiction by implication. See Cluck v. Hester, 521 S.W.2d 845, 847 (Tex. 1975). Although Section 5(d) of the Probate Code gives to the county court, as a court exercising original probate jurisdiction, the power to hear all matters incident to an estate, including claims against an estate, it does not require those claims to be heard exclusively in that court. Nor does it or Section 5(b) state that such a claim is a probate matter that "shall be" heard in the county court under Section 5(b).
The jurisdiction placed exclusively in the county court under Section 5(b) obviously pertains to matters traditionally regarded *409 as probate or administration matters that relate directly to the handling of the estate. The language of Section 5(b) speaks in terms of "jurisdiction of a probate court," "contested probate matters" and "probate proceeding," and it is the traditional probate court functions that "shall be filed" in the county court. If we assume the power of the legislature to control "probate matters" under Article 5, Section 8 of the Texas Constitution extends to matters incident to an estate such as an unliquidated claim against an estate, the most that can be derived from a reading of Sections 5(b) and (d) of the Probate Code is that the county court has concurrent jurisdiction of this case.[3]
Recent decisions by other courts of civil appeals support our conclusions. Contentions similar to Judge's were advanced and rejected in Petsch v. Slator, 573 S.W.2d 849 (Tex.Civ.App.Austin 1978, writ ref'd n. r. e.) (will construction), Hopkins v. Daniels, 571 S.W.2d 413 (Tex.Civ.App.Texarkana 1978, writ ref'd n. r. e.) (trial of title to land) and Canada v. Ezer, 584 S.W.2d 568 (Tex.Civ.App.Houston [14th Dist.] 1979, no writ) (constructive trust). Petsch and Hopkins involved "matters incident to an estate" listed in Section 5(d) of the Probate Code, as does this case. Those courts concluded, as we do, that the listing of those matters does not in any manner deprive the district court of its original jurisdiction over them.
Cases involving confrontations between statutory county, probate and district courts have reached similar results. Boyd v. Ratliff, 541 S.W.2d 223 (Tex.Civ.App. Dallas 1976, writ dism'd); Folliott v. Bozeman, 526 S.W.2d 577 (Tex.Civ.App.Corpus Christi 1975, writ ref'd n. r. e.).[4]
Judge relies upon Cowgill v. White, 543 S.W.2d 437 (Tex.Civ.App.Corpus Christi 1976, writ ref'd n. r. e.) and Parr v. White, 543 S.W.2d 440 (Tex.Civ.App.Corpus Christi 1976, writ ref'd n. r. e.) to support his contention that the county court has exclusive jurisdiction. We do not regard those decisions as authoritative in this case. They involved jurisdictional problems between a district court and a statutory probate court and are based upon a construction of Section 5(c) of the Probate Code. Also, the causes of action held to be within the exclusive jurisdiction of the probate court concerned the settlement, partition and distribution of the estate in question. The primary disputes were between the husband of the decedent and others over ownership and control of property which the husband sought to exclude from estate control. Although the court makes reference to matters incident to an estate, it is obvious that the court considered the causes of action to involve probate matters directly affecting the administration of the estate. *410 This case, however, is a personal injury action based upon an automobile collision allegedly caused by the negligence of Brown prior to his death, and it cannot be equated with a dispute over ownership and control of the property in an estate.
In summary, we hold the district court of Potter County has jurisdiction of this case and that Sections 5(b) and (d) of the Probate Code do not diminish that jurisdiction. McPherson's point of error is sustained.
ABATEMENT
Judge contends, alternatively, that the county court has concurrent jurisdiction of this case and it should be abated by the district court "pending the exercise of jurisdiction" by the county court. He contends the statement of the district court in its Order of Dismissal declaring "the Court is of the opinion that the claim herein asserted should be prosecuted in the court of original jurisdiction in Randall County, Texas" is an unchallenged finding of fact binding on this court; thus, the only error was dismissal of the case instead of abatement. We do not agree. The statement can only be construed as the trial court's legal basis for dismissal. As such, it is subject to review.
The only reason advanced by Judge for abatement of the case is the possible concurrent jurisdiction of the county court. We have not been cited to, nor have we found, a case holding the existence of unexercised concurrent jurisdiction in some other court to be a valid reason, standing alone, for abatement of a case.[5] We are not willing to formulate a rule that would permit a court to decline to adjudicate a case solely because some other court also has potential jurisdiction of the same type of case.
The judgment of the trial court is reversed, and the case is remanded with instructions to reinstate it on the docket of the district court.
NOTES
[1] References henceforth to the county court are to the constitutional county court of Randall County. There were no active statutory county or probate courts in Randall County during the dates pertinent to this case.
[2] Of course, the case could be transferred to a district court of Randall County under Section 5(b) on the motion of the county judge or either party. Tex.Prob.Code Ann. § 5(b) (Vernon Supp. 1978-1979). However, Judge's theory would eliminate the choice of forum given the plaintiff under Article 1995 of the Texas Revised Civil Statutes Annotated and require disposition of the case in either the district or county court in Randall County instead of the district court in Potter County where originally filed.
[3] We realize of course, the county court has exclusive jurisdiction over the case if the alleged damages exceed $200 and do not exceed $500, and concurrent jurisdiction with the district court if the alleged damages exceed $500 and do not exceed $1,000. That jurisdiction, however, is bestowed by Article 5, Section 16 of the Texas Constitution and not by Section 5 of the Probate Code.
[4] Reliance upon decisions involving the statutory courts should be tempered by a careful reading of the 1979 Legislative Amendments to Section 5 and the new Section 5A of the Probate Code. Section 5A(b) states: "In situations where the jurisdiction of a statutory probate court is concurrent with that of a district court, any cause of action appertaining to estates or incident to an estate shall be brought in a statutory probate court rather than in the district court." 1979 Tex.Sess.Law Serv., ch. 713, § 5A(b), at 1741. The failure of the legislature to enact the same provision for constitutional county courts vis-a-vis district courts is an additional indication that there is no legislative intent to give the constitutional county courts exclusive jurisdiction of matters incident to an estate. We are not required to decide and thus, do not decide the underlying constitutional question present in this area; that is, whether the grant of power given the legislature under Article 5, Section 8 of the Texas Constitution to control jurisdiction in "probate matters" empowers it to divest the district court of its constitutional jurisdiction over civil matters that are only ancillary to estate administration but are defined by the legislature as "incident to an estate." An excellent analysis of this problem area is presented in the comment by Thomas Milton Stanley entitled: "Section 5 of the Texas Probate Code: An Indirect Reduction of District Court Jurisdiction?" 30 Baylor L.Rev. 129 (1978).
[5] Approved grounds for abatement are collected in 1 Tex.Jur.2d Abatement and Revival §§ 2-68 (1959) & (Supp.1978).
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FILED
cour,r C7 P.HEA, F.
STA." E OF WASHINGTON
20171-:1',R 27 r" '2: 23
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
STATE OF WASHINGTON, ) NO. 73949-2-1
)
Respondent, ) DIVISION ONE
)
v. )
) UNPUBLISHED OPINION
BRIAN THOMAS DECKER, )
)
Appellant. ) FILED: March 27, 2017
)
LEACH, J. — The State charged Brian Decker with two counts of assault in
the third degree after he pepper sprayed two young men in the parking lot of his
apartment complex. The jury found Decker not guilty of count 1 and guilty of
count II. It then made a specific finding that Decker had acted in self-defense for
count I. Because Decker succeeded in this self-defense claim, the court
awarded him reasonable attorney fees.
Decker appeals his conviction and the amount of attorney fees awarded.
The State cross appeals the award of fees. Because Decker fails to show any
trial court error or violation of his constitutional rights affecting his trial, we affirm
Decker's conviction. But because Decker did not show that he actually paid or is
legally obligated to pay any fees, the trial court abused its discretion in awarding
him attorney fees. Thus, we reverse the trial court's fee award.
No. 73949-2-1 /2
FACTS
Substantive Facts
On December 20, 2014, Brian Decker, a tenant of an apartment complex,
returned home from work and consumed three or four whiskey drinks. Around
midnight Decker went to the parking lot to smoke. He had a flashlight and a can
of pepper spray in his pockets.
Decker claims he became suspicious when he saw brake lights "go off" at
the end of the parking lot where he had parked his car that night. Due to past
issues with car prowling and vandalism in the parking lot, Decker had concerns
about his own car. So he approached the source of the brake light and shined
his flashlight on that vehicle.
The vehicle belonged to Theodore Chandler. He and Camryne O'Brien
were sitting in it, sharing a cigarette. O'Brien got out and shouted at Decker,
asking what he was doing. Decker walked away without responding. As Decker
walked away, a neighbor drove up and parked her car. Decker told her to call
the police.
Meanwhile, both Chandler and O'Brien tried to leave the parking lot in
their respective vehicles. But Decker stood in the lane that served as the parking
lot's only exit. Although Decker claims he was returning to his apartment, he
admits that he was blocking the exit.
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No. 73949-2-1/ 3
O'Brien got out of his car and approached Decker, yelling at him. Decker
responded by spraying him with pepper spray. O'Brien returned to his car and
tried to drive away over a grass hill but got stuck in the mud.
Decker then sprayed Chandler through the window of Chandler's car.
Chandler got out of his car, hit Decker in the face, and returned to his car. As he
drove away, he crashed into another vehicle.
Both O'Brien and Decker called 911 to report the incident.
The police arrested Decker at the scene.
Procedural Facts
The State started this case by filing an information that charged Decker
with one count of assault in the third degree. The information alleged,
That the defendant BRIAN THOMAS DECKER in King
County, Washington, during a period of time intervening between
December 20, 2014 and December 21, 2014, with criminal
negligence did cause bodily harm to Camryne Jon Obrien [sic] and
Theodore F. Chandler, human beings, by means of a weapon or
other instrument or thing likely to produce bodily harm, to-wit:
pepper spray.
The State also filed a certification for determination of probable cause,
which included a sworn statement by Detective Sergeant Magnan. Based on this
statement, the trial court found probable cause to believe that Decker committed
the charged crime and ordered the court clerk to issue a summons.
On June 12, 2015, the State amended the information to charge two
counts of assault in the third degree, one for O'Brien and one for Chandler. On
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July 13, the day trial was set to begin, the State again amended the information
to add the statement that the two charges "are of the same or similar character,
and.. . are based on the same conduct or a series of acts connected together or
constituting parts of a common scheme or plan."
The jury found Decker not guilty of count I (assaulting O'Brien) and guilty
of count 11 (assaulting Chandler). By special verdict, the jury found that Decker
had proved by a preponderance of the evidence that his use of force against
O'Brien was lawful. Decker submitted an affidavit and demand for attorney fees,
requesting $78,400. The trial court awarded 15 percent of the fees requested.
Decker appeals his conviction and the amount of his attorney fee award.
The State cross appeals the award of any fees.
ANALYSIS
Confrontation Clause
We first consider Decker's claim that the trial court violated his
confrontation clause rights. We review an alleged violation of the confrontation
clause de novo.1
Decker claims that the trial court violated his right to confront a witness
against him when it found probable cause that he committed the charged crime
based on Detective Sergeant Magnan's declaration without giving Decker the
1 State v. Jasper, 174 Wn.2d 96, 108, 271 P.3d 876(2012).
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No. 73949-2-1/5
opportunity to confront the detective at or before trial. The State responds that
(1) Decker waived the issue by not raising it to the trial court and (2)the
confrontation clause does not apply at pretrial hearings. We agree with the
State.
First, Decker waived the confrontation clause issue when he failed to
present it to the trial court. The confrontation clause of the Sixth Amendment
provides a defendant with the right "to be confronted with the witnesses against
him."2 The admission of testimonial hearsay at trial violates this confrontation
right unless the defendant had an earlier opportunity to examine the absent
witness.3 But a defendant must challenge this evidence at or before tria1.4
"[W]hen a defendant's confrontation right is not timely asserted, it is lost."5
Decker contends that the State has the burden of calling Magnan and
providing Decker with the opportunity to cross-examine the detective.6 Decker
reasons that because the law does not require him to call any witness, his failure
to call this witness does not waive his confrontation claim. But the United States
2 U.S. CONST. amend. VI; CONST. art. 1, § 22.
3 Crawford v. Washington, 541 U.S. 36, 54-55, 124 S. Ct. 1354, 158 L. Ed.
2d 177(2004).
4 State v. O'Cain, 169 Wn. App. 228, 241, 279 P.3d 926 (2012).
5 O'Cain, 169 Wn. App. at 240 (discussing Melendez-Diaz v.
Massachusetts, 557 U.S. 305,129 S. Ct. 2527, 174 L. Ed. 2d 314 (2009)).
6 See 5C KARL B. TEGLAND, WASHINGTON PRACTICE: EVIDENCE UM AND
PRACTICE § 1300.19, at 528 (6th ed. 2016)("The State cannot avoid its duty [to
produce a declarant for cross-examination at trial] by simply telling the defendant
to call the declarant as an adverse witness.").
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No. 73949-2-1 /6
Supreme Court has said "the defendant always has the burden of raising his
Confrontation Clause objection."7 And as this court has noted, "'[a]lways' means
always. It means every time. It means without exception. And it means always,
every time, without exception, in the trial court."8 Decker did not raise a
confrontation clause issue to the trial court; thus, he waived that right.
Second, Decker's claim fails because the confrontation clause does not
apply to the trial court's probable cause decision. We have previously decided
that the confrontation clause and Crawford v. Washington9 apply only to
evidence presented at tria1.10 Decker cites no authority supporting his position,
so we assume that he has none. And an overwhelming majority of state courts
7 Melendez-Diaz, 557 U.S. at 327.
8 O'Cain, 169 Wn. App. at 239.
9 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177(2004).
10 See State v. Fortun-Cebada, 158 Wn. App. 158, 172-73, 241 P.3d 800
(2010) (noting that "nothing in Crawford suggests that the Supreme Court
intended to change its prior decisions allowing the admission of hearsay at
pretrial proceedings, such as a suppression hearing. See McCray v. Illinois, 386
U.S. 300, 311-13, 87 S. Ct. 1056, 18 L. Ed. 2d 62(1967)(no confrontation clause
violation where defendant was denied the chance to discover an informant's
name at pretrial hearing); see also Pennsylvania v. Ritchie, 480 U.S. 39, 52, 54
n.10, 107 S. Ct. 989, 94 L. Ed. 2d 40 (1987) (plurality opinion) (Noting that to
accept a broader interpretation would transform the confrontation clause into a
constitutionally compelled rule of discovery and further recognizing the Court
"normally has refused to find a Sixth Amendment violation when the asserted
interference with cross-examination did not occur at trial."); California v. Green,
399 U.S. 149, 157, 90 S. Ct. 1930; 26 L. Ed. 2d 489 (1970)("it is this literal right
to 'confront' the witness at the time of trial that forms the core of the values
furthered by the Confrontation Clause"); Barber v. Page, 390 U.S. 719, 725, 88
S. Ct. 1318, 20 L. Ed. 2d 255(1968)("The right to confrontation is basically a trial
right.")).
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No. 73949-2-1 /7
have decided that Crawford does not apply to preliminary hearings.11 The trial
court did not violate Decker's confrontation rights.
Decker waived any confrontation clause claim by not objecting to the trial
court. Even if he had objected, he identifies no violation of his right to
confrontation. His confrontation clause claim fails.
Probable Cause Determination
Decker also challenges the trial court's probable cause finding. He claims
that the State's probable cause statement establishes self-defense. Thus, he
reasons, the probable cause statement itself defeats the State's case against
him. We disagree.
First, evidence of self-defense in a probable cause statement does not
diminish evidence of probable cause.12 Division Two dealt with a similar
challenge in McBride v. Walla Walla County.13 There, McBride sued the county
for an alleged violation of his civil rights, claiming that the county did not have
probable cause to arrest him "because the uncontroverted facts, known to the
officer, established self-defense."14 The court rejected McBride's claim,
11 Fortun-Cebada, 158 Wn. App. at 173 (observing that "[t]he
overwhelming majority of state courts that have addressed the question of
whether Crawford applies to a preliminary hearing such as a motion to suppress
have also held that the right of confrontation is not implicated").
12 McBride v. Walla Walla County, 95 Wn. App. 33, 40, 975 P.2d 1029
(1999).
13 95 Wn. App. 33, 40, 975 P.2d 1029 (1999).
14 McBride, 95 Wn. App. at 35-36, 40.
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No. 73949-2-1 /8
observing that the arresting officer does not decide whether a defendant has
acted in self-defense: "Self-defense is an affirmative defense which can be
asserted to render an otherwise unlawful act lawful. But the arresting officer
does not make this determination. The officer is not judge or jury; he does not
decide if the legal standard for self-defense is met."15 Like in McBride, when the
court made its probable cause determination, Decker's claim of self-defense
"was then a mere assertion, not faCt."16
*Further, Decker's claim fails because the probable cause statement alone
does not describe sufficient facts to support a self-defense claim. A prima facie
showing of self-defense requires evidence of a confrontation, not instigated by
the defendant, which would induce a reasonable person to believe he was in
imminent danger of great bodily harm.17 This requires the defendant to show that
he had a reasonable apprehension of great bodily harm.15 Here, the probable
cause statement says O'Brien "confronted" Decker but includes no information
about Decker's state of mind when the confrontation took place. Moreover, while
the probable cause certification states that O'Brien "confronted" Decker, it
contains no statement about Chandler confronting Decker. The jury convicted
15 McBride, 95 Wn. App. at 40.
16 McBride, 95 Wn. App. at 40.
17 State v. Walker, 40 Wn. App. 658, 662, 700 P.2d 1168 (1985).
18 State v. Walker, 136 Wn.2d 767, 772, 966 P.2d 883(1998).
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No. 73949-2-1 / 9
Decker of assaulting only Chandler. The probable cause statement provides
insufficient facts to support a self-defense claim for either count.
For these reasons, Decker's challenge to the trial court's probable cause
decision fails.
Amended Information
We next consider Decker's challenge to the trial court's decisions that
permitted the State to amend the information on the first day of trial and denied
his request for a continuance. We review each of these decisions for abuse of
discretion.19
The trial court may permit the State to amend the information any time
before verdict or finding if the substantial rights of the defendant are not
prejudiced or the amendment is one of mere form, not substance.2° "The
defendant has the burden of showing specific prejudice to a substantial right."21
A defendant might be prejudiced if the amendment leaves him without adequate
time to prepare a defense to the charge.22 In State v. Purdom,23 for example, the
19 State v. Purdom, 106 Wn.2d 745, 748, 725 P.2d 622 (1986) ("The
decision on a motion for a continuance rests within the sound discretion of the
trial court"); State v. Schaffer, 120 Wn.2d 616, 621-22, 845 P.2d 281 (1993)
(reviewing the trial court's decision on a motion to amend the information for
abuse of discretion).
29 CrR 2.1(d); State v. Allyn, 40 Wn. App. 27, 35, 696 P.2d 45(1985).
21 State v. Thompson,60 Wn. App. 662, 666, 806 P.2d 1251 (1991). •
22 Purdom, 106 Wn.2d at 749.
23 106 Wn.2d 745, 746, 725 P.2d 622(1986).
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No. 73949-2-1 / 10
State originally charged the defendant with conspiracy to deliver a controlled
substance. But on the first day of trial, the State amended the information,
replacing the conspiracy charge with an accomplice charge.24 Our Supreme
Court concluded that the trial court should have granted the defense's request for
a continuance to prepare to defend against this new charge.25
By contrast, in cases where the amendment was not material, courts have
properly allowed the State to amend the information while denying the defense's
continuance request.26 For example, in State v. Schaffer,27 the court correctly
permitted a midtrial amendment that added an additional theory of criminal
liability when the defendant was aware that the State might pursue that theory
before the amendment, the theory arose from the same general factual
circumstance, and the defendant had the opportunity to cross-examine the key
witness with full knowledge of the proposed amendment.
Here, like in Schaffer, the State's amendment is not material and did not
prejudice Decker. The State sought merely to add joinder language so that the
two counts could be tried together. It did not add additional charges or even
24 Purdom, 106 Wn.2d at 746.
25 Purdom, 106 Wn.2d at 749.
26 See Schaffer, 120 Wn.2d 621-22; Allyn, 40 Wn. App. at 35.
27 120 Wn.2d 616, 622, 845 P.2d 281 (1993).
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No. 73949-2-1/ 11
additional facts. So Decker has not shown that he was "'misled or surprised" by
this amendment.28
Because Decker does not show prejudice to any substantial right, the trial
court did not abuse its discretion in permitting the amendment and denying the
continuance.
Defense of Property Jury Instruction
Next, we consider Decker's challenge to the trial court's refusal to give his
proposed jury instruction on defense of property based on insufficient evidence to
support the defense. When a trial court refuses to give a jury instruction based
on lack of evidence supporting an affirmative defense, this court reviews that
decision de novo.29
A defendant is entitled to a jury instruction on his theory of the case if
some evidence supports each element of that theory.3° Therefore, to have the
jury instructed on defense of property, some evidence must support the
conclusion that Decker used force ,in an attempt to prevent malicious trespass or
malicious interference with real or personal property lawfully in his possession.31
Here, the evidence is insufficient to show defense of property.
28 Schaffer, 120 Wn.2d at 622 (quoting State v. Mahmood, 45 Wn. App.
200, 205, 724 P.2d 1021 (1986)).
29 State v. Fisher, 185 Wn.2d 836, 849, 374 P.3d 1185 (2016).
30 Fisher, 185 Wn.2d at 848-49.
31 RCW 9A.16.020(3).
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No. 73949-2-1/12
First, no evidence shows "malicious trespass." "Malice" is "an evil intent,
wish, or design to vex, annoy, or injure another person."32 Nothing suggests that
Chandler and O'Brien had a malicious intent or were doing anything but minding
their own business. Further, no evidence shows that Chandler and O'Brien did
not have the right to be in the parking lot.33
Second, no evidence shows that Decker used force to protect his
property. Although Decker claims he initially approached Chandler and O'Brien
out of concern for his car, by the time he used the pepper spray, he was walking
away and claims to have pepper-sprayed O'Brien in response to being
threatened.
Because the record includes no evidence of malicious trespass or that
Decker acted in defense of property lawfully in his possession, insufficient
evidence supports these elements of his defense of property theory. The trial
court correctly declined to give a jury instruction on defense of property.
Discovery Violations
Next, Decker claims that the State committed discovery violations.
Discovery decisions are within the sound discretion of the trial court.34 Appellate
32 RCW 9A.04.110(12). ,
33 State v. Rose, 128 Wn.2d 388, 393, 909 P.2d 280 (1996) (observing
that access routes are impliedly open to the public).
34 State v. Hutchinson, 135 Wn.2d 863, 882, 959 P.2d 1061 (1998).
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No. 73949-2-1 /13
courts will not disturb a trial court's discovery decision absent manifest abuse of
that discretion.35
First, Decker claims that the State's failure to turn over evidence in
response to Decker's discovery requests forced him to waive his speedy trial
rights.
[1]f the State inexcusably fails to act with due diligence, and material
facts are thereby not disclosed to defendant until shortly before a
crucial stage in the litigation process, it is possible either a
defendant's right to a speedy trial, or his right to be represented by
counsel who has had sufficient opportunity to adequately prepare a
material part of his defense, may be impermissibly prejudiced.1361
But the defendant "must prove . by a preponderance of the evidence that
interjection of new facts into the case when the State has not acted with due
diligence will compel him to choose between prejudicing either of these rights."37
Decker's briefing does not identify what evidence the State failed to turn over or
how the State did not act with due diligence. Because Decker did not adequately
brief this challenge, we decline to consider it.
Decker also claims the State failed to provide information about
statements that witnesses made to the prosecution. Decker asked the trial court
to exclude the testimony of witnesses with whom the State had contact, but the
court refused. CrR 4.7 requires the prosecution to disclose "any written or
36 State v. Blackwell, 120 Wn.2d 822, 826, 845 P.2d 1017(1993).
36 State v. Price, 94 Wn.2d 810, 814,620 P.2d 994 (1980).
37 Price, 94 Wn.2d at 814.
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No. 73949-2-1 / 14
recorded statements and the substance of any oral statements" of witnesses the
prosecuting attorney intends to cal1.38 The prosecutor admitted that she spoke
with the witnesses in the case before trial, but she said that those conversations
were about scheduling and she did not talk with any witness about the facts of
the case. Decker's counsel asked ieveral witnesses about their contact with the
prosecutor but did not establish that they discussed anything of substance.
Because Decker does not show that the State failed to turn over any substantive
statements by witnesses, we find no error.
We also find no merit in Decker's claims about witness coaching. Citing to
the witness tampering statute,39 Decker contends that the trial court should have
dismissed the charges against him because the State coached witnesses.
Specifically, he objects to the State telling O'Brien "not to bring up his prior
criminal history no matter what." However, the prosecutor's direction was
consistent with the trial court's evidentiary rulings. Pretrial, the court had granted
the State's motion to exclude evidence of O'Brien's criminal history. "It is the
duty of every trial advocate to prepare witnesses for friar° We find that it was
not improper for the prosecutor to direct O'Brien to avoid inadmissible testimony.
38 CrR 4.7(a)(1)(ii).
RCW 9A.72.120.
40 State v. Montgomery, 163 Wn.2d 577, 592, 183 P.3d 267(2008).
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No. 73949-2-1 / 15
Statement of Additional Grounds for Review
Decker raises several pro se arguments.
First, Decker has not provided a sufficient record to permit review of his
claims about the admissibility of 911 calls or O'Brien's deposition testimony
because the record does not contain transcripts of the calls and testimony.'"
Similarly, we cannot review Decker's claim that the State committed a Brady
violation42 by failing to turn over Corporal Kramp's police report sooner. To
establish a Brady violation, the defendant must show (1)the evidence is
favorable to him or her because it is either exculpatory or impeaching, (2)the
evidence was willfully or inadvertently suppressed by the State, and (3) the
evidence is materia1.43 Because the report is not part of the record, we cannot
decide whether the report was material or exculpatory.
Because the court does not have an adequate record to review these
issues, we do not consider them." Decker's remaining pro se arguments have
no merit.
41 The transcripts of the 911 calls were attached to Decker's statement of
additional grounds for review but are not included in the clerk's papers. "Only
documents that are contained in the record on review should be attached or
referred to in the statement." RAP 10.10(c).
42 Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215
(1963).
43 State v. Davila, 184 Wn.2d 55, 69, 357 P.3d 636 (2015).
44 Decker also asserts a claim about the propriety of the deputy
prosecuting attorney's presence at his citizen's complaint hearing. The basis of
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No. 73949-2-1/ 16
CrR 3.5 Hearing
Decker challenges the court's finding after a CrR 3.5 hearing that he was
not in custody when he made certain statements to the police and its decision to
admit those statements as evidence at trial. This court reviews challenged
findings of fact entered after a CrR 3.5 hearing for substantial evidence and
reviews de novo whether the trial court's conclusions of law are supported by its
findings of fact.45 Appellate courts treat "unchallenged findings of fact and
findings of fact supported by substantial evidence as verities on appeal."46
When an officer briefly detains a suspect during an investigatory stop, the
suspect is not in custody for purposes of Miranda warnings.47 Courts consider
three factors to determine whether an intrusion is permissible: "(1) the purpose
of the stop; (2) the amount of physical intrusion upon the suspect's liberty; and
(3) the length of time the suspect is detained."48 Applying these factors,
substantial evidence supports the trial court finding that Decker was not in
custody.
this claim is unclear, and the record contains no evidence about this hearing.
Whatever Decker's claim is, it is unreviewable.
45 State v. Rosas-Miranda, 176 Wn. App. 773, 779, 309 P.3d 728 (2013).
46 State v. Homan, 181 Wn.2d 102, 106, 330 P.3d 182(2014).
47 Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694
(1966); State v. Marcum, 149 Wn. App. 894, 909-10, 205 P.3d 969(2009).
48 State v. Wheeler, 108 Wn.2d 230, 235, 737 P.2d 1005 (1987).
' -16-
No. 73949-2-1 / 17
First, the purpose of the stop justified the intrusion in this case. "The
purpose of a stop must be related to an investigation focused on the
defendant."49 Here, the police believed that a crime had been committed and
that the crime involved pepper spray. Thus, the investigatory stop had two
purposes: to identify the suspect and to ensure officer safety.
Second, the degree of intrusion was not disproportionate under the
circumstances. "[T]he degree of intrusion must also be appropriate to the type of
crime under investigation and to the probable dangerousness of the suspect."5°
In State v. Wheeler,51 for example, officers handcuffed a suspect and placed him
in a patrol car to drive him two blocks back to the crime scene for a witness
identification. Although the intrusion in Wheeler was "'significant," it was not
excessive.52 Similarly here, although Decker was handcuffed, the intrusion was
an appropriate action to take when investigating an assault.
Finally, at 10 to 15 minutes, the length of the intrusion was brief.53
Substantial evidence supports the trial court's conclusion that Decker was
not in custody.
49 Wheeler, 108 Wn.2d at 235.
5° Wheeler, 108 Wn.2d at 235.
51 108 Wn.2d 230, 233, 737 P.2d 1005 (1987).
52 Wheeler, 108 Wn.2d at 235.
53 The trial court's findings of fact do not contain information about the
length of the stop, but it made a finding that "Corporal Herzog, Corporal Kramp,
and Officer Derr are credible," and Corporal Kramp estimated that the length of
the investigatory stop was 10 to 15 minutes.
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No. 73949-2-1 / 18
Exclusion ofImpeachment Evidence
Decker also appeals the trial court's decision to exclude an edited video of
his arrest. The trial court has broad discretion in deciding whether to admit or
exclude evidence.54 In addition, "the trial court... has discretion to control the
scope of cross-examination and may reject lines of questions that only remotely
tend to show bias or prejudice."55
Decker sought to introduce an edited video to impeach Corporal Herzog.
Decker claims that the video contradicts Corporal Herzog's testimony at the CrR
3.5 hearing that he had read Decker his Miranda rights. Decker's counsel
indicated an intention to examine Corporal Herzog about the statements made at
the 3.5 hearing and then introduce the video as impeachment evidence. The
court decided not to allow cross-examination about what happened at a CrR 3.5
hearing or impeachment of the CrR 3.5 hearing testimony. Decker does not
show that these decisions were wrong.
ER 607 permits any party to attack the credibility of a witness. But a
witness cannot be impeached on Matters collateral to the principal issues being
tried.56 A "matter is collateral if the evidence is inadmissible for any purpose
independent of the contradiction."57 The question of whether Corporal Herzog
54 State v. Lubers, 81 Wn. App. 614, 623, 915 P.2d 1157 (1996).
55 State v. Kilgore, 107 Wn. App. 160, 185, 26 P.3d 308 (2001).
56 State v. Dickenson, 48 Wn. App. 457, 468, 740 P.2d 312(1987).
57 Dickenson, 48 Wn. App. at 468.
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No. 73949-2-1 / 19
read Decker his Miranda rights is collateral to the central issues because (a) it is
not a question for the jury and (b) Decker's counsel admitted that he was not
bringing it up to question Miranda.58 The trial court did not abuse its discretion in
excluding the edited video or preventing Decker from attacking Corporal
Herzog's credibility this way.
Attorney Fees
Finally, we consider whether the trial court abused its discretion when it
decided to award 15 percent of the attorney fees Decker requested under
RCW 9A.16.110. This court reviews an interpretation of RCW 9A.16.110 de
novo but reviews a determination of the amount of an award for abuse of
discretion.58 A trial court abuses its discretion when it makes a manifestly
unreasonable decision or bases its decision on untenable grounds or reasons.8°
A court bases its decision on untenable grounds or reasons when it applies the
wrong legal standard or relies on unsupported facts.81
55 The trial court must make a preliminary determination of the
admissibility of a confession or statement. State v. Rice, 24 Wn. App. 562, 565,
603 P.2d 835(1979).
69 State v. Villanueva, 177 Wn. App. 251, 254 & n.1, 311 P.3d 79 (2013);
McGreevy v. Or. Mut. Ins. Co., 90 Wn. App. 283, 289, 951 P.2d 798 (1998),
overruled on other grounds by Panorama Vill. Condo. Owners Ass'n Bd. of Dirs.
v. Allstate Ins. Co., 144 Wn.2d 130, 26 P.3d 910(2001).
69 State v. Cavetano-Jaimes, 190 Wn. App. 286, 295, 359 P.3d 919
(2015).
61 Cayetano-Jaimes, 190 Wn. App. at 295.
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No. 73949-2-1/ 20
Decker seeks to recover fees for the entire trial. The State claims that the
trial court erred in awarding any fees. We agree with the State.
RCW 9A.16.110 permits a criminal defendant to recover attorney fees
from the State when the jury finds by a preponderance of the evidence that the
defendant acted in self-defense:
When a person charged with [assault] is found not guilty by reason
of self-defense, the state of Washington shall reimburse the
defendant for all reasonable costs, including loss of time, legal fees
incurred, and other expenses involved in his or her defense. ... To
award these reasonable costs the trier of fact must find that the
defendant's claim of self-defense was sustained by a
preponderance of the evidence. If the trier of fact makes a
determination of self-defense, the judge shall determine the amount
of the award.[62]
A defendant has the burden of proving the facts necessary to support a statutory
reimbursement claim.63 First, he must prove two events: (1)that a jury acquitted
and (2) that the same jury found by a preponderance of the evidence that he
acted in self-defense.64 The defendant must then show that he incurred fees to
establish self-defense.65
Here, Decker's demand for attorney fees presented a lodestar
calculation66 to show a reasonable amount of fees for litigating the entire case.
62 RCW 9A.16.110(2).
63 State v. Anderson, 72 Wn. App. 253, 260, 863 P.2d 1370 (1993).
64 State v. Jones, 92 Wn. App. 555, 561, 964 P.2d 398 (1998).
65 Anderson, 72 Wn. App. at 260.
66 Mahler v. Szucs, 135 Wn.2d 398, 433-34, 957 P.2d 632(1998).
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No. 73949-2-1 / 21
Decker does not challenge the trial court finding that he presented no evidence of
legal fees he had paid or legal fees he owes but has not paid. The trial court
decided that Decker was entitled only to fees incurred in his defense of count 1,
the charge for which he was acquitted. Because Decker did not provide any
information about the actual fees he incurred, the court said it "must attempt to
ascertain a reasonable award from the information provided." It awarded 15
percent of the total requested.
First, the trial court erred in concluding that its duty was to "ascertain a
reasonable award." In State v. Anderson,67 Division Two held that
"RCW 9A.16.110 is an indemnification-reimbursement statute" and not a
reasonable attorney fee statute. In other words, the State must reimburse
Decker for legal fees that he has already paid and indemnify him for fees that he
has become legally obligated to pay in the future "pursuant to an enforceable
contract,"68 subject to the limitation that amount is reasonable. A trial court may
award reasonable fees only after the defendant has shown that he actually paid
fees or is legally obligated to pay fees. Decker admits that he did not meet this
burden.68
67 72 Wn. App. 253, 263, 863 P.2d 1370 (1993).
68 Anderson, 72 Wn. App. at 263-64.
69 Contra Jones, 92 Wn. App. at 559-60 (where the defendant provided
the court with bills he had received from law firms who defended him and one
attorney submitted an affidavit ,stating that Jones had paid him $1,000);
Anderson, 72 Wn. App. at 257 (where the trial court had entered findings of fact
-21-
No. 73949-2-1/ 22
The trial court abused its discretion in awarding fees that Decker had not
shown that he paid or was legally obligated to pay. We reverse the trial court's
award. As a result, we need not consider the reasonableness of the fee amount
awarded.
CONCLUSION
We affirm in part and reverse in part. Because Decker's arguments fail,
we affirm his conviction. But because Decker did not show that he actually paid
any legal fees or is legally obligated to pay his privately retained counsel any
fees, the trial court abused its discretion in awarding statutory fees. Accordingly,
we reverse the trial court's award of fees.
WE CONCUR:
that one of the two appellants had been billed by his defense attorneys and had
partially paid that bill).
-22-
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154 U.S. 645
14 S.Ct. 1187
24 L.Ed. 1103
DOLDv.UNITED STATES.
No. 955.
December 23, 1878.
Mr. Chief Justice WAITE delivered the opinion of the court.
1
The facts found below present the following case:
2
In October, 1864, the chief commissary of subsistence for the military department of New Mexico advertised that he would receive proposals at his office in Santa Fe, until January 2, 1865, for the delivery of 1,000,000 pounds of corn at Ft. Sumner in three installments, to wit, 500,000 pounds not later than May 31st, 250,000 pounds not later than June 30th, and 250,000 pounds not later than July 15th. Dold, the appellant, then being at Las Vegas, N. W., was the successful bidder. He was notified January 15th, and, on the 30th, C. W. Kitchen wrote the commissary from Las Vegas as follows: 'My corn train is now close at hand. Would you have the kindness, if convenient, to authorize the A. C. S. at Fort Sumner to receive corn on Andres Dold's contract? I will have about 85,000 pounds, I think, which I will get an order from Mr. Dold to turn in on his contract.' On the 5th February the commissary replied that he could not give an order to Dold to deliver, or to the acting commissary to receive, until the contracts were signed and approved by the general, commanding. On the same day the commissary forwarded the contract from his office to the commanding general for approval. On the next day, the 6th, he wrote Kitchen, who was one of the sureties for Dold on the contract, as follows:
3
'I am just in receipt of the contract signed by Andres Dold and securities. Your proposition on behalf of Andres Dold to deliver 85,000 pounds which you now have on hand, on his (Dold's) contract, is accepted. You will proceed to deliver it without delay. The A. C. S. at Fort Sumner will be directed to receive it.'
4
After this, February 18th, Kitchen delivered to the officers of the commissary department at Ft. Sumner 28,747 pounds, and, February 24th, 34,580 pounds, for which the chief commissary forwarded to the commanding general, March 24th, accounts or vouchers in the name of Dold, for his approval. In a communication accompanying the accounts, he wrote as follows:
5
'This corn, delivered on the contract of Mr. Dold, was, as I was made to understand from a statement made to me by Mr. Dold, brought from the states by Mr. C. W. Kitchen, and was en route from the states before the contract was given. Mr. Kitchen himself told me, when the bids were opened in my office, that his train from the states with corn was within striking distance, which would account for the early delivery.'
6
The commanding general, however, disapproved the vouchers, and directed that the delivery be not accepted under the contract. The corn was actually used in the public service, and in March reported by the commissary who made the purchase to the commissary general of subsistence of the army, as purchased from Dold at the lowest market rates, not paid for, but certified accounts given. The price stated in the report was that fixed by Dold's contract.
7
No deliveries were made by Dold until July 16th, when he delivered 407,561 pounds. On the 22d July, the commanding general from his headquarters at Santa Fe, through the chief commissary at the same post, communicated to Kitchen the fact that he withheld his approval of the accounts for his deliveries, and at the same time proposed to pay him for the corn at the price it could have been purchased for at the time of delivery in the open market. On the 23d a voucher for this corn was made out, in the name of Kitchen, 'as purchased in open market, by order of the department commander,' at 16.37 cents per pound, and Kitchen was paid at that rate, he receipting therefor 'as in full of the above account.' On the same day, Dold addressed a letter to the chief commissary, in which he said he had just received information that the Kitchen delivery would not be accepted on his contract, and concluding as follows:
8
'Having made my arrangements for the delivery of the million of pounds of corn, including the 63,327 pounds, if I am required now to deliver the million pounds exclusive of the 63,327 pounds referred to, I most respectfully ask for an extension of time for the delivery of said amount until some time in the coming fall.'
9
On the 29th July, this request was acceded to, and the time extended to November 15th.
10
On the 25th and 31st July, deliveries were made by Dold sufficient to complete the first installment under the contract; the second installment was filled between July 31st and August 28th; and, between August 21st and December 30th, 240,545 pounds were turned in on account of the third installment. There was no further delivery, and, for such as were made, Dold was paid in full according to the contract.
11
When Kitchen was paid upon the vouchers in his favor, July 23d, it was understood that an appeal might be made to the war department for the difference between the amount paid and the contract price. An appeal to that effect was prosecuted April 8, 1866, but without success.
12
This suit was commenced February 16, 1871, to recover such difference; and, judgment having been rendered in favor of the United States, Dold appealed.
13
A bare statement of the case seems to us sufficient to show that the judgment below was right. It is not pretended that Dold owned the corn delivered by Kitchen, or that he has been in any manner injured by the refusal of the commanding general to receive it under the contract. If this were a suit against him to recover damages for not delivering, and he were defending because of the tender by Kitchen, the question would be whether that was such an offer to perform on his part as would excuse him from liability for a failure to deliver to that extent.
14
But, instead of being such a suit, it is one to recover for a delivery actually made under the contract. To this the government answers:
15
'The corn for which you now claim was not accepted as a delivery under the contract. You were so informed at the time, and, acquiescing in the decision, asked further time to complete your performance. This was granted. Your other deliveries have been made and accepted, and you have been paid in full. Kitchen, who actually owned the corn not accepted, has been paid for it at the market price upon a voucher in his name. He cannot claim under the contract, for he was no party to it, and you cannot complain, because, acquiescing in the refusal to accept his corn, you have performed your contract in another way, and been paid in full.'
16
It seems to us this answer is conclusive. We need not consider any question arising upon the exclusion of Kitchen as a witness, which the appellant has attempted to put into the record; for, had his testimony all been admitted, the result must have been the same. Dold did not stand on his rights under the tender of Kitchen's delivery and refuse to yield to the decisions made against him, but went on and fulfilled his contract in accordance with the claim of the government as to his obligation, and now, apparently for Kitchen's benefit alone, seeks to compel the government to pay for Kitchen's corn at the contract price, instead of the market rates.
17
Judgment affirmed.
18
Harvey Spalding, for appellant.
19
The Attorney General and the Solicitor General, for the United States.
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736 S.W.2d 277 (1987)
Ex parte George Joseph OLIVER.
No. 2-87-090-CV.
Court of Appeals of Texas, Fort Worth.
September 10, 1987.
George Joseph Oliver, pro se.
Barlow, Garsek & Bowers and Dwayne Hoover, Fort Worth, for appellee.
Before JOE SPURLOCK, II, HILL and FARRIS, JJ.
*278 OPINION
HILL, Justice.
Relator, George Joseph Oliver, brings us this application for writ of habeas corpus, complaining that he is being unlawfully confined in the Tarrant County jail pursuant to findings that he was in contempt of court for his failure to make payments of temporary support pursuant to temporary orders and pursuant to his final divorce decree, pending appeal. He contends that the trial court erred in finding him guilty of contempt for failing to make payments on April 25, 1987, a date not specifically alleged in the motion for contempt; that he could not be punished for contempt because thirty days had not elapsed from the date the April 25, 1987 payment was due until the motion for contempt was filed; that he could not be found in violation of temporary orders entered April 24, 1986, because they were superseded by the final decree of December 17, 1986; that temporary orders contained in the final divorce decree are unenforceable because they were not entered in accordance with TEX. FAM.CODE ANN. secs. 3.58(h) and 3.59 (Vernon Supp.1987); and that the presumption of his ability to pay constitutes a violation of his right to due process of law.
We reject the majority of Oliver's contentions and order him remanded to the custody of the Tarrant County Sheriff.
Oliver's first contention is that the trial court erred by finding him guilty of contempt for failing to make payments on April 25, 1987, a date not specifically alleged in the motion for contempt. He does not complain that he did not receive notice of the specifically alleged violation of March 25, 1987.
A motion for contempt is comparable to an indictment or information and complaint charging several different misdemeanors. Ex parte Loreant, 464 S.W.2d 223, 224 (Tex.Civ.App.Houston [1st Dist.] 1971, no writ). Punishment for more than one act of contempt is possible in one proceeding only if the motion for contempt sets out specifically distinct and separate violations of the order. Id.
In the case at bar, the motion for contempt alleges the following:
Respondent has disobeyed the Order and Decree as follows: Respondent failed to pay the required temporary support for March 25, 1987. If Respondent fails to make any other payment for temporary support before the time the Court considers this Motion for Contempt, then the Court should also consider any such failure as a separate act of Contempt.
The motion for contempt was heard on May 4, 1987. The Court found Oliver to be in contempt for failing to make temporary support payments on March 25, 1987 and April 25, 1987, as previously ordered by the court. The court assessed his punishment for the first violation at ten days confinement in the Tarrant County jail and until $300 arrearage is paid. Punishment for the second violation was assessed at 20 days confinement in the Tarrant County jail and until $750 arrearage is paid.
The court could not proceed to find Oliver in contempt for failing to make the April 25, 1987 payment, since the motion for contempt did not, in a manner comparable to a criminal information, allege specifically and distinctly that Oliver failed to make the April 25, 1987 payment. We also note that a criminal defendant in a misdemeanor case may not be convicted of an offense which occurs subsequent to the date of the filing of the information. Walker v. State, 133 Tex.Cr.R. 300, 110 S.W.2d 578, 579-80 (1937). We have previously held that contempt proceedings are quasi-criminal proceedings which should conform as nearly as practicable to proceedings in criminal cases. Ex parte Byram, 662 S.W.2d 147 (Tex.App.Fort Worth 1983, no writ). We therefore find that the trial court was without authority to find Oliver in contempt for failing to make a payment on April 25, 1987, a charge which was not specifically and distinctly alleged in the motion for contempt, and a charge for a violation of contempt *279 which would have occurred subsequent to the filing of the motion for contempt.
We note, however, that Oliver has not fully satisifed the terms of punishment for his failure to pay support on March 25, 1987. We must therefore consider his remaining assertions.
Oliver asserts that he could not be held in contempt for the violation of temporary orders of spousal support in view of a subsequent decree of divorce, even though the support order is incorporated and made a part of the divorce decree. He asserts that the trial court's failure to make its order, in accordance with section 3.58(h) of the Family Code, after he had perfected his appeal, makes the order a legal nullity and not enforceable.
Section 3.58(h) of the Family Code was adopted in 1985. It allows the trial court, within thirty days after an appeal has been perfected, after notice and hearing, to order spousal support pending the appeal.
Prior to the adoption of section 3.58(h), it had been held that the trial court had the authority to order the payment of alimony pending appeal, but that such a provision must be included in the divorce decree. Trevino v. Trevino, 555 S.W.2d 792, 800 (Tex.Civ.App.Corpus Christi 1977, no writ).
It appears, then, that the purpose of the adoption of section 3.58(h) was to extend the authority of the trial court to order support after an appeal had been perfected, when such support had not been ordered in the original decree. We find no indication that the section was intended to deprive the trial court of its recognized authority to order, in the divorce decree, temporary support pending appeal.
Oliver argues that his due process rights were violated by placing the burden on him to show his inability to pay support. He is correct in his assertion that it has been held that involuntary inability to pay is a defensive matter on which the alleged contemner has the burden of proof. Ex parte Padfield, 154 Tex. 253, 276 S.W.2d 247, 251 (1955); Ex parte Burroughs, 687 S.W.2d 444, 446 (Tex.App.Houston [14th Dist.] 1985, no writ). Such a rule does not violate the contemner's due process rights. Ex parte Mclntyre, 730 S.W.2d 411, 417 (Tex.App.San Antonio 1987, no writ); see also Ex parte Wilbanks, 722 S.W.2d 221, 226 (Tex.App.Amarillo 1986, no writ).
Oliver relies on the opinion of the Texas Court of Criminal Appeals in Lowry v. State, 692 S.W.2d 86 (Tex.Crim.App.1985) and the opinion of the San Antonio Court of Appeals in Ex parte Lopez, 710 S.W.2d 948 (Tex.App.San Antonio 1986, no writ). Lowry involved a prosecution for criminal nonsupport, an offense which includes ability to pay as an element of the offense. This case involves a contempt proceeding in which the accused's ability to pay is not an element of the offense. Ex parte Wilbanks, 722 S.W.2d at 226. In Lopez, the San Antonio court had held that placing the burden of proof on a contemner to prove his inability to pay violates his due process rights. Ex parte Lopez, 710 S.W.2d at 955-56. The San Antonio Court of Appeals has subsequently overruled Lopez on the point raised by Oliver. Ex parte Mclntyre, 730 S.W.2d at 417.
Finally, Oliver argues that he cannot be found in contempt or assessed punishment for contempt if he is not at least thirty days in arrears in his payments. He cites no authority for his position and we are not aware of any.
Since we have found that the judgment and sentence for contempt for relator's failure to make the temporary support payment of March 25, 1987, has not been shown to be void, the habeas corpus relief sought must be denied, even though we have sustained relator's position as to his sentence for the failure to make the April 25, 1987 payment. The relator, George Joseph Oliver, is remanded to the custody of the sheriff of Tarrant County to serve the remainder of the ten days confinement assessed for his failure to comply with the *280 court's order to pay support on March 25, 1987; and he shall thereafter be confined until he has paid $300 to movant, through movant's attorney, Dwayne Hoover, or his designated agent at his office at 3815 Lisbon Street, Fort Worth, Tarrant County, Texas 76107, as temporary support arrearage through March 25, 1987; and he shall be further confined until he has paid $613 as costs of this proceeding to the attorney for movant, Dwayne Hoover, or his designated agent, at his office at 3815 Lisbon Street, Fort Worth, Tarrant County, Texas 76107.
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653 S.W.2d 28 (1983)
Joseph Randall LANDRY, Appellant,
v.
The STATE of Texas, Appellee.
No. 68725.
Court of Criminal Appeals of Texas, En Banc.
June 29, 1983.
Robert A. Heath, Houston, for appellant.
John B. Holmes, Jr., Dist. Atty., Ray Elvin Speece and Charles M. Hinton, Asst. *29 Dist. Attys., Houston, Robert Huttash, State's Atty. and Alfred Walker, Asst. States Atty., Austin, for the State.
Before the Court en banc.
OPINION
DALLY, Commissioner.
This is an appeal from a conviction for the offense of burglary of a vehicle; the punishment, which is enhanced by a prior felony conviction, is imprisonment for 12 years.
The appellant asserts that the indictment and the court's charge are fundamentally defective and that the evidence is insufficient to support the verdict.
The appellant's argument that the indictment and the court's charge are fundamentally defective are based on the allegation in the indictment that the appellant did "break and enter" the vehicle and the court's charge which authorized the jury to convict the appellant, if it found he did "break into or enter" the vehicle. The appellant first says the omission of the word "into" following the word "break" renders the indictment defective. He argues that alleging "break .... a vehicle" is not an offense. Then he argues that the court, by using the statutory words "break into" in the charge, authorized a conviction on a theory not charged in the indictment. His related argument is that the court erred in defining the term "break into" rather than defining the word "break," which was the word alleged in the indictment. These three contentions are first made on appeal; there was no motion to quash the indictment and there were no objections to the charge.
The premise for the appellant's argument is that "breaking into" and "entry" are two distinct ways or methods of committing the offense of burglary of a vehicle. For support the appellant relies on Washington v. State, 603 S.W.2d 859 (Tex.Cr.App.1980). There the contention was that "breaking into" and "entry" were two ways or means of committing the offense and that the indictment must allege one of the two methods. The court disagreed with that contention.
V.T.C.A. Penal Code, Section 30.04 uses the term "break into "and "enter" and only defines "enter," but the definition of "enter" is broad enough to include "break into." An allegation that a defendant did "break into" a vehicle is no broader and is actually included within the alleged term "entry" as it is defined in V.T.C.A. Penal Code, Section 30.04. V.T.C.A. Penal Code, Section 30.04 provides:
"(a) A person commits an offense if, without the effective consent of the owner, he breaks into or enters a vehicle or any part of a vehicle with intent to commit any felony or theft.
(b) For purposes of this section, "enter" means to intrude:
(1) any part of the body; or
(2) any physical object connected with the body.
(c) An offense under this section is a felony of the third degree."
"Intrude" is defined by Webster's New International Dictionary, 2d ed., unabridged, "To thrust or force (something) in or upon ... To enter by force; to invade."
Since the definition of the term "entry" in V.T.C.A. Penal Code, Section 30.04 is broad enough to include "breaking into," "enter" and "breaking into" are not two separate ways or methods in which the offense of burglary of a vehicle may be committed; when entry is alleged it includes breaking into. Therefore, the indictment is not fundamentally defective, and the court did not err in defining the term "break into," although it would be unnecessary to submit a definition of the words "break into" since those words are not statutorily defined and they have a common meaning. Adami v. State, 524 S.W.2d 693 (Tex.Cr. App.1975); Hogan v. State, 496 S.W.2d 594 (Tex.Cr.App.1973); Castillo v. State, 411 S.W.2d 741 (Tex.Cr.App.1967).
The appellant complains that the evidence is insufficient to support the judgment and that the court erred in its charge *30 allowing the jury to convict him on the act of another in breaking into a vehicle when appellant was not charged with the criminal responsibility for another's act. The appellant weaves together his argument under these two grounds of error. A brief summary of the facts is necessary to this discussion.
Two Houston Police Officers found a Cadillac automobile, which had been reported stolen, on a parking lot. They inspected the automobile and found it was locked and appeared to be undamaged. The officers drove to a pay telephone to call the owner of the automobile. After their telephone conversation with the owner, they went back to the parking lot. When they approached the automobile the front door on the passenger side was open and there was a man sitting or leaning into the car. The man, who is the appellant, had in his hand some "warranty papers dealing with the ownership of the Cadillac." The other man was returning from a van parked nearby. Both men were arrested. The officers found that the other man was a locksmith who had received an emergency call from a man who said he was Paul Hern. The locksmith went to the address given and the appellant, who came to the door represented himself to be Paul Hern, took the locksmith to the automobile. The locksmith had just opened it with a "quick stick" and was making keys to fit the automobile lock when the officers came back. The owner of the automobile testified he did not give his consent for entry into his automobile. The evidence is amply sufficient to support the verdict. See Simmons v. State, 590 S.W.2d 137 (Tex.Cr.App.1979).
The evidence would support a conviction on the theory that appellant was a party to the offense in that he was acting with the required culpability when he caused an innocent person to engage in conduct prohibited by the definition of the offense denounced in V.T.C.A. Penal Code, Section 30.04. V.T.C.A. Penal Code, Section 7.02(a)(1). The evidence would also support his conviction for his own conduct as he actually entered the automobile without the consent of the owner. The court did not charge the jury on the theory of parties.
The judgment is affirmed.
CLINTON, J., concurs for reasons given in his concurring opinion in Robles v. State, 653 S.W.2d 15 (Tex.Cr.App.1983), decided this day.
ONION, P.J., and MILLER, J., join.
TEAGUE, J., dissents for reasons given in his dissenting opinion in Robles v. State, 653 S.W.2d 15 (Tex.Cr.App.1983), decided this day.
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COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-09-270-CV
JOSHUA LEE PARNELL APPELLANT
V.
JACQUELINE LOIS PARNELL APPELLEE
------------
FROM THE 233RD DISTRICT COURT OF TARRANT COUNTY
------------
MEMORANDUM OPINION
(footnote: 1)
------------
In two points, appellant Joshua Lee Parnell, proceeding pro se, appeals the trial court’s order dismissing his divorce case for want of prosecution. We reverse and remand.
Background Facts
In February 2009, Joshua, who is confined in a prison located in Fort Stockton, filed an original petition for divorce in Tarrant County. The petition alleged, among other facts, that Joshua’s marriage to appellee Jacqueline Lois Parnell has become insupportable because of a conflict of personalities and because Jacqueline gave birth to another man’s child. Service of citation was attempted on Jacqueline by certified mail at the address that Joshua had provided for her in the petition,
(footnote: 2) but the certified letter was returned as unclaimed.
Joshua wrote letters to the district clerk in April and May 2009 stating that he could not appear in person because he is an inmate but requesting that his divorce be finalized through an affidavit. The trial court’s coordinator responded to Joshua’s May letter by informing him that his case was “not ready for prove up as service has not been completed.” Also in May, the trial court issued a document titled “NOTICE OF DISMISSAL FOR THE
233rd
JUDICIAL DISTRICT COURT.” The notice states in part,
In accordance with Rule 165a, the following cases have been placed on a dismissal docket and will be DISMISSED FOR WANT OF PROSECUTION on July 29, 2009 at 9:00 A.M. unless there is good cause for the case to be maintained on the docket, or the case has been tried or otherwise disposed of by order of the court
PRIOR TO THAT DATE.
Failure to appear without excuse will result in the dismissal of the case for want of prosecution or finalization of this matter.
Any subsequent filings after the dismissal notice has been submitted WILL NOT remove the case from dismissal docket.
It will be necessary to contact the Court Coordinator if a case has subsequent filings OR
your case will be dismissed.
The notice, which appellant concedes that he received, then stated in larger font that a “personal appearance is required to remove a case from this dismissal docket” and listed several cases that were scheduled for dismissal, including Joshua’s divorce case.
In June 2009, Joshua filed an unsworn declaration stating that the facts contained in his petition were true, and he also filed a motion asking the court to accept the declaration to support his petition.
(footnote: 3) In an apparent attempt to comply with the trial court’s dismissal notice by contacting the court coordinator, Joshua also sent a letter to the trial court that he titled “APPEARANCE BY MOTION FOR ACCEPTANCE OF AFFIDAVIT OF TESTIMONY.” The letter reads in part as follows:
District Court,
Enclosed find my “MOTION FOR ACCEPTANCE OF AFFIDAVIT OF TESTIMONY” to proceed with my original divorce suit I filed on 2/24/09 . . . .
Presently, I find myself completing my prison term and the Texas Department of Criminal Justice does not bench warrant prisoners to a civil matter/suit[.] [T]he motion affidavit self explains my presence in this suit.
Joshua also filed a proposed final divorce decree and other documents. On July 30, 2009 (five months after Joshua filed his suit and a month after he attempted to appear in the proceeding by his affidavit), the trial court dismissed Joshua’s case for want of prosecution, stating,
After due notice, as required by the rules of civil procedure, the above styled caused [sic] was reached and called for trial on 07/29/2009, in the 233rd District Court, . . . and the respective petitioner failed to appear in person or by attorney and prosecute their cause of action in this case.
THEREFORE, IT IS ORDERED that this cause of action be DISMISSED FOR WANT OF PROSECUTION . . . .
Joshua filed notice of this appeal.
Dismissal for Want of Prosecution
Joshua’s brief contains two related points contending that the trial court erred by dismissing his case. We review a trial court’s dismissal for want of prosecution for an abuse of discretion.
Ringer v. Kimball
, 274 S.W.3d 865, 867 (Tex. App.—Fort Worth 2008, no pet.);
Sellers v. Foster
, 199 S.W.3d 385, 390 (Tex. App.—Fort Worth 2006, no pet.). To determine whether a trial court abused its discretion, we must decide whether the court acted without reference to any guiding rules or principles; in other words, we must decide whether the act was arbitrary or unreasonable.
Ringer
, 274 S.W.3d at 867. Merely because a trial court may decide a matter within its discretion differently than an appellate court would in similar circumstances does not demonstrate an abuse of discretion.
Id.
A trial court has authority to dismiss a case for want of prosecution under either rule of civil procedure 165a or the court’s inherent power to maintain and control its docket.
Id.
;
see Villarreal v. San Antonio Truck & Equip.
, 994 S.W.2d 628, 630 (Tex. 1999);
Maida v. Fire Ins. Exch.
, 990 S.W.2d 836, 839 (Tex. App.—Fort Worth 1999, no pet.). Under rule 165a, a trial court may dismiss a case for want of prosecution on the failure of a party seeking affirmative relief to appear for a hearing or trial if the party had notice that dismissal could result from the party’s failure to appear. Tex. R. Civ. P. 165a(1) (explaining that at “the dismissal hearing, the court shall dismiss for want of prosecution unless there is good cause for the case to be maintained on the docket”);
Ringer
, 274 S.W.3d at 867.
A trial court may dismiss under its inherent power when a plaintiff fails to prosecute his or her case with due diligence.
Ringer
, 274 S.W.3d at 867;
see
Villareal
, 994 S.W.2d at 630. However, when the trial court indicates that it is dismissing a case under rule 165a instead of through its inherent power, we may only affirm the dismissal if it was proper under rule 165a.
See Villareal
, 994 S.W.2d at 631–33;
Johnson-Snodgrass v. KTAO, Inc.
, 75 S.W.3d 84, 88 (Tex. App.—Fort Worth 2002, pet. dism’d) (explaining that notice “that a case may be dismissed for failure to appear at a hearing, as authorized by rule 165a, does not constitute adequate notice that the trial court may exercise its inherent authority to dismiss a case for want of prosecution”);
Lopez v. Harding
, 68 S.W.3d 78, 80–81 (Tex. App.—Dallas 2001, no pet.).
In part of his first point, Joshua contends that the trial court erred when it dismissed his divorce case for want of prosecution because the court deprived him of a meaningful opportunity to be heard. “It is well established that litigants cannot be denied access to the courts simply because they are inmates.”
Ringer
, 274 S.W.3d at 867–68 (explaining that an inmate’s right of access to court must be weighed against the correctional system’s integrity);
see In re Z.L.T.
, 124 S.W.3d 163, 165 (Tex. 2003). “A trial court’s refusal to consider and rule upon a prisoner’s request to appear in a civil proceeding personally or by other means, such that the inmate has been effectively barred from presenting his case, constitutes an abuse of discretion.”
In re B.R.G.
, 48 S.W.3d 812, 820 (Tex. App.—El Paso 2001, no pet.);
see In re R.C.R.
, 230 S.W.3d 423, 426 (Tex. App.—Fort Worth 2007, no pet.) (“[I]f a court determines that a pro se inmate in a civil action is not entitled to leave prison to appear personally in court, the inmate should be allowed to proceed by affidavit, deposition, telephone, or other means.”);
In re D.D.J.
, 136 S.W.3d 305, 314–15 (Tex. App.—Fort Worth 2004, no pet.) (reversing the trial court’s judgment because it made no accommodation for an inmate litigant to participate at trial). And under rule 165a, there must be an “opportunity to be heard before a case is dismissed for want of prosecution.”
Alexander v. Lynda’s Boutique
, 134 S.W.3d 845, 852 (Tex. 2004).
The Dallas Court of Appeals recently reviewed a trial court’s dismissal of an inmate’s divorce case for want of prosecution.
In re Marriage of Bolton
, 256 S.W.3d 832, 833 (Tex. App.—Dallas 2008, no pet.). In
Bolton
, the appellant filed a motion in the trial court to appear through a bench warrant or by alternative means like an affidavit.
Id.
at 834. Like Joshua, the appellant also sent a letter to the court that included a proposed final decree of divorce.
Id.
When the appellant did not appear at trial, the judge dismissed the appellant’s case for want of prosecution.
Id.
The Dallas court held,
By requiring Bolton to appear at a hearing while not acting on his motion for a bench warrant or to conduct the hearing by telephone conference or other means, the trial judge effectively closed the courthouse doors to Bolton. We conclude, under these circumstances, the trial judge abused his discretion in dismissing the case for want of prosecution.
Id.
(citation omitted). In a similar case, the Dallas court reversed a trial court’s dismissal of a divorce case for want of prosecution because the appellant, who was incarcerated, proposed means of appearing other than personal appearance, and by implicitly denying the appellant’s proposal and dismissing his case, the trial court closed its doors to the appellant and abused its discretion.
Boulden v. Boulden
, 133 S.W.3d 884, 886–87 (Tex. App.—Dallas 2004, no pet.);
see In re Marriage of Buster
, 115 S.W.3d 141, 144–45 (Tex. App.—Texarkana 2003, no pet.) (holding similarly).
The trial court’s dismissal order reveals that the court dismissed Joshua’s case only because he failed to appear at the July 29, 2009 hearing.
(footnote: 4) However, the record shows that Joshua had explained to the court that he could not appear in person (because he believed that he could not secure a bench warrant) and had asked to appear and present testimony by his unsworn declaration. The trial court did not expressly rule on Joshua’s request to appear by his unsworn declaration; thus, it “dismissed [Joshua’s] case for failure to appear without providing [Joshua] any means to appear. This is fundamentally unfair and denied [Joshua] access to the courts.”
See R.C.R.
, 230 S.W.3d at 427 (footnote omitted).
We recognize that Joshua could have filed a motion explicitly asking the trial court to issue a bench warrant so that he could have traveled several hundred miles from Fort Stockton to Fort Worth to appear in person at the dismissal hearing. But inmates do not have an absolute right to appear personally at civil proceedings, and they must justify the need for their appearance at such proceedings under factors that include the cost and convenience of transportation.
See Z.L.T.,
124 S.W.3d at 165;
Ringer
, 274 S.W.3d at 867–68;
Pedraza v. Crossroads Sec. Sys.
, 960 S.W.2d 339, 342 (Tex. App.—Corpus Christi 1997, no pet.). We have not found authority indicating that Joshua’s decision to not specifically request a bench warrant to allow for his personal appearance waives his right of access to court when he made a good faith request to appear by other means.
Cf. Smith v. Tex. Bd. of Pardons and Paroles
, No. 02-02-00035-CV, 2003 WL 22724996, at *1 (Tex. App.—Fort Worth Nov. 20, 2003, no pet.) (mem. op.) (holding that the appellant waived a complaint concerning his right of access to court when the appellant did not request a bench warrant
or otherwise seek access
to the court at the trial level).
For these reasons, we hold that the trial court abused its discretion by dismissing Joshua’s case for want of prosecution. We sustain his first point, and we will not address his second point because the sustaining of his first point resolves the appeal.
See
Tex. R. App. P. 47.1;
Hawkins v. Walker
, 233 S.W.3d 380, 395 n.47 (Tex. App.—Fort Worth 2007, pet. denied).
Conclusion
Having sustained Joshua’s first point, we reverse the trial court’s judgment dismissing his case for want of prosecution, and we remand this case to the trial court for further proceedings.
TERRIE LIVINGSTON
CHIEF JUSTICE
PANEL: LIVINGSTON, C.J.; WALKER and MCCOY, JJ.
DELIVERED: June 10, 2010
FOOTNOTES
1:See
Tex. R. App. P. 47.4.
2:See
Tex. R. Civ. P. 106(a)(2);
Taylor v. State
, 293 S.W.3d 913, 916 n.1 (Tex. App.—Austin 2009, no pet.).
3:Texas law allows inmates to use unsworn declarations in lieu of verified affidavits.
See
Tex. Civ. Prac. & Rem. Code Ann. § 132.001 (Vernon Supp. 2009);
Smith v. McCorkle
, 895 S.W.2d 692, 692–93 (Tex. 1995) (orig. proceeding).
4:We note that the trial court’s order does not state that it dismissed Joshua’s case because the unsworn declaration that he filed failed to establish good cause for maintaining his case on the court’s docket.
See
Tex. R. Civ. P. 165a(1). We also note that neither the trial court’s notice of dismissal nor its order of dismissal indicates that the trial court dismissed Joshua’s case because he had not served Jacqueline.
See Shook v. Gilmore & Tatge Mfg. Co.
, 951 S.W.2d 294, 296 (Tex. App.—Waco 1997, pet. denied) (explaining that “if the dismissal order lists a particular reason for the dismissal, then the appellate court’s review is limited to whether the dismissal was proper based on the ground specified by the trial court”);
see also Sellers
, 199 S.W.3d at 391 (“Because the record in this case does not contain formal findings of fact or conclusions of law
and the dismissal order does not specify the reason for dismissal
other than to generally dismiss for ‘want of prosecution,’ we must affirm the trial court’s judgment on any theory supported by the record.”) (emphasis added).
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343 F.2d 411
The SILL CORPORATION, Appellant,v.UNITED STATES of America, Appellee.
No. 7607.
United States Court of Appeals Tenth Circuit.
March 4, 1965, Rehearing Denied April 27, 1965.
John J. Geraghty (Josiah G. Holland, Denver, Colo., William VanDercreek, Dallas, Tex., and Roland Boyd, on brief), for appellant.
Raymond N. Zagone, Washington, D.C. (Ramsey Clark, Washington, D.C., B. Andrew Potter, David A. Kline, Jr., Oklahoma City, Okl., Roger P. Marquis, Robert M. McKee, Washington, D.C., on brief), for appellee.
Before MURRAH, Chief Judge, and PHILLIPS and LEWIS, Circuit Judges.
MURRAH, Chief Judge.
1
The Sill Corporation, owner-sponsor of a Wherry housing project (See 63 Stat. 570, 12 U.S.C. 1748 et seq.) appeals from a judgment on a jury verdict awarding it 'just compensation' for the taking of its interest in the project. The Owner's interest was taken pursuant to the amended provisions of the Capehart Act (See 70 Stat. 1111, 42 U.S.C. (1952 ed., Supp. V), 1594(b)), whereunder the Secretary of Defense was directed to acquire all Wherry projects where Capehart housing had been approved and constructed.1 Under the Wherry Act, the Federal Housing Authority (FHA) was authorized to insure mortgages up to 90 percent of the estimated cost of construction. All mortgagor-owners were subject to FHA regulations in such matters as rents, charges, capital structure, rate of return and methods of operation. See Buena Vista Homes, Inc. v. United States (CA 10), 281 F.2d 476.
2
The Sill Corporation was formed as a sponsor solely to take advantage of the unique economic benefits available under the Act. It constructed 500 such rental units on 122 acres of leased Government property near Ft. Sill, Oklahoma. The ground lease, drawn in 1950, was for 75 years at an annual rental of $100. It provided that title to all improvements constructed by the sponsor remained in its name for the duration of the lease, but upon expiration or termination, the improvements became the sole property of the Government, unless the sponsor elected to remove them and restore the premises. Financing of the project was accomplished by an FHA insured mortgage of $4,300,000 for 34 years from the date of its issuance in October, 1951.
3
Acting under authority of the amended provisions of the Capehart Act, the Government instituted these proceedings, took possession of the property and, at the same time, assumed the unpaid mortgage balance of $3,822,104.55.
4
On pretrial, the parties apparently agreed that capitalization of net income was an appropriate method for determining the fair market value of the Owner's interest in the project. But the parties disagreed on the factors to be taken into account in determining the net income to be capitalized. The Government took the position that fair market value was determinable by capitalizing net income after deduction of debt service, i.e., the cost of mortgage amortization and insurance. The Owner contended for capitalization of net income before deduction of debt service. Paragraph 21 of the proposed pretrial order recited that 'the following methods shall be considered as proper approaches to the determination of the value of the estate being condemned:
5
'(a) Market data; determined by comparison with actual comparable sales of like property prior to September 1, 1959.
6
'(b) Capitalization of net income before debt service.
7
'(c) Capitalization of net income after debt service.'
8
The Owner first objected to paragraph 21 in its entirety, specifically complaining that subparagraph (c) was improper because it permitted the jury to choose between capitalization before or after deduction of debt service. However, the Owner finally acquiesced in the pretrial order, provided it was not restricted in any way on cross-examination to demonstrate the 'mathematical fallacy' of subparagraph (c) as a principle of capitalization of income to arrive at fair market value as a measure for just compensation. A parenthetical addendum providing, 'with full right of proper cross-examination covering the above approaches.' was attached to subparagraph (c), and the parties proceeded to trial under the pre-trial order as a part of the trial blue-print.2
9
Upon trial to the Jury, the parties were permitted without objection to produce expert testimony of fair market value based upon their respective theories of net income for purposes of capitalization. Making application of the Government's theory of capitalization of net income or 'cash flow', two appraisal experts testified that the fair market value of the estate taken was $294,000 and $302,000, respectively.3 Applying the Owner's theory for determining net income, its four appraisers testified that the fair market value of the estate taken was $1,100,000, $1,111,000, $1,200,000 and $1,379,895, respectively.4 Each of the appraiser-witnesses was cross-examined extensively, without let or hindrance, concerning his theory of evaluation.
10
Consistent with its pretrial order, the Court specifically instructed the Jury, 'All of the expert witnesses for both parties have used the capitalization of income approach and all have applied this approach in one or both of the following methods of capitalization:
11
'The projected net income, after payment of fixed charges, all expenses, and the annual amount required by the commitment for the reserve for replacements fund, and before allowance for depreciation and debt service, which includes principal and interest payments and the mortgage insurance premium is capitalized, producing the capitalized value of the net income, and thus the indicated value of the conditional ownership in the leasehold estate. The indicated value of the equity, that is, the interest of the sponsors or defendant here as encumbered by the mortgage, is then determined by deducting from the capitalized value of the net income the unpaid balance of the mortgage.
12
'The projected net income, after payment of fixed charges, all expenses, the required payment to the reserve for replacement, the debt service, which includes principal, interest and mortgage insurance premiums, but before any allowance for depreciation, is capitalized producing the capitalized value of the net cash flow and, therefore, the indicated capitalized value of the ownership interest which earns such net cash flow.
13
'You will note that the words 'indicated value' are used to define the results reached by these methods of capitalization. This 'indicated value' may or may not be the fair market value. This approach, under either method, contemplates that the seller would receive and the buyer would give the price indicated provided that the income is free and clear of further charges and free and clear of further payments other than the purchase price. If there are charges in addition to that allowed in reaching the net income before debt service, or the net income after debt service, or if there are payments required other than the purchase price, further adjustments may be required.'
14
We must assume, of course, that the Jury understood and intelligently applied these instructions. In oral argument Owner's counsel exorted the Jury not to compromise the divergent theories on net income capitalization, but to accept one and reject the other. The Jury apparently accepted counsel's plea and, by its verdict of $302,000, obviously chose the Government's theory of net income for capitalization purposes.
15
The Owner now strenuously complains of that part of the Court's instructions which permitted the Jury to determine fair market value by capitalization of net income after deduction of debt service. Although the Court's instructions were submitted to the parties and suggestions solicited, neither party objected to the submission of the choice of methods for determining net income for capitalization purposes.5 The Owner did request the Court to instruct the Jury that 'payments on the principal of the mortgage indebtedness * * * are not an expense item and to treat them as such would improperly reduce the evaluation.' It is not entirely clear whether this request was intended to challenge the Court's instructions on choice of capitalization theories. If so, we seriously doubt whether it meets the requirements of Rule 51, F.R.Civ.P. See Downie v. Powers, 9 Cir., 193 F.2d 760. But, even so, we think the challenge comes too late in view of the apparent pretrial agreement of the parties on the blueprint of the lawsuit embodying their respective theories of income capitalization and the introduction without objection of testimony in support of those respective theories. No one should be heard to object to an instruction on the law of the case on which it was tried and submitted by agreement of the parties. We ought not to disturb the Jury's verdict unless we are convinced that it is made to rest upon a palpably erroneous rule of capitalization used to measure fair market value for the purposes of just compensation.
16
We know, of course, that the law is not wedded to any particular formula or method for determining fair market value as the measure of just compensation. See: United States v. Miller, 317 U.S. 369, 63 S.Ct. 276, 87 L.Ed. 336; and United States of America v. Sowards et al. (10 C.A.), 339 F.2d 401. It may be based upon comparable sales, reproduction costs, capitalization of net income, or an interaction of these determinants. The parties agreed in this case that the capitalization of income is the most satisfactory method. The parties also agree, as they must, that the test of fair market value is the amount of money a willing buyer would pay for the future net income, when computed at its present value.
17
It is indeed unfortunate that the divergent theories of income capitalization on which this case was submitted to the Jury inevitably result in a wide disparity on the amount of money a willing buyer would pay for income producing property. Under the two theories, a willing buyer would pay $1,000,000, or $300,000, depending upon which appraiser he happened to employ and rely upon.6 Both theories have, nonetheless, been approved in adjudicated cases. Capitalization after deduction of debt service was approved in Likins-Foster Monterey Corporation v. United States, 9 Cir., 308 F.2d 595. It was apparently used and approved in United States v. Tampa Bay Garden Apartments, Inc., 294 F.2d 598. The Owner says it was disapproved in DeLuz Homes v. County of San Diego, 45 Cal.2d 546, 290 P.2d 544, a case involving a fair market value of a Wherry project for purposes of ad valorem taxes. Capitalization before deduction of debt service was used with approval in United States v. Certain Interests in Property, D.C., 205 F.Supp. 745; and United States v. Certain Interests in Property, 7 Cir., 271 F.2d 379.
18
In this state of the law and in this posture of our lawsuit, we cannot say that either theory of income capitalization is so palpably erroneous as to be legally inadmissible.
19
It is agreed that one of the principal keys in the capitalization of income process is determination of the capitalization rate, i.e., that percentage which will provide for the recapture or amortization of the value of the investment in the improvements, plus a reasonable and proper rate of return to the investor. This is true, of course, whether the income to be capitalized is calculated before or after the deduction of debt service. The owner objects to the use of comparable Wherry Project sales as a factor in the determination of the capitalization rate.
20
The determination of the capitalization rate entails consideration of many risk factors which may influence a prospective purchaser in determining fair market value. In our case, the Government witnesses and at least one of the Owner's witnesses considered sales of stock in other Wherry housing corporations as comparable for the sole and only purpose of arriving at an appropriate capitalization rate. The Jury was instructed in accordance with the pretrial order that, 'To the extent that other properties or investments are actually similar or comparable to the property involved in this action from the viewpoint of the quantity and quality of the income stream and the limitations and risks attendant thereto, the capitalization rates, multipliers and income-price ratios resulting from these transactions are the highest and best evidence of the proper capitalization rate, multiplier or incomeprice ratio to be applied in the capitalization of the projected income of this project.' As we interpret this instruction, it is simply to the effect that comparable sales of Wherry projects to the extent that they are comparable is relevant evidence in determining the capitalization rate.
21
Case authority appears to clearly favor the trial court's instruction on this issue. The most recent and comprehensive discussion of the matter is found in United States v. Certain Interests in Property, 326 F.2d 109. There the Second Circuit held that the admission of evidence of comparable sales for the sole purpose of establishing the ratio between income and sale price was entirely within the discretion of the trial court. See also: United States v. Delano Park Homes, Inc., 2 Cir., 146 F.2d 473; United States v. Tampa Bay Garden Apartments, Inc., supra; United States v. Johnson, 9 Cir., 285 F.2d 35; United States v. Certain Interests in Property, D.C., 186 F.Supp. 167, aff'd sub nom.; and Likens-Foster Monterey Corp. v. United States, supra.
22
The principal case relied upon by the Owner is United States v. 190.71 Acres of Land, 7 Cir., 300 F.2d 52, where the appellate court upheld the trial court's rejection of comparable sales as direct proof of value, not to determine capitalization rate.
23
The Owner also objects to the deduction of the reserve for replacement fund from the amount of just compensation. Wherry leases require the lessee to make annual contributions to a replacement fund, to insure that necessary replacements, such as stoves and refrigerators will be made. The Government had assumed the obligation of replacement, and the replacement fund, which then amounted to approximately $167,310, was refunded to the Owner. In reaching his final estimate of fair market value, one of the Government's appraisal experts deducted the replacement fund from his estimate of capitalized net income. The Owner objected to the instruction given by the Court relating to the replacement fund, which in effect left open the question of whether the deduction was proper.7 The Owner relies on Buena Vista Homes, Inc. v. United States, supra, and United States v. Certain Interests in Borough of Brooklyn (Fort Hamilton), 326 F.2d 109. We think Judge Breitenstein answered the question against the contention of the Owner in Buena Vista Homes, Inc., when he stated that, 'In fact, the fund was not available to the condemnor as it had been returned to Buena Vista. Accordingly, the entire repair and replacement cost had to be deducted from the capitalization of income figure to arrive at the fair market value.' ibid., 281 F.2d p. 480.
24
Here, as in Buena Vista, there was testimony to the effect that the condition of the property required repair, and in deducting this amount for the capitalization of income, the expert witness assumed that the accrued replacement fund would not be available for that purpose. In these circumstances it was not improper to permit the Jury to consider this testimony in determining fair market value. On pretrial the Court excluded evidence of reproduction costs as not being an acceptable basis of evaluation, and the Owner complains of it here. Judge Breitenstein also answered this question in Buena Vista, holding that 'the condemnee's rights with respect to the property were limited by the fact that the projects were subject to rent control by Federal Housing Administration and the consistent policy in regard to such projects had been the allowance of a return based on original cost rather than reproduction cost.' ibid., 281 F.2d p. 478.
25
Finally, we come to the asserted reversible error in the ruling of the Court on admissibility of evidence of excess mortgage proceeds and its characterization as a 'windfall' in the testimony of witnesses and the Government's argument to the Jury on this point. From the very outset of the pretrial proceedings, the Owner apparently realized the detrimental effect of any reference to excess mortgage proceeds over the certified cost of construction, and particularly its characterization as a 'windfall'. The pretrial order provided that, 'Neither counsel nor any witness for either party shall, in the presence or hearing of the jury, use the word 'windfall' in the trial of this case unless approval is obtained in advance from the court; however, the words 'excess mortgage proceeds' may be used.' The pretrial order also provided that 'Evidence of the actual cost of construction shall be admitted * * *,' solely as evidence as to what a willing, prudent buyer and seller would contemplate or expect in the way of income or rental ceilings in the future under the authority of the Commissioner to regulate and restrict the rentals.'
26
At the time the loan was made, the excess mortgage proceeds over the actual cost of construction could not rightly be called a 'windfall'. Rather, it constituted money, the use of which inured to the Owner only during the amortization period of the mortgage. When, however, the Government took the property, assumed the indebtedness and refunded the replacement funds to Sill, the excess mortgage proceeds inured to the Owner without any obligation to repay them. These funds thereupon became an unexpected gain and a 'windfall', if you please.
27
The word 'windfall' is not opprobrious if properly used, but even so, its use should not be permitted to mislead, deceive or prejudice the Jury's consideration of value as a measure of just compensation.
28
The term 'excess mortgage proceeds' or 'windfall' first crept into the trial of the case during the testimony of one of the Owner's appraiser-witnesses. He was being examined concerning the probability of the necessity for a rental increase in the future, to off-set the increased operating expenses in order to maintain the level of capitalized net income. The witness recognized the contingency of a rate increase based upon increased operating expenses and the vacancy factor. He was then asked if he was aware of FHA policy to the effect that in the event of excess mortgage proceeds, such excess was taken into consideration in the exercise of the FHA's contractual right to 'fix rates and charges.' The witness testified that he was aware that this supposed FHA policy was a controversial point, but didn't know just what the FHA was doing about it. Whereupon, the Government then sought to question the witness concerning certain letters purporting to set forth FHA policy on all military housing, to the effect that the excess mortgage proceeds, if any, would be taken into consideration in processing applications for rent increases. The word 'windfall' was freely used in these letters to characterize the receipt of mortgage proceeds in excess of the cost of construction of a federal housing project. When Government's counsel read from one of the letters, using the word 'windfall clearance', counsel for the Owner objected, and the Court instructed the Jury to disregard the word 'windfall' as being inadvertently used by Government's counsel. Government's counsel answered that while he was cognizant of the provisions of the pretrial order in that regard, he did not interpret it to exclude use of the word 'windfall' where it appeared in documentary evidence. He was instructed to henceforth use the term 'excess mortgage proceeds' wherever the word 'windfall' appeared in the documents. At one point, Government's counsel again used the term 'in the event of windfall settlement agreement' and was admonished not to do it anymore.
29
The following day and outside the hearing of the Jury, the Court stated that when on pretrial it had ordered the word 'windfall' not be used, it was not aware that the word would be contained in the FHA letters, documents and policies admitted in evidence; and, in view of the fact that the word did appear in these letters, which had been admitted in evidence, the pretrial order could not be adhered to without changing the wording of the exhibits which, of course, the Court could not do. 'So,' said the Court, 'I am changing the pretrial order and leaving that part out which states that 'windfall' will not be used.' The Owner took exception, and Government counsel then said that 'the spirit of the pretrial order will still be followed * * *' and that 'I will attempt at all times to use 'excess mortgage proceeds', but sometimes it is possible that maybe we can't without changing the letter.'
30
Thereafter, during the trial of the case, the Government's witness-appraisers testified in effect that the Government's policy, as evidenced by the letters introduced in evidence, was relevant to the risk factor or multiplier for determining rate of return. One of the owner-appraisers said that this policy caused him to lower his rate of return from 7 percent to 6.67 percent. It was in this vein that excess mortgage proceeds was referred to in connection with FHA policy on requests for increased rentals.
31
During examination of one of the Government's witnesses on FHA policy with respect to excess mortgage proceeds, the witness was permitted to testify to FHA's concern with the 'congressional investigation relative to the designation of 'windfalls'.' Counsel interrupted to inquire if he understood windfall and excess mortgage proceeds to be substantially the same. He replied that they were 'synonymous'; that he preferred to use 'excess mortgage proceeds' but that the term 'windfall' had 'gotten into such common usage that I almost automatically use that term for identification.' And, it is true that Congress subsequently enacted 'anti-windfall' legislation.
32
The Owner strenuously contends that the FHA policy letters should not have been admitted in evidence because the letters were not promulgated in compliance with the Federal Register or Federal Administrative Procedure Act, and did not, therefore, rise to the dignity of an administrative regulation. The Government concedes this and says that they were not offered as having the 'force and effect of law', but they were, nevertheless, relevant to the risk factor in arriving at a rate of return. Under the lease contract, the FHA, as we have seen, was empowered to regulate rates, charges, capital structure, rate of returns, and methods of operations, and it was certainly relevant for a prospective purchaser to know that in the event increased rentals were needed in order to maintain the level of capitalized income, the FHA would invoke its policy in the face of excess mortgage proceeds. This was the extent to which the excess mortgage proceeds and windfall was used in the Government's case, and it was not irrelevant for that purpose.
33
In the circumstances of this case, it was not improper for the trial Court to relax the pretrial order to permit reference to the windfall as it was used in the documentary evidence. Pretrial orders are, to be sure, blueprints for the trial which ought not to be relaxed in the absence of good cause, but they are not hoops of steel and may always be modified in the interest of the administration of justice.
34
The question remains whether reference to the excess mortgage proceeds and windfall in Government counsel's closing argument was so fundamentally prejudicial as to warrant notice of it here when it was not objected to at trial. In the course of his argument one Government counsel referred to the $365,000 of excess mortgage proceeds and stated, 'Well, sure ladies and gentlemen, they ought to have a profit, but I'm telling you, $365,000 plus income for five or six years, plus $167,000 in the reserve for replacement that they got, plus what they are claiming here now is over $1,000,000. I say that's a pretty fair profit; and I think if this profit is increased only by $290,000 to $302,000, you've got pretty fair profit'.
35
Another Government attorney mentioned the 'excess mortgage proceeds or windfall' in his argument. In his closing argument counsel for the Owner met the issue squarely and defended the receipt of the proceeds as compensation for the risk involved with the argument that the excess mortgage proceeds had nothing to do with value, and reference to them as a windfall was a 'ghost' which had been killed by the Government's own star witness.8
36
Counsel may, of course, respond to argument without risk of later being estopped from complaining of it as reversible error. But the response does serve to put the whole matter in its proper perspective for appraisal of its prejudicial effect on the jury.
37
The Supreme Court has laid down the ground rules to govern representatives of the Government in presenting its case to a jury. It is said that Government's counsel 'may prosecute with earnestness and vigor-- indeed, he should do so. But, while he may strike hard blows, he is not at liberty to strike foul ones. It is as much his duty to refrain from improper methods calculated to produce a wrongful conviction as it is to use every legitimate means to bring about a just one.' Viereck v. United States, 318 U.S. 236, 248, 63 S.Ct. 561, 567, 87 L.Ed. 734. McManaman v. United States (10 CA) 327 F.2d 21.
38
And, it is the responsibility of the trial judge, as the governor of the trial, to see to it that counsel remain within the bounds of the record on oral argument-- that they strike no foul blows. It ought not be incumbent upon counsel to interrupt the argument. The Court ought to take the initiative where counsel is plainly inflammatory. See: New York Central R.R. Co. v. Johnson, 279 U.S. 310, 49 S.Ct. 300, 73 L.Ed. 706. We have followed the established rule to the effect that the '* * * (appellate) courts will correct error in rare instances where it appears that a verdict was the result of passion aroused through extreme argument which clearly stirred the resentment and aroused the prejudice of the jury even though no objection was made or exception taken at the time.' See: Metropolitan Life Ins. Co. v. Banion, 10 Cir., 106 F.2d 561. Also see: Smith v. Welch (10 CA), 189 F.2d 832.
39
It is evident that from the very beginning the Court was concerned with the prejudicial effect of the excess mortgage proceeds when characterized as a windfall. At one point in the pretrial, while the word 'windfall' was under discussion, the Court addressed Government's counsel saying, 'Do you have any authority that permits you to go to the jury with the story about windfalls?' and then said, 'I'm talking about the Court making an error letting it in to prejudice the jury against these defendants.' and, again, 'Well, here's the point. If you want to use the 'windfall' for an advantage with the jury, the Court doesn't want you to use it.' The trial court adhered to the pretrial plan to preclude reference to the word 'windfall', until it appeared as accepted terminology in the documentary evidence. It was only then that the pretrial rule was relaxed to permit its use, and we think properly so.
40
In weighing the propriety of reference to the term on oral argument, it is significant, we think, that after all, the excess mortgage proceeds did prove to be a windfall and, as such, it was not wholly irrelevant to the ultimate issue of just compensation. The Owner did receive the $167,000 representing the replacement fund, and the receipt of this sum, as we have seen, was relevant to the critical issue. Then, too, it is noteworthy that the issue squarely presented to the Jury by the Owner's oral argument was whether it would accept the Government's appraisal based on its theory of capitalization of income or the appraisal of the Owner based upon its theory. In this setting, we do not think it wholly improper for Government counsel to call attention to the amount of money the Owner had already received in determining which of the divergent theories the Jury would choose in awarding 'just compensation'.
41
It may well be that reference to the receipt of these funds was over-emphasized, but we cannot say that it was so violent and perversive as to defeat the ends of justice.
42
The judgment is affirmed.
1
This requirement was imposed to avoid competition between the Wherry projects and the newer Capehart projects. See 3 U.S.Code Congressional and Administrative News, p. 4551, 84th Cong., 2nd Session
2
Throughout the pretrial proceedings, the Owner apparently continued to object to the capitalization of net income after debt service for the purpose of evaluation of the property. Owner's counsel was apparently apprehensive lest he be precluded from developing his case on his own theories of evaluation
3
The Government's valuation witnesses, Monrad and Sealy, calculated value after debt service. Monrad estimated net income after debt service to be $63,300, which he capitalized at 21.5 percent. His estimate of value was $302,000. The cash flow in Sealy's opinion was $68,214, which he capitalized at 14.8 percent, the product being $455,100 from which he subtracted the reserve for replacement and reached a valuation of $290,000
4
The Owner's witnesses, Vaughan, McKean, Noah and Williamson, capitalized net income before debt service. Vaughan capitalized an estimated income of $323,785 before debt service at 6 percent for a 40-year period and then subtracted debt service, reaching a value opinion of $1,379,895. McKean capitalized $316,391 at 6 1/4 percent for a 50-year period, subtracted the unpaid debt, and testified to $1,111,000 as value. Noah's valuation opinion of $1,200,000 was reached by his capitalizing $319,157 by 6 1/4 percent over the remaining years of the lease; he then subtracted the mortgage balance leaving $1,200,000 as value. Williamson capitalized $322,297 at 6 1/4 percent for a 50-year period, subtracted the mortgage balance, and by that process estimated compensation at $1,100,000
5
When the parties came to discuss the Court's proposed instructions in an In Chambers Conference, counsel for the Owner objected to the first and second paragraphs on page 22 of the Government's requested instructions (Instruction 17 on capitalization of net income). The ensuing colloquy plainly indicates that counsel was objecting to the Court's treatment of the 'reserve fund for replacement'. The burden of the objection was that the instruction on this point constituted an unwarranted 'comment on evidence on which conflicting views had been expressed by the witnesses' that 'The Court would in effect be directing a verdict on a point in issue'. The ground for objection to the second paragraph of the instruction was that it conflicted 'with the basic concept of market value because it must assume that the property could be sold on the open market'. The Court took the matter under advisement as one of the 'two points that I am to consider a while longer'. There were no objections to the submission of the choice of methods for determination of income for capitalization purposes, also included in Requested Instruction 17. The Court instructed the Jury on choice of theories of net income in accordance with the pretrial order. When at the conclusion of argument and before the case was submitted to the Jury, counsel was asked for further objections to the instructions, the Owner's counsel responded that he had none other than those 'we recorded this morning.'
6
The Government contends that debt service must be subtracted from income before capitalization because this is the only manner in which equity income would be considered by prudent buyers and sellers of equity investments. See: Kaffenberger, 'Market Data in the Appraisal of Income Property', The Appraisal Journal 57-62 (1960). And, that a buyer would only be interested in what income he would receive on his investment after all expenses, including debt service, had been deducted. It argues that in the final analysis this technique is a closer approximation of what investors would consider the value of the sponsor's interest, than the formula relied upon by the Owner where debt service has little or nothing to do with determining value. The Owner contends that capitalization of income after deduction of debt service is wholly inadmissible because it allows the amount of the mortgage to control the value of the property. In other words, the payment of the mortgage has been a use of net income rather than an element which determines net income; thus, the over-all value of the Wherry project should be computed before deduction of the mortgage debt, the amount of the outstanding mortgage then being subtracted in determining the sum due to the owner as just compensation
There are statements in text on appraising income property to the effect that 'when determining net income for the purpose of appraisal, amortization of mortgage or any interest paid are to be disregarded. This becomes clear if one can conceive of a property whose entire earnings are being paid out in interest and amortization of a mortgage.' Real Estate Principles and Practice by Maurice A. Unger (South-Western Publishing Co. 1954). The fallacy of this argument may lie in the fact that the only interest taken here is a possessory right in a lease. This reasoning would be applicable if the owner in this case acquired an equity through the amortization of the mortgage. The mortgage payments, although commensurate with the income, would nevertheless operate to enhance his equity in the property. But, in our case, the owner can acquire no equity in the mortgaged property. The nature of his estate therein is purely possessory-- the right to the income or the benefits, after discharge of all of the burdens. When the mortgage indebtedness is finally satisfied, the Owner does have a residual right in the leasehold with a right to remove the improvements, but if they are not removed, they become the property of the Government and no one here contends that this was considered as a factor in determining whether the debt service should be deducted before or after capitalization.
7
The trial court specifically instructed the Jury that, 'the defendant was required to establish and maintain with the mortgagee, as escrow agent, a reserve fund for the replacement of short lived items, such as stoves, refrigerators, hot water heaters, and so forth, by depositing in said fund in monthly installments the annual amount of $27,115. At the date of taking the accumulated amount in the reserve fund was $167,316. By agreement between the Commissioner of the Federal Housing Administration, the Department of the Army, and the mortgagee the total amount of this accrued fund was turned over to the defendant at or about the time of taking
'You are instructed that the obligation to deposit this annual amount was a contractual one and binding upon the defendant for the term of the lease. No withdrawals could be made from that fund without the prior approval of the Commissioner of the Federal Housing Administration during the term of the Federal Housing Administration insured mortgage. None of the expert witnesses were entitled to assume that the terms of these contractual obligations could be varied by the defendant or his purchaser or successor in interest.
' * * * *cce
'You may consider this testimony and its effect, favorable or unfavorable, on the fair market value of the rights acquired by these proceedings and give it such weight and such effect you deem justified.'
8
'Well, let's look at the windfall. He has just referred to it. He has counted that, he has counted the profit and set before you a vast sum of money as being that which these people now have, which they have derived for nothing. That is not true
'They worked for it. They risked half a million dollars. He says they had contracts signed. That is pure speculation on his part. There is no evidence on it.
'But let's get to the meat of it. As this case developed, I am certain that you were led to believe that this was something that really affected value. It was going to cause value to go down.
'How? By the devious, circuitous route, not that anybody was entitled to recover that, to take it away from the Sill Corporation, but sometime in the future it might become necessary to request a rental increase and when that request was made-- I don't even know how much it was going to be for, that's a guess-- but when it was going to be made, FHA would reject it. FHA doesn't reject these in whole. Sometimes it's in part.
'But let's say it's to be rejected in whole. What then does that have to do with value in this case? Wouldn't we like to know what effect it would have on the value of this property as of the date of taking?
'Ladies and gentlemen, you were told, you were told by a witness no less than Mr. Sealy, you will recall when I stood there at the podium and talked with Mr. Sealy, I asked him the question, what would have been the effect upon your opinion of value if as you believe there had not been a windfall?
'And what did he say? He said that instead of using that multiplier of 6.67, he would have used a higher multiplier, thereby giving a greater value. He would have used a multiplier of 7. The difference between the two is decimal 33.
'You take decimal 33, multiply your equity income, $68,241, and ladies and gentlemen, this ghost, this tremendous burden, this penalty-- what does it amount to? Believe this if you will, go through that multiplication and we are talking about $22,519.
'What is that per unit? $45.04.
'If this is something that does reduce it, this is something that might reduce it, if a rent request were made and if it were rejected-- when, for how much and with what result, we don't know.
'Ladies and gentlemen, Mr. Sealy, the Government's star witness, killed that ghost. It's out of this case. It's dead and gone.'
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88 B.R. 755 (1988)
In re A.H. ROBINS COMPANY, INCORPORATED, Debtor.
DALKON SHIELD CLAIMANTS' COMMITTEE, in its own right and on behalf of A.H. Robins Company, Incorporated, Plaintiff,
v.
The AETNA CASUALTY AND SURETY CO., Defendant.
Glenda BRELAND, et al., Plaintiffs,
v.
AETNA CASUALTY AND SURETY COMPANY, Defendant.
Bankruptcy No. 85-01307-R, Adv. No. 87-1006-R, Civ. A. No. 86-0315-R.
United States District Court, E.D. Virginia, Richmond Division.
July 26, 1988.
John J. Walsh, Mark C. Ellenberg, Peter M. Dodson, Cadwalader, Wickersham & Taft, Washington, D.C., William R. Cogar, James S. Crockett, Jr., Richmond, Va., Murray Drabkin, Washington, D.C., for Dalkon Shield Claimants' Committee, in its own right and on behalf of A.H. Robins Co., Inc.
Joseph S. Friedberg, Minneapolis, Minn., John A. Cochrane, Cochrane & Bresnahan, St. Paul, Minn., Ronald I. Meshbesher, Paul Bergstrom, Meshbesher, Singer & Spence, Ltd., Minneapolis, Minn., Herbert B. Newberg, Martin J. D'Orno, Herbert B. Newberg, Esq., P.C., Philadelphia, Pa., Murray J. Janus, Theodore I. Brenner, Brenner, Baber & Janus, Richmond, Va., James Hovland, Krause & Rollins, Minneapolis, Minn., Douglas W. Thomson, Thomson & Ellis, St. Paul, Minn., for Breland, et al.
John G. Harkins, Jr., Pepper, Hamilton & Scheetz, Philadelphia, Pa., W. Scott Street, III, William H. Schwarzschild, III, Lynn F. Jacob, Williams, Mullen & Christian, Richmond, Va., A. Peter Brodell, W. Scott Street, *756 III, Williams, Mullen, Christian & Dobbins, Richmond, Va., for Aetna Cas. & Sur. Co.
Robert E. Manchester, Manchester & O'Neill, Burlington, Vt., John Cole Gayle, Jr., Hubard, Tice, Marchant & Samuels, Richmond, Va., for Rawe claimants.
John T. Baker, Denver, Colo., J. Stephen Proffitt, III, Richmond, Va., Bradley Post, Wichita, Kan., for Pamela Reiter, et al.
Stanley K. Joynes, III, Richmond, Va., for Future Tort Claimants.
Robert E. Manchester, Burlington, Vt., John Cole Gayle, Jr., Richmond, Va., for Carolyn Abernethy, et al.
J. Hunt Brasfield, Alexandria, Va., Michael L. Goldberg, Washington, D.C., for Marcia Rubinroit, et al.
MEMORANDUM
MERHIGE, District Judge.
This matter came on for a hearing on the reasonableness, adequacy and fairness of the proposed settlement in this cause. At that evidentiary hearing, counsel for the Breland class and defendant The Aetna Casualty and Surety Company ("Aetna") appeared and proffered evidence in support of the proposed settlement. Three attorneys for class members were heard, and had the opportunity to present evidence, in opposition to the settlement.
Background
In mid-1970, A.H. Robins Company, Incorporated ("Robins") acquired all patent and marketing rights to an intrauterine contraceptive device known as the Dalkon Shield. Even before it ceased manufacturing the device in 1974, Robins received claims for personal injuries allegedly caused by the Dalkon Shield, and the number of claims accelerated substantially until August 1985, when approximately 15,000 claims had been made and more than 6,000 claims were still pending. By August 21, 1985, when Robins filed a petition for reorganization under Chapter 11 of the Bankruptcy Code 11 U.S.C. § 101, et seq., Robins and Aetna, as its insurer, had expended more than $500 million in the defense and satisfaction of such claims.
Aetna had been Robins' insurer for a number of years prior to 1970. Its policies covered the Dalkon Shield until the expiration of the final policy at the end of February 1978.
In 1985, a number of plaintiffs began suing Aetna in its own right, as opposed to merely naming Aetna because of the policy coverage. Prior to Robins' filing its petition, Aetna had been named in approximately 140 lawsuits. By the time of the bankruptcy filing, Aetna obtained a dismissal in approximately 40 of those cases. No plaintiff successfully litigated to its conclusion a case against Aetna in its own right for Dalkon Shield injuries.
Shortly after the filing of Robins' petition, this Court issued a preliminary injunction barring continued prosecution of suits against Aetna and other third parties for Dalkon Shield injuries. The preliminary injunction was twice reviewed and twice affirmed by the Fourth Circuit. See Oberg v. Aetna Casualty & Surety Co., 828 F.2d 1023 (4th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1246, 99 L.Ed.2d 444 (1988); A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir.), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986). The Fourth Circuit held, as did this Court, that such litigation would inevitably involve Robins and thereby detract from the reorganization process. Oberg, 828 F.2d at 1026. Expeditious reorganization, of course, was necessary to pay claimants as promptly as possible.
On April 9, 1986, the Breland complaint was filed in the United States District Court for the District of Minnesota. The Minnesota Court sua sponte transferred the case on April 28, 1986 to the Eastern District of Virginia where it was refiled on May 15, 1986. Aetna played no role in the transfer.
The Breland plaintiffs are seven female Dalkon Shield claimants who allege injuries caused by the Dalkon Shield. The complaint sought certification of a broad class of Dalkon Shield claimants. Plaintiffs sought relief on theories of negligence, strict product liability, conspiracy, RICO and insurance conspiracy in connection *757 with Aetna's conduct in providing product liability insurance for Robins. In addition, the complaint alleged that Robins and Aetna improperly settled litigation instituted by Robins relating to the meaning and scope of Aetna's policy coverage (the "coverage litigation") and that the Breland class was a third party beneficiary to such settlement.
Aetna answered the complaint denying all liability and raising several affirmative defenses. While Aetna sought to enforce the stay in other Dalkon Shield actions, it did not do so here. Counsel for Aetna represented to the Court that Aetna supported class certification as the most cost efficient procedure for resolving the question of Aetna's liability.
On July 23, 1986, the Court held a pretrial conference. The Court directed the parties to brief the class certification issues, but to engage in no other pretrial activity, such as discovery, so as to avoid any interference with Robins' reorganization efforts.
In briefing the class certification issue, Aetna stipulated that, if the action were certified as a class action and if the claims resolution in Breland could be coordinated with the claims resolution process in the Robins reorganization, Aetna would not separately litigate the non-common issues of individual medical causation and individual amount of damages. It would agree that all such issues would be resolved, if reached, in the claims resolution process.
On November 4, 1986, the Court lifted the stay for purposes of allowing the parties to engage in discovery. After conducting a hearing, the Court provisionally certified a class on December 29, 1986.
It should be noted that, prior to the provisional certification, a number of claimants' counsel appeared at one or more hearings and generally expressed the view that their opposition was not primarily to a class certification, but to a mandatory certification.
In February 1987, American Home Products Corporation ("AHP") offered to acquire Robins, allocating to the Dalkon Shield claimants the sum of $1.75 billion, which sum the Dalkon Shield Claimants' Committee agreed was satisfactory. Later that month, AHP withdrew its offer. Shortly thereafter, counsel for Aetna contacted counsel for AHP. AHP counsel communicated a concern over how to insure "global peace" if an acquisition were to proceed. That is, AHP questioned the wisdom of such a substantial investment where Dalkon Shield litigation against third parties, disruptive to the reorganizing or reorganized entity, could continue well beyond consumation of the merger a position which was clearly expressed at the Court's fairness hearing.
In April 1987, Robins filed its first proposed plan of reorganization. This standalone plan provided for the eventual payment of $1.75 billion for Dalkon Shield claims through a letter of credit facility.
Prior to the filing of the first proposed plan, Robins, through the efforts of the Court's Examiner, Ralph Mabey, began negotiations with the Rorer Group, Inc. ("Rorer") concerning a possible merger of the two companies. After such negotiations became known to other parties, Rorer communicated to Aetna its interest in having Aetna aid the reorganization effort. Rorer expressed its concern that claimants might exist who would not be compensated in the reorganization and would continue disruptive litigation. That information was communicated to Breland class counsel.
In late April, 1987, the Court, at a hearing relating to the Robins reorganization, inquired whether Aetna could provide an insurance policy which would be "excess" of the claimants' trust under the plan. Indeed, the Court had for some time prior thereto, in open court, been suggesting that Aetna should consider a method of participating in some manner to assist the reorganization efforts. On June 4, 1987, Aetna submitted to the Court a proposal that Aetna issue an insurance policy to the claimants' trust to cover the claims of those "future" claimants who had filed notices with the Court in the reorganization. On June 30, 1987, Aetna and Breland counsel met and Breland counsel rejected Aetna's proposal. Breland counsel made a *758 counter-proposal which Aetna rejected. During this period, the Court once more issued an informal stay of discovery.
At that meeting, the parties agreed that the amount of class counsel attorneys fees would not be discussed during settlement negotiations. That amount would not be determined until after the case was tried or settled.
On August 19, 1987, the Official Dalkon Shield Claimants Committee filed, by leave of the Court in the interest of avoiding future issues of statutory limitations, an adversary proceeding in its own right and on behalf of Robins. This complaint sought judgment against Aetna for contribution. Aetna, in turn, though denying any liability, filed a counterclaim for contribution against Robins. On September 4, 1987, the Committee's adversary proceeding was stayed, and on October 15, 1987, that proceeding and the Breland action were consolidated pursuant to Fed.R.Civ.P. 42(a) and Bankruptcy Rule 7042.
On August 21, 1987, Robins filed a second proposed plan of reorganization which contemplated a merger with Rorer. The proposed plan provided for a payment of $1.75 billion for Dalkon Shield claims. While negotiations continued in Breland, no significant progress was made in the summer or early fall.
From November 5 through November 11, 1987, the Court heard evidence on the estimated total value of the Dalkon Shield claims. Before, during and immediately after the estimation hearing, substantial efforts, with the Court's encouragement, were made to develop a consensual plan of reorganization. The possible settlement of Breland was included in those discussions. Indeed, class counsel took the position that Breland could not be settled apart from a consensual plan.
On December 11, 1987, the Court announced its finding that the aggregate value of Dalkon Shield claims and related administrative expenses was $2.475 billion payable over a reasonable period of time. This announcement led to new proposals being submitted by Rorer, AHP, and Sanofi. During this time, counsel for Sanofi contacted Breland counsel regarding the possibility of coordinating a settlement of the class action with the reorganization. Breland counsel, however, found Sanofi's proposal with respect to the reorganization unacceptable and declined to negotiate until such proposal was changed.
On December 17, 1987, the Court informed the parties that if a new plan and settlement proposal were not soon filed, the Court would lift the stay in Breland and set a new trial date. On January 1, 1988, Robins announced that it had accepted Sanofi's bid. New proposals were submitted by all three companies. It soon became apparent that Robins was most likely to accept the AHP proposal.
Intense negotiations ensued among counsel for Robins, the Official Dalkon Shield Claimants Committee, the Breland class, AHP, Aetna and other parties in interest. The Court's Examiner was present as an observer. The goal was to reach an overall resolution of all controversies including Aetna's proof of claim filed in the reorganization, the Breland action, and the Claimants' Committee's adversary proceeding. AHP took the position that the successor corporation to Robins must be as free as possible from the burdens and distractions of continuing litigation arising out of the use of the Dalkon Shield, no matter who the defendant might be. At these negotiations, Breland counsel made a final proposal, acceptable to all other parties, to Aetna. Aetna accepted, subject to approval of the Court. Settlement of the Breland action was made a condition precedent to the Robins/AHP merger and, ultimately, consumation of the Robins/AHP plan of reorganization.
Settlement Proposal
The structure of the settlement dovetails the proposed plan of reorganization as reflected by the class certification definitions. By order dated April 12, 1988, the Court clarified the definition of the Breland classes. Class A is defined as follows:
All those individuals who have complied, or are deemed to have complied by the demonstration of excusable neglect, with orders of the Federal District Court for *759 the Eastern District of Virginia governing the filing of proofs of claim and questionnaires noting the use of the Dalkon Shield.
Class B is defined as follows:
All other individuals who may have been eligible to comply with the orders of the Federal District Court for the Eastern District of Virginia but did not do so and are not deemed to have done so.
The proposed Robins/AHP plan of reorganization provides for the establishment of a Claimants' Trust. Class A members will be able to seek compensation from the trust. Class B members, however, may be procedurally barred from collecting against the trust. The proposed plan provides that some Class B members may collect against the trust only on a subordinated basis. Other Class B members will be completely ineligible.
The various components of the proposed Breland settlement would benefit both classes. If the settlement is approved, Aetna will make what is essentially a $75 million cash contribution to the Claimants' Trust. Specifically, it will pay $50 million directly into the Trust and $50 million to AHP, which will then pay $25 million into the Trust and return $25 million to Aetna as a partial premium on insurance. Furthermore, Aetna will provide three insurance policies totalling $350 million. One policy in the amount of $250 million is "excess" over the Claimants' Trust. That is, if and when the Trust is exhausted, Aetna will contribute up to $250 million to the Trust. The other two policies would respond to the claims of Class B members and have come to be known as the "outlier" policies. One $50 million policy would be available immediately and the other $50 million policy would be "excess" to the first. If unused for their primary purpose, the Trust excess and the outlier policies cross over to become excess to each other.
The evidence is unrefuted that the policies in question are unique, both as to coverage and limits, and they could not be placed in the commercial insurance market. Consequently, their commercial value cannot be calculated.
In valuing the settlement from the perspective of the claimants, they will at least receive the $75 million cash contribution to the Trust and, in all probability, the $50 million from the first outlier policy available upon the consumation date. The remaining $300 million in excess policies insures against the inadequacy of the established funds. If it becomes necessary to utilize the excess policies, the settlement value increases as moneys are expended to claimants. Accordingly, the maximum value of the settlement is $425 million, the total of the cash and the policies.
Standard of Review
In reviewing the proposed settlement, the Court is guided by the teachings of Flinn v. FMC Corp., 528 F.2d 1169 (4th Cir.1975), cert. denied, 424 U.S. 967, 96 S.Ct. 1462, 47 L.Ed.2d 734 (1976), which describes the factors to consider. Overall, the Court must evaluate the strength of the class claim on the merits. The Court shall not, however, change the fairness hearing into a trial. Id. at 1172. In addition, the Court need not conclusively decide unsettled issues at law. Id. at 1172-73.
In making this evaluation, the Court should consider the extent of discovery that has taken place, the stage of the proceedings, the absence of collusion in the settlement, the experience of class counsel and the attitude of the members of the class, as expressed directly or by failure to object. Id. at 1173. Each factor will be considered in turn.
Extent of Discovery and Stage of Proceedings
The procedural history is unusual in this case in that discovery was interrupted by several stays in order to prevent unnecessary disruption of the reorganization effort. Nevertheless, a substantial amount of discovery was conducted.
Another unusual aspect of this case is the extent to which discovery was available to the plaintiffs' bar prior to the filing of this lawsuit. A Minnesota law firm made available to the plaintiffs' bar its collection of documents and depositions obtained in *760 bringing nearly two hundred suits against Robins. Breland counsel studied these materials before instigating this lawsuit.
In addition, two special masters were appointed by the United States District Courts of Minnesota and Kansas to evaluate documents. Class counsel represented plaintiffs' interests in that discovery process and had access to the special masters' reports. Class counsel were also involved in 1982 in a protracted mail fraud criminal trial relating to the Dalkon Shield in which Aetna materials were explored.
Because of the suits filed against Aetna in the prepetition period, Aetna had directed all of its offices nationwide to collect and ship all Dalkon Shield or Robins related documents to a central depository in Hartford, Connecticut. Over one million documents and numerous transcripts of Aetna personnel taken in Robins cases were collected. Aetna provided class counsel access to this depository.
Commencing in February 1987 and continuing to April, 1987, class counsel, working in three and four person teams, actively reviewed, analyzed and cataloged documents at the depository. The reviewers marked certain documents for copying and shipping to Minnesota and requested that others be contemporaneously copied for immediate study. Aetna cooperated with their efforts.
Approximately 5,000 documents were reexamined at counsel's law offices. The most significant documents were culled and indexed.
After the documents were analyzed, class counsel prepared more than one hundred interrogatories and notified counsel for Aetna of their intention to depose several past and present Aetna employees. At that time, discovery was again stayed.
Class counsel testified that they would want to conduct more discovery before proceeding to trial. Efforts to reach fair and amicable settlements in lawsuits would constitute little saving in effort, expense and judicial expenditure of time if settlement awaited complete preparation for trial. Sufficient discovery to permit counsel and the parties to fairly evaluate the liability and financial aspects of a case are all that are either necessary or prudent. However, considering that Dalkon Shield litigation has been going on now for approximately fifteen years, class counsel already has had access to more information than counsel would in most cases. Cf. In re Corrugated Container Antitrust Litigation, 643 F.2d 195, 211 (5th Cir.1981) (reasonable evaluation by counsel need not be based on formal discovery where information is otherwise available), cert. denied, 456 U.S. 998, 102 S.Ct. 2283, 73 L.Ed.2d 1294 (1982). Counsel's substantial knowledge regarding Aetna's conduct enabled them to make a reasonable assessment of the strength of their case.
The expense and time with which an individual plaintiff would be faced in prosecuting a similar case would be staggering. Class action appears a reasonable method to afford claimants their day in court. The fact that the matter is here in consideration of a settlement does not detract from that established fact.
Experience of Class Counsel
The Breland class is represented by a team of seven law firms with broad and diverse experience and background. All counsel are members in good standing of their respective bars and have never been subject to discipline.
Joseph S. Friedberg's practice has consisted of criminal and civil litigation. He has participated in several cases, as here, involving alleged conspiracy. As mentioned above, he was involved in a document investigation and criminal trial relating to the Dalkon Shield. He is an experienced attorney given the highest rating in Martindale-Hubbell, as are each of the major class counsel. While those counsel opposing the settlement, who to a great extent also hold high professional ratings, made much of the fact that Mr. Friedberg is not known as a personal injury lawyer per se, the Court finds that not to be a necessary qualification. Indeed, the essence of the class case is a far cry from a run-of-the-mill personal injury tort case.
*761 Ronald I. Meshbesher is a senior partner in a product liability law firm. He has been president of the Minnesota Trial Lawyers Association. Like Mr. Friedberg, he was involved in Dalkon Shield litigation prior to the commencement of this suit.
John A. Cochrane has tried numerous personal injury suits. He has been lead counsel in several class actions. Douglas W. Thomson is an experienced trial lawyer in civil and criminal litigation. James Hovland is a civil litigator who specialized in Dalkon Shield cases for a number of years prior to the filing of this action. The Richmond firm of Bremner, Baber & Janus served as local counsel with Theodore Brenner ably coordinating the complex procedural aspects of this case. Herbert B. Newberg is a leading national authority on class action litigation.
The Court finds that class counsel are eminently qualified to represent the Breland class.
Absence of Collusion
The Court finds no evidence of collusion in negotiating the settlement. The settlement was the product of intense negotiations conducted in conjunction with negotiations regarding the Plan. It would be ludicrous to assert that collusion would have escaped the attention of the Court's Examiner, counsel for the Official Committee of Dalkon Shield claimants, and other parties representing diverse interests, all of whom are experienced and well seasoned veterans of litigation.
Counsel who oppose the settlement assert that the mere fact that this action, and no other, was allowed to go forward is indicative of collusion. They find it suspicious that Breland counsel chose to file a class action when they knew that other Dalkon Shield attorneys opposed the use of the class action device. These two assertions, however, cancel each other out. Aetna did not seek to enforce the stay because it believed the class action was the appropriate vehicle for resolving the question of its liability. Breland was the first such action filed.
Furthermore, some of the opposition attorneys appear to believe that they themselves have a right to litigate the issues and that that right somehow is being infringed upon by this class action. Some believe that class actions are always improper, and some primarily object to the mandatory aspect of the Court's certification. That belief, however, is not the law.
Counsel for the opposition also assert that the fact that Aetna will pay Breland counsel's fees is evidence of collusion. While the parties did agree that Aetna would pay the fees, they declined to discuss the amount so that it would not influence negotiations. If Aetna had not agreed to pay the fees, the Court assumes that Breland counsel would have sought payment out of the settlement or judgment after trial. Consequently, Breland counsel's settlement demands would have risen and the amount of fees would have become part of the settlement negotiations. The parties' actual arrangement was preferable and proper. It does not support an allegation of collusion.
Accordingly, the Court finds that Breland was conducted adversarily and the settlement was reached through arms' length negotiations.
Attitude of the Members of the Class
The precise size of the class is, at this time, impossible to calculate. However, the following figures are indicative of their approximate number.
Notice was provided to Class A members in the packages that contained Robins' disclosure statement. Approximately 220,000 of such packages were mailed.
Class B members who had filed claims in the reorganization also received notice by direct mail. 111,746 packages were mailed to such persons. Notice was also provided by publication that contained a mail-in coupon to receive a package. 14,099 such coupons were received and responded to.
Class B members were entitled to opt out. However, only 3,322 filed opt out requests. 2,960 of such requests were timely.
Prior to the hearing, approximately nine objections were filed, some by individual *762 claimants, others by attorneys representing a number of claimants. At the hearing, the objectors presented several affidavits from attorneys who opposed the settlement. Other class members, however, submitted gratuitous notices of their support of the class action. In addition, the Robins plan of reorganization, of which the Breland settlement is a part, was approved by 94.38 percent of the claimants who voted.
Thus, while there is disagreement, the vast majority of the classes appears to be in favor of the settlement.
Strength of the Case on the Merits
The crux of plaintiffs' complaint is that, beginning in the early 1970's and continuing into the 1980s, Robins and Aetna allegedly conspired to limit their liability. The evidence and arguments presented to the Court indicate, however, that the case is factually and legally flawed.
The first four counts of the Third Amended Complaint (negligence, strict liability, breach of express warranty, and fraud) relate to considering Aetna a joint participant in designing, manufacturing and labeling the Dalkon Shield. Breland counsel admits that these claims are weak. To elevate a product liability insurer to the position of a manufacturer and distributor would require proof of conduct quite peculiar for an insurer. No such evidence was presented to the Court.
In the fifth count, plaintiffs allege a violation of civil RICO. Aetna has brought authority to the attention of the Court that stands for the proposition that civil RICO excludes recovery for personal injury. Counsel for the opposition have not presented any contrary authority.
Plaintiffs' next two counts are conspiracy claims. Plaintiffs assert that Aetna and Robins conspired to limit their liability. They further contend that Aetna itself should have recalled the Dalkon Shield or at least disclosed the risks to the public. In a similar vein, plaintiffs assert that Robins conspired with McGuire, Woods, Battle & Boothe, a law firm that represented Robins in Dalkon Shield litigation. Because Aetna paid the costs of such representation, plaintiffs assert that Aetna is vicariously liable for the acts of the law firm.
The problematic nature of these claims is obvious. Both an insurer and an attorney owe duties to their insured/client to defend it and protect its confidences. Aetna was subject to an affirmative duty not to use or to communicate information which it received confidentially from its insured. Opposition counsel have brought no authority to the attention of the Court that indicates that an insurer has a duty to a third party that rises above its duty to its insured. Nor have they presented authority that holds that an insurer has the power to recall the product of the insured.
The vicarious liability argument is similarly flawed. Plaintiffs assert that the law firm was acting as an agent for Aetna because its fees were paid by Aetna. However, no authority has been brought to the attention of the Court that stands for the proposition that an insurer's paying counsel fees for the defense of a third party creates an agency relationship between the insurer and the law firm.
In addition to these formidable legal obstacles, the evidence presented in support of these theories is weak. There is evidence that Aetna had knowledge of the manner in which Dalkon Shield litigation was conducted. Beyond that, the evidence is limited. A special master who reviewed privileged documents testified that while there was strong evidence for a case against Robins, he could find no evidence of conspiracy with Aetna or other third parties. See Plaintiff's Exhibit 3A.
Lastly, plaintiffs claim that Robins and Aetna improperly settled the coverage litigation in 1987 and that they are third party beneficiaries to such settlement. Like the others, this claim faces legal and factual obstacles. First, it is not at all clear that plaintiffs have standing to pursue a claim based on a contract between Robins and Aetna. Second, the Court's Examiner investigated the settlement and concluded that there is little ground to set it aside.
Accordingly, the Court finds that plaintiffs have a weak case on all counts. Indeed, it is Aetna's position that there is no *763 case against it. Recognizing that the defense costs of numerous, even if meritless, cases against it would be substantial, Aetna decided it would prefer to make such funds available to claimants rather than attorneys and consequently agreed to settle. The weakness of the case against Aetna is underscored by the fact that AHP is paying a premium to Aetna, independent of the settlement outlined above, of $32 million for the policies Aetna is issuing.
Due Process
As previously mentioned, notice of the proposed settlement was given to Class A members in the Robins mailing of its disclosure statement. As for Class B, personal notice by direct mail was sent to approximately 112,000 persons who had submitted claims in the reorganization. The class notice was also published in 1,369 newspapers throughout this country and Canada. As the Court has already determined, the notice constitutes the best notice practicable under the circumstances.
Those objecting to the settlement were afforded a full and fair opportunity to be heard. The objectors combined their efforts and presented evidence and argument through a team of three competent lawyers.
Accordingly, the Court finds that the due process rights of unnamed class members were satisfied.
Conclusion
Upon evaluation of all of the relevant factors, the Court finds that the proposed settlement is reasonable, adequate and fair. Indeed, the proposed settlement is in the best interests of both classes of claimants.
An appropriate Order shall issue.
ORDER
For the reasons stated in the Memorandum this day filed and deeming it proper so to do, it is ADJUDGED and ORDERED as follows:
The proposed settlement in this cause is reasonable, adequate and fair; this cause stands DISMISSED WITH PREJUDICE except as to the issue of appropriate counsel fees.
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527 S.W.2d 382 (1975)
Myldred W. DEMKO, Plaintiff-Appellant,
v.
H&H INVESTMENT COMPANY et al., Defendants-Respondents.[*]
No. 35322.
Missouri Court of Appeals, St. Louis District, En Banc.
August 19, 1975.
Motion for Rehearing or Transfer Denied October 22, 1975.
Application to Transfer Denied December 8, 1975.
*383 Charles J. McMillin, Laura Andreas, St. Louis, for plaintiff-appellant.
Amelung, Wulff & Willenbrock, James J. Amelung, Gray, Friedman & Ritter, Charles E. Gray, Moser, Marsalek, Carpenter, Cleary, Jaeckel, Keaney & Brown, John J. Horgan, St. Louis, for defendants-respondents.
McMILLIAN, Judge.
Appellant, plaintiff in an action for personal injuries suffered in a fall on snow and ice slick pavement, seeks review of a jury verdict and judgment in favor of defendants. We affirm.
Plaintiff's petition sought damages for injuries she sustained in a fall in a parking area adjacent to a restaurant and motel in Columbia, Missouri. Plaintiff alleged the same acts of negligence against each of the defendants, but her theory of liability for each defendant was separately based on control of the area in which she had fallen. Specifically, she claimed that H&H and the Halls had possession and control of the parking lot area; that Bischof and Connie's had control of the means of ingress and egress from the restaurant to the parking area; and that Rodeway either had control or shared control of the parking lot with the other defendants.
Evidence was introduced at trial showing that the unimproved real property in question belonged to the Halls, and that the Halls had leased the property to H&H, *384 which constructed the restaurant and motel. H&H operated the motel, but leased the restaurant to Bischof, which, in turn, subleased to Connie's. Rodeway's connection with the other defendants is more tenuous. Evidence showed that initially Rodeway had entered into a license agreement with H&H to provide management services to H&H for the motel, but not to guests of the motel. There was also evidence that a Rodeway sign was located at the entrance of the parking lot (the motel was described by another sign as a Best Western Motel) and that city license records showed that Rodeway was authorized to do business in the city at the time of plaintiff's accident. At that time, however, Rodeway had no relationship of any kind with H&H or the motel.
The accident in question occurred as plaintiff was leaving the restaurant operated by Connie's and returning to her car. She testified that she slipped and fell on packed snow and ice as she stepped off the curb of a raised sidewalk onto the parking lot. Evidence was introduced tending to show that the restaurant's rain guttering and downspout system would have flooded the sidewalk in the vicinity of plaintiff's fall, and that snow had fallen in the Columbia area two days prior to the accident. Plaintiff also testified that she had not seen any snow or ice on the sidewalk or curb area when she entered the restaurant.
Defendants Bischof and Connie's contend that none of plaintiff's points of error should be considered because she failed to make a submissible case as to them and, therefore, any instructional errors were inconsequential. Watterson v. Portas, 466 S.W.2d 129 (Mo.App.1971) and Bafaro v. Pezzani, 376 S.W.2d 631 (Mo.App.1964). We agree that there was no submissible issue as to Bischof but disagree as to Connie's.
This case does not involve an injury on property abutting a public street or sidewalk,[1] nor was there a "special use"[2] or an "affirmative act."[3]. This is a parking lot case and the liability, if any, is based on a merchant's duty to invitees to provide a reasonably safe means of ingress and egress, Cannon v. S. S. Kresge, 233 Mo.App. 173, 116 S.W.2d 559 (1938). The duty is a duty to exercise ordinary care to keep its premises reasonably safe and to warn of any danger which is actually or constructively known to it and which invitees would not discover. Gilpin v. Gerbes Supermarket, Inc., 446 S.W.2d 615 (Mo.1969) citing Restatement, Torts 2d, § 343. "The basis for liability in this type of case is a knowledge of the storekeeper of an unsafe condition or of a danger to a shopper, superior to that of the invitee. . . ." Gilpin v. Gerbes Supermarket, Inc., supra, at p. 618, quoting Brown v. Kroger Co., 344 S.W.2d 80, 83 (Mo.1961) and Cunningham v. Bellerive Hotel, Inc., 490 S.W.2d 104 (Mo.1973). Furthermore, such liability cannot be avoided by contracting with others to maintain the entrance and exit areas. Cannon v. S. S. Kresge Company, supra. Therefore, it follows logically that the duty is owed by the "owner or possessor" or "occupant" of the land. Cunningham v. Bellerive Hotel, Inc., supra; Gilpin v. Gerbes Supermarket, Inc., supra; Potter v. Zorensky, 508 S.W.2d 21 (Mo.App.1974); Willis v. Rivermines I. G. *385 A. Supermarket, 350 S.W.2d 437 (Mo.App. 1974); Restatement, Torts 2d, § 343, Annot., 38 ALR 3d 23.
Connie's was the occupant or possessor of the land. Bischof merely leased the land from H&H Investment Co. and subleased it to Connie's. The fact that Bischof had contracted with H&H to maintain the leased premises is immaterial to the liability in this suit. Rather, the determinative factor is that Connie's could have had the superior knowledge which precedes both duty and liability. Bischof could not. Bischof had a contractual obligation to H&H but no duty to patrons of Connie's. Therefore, Bischof was entitled to a directed verdict as a matter of law; there was not a submissible case as to Bischof.
Despite the duty that Connie's owed to its patrons, the case would not have been submissible as to Connie's if Connie's could have shown as a matter of law either that there was no actionable negligence or that plaintiff was guilty of contributory negligence. Here, there was ice on the parking lot, so Connie's affirmative duty to make safe or warn was properly in issue. Also, there was no evidence on the "obviousness" of the danger sufficient to remove the contributory negligence issue from the case. Reasonableness is a jury question. Dean v. Safeway Stores, 300 S.W.2d 431 (Mo.1957); Abel v. Campbell 66 Express, Inc., 378 S.W.2d 269 (Mo.App.1964); Willis v. Rivermines I. G. A. Supermarket, supra. Since Connie's did have a duty and was not entitled to a directed verdict as a matter of law, plaintiff did make a submissible case as to Connie's.
Plaintiff's major allegations of error concern the instructions given the jury by the trial judge. First, she argues that defendants' converse instructions were defective because they did not contain "substantially the same language" of her verdict directors. MAI 33.01.
Plaintiff gave separate verdict directing instructions for each defendant and each instruction required a finding that "defendant failed to use ordinary care." Defendants H&H, Bischof and Connie's, on the other hand, gave identical converse instructions, each of which required a verdict for that defendant unless the jury found the defendant "negligent." Plaintiff's verdict director defined "ordinary care" as that "degree of care that an ordinarily careful and prudent person would use under the same or similar circumstances." Defendants' converse instruction defined "negligence" as "the failure to use `ordinary care' which means that degree of care that an ordinarily careful and prudent person would use under the same or similar circumstances."
MAI 33.01 requires a converse instruction to contain substantially the same language as the verdict directing instruction in order to prevent a jury from returning a verdict based on its interpretation of a term of law which neither appears in the verdict director nor is defined. Brewer v. Swift & Company, 451 S.W.2d 131, 133 (Mo. banc 1970). That danger is not present in this case. Whatever the semantic differences in the instructions given the jury, all instructions in question here included definitions of "ordinary care" and "negligence" which used identical language. Thus we cannot say, as the court said in Brewer, that the jury was given a roving commission to substitute its own notion of the proper interpretation of a term of law.
The question remains, however, whether the failure of defendants to use "substantially the same language" in their converse instructions constituted reversible error. We think not. All terms used in the instructions were defined in identical language. Further, plaintiff's verdict directors *386 referred directly to defendants' contributory negligence instructions where the term "negligent" was properly used. In these circumstances it is difficult to conceive how the jury was confused or misled. Juries are, after all, ". . . composed of ordinarily intelligent persons who should be credited with having common sense and an average understanding of our language." Wims v. Bi-State Development Agency, 484 S.W.2d 323, 325 (Mo. banc 1972). We assume that jurors follow the instructions given them. Girratono v. Kansas City Public Service Co., 363 Mo. 359, 251 S.W.2d 59 (Mo.1952). Therefore, while the failure of defendants H&H, Bischof and Connie's to use substantially the same language in their converse instructions as used in plaintiff's verdict directors did not comport with previous decisions, we find that the instructions, when read together, that is, plaintiff's verdict directors and definitions given in defendants' converse instructions are clear and complete and we cannot find any reversible error.
In her second charge of error concerning the converse instructions, plaintiff argues that the trial court should not have permitted all defendants to give separate converse instructions where plaintiff's verdict directors were submitted against defendants H&H, Bischof and Connie's on a single theory of liability. Missouri courts have recognized the basic premise behind plaintiff's argument, namely, that multiple converse instructions against a single theory of liability constitutes reversible error. In Murphy v. Land, 420 S.W.2d 505, 506-507 (Mo.1967), a suit for personal injuries suffered by a child, the plaintiff submitted two verdict directors: one for damages incurred by the child, the other for medical expenses incurred by the parents. Defendant gave two converse instructions. The court held that a defendant was not entitled to give two converse instructions where the two verdict directors were submitted under the same theory of liability. The court said that multiple converse instructions to a single theory of recovery violated the spirit of MAI 29.01 (now MAI 33.01) ". . . which states that a defendant is entitled to a converse of plaintiff's verdict directing instruction . . .." supra, at 507. Similarly in Nugent v. Hamilton & Sons, Inc., 417 S.W.2d 939 (Mo.1967), the court held that two defendants were entitled to only one converse instruction where the liability of one defendant rested on the liability of the other under the respondeat superior doctrine. See also Watterson v. Portas, 466 S.W.2d 129 (Mo.App.1971) and Scheele v. American Bakeries Co., 427 S.W.2d 361 (Mo.1968).
These cases do not, however, deal directly with the problem presented here, where a single plaintiff seeks to recover against multiple defendants for a single act of negligence but on separate theories of liability. Here, plaintiff submitted for the act of negligence against H&H its failure "to use ordinary care to make the parking lot reasonably safe." However, as to defendants Bischof and Connie's, plaintiff submitted the issue of the negligence of these defendants in failing either "to remove" or "to warn" of ice and snow. The "failure to remove" was a failure to make the parking lot reasonably safe, but the act of "failure to warn" was a separate and distinct act of negligence. Thus, as to Bischof and Connie's there was no "single act of negligence," but, on the contrary, disjunctive acts were submitted. Nothing was contained in plaintiff's submission against H&H about failure to warn. So, too, plaintiff's verdict director as to H&H required a finding "the parking lot was in the control of . . . H & H . . . and was used by restaurant customers with the consent of . . . H & H . . .." On the other hand, plaintiff's verdict director as to Bischof and Connie's required a finding "there was snow and ice on the parking lot . . . the means of egress from the *387 restaurant provided by . . .." Bischof and Connie's respectively in separate submissions.
The Notes on Use to M.A.I. 33.02 and 33.03 specifically provide that when multiple verdict directing instructions submitting different theories of recovery are given, a converse instruction may be given for each verdict directing instruction. The Notes on Use also provide, "When plaintiff submits two separate verdict directing instructions, defendant may converse each such submission with any of the approved converse instruction forms. . . ." (MAI 33.15, pocket part p. 114).
Our research has revealed no judicial decision involving the issue of whether or not each defendant is entitled to give a converse instruction where plaintiff gives a separate verdict directing instruction as to each defendant and there is no relationship existing between the defendants under which a jury would be required to find against all or neither defendant. Inasmuch as Notes on Use apply to converse instructions which specifically permit a defendant to give a converse to each instruction where plaintiff submits two verdict directing instructions, Notes on Use, MAI 33.15, it would certainly seem to authorize each defendant to give a converse where plaintiff submits separate verdict directing instructions. Notes on Use, MAI 33.02 and 33.03 would compel the same conclusion.
The MAI directive that, a "defendant may give only one converse for each verdict directing instruction" cannot be interpreted to mean that all defendants are restricted to one converse even though the plaintiff submits a verdict directing instruction as to each defendant. Especially is this true where there is no derivative liability existing among the defendants as in this case.
In the cases involving one defendant the parties-plaintiff had submitted identically worded instructions on the issue of negligence. Thus in submitting a converse instruction the single defendant's instruction could have been readily combined into a single instruction and have still followed the example contained in MAI. Murphy v. Land, supra; Watterson v. Portas, 466 S.W.2d 129 (Mo.App.1971) (Where father and son sued for injuries to son, giving two verdict directors on the ground of negligence-lookout, speed, and wrong side of the road, each asking different damages; held to be error for single defendant to give two converses.) and Wyatt v. Southwestern Bell Telephone Co., 514 S.W.2d 366 (Mo.App. 1974) (Husband and wife parties-plaintiff).
In those cases involving two defendants there was a relationship existing between the defendants so that a jury could only find against both or neither of them. In such instances the defendant could have given only one converse which would have followed an approved MAI converse. Nugent v. Hamilton & Sons, Inc., 417 S.W.2d 939 (Mo.1967) (Master and servant were defendants); Scheele v. American Bakeries Co., 427 S.W.2d 361 (Mo.1968). In Nugent the Supreme Court first used the "sheer volume of words" test, and justly so, because defendants (Master and servant) gave three separate lengthy converse instructions, which clearly was violative of MAI.
As a practical matter where there are multiple opposing parties defendant, such as the case herein, querywhich defendant takes the responsibility for giving the single converse? And, if it is determined to be erroneous, is it reversible error as to a defendant who in the trial court objects to the giving of the instruction offered by the other defendant but yet given by the court? In our opinion justice is not served by a ruling which requires opposing defendants, each of whom are defending their rights to agree upon the wording of one converse, when each of them are required to defend against a verdict directing instruction directed *388 specifically against them on a separate theory of liability. An example of how error can creep in by trying to give one converse where two verdict directing instructions are involved is the case of Burrow v. Moyer, 519 S.W.2d 568 (Mo.App. 1975). The situation in the Burrow case was similar to that present in Murphy and the Watterson cases. The court in the Burrow case specifically held, ". . . A single converse is used only in cases where defendant intends to converse the same theory in each of plaintiffs' verdict directors."
In the present case plaintiff has asserted a separate and distinct theory against each defendant, and, accordingly, submitted a separate verdict directing instruction as to each defendant. Having chosen to submit in this manner, plaintiff certainly cannot be heard to complain that the jury was confused by the sheer volume of words, especially where the "sheer volume of words" has been created by the plaintiff. Consequently, we rule that where a plaintiff asserts a separate theory of liability against multiple defendants where there is no derivative liability existing among the defendants, and plaintiff submits a separate verdict instruction as to each defendant, then each defendant may submit a separate converse instruction.
The converse instructions submitted by Rodeway and the Halls raised additional elements of proof required against them if plaintiff were to recover. Rodeway's converse instruction omitted any reference to negligence and asked for a verdict in its favor if the jury found that it neither controlled nor shared control of the parking lot. Similarly, the Hall's converse instruction omitted the negligence issue and required a verdict in their favor if the jury found that they were not in possession or control of the parking lot.
Since plaintiff undertook proof of these additional elements of proofpossession or controlagainst Rodeway and the Halls and since these defendants raised these issues in their defense, we find that the separate converse instructions submitted by Rodeway and the Halls were also proper and permissible. Both instructions converse separate theories of recovery and both fall within the "spirit" of MAI No. 33.01 entitling a defendant to "a converse of plaintiff's verdict directing instruction." Murphy v. Land, supra, at 507.
Following the reasoning of her objection to multiple converse instructions, plaintiff contends that the trial court erred in allowing four of the defendants to submit separate, but identical, contributory negligence instructions. MAI No. 32.01, relating to contributory negligence, does not specifically condemn multiple instructions as does MAI No. 33.01. However, the use of multiple contributory negligence instructions does seem, as plaintiff argues, to unduly overemphasize the defense by needless repetition.
In any event, none of plaintiff's authorities cited by plaintiff required defendants to combine their contributory negligence submissions. Since the Missouri Supreme Court has not seen fit to make the same requirement for contributory negligence instructions as it did for converse instructions, it would be patently unfair to convict the trial court of error in this regard. Therefore, we rule this point against plaintiff.
Plaintiff also urges that the contributory negligence instructions[4] were erroneous *389 because they omitted any requirement of a finding that the plaintiff had actual or constructive knowledge or appreciation of the danger citing Koirtyohann v. Washington Plumbing & Heating Co., 471 S.W.2d 217 (Mo.1971); Bledsoe v. Northside Supply & Development Co., 429 S.W.2d 727 (Mo.1968) and Davidson v. International Shoe Co., 427 S.W.2d 421 (Mo.1968). Because it is established law that before a party can be found contributorily negligent, there must be a finding that he acted or failed to act with knowledge and appreciation, actual or constructive, of the danger of injury resulting from his conduct, Koirtyohann v. Washington Plumbing & Heating Co., supra. To omit a requirement for such a finding from a contributory negligence instruction is error, Bledsoe v. Northside Supply & Development Co., supra and Davidson v. International Shoe Co., supra.
We agree that each of these cases does stand for the proposition of law now being urged by plaintiff. But the instant case is readily distinguishable from the Koirtyohann, Bledsoe and Davidson cases.
In the Koirtyohann case the decedent dug a trench about 300 feet in length, but because of a culvert and a creek he had to stop. To dig the trench deeper, another operator was called in who deepened the trench and piled the excavated dirt on the side of the trench. When the operator could go no farther, the deceased returned to the trench to carry on the digging necessary to be done by a hand shovel. In the meantime, while the operator was digging on the other side of the culvert, the south wall, where the excavated dirt was being placed, caved in. The court pointed out that where mere knowledge of a general condition does not necessarily impart knowledge and appreciation of the danger, then the instruction should require a finding of knowledge and appreciation either actively or constructively.
The Bledsoe case reached a similar conclusion because the instruction in question failed to require a finding that plaintiff had actual or constructive knowledge that the plane was overloaded, where plaintiff neither loaded the plane nor determined its load.
The holding in the Davidson case is based upon the same principle involved in the Koirtyohann and the Bledsoe cases. Davidson involved a situation where plaintiff stepped on a portable step which tilted causing him to fall. There was no evidence that the mere observation of the step would impart knowledge and appreciation of the danger.
Plaintiff's present assertion of error is directly answered by this court's opinion in Fehlbaum v. Newhouse Broadcasting Corp., 483 S.W.2d 664, 666: "Plaintiff also contends that the instruction was a variation from M.A.I. because it fails to require a finding of knowledge of the danger on the part of the plaintiff. This contention is answered by Helfrick v. Taylor, Mo., 440 S.W.2d 940[4], where exactly the same instruction was approved in a case quite similar to this one. Plaintiff's reliance on Davidson v. International Shoe Co., Mo., 427 S.W.2d 421, is misplaced. There, the plaintiff stepped onto a step which tilted causing the fall. There was no evidence that had plaintiff looked he would have been aware of the danger of the step tilting. That is not the case here, for had plaintiff looked she could hardly have failed to appreciate the danger." So, we rule this point against plaintiff and hold the giving of a failure to keep a careful lookout instruction was proper under the evidence of the case.
While plaintiff's contention that the court erred in excluding evidence of a municipal ordinance of the city of Columbia has merit, we do not find the error to be so prejudicial as to warrant a reversal. Plaintiff's *390 theory was that the patch of ice upon which she fell was caused by the uncontrolled discharge of water from the swale or water pan over the parking area. While it is true that the ordinance in question concerned itself with public streets and sidewalks and that the duty imposed thereunder was one owed to the City by the owner or occupier; yet, it was proper for plaintiff, if she could, to establish the custom, usage and the standard of care required in the construction of downspouts in the city of Columbia, Schulte v. Graff, 481 S.W.2d 596, 600 (Mo.App.1972). Here plaintiff pleaded and offered to prove by an expert witness what the custom and the use was on the construction of downspouts in the Columbia area. To reject such an offer was error under the circumstances shown herein, but, in our opinion, such error did not materially affect the merits of the action. Rule 84.13(b), V.A.M.R.
We have examined carefully all other claims of plaintiff pertaining to the introduction of evidence and read her citation in support thereof. In our opinion, none of the claimed errors, if error, would either materially affect the merits or would have any precedential value.
Judgment affirmed.
SMITH, C. J., and GUNN, SIMEONE, CLEMENS, WEIER and RENDLEN, JJ., concur.
NOTES
[*] Editor's Note: The opinion in Brasel v. State, published in the advance sheets at 527 S.W.2d 382 was withdrawn from the bound volume on transfer to the Supreme Court on that Court's own motion.
[1] See generally 63 C.J.S. Municipal Corporations § 861 (1950); Annotated 88 ALR 2d 331.
[2] See generally State ex rel. Shell Petroleum Corp. v. Hostetter, 348 Mo. 841, 156 S.W.2d 673 (1941); O'Connell v. Roper Elec. Co., Inc., 498 S.W.2d 847 (Mo.App.1973); Martin v. Gilmore, 358 S.W.2d 462 (Mo.App.1962); Annotated 88 ALR 2d 331, 380-99.
[3] See generally Berry v. Emery, Bird, Thayer Dry Goods Co., 357 Mo. 808, 211 S.W.2d 35 (1948); Levine v. Jale Corp., 413 S.W.2d 564 (Mo.App.1967); Hart v. City of Butler, 393 S.W.2d 568 (Mo.1965); Annot., 88 ALR 2d 331, 361-64.
[4] "Instructions No. 10 and No. 13 properly required that before the jury could find that plaintiff was guilty of contributory negligence, they must find:
"First: Plaintiff failed to keep a careful lookout, and
"Second: Plaintiff's conduct in the respect submitted in Paragraph First was negligent, and
"Third: Such negligence of plaintiff directly caused or directly contributed to cause any damage plaintiff may have sustained."
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597 F.2d 770
U. S.v.Hernandez-Fernandez#
No. 78-5659
United States Court of Appeals, Fifth Circuit
6/1/79
1
S.D.Fla.
AFFIRMED
# Local Rule 21 case; see NLRB v. Amalgamated Clothing Workers of America, 5 Cir., 1970, 430 F.2d 966.
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268 F.2d 206
LEATHERHIDE INDUSTRIES, INC., Debtor-Appellant,v.Sidney LIEBERMAN, Objecting Creditor-Appellee.
No. 320, Docket 25590.
United States Court of Appeals Second Circuit.
Argued April 8, 1959.Decided June 29, 1959.
Bernard J. Coven, New York City, for appellant.
Louis P. Rosenberg, Brooklyn, N.Y. (Alfred A. Rosenberg, Brooklyn, N.Y., of counsel), for appellee.
Before HINCKS, LUMBARD and WATERMAN, Circuit Judges.
PER CURIAM.
1
On April 8, 1958 debtor filed a petition for an arrangement under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. 701 et seq. A proposed arrangement was not accepted at a duly notified meeting of creditors, and, after the Referee on August 29 adjudged debtor bankrupt and directed it to proceed in bankruptcy, debtor then, within a month, filed a petition under Chapter X, 11 U.S.C.A. 501 et seq., seeking a corporate reorganization. This Chapter X petition having been dismissed by the district court, debtor appealed to us. We remanded the action because at that time the record disclosed that the court below had not made adequate findings to support its dismissal order, Leatherhide Industries, Inc. v. Lieberman, 2 Cir., 1958, 261 F.2d 560. The case is now once more before us. Upon remand the district court adhered to its former disposition. This time it spelled out its findings that debtor had proposed no plan of reorganization that was either possible or feasible, and it also found that the Chapter X petition was not filed by the debtor in good faith.
2
The findings of fact upon which the court below predicated its present order of dismissal are clearly correct. There is no evidence or assurance of any commitment by anyone that any additional capital funds are legitimately available to justify a court's certificate of approval of a reorganization. The pending bankruptcy proceedings initiated by the Chapter XI petition should go forward without further delay.
3
Affirmed.
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IN THE SUPREME COURT OF MISSISSIPPI
NO. 96-KA-01251-SCT
DAVID B. CORRY AND PAUL J. CORRY
v.
STATE OF MISSISSIPPI
DATE OF JUDGMENT: 10/18/96
TRIAL JUDGE: HON. FORREST A. JOHNSON, JR.
COURT FROM WHICH APPEALED: AMITE COUNTY CIRCUIT COURT
ATTORNEY FOR APPELLANTS: MICHAEL B. CUPIT
ATTORNEY FOR APPELLEE: OFFICE OF THE ATTORNEY GENERAL
BY: SCOTT STUART
DISTRICT ATTORNEY: GEORGE WARD
NATURE OF THE CASE: CRIMINAL - MISDEMEANOR
DISPOSITION: AFFIRMED - 4/9/98
MOTION FOR REHEARING FILED:
MANDATE ISSUED: 4/30/98
BEFORE PRATHER, C.J., SMITH AND WALLER, JJ.
SMITH, JUSTICE, FOR THE COURT:
¶1. David B. Corry and Paul J. Corry appeal to this court their convictions from a trial de novo
without a jury in the Circuit Court of Amite County. On November 25, 1995 David Corry and Paul J.
Corry were charged with various hunting violations. Specifically, David Corry was charged with the
criminal offenses of hunting deer without orange, hunting deer over bait, and hunting deer without a
license. Paul Corry was charged with the criminal offenses of hunting deer without orange and
hunting without a license. On a first impression issue, we determine that § 49-7-33, our "baiting"
statute is constitutional. There is no merit to any of the issues raised by the Corry's.
¶2. The following sequence of events led up to the charges filed against the Corrys.
FACTS
¶3. Sometime around October 7, 1995, Mississippi Wildlife and Fisheries conservation officer Donald
Foreman received information from a confidential source that someone was hunting deer over ground
baited with shelled corn on Micheal Cupit's(1) land. Subsequently, on November 25, 1995, Officer
Foreman, accompanied by Officer Ricky Long, went to the location where the hunting violations
were allegedly occurring. In order to reach the Cupit property, the officers crossed over land owned
by Merkle Brady and E. L. Caston. Officer Long testified that while standing on land adjacent to
Cupit's, he observed an individual on Cupit's land in a tree stand (approximately 15 to 20 feet off the
ground) with a gun but not wearing orange. Officer Long then entered Cupit's land and ascertained
that the individual in the tree stand was Paul Corry. Officer Foreman testified that he had already
crossed onto Cupit's land when Officer Long made him aware of the individual in the tree stand. The
defendants noted this difference in testimony. The remaining facts are not in controversy.
¶4. Paul Corry told the officers that his brother, David Corry, was also hunting somewhere on the
Cupit property. There was no corn found around Paul, therefore, he was only charged with hunting
deer without orange and hunting without a valid license. However, Officer Foreman then located
David Corry and charged him with hunting over bait, hunting deer without orange, and hunting
without a valid license(2). Officer Foreman indicated that there was a four foot circle full of shelled
corn located about thirty yards in front of the stand where David Corry was hunting.
¶5. On December 13, 1995, Paul and David Corry were found guilty of all the charges in the Justice
Court of Amite County, Mississippi. On October 9, 1996, an appeal was taken to the Circuit Court of
Amite County, Mississippi, where the case was tried de novo without a jury. During the course of the
trial, the defendant's attorney, Michael B. Cupit, entered a motion to require the game wardens to
disclose the identity of the confidential informant (which was taken under advisement and ruling
reserved) and a motion to suppress the evidence (which was overruled). The defendants did not
present any witnesses nor did they testify. On October 14, 1996, the Circuit Court judge entered an
Order finding the defendants guilty of all charges and assessed a $100 fine per charge along with
court costs. The trial court's order specifically found that Officer Long's personal observations gave
the officers probable cause to believe violations were occurring and thus the right to proceed onto
Cupit's property without a search warrant and issue the citations.
¶6. Also on October 14, 1996 the defendants, by and through their attorney Cupit, filed a Motion to
Rule on Requests Taken Under Advisement specifically requesting that the trial court require the
game wardens to disclose the confidential informant's identity. On that same date the Circuit Court
entered another Order denying the defendant's motion to disclose the confidential informant's identity,
specifically stating that the court found that Officer Long had probable cause to enter Cupit's land
based on his personal observations and without regard to any information provided by the
confidential informant. Subsequently, on October 18, 1996, the Circuit Court entered an Amended
Order which reinstated the previous findings of the October 14, 1996 Order and additionally found
that Miss. Code Ann. § 49-7-33 is constitutional.
¶7. The defendants appeal the Circuit Court's decision to this Court and raise the following issues:
I. DID THE TRIAL COURT ERR IN FAILING TO FIND THAT THE GAME
WARDENS' ACTIONS IN THIS CASE VIOLATED ARTICLE 3, SECTIONS 23 AND
26 OF THE MISSISSIPPI CONSTITUTION (1890) AND THE FIFTH AND
FOURTEENTH AMENDMENTS TO THE UNITED STATES CONSTITUTION (1787)
?
II. DID THE TRIAL COURT ERR IN DENYING DEFENDANT'S MOTION TO
SUPPRESS?
III. DID THE TRIAL COURT ERR IN FAILING TO COMPEL THE GAME
WARDENS TO IDENTIFY THEIR "CONFIDENTIAL INFORMANT"?
IV. IS MISS. CODE ANN. § 49-7-33 (1972) UNCONSTITUTIONAL?
LEGAL ANALYSIS
I. DID THE TRIAL COURT ERR IN FAILING TO FIND THAT THE GAME
WARDENS' ACTIONS IN THIS CASE VIOLATED ARTICLE 3, SECTIONS 23 AND
26 OF THE MISSISSIPPI CONSTITUTION (1890) AND THE FIFTH AND
FOURTEENTH AMENDMENTS TO THE UNITED STATES CONSTITUTION (1787)
?
¶8. The Corry's allege that the conservation officers conducted an illegal search in violation of the
Mississippi Constitution and the United States Constitution because they did not have a search
warrant and because they trespassed across three different tracts of land to make the arrests involved
in this case. They cite several Mississippi Supreme Court cases in support of their contention that
because the officers trespassed, their subsequent search of the land and of the defendants was illegal.
They further allege that because the search was illegal, any information gained from the defendants
should have been suppressed.
¶9. The Corry's maintain that the officers trespassed across two tracts of adjoining property owned
by Merkle Brady and E.L. Caston respectively. We hold that the defendants do not have standing to
assert a trespass on property other than their own. Trespass is not a strict liability crime as the
defendants would like for us to believe. This is evidenced by the provision in the statute that the
landowner can dismiss any prosecution under this section. See Miss. Code Ann. § 97-17-93 (Supp.
1997). "This Court has repeatedly held that a defendant cannot complain of an unlawful search of the
premises of another, or where he has no right of possession such as to make him the owner for the
time being." McBride v. State, 221 Miss. 508, 517, 73 So.2d 154, 157 (Miss. 1954) (citations
omitted). Likewise, a defendant cannot complain of a trespass on the premises of another. It is for the
landowner or their agent to assert the charge of trespass. Accord Valley Forge Christian College v.
Americans United for Separation of Church and State, 454 U.S. 464, 474, 102 S.Ct. 752, 759, 70
L.Ed.2d 700 (1982) (a party may not rest his legal claims upon the rights of third parties); Baltimore
Gas and Elec. Co. v. Lane, 656 A.2d 307, 313 (Md. 1995) (right to exclude others from property is
an incidence of legal possession); State v. Gaulke, 503 N.W.2d 330, 332 (Wis. Ct. App. 1993)
(defendants lack standing to assert alleged trespass on their father's property).
¶10. The defendants further maintain that the conservation officers trespassed upon Cupit's land in
order to ascertain whether a hunting violation was occurring. Granted, lessor Cupit and the lessees,
Paul and David Corry, have standing to assert a claim of trespass. However, in this case the trial
court specifically found that the officers had probable cause to enter the land based on Officer Long's
personal observations that led him to believe that hunting violations were then and there occurring.
Pursuant to Mississippi statute "[a]n officer . . . may arrest any person without warrant, for an
indictable offense committed, or a breach of the peace threatened or attempted in his presence . . .."
Miss. Code Ann. § 99-3-7 (1994).
An offense is being committed in the presence of an officer when he acquires knowledge thereof
through one of his senses. Where through the sense of sight, or smell, or hearing, an officer
receives knowledge that an offense is being committed in his presence, he may arrest the
offender without a warrant.
Moss v. State, 411 So. 2d 90, 95 (Miss. 1982) (citing Reed v. State, 199 So. 2d 803 (Miss. 1967)).
Accordingly, in the case at bar we hold that once the officers observed a violation of the law being
committed in their presence, they had the authority to enter Cupit's land and make a warrantless
arrest and a search incident to that arrest.
¶11. The trial court is the finder of fact and made the specific finding that the officers had probable
cause to enter Cupit's land based on Officer Long's personal observations. This Court will not
overturn the trial court's decision unless the decision was manifestly wrong. "When a trial judge sits
without a jury, this Court will not disturb his factual determinations where there is substantial
evidence in the record to support those findings." Yarbrough v. Camphor, 645 So. 2d 867, 869
(Miss.1994) (citing Omnibank of Mantee v. United S. Bank, 607 So. 2d 76, 82 (Miss.1992)). "'Put
another way, this Court ought and generally will affirm a trial court sitting without a jury on a
question of fact unless, based upon substantial evidence, the court must be manifestly wrong.'" Id.
(quoting Tricon Metal v. Topp, 516 So.2d 236, 238 (Miss.1987); Brown v. Williams, 504 So.2d
1188, 1192 (Miss.1987)).
¶12. Officer Long testified that he observed an individual in a tree stand (approximately 15 to 20 feet
above ground) with a gun but not wearing hunter orange. Officer Long further testified that based on
his fifteen years of experience, he believed that the individual was hunting deer and in Mississippi
individuals are required to wear hunter orange while hunting deer.(3) In contention, the defendants
point out that hunter orange is not required while hunting squirrel and Officer Long could not have
been certain whether the individual in the tree was hunting deer or hunting squirrel. Therefore, they
maintain that Officer Long did not have probable cause to enter the Cupit land without a search
warrant. However, Officer Long indicated that in his fifteen years of experience he had never known
anyone to hunt squirrels from a tree stand. In addition, Officer Long had information that individuals
were hunting over bait on the Cupit property. Accordingly, it is highly unlikely that an individual
would be hunting squirrel from a tree stand with corn poured out over the ground. Thus, it was
reasonable for Officer Long to believe that the individual was hunting deer without wearing hunter
orange. Consequently, Officer Long had probable cause to believe that a crime was occurring in his
presence and further had the right to enter onto Cupit's land without a search warrant. The trial
court's finding "that the personal observations of Officer Ricky Long in seeing the individual deer
hunting in a high tree stand, without the required hunter's orange, gave the officers probable cause to
believe that hunting violations were being [sic] then and there being committed on the property in
question, and the right to proceed onto the property and subsequently write the citations against the
defendants" was fully supported by the evidence contained in the record. The fact that the officers
recovered a high-powered rifle, and a 30-30 rifle, as well as a shotgun (twelve gauge and 30-30)
loaded with buckshot from the hunters lends further support for the officer's reasonable belief that
deer were being hunted rather than squirrel, and that other violations while hunting deer were
occurring. Accordingly, the trial court's finding that the officers had probable cause to enter the Cupit
property was not manifestly wrong and will not be overturned by this Court.
¶13. It should be noted that all of the cases the defendants cite in support of their contention of an
illegal search are distinguishable from the case at bar. In all of the cases relied upon by the
defendants, the game wardens or law enforcement officials' entry upon the defendant's land was not
based upon their attempts to thwart the commission of a crime in progress. Instead, the officials
entered the defendant's land without a search warrant to obtain evidence of illegal activity. In none of
the cases cited by defendants had the officials actually observed a crime in progress. Tucker v. State,
128 Miss. 211, 90 So. 845 (1922) (constable searched defendant's house and land without a warrant
and found whiskey and a still); State v. Patterson, 130 Miss. 680, 95 So. 96 (1923)(4) (officers took
a bottle of whiskey from the defendant's person after hiding to apprehend owner of found jug of
whiskey); Owens v. State, 133 Miss. 753, 98 So. 233 (1923) (officers obtained evidence of Owens'
guilt by searching his land without a search warrant); Falkner v. State, 134 Miss. 253, 98 So. 691
(1924) (officers found still after entering defendant's property without a search warrant); Helton v.
State, 136 Miss. 622, 101 So. 701 (1924) ( officers found two kegs of liquor after entering
defendant's property without a search warrant); Barnard v. State, 155 Miss. 390, 124 So. 479 (1929)
(officers found a still after entering property leased by the defendant without a search warrant); Davis
v. State, 144 Miss. 551, 110 So. 447 (1926) (officers entered land defendant was using with the
owner's permission without a search warrant); Feazell v. State, 217 Miss. 879, 65 So. 2d 267 (1953)
(officers entered defendant's property without a search warrant and found whiskey); Davidson v.
State, 240 So. 2d 463 (Miss. 1970) (officer entered defendant's property without a search warrant
and found evidence of a stolen tractor); Issacks v. State, 350 So. 2d 1340 (Miss. 1977) (marijuana
obtained from defendant's property based on search warrant later found to be void); Joyce v. State,
227 Miss. 854, 87 So. 2d 92 (1956) (officers entered defendant's land to obtain evidence of livestock
theft); Arnett v. State, 532 So. 2d 1003 (Miss. 1988) (storm shed was within curtilage of defendant's
house and thus within scope of search warrant).
¶14. The cases relied upon by the defendants are not controlling, since the case at bar is
distinguishable from each of these cases. In the case at bar the trial court held that the officers did not
trespass upon the land leased by the defendants because they observed a violation of law in progress
before entering the defendants' land. This Court finds that the trail court's holding was not manifestly
wrong, therefore, it will not be disturbed on appeal.
II. DID THE TRIAL COURT ERR IN DENYING DEFENDANTS' MOTION TO
SUPPRESS?
¶15. The defendants allege that the trial judge should have granted the motion to suppress "because
what the game wardens saw was the result of an illegal search, [and] they should not have been
allowed to testify as to what they saw after they violated defendant's constitutional and statutory
rights." However, in discussing the previous issue it was determined that the defendants'
constitutional rights were not violated and the game wardens' search was not illegal but was instead
based upon probable cause. Therefore, the trial court was correct in denying the defendants' motion
to suppress.
III. DID THE TRIAL COURT ERR IN FAILING TO COMPEL THE GAME
WARDENS TO IDENTIFY THEIR "CONFIDENTIAL INFORMANT"?
¶16. The defendants allege that the trial court should have required the conservation officers to
disclose the identity of their confidential informant since he "was an eyewitness to events giving rise
to the charges against the defendants in this case." Additionally, the defendant's attorney maintained
at trial that "[t]here's no such thing as a confidential informant in a misdemeanor case." Mississippi
Uniform Circuit and County Court Rule 9.04(B)(2) addresses the requirement of disclosing
informants.
Informants. Disclosure of an informant's identity shall not be required unless the confidential
informant is to be produced at a hearing or trial or a failure to disclose his/her identity will
infringe the constitutional rights of the accused or unless the informant was or depicts
himself/herself as an eyewitness to the event or events constituting the charge against the
defendant.
URCCC 9.04(B)(2). Additionally, Rule 6.01 indicates that Rule 9.04 is applicable to criminal
proceedings and specifically defines a misdemeanor as a criminal offense punishable by a maximum
possible sentence of confinement for one year or less, fine, or both. URCCC 6.01. Accordingly, there
is no merit to Cupit's assertion that the rule regarding confidential informants does not apply to
misdemeanors.
¶17. "The lead case in Mississippi on [informants] is Read v. State, 430 So. 2d 832, (Miss. 1983)."
Arnett v. State, 532 So. 2d 1003, 1008 (Miss. 1988). In Read, this Court stated:
The proper rule regarding the circumstances under which the identity of the informer should be
disclosed was stated in Young v. State, 245 So. 2d 26 (Miss. 1971):
Ordinarily, disclosure of the identity of an informer, who is not a material witness to the guilt or
innocence of the accused, is within the sound discretion of the trial court. Strode v. State, 231
So. 2d 779 (Miss. 1970). On the other hand, where the informer is an actual participant in the
alleged crime, the accused is entitled to know who he is. Roviaro v. United States, 353 U.S.
53, 77 S.Ct. 623, 1 L.Ed. 2d 639 (1957) . . . . (245 So. 2d at 27). [Mills v. State, 304 So. 2d
651, 654 (Miss. 1974)].
Read, 430 So. 2d at 835-36. In Arnett, this Court found that the trial court did not commit error by
withholding the informant's identity since "[t]here [was] no evidence in the record that the informant
was a participant or an eyewitness to the crime, and consequently disclosure of the witness was
within the sound discretion of the trial judge." Arnett, 532 So. 2d at 1008 (citingSwindle v. State,
502 So. 2d 652, 658 (1987); Daniels v. State, 422 So. 2d 289 (Miss. 1982); Young v. State, 245 So.
2d 26 (Miss. 1971)). Likewise, in the case at bar, there is no evidence in the record that the informant
participated in the crime or was an eyewitness to the crime. The trial judge specifically found "that
officer Ricky Long had probable cause based upon his personal observations on the date and
location in question, without regard to any information provided officers by any confidential
informant." Therefore, the trial judge's decision to deny the defendant's motion to require disclosure
of the confidential informant's identity was not manifestly wrong.
¶18. Furthermore, the defendant's attorney obviously had information that the confidential informant
was Luther Whittington and had subpoenaed Whittington to testify. However, the defense failed to
call Mr. Whittington as a witness.(5) This Court previously noted that "confrontation and cross-
examination are the very rights which require disclosure of material witnesses in the first place."
Fleming v. State, 604 So. 2d 280, 298 (Miss. 1992) (citing Ward v. State, 293 So. 2d 419, 421
(Miss. 1974)); See also Miss. R. App. P. 10(b)(1). Defense counsel had an opportunity to confront
and cross-exam whom he believed to be the confidential informant but failed to take advantage of this
opportunity, or in the alternative failed to designate information relevant to this issue as part of the
record necessary for appeal. Consequently, defense counsel has waived his right to claim this as
error.
¶19. We hold that the trial court did not abuse its discretion in denying the defendants' motion to
compel disclosure of the confidential informant's identity.
V. IS MISS. CODE ANN. § 49-7-33 (1972) UNCONSTITUTIONAL?
¶20. The defendants argue the first impression issue that Miss. Code Ann. § 49-7-33 "is
unconstitutional because . . . it is vague and enforcement is left to the discretion of the individual
game warden." Specifically, the defendants contend that the statute does not provide adequate notice
of the definition of "bait." They point out that since it is not a violation of the statute to plant crops
such as ryegrass, chufa, winter wheat, and corn and hunt over it, it is inconsistent to say that it is a
violation of statute to pour shelled corn over the ground and hunt over it.
¶21. The State contends that defendants have not proven that the statute is unconstitutionally vague
or overbroad beyond a reasonable doubt. "Statutes under constitutional attack have a presumption of
validity attached to them, overcome only with a showing of unconstitutionality beyond a reasonable
doubt." Nicholson v. State, 672 So. 2d 744, 750 (Miss. 1996) (citing Vance v. Lincoln County
Dep't of Pub. Welfare, 582 So. 2d 414, 419 (Miss. 1991)).
This Court has made clear that a strong case must be presented in arguing against the
constitutionality of legislative enactments:
With regard to the duties cast upon the assailant of a legislative enactment, the rule is fixed that
a party who alleges the unconstitutionality of a statute has the burden of substantiating his claim
and must overcome the strong presumption in favor of its validity. It has been said that the
party who wishes to pronounce a law unconstitutional takes on himself the burden of proving
this conclusion beyond all doubt, and that a party who asserts that the legislature has usurped its
power or has violated the Constitution must affirmatively and clearly establish his position.
Touart v. Johnston, 656 So. 2d 318, 321 (Miss. 1995) (quoting Van Slyke v. Bd. of Trustees, 613
So. 2d 872, 880 (Miss. 1993) (citing 11 Am. Jur., Constitutional Laws § 132 (1937))). Furthermore,
this Court addressed the contours of the vagueness doctrine in Meeks v. Tallahatchie County, 513
So. 2d 563 (Miss. 1987).
Meeks recognized that languages are inherently ambiguous and what is important is whether the
ordinary person of common intelligence understands what is allowed and not allowed. Meeks,
513 So. 2d at 567. Meeks relied on the United States Supreme Court:
[A] statute which either forbids or requires the doing of an act in terms so vague that men of
common intelligence must necessarily guess at its meaning and differ as to its application
violates the first essential of due process.
City of Jackson v. Lakeland Lounge of Jackson, Inc., 688 So. 2d 742, 747 (Miss. 1996) (quoting
Meeks, 513 So. 2d at 566). It is hard to imagine that a person of common intelligence would not
know that a four foot circle of shelled corn poured out onto the ground would constitute "bait." The
defendant's argument that the statute is vague because it allows hunting over "planted" ryegrass,
winter wheat, chufa, and corn does not lend credence to his position. Rather, it shows that the
definition of "bait" is differentiated so that the ordinary person would be put on notice. If the
defendants had planted corn and were hunting over it, then they might be able to claim insufficient
notice. The planting of agricultural products is a natural process that involves clearing land,
cultivating the soil, applying various fertilizer, lime, etc., and tending to the crops during growth. A
common sense reading of the statute would dictate that this natural planting procedure would not be
considered "bait." Therefore, for such procedure to also be considered a violation of the statute, the
legislature would need to include language in the statue specifying that the natural procedure of
planting crops is also considered "bait."
¶22. The planting of crops is a natural agricultural process that cannot be accomplished in wooded
areas inhabited by deer and other animals. Rather, it must be done in an area cleared of trees and
brush where deer and other animals must then come to the natural growth and rummage through the
stalks, leaves, grass and earth, etc., in order to find the natural growing food product. However, a
bag of "shelled corn," as in the case at bar, can be taken directly to densely wooded areas, (where
natural agricultural crops could not possibly be grown), poured out in a large pile in the animals'
natural habitat, and thereby effectively entice the deer to a particular spot where the animal might not
have elected to go, but for the "bait." During his testimony, Officer Long pointed out that crops and
grasses that are "planted" involves a normal agricultural process which is there seven days a week,
twenty-four hours a day. However, it has been proven that you can carry corn and certain feeds to an
area on a particular timed basis and lure deer into a certain area at a certain time period which makes
it unfair to the game to hunt over it. There's clearly a big distinction between "planting" naturally
growing crops where the deer come to, rummage through and feed on their schedule and "baiting" by
piling up a "four foot circle of corn," or other feed, where the deer come to feed on your schedule.
Such latter procedure can be likened to an alarm clock ringing, signaling the time to do a particular
chosen endeavor. The Corrys might as well have been ringing the dinner bell.
¶23. The statute prohibits an activity that common sensibly constitutes "baiting" and therefore, is not
so vague as to be unconstitutional. Simply put, and as the trial court so ruled, the Corrys have not
proven that the statute is unconstitutionally vague or overbroad beyond a reasonable doubt and there
is no merit to defendants' argument that they were not sufficiently aware that pouring a four foot
circle of shelled corn over the ground would constitute "bait." We hold that the Corrys have failed to
overcome the statute's presumption of validity by showing its unconstitutionality beyond a reasonable
doubt. Therefore, the trial court's decision that § 49-7-33 is constitutional is affirmed.
CONCLUSION
¶24. The defendant's contention that the conservation officers performed an illegal search is without
merit. The trial judge held that Officer Long had probable cause to enter Cupit's land based on his
personal observations of a crime being committed in his presence. The Corrys advance a rather novel
argument, that they could have been squirrel hunting from tree stands, thus hunter orange was not
required to be worn. Therefore, they argue that the conservation officers were without probable
cause to believe that they were hunting deer over bait. The justice court and circuit court of Amite
County was not convinced. This Court is likewise unimpressed. Though definitely original, this
argument stretches common sense as well as the imagination. As Officer Long testified, in fifteen
years of experience, he had never heard of anyone squirrel hunting from a tree stand. Equally
unconvincing is the four foot wide pile of shelled corn which apparently the Corrys would have this
Court believe was strategically placed thirty yards in front of 15-20 foot high tree stands in order to
entice squirrels to the gun, rather than deer. Finally, when we consider the Corry's choice of caliber of
weapon used to hunt these squirrels, their argument is even less compelling. Officer Foreman testified
concerning the caliber of weapons used that, "One was a twelve gauge shotgun. . . .with buckshot;"
another was, "I think a lever action 30-30;" and the third weapon, "It was a high-powered rifle used
for taking deer." Were these weapons used in the harvesting of squirrels? We don't think so. To
conclude otherwise one must presume that those big Amite County squirrels must be extremely
difficult to harvest, so much so that buckshot and high power rifles were required. Common sense
dictates only one conclusion. The Corrys were deer hunting from tree stands, without wearing
hunting orange, and David Corry was deer hunting over "bait".
¶25. The defendants argued that Miss. Code Ann. § 49-7-33 is unconstitutionally vague because it
does not provide adequate notice of the definition of "bait." In the case at bar, one of the defendants
was found hunting over a four foot circle of shelled corn poured out on the ground. It is hard to
imagine that a person of common intelligence would not know that a four foot circle of shelled corn
poured out onto the ground in the deer's natural forested habitat would constitute "bait." The
defendants' argument that it is not illegal to hunt over planted grasses and crops does not lend
credence to their argument that the statute is vague. Rather this argument shows that the definition of
"bait" is differentiated so that the ordinary person using common sense and knowing the widely
accepted meaning of the word "bait" would be put on notice. Therefore, this Court upholds the trial
court's finding that § 49-7-33 is constitutional.
¶26. Consequently, we hold that the trial court's ruling that the officers' actions did not violate Article
3, Sections 23 and 26 of the Mississippi Constitution and the Fourth and Fifth amendments to the
United States Constitution was not manifestly wrong and will not be overturned. Furthermore, since
it was determined that the conservation officers' actions did not violate the defendants' constitutional
rights, we further find that the trial court was correct in denying the defendants' motion to suppress.
The defendants allege that the trial court should have required the conservation officers to disclose
the identity of their confidential informant. However, there was no evidence in the record to indicate
that the confidential informant in the case at bar participated in the crime or was an eyewitness to the
crime. Therefore, this Court finds that the trial judge was correct in denying the defendants' motion to
require disclosure of the confidential informant's identity. Moreover, the Corry's attorney either failed
to take advantage of the opportunity to confront and cross-exam whom they believed to be the
confidential informant, or failed to designate information relevant to this issue as part of the record
necessary for appeal. Therefore, we hold that he waived his right to claim this as error.
¶27. Accordingly, the trial court's decision is affirmed.
¶28. AS TO DAVID B. CORRY: CONVICTION OF HUNTING DEER WITHOUT
ORANGE, HUNTING OVER BAIT AND HUNTING WITHOUT A VALID LICENSE AND
PAYMENT OF $100.00 FINE ON EACH OFFENSE AFFIRMED. AS TO PAUL J. CORRY:
HUNTING DEER WITHOUT ORANGE AND HUNTING WITHOUT A VALID LICENSE
AND PAYMENT OF $100.00 FINE ON EACH OFFENSE AFFIRMED.
PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, ROBERTS, MILLS AND
WALLER, JJ., CONCUR. McRAE, J., DISSENTS WITH SEPARATE WRITTEN OPINION.
McRAE, JUSTICE, DISSENTING:
¶29. ` I respectfully dissent.
¶30. Initially, the majority errs in concluding that the trial court should not have compelled the game
wardens to identify their confidential informant. Although the majority states that there is no evidence
that the informant was an eyewitness to the crime, the majority clearly notes in its statement of the
facts that the informant provided the officers information regarding alleged hunting violations. It can
hardly be said that the confidential informant was not a witness to the guilt or innocence of the
accused when Officers Foreman and Long went onto the property of Michael Cupit to investigate
alleged hunting violations based on information received from the confidential source. But for the
information from this source, the officers would never have been privy to identifying Paul or David
Corry. Accordingly, both of the game wardens should have been ordered to disclose the confidential
informant, regardless of any information that the defendant's attorney may have possessed about the
informant's identity.
¶31. Secondly, the statement by Paul Corry that his brother was also hunting on the Cupit property
did not give rise to probable cause. The officers, having found no corn around Paul, had no reason to
suspect that Paul Corry was hunting deer as opposed to hunting squirrel. Further, the officers had no
reason to suspect that David Corry was guilty of hunting violations. David Corry was not in view of
the officers, so they could not have suspected that any illegal act was taking place. Since the officers
could not have observed a violation of the law in their presence, they had no authority to enter the
land, make warrantless arrests, and conduct searches. The defendants' motion to suppress should
have been granted.
¶32. It is for these reasons that I dissent.
1. Michael Cupit is the owner of the land the defendants leased for hunting and is also the defendant's
attorney in this action.
2. Officer Foreman also located another individual who was also charged with hunting violations,
however, that individual was not included in this appeal.
3. When the defendant was charged in November 1995, the requirement of wearing hunter orange
while deer hunting was accomplished through Public Notice 2384. This requirement has since been
codified in Miss. Code Ann. § 49-7-31.
4. In this case the circuit court noted that "it would not be unreasonable to search a man actually
engaged in the violation of law" but that they must "sustain the motion to quash [the indictment
based] on the authority of Tucker v. State." Patterson, 130 Miss. at 682, 95 So. at 97. This Court
agreed with the circuit court and followed Tucker in quashing Patterson's indictment. Although this
Court has not officially pronounced this case as overruled, Mississippi statute and case law now gives
law enforcement the authority to search a man actually engaged in the violation of law.
5. In the appellant's brief, Attorney Cupit affirmed to this Court that, although it is not part of the
record, Luther Whittington was called as a witness, and that Whittington denied being the
confidential informant under oath on the witness stand. This affirmation is of no consequence to this
Court since we are limited to a review of the documents contained in the record. "This Court has
repeatedly held that '[t]his Court will not consider matters which do not appear in the record and
must confine itself to what actually does appear in the record.'" Medina v. State, 688 So. 2d 727,
732 (Miss. 1996) (quoting Robinson v. State , 662 So. 2d 1100, 1104 (Miss. 1995)). "Moreover, we
cannot decide an issue based on assertions in the briefs alone; rather, issues must be proven by the
record." Medina, 688 So. 2d at 732 (citations omitted). Additionally, "the appellant bears the burden
of presenting a record which is sufficient to undergird his assignments of error." Williams v. State,
522 So. 2d 201, 209 (Miss. 1988).
| {
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} |
555 S.E.2d 745 (2001)
252 Ga. App. 54
BOWEN BUILDERS GROUP, INC. et al.
v.
REED.
No. A01A1009.
Court of Appeals of Georgia.
October 17, 2001.
Mills & Moss, David C. Moss, Lawrenceville, for appellants.
Shawn D. Stafford, Atlanta, Timothy W. Hoffman, Decatur, for appellee.
SMITH, Presiding Judge.
Bowen Builders Group, Inc. and Appco Enterprises, Inc. (collectively "Bowen"), real estate developers, brought suit against Bobby Reed for breach of a real estate purchase and sale contract. Bowen alleged that Reed had breached provisions of the contract providing that all 43 lots sold by Reed would be "buildable lots" and that he would construct a playground on one lot. Reed raised several defenses and denied the breach, but his primary defense was that he was not the real party in interest, not being a party to the contract. After a bench trial, the trial court entered an order awarding judgment to Reed, and Bowen appeals. We find that Reed was a party to the contract, but that this is not dispositive of the issue of personal liability on the contract. Because the evidence at trial was in conflict regarding whether the parties intended that Reed be liable on the contract personally, and the trial court apparently found Reed's testimony more credible than that of Bowen, we affirm the judgment below.
The real estate sales contract does not mention the names of the parties in the body of the contract, simply referring to the parties as the "undersigned buyer" and the "undersigned seller." The signature lines consist of lines for the respective signatures over lines for printing or typing the names of *746 the parties. The signatures of the principals in the two appellant corporations appear over the names of the corporations (although, as pointed out by the trial court, the name of Bowen Builders Group, Inc., or BBG, is barely legible). The line under Reed's signature, however, is blank.
OCGA § 11-3-402(b)(2) provides, in pertinent part:
[I]f the form of the signature does not show unambiguously that the signature is made in a representative capacity or the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument.
The instrument clearly was not signed in a representative capacity, nor was Bobby Reed Builders, Inc. named in the instrument, and Bowen is not a holder in due course. Under this Code section, Reed therefore is liable personally unless he proved at trial that all parties intended for him not to be liable.
We turn, then, to the evidence presented at trial. Reed testified that he was a developer and house builder and did septic tank work and grading. He was employed by Reed Builders, which had been in business since 1981. His corporation, Reed Builders had owned the property in issue and sold it to Bowen. He testified that Reed Builders had sold property before to Scott Appling, the sole shareholder in Appco. The warranty deeds, which were introduced into evidence, show clearly that the property was sold by Reed Builders, as do the memorandum of closing and the settlement statement.
Appling testified that he had been an acquaintance of Reed for seven or eight years and "had known him very well for ... three or four years." He testified that when the agreement was executed, "there was no talk of" Reed executing it on behalf of his corporation. When asked what his understanding was of "who was actually selling these lots to Appco and Bowen Builders," he replied, "I understood it to be Bobby Reed." He testified that Reed told him he would sell him the lots and he had "no way of knowing, other than when he signs his name Bobby Reed and he's selling me a piece of property, that he's not the owner." Appling admitted he had worked for Reed, but he testified he had worked for South Hall Builders, rather than Reed Builders. He also testified that although Reed's corporations did grading for the development, the payments were made to Reed Grading & Septic Tank, rather than Reed Builders.
Given this conflicting evidence regarding the understanding of the parties, to determine the parties' intentions about Reed's personal liability it was necessary for the trial court, as the trier of fact, to weigh the credibility of the witnesses. The trial court's order does not reflect its reasoning on this issue. We could remand this case to the trial court to clarify its order, but we find that such a remand is unnecessary. Regardless of whether Reed was or was not a party to the contract, the dispositive issue is the intention of the parties, which is a matter of choosing between witnesses' conflicting testimony. The trial court's order implies a finding that the trial court, as the trier of fact, found incredible Bowen's claim that it was dealing only with Reed personally, given that the sale itself, as evidenced by the closing documents as well as the warranty deeds, was clearly from Reed Builders, as seller.
On appeal, we must construe the evidence most strongly to support the judgment. It is not our function to weigh the evidence or judge the witnesses' credibility. Sanders v. Cowart, 231 Ga.App. 303, 304(2), 499 S.E.2d 103 (1998). It is the function of the trier of fact to resolve any conflicts in the testimony of witnesses. We cannot substitute this court's judgment for that of the trier of fact. Camp v. EMSA, Ltd., 238 Ga.App. 482, 484, 518 S.E.2d 482 (1999). The trial court obviously determined that, given the other evidence, Reed's testimony was more credible and that the parties intended that Reed not be personally liable on the contract even though he did not sign it in a *747 representative capacity. We will not substitute our judgment for that of the trial court. We therefore affirm the judgment.
Judgment affirmed.
BARNES and PHIPPS, JJ., concur.
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411 F.Supp. 1094 (1975)
IIT, an International Investment Trust, et al., Plaintiffs,
v.
VENCAP, LTD., et al., Defendants.
No. 74 Civ. 2504.
United States District Court, S. D. New York.
November 26, 1975.
*1095 *1096 Anderson, Russell, Kill & Olick, New York City, for plaintiff IIT.
Arthur A. Munisteri, New York City, for defendant Richard C. Pistell.
Curtis, Mallet-Prevost, Colt & Mosle, New York City, for defendants Havens, Wandless, Charles E. Murphy and David Taylor.
OPINION
STEWART, District Judge:
The Court of Appeals remanded this case to the district court to supplement its findings in support of a preliminary injunction. A supplemental hearing was held; the following constitute the supplemental findings of fact and conclusions of law by this court in support of the preliminary injunction against defendants Vencap, Intervent, Intercapital and Richard C. Pistell ("Pistell").
For a description of the general factual background of this case, see IIT v. Vencap, 519 F.2d 1001. (2d Cir. 1975). For this court's prior findings and conclusions to which these findings and conclusions are supplemental, see memorandum decision IIT v. Vencap, 74 Civ. 2504 (unpublished, July 3, 1974).
FINDINGS OF FACT
1. THE THREE-PAGE MEMORANDUM
In early July of 1972, Richard Pistell[1] ("Pistell") and Charles Murphy[2] ("Murphy") met in the Bahamas and discussed the terms of the proposed IIT-Vencap transaction. Murphy made handwritten notes of the discussion at that meeting (Ex. 57). Murphy took those notes back to New York with him.
Pistell testified that, at that same meeting with Murphy, Murphy prepared another set of handwritten notes which dealt with the purposes and objectives of Vencap and with the proposed investment by Vencap in Out Island Airways. Pistell stated that he gave the second set of notes to Stanley Graze[3] who "reworked" them, had them typed, and then returned them to Pistell who took them to New York and left them either at the law firm of Havens Wandless or in his home files. Pistell's testimony is not credible to us, and in the absence of any other proof we are unable to find that this sequence of events occurred.[4] We do not find Pistell's version of the foregoing events credible, in part because of his subsequent testimony. Pistell testified that he later requested first that *1097 materials be sent, subsequently that they be telexed, from New York on behalf of Graze who was anxious to get some written information (tr. at 195-6, 200, 208). However, the contents of the Murphy notes allegedly made and given to Graze, according to Pistell, are the same as the materials subsequently telexed from New York. If Graze already had such a memorandum and, in fact, had worked on its language himself, Graze's urgent desire to obtain the information would be difficult to explain.
On or about August 29, 1972, Pistell telephoned Murphy in New York from the Bahamas and requested that Murphy send him certain information. Pistell testified that Murphy agreed to do so. Thus, it is likely that Murphy, at that time, did in fact send Pistell the information requested which was lost at some time either before or after it arrived. In any event, it is now unavailable.
On August 31, Pistell again telephoned the Havens Wandless firm but was unable to reach Murphy or Taylor. He therefore asked someone to send him, by telex, the information he previously requested, but had not received, from Murphy.
On August 31, Pistell received the telex (Ex. 48). We find it most likely that the information which Pistell requested from Murphy was the same information contained in the telex, that the information requested by Pistell was the information sought by Graze, and that the unidentified person at Havens Wandless who sent the telex was merely telexing a copy of that information earlier mailed to Pistell in the Bahamas by Murphy from New York.
We also find that the substance of that telex had been prepared by Murphy in memorandum form in New York at the time he received Pistell's telephone call around August 29. While the telex recounted some terms of the IIT-Vencap transaction as reflected in Murphy's notes prepared earlier in the Bahamas and taken by Murphy back to New York (Ex. 57), it also contained much additional information, in particular about Vencap, which we find was prepared by Murphy for the first time in New York.
In April of 1973, Pistell testified that "probably . . . Murphy or Taylor wrote [the memorandum]." (Appendix on Appeal at 1350A). In May of 1974, Pistell testified: "I believe Mr. Charles Murphy prepared this memorandum." (Appendix on Appeal at 1815A-1816A).
We also conclude that the portion of the telex which states the earnings of Out Island Airways for a six month period ending in August of 1972 can be used to date the preparation of the contents of the telex at the end of August. While defendants argue that it is as logical to infer that the six month earning statement was a projected one, we disagree. Absent evidence to the contrary, we take the earning statement at face value and conclude that it was prepared at the end of August of 1972.
The telex was typed at the offices of Carson Lawson[5] where it was received (Waddell, tr. at 412) and was then picked up by Pistell.
Although it is unclear what was done with the original three-page memorandum, copies of that document subsequently found their way into the files of Wilkie Farr (D'Alimonte, tr. at 710-11), of Havens Wandless (D'Alimonte, tr. at 858-61; Ex. 72), and of International Capital Investments (Sterling) Ltd., an English company headed by Graze. (Frost, tr. at 119). There is no evidence concerning when or how copies reached those files.
From Pistell's testimony that his request for information contained in the telex was made at the behest of Graze (tr. at 195-6, 200, 208, 223-4) and from Jeremy Waddell's[6] recollection that there was some urgency attached to getting the memorandum typed (tr. at 410), *1098 we make the reasonable inference that the information was subsequently provided to Graze in the Bahamas before he left on September 1, an inference which Pistell himself made during the supplemental hearing (tr. at 262).
The Vencap shareholder's resolution, which would appear on the face of the minutes to have been passed on August 31, 1972 and which was incorporated by reference in the three-page memorandum, was not drafted in the final form used in the IIT-Vencap agreement until sometime between September 21, 1972 and September 29, 1972 (tr. at 756-63, 765; Ex. 35A and 60B; Appendix on Appeal at 3965A). (See infra, supplemental findings of fact relating to creation of the preference share terms). Therefore, at the time the three-page memorandum was given to Graze, the final version of the Vencap shareholder's resolution could not have been appended to the memorandum, since it had not yet come into existence. Nor is there any evidence that a draft of that resolution was appended to the memorandum as presented to Graze.
Waddell testified that the memorandum was "not a document which was part of the contract between the parties . . . this was something outside that, a document in the nature of a memorandum describing the company and its management and its capital." Waddell further testified that upon receipt of the telex, he made certain deletions because it was his understanding that those terms of the deal had already been agreed upon with D'Alimonte and Pistell during the preceding week, the last week of August. (Waddell, tr. at 396-7).
While we find that some of the terms for a potential investment had been worked out, we also find that a final decision had not been made by Graze on behalf of IIT to make the actual investment in Vencap at the time Graze sought and received the information contained in the telex and the subsequent three-page memorandum.
We find that Graze either relied upon or sought to make it appear that he relied upon that information in his decision to go through with the investment.
2. CREATION OF THE PREFERENCE SHARE TERMS
On or about August 28, 1972, Murphy, who was in New York, telephoned Waddell of Carson Lawson, Vencap's Bahamian counsel handling the IIT-Vencap transaction, to advise him that Pistell would be contacting him about a proposed transaction between IIT and Vencap for the purchase by IIT of preference shares in Vencap. Waddell and Murphy did not, however, discuss the specific terms of the preference shares during the telephone conversation (Waddell, tr. at 384-86).
On August 29, 1972, Graze, Pistell and John D'Alimonte[7] met at the Bahamas Commonwealth Bank ("BCB"). Graze told D'Alimonte that IIT was going to acquire some redeemable preference shares of Vencap (D'Alimonte, tr. at 641-46). D'Alimonte prepared handwritten notes at that meeting (Ex. 60D).
Based upon the information which D'Alimonte obtained at that meeting and subsequently from Graze, D'Alimonte was to prepare on behalf of IIT a purchase agreement between IIT and Vencap (D'Alimonte, tr. at 643-45). D'Alimonte was also told to contact Waddell at Carson Lawson (D'Alimonte, tr. at 643-45, 779-80).
During the period August 29 through September 1, 1972, D'Alimonte remained in the Bahamas (Ex. AE) and drafted the proposed agreement between IIT and Vencap for the acquisition of the preference shares (Ex. 60E). That handwritten draft (Ex. AG), was subsequently typed at the BCB (D'Alimonte, tr. at 721-22, 805-07).
On or about the time of the August 29 meeting at the BCB, Graze gave D'Alimonte *1099 an outline of the proposed terms of the preference shares (D'Alimonte, tr. at 654). That outline was similar to, and perhaps the same with the exception of handwritten notations as, the outline (Ex. 59) received by Waddell (D'Alimonte, tr. at 795-797) from either IIT's lawyers, Wilkie Farr, or from Havens Wandless (Waddell, tr. at 381).
Since D'Alimonte, the Wilkie Farr lawyer who worked on the IIT-Vencap agreement, had not seen the proposed terms until given to him by Graze, we infer that the outline received by Waddell must have come from someone at Havens Wandless. Also, it seems reasonable to infer that the outline was prepared by David Taylor,[8] the Havens Wandless attorney who subsequently worked on those same preference share terms.
On or about August 29, 1972, D'Alimonte met with Waddell in the Bahamas to discuss the terms of the preference shares and the terms of the transaction in general (D'Alimonte, tr. at 659-61, 715, 785; Waddell, tr. at 413-14).
Thereafter Waddell prepared, from the draft we found he had received from Taylor at Havens Wandless, a draft of the terms of the preference shares for the Vencap resolution (Ex. 60A; Waddell, tr. at 419-21). The draft was both prepared and sent to D'Alimonte in the Bahamas (Waddell, tr. at 462-64; D'Alimonte, tr. at 660-61, 665, 716). Later, Waddell sent to D'Alimonte, who was either in New York or in the Bahamas, a draft of the minutes of the shareholders' resolution (Ex. 60C).
D'Alimonte received from Waddell the draft of the preference shares (Ex. 60A), between August 29 and September 1 (Ex. AE). Upon receipt, D'Alimonte and Waddell discussed generally some aspects of the resolution, including D'Alimonte's handwritten comments and notes on the draft (Waddell, tr. at 414-16, 462-3; D'Alimonte, tr. at 697-98, 715-20).
On September 1, 1972, D'Alimonte met with Graze in the Bahamas. D'Alimonte told Graze, who was leaving the Bahamas that day, that he, D'Alimonte, was returning to New York. D'Alimonte stated that he was "taking [the Vencap matter] back to New York and it was still open" (D'Alimonte, tr. at 701).
During the period of August 21 to September 7, 1972, Taylor was away from Havens Wandless on vacation in Spain and in the Canary Islands (D'Alimonte, tr. at 777-8).
On September 21, D'Alimonte, who was in New York, received from Taylor, also in New York, a draft of two paragraphs of the preference shares terms which were delivered by hand (Appendix on Appeal at 3965A). We find that the draft was prepared by Taylor in New York sometime after his return from vacation on September 7, 1972 (Exs. 35A and 60B).
D'Alimonte testified that it was his recollection "absent having recalled [the Taylor] drafts having been presented to [him]" that the Vencap terms were completed in the Bahamas. Nevertheless, D'Alimonte recognized the Taylor draft, written in New York, as containing more than mere mechanical changes. D'Alimonte testified: "I at that point was even surprised to see that stage of the drafting still existing" (D'Alimonte, tr. at 815).
Taylor and D'Alimonte had telephone conversations in New York regarding IIT's investment in Vencap on September 18 and 19, 1972 (tr. at 756-757).
On September 29, D'Alimonte returned to the Bahamas. He met with Taylor there and discussed briefly the Taylor draft of the preference shares provisions.
From all of the above findings and a comparison of the various drafts of the *1100 preference share terms, including the final version used in the IIT-Vencap agreement, we find that those terms as finally used were drafted substantially by Taylor in New York.
3. SUPPLEMENTAL FINDINGS CONCERNING PISTELL'S USE OF VENCAP FUNDS
a. The $590,000. Loan Transaction
On January 1, 1973, Vencap, through its attorney Taylor, deposited $600,000 in Handelskredit Bank (Appendix on Appeal at 3993A).
On January 19, 1973, the directors of Vencap authorized certain officers including Pistell and Taylor to execute any "agreements, promissory notes or other documents" required by Handelskredit Bank in connection with that Bank's loan to Intercapital[9] in an amount not to exceed Vencap's deposit at Handelskredit Bank (Appendix on Appeal at 1641A).
On February 1, 1973, a "trust agreement" was concluded between Vencap "as lenderhereafter called depositor" and the Handelskredit Bank "as trustee hereafter called Bank" which opened a trust account in the name of Vencap in the amount of $590,000. The agreement provided instructions to grant a loan in the Bank's name to Intercapital "but for account and at the exclusive risk and peril of the Depositor." The bank was to receive a 1.5% per annum "trusteeship-commission" separate and apart from the interest of 8.5% due yearly on the loan which interest was to be credited to Vencap's account (Appendix on Appeal at 1649A).
On February 1, 1973, Handelskredit Bank informed Intercapital that "arrangements [were] being made" to transfer the sum of $590,000. to an intercapital account at the Bank of Commerce in New York "in accordance with the loan agreement dated February 1, 1973, Vencap Limited/Handelskredit-Bank A.G." (Appendix on Appeal at 3994A).
On February 1, 1973, a pledge agreement was entered into between Handelskredit Bank and Intercapital whereby Intercapital pledged and assigned to the Bank 66,256 shares of Pomaikai Oil Corporation stock (Appendix on Appeal at 1645A-1648A), which shares were later replaced by Flag-Redfern shares (Appendix on Appeal at 4002A).
On February 1, 1973, Pistell entered into a pledge agreement with Intercapital for his 66,256 shares of Pomaikai Oil Corporation stock (Appendix on Appeal at 1652A).
On February 1, 1973, Intercapital pledged those Pomaikai shares to Handelskredit Bank in return for what was characterized in the pledge agreement as a "loan" by the Bank to Intercapital (Appendix on Appeal at 1645A-1648A).
Intercapital then lent the $590,000. to Pistell. That loan matures on December 31, 1975 and bears interest at the rate of 9½% per annum.
On March 26, 1973, Vencap and Pistell entered into an agreement, pursuant to the February 1, 1973 pledge agreement between Pistell and Intercapital regarding the Pomaikai shares, in which Pistell granted Vencap an option to purchase 10% of the Pomaikai shares pledged by Pistell to Intercapital (Appendix on Appeal at 1651A-1654A).
Defendants argue that this elaborate arrangement was undertaken for tax purposes. While that may be true, it is evident from the documentary evidence that the loan was one directly from Vencap to Pistell despite its circuitous route.
b. The $55,000. Loan Transaction
In December of 1973, Pistell borrowed $55,000. of Vencap's funds from Intervent Inc. ("Intervent"), a Delaware corporation, and a wholly-owned subsidiary of Vencap, at 8% interest (Appendix on Appeal at 2146A-2152A). The agreement provided that Pistell would grant Intervent a mortgage on and option to *1101 purchase his Bahamian residence, if the loan remained unpaid as of December 31, 1974.
Intervent's letter of confirmation regarding this loan, dated December 28, 1973, was sent from the offices of Intervent in Midland, Texas to Pistell in the Bahamas. Intervent also has a place of business at the offices of Havens Wandless at 99 Park Avenue in New York.
It is likely that plaintiffs can prove at trial that on July 26, 1974, Pistell gave a mortgage on that same Bahamian residence to Murray Malcolm Sinclair for the sum of $150,000. and that Pistell has not repaid that loan (see exhibits C and D, Plaintiffs' order to show cause, dated April 22, 1975).
That mortgage appears substantially to negate Pistell's prior obligation to Vencap through Intervent, and clearly reflects Pistell's intent to use, and his actual use of, Vencap funds for his own personal benefit.
c. The $100,000. Finder's Fee
Defendant Pistell challenges plaintiffs' allegations that he received excessive compensation from Vencap. Pistell contends that any finding of excessive compensation must take into account the $100,000. finder's fee which he allegedly put into Vencap for start-up costs; Pistell thus claims that the company owed that amount to him.
In November of 1972, Pistell testified that he received a finder's fee of $150,000. in connection with a transfer of IIT money to Sociedad Agricola by Industrial, San Cristobal ("San Cristobal"). He testified that, out of that fee, $50,000. went to a Mr. Burke for his participation in the transaction (Appendix on Appeal at 3927A). He testified further, however, that the San Cristobal fee was paid directly to Vencap and was deposited into Vencap's account at the Bahamas Commonwealth Bank in the Bahamas (Appendix on Appeal at 3940A).
In April of 1973, Pistell testified in SEC v. Vesco that he put the $100,000. finder's fee which he had received into the original Vencap account. He stated that approximately $25,000. of that amount was his capital contribution for shares, and that the remainder was put into Vencap for start-up costs; Pistell said that he did not deposit the money into the Vencap account as a loan (Appendix on Appeal at 1368A-1369A).
In May of 1974, the following question and answer was recorded at Pistell's deposition.
Q: Do you recall whether the $150,000. finder's fee you received in the Summer of 1972 in connection with the San Cristobal transaction was paid to Vencap?
A: So we get the record very clear on that . . . that was a fee paid directly to me . . . . and I put my fee that was paid to me . . . into Vencap to help it start up . . ..
Finally, in June of 1974, at the first hearing in the instant case, Pistell testified that the closing of the deal for which he received the $100.000. fee occurred in approximately August of 1972. He testified further that he worked on that deal for two or three months prior to the closing (Appendix on Appeal at 710A).
The accounting records of Vencap, which was formed in June of 1972, do not reflect any loan from Pistell to Vencap during the period from July of 1972 through May 21, 1973.
On May 21, 1973, Walter Blackman became a shareholder, Executive Vice-President and Secretary of Vencap (Appendix on Appeal at 1252A-1253A). On that same day, he proposed to the Vencap Board of Directors, and it accepted, a resolution that the $100,000. be shown as a loan by Pistell to Vencap.
The letter agreement between Vencap and Pistell (as well as the May 21st minutes) reflects the fact that the $150,000. fee was paid directly to Vencap (Appendix on Appeal at 1253A). The agreement requires Pistell to "hold [Vencap] harmless from any liability which may be asserted against the Company for brokerage or finder's fees in connection *1102 with the transaction resulting in the payment of the fee to the Company" (Appendix on Appeal at 4240A).
Under the facts as we have found them to be, we conclude that Plaintiffs do have a likelihood of proving at trial that the fee paid to Vencap was a fee owed to Vencap and not to Pistell personally and that the subsequent Vencap resolution to return that sum to Pistell is a further reflection of Pistell's intent to use Vencap funds for his own personal benefit and is one example of his execution of that intent.
4. GRAZE'S KNOWLEDGE CONCERNING PISTELL'S FINANCIAL SITUATION
Pistell has testified at various times about whether he told Graze of his tax problems before Graze made the investment into Vencap on behalf of IIT and whether he told Graze that he would borrow part of that investment to pay those taxes either before the investment was made or before the actual loan transaction.
At the supplemental hearing, Pistell testified that he did not tell Graze prior to the IIT-Vencap closing that he would use the Vencap funds to pay his tax debt.
Pistell testified further that his prior testimony at his deposition in which he had said that he told Graze "he was going to do this deal and borrow this money" (Appendix on Appeal at 708A) referred to the time period prior to the loan and not prior to the IIT-Vencap closing (tr. at 515).
Pistell also testified that he did not remember whether he told Graze about the loan before or after he completed the transaction, but he knew that he had told him.
In April of 1973, at the time closest to the actual events, Pistell testified, in SEC v. Vesco, that he did not tell Graze about the loan prior to going through with the loan transaction (tr. at 545-46).
Further, Pistell had said at his deposition that Graze "never really followed anything closely [after the closing of the IIT-Vencap agreement]." (Appendix on Appeal at 709A).
From Pistell's testimony on these various occasions, we find that Pistell did not tell Graze about his loan plan either before the IIT-Vencap closing or before the loan transaction was completed. Rather we find that Pistell told Graze about his loan transaction after the fact. We also find that Pistell's testimony at his deposition that Graze definitely knew about Pistell's tax problem (Appendix on Appeal at 707A) also referred to the time period at which Pistell told Graze about the loan transaction.
We find, therefore, that Pistell had not told Graze about his tax problems either before the IIT-Vencap closing or before the loan transaction.
There is no evidence that Pistell ever told Graze that he owed an approximate $250,000. to Chemical Bank and Franklin National Bank.
We find, therefore, that Graze did not know about Pistell's tax obligations nor about his bank debts prior to the IIT-Vencap closing or prior to the loan transaction.
There is much evidence in the record, including Pistell's own testimony (see e. g., Appendix on Appeal at 708A), that Graze made the investment in Vencap because of the personal reputation of Pistell. It is also apparent from the above findings, however, that Graze did not have much information about Pistell's personal financial situation at the time of the IIT investment.
Further, it is evident from Pistell's own testimony that Graze did not watch Pistell's (or Vencap's) financial situation after the investment. When asked if Graze knew about the terms of Pistell's employment contract with Vencap, which was not executed until May of 1973 (Appendix on Appeal at 1962A), Pistell indicated that he did not, saying that Graze "never really followed anything closely [after the closing of the IIT-Vencap agreement]." (Appendix on Appeal at 709A).
*1103 5. PISTELL'S INTENT AT THE TIME OF THE IIT-VENCAP TRANSACTION
At the time of the IIT-Vencap transaction, Pistell owed approximately $250,000. to Chemical Bank and to Franklin National Bank and an additional approximate $250,000. in back taxes.
From our previous and supplemental findings that Pistell used a substantial portion of IIT's investment for personal purposes, including personal expenses charged to Vencap as business expenses, an excessive compensation agreement, the $590,000. loan from Vencap and the $55,000. loan from Intervent, we infer that Pistell had the intent to use those funds for personal benefit at the time of the IIT-Vencap closing.
Defendants attempt to negate that inference through evidence that Pistell had other proposed uses for the funds which he had obtained from IIT and through evidence that Pistell had access to other sources through which to pay his debts. As our review of the transactions below reveals, such evidence is insufficient to rebut the inference drawn from clearly ascertained facts.
Thus we find that Pistell did intend to use the IIT investment funds, in substantial part, for his own personal benefit at the time of the IIT investment.
a. Potential Investments
1. The Chibex Investment
On August 29, 1972, Vencap entered into a put agreement with FOF Proprietary Funds, Ltd. to purchase 500,000 shares of Chibex Mining Corporation Limited ("Chibex"), at a purchase price of $1.00 per share at any time upon 3 days notice to Vencap (Appendix on Appeal at 1659A).
Defendants argue that this agreement was still active as late as November of 1972, well after the closing of the IIT-Vencap transaction (Ex. AE; D'Alimonte, tr. at 797-801).
Notwithstanding the fact that the Chibex put agreement might have been considered active in the minds of some people in November of 1972, we are concerned here with finding facts which evidence Pistell's intent.
We find that Pistell no longer considered the agreement to be an active possibility at the time of the IIT-Vencap closing. In fact, Pistell testified in April of 1973 that he considered the Chibex deal to be over shortly after August 29, 1972 (Ex. 12). Therefore, Pistell did not have $500,000. of the IIT investment reserved for this investment.
We can thus not find any commitment by Vencap or any intent by Pistell to invest $500,000. of the IIT dollars in Chibex stock at the time of the IIT-Vencap closing.
2. The IRCO Investment
On September 29, 1972, Vencap entered into an option agreement (Ex. 54; Appendix on Appeal at 1373A) to purchase the entire issued and outstanding capital stock of IRCO, a Bahamian corporation and an IOS Holdings Ltd. subsidiary, for a total purchase price of $2,650,000. Under paragraph 3 of the agreement, $700,000. of the purchase price would be paid by Vencap at the closing by either a certified or a cashier's check payable to the order of the seller. The remainder of the purchase price was to be provided in the form of several promissory notes (Appendix on Appeal at 1613A-1625A).
The closing was scheduled for October 16, 1972, with a provision that the closing could be on "such other date as shall be mutually agreed upon in writing. . . ." (Appendix on Appeal at 1614A).
Pistell deposited $700,000. of the three million dollar IIT investment in a short-term certificate of deposit. The deposit date was October 13, 1972 and the maturity date was October 20, 1972 (Ex. AB), which was four days after the scheduled closing date of the IRCO deal at which time Pistell was obligated to pay $700,000.
There is no evidence that, prior to the October 16, 1972 closing date or, more to *1104 the point, prior to the October 13, 1972 deposit date, any written change in that date was agreed upon between the parties. (See lawyer defendants proposed finding of fact no. 55).
We cannot, therefore, agree with Pistell's statement that those funds were clearly allocated towards the IRCO investment simply because the amount of the segregated funds and the proposed investment happen to be the same. Nor can we find that Pistell intended to invest in IRCO at the time of the IIT-Vencap closing.
3. Out Island Investment
In December of 1972, Vencap invested $662,000. in Out Island Airways. In addition, Vencap obtained an option, expiring on May 15, 1972, to purchase an additional 58,000 shares of stock at $15 per share.
Pistell testified that, once having made the initial $662,000. investment, it was necessary to invest a further amount of approximately $870,000. to protect the initial investment by making the airline an operative one.
Pistell testified that the only reason the further investment was never made was because in December of 1972, the Bahamian government proposed to nationalize the airline after the country obtained its independence in July of 1973 (Pistell, tr. at 669A-671A).
To support the claim that Pistell intended to make a substantial investment in Out Island Airways at the time of the IIT-Vencap transaction, defendants cite the three page memorandum which states that such an investment was contemplated for an amount "up to $1,500,000."
We find sufficient evidence to warrant an inference that Pistell intended to make an investment in Out Island Airways at the time of the IIT-Vencap transaction.
We cannot find, however, that Vencap was "committed" to invest $1,500,000. at that time. Further, even with this contemplated investment, there is not sufficient other evidence to negate the inference that Pistell intended to use a substantial portion of the IIT investment for his own personal benefit at the time that investment was made.
b. Potential Funds
In addition to attempting to negate the inference that Pistell intended to use the IIT investment funds for his own personal use through evidence that Pistell had other proposed uses for those funds, defendants also attempt to negate the inference by evidence that Pistell had access to other sources through which he might pay his personal debts.
Our review of the evidence concerning those other sources, however, does not reveal sufficient evidence to negate the inference which we have drawn about Pistell's intent.
1. The Orbis Bank Loan
Joseph Williams, an associate of Howard Cerny who was, in 1972, a New York representative of Orbis Bank in Germany, testified at the supplemental hearing. Williams stated that, in the latter part of October 1972, Pistell came to Cerny's office and, in the presence of Williams, informed Cerny that a loan had been arranged for Pistell with Orbis Bank.
At that time, Pistell gave Cerny a memorandum, prepared for Pistell by Taylor, regarding his outstanding bank indebtedness (Ex. 41). Williams understood the proceeds of the Orbis Bank loan would be used to repay that indebtedness (tr. at 64-65). The amount of the proposed Orbis loan was identical to the amount of outstanding bank indebtedness reflected in that memorandum, and was, therefore, clearly arrived at in contemplation of such repayment.
The collateral which secured the Franklin National Bank loan was 66,256 shares of Pomaikai Oil Corporation stock. The Chemical Bank loan was collaterally by a second lien on those same shares. The Orbis Bank loan was also to be collateralized by the same *1105 shares of Pomaikai Oil Corporation stock.
Pistell gave Cerny, at that same meeting, a copy of an announcement to Pomaikai shareholders that a merger had been effected with Flag-Redfern Oil Corporation (Ex. 42).
Pistell's testimony at various times regarding his understanding of this loan has been inconsistent. At his deposition, Pistell stated that the proposed Orbis Bank loan was an attempt to repay his taxes (tr. at 348). Later, he stated that the Orbis loan could have been used either to repay his taxes or to repay his bank debts (tr. at 350). Finally, at the supplemental hearing, Pistell testified that he understood the Orbis loan to have been negotiated in order to pay his bank debts (tr. at 347). Then, when confronted with these inconsistencies, Pistell explained that it did not seem to make a difference which debt the proceeds of the Orbis loan was used to repay since it was his understanding that the tax debts as well as the bank debts had to be repaid before the Orbis loan could be executed.
All parties stipulated that there were no notices of levy from the Internal Revenue Service or the New York State Tax Commission on file at the Chemical Bank or at the Franklin National Bank with respect to Richard Pistell in October or November of 1972. . . . (tr. at 862-3).
Although Pistell explained, at the supplemental hearing, that his lawyer Taylor and his tax accountants were working everything out for him and that he was, therefore, not too clear about where the proceeds of the Orbis loan would be used (tr. at 372-73), we cannot give this testimony much credibility. From Williams' testimony that Pistell himself was involved in the attempt to obtain the Orbis Bank loan, and Williams' notes from the meeting with Pistell and Cerny (Ex. 43), we conclude that Pistell did in fact know to what debt the monies from the Orbis Bank loan were contemplated to be applied.
We find Pistell's statement concerning the Orbis Bank loan made at his deposition, in response to an inquiry about any attempts he made to repay his taxes, to have been false. From this false response and from our further findings below, we infer that Pistell did not have any real possible sources to obtain funds to repay his tax debt of $250,000. Since Pistell said he believed he could not consummate the Orbis loan until he had paid his taxes, and since we find he had no real prospects for paying those taxes, we cannot find that Pistell could have had a very firm belief that the Orbis Bank loan would be consummated.
Under all these circumstances, therefore, we cannot find that the prospects for the Orbis Bank loan negate Pistell's found intent to use a substantial amount of the IIT investment for his own personal use.
2. Other Sources
Pistell testified at the supplemental hearing that there were other sources from which he thought he could obtain funds to repay his debts. We have not found Pistell to be a credible witness. His testimony, therefore, where uncorroborated by other witnesses or by documentary evidence, cannot be accorded great weight by this Court. This conclusion is particularly true of any testimony given by Pistell at the supplementary hearing but not testified to on prior occasions where a clear opportunity existed.
We cannot, therefore, take the source of funds he revealed in camera, his expressed general belief that any bank in the country would have lent him the money to pay his taxes, or the possibility of a $700,000. finder's fee in connection with his attempts to sell Resort International's interest in Gulf Stream Limited, (Pistell, tr. at 606-607), as sufficiently serious possibilities to negate his found intent to use the IIT investment funds to pay his debts.
Williams testified that during the month of October or November of 1972, he became aware of a possible loan *1106 which the Bahamas Commonwealth Bank was to make to Pistell, probably through the Netherland Antilles Company in which Pistell had an interest (Williams, tr. at 74). Williams thought, but was not sure, that Taylor had informed Williams of this transaction (Ex. 46). The loan, of $250,000., was to be lent first to the Netherland Antilles Company and then, in turn, by the Company to Pistell.
However, at the time of this loan negotiation, Williams testified, the Orbis loan was no longer a possibility (Williams, tr. at 78). The Bahamas Commonwealth Bank loan was thus a "substitute" for the Orbis Bank loan (Williams, tr. at 83). Therefore, the possible Bahamas Commonwealth Bank loan also does not negate Pistell's intent to use a substantial amount of the IIT money to pay, at the very least, his tax debts.
Further, there is not sufficient evidence concerning the Bahamas Commonwealth Bank loan to convince this Court that the loan was ever a real possibility.
CONCLUSIONS OF LAW
We find probable jurisdiction predicated upon § 22 of the Securities Act of 1933, 15 U.S.C. § 77v(a) and Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa.
We conclude that plaintiffs have now shown "sufficiently serious questions going to the merits" of their claim of a violation of Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder "to make them a fair ground for litigation." Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973).[10]
In fact, we find it likely that plaintiffs, at trial, will succeed in proving all the necessary elements of a Rule 10b-5 violation.[11]
1. We conclude that the memorandum furnished to Graze at his request and relied upon by Graze in his decision to invest in Vencap was offered in connection with the purchase of securities and was not simply a memorandum "memorializing" the transaction as alleged by defendants.
2. We conclude that the memorandum exhibits the following omissions or misrepresentations.
a. The memorandum failed to reveal that Pistell had serious financial problems.
b. The memorandum failed to reveal that Pistell intended to use a substantial portion of the IIT funds for his own personal use.
c. The memorandum stated that Vencap was offering "a sophisticated investment program with respect to growth opportunities throughout the world," "the sound investment of preferential capital utilizing management's contacts and experience in growth opportunities," and "a broad investment base"; we find these statements to be false and misleading under all the circumstances.
d. The memorandum failed to reveal that, regardless of Pistell's intent with respect to the Chibex put agreement, Vencap was under an obligation to F.O.F. Proprietary Ltd. ("F.O.F.") for the amount of $500,000. and did not have the funds to meet that obligation if called upon to do so.
3. We conclude that these misstatements and omissions meet the necessary requirement of materiality. See e. g., Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 887 (2d Cir. 1972). *1107 The Second Circuit has stated the test of materiality to be "whether a reasonable man would attach importance [to that information] in determining his choice of action in the transaction in question."[12]List v. Fashion Park, Inc., 340 F.2d 457 (2d Cir.) cert. denied, 382 U.S. 811, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965). See Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1973); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970).
4. We conclude that the fraudulent acts were performed in the United States, that is the misstatements and omissions were written in the United States and were conveyed to the Bahamas through "use of some means or instrumentality of interstate commerce or of the mails . . .." See Kerbs v. Fall River Industries, Inc., 502 F.2d 731 (10th Cir. 1974).[13]
5. The investment caused the subsequent financial losses of which plaintiffs complain. See Mitchell v. Texas Gulf Sulpher Co., 446 F.2d 90 (10th Cir. 1971).
Based upon our supplemental findings and conclusions here, we think there is subject matter jurisdiction and at least a fair ground for litigation under what the Court of Appeals denominated as "theory one". We predicate our conclusion upon the premise stated by the Second Circuit that the United States cannot be used as a base for manufacturing fraudulent security devices for export, even when such securities are peddled only to foreigners. We think that the facts with regard to the creation of the three page memorandum now warrant the conclusion that perpetration of the fraudulent acts themselves occurred within the United States; such actions were not "mere preparatory activities or the failure to prevent fraudulent acts" such as appeared to be the case before the supplemental hearing and findings.[14]
In addition to our conclusion of subject matter jurisdiction under Court of Appeals theory one, we believe that jurisdiction exists under "theory four". Under this theory, we have found that, at the time Pistell entered into the IIT-Vencap agreement, he intended to use the IIT funds for his own personal use. Jurisdiction under Rule 10b-5 for what are, given Pistell's intent, material misrepresentations contained in the three-page memorandum can be predicated, therefore, not only upon that memorandum's preparation within the United States, but also upon the subsequent execution *1108 of that fraudulent intent within the United States.
We have found that the $590,000. loan transaction was consummated by the transfer of funds from the Handelskredit Bank to an Intercapital account at the Bank of Commerce in New York. Pistell, pursuant to a loan agreement with Intercapital, used those Intercapital Funds at the Bank of Commerce to satisfy his bank debts and tax obligations (Appendix on Appeal at 3387A-3389A; 4146A). In addition, we find from the Vencap accounts (Appendix on Appeal at 4118A-4147A) that much of the Vencap monies which plaintiffs allege Pistell misused,[15] were paid out from the Vencap account maintained at the Bank of Commerce in New York (Appendix on Appeal at 2926A-3172A), the city in which Vencap also maintained its transactional records and from which it conducted much of its business.
We also find that the decisions regarding whether to charge various items on the Vencap general ledger to Vencap as business expenses or to Pistell personally were decisions made in New York. We further find that, at least when questions arose, such decisions were made by Pistell and Taylor and were merely recorded, as dictated, by the accounting firm of Field, Tiger, Krell & Werber. (Tiger, tr. at 121-149). In sum, we find that these and other acts which occurred in New York were "the acts that consummated the fraud". IIT v. Vencap, 519 F.2d at 1018.
As an alternative to finding that the telex and memorandum contained material omissions and misleading statements, the Court of Appeals suggested, and denominated as "theory two", that the preferred stock issued to IIT might be found to be, by its very nature, "a device, scheme or artifice to defraud" and thus a violation of Rule 10b-5.
In Popkin v. Bishop, 464 F.2d 714 (2d Cir. 1972), the Second Circuit declined to expand Rule 10b-5 into a vehicle through which to litigate the "fairness" of securities transactions, but rather determined that an allegation of nondisclosure remained the central focus of federal securities claims. The Court found that
Section 10(b) of the Exchange Act and Rule 10b-5 are designed principally to impose a duty to disclose and inform rather than to become enmeshed in passing judgments on information elicited.
464 F.2d at 719.[16] We think that the instant case is distinguishable from Popkin. Here, an evaluation of the fairness of the transaction is not required for it may be found that the securities offered were, by their very terms, a per se fraud.
Stanley Graze was the investment manager for the IIT fund and was, therefore, in a fiduciary capacity with respect to the fundholders. Pistell, a self-proclaimed international financier, knew that the $3,000,000. investment by IIT was not a proper one for Graze to make on behalf of the fundholders.[17]
We think that given the terms of the preference shares, Graze's fiduciary *1109 duty, Pistell's knowledge of Graze's position and his knowledge, in general, of financial matters, it is at least a fair ground for litigation that the securities offered by Vencap to IIT constituted a per se fraud in violation of Rule 10b-5(a).
The jurisdictional bases for this theory are 1) the preparation of the memorandum in New York and 2) the creation of the preference share terms in New York.
We also conclude that plaintiffs have made a sufficient showing of the existence of a conspiracy between Pistell and the management of IIT to defraud the IIT fundholders so that the conspiracy theory is also a fair ground for litigation (see Court of Appeals theory three).
Evidence of a conspiracy includes our findings that:
1. substantial changes were made in the Vencap shareholder's resolution after the date of that alleged resolution as reflected in the minutes;
2. Graze failed to seek, and Pistell failed to provide, necessary information to Graze in order for him to make a proper investment decision on behalf of IIT;
3. Graze failed to exhibit any subsequent concern about Vencap including the terms of Pistell's employment contract and Pistell's use of the IIT monies;
4. Graze apparently acquiesced in the $590,000. loan to Pistell despite Pistell's earlier representations that Vencap was to be a venture capital company with a broad based investment program;
5. Graze accepted, and perhaps insisted upon, preference share terms which were clearly not beneficial to the IIT fundholders without apparent business reason; and
6. Graze possibly participated in the formulation of those preference share terms.
The Court of Appeals fifth suggested theory is that the IIT liquidators could sue derivatively for harm done to IIT as a shareholder of Vencap. The complaint was amended after that opinion to allege such a derivative suit. Plaintiffs have not, however, made any attempt to prove the necessary elements for such a theory.
In order to make such a claim, it is necessary for plaintiffs to show that Vencap was induced to enter into securities transactions, after the time at which plaintiffs became shareholders (see Rule 23.1 of the Federal Rules of Civil Procedure), which meet the requirements of a Rule 10b-5 violation,[18] and which have a sufficient jurisdictional basis in the United States.
The Second Circuit opinion suggests that the Chibex note and option transaction and the purchase of the Lincoln American shares by Vencap might suffice here to meet the standards of a Rule 10b-5 violation as set forth in Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971).[19]
Since the Second Circuit opinion, the Supreme Court has decided the case of Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). Blue Chip held that an offeree who failed to buy stock because of an allegedly fraudulent prospectus had no standing to sue under Section 10(b) and Rule 10b-5 since he was neither a purchaser nor a seller. The Second Circuit has subsequently considered the status of the Birnbaum rule after Blue Chip. "We are, accordingly, left with a *1110 reaffirmation of the Birnbaum doctrine but with the limitation that the phrase `in connection with the purchase or sale of any security' may apply to a security different from the security whose sale originated the fraudulent scheme." Frigitemp Corp. v. Financial Dynamics Fund, Inc., 524 F.2d 275, 280-281 (2d Cir. 1975). These new developments do not affect the instant case, however, since in both the Chibex and Lincoln American transactions, Vencap meets the purchaser-seller requirements of Birnbaum.
Turning to the Chibex transaction, we find no actionable violation of Rule 10b-5.
On or about August 29, 1972, Pistell caused Vencap to enter into a transaction which gave F.O.F. Proprietary Funds Ltd. the right, upon three days written notice, to require Vencap to purchase 500,000 shares of Chibex Mining Corporation ("Chibex") stock at a purchase price of $1.00 per share (Appendix on Appeal at 1659A). There was no time limitation placed in the agreement.
At the time Pistell caused Vencap to enter into that transaction, Vencap did not have sufficient funds to meet such a put.
Pistell has testified that his "main interest" was in Chibex. Pistell is president and chairman of the board of Chibex (Appendix on Appeal at 1281A). In addition, Pistell owns 50% of Conservative Capital which, in turn, owns 2,000,000 of the 3,700,000 outstanding shares of Chibex (Appendix on Appeals at 952A). Blackman, who on May 22, 1972 became the 50% owner of the common stock of Vencap, owns the other 50% interest in Conservative Capital (Appendix on Appeal at 953A).
On or about July 31, 1973, Vencap loaned Conservative Capital a sum of $75,000. That loan was to repaid by December 31, 1979 with interest at the rate of 5% per annum (Appendix on Appeal at 1974A). Neither Pistell's nor Blackman's interest in Conservative Capital was disclosed to the Vencap Board of Directors at the time. (Taylor, Appendix on Appeal at 643A; Plaintiffs' Ex. 11, Appendix on Appeals at 1240A).
The Vencap Articles of Association provide that if a proposal is made for a transaction with a company in which a Vencap officer or director has an interest, the nature of that interest must be disclosed at the meeting at which the proposal is acted upon (Appendix on Appeal at 1211A-1212A).
On November 25, 1973, Conservative Capital granted Intercapital an option, expiring on August 1, 1977, to purchase 75,000 Chibex shares at $1.00 per share. It granted an option to purchase 75,000 additional shares at $1.50 per share conditioned upon Intercapital making or arranging for an additional $75,000. loan to Conservative Capital on or before August 1, 1974 (Appendix on Appeal at 3366A).
At two undisclosed times, Vencap, through Intercapital, lent Chibex the sums of $400,000. and $80,000. (Taylor, Appendix on Appeal at 645A-647A). Taylor testified that the $80,000. was repaid. Since there is no contrary evidence, we find that it was repaid. We make no finding concerning repayment of the $400,000., since we have been presented with no evidence whatsoever concerning its repayment.
The Chibex put agreement which was entered into before IIT's investment into Vencap cannot be the basis of a derivative action, since IIT was not a shareholder of Vencap at the time of the agreement. (Rule 23.1 of the Federal Rules of Civil Procedure). Therefore, plaintiffs' only possible complaint about this agreement must arise from the failure of Vencap to disclose it in the three page memorandum. We have already discussed this theory. (See supra at p. 1106-1107).
As for the remainder of the transactions discussed above, we need not reach the merits of a 10b-5 violation since we have no evidence that any activities in connection with these transactions occurred within the United States.
Finally, turning to the purchase by Vencap of shares of Lincoln American *1111 Corporation, we cannot conclude that preliminary injunctive relief would be warranted on the basis of those purchases. We have been shown no evidence, nor in fact given any arguments by plaintiffs' counsel, in support of the proposition that these stock transactions were entered into for the personal benefit of Pistell.
Pistell testified that in 1972, he became chairman of the Executive Committee of Lincoln American Corporation, formerly called Cobourn Corporation (Appendix on Appeal at 703A; 737A-738A). In that year, Pistell testified, the company had a consolidated net loss of $3,792,227. The following year, 1973, the company had a reported profit of $692,000.
Pistell testified further that, upon relocating to the Bahamas to operate Vencap, he resigned his position as Chairman of Lincoln American Corporation and gave up a stock option for 100,000 shares, presumably in Lincoln American Corporation (Appendix on Appeal at 703A).
Subsequently, Vencap made substantial investments into Lincoln American Corporation, the shares of which are traded on the American Stock Exchange (Appendix on Appeal at 1768A). (See also Pistell's testimony regarding the Benhima shares, Appendix on Appeal at 1855A-1859A).
While such trading on the American Stock Exchange would be a sufficient jurisdictional basis, we have no evidence that Pistell caused Vencap to enter into these transactions for Pistell's own benefit. Absent such evidence, we can find no evidence of a 10b-5 violation, despite the existence of a substantial unrealized loss by Vencap on those investments.
In sum, we conclude that there has been a sufficient showing of subject matter jurisdiction and of a Rule 10b-5 violation (under Court of Appeals theories one, two, three and four) to warrant preliminary injunctive relief for plaintiffs against defendants Vencap, Intervent, Intercapital and Pistell.
In addition to the jurisdictional bases under the securities laws, plaintiffs have argued for the first time upon remand that there is jurisdiction over this case based upon the theory of ancillary jurisdiction articulated in Esbitt v. Dutch-American Mercantile Corp., 335 F.2d 141 (2d Cir. 1964).
Plaintiff in Esbitt was a receiver who had previously been appointed by the same district court in an earlier action brought by the Securities and Exchange Commission for injunctive relief and for the appointment of a receiver. The Esbitt court held that where the court which had appointed the receiver heard the subsequent case brought by the receiver, and the aims of that suit were consonant with the goals sought to be obtained through the appointment, there was no need for an independent basis of jurisdiction since that case was ancillary to the earlier action. Accord Tcherepnin v. Franz, 485 F.2d 1251, 1255-56 (7th Cir. 1973). Cf. ICC v. Vesco, 490 F.2d 1334, 1350 fn. 21 (2d Cir. 1974).[20]
Recently, the Second Circuit was confronted with the issue of whether ancillary jurisdiction should attach where a receiver is appointed in a jurisdiction other than the one in which the suit is brought. United States v. Franklin National Bank, 512 F.2d 245 (2d Cir. 1975). In Franklin National Bank, the Second Circuit refused to allow a receiver appointed in the Southern District of New York to rely upon the theory of ancillary jurisdiction in a suit brought in the Eastern District of New York. The Court held that the receiver must establish independent jurisdictional grounds.
The rationale behind ancillary jurisdiction as found in Esbitt and Franklin National Bank is that "[t]he ancillary suit is cognizable in the court *1112 of the main suit regardless of the citizenship of the parties or the amount in controversy because the res over which the receiver took control is already before the court." United States v. Franklin National Bank, 512 F.2d at 249. It is this rationale which we believe bars such a jurisdictional basis in the instant case.
Although a consent order was entered in this court in SEC v. Vesco on April 4, 1974 (Ex. 74) which provided for the appointment of a special receiver, that receiver was to work with the Luxembourg appointed liquidators of IIT "in connection with the recovery and realization of the [IIT] assets". That order also provided that all assets of IIT held in the United States "shall forthwith be turned over directly to the liquidators". We do not believe that this consent order can be deemed equivalent to the court's appointment of a receiver so as to bring the assets of IIT, "the res", before this court. Ancillary jurisdiction is not, therefore, appropriate in this case.
We turn now to defendants Havens Wandless, Charles Murphy and David Taylor ("the lawyer defendants") who argue that the complaint against them should be dismissed for lack of subject matter jurisdiction.
On June 10, 1974, this Court entered a temporary restraining order which enjoined the lawyer defendants, among other defendants, from certain activities with regard to the assets of IIT, Vencap, Intervent and Intercapital. On June 14, 1974, that order was modified, at the behest of plaintiffs' counsel, to eliminate the lawyer defendants. After the preliminary injunction was entered against other defendants, the case was appealed to the Second Circuit,[21] which returned the case to us for supplemental findings on the preliminary injunction. At that time, plaintiffs moved to amend the complaint in various respects. One such proposed amendment was to assert temporary and injunctive relief against the lawyer defendants. That proposed amendment was opposed by the lawyer defendants on the ground that plaintiffs had withdrawn that part of the complaint in June of 1974 before any of the proceedings on the preliminary injunction had taken place. We agree with the lawyer defendants on that aspect of plaintiffs' motion.
Since plaintiffs withdrew their request for temporary relief and never sought preliminary relief against these defendants, we do not think that plaintiffs may now seek such relief in the supplementary proceeding ordered by the Court of Appeals.
Memorandum decision, July 8, 1975.
We granted, therefore, defendants' request to strike that portion of the proposed amended complaint.
Plaintiffs now take the position that the question of subject matter jurisdiction over the lawyer defendants and the issue of those defendants' intent in performing various activities is not before the court at this juncture. We agree. While we also agree with defendants argument that it would be equitable to make a determination of jurisdiction concerning these defendants as quickly as possible, we cannot overlook plaintiffs' position that it has not had an opportunity to make its case against the lawyer defendants.
We also note that, upon remand of this case from the Court of Appeals, all parties agreed to proceed with a supplemental hearing on the preliminary injunction then in effect rather than consolidating such a hearing with the trial on the merits.[22]
The above opinion constitutes my supplemental findings of fact and conclusions *1113 of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
So ordered.
NOTES
[1] For the convenience of readers, we will reprint in footnotes relevant portions of our prior findings concerning parties to the suit as their names arise and noting by bracketing any change in their status since the time of our previous findings.
Defendant Pistell is a United States citizen who resides in the Bahamas. Pistell is (1) Chairman of the Board of Directors, President and Treasurer of defendant Vencap and beneficial owner of 50% of the ordinary stock of Vencap; (2) President and sole Director of defendant Intervent; (3) owner of 50% of the stock of defendant Intercapital; and (4) owner of 50% of the stock of defendant Conservative Capital.
[2] Defendant Murphy, a member of the Bar of the State of New York, is a partner in the defendant Havens Wandless and [was formerly] attorney-in-fact for Pistell. He was a director and secretary of Vencap.
[3] Defendant Stanley Graze, who was president of IOS Management Services, Ltd. and Incap, was responsible for the investment management of all the IOS-managed mutual funds.
[4] It would have been more credible had Pistell testified that he had given to Graze Murphy's notes concerning IIT's investment into Vencap to "rework" rather than Murphy's notes on the purposes and objectives of Vencap and the Out Island investment.
[5] Carson Lawson is a Bahamian law firm which represented Vencap for part of the IIT-Vencap transaction.
[6] Jeremy Waddell is a member of the Carson Lawson law firm.
[7] D'Alimonte was an attorney associated with the New York law firm of Wilkie, Farr & Galligher, counsel to IIT.
[8] Defendant David Taylor is a member of the Bar of the State of New York and is a partner in the defendant Havens Wandless, Stitt & Tighe. He [was an] Assistant Secretary of Vencap and the sole incorporator and Secretary of Intervent. Taylor [was] also a director of Chibex and attorney-in-fact for Pistell.
[9] Intercapital is a Netherland Antilles corporation with offices in Curacao and at 99 Park Avenue, New York, New York. Intercapital has no officers or directors and is owned in equal shares by Pistell and Blackman.
[10] We have already found, and the Court of Appeals has affirmed, "a balance of hardships tipping decidedly toward the party requesting the preliminary relief." IIT v. Vencap, 519 F.2d at 1019 n. 33.
[11] Rule 10b-5(b) makes it unlawful for any person through interstate commerce "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading in connection with the purchase or sale of any security".
[12] We find that the omission of Pistell's serious financial difficulties is material because IIT's investment in Vencap was made largely in reliance upon Pistell's personal reputation. Pistell has testified that Graze was relying upon Pistell's reputation in making the Vencap investment. Independent of that testimony, we infer from the absence of evidence that Graze had sufficient other information to make a reasonable investment decision, that Graze was in fact relying principally upon Pistell's reputation. Since Pistell knew of that reliance, see Heit v. Weitzen, 402 F.2d 909, 914 (2d Cir. 1968), cert. denied, 395 U.S. 903, 89 S.Ct. 1740, 23 L.Ed.2d 217 (1969), he also knew that information concerning his financial difficulties, which he has characterized as including a "monumental" tax problem, would be material to Graze "in the sense that a reasonable investor might have considered [it] important in the making of this decision". Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-4, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1973).
[13] Plaintiffs have cited us to Spilker v. Shayne Laboratories, 520 F.2d 523 (9th Cir. 1975), apparently for the proposition that fulfilling the requirement of use of interstate commerce or the mails is sufficient in itself to confer subject matter jurisdiction on this Court. We do not agree with plaintiffs reading of Spilker or its application to the present transactional case. Spilker held, in a purely domestic case, that intrastate telephone calls were sufficient to meet the jurisdictional prerequisite of interstate commerce. In contrast, the present case involves the question of whether there was sufficient activity within the United States to invoke the federal securities laws at all.
[14] We realize, however, that in order to prevent application of the securities laws "in every instance where something has happened in the United States", IIT v. Vencap, 519 F.2d at 1018, there must be a fine line drawn. We recognize that, for this jurisdictional theory, we are perhaps on that borderline.
[15] Allegations which we find plaintiffs are likely to be able to prove at trial.
[16] Popkin has been followed by a number of lower court decisions which, when faced with disputes as to the "fairness" of public corporations "going private", have declined to do so. See e. g., Greenberg v. Institutional Investor Systems, Inc., current C.C.H.Fed.Sec.L.Rep. ¶ 95, 231 (S.D.N.Y.1975), Dreier v. The Music Makers Group, Inc., 1973-74 Transfer Binder, C.C.H.Sec.L.Rep. ¶ 94, 406 (S.D.N.Y.1974), and Kaufmann v. Lawrence, 386 F.Supp. 12 (S.D. N.Y.1974), aff'd per curiam, 514 F.2d 283 (2d Cir. 1975).
[17] We note that Pistell also knew:
1. the securities would not "inure primarily to the benefit of the preferential capital investors";
2. the corporate structure of Vencap;
3. his own intentions towards the investment monies;
4. his serious financial problems;
5. Graze had not made proper inquiries about Pistell or Vencap; and knew
6. Pistell had not provided Graze with the information necessary to make a reasonable investment decision.
[18] See Lester v. Preco Industries, Inc., 282 F.Supp. 459, 461-2 (S.D.N.Y.1965) (no Rule 10b-5 violation found).
[19] The Court expressed uncertainty as to whether the $590,000. loan transaction, now detailed in our supplemental findings, could be characterized as a securities transaction. Based upon our supplemental findings, we conclude that the latter transaction cannot be characterized as such.
[20] In ICC v. Vesco, the Second Circuit declined to decide whether court appointed special counsel and board of directors was the theoretical equivalent of a receiver for ancillary jurisdiction.
[21] Plaintiffs on appeal apparently took the position that the lawyer defendants were not properly before the appellate court. The Second Circuit declined to decide the question. IIT v. Vencap, 519 F.2d 1019 n. 35.
[22] Consolidation was suggested as a possibility by the Court of Appeals in the decision remanding the case and was, therefore, considered by the parties and by the Court.
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327 U.S. 536 (1946)
CHERRY COTTON MILLS, INC.
v.
UNITED STATES.
No. 187.
Supreme Court of United States.
Argued December 14, 1945.
Decided March 25, 1946.
CERTIORARI TO THE COURT OF CLAIMS.
*537 Theodore B. Benson argued the cause and filed a brief for petitioner.
David L. Kreeger argued the cause for the United States. With him on the brief were Solicitor General McGrath, Assistant Attorney General Sonnett and John R. Benney.
MR. JUSTICE BLACK delivered the opinion of the Court.
In 1942 the Government owed the petitioner a $3,104.87 refund of processing and floor taxes paid by the petitioner under the Agricultural Adjustment Act. The petitioner owed the Reconstruction Finance Corporation $5,963.51, balance on a note for borrowed money. The General Accounting Office directed the Treasury not to pay the tax refund to the petitioner, but to issue a check for the refund payable to the R.F.C. "to partially liquidate" petitioner's indebtedness to that governmental agency. As *538 authorized by 28 U.S.C. 250 (1), the petitioner then brought suit against the Government for the tax refund in the Court of Claims. The Government filed a counterclaim for the $5,963.51, asserting the right to do so under 28 U.S.C. 250 (2), which gives the Court of Claims jurisdiction to hear and determine "All set-offs, counterclaims, . . . or other demands whatsoever on the part of the Government of the United States against any claimant against the Government in said court . . ." The petitioner challenged the jurisdiction of the Court of Claims to hear and determine the counterclaim on these two grounds: (1) the Comptroller exceeded his authority in directing the Treasury to pay the tax refund to the R.F.C. instead of to the petitioner; (2) the R.F.C. should be treated in the same way as a privately owned corporation and when so treated the petitioner's admittedly valid indebtedness to R.F.C. is not a claim "on the part of the Government" entitling it to set up a counterclaim under 28 U.S.C. 250 (2). The Court of Claims, rejecting both these contentions, rendered judgment for the United States and against the petitioner for the amount it owed the R.F.C. less the amount of the tax refund. We granted certiorari.
Little need be said as to the contention concerning the alleged lack of authority of the General Accounting Office to direct the Treasury not to pay the petitioner, since we agree with the Court of Claims that its jurisdiction to hear and determine counterclaims is in no way dependent upon the preliminary intragovernmental steps which precede court action. For this reason the petitioner's argument based on our decision in Skinner & Eddy Corp. v. McCarl, 275 U.S. 1, where we considered the power of the Comptroller General in relation to wholly different legislation, has no bearing on the power of the Court of Claims under 28 U.S.C. 250 (2).
*539 Nor do we find any justification for giving to 250 (2) the narrow interpretation urged. Its purpose was to permit the Government, when sued in the Court of Claims, to have determined in a single suit all questions which involved mutual obligations between the Government and a claimant against it. Legislation of this kind has long been favored and encouraged because of a belief that it accomplishes among other things such useful purposes as avoidance of "circuity of action, inconvenience, expense, consumption of the courts' time, and injustice." Chicago & N.W.R. Co. v. Lindell, 281 U.S. 14, 17 and cases cited.
We have no doubt but that the set-off and counterclaim jurisdiction of the Court of Claims was intended to permit the Government to have adjudicated in one suit all controversies between it and those granted permission to sue it, whether the Government's interest had been entrusted to its agencies of one kind or another. Every reason that could have prompted Congress to authorize the Government to plead counterclaims for debts owed to any of its other agencies applies with equal force to debts owed to the R.F.C. Its Directors are appointed by the President and confirmed by the Senate; its activities are all aimed at accomplishing a public purpose; all of its money comes from the Government; its profits, if any, go to the Government; its losses the Government must bear. That the Congress chose to call it a corporation does not alter its characteristics so as to make it something other than what it actually is, an agency selected by Government to accomplish purely governmental purposes. Inland Waterways Corp. v. Young, 309 U.S. 517, 524. Nor is this congressionally granted power to plead a counterclaim to be reduced because in other situations, and with relation to other statutes, we have applied the doctrine of governmental *540 immunity or priority rather strictly.[1] The Government here sought neither immunity nor priority. Its right to counterclaim rests on different principles, one of which was graphically expressed by the sponsors of the Act of which § 250 (2) is a part: It is "as much the duty of the citizen to pay the Government as it is the duty of the Government to pay the citizen." 58 Cong. Globe 1674, April 15, 1862, 37th Cong., 2d Sess.
Affirmed.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
NOTES
[1] Sloan Shipyards Corp. v. U.S. Fleet Corp., 258 U.S. 549; Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S. 381; Reconstruction Finance Corp. v. J.G. Menihan Corp., 312 U.S. 81.
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624 F.2d 1106
U. S.v.Stephens
79-2203
UNITED STATES COURT OF APPEALS Seventh Circuit
6/25/80
1
N.D.Ind.
AFFIRMED
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REVISED
United States Court of Appeals,
Fifth Circuit.
No. 96-30020.
Glenn Charles AYO, Plaintiff-Appellant,
v.
Forest BATHEY, Warden; Ralph Carrers; Lt. Levits; Sgt. Hebert;
Scott Bowles; Mark Owens, Corp.; Dep. Flattman; Dep. Repath;
Archie Kaufman, Sgt.; Corp Vado; Dep. Vansicle; and John Lane,
Defendants-Appellees.
Feb. 10, 1997.
Appeal from the United States District Court for the Eastern
District of Louisiana.
Before JOLLY, JONES and WIENER, Circuit Judges.
PER CURIAM:
Plaintiff-appellant Glenn Charles Ayo, a Florida prisoner,
appeals the district court's dismissal of his civil rights suit
against numerous officials of St. Bernard Parish. Concluding that
the Prison Litigation Reform Act's (PLRA) amended requirements for
in forma pauperis (IFP) certification apply to cases pending on the
effective date of the PLRA and that Ayo failed to comply with the
PLRA, we revoke his previously obtained IFP status, and we shall
dismiss his appeal for lack of prosecution unless, within thirty
days, he refiles for IFP certification and submits the
documentation required by the PLRA. If he refiles timely and
properly, we shall assess and collect the full filing fee, subject
to the PLRA's installment provisions.
I.
FACTS AND PROCEEDINGS
Ayo brought a civil rights action in district court against
numerous St. Bernard Parish officials, asserting various
constitutional violations in the conditions of his confinement in
the St. Bernard Parish Prison. At that time, the district court
denied his motion to proceed IFP. The magistrate judge tried the
case over the telephone and recommended that Ayo's complaint be
dismissed with prejudice. The district court adopted the
magistrate judge's report and entered judgment for the defendants.
Ayo timely appealed the district court's order, and the district
court granted his motion to proceed IFP on appeal. We decline to
reach the merits of Ayo's appeal, however, as he has not complied
with the PLRA's amended procedure for IFP certification.
II.
ANALYSIS
On April 26, 1996, the President signed the PLRA,1 which
changed the requirements for proceeding IFP in federal courts.
Specifically, § 1915(a)(2) requires a prisoner seeking to bring or
appeal a civil action IFP to file an affidavit listing his assets
and to submit a certified copy of his trust fund account statement
(or institutional equivalent) for the 6-month period immediately
preceding the filing of the complaint or notice of appeal.
Additionally, § 1915(b) requires "a prisoner [who] brings a civil
action or who files an appeal in forma pauperis" to pay the full
amount of the filing fee, which may be collected in installments as
provided in this section.
In our recent decision in Strickland v. Rankin County
1
Pub.L. No. 104-134, 110 Stat. 1321 (1996).
Correctional Facility,2 we explicitly held that "prisoners whose
appeals were pending on the effective date of the PLRA must refile
to this court in conformity with the amended statute before we
consider their appeals on the merits."3 Applying the two-part test
recently enunciated in the Supreme Court decision of Landgraf v.
USI Film Products,4 we carefully analyzed whether PLRA §§
1915(a)(2) and (b)(1) should apply to cases pending on the
effective date of the PLRA. Under Landgraf’s first step, we
recognized that Congress specified no effective date for the PLRA;
therefore, it became effective on the day it was signed—April 26,
1996.5 We then addressed whether application of either section
would trigger any of the concerns enumerated in the second step of
the Landgraf test, i.e., whether application of these sections to
cases pending on the PLRA's effective date would (1) impair rights
a party possessed when he acted, (2) increase a party's liability
for past conduct, or (3) impose new duties with respect to
transactions already completed.6
We concluded that application of the filing requirements of §
1915(a)(2) would not implicate any Landgraf concerns as "the form
of a filing requirement is procedural in the strictest sense,"7 and
2
1997 WL 35406, --- F.3d ---- (5th Cir., January 30, 1997).
3
Strickland at *2, at ----.
4
511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994).
5
Strickland at *1, at ---- (citing Adepegba v. Hammons, 103
F.3d 383, 385-86 (5th Cir.1996)).
6
Strickland at *1, at ---- (quoting Landgraf v. USI Film
Products, 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994)).
7
Strickland at *2, at ----.
"this change in form ... does not affect the substance of the
underlying appeal or any independent substantive rights."8 Neither
would application of § 1915(b)(1)'s fee assessment raise any
Landgraf concerns, as the fee is not assessed until the prisoner
first evaluates his claims and decides that the merits of his
appeal justify paying appellate fees, and then refiles for IFP
certification if he desires to proceed.9
As Strickland obviously governs the instant case, we adopt in
full its holdings and reasoning and apply them to the case at hand.
The filing dates reveal that Ayo's appeal was pending on the
effective date of the PLRA. Ayo filed his notice of appeal, was
granted IFP status for purposes of appeal, and submitted his
original and supplemental briefs to this court, all before the
effective date of the PLRA. Thus Strickland requires application
of the PLRA's IFP certification procedure to Ayo's pending appeal.10
The instant case is only slightly distinguishable from
Strickland. There the prisoner obtained IFP status at the district
court level and "carried it over" to her appeal; in contrast, Ayo
acquired his IFP status by order of the district court, but for the
first time for purposes of his appeal. Yet this distinction makes
no difference, as Strickland makes clear that application of §
1915(a)(2) revokes a prisoner's previously obtained IFP status
8
Id. (citations omitted).
9
Id. at *4, at ----.
10
Although the district court granted Ayo IFP status for
appeal based on the financial information he submitted, that
information does not fulfill the requirements of § 1915(a)(2).
until it is reacquired in compliance with the PLRA.11 Thus the
PLRA's IFP certification requirements apply alike to prisoners who
filed a motion to proceed IFP on appeal prior to the effective date
of the PLRA and to those who acquired IFP status in the district
court and carried it over to the appeal before the effective date
of the PLRA.
Neither is the instant case significantly distinguishable
from Strickland simply because Ayo had fully briefed his appeal
before the effective date of the PLRA. We note that the Second
Circuit has refused to apply the PLRA to cases that are pending and
fully briefed on the effective date of the PLRA out of its concern
for parties who had briefed appeals but would not pursue them if
required to pay.12 We concluded in Strickland, however, that the
Landgraf concerns alluded to by the Second Circuit are not
material.13 Consequently, we hold that the subject PLRA provisions
apply to cases pending on the effective date of the PLRA, whether
fully briefed or not.
III.
CONCLUSION
For the foregoing reasons, we hold that (1) the PLRA's amended
IFP certification requirements apply to this case and to all cases
pending on its effective date, whether fully briefed or not, and
11
Strickland at *3, at ---- (citing Jackson v. Stinnett, 102
F.3d 132, 136 (5th Cir.1996)).
12
See Covino v. Reopel, 89 F.3d 105, 108 (2d Cir.1996);
Duamutef v. O'Keefe, 98 F.3d 22, 24 (2d Cir.1996); Ramsey v.
Coughlin, 94 F.3d 71, 73 (2d Cir.1996).
13
Strickland at *4 n. 2, at ---- n. 2.
(2) application of the PLRA revokes a prisoner's previously
obtained IFP status, whether granted in a motion to proceed IFP on
appeal prior to the effective date of the PLRA or granted in the
district court and carried over to the appeal before the effective
date of the PLRA. Accordingly, we shall dismiss Ayo's appeal in
thirty days unless within that time he refiles for IFP
certification in conformity with the PLRA. If Ayo refiles timely
and properly and submits the required documentation, we shall
assess and collect the filing fee in full, subject to the
installment provisions of § 1915(b). If not, his appeal shall be
dismissed for lack of prosecution, pursuant to Fifth Circuit Rule
42.3.
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Filed 7/15/16 P. v. Saucedo CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
THE PEOPLE, B267536
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BA429993)
v.
JOSE MARIA SAUCEDO,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los Angeles County,
Douglas Sortino, Judge. Affirmed.
Tracy L. Emblem, under appointment by the Court of Appeal, for Defendant and
Appellant.
No appearance for Plaintiff and Respondent.
In November 2014, the District Attorney in Los Angeles charged defendant Jose
Saucedo (defendant) with making a criminal threat, in violation of Penal Code section
1
422(a), and further alleged criminal street gang (§ 186.22(b)(1)(B)) and hate crime (§
422.75(a)) enhancements. As testimony at defendant’s preliminary hearing established,
the charges stemmed from two encounters between defendant and a Latina woman who
had three children with a Black man. In the first encounter, defendant yelled racially
derogatory threats at the woman, who lived in a housing project within territory claimed
by the Big Hazard criminal street gang. In the second encounter when the woman was
with her three-year-old son, defendant (shirtless with Big Hazard gang tattoos visible)
told the woman that she should move out of the housing project because “our hood don’t
get down like this,” that he knew she didn’t want “cocktails” flying in her house because
2
she had “little ones,” and that this was her “second warning.”
Pursuant to an agreement with the People, defendant pled no contest to the section
422(a) charge and admitted the gang and hate crime allegations. The trial court imposed
an 11-year prison sentence—the execution of which it suspended—and placed defendant
on formal probation for 5 years. The conditions of his probation required, among other
things, that defendant “not associate with and stay one hundred yards away from any
member or associate of the Big Hazard criminal street gang” and that he “stay one
hundred yards away from any areas or locations where associates or members of the Big
Hazard criminal street gang congregate.” In entering his no contest plea, defendant said
he understood these conditions of his probation, and when the court imposed sentence he
raised no objection to the conditions. Defendant did not appeal his conviction.
Law enforcement arrested defendant approximately four months later in April
2015 for violating his probation conditions. The trial court held a probation violation
hearing at which a police officer testified he saw defendant with another Big Hazard gang
1
Statutory references that follow are to the Penal Code.
2
Around the time of the threat, a Black family’s residence in the housing project
had been firebombed.
2
member in the same housing project where defendant committed the underlying criminal
threat offense; another officer also testified he observed Big Hazard gang writing and
paraphernalia at defendant’s residence. At the conclusion of the hearing, the trial court
found defendant violated the no contact and the stay away from territory conditions of his
probation. Having so found, the trial court revoked and terminated defendant’s probation
and ordered him to serve the 11-year sentence it had originally imposed but suspended.
The court gave defendant 300 days of credit toward his sentence (261 days actual and 39
days good time) and imposed various fines and fees.
We appointed counsel to represent defendant on appeal. After examining the
record, counsel filed an opening brief raising no issues. On March 3, 2016, this court
advised defendant he had 30 days to personally submit any contentions or issues he
wished us to consider. We received no response.
We have examined the record provided to us and are satisfied defendant’s attorney
on appeal has complied with the responsibilities of counsel and no arguable issue exists.
(People v. Wende (1979) 25 Cal.3d 436, 441; see also Smith v. Robbins (2000) 528 U.S.
259, 278-282; People v. Kelly (2006) 40 Cal.4th 106, 122-124.) Defendant’s presence in
the housing project that was the very same location of the underlying charged offense—
which carried with it the section 186.22 criminal street gang allegation defendant
admitted—establishes beyond doubt defendant knowingly violated the condition that he
stay 100 yards away from a location where Big Hazard gang members congregate.
3
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
BAKER, J.
We concur:
TURNER, P.J.
KRIEGLER, J.
4
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IN THE COURT OF APPEALS OF IOWA
No. 19-1240
Filed April 29, 2020
STATE OF IOWA,
Plaintiff-Appellee,
vs.
MARCIA RECHELLE BECK,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Scott County, Nancy S. Tabor,
Judge, and Christine Dalton, District Associate Judge.
Marcia Beck appeals her conviction of third-degree theft. AFFIRMED
Martha J. Lucey, State Appellate Defender, and Ashley Stewart, Assistant
Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Tyler J. Buller, Assistant Attorney
General, for appellee.
Considered by Vaitheswaran, P.J., and Mullins and Ahlers, JJ. Tabor, J.,
takes no part.
2
MULLINS, Judge.
Keegan Heisner is employed as an asset protection manager in a
department store. Her duties include apprehending shoplifters. On July 22, 2018,
around the time the store was about to close, Heisner received a radio call
referencing an issue in the women’s Nike clothing section. Heisner reported to the
area and observed four women “frantically grabbing items off the racks and
concealing it into purses” and she “could hear and see hangers falling to the
ground.” Heisner approached the women and observed “their purses were
bulging.” The women also had some items in their hands, which they threw on the
ground. Then, the women left the store “one after another in a line,” setting off the
alarms on the doors to the store. Heisner was familiar with two of the women as
frequenters of the store, and another employee identified them as Marcia Beck
and Deandra Cooke. When Beck left the store, she threw a jacket in Heisner’s
face and fled into the parking lot. Heisner followed, and she observed all four
women get into the same car and leave.
About five minutes before receiving the call to the women’s Nike section,
Heisner had gone through the area as part of her closing duties and not observed
any signs of theft or hangers on the floor. She matched up empty hangers to the
discarded items and then counted the remaining hangers for missing merchandise,
which amounted to seventeen or eighteen hangers. Heisner testified the items
she saw in the women’s hands ranged from $50 to $80 apiece and confirmed on
cross-examination “nothing on that rack is under $50.” Heisner also testified she
enters Nike items in for a theft on a daily basis and pays special attention to Nike
merchandise because it is a high-theft brand.
3
Beck was formally charged by trial information with third-degree theft. The
matter proceeded to a jury trial. Following the State’s case-in-chief, Beck moved
for judgment of acquittal, generally challenging the sufficiency of the evidence as
to valuation of the stolen property and which of the suspects took what items. The
court overruled the motion, concluding there was sufficient evidence to engender
questions for the jury. The jury found Beck guilty of theft and determined “the value
of the property stolen” to be “more than $500 but no more than $1000,” thus
amounting to third-degree theft. See Iowa Code § 714.2(3) (2018).1
Beck appeals, challenging the sufficiency of the evidence to support her
conviction. Specifically, she argues there is insufficient evidence to show she
aided and abetted and the evidence on valuation was insufficient to establish theft
in the third degree.
Challenges to the sufficiency of the evidence are reviewed for correction of
errors at law. State v. Albright, 925 N.W.2d 144, 152 (Iowa 2019). The court views
“the evidence ‘in the light most favorable to the State, including all reasonable
inferences that may be fairly drawn from the evidence.’” State v. Ortiz, 905 N.W.2d
174, 180 (Iowa 2017) (quoting State v. Huser, 894 N.W.2d 472, 490 (Iowa 2017)).
All evidence is considered, not just that of an inculpatory nature. See Huser, 894
N.W.2d at 490. “[W]e will uphold a verdict if substantial evidence supports it.”
State v. Wickes, 910 N.W.2d 554, 563 (Iowa 2018) (quoting State v. Ramirez, 895
N.W.2d 884, 890 (Iowa 2017)). “Evidence is substantial if, ‘when viewed in the
light most favorable to the State, it can convince a rational jury that the defendant
1 Section 714.2 was amended, effective, July 1, 2019, to change the degrees of
theft based upon the value of property stolen. See 2019 Iowa Acts ch. 140, § 11.
4
is guilty beyond a reasonable doubt.’” Id. (quoting Ramirez, 895 N.W.2d at 890).
Evidence is not rendered insubstantial merely because it might support a different
conclusion; the only question is whether the evidence supports the finding actually
made. See Brokaw v. Winfield-Mt. Union Cmty. Sch. Dist., 788 N.W.2d 386, 393
(Iowa 2010). In considering a sufficiency-of-the-evidence challenge, “[i]t is not the
province of the court . . . to resolve conflicts in the evidence, to pass upon the
credibility of witnesses, to determine the plausibility of explanations, or to weigh
the evidence; such matters are for the jury.” State v. Musser, 721 N.W.2d 758,
761 (Iowa 2006) (quoting State v. Williams, 695 N.W.2d 23, 28 (Iowa 2005)).
As to the sufficiency of the evidence on aiding and abetting, Beck argues
“the record does not support that [she] acted in conjunction with the other three
women,” her “mere presence in the same location at the same time as the other
three women does not establish aiding and abetting,” “[t]he record does not
support that the women had a plan to be in the store at the same time as part of
an effort to commit theft,” and “[t]he record provides no[] details to solidify that her
presence in the store at the same time was merely a coincidence.” We elect to
bypass the State’s error-preservation concern and proceed to the merits. See
State v. Taylor, 596 N.W.2d 55, 56 (Iowa 1999).
Upon our review, and viewing the evidence in the light most favorable to the
State, we disagree with Beck. Heisner observed all four women in close proximity
to one another grabbing merchandise and putting them in their purses. After the
women learned the jig was up, they exited the store together, got in the same
vehicle, and left. While we agree mere presence at the scene of the crime is
insufficient to support a finding of aiding and abetting, Fryer v. State, 325 N.W.2d
5
400, 406 (Iowa 1982), stating Beck was merely present is a far cry from what the
evidence really shows. The evidence shows Beck actively participated in the
commission of the crime, which is substantial evidence that she aided and abetted.
See Fryer, 325 N.W.2d at 406 (“There is sufficient evidence for the jury to have
found that applicant either knowingly assented to the act or lent countenance or
approval by active participation in it or by some manner encouraging it prior to its
commission.”).
Next, Beck argues the “estimated valuation of the clothing was based on
speculation and therefore insufficient to establish theft in the third degree.” She
complains, “No evidence was presented about verifying what items were in the
four individual purses or what caused the door to beep” and Heisner’s valuation
“was based on speculation.” Again, we disagree. Heisner specifically testified the
stolen items were sweatpants and hoodies, each valued at no less than $50. There
were seventeen or eighteen empty hangers that were left absent their clothing
counterpart. Crunching those numbers results in a product well in excess of the
statutory threshold for third-degree theft, $500, see Iowa Code § 714.2(3), and we
conclude, viewing the evidence in the light most favorable to the State, a rational
jury could conclude Beck was guilty of third-degree theft beyond a reasonable
doubt.
Having found the evidence sufficient to support Beck’s conviction of theft in
the third degree, we affirm.
AFFIRMED.
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[Cite as State v. Worthington, 2016-Ohio-530.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
HARDIN COUNTY
STATE OF OHIO,
CASE NO. 6-15-04
PLAINTIFF-APPELLEE,
v.
ANDREW CURTIS WORTHINGTON, OPINION
DEFENDANT-APPELLANT.
Appeal from Hardin County Common Pleas Court
Trial Court No. 20142152-CRI
Judgment Affirmed
Date of Decision: February 16, 2016
APPEARANCES:
Michael J. Short for Appellant
Jason M. Miller for Appellee
Case No. 6-15-04
WILLAMOWSKI, J.
{¶1} Defendant-appellant Andrew Worthington (“Worthington”) brings this
appeal from the judgment of the Court of Common Pleas of Hardin County
convicting him of Kidnapping and Felonious Assault of a Peace Officer.
Worthington claims that his conviction was not supported by sufficient evidence
and was against the manifest weight of the evidence. Worthington also claims that
he was denied effective assistance of counsel. For the reasons set forth below, the
judgment is affirmed.
Procedural Background
{¶2} On September 24, 2014, the Hardin County Grand Jury indicted
Worthington on eight counts: 1) Abduction in violation of R.C. 2905.02(A)(1), a
felony of the third degree; 2) Abduction in violation of R.C. 2905.02(A)(2), a
felony of the third degree; 3) Kidnapping in violation of R.C. 2905.01(A)(1), a
felony of the first degree; 4) Kidnapping in violation of R.C. 2905.01(A)(3), a
felony of the first degree; 5) Felonious Assault in violation of R.C. 2903.11(A)(2),
a felony of the second degree; 6) Felonious Assault of a Peace Officer in violation
of R.C. 2903.11(A)(2), (D)(1), a felony of the first degree; 7) Criminal Damaging
or Endangering in violation of R.C. 2909.06(A)(1), a misdemeanor of the second
degree; and 8) Assault in violation of R.C. 2903.13(A), a misdemeanor of the first
degree. Doc. 2. The trial court later dismissed counts one and two and
renumbered the remaining charges from one to six respectively. Doc. 34. A jury
-2-
Case No. 6-15-04
trial was held on April 8 and April 9, 2015. Doc. 50. Once the State rested its
case, the trial court dismissed Counts two, three, five, and six. Id. The trial court
allowed counts one and four to be presented to the jury. Id. At the conclusion of
the trial, the jury found Worthington guilty of Kidnapping in violation of R.C.
2905.01(A)(1) and Felonious Assault on a Peace Officer in violation of R.C.
2903.11(A)(2), (D)(1). Doc. 38 and 39.
{¶3} A sentencing hearing was held on May 12, 2015. Doc. 58. The trial
court sentenced Worthington to four years in prison on each count and ordered
that the sentences be served consecutive to each other. Id. Worthington filed a
timely notice of appeal. Doc. 63. On appeal he raises the following assignments
of error.
First Assignment of Error
[Worthington] received ineffective assistance of trial counsel.
Second Assignment of Error
The convictions are not supported by the weight of the evidence.
Third Assignment of Error
The convictions were not based on sufficient evidence.
For the purpose of clarity, the assignments of error will be addressed out of order.
{¶4} Both the second and third assignments of error challenge the
conviction based on the evidence. Thus, the first step is to address what the
evidence at trial was.
-3-
Case No. 6-15-04
Trial Evidence
{¶5} The first witness for the State was Worthington’s mother, Helen
Worthington (“Helen”). Helen testified that on the day in question, she took
Mandy Steele (“Steele”) into the home to retrieve her belongings. Vol. I Vol. 1
Tr. 34. Steele wished to retrieve her belongings because she had ended her
relationship with Worthington. Vol. I Vol. 1 Tr. 35. When Worthington started
talking with Steele, he seemed upset. Vol. I Vol. 1 Tr. 42-43. Then Worthington
pushed Steele. Vol. I Vol. 1 Tr. 43. Later the matter escalated, Helen was locked
out of the house, and Steele was still in the house with Worthington. Vol. I Vol. 1
Tr. 48-49. Helen testified that although she never saw a knife, she believed that
Worthington had one because he had a cut on his neck. Vol. I Vol. 1 Tr. 57-58.
{¶6} On cross-examination, Helen testified that Steele was already upstairs
retrieving her belongings when Worthington arrived at the home. Vol. 1 Tr. 67.
Worthington then went upstairs where Steele was. Vol. 1 Tr. 68. When Steele
and Worthington started coming down the stairs, they were arguing and she
attempted to stop the argument. Vol. 1 Tr. 72-73. According to Helen, she had
the police called because she was worried about Worthington and his behavior had
been odd recently. Vol. 1 Tr. 74. When Helen and the police entered the home,
she saw Worthington at the top of the stairs, but did not see Steele. Vol. 1 Tr. 75.
Helen testified that Worthington had his hand to his neck as if he were going to
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Case No. 6-15-04
harm himself. Vol. 1 Tr. 76. Helen testified that she did not see or hear any
threatening comments or actions toward Steele. Vol. 1 Tr. 76.
{¶7} Charles Mulligan (“Mulligan”) testified that he is a deputy with the
Hardin County Sheriff’s Department. Vol. 1 Tr. 113. He went to the Worthington
house in response to a reported domestic dispute. Vol. 1 Tr. 114. Worthington
was behind a closed door speaking to them. Vol. 1 Tr. 118. Worthington refused
to come out and stated that he was afraid the officers would kill him. Vol. 1 Tr.
119. Mulligan testified that Worthington threatened them with a pit bull and
stated they would have to “come in to kill him.” Vol. 1 Tr. 119. When they
forcefully entered the room, they found Worthington hiding behind the door with
his hands to his throat. Vol. 1 Tr. 130. Worthington was repeatedly asked to show
his hands, but he refused to do so. Vol. 1 Tr. 130-31. While trying to approach
Worthington, he was kicking at the officers, so another officer “tased” him. Vol.
1 Tr. 132. Worthington then reached around with the knife and Mulligan reached
for the hand holding the knife. Vol. 1 Tr. 133. Mulligan received a cut on his
thumb while removing the knife from Worthington’s hand. Vol. 1 Tr. 134.
Mulligan believed that Worthington had been attempting to stab Mulligan’s leg
when the hand was grabbed. Vol. 1 Tr. 133. The State also had Mulligan identify
the video from his body camera and the video was played for the jury. Vol. 1 Tr.
144, 148.
-5-
Case No. 6-15-04
{¶8} On cross-examination, Mulligan testified that when he arrived
Worthington was at the top of the stairs and later went into the bedroom. Vol. 2
Tr. 5. Based upon the video they had of the room prior to the forced entry,
Mulligan knew that Steele was on the right side of the bedroom and Worthington
was to the left of the door. Vol. 2 Tr. 8-9. Mulligan admitted that at no time on
the video did he ever observe any physical contact between Steele and
Worthington and he did not see Worthington threaten her with any weapon. Vol.
2 Tr. 11. Mulligan admitted that at several points in time Steele told them that she
did not want to leave the room. Vol. 2 Tr. 12. Steele repeatedly told them she was
fine, that Worthington was not threatening her with a weapon, and that she did not
want the officers to harm Worthington. Vol. 2 Tr. 12-21. Steele also told them
that she was not being held against her will and Mulligan admitted that he had
second thoughts about whether she was actually a victim of kidnapping. Vol. 2
Tr. 16-17. At one point, Steele told them that she could come out if she wanted,
but was choosing not to do so. Vol. 2 Tr. 17. Mulligan admitted that at no time
during the confrontation did Steele indicate that she was being restrained or was in
the room other than voluntarily. Vol. 2 Tr. 19. Mulligan also admitted that at the
time of the incident, he did not tell the other officers that Worthington lunged at
him, but instead indicated that he was cut while removing the knife from
Worthington’s hand while Worthington was being “tased”. Vol. 2 Tr. 45.
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Case No. 6-15-04
{¶9} On redirect, Worthington testified that soon after he arrived on the
scene, they asked Steele to exit the room and she replied with “I can’t”. Vol. 2 Tr.
53. Mulligan testified that Worthington did not voluntarily hand over the knife
and that it had to be forcefully taken from him. Vol. 2 Tr. 57.
{¶10} Lieutenant Robert Lutes (“Lutes”) of the Kenton City Police
Department was the final witness for the State. Vol. 2 Tr. 60. Lutes testified that
he was sent to the home because “a man was acting out.” Id. Upon his arrival,
Helen met him and told him that Worthington was “going crazy.” Vol. 2 Tr. 61.
They then entered the home and Helen screamed that he had a knife. Vol. 2 Tr.
62. Lutes looked up and saw Worthington at the top of the stairs with “his hand to
his throat”, so Lutes drew his weapon. Id. Lutes tried to speak with Worthington,
but he kept refusing and told Lutes “I’m not coming down, you better come up
here locked and loaded.” Vol. 2 Tr. 65. Lutes then waited for back-up to arrive
and continued talking to Worthington. Vol. 2 Tr. 66. Worthington kept refusing
to come out and telling Lutes that “you’re gonna have to kill me.” Vol. 2 Tr. 68.
At that time Lutes did not know Steele was upstairs until he heard her talking. Id.
Several times Lutes asked Steele to come out, but she responded with “I can’t”.
Vol. 2 Tr. 69-70. When the room was breached, his sole responsibility was to
remove Steele from the room, so he was not part of the group that dealt with
Worthington. Vol. 2 Tr. 76. After the door was kicked open, Steele came out
when asked and she was very scared. Vol. 2 Tr. 77.
-7-
Case No. 6-15-04
{¶11} On cross-examination, Lutes testified that when he saw Worthington
at the top of the stairs, Steele was not with him. Vol. 2 Tr. 80. Lutes admitted that
although Steele said she could not come out, she did not say that Worthington was
preventing her from leaving. Vol. 2 Tr. 85. Lutes testified that he really had no
idea what was occurring in the bedroom. Vol. 2 Tr. 87. Before the officers forced
entry into the room, Worthington and Steele asked for a couple of minutes to say
goodbye before they would exit the room. Vol. 2 Tr. 90.
Sufficiency of the Evidence
{¶12} Worthington claims in the third assignment of error that the
convictions are not supported by sufficient evidence. A claim of sufficiency of the
evidence raises a due process question concerning whether the evidence is legally
sufficient to support the verdict as a matter of law. State v. Lang, 129 Ohio St.3d
512, 2011-Ohio-4215, ¶219, 954 N.E.2d 596 (citing State v. Thompkins, 78 Ohio
St.3d 380, 1997-Ohio-52, 678 N.E.2d 541). “On review of the sufficiency of the
evidence to support a criminal conviction, ‘the relevant question is 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.’” State v. Hancock, 108 Ohio St.3d 57, 2006-Ohio-160, ¶34,
840 N.E.2d 1032 (quoting Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781,
61 L.Ed.2d 560).
-8-
Case No. 6-15-04
{¶13} In this case, Worthington was convicted on two counts. To prove the
first count of Kidnapping, the State had to present evidence to show that
Worthington 1) by force, threat, or deception 2) restrained another person’s liberty
3) for the purpose of using the person as a hostage. R.C. 2905.01(A)(1). A review
of the record indicates that on the tape Steele told the officers that she could not
leave the room when they asked her to leave the room. The evidence shows that
the door was locked and that Worthington had a knife. The evidence also shows
that the situation persisted for over an hour. Viewing this evidence in a light most
favorable to the State, a reasonable juror could reasonably determine that Steele
was restrained from leaving the room by threat of force and that she was a hostage
in the situation. Thus, the conviction was supported by sufficient evidence.
{¶14} In Count Four Worthington was charged with Felonious Assault of a
Peace Officer, so the State was required to prove that Worthington 1) knowingly
2) caused physical harm to another with a deadly weapon and 3) that the victim
was a police officer. The evidence in this case was that Worthington had a knife,
that Mulligan was cut with the knife while attempting to remove it from
Worthington’s hand, and that Mulligan was a peace officer. Mulligan testified that
it appeared to him that Worthington was attempting to cut him with the knife when
he was injured. Viewing this evidence in a light most favorable to the State, a
reasonable juror could include that Worthington knowingly cut Mulligan with the
knife causing physical harm to Mulligan and that Mulligan was a peace officer.
-9-
Case No. 6-15-04
Thus, the conviction is supported by sufficient evidence. Having determined that
there is sufficient evidence to support both convictions, the third assignment of
error is overruled.
Manifest Weight of the Evidence
{¶15} Worthington alleges in his second assignment of error that his
convictions are against the manifest weight of the evidence. Unlike sufficiency of
the evidence, the question of manifest weight of the evidence does not view the
evidence in a light most favorable to the prosecution.
Weight of the evidence concerns “the inclination of the greater
amount of credible evidence, offered in a trial to support one
side of the issue rather than the other. It indicates clearly to the
jury that the party having the burden of proof will be entitled to
their verdict, if, on weighing the evidence in their minds, they
shall find the greater amount of credible evidence sustains the
issue which is to be established before them. Weight is not a
question of mathematics, but depends on its effect in inducing
belief.”
State v. Thompkins, 78 Ohio St.3d 380, 387, 678 N.E.2d 514 (1997) (citing Black's
Law Dictionary (6 Ed.1990) 1594). A new trial should be granted only in the
exceptional case in which the evidence weighs heavily against conviction. Id.
Although the appellate court acts as a thirteenth juror, it still must give due
deference to the findings made by the jury.
The fact-finder, being the jury, occupies a superior position in
determining credibility. The fact-finder can hear and see as well
as observe the body language, evaluate voice inflections, observe
hand gestures, perceive the interplay between the witness and
the examiner, and watch the witness' reaction to exhibits and the
-10-
Case No. 6-15-04
like. Determining credibility from a sterile transcript is a
Herculean endeavor. A reviewing court must, therefore, accord
due deference to the credibility determinations made by the fact-
finder.
State v. Thompson, 127 Ohio App.3d 511, 529, 713 N.E.2d 456 (8th Dist. 1998).
{¶16} At first glance, the evidence in this case may not appear to be
overwhelmingly in support of conviction on the charges. There is no evidence that
Steele was forced to go into the room and the testimony appears to indicate that
she was willingly in the room prior to Worthington’s entry into the room. Despite
Steele’s statements on the tape that she could not leave the room, she does not
claim that the inability to leave is a result of any threat to her safety made by
Worthington or that Worthington is restraining her. Other than the circumstances,
there is no indication that Steele was being used as a hostage. To the contrary,
Steele on numerous occasions indicates that she does not want to leave, that she is
safe, but that she is concerned for Worthington’s safety. She even indicates at one
time that she is free to leave, but is staying. When the officers entered the room,
Steele was on the opposite side of the room from Worthington and was able to
easily walk out the door. However, there was evidence that Worthington did have
a knife and that the door was locked. The officers testified that she was in the
room for over an hour and sounded scared. The incident lasted for approximately
ninety minutes and on multiple occasions Steele indicated she could not leave the
room. The jurors heard the tape where Steele made the comments and were able
-11-
Case No. 6-15-04
to evaluate for themselves what occurred during the time. The jury determined
that Steele was being restrained and used as a hostage. We must give due
deference to their determination. This court does not find that the evidence weighs
heavily against conviction. Thus, the conviction for Kidnapping is not against the
manifest weight of the evidence.
{¶17} As to the conviction for Felonious Assault of a Peace Officer, the
evidence at first glance does not appear to be overwhelming. At the time of the
injury, Worthington was being “tased” and Mulligan himself testified that it was
occurring because he was shocked as well. Mulligan also testified that the effect
of the taser would be to cause muscles to contract and prevent Worthington from
being able to move. Although Mulligan claimed at trial that Worthington lunged
at him, the tape does not appear to indicate such an activity. However, on the tape,
Mulligan is also heard to say that Worthington came at him. Worthington had
made numerous threats of harm to law enforcement and had failed to comply with
commands to show his hands and release the knife. He struggled to hang on to the
knife while Mulligan tried to take it away from him and as a result, Mulligan was
cut by the knife. Based upon the evidence before it, a reasonable juror could
determine that Worthington had acted in a manner that he should have known
would result in injury to a police officer. Thus, the conviction is not against the
manifest weight of the evidence. Having determined that the convictions are not
-12-
Case No. 6-15-04
against the manifest weight of the evidence, the second assignment of error is
overruled.
Ineffective Assistance of Counsel
{¶18} Finally Worthington claims in the first assignment of error that he
was denied the effective assistance of counsel because counsel failed to request a
new trial.
In evaluating whether a petitioner has been denied effective
assistance of counsel, this court has held that the test is “whether
the accused, under all the circumstances, * * * had a fair trial
and substantial justice was done.” State v. Hester (1976), 45
Ohio St.2d 71, 74 O.O.2d 156, 341 N.E.2d 304, paragraph four of
the syllabus. When making that determination, a two-step
process is usually employed. “First, there must be a
determination as to whether there has been a substantial
violation of any of defense counsel's essential duties to his client.
Next, and analytically separate from the question of whether the
defendant's Sixth Amendment rights were violated, there must
be a determination as to whether the defense was prejudiced by
counsel's ineffectiveness.” State v. Lytle (1976), 48 Ohio St.2d
391, 396–397, 2 O.O.3d 495, 498, 358 N.E.2d 623, 627, vacated on
other grounds (1978), 438 U.S. 910, 98 S.Ct. 3135, 57 L.Ed.2d
1154.
On the issue of counsel's ineffectiveness, the petitioner has the
burden of proof, since in Ohio a properly licensed attorney is
presumably competent. See Vaughn v. Maxwell (1965), 2 Ohio
St.2d 299, 31 O.O.2d 567, 209 N.E.2d 164; * *915 State v.
Jackson, 64 Ohio St.2d at 110–111, 18 O.O.3d at 351, 413 N.E.2d
at 822.
State v. Calhoun, 86 Ohio St.3d 279, 289, 1999–Ohio–102, 714 N .E.2d 905.
{¶19} Worthington argues that trial counsel should have requested a new
trial due to Steele’s failure to appear at trial to testify after being subpoenaed by
-13-
Case No. 6-15-04
the State. Criminal Rule 33 does permit a new trial to be granted if there is
misconduct of a witness for the State. Crim.R. 33(A)(2). However, there is no
law that identifies failure to appear to testify as “misconduct” of a witness. This
court has previously held that failure to file motions is not per se ineffective
assistance of counsel. State v. Schlosser, 3d Dist. Union No. 14-10-30, 2011-
Ohio-4183, ¶ 34. To comprise ineffective assistance of counsel, a defendant must
show that the motions had a reasonable probability of success. Id. Worthington
has not provided any law to indicate that his motion had a reasonable probability
of success. Thus, the ineffective assistance of counsel claim must fail. Id. at ¶ 34,
36. The first assignment of error is overruled.
{¶20} Having found no errors in the particulars assigned and argued, the
judgment of the Court of Common Pleas of Hardin County is affirmed.
Judgment Affirmed
ROGERS, P.J. and SHAW, J., concur.
/hlo
-14-
| {
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} |
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-03-267-CV
IN
THE INTEREST OF J.J.O.
------------
FROM
THE 323RD DISTRICT COURT OF TARRANT COUNTY
------------
MEMORANDUM OPINION1
------------
After
a bench trial, the trial court found by clear and convincing evidence that
Appellant Cynthia O. had: (1) knowingly placed or knowingly allowed her child
J.J.O. to remain in conditions or surroundings which endanger her physical or
emotional well-being; (2) engaged in conduct or knowingly placed J.J.O. with
persons who engaged in conduct which endangers her physical or emotional
well-being; (3) had her parent-child relationship terminated with respect to
another child based on a finding that her conduct violated section 161.001(1)(D)
or (E) of the Texas Family Code2 or substantially
equivalent provisions of the law of another state; and (4) been the cause of
J.J.O. being born addicted to alcohol or a controlled substance, other than a
controlled substance legally obtained by prescription, as defined by section
261.001 of the Texas Family Code.3 The trial
court also found by clear and convincing evidence that termination of the
parent-child relationship between Cynthia and J.J.O. was in the child’s best
interest. The trial court entered an order terminating the parent-child
relationship between Cynthia and J.J.O. Because we hold that the evidence is
sufficient to prove that Cynthia engaged in conduct which endangered J.J.O.’s
physical or emotional well-being and that termination is in J.J.O.’s best
interest, we affirm the trial court’s judgment.
I.
Background Facts
Dawn
Adkins, a former CPS caseworker who was assigned to this case, testified for the
State. According to her testimony, while termination proceedings were pending
regarding the relationship between Cynthia and J.J.O.’s older sister, Cynthia
tested positive for cocaine. When she was seven months pregnant with J.J.O.,
Cynthia was arrested for possession of drug paraphernalia. After her parental
rights were terminated regarding the older sister, and three days before she
delivered J.J.O., Cynthia used cocaine again. J.J.O was born on January 9, 2003,
with cocaine in her system, but there is no evidence in the record that she has
suffered adverse effects from it. Cynthia’s medical records from the hospital
stay show the presence of cocaine in her system and a chemical dependency. The
records also show that Cynthia obtained little or no prenatal care.
During
the pendency of the prior case regarding J.J.O.’s older sister, Cynthia was
homeless, unemployed, had no transportation, and had suggested no one else who
could raise her child. CPS worked with Cynthia for eight or nine months in the
prior case, but she was noncompliant, refused treatment, disappeared for three
months, and surfaced only after getting arrested. Having already offered Cynthia
a service plan including services such as parenting classes, counseling, drug
treatment, and inpatient care with the prior case, services which she absolutely
refused, CPS was not obligated to provide a service plan for Cynthia in this
case.4 When the caseworker told Cynthia that
CPS planned to seek termination of the relationship between Cynthia and J.J.O.,
Cynthia told the caseworker that she was willing to participate in treatment.
The caseworker encouraged her to do that, but testified that she did not believe
Cynthia ever followed through on her intentions. The caseworker did not provide
additional information to Cynthia regarding drug treatment at this point. She
had already given her information about Tarrant Counsel, the MHMR program for
drug and alcohol abuse. Cynthia said she was going to talk to Tarrant Counsel,
but there is no evidence that she did.
While
Cynthia suggested J.J.O.’s alleged father as someone who could take care of
her, CPS could not locate him despite a diligent search. The caseworker
testified that Cynthia did not suggest any alternate placements for J.J.O. other
than the alleged father.
Finally,
the caseworker testified that Cynthia attended a majority of the scheduled
weekly visits with J.J.O., but she missed an entire month of visits, and her
last visit occurred sometime in May 2003 before the trial in August 2003.
Adkins’s employment with CPS ceased on June 6, 2003.
When
J.J.O. left the hospital, she was placed with the same foster family as her
older sister. She has remained with that family during her entire time in foster
care. She has thus bonded with her sister and her foster family, which includes
an adopted son. Her foster family wants to adopt both girls. All her physical
and emotional needs are being met in the home. The foster mother testified that
J.J.O. had eating problems at first, but she outgrew them. She also stated that
there may be problems with J.J.O.’s vision and hearing, for which Early
Childhood Intervention is offering services. Additionally, she testified that
J.J.O. was a very quiet baby and is still very quiet. Other than those areas,
J.J.O. is developmentally on-target. The foster mother testified that J.J.O.
sees her foster parents as her parents and that it would be devastating to
J.J.O. and her sister if they were removed from their foster family. Cynthia did
not testify.
II.
No Forfeiture
of Issues Absent from Statement of Points
Initially,
we note that the State encourages us to reconsider our prior holdings regarding
the interpretation and effects of section 263.405 of the Texas Family Code.5 We decline to do so. We likewise decline to
hold Cynthia’s fourth, fifth, seventh, and eighth issues forfeited because of
their absence from Cynthia’s statement of issues on appeal.
III.
Standard of Review
A
parent’s rights to “the companionship, care, custody, and management” of
his or her children are constitutional interests “far more precious than any
property right.”6 “While parental rights
are of constitutional magnitude, they are not absolute. Just as it is imperative
for courts to recognize the constitutional underpinnings of the parent-child
relationship, it is also essential that emotional and physical interests of the
child not be sacrificed merely to preserve that right.”7
In a termination case, the State seeks not just to limit parental rights but to
end them permanently—to divest the parent and child of all legal rights,
privileges, duties, and powers normally existing between them, except for the
child’s right to inherit.8 We strictly
scrutinize termination proceedings and strictly construe involuntary termination
statutes in favor of the parent.9
In
proceedings to terminate the parent-child relationship brought under section
161.001 of the family code, the petitioner must establish one or more of the
acts or omissions enumerated under subdivision (1) of the statute and must also
prove that termination is in the best interest of the child.10
Both elements must be established; termination may not be based solely on
the best interest of the child as determined by the trier of fact.11
Termination
of parental rights is a drastic remedy and is of such weight and gravity that
due process requires the petitioner to justify termination by “clear and
convincing evidence.”12 This intermediate
standard falls between the preponderance standard of ordinary civil proceedings
and the reasonable doubt standard of criminal proceedings.13
It is defined as the “measure or degree of proof that will produce in
the mind of the trier of fact a firm belief or conviction as to the truth of the
allegations sought to be established.”14
The
higher burden of proof in termination cases alters the appellate standard of
legal sufficiency review.15 The traditional
no-evidence standard does not adequately protect the parent’s constitutional
interests.16 In reviewing the evidence for
legal sufficiency in parental termination cases, we must determine “whether
the evidence is such that a factfinder could reasonably form a firm belief or
conviction” that the grounds for termination were proven.17
We must review all the evidence in the light most favorable to the finding and
judgment.18 This means that we must assume
that the factfinder resolved any disputed facts in favor of its finding if a
reasonable factfinder could have done so.19
We must also disregard all evidence that a reasonable factfinder could have
disbelieved.20 We must consider, however,
undisputed evidence even if it does not support the finding.21
The
higher burden of proof in termination cases also alters the appellate standard
of factual sufficiency review.22 “[A] finding
that must be based on clear and convincing evidence cannot be viewed on appeal
the same as one that may be sustained on a mere preponderance.”23 In considering whether the evidence of termination
rises to the level of being clear and convincing, we must determine “whether
the evidence is such that a factfinder could reasonably form a firm belief or
conviction” that the grounds for termination were proven.24
Our inquiry here is whether, on the entire record, a factfinder could reasonably
form a firm conviction or belief that the parent violated one of the conduct
provisions of section 161.001(1) and that the termination of the parent’s
parental rights would be in the best interest of the child.25
We must uphold only one finding under section 161.001(1) and the best interest
finding to hold the evidence sufficient to support termination.26
IV.
Analysis
A.
Endangering Conduct
In
her third issue, Cynthia explicitly challenges the legal sufficiency of the
finding that she engaged in conduct or knowingly placed J.J.O. with persons who
engaged in conduct which endangers J.J.O.’s physical or emotional well-being
because J.J.O. was never exposed to Cynthia. Specifically, Cynthia argues that
J.J.O. was not a child until her birth, and that there is no evidence Cynthia
ever endangered her because J.J.O. has been in the care of others (the hospital
and foster parents) since her birth. There is no evidence that others endangered
J.J.O. after her birth. Cynthia further argues that the statute requires a
present danger to J.J.O.
From
her discussion of this issue, it is clear that Cynthia necessarily views the
evidence as factually insufficient.27 We are
unwilling to decide the issue of “[t]he termination of parental rights,
fundamental and constitutional in their magnitude, . . . on trifling points
regarding the construction of appellate briefs. It has long been ‘our practice
to liberally construe (briefs) in order to obtain a just, fair and equitable
adjudication of the rights of the litigants.’”28
In the interest of justice and judicial economy, we therefore hold that in the
particular case before us, the issue of the factual sufficiency of the evidence
supporting the finding on 161.001(1)(E) is a subsidiary issue within Cynthia’s
no-evidence issue and we will address it.29
As
this court held in In re R.W.,
B.B.
contends that termination was not proper based on section 161.001(1)(E) because
he never had custody of R.W. at any time after her birth other than one hour of
supervised visitation per week. Moreover, he maintains that remote and isolated
incidents that occurred prior to R.W.’s birth do not constitute sufficient
evidence to establish an endangering course of conduct. TDPRS maintains,
however, that B.B.’s history of substance abuse, mental health issues, and
sexual and criminal misconduct clearly demonstrates an endangering course of
conduct that posed both physical and emotional danger to R.W.’s well-being.
Under
section 161.001(1)(E) of the Texas Family Code, the term ‘endanger’ means to
expose to loss or injury, to jeopardize. Accordingly, when analyzing a jury’s
findings pursuant to subsection (E), we must determine whether sufficient
evidence exists that the endangerment of the child's physical well-being was the
direct result of the parent's conduct, including acts, omissions, or failures to
act. Termination under section 161.001(1)(E) must be based on more than a single
act or omission; a voluntary, deliberate, and conscious course of conduct by the
parent is required. However, it is not necessary that the parent's conduct be
directed at the child or that the child actually suffer injury. The specific
danger to the child's well-being may be inferred from parental misconduct
standing alone.
To
determine whether termination is necessary, courts may look to parental conduct
both before and after the child's birth. Further, a father’s conduct prior to
the establishment of paternity may be considered as evidence of an endangering
course of conduct. Consequently, scienter is only required under subsection (E)
when a parent places the child with others who engage in an endangering
course of conduct.
As
a general rule, conduct that subjects a child to a life of uncertainty and
instability endangers the physical and emotional well-being of a child. Drug use
and its effect on a parent’s life and his ability to parent may establish an
endangering course of conduct.30
Based
upon our review of the evidence of Cynthia’s course of conduct—her unstable
lifestyle, her refusal to comply with the service plan and accept treatment
while the prior case was pending, her decisions to engage in illegal drug use
not only while she was at risk of losing the older child but, more importantly,
while she was pregnant with J.J.O., her failure to express willingness to get
treatment until after she was told CPS planned to seek termination of her rights
to J.J.O., and her failure to get adequate prenatal care, we hold that the
evidence is legally and factually sufficient to support the trial court’s
finding that she engaged in conduct that endangered J.J.O.’s physical or
emotional well-being. We overrule Cynthia’s third issue and do not reach the
second or the fourth through the ninth issues relating to the sufficiency of the
evidence on the other grounds for termination.31
B.
Best Interest
In
her first issue, Cynthia challenges the factual sufficiency of the trial
court’s best interest finding.
Nonexclusive
factors that the trier of fact in a termination case may use in determining the
best interest of the child include:
(1)the
desires of the child;
(2) the
emotional and physical needs of the child now and in the future;
(3) the
emotional and physical danger to the child now and in the future;
(4) the
parental abilities of the individuals seeking custody;
(5) the
programs available to assist these individuals to promote the best interest of
the child;
(6) the
plans for the child by these individuals or by the agency seeking custody;
(7) the
stability of the home or proposed placement;
(8) the
acts or omissions of the parent which may indicate that the existing
parent-child relationship is not a proper one; and
(9)any
excuse for the acts or omissions of the parent.32
These
factors are not exhaustive. Some listed factors may be inapplicable to some
cases; other factors not on the list may also be considered when appropriate.33 Furthermore, undisputed evidence of just one
factor may be sufficient in a particular case to support a finding that
termination is in the best interest of the child.34
On the other hand, the presence of scant evidence relevant to each Holley
factor will not support such a finding.35
J.J.O.,
who is now approximately sixteen months old, is in the only home she has ever
known. She is with her biological sister, a foster brother, and dual licensed
foster parents who are eager to adopt both girls. The record demonstrates that
the foster family can meet and is meeting all of J.J.O.’s needs. The record
does not demonstrate that Cynthia can meet any of J.J.O.’s needs. Based on all
of the evidence, we hold that the evidence is factually sufficient to support
the best interest finding. We overrule Cynthia’s first issue.
V.
Conclusion
Having
affirmed the trial court’s findings that Cynthia engaged in conduct which
endangered the physical or emotional well-being of J.J.O. and that termination
is in J.J.O.’s best interest, we affirm the judgment of the trial court.
LEE
ANN DAUPHINOT
JUSTICE
PANEL
B: LIVINGSTON, DAUPHINOT, and WALKER, JJ.
DELIVERED:
May 6, 2004
NOTES
1.
See Tex. R. App. P. 47.4.
2.
Tex. Fam. Code Ann. §
161.001(1)(D), (E) (Vernon 2002).
3.
Id. § 261.001.
4.
See id. § 262.2015.
5.
See, e.g., In re S.J.G., 124 S.W.3d 237, 240-43 (Tex.
App.—Fort Worth 2003, pet. denied); In re W.J.H., 111 S.W.3d 707,
712-13 (Tex. App.—Fort Worth 2003, pet. denied); In re D.R.L.M., 84
S.W.3d 281, 290-91 (Tex. App.—Fort Worth 2002, pets. denied).
6.
Santosky v. Kramer, 455 U.S. 745, 758-59, 102 S. Ct. 1388, 1397 (1982).
7.
In re C.H., 89 S.W.3d 17, 26 (Tex. 2002).
8.
Tex. Fam. Code Ann. §
161.206(b) (Vernon Supp. 2004); Holick v. Smith, 685 S.W.2d 18, 20 (Tex.
1985).
9.
Holick, 685 S.W.2d at 20-21; In re D.T., 34 S.W.3d 625, 630 (Tex.
App.—Fort Worth 2000, pet. denied) (op. on reh’g).
10.
Tex. Fam. Code Ann. § 161.001; Richardson
v. Green, 677 S.W.2d 497, 499 (Tex. 1984); Swate v. Swate, 72 S.W.3d
763, 766 (Tex. App.—Waco 2002, pet. denied).
11.
Tex. Dep’t of Human Servs. v. Boyd, 727 S.W.2d 531, 533 (Tex. 1987).
12.
Tex. Fam. Code Ann. §§
161.001, 161.206(a); In re G.M., 596 S.W.2d 846, 847 (Tex. 1980).
13.
G.M., 596 S.W.2d at 847; D.T., 34 S.W.3d at 630.
14.
Tex. Fam. Code Ann. § 101.007
(Vernon 2002).
15.
In re J.F.C., 96 S.W.3d 256, 265 (Tex. 2002).
16.
Id.
17.
Id. at 265-66.
18.
Id. at 266.
19.
Id.
20.
Id.
21.
Id.
22.
C.H., 89 S.W.3d at 25.
23.
Id.
24.
Id.
25.
Id. at 28.
26.
In re R.W., 129 S.W.3d 732, 736 (Tex. App.—Fort Worth 2004, pet.
filed); In re D.M., 58 S.W.3d 801, 813 (Tex. App.—Fort Worth 2001, no
pet.); In re S.F., 32 S.W.3d 318, 320 (Tex. App.—San Antonio 2000, no
pet.); see also Tex. R. App. P. 47.1.
27.
See In re D.S.A., 113 S.W.3d 567, 569 (Tex. App.—Amarillo 2003, no
pet.) (stating that “if the evidence is factually sufficient, then, it is also
legally sufficient. This is so because, logically, there cannot be ‘no
evidence’ of record if the record contains enough evidence to enable the
factfinder to reasonably form a firm belief or conviction as to the existence of
pivotal facts.”).
28.
In re L.M.I., 119 S.W.3d 707, 733 (Tex. 2003) (Hecht, J., dissenting)
(citations omitted).
29.
See Tex. R. App. P. 38.1(e), 38.9; Stephenson v. LeBoeuf,
16 S.W.3d 829, 843-44 (Tex. App.—Houston [14th Dist.] 2000, pet. denied).
30.
In re R.W., 129 S.W.3d at 738-39 (citations ommited).
31.
See Tex. R. App. P. 47.1.
32.
Holley v. Adams, 544 S.W.2d 367, 371-72 (Tex. 1976).
33.
C.H., 89 S.W.3d at 27.
34.
Id.
35.
Id.
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In the
Missouri Court of Appeals
Western District
TRAVIS RADER, )
)
Appellant, ) WD78880
)
v. ) OPINION FILED: May 31, 2016
)
DIRECTOR OF REVENUE, )
)
Respondent. )
Appeal from the Circuit Court of Callaway County, Missouri
The Honorable Carol A. England, Judge
Before Division One: Lisa White Hardwick, Presiding Judge, Thomas H. Newton, Judge
and Cynthia L. Martin, Judge
Travis Rader ("Rader") appeals a judgment sustaining the revocation of his driving
privileges based on his refusal to submit to a chemical analysis test to determine his
blood alcohol content. Because the evidence was sufficient to establish Rader's refusal,
we affirm.
Factual and Procedural Summary
Rader was arrested on November 9, 2014, for driving while intoxicated. Rader
concedes on appeal that the arresting officer had reasonable grounds to believe that Rader
was operating a motor vehicle while intoxicated. [Appellant's Brief, p. 7] Rader also
concedes that after his arrest, the arresting officer read him the implied consent warning.
[Appellant's Brief, p. 7] The only issue on appeal is whether the evidence was sufficient
to establish that Rader refused to provide a sample of his breath for testing as requested
by the arresting officer. We view the evidence with respect to this contested issue in the
light most favorable to the judgment, giving deference to the trial court's assessment of
the evidence. Bruce v. Dep't of Revenue, 323 S.W.3d 116, 118-19 (Mo. App. W.D.
2010).
Viewed in this manner, the evidence established that after Officer Clay Allen
("Officer Allen") read Rader Missouri's implied consent warning, Rader agreed to take a
breath test. He attempted to blow into the breath testing machine three times. During his
first attempt, Rader covered the mouthpiece of the instrument with his upper lip, and the
instrument read "insufficient sample." Officer Allen told Rader that his upper lip was
covering the mouthpiece of the instrument, and that he was not providing enough air to
permit the instrument to give a reading. Rader did not modify the position of his mouth.
He attempted to blow into the instrument a second and third time, and on both occasions
covered the mouthpiece with his upper lip, yielding an "insufficient sample" reading.
Thereafter, Rader told Officer Allen that he was not going to blow again and sat down.
Officer Allen noted on the Alcohol Influence Report that Rader refused to submit to a
breath test.
Rader filed a petition to review the resulting administrative suspension of his
driving privileges. Following a hearing, where the above evidence was elicited through
2
the testimony of Officer Allen and through submission of a certified copy of the Alcohol
Influence Report, the trial court entered its findings of fact, conclusions of law, and
judgment ("Judgment") sustaining the revocation of Rader's driving privileges.
Rader timely appealed.
Analysis
In a driver's license revocation case, the trial court's judgment "will be affirmed
unless there is no substantial evidence to support it, it is against the weight of the
evidence, or it erroneously declares or applies the law." White v. Director of Revenue,
321 S.W.3d 298, 307-08 (Mo. banc 2010).
Section 577.020.11 provides that "[a]ny person who operates a motor vehicle upon
the public highways of this state shall be deemed to have given consent to . . . a chemical
test or tests of the person's breath, blood, saliva or urine for the purpose of determining
the alcohol or drug content of the person's blood." If a driver refuses to submit to
chemical analysis to determine his blood alcohol content, that driver's license will be
subject to revocation pursuant to section 577.041. If a driver petitions for review of a
license revocation, it is the Director of Revenue's burden to prove by a preponderance of
the evidence: (i) that the person was arrested or stopped; (ii) that the arresting officer had
reasonable grounds to believe that the person was operating a motor vehicle under the
influence of drugs or alcohol; and (iii) that the person refused to submit to chemical
analysis. Section 577.041.4; Bruce, 323 S.W.3d at 119 (Mo. App. W.D. 2010).
1
All statutory references are to RSMo 2000 supplemented through the date of Rader's arrest.
3
Rader does not challenge the sufficiency of the evidence to establish the first two
criteria described in section 577.041.4. In Rader's sole point on appeal, he challenges
only the sufficiency of the evidence to establish that he refused to submit to chemical
analysis. The issue of whether a driver has refused to submit to a chemical analysis test
is a question of fact to be decided by the trial court. Hursh v. Director of Revenue, 272
S.W.3d 914, 917 (Mo. App. W.D. 2009).
In the context of implied consent, the Missouri Supreme Court defines "refusal" as
follows:
[A]n arrestee, after having been requested to take the breathalyzer test,
declines to do so of his own volition. Whether the declination is
accomplished by verbally saying, "I refuse," or by remaining silent and just
not breathing or blowing into the machine, or by vocalizing some sort of
qualified or conditional consent or refusal, does not make any difference.
The volitional failure to do what is necessary in order that the test can be
performed is a refusal.
Spradling v. Deimeke, 528 S.W.2d 759, 766 (Mo. 1975). Here, the trial court found that
Rader refused to submit to a chemical analysis test as requested by Officer Allen. Rader
argues that he made a bona fide attempt to provide a breath sample for testing on three
occasions, and that the three "insufficient sample" readings were not sufficient to support
a finding of refusal. Rader's argument ignores that Officer Allen specifically pointed out
after the first failed attempt that the positioning of Rader's upper lip was preventing the
breath instrument from taking a reading. Yet, during the second and third attempts,
Rader continued to use his upper lip to cover the mouthpiece of the instrument.
The trial court was free to infer from this evidence that Rader's attempts were not
bona fide. A driver's failure to follow instructions about the manner in which to blow
4
into a breath analysis machine is sufficient evidence for a finder of fact to find a
volitional failure to submit to chemical analysis test as required by law. See Hursh, 272
S.W.3d at 917 ("'A person's act in not blowing into the testing machine and by blowing
around the mouthpiece to prevent the necessary quantity of air to proceed into the
machine may be considered a refusal.'") (quoting Tarlton v. Director of Revenue, 201
S.W.3d 564, 569 (Mo. App. E.D. 2006)); Wei v. Director of Revenue, 335 S.W.3d 558,
565-66 (Mo. App. S.D. 2011) (holding that evidence was sufficient to find that a driver
refused a chemical analysis test when the driver failed to blow into a breath test
instrument in the manner instructed).
Moreover, even if we were to conclude that Rader's three unsuccessful attempts to
blow into the breath testing instrument were not sufficient to support a finding that he
refused to submit to chemical analysis, Rader does not contest that after the three failed
attempts, he expressly refused to blow again. See Chapman v. McNeil, 740 S.W.2d 701,
702 (Mo. App. S.D. 1987) (affirming suspension of driver's license where driver
unsuccessfully blew into breath testing instrument three times, then expressly advised
that he was not going to blow anymore).
Point denied.
Conclusion
The trial court's Judgment is affirmed.
__________________________________
Cynthia L. Martin, Judge
All concur
5
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614 F.2d 294
Williamsv.Tallahassee Motors, Inc.
No. 77-1829
United States Court of Appeals, Fifth Circuit
3/13/80
N.D.Fla., 607 F.2d 689
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490 F.3d 511
Stefanie SHIELDS, Plaintiff-Appellant,v.GOVERNMENT EMPLOYEES HOSPITAL ASSOCIATION, INC. and State Farm Mutual Automobile Insurance Company, Defendants-Appellees.
No. 05-2346.
United States Court of Appeals, Sixth Circuit.
Argued: April 25, 2007.
Decided and Filed: June 20, 2007.
Rehearing Denied July 16, 2007.
ARGUED: Brent W. Boncher, Schenk, Boncher & Rypma, Grand Rapids, Michigan, for Appellant. Raymond J. Williams III, Hewson & Van Hellemont, Warren, Michigan, for Appellees. ON BRIEF: Brent W. Boncher, Frederick J. Boncher, Schenk, Boncher & Rypma, Grand Rapids, Michigan, for Appellant. Raymond J. Williams III, Michael M. Carey, Hewson & Van Hellemont, Warren, Michigan, for Appellees.
Before: SILER and GILMAN, Circuit Judges; ZATKOFF, District Judge.*
OPINION
RONALD LEE GILMAN, Circuit Judge.
1
After suffering severe injuries in an automobile accident, Stefanie Shields brought a declaratory action against her two insurers, Government Employees Hospital Association, Inc. (GEHA) and State Farm Mutual Automobile Insurance Company (State Farm). GEHA initially paid significant sums for Shields's medical treatment, while State Farm paid nothing due to a benefits-coordination clause in its ;policy. Later, however, GEHA demanded reimbursement from the proceeds that Shields had received in a third-party tort settlement as a result of the accident. Shields subsequently brought this declaratory action to challenge the validity of GEHA's demand for reimbursement or, alternatively, to require State Farm to replace the amount that she would lose as a result of GEHA's reimbursement claim.
2
Shields's latter argument prevailed. The district court, however, awarded only a portion of the attorney fees and none of the "penalty interest" sought by Shields. Specifically, the court allowed fees only with respect to Shields's claim against State Farm, excluding her claim against GEHA. The court, moreover, declined to grant Shields any penalty interest because she had failed to establish precisely when State Farm's obligation to pay her became overdue. Shields's appeal is limited to the district court's attorney-fee and penalty-interest determinations. For the reasons set forth below, we AFFIRM the judgment of the district court.
I. BACKGROUND
A. Factual background
3
The underlying facts are undisputed, as this court noted in State Farm's earlier appeal in this matter. Shields v. Gov't Employees Hosp. Assoc., 450 F.3d 643, 645 (6th Cir.2006). Briefly summarized, Shields was severely injured in an automobile accident in February of 2003. Id. A 70-pound piece of steel fell from the back of a truck and crashed into her car, causing Shields "extensive medical injuries." Id. At the time of the accident, Shields was covered by both her mother's government-employee benefit plan with GEHA and by her mother's no-fault automobile insurance policy with State Farm. Id. The State Farm policy coverage for medical expenses and lost wages, however, was "coordinated." Id. This meant that, in exchange for a lesser premium, the policy benefits payable by State Farm were subject to reduction by any amount "paid or payable" to Shields under any other "individual, blanket or group accident or disability insurance." Id.
4
GEHA paid $162,074 in benefits to cover Shields's medical expenses. Because GEHA provides insurance for federal employees under the Federal Employees Health Benefits Act, it is authorized to seek reimbursement from funds paid to a claimant out of a related tort recovery. Id. at 648. Although seeking reimbursement from a claimant is contrary to the provisions of Michigan's No Fault Insurance Act (MNFIA), federal law preempts Michigan's statutory scheme. Id. Shields ultimately obtained a settlement pursuant to her tort claim against the trucking company involved in her accident. Id. at 645. Neither the amount nor the date of the settlement are set forth in the record. On April 30, 2003, GEHA filed notice of its lien against any settlement that Shields might obtain. Shields, in turn, sent a demand letter on May 15, 2003 seeking payment from State Farm for all of her medical expenses that GEHA had initially covered.
B. Procedural background
5
In June of 2003, Shields filed a lawsuit in federal district court against both GEHA and State Farm. Jurisdiction was based upon diversity of citizenship. This court, in ruling on State Farm's separate appeal from the district court's summary judgment order, described Shields's suit as simply seeking to "clarify all parties' obligations." Id. at 645. According to State Farm, however, Shields took the position that "GEHA was not entitled to reimbursement ... or alternatively ... that [GEHA] must seek payment directly from State Farm." Shields agrees that she took a position "questioning the legitimacy of GEHA's right to seek repayment." In the alternative, Shields sought "a decision that State Farm was ultimately liable for the same medical expenses [for which GEHA paid] and should have paid [her]." GEHA, State Farm, and Shields all filed motions for summary judgment.
6
The district court ultimately granted summary judgment in favor of GEHA, granted Shields's motion for summary judgment as against State Farm, and denied State Farm's motion. Essentially, the court held that GEHA had properly sought reimbursement out of Shields's third-party tort recovery, and that this reimbursement triggered State Farm's obligation to pay Shields under the latter's coordinated policy. The court explained that "State Farm may not subtract the amount initially paid by GEHA for [Shield's] medical expenses, and repaid by [Shields], from the ... insurance benefits it would otherwise be responsible for paying." Moreover, the district court's summary judgment order provided that Shields was entitled to recover attorney fees and 12% penalty interest on State Farm's "overdue" payment. State Farm appealed the merits of the district court's summary judgment order, but did not address fees or interest. Shields, 450 F.3d at 644. In June of 2006, this court issued an opinion affirming the district court's summary judgment disposition. Id. at 651.
7
During the pendency of State Farm's merits appeal, Shields filed a petition for the payment of $29,739 in itemized attorney fees and $36,343 in penalty interest. GEHA filed a motion opposing Shields's petition, but State Farm did not. The district court granted only the portion of Shields's itemized fees that it determined were attributable to her claims against State Farm alone, and awarded just half of the fees that were attributable to Shields's claims against GEHA and State Farm jointly. In total, the court awarded Shields $10,513 in attorney fees. Regarding penalty interest, the district court awarded nothing at all because, based on the information provided by Shields, "it [was] impossible for the court to determine when State Farm became liable, and therefore, when it became dilatory." Shields subsequently filed a motion for reconsideration, which the district court denied. The sole issues in the present appeal concern the district court's determinations regarding attorney fees and penalty interest.
II. ANALYSIS
A. Standard of review
8
Under both Michigan and federal law, a trial court's award of attorney fees is generally reviewed under the abuse-of-discretion standard. Big Yank Corp. v. Liberty Mut. Fire Ins. Co., 125 F.3d 308, 312 (6th Cir.1997); Shanafelt v. Allstate Ins. Co., 217 Mich.App. 625, 552 N.W.2d 671, 675 (1996). The district court's factual determinations, on the other hand, are reviewed under the clearly erroneous standard, and its legal interpretations are reviewed de novo. Blackard v. Memphis Area Med. Ctr. for Women, Inc., 262 F.3d 568, 572 (6th Cir.2001). The substantive issues in this diversity action are governed by Michigan law. See Hisrich v. Volvo Cars of N. Am., Inc., 226 F.3d 445, 449 (6th Cir.2000) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)).
9
B. Entitlement to attorney fees under § 500.3148
10
Michigan law provides that a claimant's attorney fees "shall be a charge against the insurer in addition to the benefits recovered, if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment." Mich. Comp. Laws § 500.3148(1). The district court's initial order granting summary judgment in favor of Shields explained that
11
[i]n this case, the facts were not in question and there was no issue of constitutional law. Michigan's Supreme Court had constructed [sic] the relevant statutory provision in regard to federal benefits, which is the situation here. State Farm relied on a Court of Appeals decision addressing benefits paid by the insured's employe[r], and therefore, not applicable here. In light of the holdings in Sibley and Gunsell, the court finds that State Farm's refusal to reimburse Plaintiff was unreasonable. Accordingly, the court awards Plaintiff her reasonable attorney fees and costs incurred in bringing this action.
12
Although State Farm appealed the district court's grant of summary judgment, it did not raise the issue of attorney fees in that appeal. State Farm also failed to respond to Shields's petition for attorney fees and interest, even though GEHA objected separately. Shields accurately points out, moreover, that State Farm filed no cross-appeal from the district court's partial grant of attorney fees; only Shields presently appeals the partial fee award.
13
To the extent that State Farm seeks to argue for the first time on appeal—Shields's appeal, no less—for reversal of the fee award based on the reasonableness of its refusal to pay under § 500.3148, its argument is not well-taken. See Ford Motor Credit Co. v. Aetna Cas. and Sur. Co., 717 F.2d 959, 962 (6th Cir.1983) (quoting Massachusetts Mutual Life Insurance Co. v. Ludwig, 426 U.S. 479, 480, 96 S.Ct. 2158, 48 L.Ed.2d 784 (1976), for the proposition that, in the absence of a cross-appeal, "the appellee may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary"); see also Wright v. Holbrook, 794 F.2d 1152, 1157 (6th Cir.1986) ("[T]he general rule is that this court will not consider issues not raised in the district court.").
14
Even considering State Farm's reasonableness argument for the limited purpose of refuting Shields's claim for an increased award, we conclude that the argument lacks merit. The contention that State Farm reasonably relied on a single Michigan Court of Appeals decision in refusing to pay Shields was undercut by this court's ruling in State Farm's earlier appeal on the merits. That ruling, issued after the briefs were submitted in the present appeal, unanimously affirmed the district court's partial grant of summary judgment in favor of Shields. Shields, 450 F.3d at 651. In reaching its conclusion, this court relied primarily on the Michigan Supreme Court's holding in Sibley v. Detroit Automobile Inter-Insurance Exchange, 431 Mich. 164, 427 N.W.2d 528 (1988) (holding that a no-fault insurer's payment obligations were triggered when a claimant's federal insurer, which had initially paid benefits, sought reimbursement out of the claimant's tort recovery).
15
This court in Shields was split only as to whether the contrary opinion in Dunn v. Detroit Automobile Inter-Insurance Exchange, 254 Mich.App. 256, 657 N.W.2d 153 (2003), upon which State Farm relied, was either bad law in light of Sibley or simply inapposite. Shields, 450 F.3d at 648-51. Holding that Dunn conflicted with Sibley, the Shields majority declined to apply it, whereas the concurring opinion found Dunn to be distinguishable. Id at 651. Regardless of whether Dunn is contrary to binding precedent or is simply inapposite, however, this court ultimately agreed with the district court that the Michigan Supreme Court's decision in Sibley compelled a result favorable to Shields, and that Dunn was not controlling law. Id. The district court thus did not abuse its discretion in determining that State Farm's refusal to pay was unreasonable under § 500.3148.
C. Amount of attorney fees awarded
16
In its partial grant of Shields's petition for attorney fees, the district court awarded fees only for the work Shields's counsel had performed regarding the claim against State Farm. The court declined to award fees for work performed in relation to Shields's claim against GEHA, and the court awarded half of the fees sought in relation to the work that overlapped both claims. Shields argues on appeal that the district court erred in so apportioning the fees, contending that it instead should have granted her petition for fees in full, irrespective of the claim to which the work related.
17
The district court, in so apportioning Shields's attorney fees, relied primarily on the plain language of Mich. Comp. Laws § 500.3148, which provides for the availability of attorney fees pursuant to litigation under the MNFIA. Section 500.3148(1) expressly provides for attorney fees only "for advising and representing a claimant in an action for personal or property protection insurance benefits which are overdue." (Emphasis added.) The district court reasoned that, although Shields's claim against State Farm sought benefits "overdue" within the meaning of the statute, her claim against GEHA simply sought a ruling that GEHA was not entitled to reimbursement out of Shields's third-party tort recovery for benefits that it had already paid. This claim against GEHA clearly falls outside the statutory text that includes only actions for "insurance benefits which are overdue."
18
Shields's primary argument in response asserts that, because State Farm was the "but-for" cause of Shields's litigation against both insurers, her attorney fees for both claims are properly chargeable to State Farm. This argument at first blush carries some appeal. After all, had State Farm simply agreed to pay Shields instead of unreasonably refusing to do so, Shields would have had no reason to object to GEHA's claim for reimbursement because the entire transaction would have had no net effect on her recovery. Shields asserts that her claim against GEHA was therefore simply part and parcel of her response to State Farm's refusal to pay. In other words, "questioning the legitimacy of GEHA's right to seek repayment" was simply another "avenue[] to protect [Shields]" from her potential loss resulting from State Farm's action.
19
Intertwined with Shields's but-for argument is her assertion that the spirit or intent of Michigan's statutory scheme is designed to protect claimants from bearing the legal costs associated with recalcitrant insurers or squabbles between insurers. Indeed, Michigan courts have held that the MNFIA is to be "liberally construe[d]" in favor of intended beneficiaries. Farmers Ins. Exch. v. AAA of Michigan, 256 Mich.App. 691, 671 N.W.2d 89, 91 (2003).
20
Shields also relies heavily on Kalin v. Detroit Automobile Inter-Insurance Exchange, 112 Mich.App. 497, 316 N.W.2d 467 (1982). In Kalin, the plaintiff was struck by a vehicle while in the process of entering his own parked delivery truck. Id. at 469-70. The dispute essentially boiled down to whether Kalin's insurance carrier or that of the driver who struck him would pay for Kalin's medical expenses. Id. at 472-74. Regarding Kalin's request for attorney fees, the court ultimately affirmed the trial court's award of half of Kalin's attorney fees against each insurer, reasoning that "[a] claimant who is clearly entitled to no-fault benefits should not be forced to hire an attorney merely because the circumstances of his accident create problems of priority among insurers." Id. at 474. Furthermore, the court explained that "insurance companies can avoid liability for attorney fees by sharing the payment of such a claimant's no-fault benefits and then settling their differences among themselves." Id.
21
Shields's reliance on Kalin, however, is misplaced. The present dispute, unlike Kalin, is not simply a fight between two insurers with Shields on the sidelines. State Farm never challenged the legitimacy of GEHA's claim against Shields's recovery. Instead, the only party contesting the legitimacy of GEHA's claim was Shields herself, and she lost on that argument. Furthermore, Shields ultimately cannot overcome the plain statutory language that provides for attorney fees only in relation to an action for "insurance benefits which are overdue." Mich. Comp. Laws § 500.3148(1). Shields's claim against State Farm falls within the statutory fee provision, but her claim that GEHA had no right to reimbursement does not.
22
Alternatively, an "action" under § 500.3148(1) could arguably be construed to encompass both a claim against an insurer for overdue benefits as well as other related claims. The Michigan Supreme Court, however, implicitly adopted a different view in Proudfoot v. State Farm Mutual Insurance Co., 469 Mich. 476, 673 N.W.2d 739 (2003). In Proudfoot, the claimant had been rendered disabled by an automobile accident and consequently had to retrofit her home to make it wheelchair accessible. Id. at 740. She later submitted an $815.10 architect's bill to State Farm, her no-fault insurer, for preparing building plans. Id. at 741. State Farm, however, denied the claim as an unreasonable expense under its policy. Proudfoot filed suit in state court before the actual modification work commenced. Id.
23
The Michigan Supreme Court affirmed the lower court's declaratory judgment that the home modifications were reasonably necessary and therefore should have been covered by State Farm. Id. at 743. Regarding attorney fees, however, the Michigan Supreme Court affirmed the lower court's grant of fees only with respect to Proudfoot's claim that State Farm should have covered the $815.10 architect's fee, because only that claim was "overdue." Id. at 744. Other related elements of Proudfoot's action regarding State Farm's liability for future expenses, the Court held, did not fall within the § 500.3148 definition of allowable fees. Id. The Michigan Supreme Court has thus differentiated between attorney fees attributable to recovering "overdue" benefits under § 500.3148 and those attributable to other aspects of the litigation not covered by that statute. Shields's attempt to combine the noncompensable work that her counsel performed in relation to the GEHA claim with the compensable work performed in relation to the State Farm claim is inconsistent with Michigan law. Moreover, Shields's policy arguments notwithstanding, analogous scenarios arise frequently in litigation. A civil rights plaintiff, for instance, who raises a claim under 42 U.S.C. § 1983 for which attorney fees might be available often must determine whether to also raise related state-law claims for which fees are generally not recoverable. Faced with this strategic cost-benefit choice, Shields's counsel chose to litigate a flawed claim against GEHA in addition to the meritorious claim against State Farm. Michigan law does not support awarding Shields her attorney fees in relation to her failed claim that GEHA was not entitled to reimbursement.
D. Penalty interest
24
As explained above, the district court's initial order granting summary judgment in favor of Shields also provided that she was "entitled to interest on the overdue payment at the rate of 12% per year." The district court's subsequent order, however, denied Shields any penalty-interest award after it concluded that she had not presented adequate information to determine when State Farm became delinquent on the payment. Ultimately, the district court reaffirmed its decision by denying Shields's petition for reconsideration of this issue.
25
Under Michigan law, a claimant is entitled to 12% penalty interest on "overdue" benefits. Mich. Comp. Laws § 500.3142(3). Michigan caselaw employs the term "penalty interest" to distinguish the high rate of interest recoverable under § 500.3142 from ordinary statutory interest. See, e.g., Shanafelt v. Allstate Ins. Co., 217 Mich.App. 625, 552 N.W.2d 671, 679 (1996) ("[W]e would note that a plaintiff may recover both statutory and penalty interest."). Overdue benefits are defined as benefits "not paid within 30 days after an insurer receives reasonable proof of the fact and of the amount of loss sustained." Mich. Comp. Laws § 500.3142(2). Shields petitioned the district court below for $36,343 in penalty interest. The spreadsheet attached to her petition shows that this sum is the result of calculating 12% interest on each individually itemized medical treatment billed, beginning on the date of the particular treatment and running through December 31, 2004.
26
Starting the interest calculation from the date on which each medical service was rendered, however, is unjustified under the circumstances of this case. The only overdue benefit at issue is the payment that State Farm refused to make in response to GEHA's reimbursement claim, which arose long after the treatments. Relying on Shanafelt, Shields argues to the contrary that State Farm's obligations arose as it received the medical bills shortly after each treatment was rendered, and that the action and rights of GEHA are irrelevant. In Shanafelt, the claimant brought suit against a no-fault liability insurer regarding an "uncoordinated" policy pursuant to which the insurer had denied a claim for benefits. 552 N.W.2d at 673. The court held that the claimant incurred expenses as treatment was administered, irrespective of the fact that the claimant's health insurance policy was already covering the expenses. Id. at 676.
27
Shanafelt, however, is inapposite because, as the court in that case emphasized, "one salient fact immediately becomes apparent: the instant plaintiff has brought suit against the insurer providing uncoordinated coverage." Id. at 678 (emphasis in original). Benefits under an uncoordinated policy become payable irrespective of another insurer's rights and actions. In the present case, however, the State Farm policy was coordinated, meaning that benefits were not payable at the time the medical care was rendered because they were otherwise covered by GEHA, Shields's primary insurer. Indeed, had Shields not obtained a third-party settlement from which GEHA was entitled to recoup the benefits it had paid, State Farm would never have had to pay Shields any medical benefits at all. See Shields, 450 F.3d at 646 (holding that State Farm's obligation to pay arose only because, once GEHA demanded reimbursement, GEHA's initial payment to Shields no longer qualified as an "amount paid" under the coordination clause of State Farm's policy). Shields's argument that penalty interest should begin accumulating from the date that the medical care was administered thus runs contrary to both law and logic.
28
The district court ultimately denied Shields's petition for penalty interest on the ground that she had not provided "all the necessary figures and dates to determine when, and to what extent, State Farm's obligation to reimburse [Shields] arose." We agree. As explained above, the district court properly determined that State Farm's obligation arose as a result of—and thus only after—GEHA exercised its right to reimbursement by asserting a lien against Shields's settlement for a specific amount. The record simply contains no indication of precisely when and in what amount Shields obtained the settlement funds, nor does it demonstrate when and in what amount GEHA actually sought reimbursement. Although the record does reflect that GEHA submitted a notice of its lien on April 30, 2003 against any settlement Shields might receive, this letter provides no indication of when or if a settlement had been reached, nor of the settlement amount.
29
In its denial of Shields's motion to reconsider, the district court also referred to two other documents submitted by Shields. First, the court took note of an April 17, 2003 letter from GEHA stating that its reimbursement lien claim totaled only $1,734.00 at that time, but that GEHA would continue to update that figure "until settlement." This letter plainly fails to establish when GEHA asserted a lien for the full $162,074. Second, the court referenced a demand letter sent by Shields to State Farm on May 15, 2003 that sought payment of the full amount. As the district court explained, however, even assuming that a settlement had been reached by the date of Shields's demand letter, the extent of GEHA's actual reimbursement claim at that point (and State Farm's resultant obligation) cannot be determined from the record.
30
Shields's extensive briefing on appeal leaves unanswered the question of why, particularly after the district court denied her petition for penalty interest, she did not simply submit documentation regarding the date of the settlement agreement and the extent of GEHA's claim for reimbursement in her petition for reconsideration. Such documentation would likely have allowed the district court to determine the proper date from which to begin calculating the penalty interest that Shields was due. Without establishing the date or dates on which State Farm's obligation arose, however, Shields cannot establish when payment became "overdue" for the purpose of calculating penalty interest under § 500.3142. The district court's determination that Shields failed to produce sufficient evidence to ascertain precisely when State Farm's obligation arose for the purpose of calculating penalty interest, therefore, was not clearly erroneous.
III. CONCLUSION
31
For all of the reasons set forth above, we AFFIRM the judgment of the district court.
Notes:
*
The Honorable Lawrence P. Zatkoff, United States District Judge for the Eastern District of Michigan, sitting by designation
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IN THE SUPREME COURT OF TEXAS
444444444444
NO . 13-0861
444444444444
CANTEY HANGER, LLP, PETITIONER,
v.
PHILIP GREGORY BYRD, LUCY LEASING CO., L.L.C., AND PGB AIR , INC.,
RESPONDENTS
4444444444444444444444444444444444444444444444444444
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS
4444444444444444444444444444444444444444444444444444
Argued December 4, 2014
JUSTICE LEHRMANN delivered the opinion of the Court, in which JUSTICE GUZMAN , JUSTICE
BOYD , JUSTICE DEVINE , and JUSTICE BROWN joined.
JUSTICE GREEN filed a dissenting opinion, in which CHIEF JUSTICE HECHT , JUSTICE JOHNSON ,
and JUSTICE WILLETT joined.
This case concerns the scope of attorneys’ immunity from civil liability to non-clients.
Following the trial court’s entry of a divorce decree, one of the divorce litigants sued opposing
counsel for fraud and related claims in connection with the law firm’s alleged preparation of a
document to effectuate the transfer of personal property awarded to its client in the decree.
Specifically, the litigant alleged that the document contained misrepresentations and that the firm
structured the property’s transfer in a manner that shifted certain tax liabilities to the litigant in
contravention of the decree. The law firm moved for summary judgment, arguing that it was
immune from liability to a non-client for conduct within the scope of representation of its client in
the divorce proceedings. The trial court granted the motion, but the court of appeals reversed,
holding that the firm’s alleged conduct was unrelated to the divorce litigation and that the firm had
not conclusively established its entitlement to immunity. We hold that the firm established its
affirmative defense of attorney immunity as a matter of law and therefore reverse the court of
appeals’ judgment.
I. Background
Philip Byrd and Nancy Simenstad commenced divorce proceedings in 2006. Simenstad was
represented in the divorce proceedings by Vick, Carney & Smith, LLP, and then by Cantey Hanger,
LLP. The divorce proceedings were highly contentious, but in August 2008 the parties settled,
resulting in the trial court’s entry of an agreed divorce decree.
The decree awarded Simenstad three aircraft as her separate property, including a Piper
Seminole that had been owned by Lucy Leasing Co., LLC, a company the decree awarded to Byrd.
The decree also made Simenstad responsible for all ad valorem taxes, liens, and assessments on the
aircraft. Finally, the decree ordered the parties to “execute with[in] ten days from the entry of this
decree any documents necessary to effectuate the transfers contemplated herein, which shall
include . . . documents necessary to transfer ownership of airplanes and the like.” The “attorney for
the non-signing party” was ordered to “draft the documents necessary to effectuate the transfers
contemplated [in the decree].” The record does not reflect, and no party asserts, that any transfer
2
documents regarding the Piper Seminole at issue were executed within the time frame specified in
the decree.
Byrd, Lucy Leasing, and PGB Air, Inc. (another company awarded to Byrd in the decree)
sued Simenstad and Cantey Hanger,1 alleging in pertinent part that, over a year after the decree was
entered, Simenstad and Cantey Hanger falsified a bill of sale transferring the Piper Seminole from
Lucy Leasing to a third party. Specifically, the plaintiffs alleged that Simenstad executed the bill of
sale as “Nancy Byrd,” a “manager” of Lucy Leasing, even though her last name had previously been
legally changed to Simenstad and she “was never an owner, officer, or manager” of Lucy Leasing.
They brought claims against Cantey Hanger for fraud, aiding and abetting, and conspiracy, asserting
that Cantey Hanger falsified the bill of sale in order to shift tax liability for the Piper Seminole from
Simenstad to Byrd in contravention of the decree.2 Cantey Hanger answered with a general denial,
a verified denial, and several affirmative defenses, including “litigation immunity or other common
law immunity doctrines.”
Cantey Hanger moved for summary judgment on attorney-immunity grounds, arguing that
it owed no duty to Byrd or the other plaintiffs and that as a matter of law it was not liable to the
plaintiffs for actions taken in the course and scope of its representation of Simenstad in the divorce
1
Byrd also sued Vick Carney, but the trial court granted summary judgment in Vick Carney’s favor, and Byrd
did not seek review of that order. 409 S.W .3d 772, 775 (Tex. App.— Fort W orth 2013).
2
W ith respect to Cantey Hanger, the plaintiffs also alleged various other acts of misconduct and asserted claims
of defamation, unfair debt collection practices, and intentional infliction of emotional distress. The trial court dismissed
those claims on summary judgment, Byrd did not appeal the dismissal of the defamation and debt-collection claims, and
the court of appeals affirmed the dismissal of the emotional-distress claim. Accordingly, those claims are no longer at
issue. Id. at 776, 782.
3
proceeding.3 Exhibits to Cantey Hanger’s motion included the decree and affidavits from two
Cantey Hanger attorneys attesting that Cantey Hanger was retained to represent Simenstad in the
divorce proceedings and that “[a]ll actions taken by Cantey Hanger with respect to Plaintiffs were
made in the course and scope of representing Ms. Simenstad.”4
The plaintiffs responded that Cantey Hanger’s conduct—“[c]onspiring with and aiding a
client to falsify documents [and] evade tax liability”—was “wrongful,” was not “part of the
discharge of [Cantey Hanger’s] duties in representing [its] client,” and thus was not protected by
attorney immunity. They argued more broadly that the claims against Cantey Hanger “should be
permitted because they involve fraudulent conduct.” In an affidavit submitted as an exhibit to the
response, Byrd testified that he had never received documents from Cantey Hanger to sign in order
to effectuate the transfer of the Piper Seminole from Lucy Leasing to Simenstad, that he discovered
the plane had been transferred directly to a third party, that Simenstad had signed the bill of sale as
manager of Lucy Leasing even though he was the sole manager, that the plane was still registered
to Lucy Leasing, and that the transaction made Lucy Leasing responsible for the sales tax.5
The trial court granted Cantey Hanger’s summary-judgment motion and dismissed all claims
against it with prejudice. The court of appeals reversed as to the fraud, aiding-and-abetting, and
conspiracy claims relating to the sale of the plane. 409 S.W.3d at 782–83. The court held that,
3
Cantey Hanger did not file a no-evidence summary-judgment motion.
4
One of the attorneys also stated that Cantey Hanger sought postjudgment remedies on Simenstad’s behalf in
the divorce and represented Simenstad in Byrd’s bankruptcy proceedings, but those proceedings appear unrelated to the
alleged conduct at issue.
5
The bill of sale at issue is not in the summary-judgment record. The plaintiffs attached it as an exhibit to their
response, but the trial court struck it as not properly authenticated, and that order was not appealed.
4
although attorneys enjoy qualified immunity from civil liability to non-clients for actions taken in
connection with representing a client in litigation, Cantey Hanger was not entitled to such immunity.
Id. at 779–81. The court concluded that Cantey Hanger’s allegedly fraudulent conduct involving the
“subsequent sale” of the plane awarded to Simenstad “was not required by, and had nothing to do
with, the divorce decree,” and thus was “outside the scope of representation of a client.” Id. at 781.
The dissent in that court would have held that Cantey Hanger “established as a matter of law that its
conduct was within the course of its representation of its client in the underlying divorce litigation
against Byrd” and was thus entitled to summary judgment on its immunity defense. Id. at 788, 790
(Gardner, J., dissenting). We granted Cantey Hanger’s petition for review to address the parties’
dispute over the scope and application of the attorney-immunity doctrine.
II. Standard of Review
We review a grant of summary judgment de novo. State v. Ninety Thousand Two Hundred
Thirty-Five Dollars & No Cents in U.S. Currency ($90,235), 390 S.W.3d 289, 292 (Tex. 2013). A
party moving for traditional summary judgment has the burden to prove that there is no genuine issue
of material fact and that it is entitled to judgment as a matter of law. TEX . R. CIV . P. 166a(c); Mann
Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). “When
reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, and we
indulge every reasonable inference and resolve any doubts in the nonmovant’s favor.” Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Attorney immunity is an affirmative
defense. Sacks v. Zimmerman, 401 S.W.3d 336, 339–40 (Tex. App.—Houston [14th Dist.] 2013,
pet. denied). Therefore, to be entitled to summary judgment, Cantey Hanger must have proven that
5
there was no genuine issue of material fact as to whether its conduct was protected by the attorney-
immunity doctrine and that it was entitled to judgment as a matter of law.
III. Attorney Immunity
Texas common law is well settled that an attorney does not owe a professional duty of care
to third parties who are damaged by the attorney’s negligent representation of a client. Barcelo v.
Elliott, 923 S.W.2d 575, 577 (Tex. 1996); see also McCamish, Martin, Brown & Loeffler v. F.E.
Appling Interests, 991 S.W.2d 787, 792 (Tex. 1999) (explaining that a lack of privity precludes
attorneys’ liability to non-clients for legal malpractice). However, Texas courts have developed a
more comprehensive affirmative defense protecting attorneys from liability to non-clients, stemming
from the broad declaration over a century ago that “attorneys are authorized to practice their
profession, to advise their clients and interpose any defense or supposed defense, without making
themselves liable for damages.” Kruegel v. Murphy, 126 S.W. 343, 345 (Tex. Civ. App. 1910, writ
ref’d). This attorney-immunity defense is intended to ensure “loyal, faithful, and aggressive
representation by attorneys employed as advocates.” Mitchell v. Chapman, 10 S.W.3d 810, 812
(Tex. App.—Dallas 2000, pet. denied).
In accordance with this purpose, there is consensus among the courts of appeals that, as a
general rule, attorneys are immune from civil liability to non-clients “for actions taken in connection
with representing a client in litigation.” Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 405
(Tex. App.—Houston [1st Dist.] 2005, pet. denied); see also Toles v. Toles, 113 S.W.3d 899, 910
(Tex. App.—Dallas 2003, no pet.); Renfroe v. Jones & Assocs., 947 S.W.2d 285, 287–88 (Tex.
App.—Fort Worth 1997, pet. denied). Even conduct that is “wrongful in the context of the
6
underlying suit” is not actionable if it is “part of the discharge of the lawyer’s duties in representing
his or her client.” Toles, 113 S.W.3d at 910–11; Alpert, 178 S.W.3d at 406; see also Dixon Fin.
Servs., Ltd. v. Greenberg, Peden, Siegmyer & Oshman, P.C., No. 01-06-00696-CV, 2008 WL
746548, at *7 (Tex. App.—Houston [1st Dist.] March 20, 2008, pet. denied) (mem. op. on reh’g)
(“[A]n attorney cannot be held liable to a third party for conduct that requires the office, professional
training, skill, and authority of an attorney.” (citation and internal quotation marks omitted)).
However, other mechanisms are in place to discourage and remedy such conduct, such as sanctions,
contempt, and attorney disciplinary proceedings. Reagan Nat’l Adver. of Austin, Inc. v. Hazen, No.
03-05-00699-CV, 2008 WL 2938823, at *3 (Tex. App.—Austin July 29, 2008, no pet.) (mem. op.);
see also Renfroe, 947 S.W.2d at 287 (“If an attorney’s conduct violates his professional
responsibility, the remedy is public, not private.”).6
Conversely, attorneys are not protected from liability to non-clients for their actions when
they do not qualify as “the kind of conduct in which an attorney engages when discharging his duties
to his client.” Dixon Fin. Servs., 2008 WL 746548, at *9; see also Chapman Children’s Trust v.
6
The majority of Texas cases addressing attorney immunity arise in the litigation context. But that is not
universally the case. In Campbell v. Mortgage Electronic Registration Systems, Inc., for example, the court of appeals
held that attorneys hired to assist a mortgage beneficiary in the nonjudicial foreclosure of real property were immune
from the borrowers’ suit for wrongful foreclosure. No. 03-11-00429-CV, 2012 W L 1839357, at *6 (Tex. App.— Austin
May 18, 2012, pet. denied) (mem. op.); see also Hazen, 2008 W L 2938823, at *8 (noting that “neither the case law, nor
the [attorney-immunity] doctrine’s underlying policy rationales, are limited to [the litigation] setting”). Because we
conclude that Cantey Hanger’s alleged conduct falls within the scope of its duties in representing its client in litigation,
we need not consider the attorney-immunity doctrine’s application to an attorney’s conduct that is unrelated to litigation
but nevertheless falls within the ambit of client representation and “requires the office, professional training, skill, and
authority of an attorney.” See Dixon Fin. Servs., 2008 W L 746548, at *7. The dissent thus mischaracterizes the scope
of our opinion in asserting that we “suggest[] that this form of attorney immunity applies outside of the litigation
context.” Post at ___. W e cite Campbell and Hazen merely as examples of cases in which courts have applied attorney
immunity (or indicated that it could apply) outside the litigation context.
7
Porter & Hedges, L.L.P., 32 S.W.3d 429, 442 (Tex. App.—Houston [14th Dist.] 2000, pet. denied)
(noting that “it is the kind of conduct that is controlling, and not whether that conduct is meritorious
or sanctionable”). For example, we have held that an attorney “will not be heard to deny his
liability” for the damages caused by his participation in a fraudulent business scheme with his client,
as “such acts are entirely foreign to the duties of an attorney.” Poole v. Hous. & T.C. Ry. Co., 58
Tex. 134, 137 (1882); see also Essex Crane Rental Corp. v. Carter, 371 S.W.3d 366, 382 (Tex.
App.—Houston [1st Dist.] 2012, pet. denied) (holding that attorneys were not immune from claims
that they knowingly assisted their clients in evading a judgment through a fraudulent transfer). And
the courts of appeals have identified examples of attorney conduct that, even if it occurred during
a lawsuit, would be actionable because it does not involve the provision of legal services and would
thus fall outside the scope of client representation. See, e.g., Bradt v. West, 892 S.W.2d 56, 72 (Tex.
App.—Houston [1st Dist.] 1994, writ denied) (noting that a claim against an attorney for assaulting
opposing counsel during trial would be actionable, as such conduct “is not part of the discharge of
an attorney’s duties in representing a party”).
In this case, the parties dispute whether Cantey Hanger has conclusively proven that its
alleged conduct with respect to the sale of the plane was part of the discharge of its duties in
representing Simenstad in the divorce proceedings or, instead, was independent of the divorce and
foreign to the duties of an attorney. In Chu v. Hong, we recognized that “[a]n attorney who
personally steals goods or tells lies on a client’s behalf may be liable for conversion or fraud in some
8
cases.”7 249 S.W.3d 441, 446 (Tex. 2008). To that end, some courts of appeals have broadly stated
that attorney immunity does not extend to an attorney’s knowing participation in fraudulent activities
on his client’s behalf. E.g., Toles, 113 S.W.3d at 911; Querner v. Rindfuss, 966 S.W.2d 661, 666
(Tex. App.—San Antonio 1998, pet. denied) (“An attorney . . . is liable if he knowingly commits a
fraudulent act or knowingly enters into a conspiracy to defraud a third person.”). However, other
courts have taken a narrower approach to this so-called fraud exception, holding that an attorney’s
knowing commission of a fraudulent act “outside the scope of his legal representation of the client”
is actionable. Dixon Fin. Servs., 2008 WL 746548, at *8; Hazen, 2008 WL 2938823, at *3; Alpert,
178 S.W.3d at 406. These courts go on to explain that an attorney’s participation in “independently
fraudulent activities” is considered “foreign to the duties of an attorney” and is not shielded from
liability. Alpert, 178 S.W.3d at 406 (citing Likover v. Sunflower Terrace II, Ltd., 696 S.W.2d 468,
472 (Tex. App.—Houston [1st Dist.] 1985, no writ)); see also Cunningham v. Tarski, 365 S.W.3d
179, 192 (Tex. App.—Dallas 2012, pet. denied) (holding that there was no genuine issue of material
fact as to whether the defendant’s conduct was “the type of fraudulent conduct that is foreign to the
duties of an attorney”).
We think the latter view is consistent with the nature and purpose of the attorney-immunity
defense. An attorney is given latitude to “pursue legal rights that he deems necessary and proper”
precisely to avoid the inevitable conflict that would arise if he were “forced constantly to balance
7
In McCamish, we held that an attorney can be liable to a non-client for negligent misrepresentation where “an
independent duty to the nonclient [arises] based on the [attorney’s] manifest awareness of the nonclient’s reliance on the
misrepresentation and the [attorney’s] intention that the nonclient so rely.” 991 S.W .2d at 792. The plaintiffs do not
assert such a claim here.
9
his own potential exposure against his client’s best interest.” Alpert, 178 S.W.3d at 405 (citing
Bradt, 892 S.W.2d at 71–72). Because the focus in evaluating attorney liability to a non-client is “on
the kind—not the nature—of the attorney’s conduct,” a general fraud exception would significantly
undercut the defense.8 Dixon Fin. Servs., 2008 WL 746548, at *8. Merely labeling an attorney’s
conduct “fraudulent” does not and should not remove it from the scope of client representation or
render it “foreign to the duties of an attorney.” Alpert, 178 S.W.3d at 406 (citing Poole, 58 Tex. at
137); see also Dixon Fin. Servs., 2008 WL 746548, at *9 (“Characterizing an attorney’s action in
advancing his client’s rights as fraudulent does not change the rule that an attorney cannot be held
liable for discharging his duties to his client.”).
Moreover, characterizing fraudulent conduct as an “exception” to the attorney-immunity
defense brings unnecessary confusion and complexity to the analysis. In this case, for example, the
parties agree that Cantey Hanger bore the initial burden of proof to establish its immunity defense,
but dispute the effect of the plaintiffs’ fraud allegations on that burden. Specifically, they dispute
whether negating the allegations was part of Cantey Hanger’s evidentiary burden, or whether the
burden shifted to the plaintiffs to present sufficient evidence to raise a fact issue on the fraud claims.9
8
W e noted in Chu that fraud claims “against an opposing attorney in litigation” generally are not actionable
because “reliance in those circumstances” is not justifiable. 249 S.W .3d at 446 n.19; see also McCamish, 991 S.W .2d
at 794 (“Generally, courts have acknowledged that a third party’s reliance on an attorney’s representation is not justified
when the representation takes place in an adversarial context.”).
9
The dissent in the court of appeals opined that “once Cantey Hanger established as a matter of law that its
conduct was within the course of its representation of its client in the underlying divorce litigation against Byrd, it
established its affirmative defense of immunity as a matter of law and . . . the burden shifted to Byrd to plead and present
evidence raising a fact issue regarding the fraud exception.” 409 S.W .3d at 788 (Gardner, J., dissenting) (citing Hazen,
2008 W L 2938823, at *8–10). The dissent then effectively concluded that no evidence supports the plaintiffs’ fraud
claim. Id. at 788–89. But a no-evidence review renders the attorney-immunity analysis wholly unnecessary. As noted
above, Cantey Hanger did not move for a no-evidence summary judgment on the plaintiffs’ claims, and whether the
10
But we see no reason to engage in a burden-shifting analysis. Fraud is not an exception to attorney
immunity; rather, the defense does not extend to fraudulent conduct that is outside the scope of an
attorney’s legal representation of his client, just as it does not extend to other wrongful conduct
outside the scope of representation. An attorney who pleads the affirmative defense of attorney
immunity has the burden to prove that his alleged wrongful conduct, regardless of whether it is
labeled fraudulent, is part of the discharge of his duties to his client. E.g., Dixon Fin. Servs., 2008
WL 746548, at *9; see also Alpert, 178 S.W.3d at 408 (holding that a claim against an attorney for
conspiracy to defraud was not actionable where “the complained-of actions involve the filing of
lawsuits and pleadings, the providing of legal advice upon which the client acted, and awareness of
settlement negotiations—in sum, acts taken and communications made to facilitate the rendition of
legal services to [the client]”).
IV. Application
Cantey Hanger is entitled to summary judgment on its immunity defense if it conclusively
established that its alleged conduct was within the scope of its legal representation of Simenstad in
the divorce proceedings. We hold that it did. The relevant allegations in Byrd’s petition may be
summarized as follows: (1) the divorce decree awarded Simenstad the aircraft at issue and assigned
responsibility for the plane’s ad valorem taxes, liens, and assessments to Simenstad; (2) the decree
directed Simenstad’s attorneys to prepare necessary documents to effectuate the plane’s transfer from
Lucy Leasing to Simenstad; (3) Cantey Hanger assisted Simenstad in executing a bill of sale of the
plaintiffs have raised a fact issue as to the elements of those claims is not before us.
11
plane from Lucy Leasing directly to a third party;10 (4) the bill of sale was signed by “Nancy Byrd,”
a “manager” of Lucy Leasing; (5) Simenstad’s name had been legally changed from Byrd back to
Simenstad before she signed the document, and she had no authority to act on Lucy Leasing’s behalf;
and (6) by transferring the plane directly to a third party, the bill of sale shifted liability for the taxes
on the plane to Lucy Leasing (and thus to Byrd) in contravention of the decree.
The court of appeals concluded that, based on these allegations, “[t]he subsequent sale of the
airplane to a third party after it had already been awarded to [Simenstad] in the agreed decree was
not required by, and had nothing to do with, the divorce decree.” 409 S.W.3d at 781. The dissent
agrees with this characterization; we do not. Byrd essentially complains that the manner in which
Cantey Hanger carried out a specific responsibility assigned to it by the divorce decree—transferring
ownership of the plane awarded to Simenstad—caused tax liabilities to be imposed on the parties
to the divorce in a way that violated the decree. Meritorious or not, the type of conduct alleged falls
squarely within the scope of Cantey Hanger’s representation of Simenstad in the divorce
proceedings.11 Alpert, 178 S.W.3d at 406 (“The immunity focuses on the type of conduct, not on
whether the conduct was meritorious in the context of the underlying lawsuit.”).
10
The nature of Cantey Hanger’s alleged participation in the sale of the plane and the evidence supporting it
are unclear. Again, however, any shortfalls in the evidence supporting the plaintiffs’ claims are not before us.
11
To the extent the court of appeals concludes that the parties were no longer adversarial, apparently merely
because the divorce decree had already been entered, we disagree. As noted above, the parties engaged in postjudgment
enforcement proceedings relating to other aspects of the decree, compliance with which continued to be a source of
disagreement. Indeed, at the time the bill of sale was executed, Cantey Hanger was well past the ten-day deadline to
prepare the transfer documents. Byrd could have filed a motion to enforce or for sanctions at any point, but chose not
to.
12
Indeed, the court of appeals stated, and we agree, that “Cantey Hanger’s preparation of a bill
of sale to facilitate transfer of an airplane awarded to its client in an agreed divorce decree was
conduct in which an attorney engages to discharge his duties to his client” and was not “foreign to
the duties of an attorney.” 409 S.W.3d at 780. Yet the court went on to hold that the complained-of
conduct—intentional misrepresentations in the bill of sale made for the purpose of shifting tax
liability from Simenstad to Lucy Leasing and Byrd—was outside the scope of Cantey Hanger’s
duties to its client. This simply does not follow. The type of conduct described in these two
statements is the same; the only difference is the added detail in the latter description that makes the
conduct “wrongful.” Again, an attorney’s conduct may be wrongful but still fall within the scope
of client representation. E.g., Renfroe, 947 S.W.2d at 287–88 (holding that attorneys were not liable
to opposing parties for filing a wrongful garnishment action). We hold that Cantey Hanger has
conclusively established that its alleged conduct was within the scope of its representation of
Simenstad in the divorce proceedings, was not foreign to the duties of an attorney, and is thus
protected by attorney immunity.12
We note that the court of appeals remanded the plaintiffs’ fraud claims against Simenstad to
the trial court. To the extent Lucy Leasing is determined to be legally responsible for taxes that
12
The dissent references the judicial-proceedings privilege as support for its conclusion that attorney immunity
does not apply to Cantey Hanger’s alleged conduct. Post at ___. That privilege insulates “[c]ommunications in the due
course of a judicial proceeding” or in “serious contemplation” of such a proceeding from defamation claims. James v.
Brown, 637 S.W .2d 914, 916 (Tex. 1982); Shell Oil Co. v. Writt, ___ S.W .3d ___, ___ (Tex. 2015). The privilege is
not limited to attorneys, but covers “any statement made by the judge, jurors, counsel, parties or witnesses, . . . including
statements made in open court, pre-trial hearings, depositions, affidavits and any of the pleadings or other papers in the
case.” James, 637 S.W .2d at 916–17 (“The administration of justice requires full disclosure from witnesses, unhampered
by fear of retaliatory suits for defamation.”). The privilege is an independent doctrine serving independent purposes,
and it has not been raised in these proceedings.
13
Simenstad rightfully owes, its remedy is against Simenstad, not Cantey Hanger.13 See Dixon Fin.
Servs., 2008 WL 746548, at *9 (holding that the attorneys of a prevailing party in arbitration were
not subject to personal liability to the opposing party for allegedly misrepresenting the scope of the
arbitration award to a third party in an attempt to satisfy the award); see also Renfroe, 947 S.W.2d
at 287 (“If an attorney’s conduct violates his professional responsibility, the remedy is public, not
private.”).
V. Conclusion
Cantey Hanger has conclusively established that it is immune from civil liability to the
plaintiffs and that the trial court’s grant of summary judgment was proper. Accordingly, we reverse
that portion of the court of appeals’ judgment relating to the fraud, aiding-and-abetting, and
conspiracy claims against Cantey Hanger and reinstate the trial court’s judgment.
_________________________________
Debra H. Lehrmann
Justice
OPINION DELIVERED: June 26, 2015
13
The court of appeals held that the plaintiffs’ claims against Simenstad “are not enforcement claims for which
the divorce court has exclusive, continuing jurisdiction.” 409 S.W .3d at 776. Simenstad did not file a petition for
review, and we therefore express no opinion on this holding.
14
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796 So.2d 584 (2001)
Thomas M. BISMARK, Appellant,
v.
STATE of Florida, Appellee.
No. 2D01-2672.
District Court of Appeal of Florida, Second District.
September 12, 2001.
ALTENBERND, Judge.
Thomas M. Bismark appeals the order summarily denying his motion for postconviction relief filed pursuant to Florida Rule of Criminal Procedure 3.850. In that motion, he alleged that he was entitled to withdraw his plea pursuant to Wood v. State, 750 So.2d 592 (Fla.1999), because he was not informed of the possible future sentence-enhancing consequences of the *585 conviction. We conclude that the resolution of this issue will have a great effect on the proper administration of justice throughout the state. Therefore, pursuant to Florida Rule of Appellate Procedure 9.125, on our own motion, we certify that the issue requires immediate resolution by the Supreme Court of Florida under article V, section 3(b)(5), of the Florida Constitution.
On April 19, 1995, Thomas Bismark pleaded no contest to grand theft and was sentenced to two years' prison with credit for time served. He was released from prison on December 24, 1996. He was subsequently convicted of another crime and the 1995 conviction was used as a predicate offense to habitualize him. Mr. Bismark alleges that counsel erred in failing to advise him that his 1995 conviction could be used to enhance any sentence he received on a subsequent conviction. He further alleges that he would not have pleaded but would have proceeded to trial had he been advised of the possible future sentence-enhancing consequences of his plea.
The trial court found that the motion was timely pursuant to Wood but summarily denied it on its merits. Relying on Bethune v. State, 774 So.2d 4 (Fla. 2d DCA 2000), the trial court concluded that the potential sentence-enhancing effect of the plea on the subsequent conviction was a collateral consequence of which neither counsel nor the trial court was required to advise Mr. Bismark.
Prior to the supreme court's decisions in Wood and State v. Perry, 786 So.2d 554 (Fla.2001), we would have agreed with the trial court's analysis. We conclude, however, that those two decisions at least appear to compel the opposite result. In Perry, while discussing the requirements necessary for taking a plea, the supreme court stated:
The second element [i.e., that the defendant understand the nature of the charge and the consequences of the plea] requires that a defendant be sufficiently informed so that he or she understands the consequences of his or her pleathat the defendant realizes the decision to plead guilty waives some of his or her constitutional rights, like the right to a jury trial, as well as other significant consequences. Williams, 316 So.2d at 271. This Court accordingly has permitted a writ of error coram nobis where the petitioner asserted he was not informed his plea could constitute a "prior offense" in subsequent proceedings. See Wood v. State, 750 So.2d 592 (Fla.1999).
786 So.2d at 557.
Although we agree with the Third District that this passage is dictum, see Major v. State, 790 So.2d 550 (Fla. 3d DCA 2001), the passage also seems to clarify that the court intended to hold in Wood that failure to advise of future sentence-enhancing consequences may invalidate a plea. While the Wood opinion itself was not clear on this point, this interpretation is consistent with the court's decision to remand Wood's petition for further proceedings. Thus, although we are in agreement with prior case law holding that future sentence-enhancing effects of a conviction are collateral consequences of which a defendant need not be informed, Bethune, 774 So.2d at 5; Sherwood v. State, 743 So.2d 1196 (Fla. 4th DCA 1999); State v. Fox, 659 So.2d 1324 (Fla. 3d DCA 1995), we believe that the supreme court may have implicitly overruled that case law in Wood and Perry.
If we were to so hold, however, our ruling would have wide-ranging consequences. Most, if not all, of the defendants in this district who have taken advantage of the Wood window to make such claims would be entitled to evidentiary hearings. Of the appeals we have reviewed *586 thus far, none of the trial court orders has denied these claims on the basis that they were conclusively refuted by the record. We have yet to see a transcript of a plea colloquy wherein the trial court advised the defendant of the future sentence-enhancing consequences of the plea or a standard plea form which included this warning. We suspect that after an evidentiary hearing many defendants making this claim might be entitled to withdraw their pleas.
Mr. Bismark and Mr. Baker, whose appeal we also pass through today in Baker v. State, 796 So.2d 589 (Fla. 2d DCA 2001), are merely examples of the many defendants who have taken advantage of the Wood window to raise this issue. Because of the sheer number of defendants making this claim and the amount of time it would require circuit courts to conduct evidentiary hearings, we have elected to stay all appeals raising this issue until the supreme court has resolved it or declined to accept jurisdiction.
We also note that this claim is not limited to those defendants who were entitled to seek relief during the Wood window.[1] Rather, any defendant who pleaded and whose conviction became final within the last two years who was not warned of the future sentence-enhancing consequences of the conviction might be entitled to withdraw his or her plea. It would also affect any defendant pleading in the future. Trial courts in this district would be compelled to alter their plea colloquies and trial counsel the advice they routinely give their clients. Standard plea forms would need to be altered to include this information.
Such a holding today would also result in differing standards for the acceptance of pleas within the state. The Third District has concluded that defendants need not be warned of the future sentence-enhancing consequences of a conviction. Major, 790 So.2d 550. Defendants in that district would not be entitled to withdraw pleas on this basis, nor would future defendants have to be warned of these consequences. We believe that a split in the districts on an issue as important as this one would have a great effect on the proper administration of justice throughout the state.
For the foregoing reasons, we conclude that this issue requires resolution by the supreme court. Accordingly, we respectfully ask the Supreme Court of Florida to accept jurisdiction for an immediate resolution of this issue.
PARKER, A.C.J., and WHATLEY, J., concur.
NOTES
[1] The window created by Wood v. State, 750 So.2d 592 (Fla.1999), closed May 27, 2001. We do not believe however that we have seen the end of the Wood appeals. It appears that at least one circuit in this district is still ruling on motions filed well before the end of the Wood window. We thus expect to receive Wood appeals from that circuit at least through the end of the year.
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872 F.2d 1026
Unpublished DispositionNOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.Rasheen Rockmon JABBAR-EL, Plaintiff-Appellant,v.Perry M. JOHNSON, Frank Elo, Dale Foltz, P. Goyings, D.Fleathers, John R. Voig, W. Norment, Defendants-Appellees.
No. 88-1167.
United States Court of Appeals, Sixth Circuit.
March 21, 1989.
Before BOYCE F. MARTIN, Jr., NATHANIEL R. JONES and ALAN E. NORRIS, Circuit Judges.
PER CURIAM.
1
Plaintiff, Rasheen Rockmon Jabbar-El, appeals from summary judgment granted to defendants, Perry Johnson, the Director of the Michigan Department of Corrections, and several other Department of Corrections' officials, in this prisoner civil rights action brought pursuant to 42 U.S.C. Sec. 1983. Plaintiff claimed that the state had denied his right to due process of law guaranteed under the fourteenth amendment to the United States Constitution, and also that he was subjected to cruel and unusual punishment in violation of his eighth amendment rights. For the reasons discussed below, we reverse the judgment of the district court.
I.
2
Plaintiff is a prisoner at Southern Michigan State Prison. According to his verified pro se complaint, a prison officer claimed that he was in possession of dangerous contraband in violation of prison rules. After an investigation and hearing where it was determined that he was guilty of possessing the contraband, he was placed into a segregation cell as punishment.
3
In his complaint, plaintiff alleged that, during his period of segregation, he was subjected to conditions which made his cell unfit for habitation--infestation with vermin, feces on the wall, and the absence of lighting, soap, toothbrush, and cleaning supplies. He also alleged that he was forcibly injected with Thorazine and kept in handcuffs, and his safety was threatened because of a nervous breakdown occasioned by the cruel treatment.
4
His complaint alleged that he was denied due process of law at his hearing, and that the condition of his cell, as well as his treatment in it, amounted to cruel and unusual punishment. Deprivation of those constitutional rights constituted the basis for his civil rights claim.
5
On September 30, 1985, partial summary judgment was granted in favor of defendants on plaintiff's due process claim. In reliance upon Parratt v. Taylor, 451 U.S. 527 (1981), the district court determined that plaintiff had access to sufficient state remedies to challenge the deprivation of his due process rights, and that is all that due process required.
6
In May 1987, defendants filed a motion for summary judgment with regard to plaintiff's cruel and unusual punishment claim, to which the affidavits of five prison officials were attached. Those affidavits denied that such conditions existed in the cell and stated that plaintiff was himself responsible for keeping it clean. Defendants also filed the affidavit of the prison medical director, stating that plaintiff suffered from a personality disorder, not a nervous breakdown, and that the disorder predated his period of segregation.
7
Plaintiff responded with the affidavit of a fellow-inmate that confirmed plaintiff's allegations regarding deplorable conditions and the adverse impact that they had upon him. Nevertheless, the district court accepted a magistrate's report recommending summary judgment in favor of defendants on the cruel and unusual punishment claim. We must now determine whether summary judgment was appropriate on either of plaintiff's claims.
II.
8
We first address whether the district court properly granted summary judgment on plaintiff's cruel and unusual punishment claim. Upon review of a grant of summary judgment, the same standard as originally applied by the district court is employed. Hines v. Joy Mfg. Co., 850 F.2d 1146, 1149 (6th Cir.1988). The moving party must point to an "absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The burden then falls upon the nonmovant to produce some evidence to show that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
9
The magistrate's report, accepted by the district court, recommended summary judgment because defendants' contention that plaintiff was responsible for cleaning his own cell was unrebutted. In addition, the magistrate determined that the prison medical director's observation that plaintiff suffered only with a personality disorder predating his segregation was uncontested. Once defendants presented those affidavits, it became incumbent upon plaintiff to respond by affidavit, or as otherwise provided by Fed.R.Civ.P. 56(e), to show that a genuine issue of material fact remained for trial. We believe that he met that burden.
10
First, to the extent that plaintiff's complaint was verified and based upon personal knowledge, it satisfied the Rule 56(e) requirement as an opposing affidavit. Hooks v. Hooks, 771 F.2d 935, 946 (6th Cir.1985). It alleged that his cell was not suitable for habitation, and that he was not provided materials with which to clean it. He also stated that "[d]ue to the anguish and the pressure I have not only lost appetite and weight, but I have suffered a complete mental and nervous breakdown which has forced me into therapy." Likewise, his fellow-inmate's supporting affidavit stated that plaintiff was not given any material with which "to clean himself or sanitize his cell." It also indicated that plaintiff began to look worse as time went on. Taken together with the verified complaint, defendants' contentions were sufficiently rebutted so as to establish that issues of fact remained with regard to whether plaintiff was given cleaning materials for his cell, the condition of the cell, and also whether his mental condition deteriorated as a result of his confinement. Consequently, there remained a genuine issue for trial with regard to plaintiff's eighth amendment cruel and unusual punishment claim and summary judgment in favor of defendants was not proper. Liberty Lobby, 477 U.S. at 248.
III.
11
We also conclude that the district court, having relied upon Parratt v. Taylor, applied the incorrect standard in evaluating plaintiff's due process claim. In Parratt, the Supreme Court announced that when a random and unauthorized act is done under color of state law, and that act deprives an individual of a constitutionally protected right, due process is not denied so long as there is access to an adequate state remedy to redress the damage done by the state. 451 U.S. at 542-43. The rationale is that "a state cannot predict when its employees will act in a random and unauthorized manner, [and therefore] it is impracticable in such cases to require the state to provide meaningful predeprivation procedures." Lee v. Western Reserve Psychiatric Habilitation Center, 747 F.2d 1062, 1068 (6th Cir.1984).
12
However, plaintiff's alleged deprivation of a constitutionally protected liberty interest was the result of an established state procedure. That is, he was given a hearing before he was placed into the segregation cell. When the deprivation of an interest results from an established state procedure, a different due process analysis is required. See, e.g., Western Reserve, 747 F.2d at 1068; Vinson v. Campbell County Fiscal Court, 820 F.2d 194, 198-99 (6th Cir.1987).
13
In this context, plaintiff's claim should have been analyzed under the guidelines set forth in Superintendent, Mass. Correctional Inst. v. Hill, 472 U.S. 445 (1985). Plaintiff was entitled to a hearing prior to his segregation that comported with the minimum requirements of procedural due process. Id. at 453. Before he was placed into the segregation cell for violating prison rules, he was entitled to:
14
(1) advance written notice of the disciplinary charges;
15
(2) an opportunity, when consistent with institutional safety and correctional goals, to call witnesses and present documentary evidence in his defense; and
16
(3) a written statement by the factfinder of the evidence relied on and the reasons for the disciplinary action.
17
Id. at 454 (citing Wolff v. McDonnell, 418 U.S. 539, 563-67 (1974)); see also Woodson v. Lack, 865 F.2d 107, 109-10 (6th Cir.1989) (Wolff sets forth the minimum due process required when a prisoner is segregated for punitive reasons); Franklin v. Aycock, 795 F.2d 1253, 1262-63 (6th Cir.1986) (noting that Wolff "set forth the minimum procedures which must be followed in prison disciplinary hearings resulting in disciplinary confinement"); and Bills v. Henderson, 631 F.2d 1287, 1296 (6th Cir.1980) ("a transfer to administrative segregation entitles inmates to the procedures set forth in Wolff ").
18
Due process also requires that there be some evidence that supports the decision made at the prison disciplinary hearing. Hill, 472 U.S. at 454. In this case, there must have been some evidence from which the hearing officer could conclude that plaintiff was in possession of dangerous contraband. Upon review, "the relevant question is whether there is any evidence in the record that could support the conclusion reached by the disciplinary board." Id. at 455-56. We therefore remand plaintiff's due process claim to be reviewed in light of the applicable due process requirements.
IV.
19
For the foregoing reasons, the order of the district court granting summary judgment on plaintiff's due process claim is reversed and remanded for consideration in accordance with the instructions set out above. The order granting summary judgment on plaintiff's eighth amendment claim is reversed and the cause remanded for further proceedings according to law and consistent with this opinion.
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757 F.2d 608
53 USLW 2482, 12 Collier Bankr.Cas.2d 701,12 Bankr.Ct.Dec. 1279, Bankr. L. Rep. P 70,368
Leaman H. CASWELL, Appellant,v.Judith N. LANG, Appellee.In re Leaman H. CASWELL, Debtor.
No. 84-1502.
United States Court of Appeals,Fourth Circuit.
Argued Dec. 3, 1984.Decided March 19, 1985.
Richard G. Poinsett, Newport News, Va., for appellant.
Lee Robert Arzt, Richmond, Va., for appellee.
Before SPROUSE and ERVIN, Circuit Judges, and DUPREE, United States District Judge for the Eastern District of North Carolina, sitting by designation.
ERVIN, Circuit Judge.
1
The debtor, Leaman H. Caswell, appeals from the district court's order affirming the bankruptcy court's order denying confirmation of the debtor's proposed Chapter 13 plan and holding that past due child support obligations may not be included in a Chapter 13 plan. We affirm.
I.
2
On July 11, 1983, the debtor filed a Chapter 13 plan in which he proposed to pay an indebtedness to his former wife, Judith N. Lang, for child support payments that were substantially in arrears at the time of filing.1
3
To eliminate this debt, the debtor's plan created two classes of unsecured creditors, one of which consisted solely of Judith Lang. The plan required that she be paid in full from the monthly plan payments of $75.00. These payments were to be paid to the Chapter 13 Trustee.2 The plan provided that all other unsecured creditors would be paid 25% of their claims.
4
Lang originally filed a proof of claim with the bankruptcy court on August 3, 1983. She next filed objections to the confirmation of the plan on September 16, 1983, asserting that the proposed plan was not feasible and that she should receive payment in full prior to all other general unsecured creditors. The bankruptcy court agreed, concluding that since the state has exclusive authority to determine liability for child support, alimony and maintenance, "it would be an unwise assumption of jurisdiction for a federal court" to include these debts in a Chapter 13 plan. To do so, the court held, would require the federal courts "to police child support" and perhaps "to shelter a Chapter 13 debtor ... from child support payments when due." On appeal, the district court affirmed the bankruptcy court's decision, noting that the federal bankruptcy code did not intend for federal courts to "interfere directly with the remedies provided by the state courts." The court held that the federal courts could not alter payment of or discharge a child support obligation determined in state court.
5
The debtor now appeals this decision, arguing that child support arrearages are properly included in a Chapter 13 plan so that a debtor may be afforded a comprehensive manner of dealing with all his debts, and his creditors may be assured the highest possible payment.
II.
6
The debtor argues that two bankruptcy court decisions support his assertion that child support arrearages may be included as a claim to be satisfied in a Chapter 13 plan. First, in Matter of Curtis, 2 B.R. 43 (Bkrtcy.W.D.Mo.1979), the bankruptcy court concluded that a Chapter 13 plan proposing payments to two classes of unsecured creditors warranted confirmation. One class was composed of 100% payments of past due child support, the other of 10% payments to the remaining creditors. The court ruled that the plan was fair, was proposed in good faith and that there was a rational basis for discrimination between the two classes. Although the court assumed that past due child support payments could properly be included in a Chapter 13 plan, the court did note "that child support payments are generally to be regarded as having a status higher than the ordinary indebtedness under the law of bankruptcy." Id. at 44.
7
Similarly, in In re Haag, 3 B.R. 649 (Bkrtcy.D.Ore.1980), also relied upon by the debtor, the bankruptcy court concluded that a Chapter 13 plan proposing 100% payments of past due child support and 25% payments to all other creditors warranted confirmation. The difference between this case and Curtis is that the former provided for the past due child support payments to be made outside the plan while the latter contemplated payments through the Trustee as part of the plan. The court in Haag, however, treats this distinction as irrelevant since the effect of permitting the past due child support payments to be made outside the plan was to create two classes of unsecured creditors. The court subsequently determined that this distinction had a rational basis and was proper. Although the Haag court's clear premise seems to be that past due child support payments may be included in a Chapter 13 plan, the court did recognize that child support obligations are markedly different from ordinary indebtedness in that they are nondischargeable and may be "enforced through contempt proceedings." Id. at 651.
8
While both of these decisions are premised on the assumption that child support arrearages may be included in a Chapter 13 plan, neither court squarely decided this specific issue and both recognized the elevated status child support payments are accorded under state and federal law. However, even if both cases are read to firmly support the contention that child support arrearages may be included in a Chapter 13 plan, this court is not bound by the bankruptcy courts' interpretations of the law.
9
The Supreme Court has long favored state court retention of exclusive control over the collection of child support. See In re Burrus, 136 U.S. 586, 593-594, 10 S.Ct. 850, 852-853, 34 L.Ed. 1500 (1890) ("The whole subject of the domestic relations of husband and wife, parent and child, belong to the laws of the States and not to the laws of the United States."). See also McCarty v. McCarty, 453 U.S. 210, 101 S.Ct. 2728, 69 L.Ed.2d 589 (1981); Hisquierdo v. Hisquierdo, 439 U.S. 572, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979); United States v. Yazell, 382 U.S. 341, 86 S.Ct. 500, 16 L.Ed.2d 404 (1966); Ohio ex rel. Popovici v. Agler, 280 U.S. 379, 50 S.Ct. 154, 74 L.Ed. 489 (1930). Pursuant to its police power, Virginia has a strong and compelling interest in protecting the welfare of its dependent citizens. See Va.Code Sec. 20-107.2 (1984) (Virginia courts may determine the support and custody of minor children); see also, e.g., Featherstone v. Brooks, 220 Va. 443, 448, 258 S.E.2d 513, 516 (1979) (Virginia law requires that "both parents of a child owe that child a duty of support during minority."); Mullen v. Mullen, 188 Va. 259, 269, 49 S.E.2d 349, 354 (1948) ("In Virginia, we have established the rule that the welfare of the infant is the primary, paramount and controlling consideration of the court in all controversies between parents over custody of their minor children."). We agree with the district court that it would result in great injustice to require children to await a bankruptcy court's confirmation of a debtor's Chapter 13 plan before permitting them to enforce their state court-determined right to collect past due support payments. The bankruptcy code may not be used to deprive dependents, even if only temporarily, of the necessities of life.
10
Equally important, a federal court may not interfere with the remedies provided by a state court in these areas of particular state concern, provided, of course, that these remedies are constitutional.3 To permit child support arrearages to be included in a Chapter 13 plan would invite a federal bankruptcy court to alter or modify a state court decision regarding the payment and discharge of the overdue debt. This we cannot countenance. Rather, we agree with the bankruptcy court in Matter of Garrison, 5 B.R. 256, 260 (Bkrtcy.E.D.Mich.1980), that it was not the "intent of the new Bankruptcy Code to convert the bankruptcy courts into family or domestic relations courts--courts that would in turn, willy-nilly, modify divorce decrees of state courts insofar as these courts had previously fixed the amount of alimony and child support obligations of debtors."
11
The state court's determination respecting the rights of the parties in these areas of state concern should not be disturbed by federal bankruptcy courts. Past due child support obligations may not be included in a Chapter 13 plan under the bankruptcy code.
III.
12
For the foregoing reasons, the judgment of the district court is
13
AFFIRMED.
1
At the time of the filing, the debtor was $1,400.00 in arrears in child support payments for a son of a prior marriage to Judith Lang
2
The Trustee in Bankruptcy, John E. Robins, Jr., filed his report at the confirmation hearing recommending that the plan be confirmed if the payments were increased to $81.30 per month. The debtor agreed to this increase
3
We are particularly mindful of the Supreme Court's pronouncement in Ridgway v. Ridgway, 454 U.S. 46, 54-55, 102 S.Ct. 49, 54-55, 70 L.Ed.2d 39 (1981) that:
Notwithstanding the limited application of federal law in the field of domestic relations generally, see McCarty v. McCarty, 453 U.S. 210, 220 [101 S.Ct. 2728, 2735, 69 L.Ed.2d 589] (1981); Hisquierdo v. Hisquierdo, 439 U.S. 572, 581 [99 S.Ct. 802, 808, 59 L.Ed.2d 1] (1979); In re Burrus, 136 U.S. 586, 593-594 [10 S.Ct. 850, 852-853, 34 L.Ed. 500] (1890), this court, even in that area, has not hesitated to protect, under the Supremacy Clause, rights and expectancies established by federal law against the operation of state law, or to prevent the frustration and erosion of the congressional policy embodied in the federal rights. See McCarty v. McCarty, supra ; Hisquierdo v. Hisquierdo, supra, Free v. Bland, 369 U.S. 663 [82 S.Ct. 1089, 8 L.Ed.2d 180] (1962); Wissner v. Wissner, 338 U.S. 655 [70 S.Ct. 398, 94 L.Ed. 424] (1950); McCune v. Essig, 199 U.S. 382 [26 S.Ct. 78, 50 L.Ed. 237] (1905). Cf. Yiatchos v. Yiatchos, 376 U.S. 306, 309 [84 S.Ct. 742, 744, 11 L.Ed.2d 724] (1964). While "[s]tate family and family-property law must do 'major damage' to 'clear and substantial' federal interests before the Supremacy Clause will demand that state law be overridden," Hisquierdo, 439 U.S., at 581 [99 S.Ct. at 808], with references to United States v. Yazell, 382 U.S. 341, 352 [86 S.Ct. 500, 506, 15 L.Ed.2d 404] (1966), "[t]he relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail." Free v. Bland, 369 U.S., at 666 [82 S.Ct., at 1092]. See also Gibbons v. Ogden, 9 Wheat. 1, 210-211 [6 L.Ed. 23] (1824). And, specifically, a state divorce decree, like other law governing the economic aspects of domestic relations, must give way to clearly conflicting federal enactments. McCarty v. McCarty, supra ; Hisquierdo v. Hisquierdo, supra. That principle is but the necessary consequence of the Supremacy Clause of our National Constitution.
However, since there is no suggestion that Congress specifically intended the bankruptcy code to include past due child support obligations in a Chapter 13 reorganization plan, there are "no clearly conflicting federal enactments" governing the disposition of this case.
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FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS June 27, 2017
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
STATE OF KANSAS, ex rel Derek
Schmidt, Attorney General; CHEROKEE
COUNTY, KANSAS, Board of County
Commissioners,
Plaintiffs - Appellants,
v. No. 16-3015
RYAN ZINKE, Secretary of the United
States Department of Interior, in his official
capacity; NATIONAL INDIAN GAMING
COMMISSION; JONODEV OSCELOA
CHAUDHURI, National Indian Gaming
Commissioner, in his official capacity;
DANIEL J. LITTLE, Associate
Commissioner National Indian Gaming
Commission, in his official capacity;
DEPARTMENT OF INTERIOR; ERIC N.
SHEPARD, General Counsel National
Indian Gaming Commission, in his official
capacity; KEVIN K. WASHBURN,
Assistant Secretary of Indian Affairs for
the United States Department of Interior, in
his official capacity; JOHN BERREY,
Chairperson of the Quapaw Tribe of
Oklahoma Business Committee and
Chairperson of the Downstream
Development; THOMAS MATHEWS,
Vice-Chairperson of Quapaw Tribe of
Oklahoma Business Committee; TAMARA
SMILEY-REEVES, Secretary/Treasurer of
Quapaw Tribe of Oklahoma Business
Pursuant to Fed. R. App. P. 43(c)(2) as of March 1, 2017, Sally Jewell is
replaced by Ryan Zinke as the Secretary of the United States Department of Interior.
Committee, Secretary of the Quapaw Tribe
of Oklahoma Development Corporation,
and member of the Downstream
Development Authority; T. C. BEAR,
Member of Quapaw Tribe of Oklahoma
Business Committee and Quapaw Gaming
Authority; BETTY GAEDTKE, Member
of Quapaw Tribe of Oklahoma Business
Committee; RANNY MCWATTERS,
Member of Quapaw Tribe of Oklahoma
Business Committee and Treasurer of the
Downstream Development Authority;
MARILYN ROGERS, Member of Quapaw
Tribe of Oklahoma Business Committee,
Quapaw Gaming Authority, and
Downstream Development Authority;
TRENTON STAND, Member of Quapaw
Gaming Authority; LORI SHAFER,
Member of Quapaw Gaming Authority;
JUSTIN PLOTT; FRAN WOOD, Member
of Quapaw Gaming Authority; LARRY
RAMSEY, Secretary of the Downstream
Development Authority; BARBARA
KYSER-COLLIER, Executive Director of
the Quapaw Gaming Oklahoma Tribal
Gaming Agency; ERIN SHELTON,
Deputy Director of the Quapaw Tribe of
Oklahoma Tribal Gaming Agency, a/k/a
Erin Eckart; RODNEY SPRIGGS,
President of the Quapaw Development
Corporation; ART COUSATTE, Vice-
President of the Quapaw Development
Corporation; DONNA MERCER,
Treasurer of the Quapaw Development
Corporation; JERRI MONTGOMERY,
Member of the Quapaw Development
Corporation; QUAPAW DEVELOPMENT
CORPORATION; DOWNSTREAM
DEVELOPMENT AUTHORITY OF THE
QUAPAW TRIBE OF OKLAHOMA, (O-
GAH-PAH); QUAPAW GAMING
AUTHORITY,
2
Defendants - Appellees,
------------------------------
IOWA TRIBE OF KANSAS AND
NEBRASKA; SAC AND FOX NATION
OF MISSOURI IN KANSAS AND
NEBRASKA,
Movants.
_________________________________
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 5:15-CV-04857-DDC-KGS)
_________________________________
Bryan C. Clark, Assistant Solicitor General (Jeffrey A. Chanay, Chief Deputy Attorney
General, and Stephen Phillips, Assistant Attorney General, and David R. Cooper, Fisher,
Patterson, Sayler & Smith, LLP, with him on the briefs), Office of the Attorney General,
Topeka, Kansas, for Plaintiffs-Appellants.
Ellen J. Durkee (Thomas E. Beall, Acting United States Attorney, District of Kansas,
Jackie A. Rapstine, Assistant United States Attorney, John C. Cruden, Assistant
Attorney General, Daron T. Carreiro, and Katherine J. Barton, and Jo-Ann Shyloski,
Office of the General Counsel, National Indian Gaming Commission, Washington,
D.C., and Jennifer Christopher, Office of the Solicitor, Department of the Interior,
Washington, D.C., with him on the brief), Environment & Natural Resources
Division, United States Department of Justice, Washington, D.C., for the Federal
Defendants-Appellees.
Stephen R. Ward (Paul M. Croker, Armstrong Teasdale, LLP, Kansas City, Missouri, and
Daniel E. Gomez, and R. Daniel Carter, with him on the brief), Conner & Winters, LLP,
Tulsa, Oklahoma, for the Quapaw Tribal Defendants-Appellees.
_________________________________
Before KELLY, LUCERO, and MURPHY, Circuit Judges.
_________________________________
LUCERO, Circuit Judge.
_________________________________
3
The question in this case is whether a legal opinion letter issued by the Acting
General Counsel of the National Indian Gaming Commission (“NIGC”) regarding the
eligibility of Indian lands for gaming constitutes “final agency action” subject to
judicial review. In response to a request from the Quapaw Tribe, the NIGC Acting
General Counsel issued a legal opinion letter stating that the Tribe’s Kansas trust
land was eligible for gaming under the Indian Gaming Regulatory Act (“IGRA”).
The State of Kansas and the Board of County Commissioners of the County of
Cherokee, Kansas, filed suit, arguing that the letter was arbitrary, capricious, and
erroneous as a matter of law. The district court concluded that the letter did not
constitute reviewable final agency action under IGRA or the Administrative
Procedure Act (“APA”).
Exercising jurisdiction under 28 U.S.C. § 1291, we affirm. IGRA’s text,
statutory scheme, legislative history, and attendant regulations demonstrate
congressional intent to preclude judicial review of legal opinion letters. Further, the
Acting General Counsel’s letter does not constitute final agency action under the
APA because it has not determined any rights or obligations or produced legal
consequences. In short, the letter merely expresses an advisory, non-binding opinion,
without any legal effect on the status quo ante.
I
The Quapaw Tribe of Indians is a federally recognized tribe. Indian Entities
Recognized & Eligible to Receive Services from the U.S. Bureau of Indian Affairs,
81 Fed. Reg. 26,826, 26,830 (May 4, 2016). Pursuant to an 1833 treaty with the
4
United States, the Tribe was relocated from its homeland in Arkansas to a reservation
near what is now the border between Oklahoma and Kansas. See Treaty with the
Quapaw art. 2, May 13, 1833, 7 Stat. 424. Although most of the Quapaw Reservation
was located in present-day Oklahoma, it extended about one-half mile north of the
state border into Kansas, in what is known as the “Quapaw Strip.” In 1867, the Tribe
ceded the Quapaw Strip to the United States but retained a small set-aside for a tribal
member. Treaty with the Seneca, Mixed Seneca and Shawnee, Quapaw, Etc. art. IV,
Feb. 23, 1867, 15 Stat. 513. The United States allotted the remainder of the Quapaw
Reservation to individual tribal members in 1895. Act of March 2, 1985, ch. 188, 28
Stat. 876, 907.
At issue in this case is a 124-acre parcel in Kansas (the “Kansas land”) that is
directly adjacent to the Kansas-Oklahoma border and within the historic boundaries
of the Quapaw Strip. The Quapaw reacquired this property in 2006 and 2007 and
uses it as a parking lot and support area for its Downstream Casino Resort, which is
located on Indian trust lands across the border in Oklahoma.
In 2012, the Department of the Interior (“DOI”) took the Kansas land into trust
for the Tribe. Approximately one year later, the Tribe requested a legal opinion from
the NIGC Office of General Counsel addressing whether the property satisfies the
“last recognized reservation” exception to IGRA’s prohibition against gaming on
trust lands acquired after October 17, 1988. This exception applies when “the Indian
tribe has no reservation on October 17, 1998,” and the “[trust] lands are located in a
State other than Oklahoma and are within the Indian tribe’s last recognized
5
reservation within the State or States within which such Indian tribe is presently
located.” 25 U.S.C. § 2719(a)(2)(B). See also 25 C.F.R. § 292.4(b)(2). On
November 21, 2014, the NIGC Acting General Counsel sent a letter to the Tribe’s
attorney concluding that the Kansas land is eligible for gaming under IGRA’s “last
recognized reservation” exception. The letter further states that “[t]his legal opinion
does not constitute final agency action for purposes of review in federal court.”
Plaintiffs filed this action against the NIGC in 2015. They claim that the
letter’s application of the last recognized reservation exception to the Kansas land
was arbitrary, capricious, and erroneous as a matter of law.1 The NIGC moved to
dismiss on the ground that the letter did not constitute final agency action. The
district court granted the motion, holding that neither IGRA nor the APA authorized
judicial review of the letter and thus the court lacked subject matter jurisdiction.
Plaintiffs timely appealed.
II
“Absent a waiver, sovereign immunity shields the Federal Government and its
agencies from suit.” Dep’t of Army v. Blue Fox, Inc., 525 U.S. 255, 260 (1999)
(quotation omitted). The APA contains a limited waiver of sovereign immunity,
allowing for judicial review of “[a]gency action made reviewable by statute and final
agency action for which there is no other adequate remedy in a court.” 5 U.S.C.
§ 704. However, this waiver does not apply if a “statute[] preclude[s] judicial
1
Plaintiffs also named various tribal parties as defendants in the suit; however,
the district court’s dismissal of those claims is not before us on appeal.
6
review.” 5 U.S.C. § 701(a)(1). The district court determined that IGRA precluded
review of the letter and that the letter did not meet the two-part test for final agency
action under the APA. See generally Bennett v. Spear, 520 U.S. 154, 177-78 (1997).
We review these conclusions de novo. Colo. Farm Bureau Fed’n v. U.S. Forest
Serv., 220 F.3d 1171, 1173 (10th Cir. 2000).
A
Although there is a “strong presumption that Congress intends judicial review
of administrative action,” Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667,
670 (1986), superseded on other grounds by 42 U.S.C. § 405, that presumption “may
be overcome by . . . a specific congressional intent to preclude judicial review that is
fairly discernible in the detail of the legislative scheme,” id. at 673 (quotations
omitted). In discerning congressional intent, we look to the express language of a
statute and to “the structure of the statutory scheme, its objectives, its legislative
history, and the nature of the administration action involved.” Block v. Cmty.
Nutrition Inst., 467 U.S. 340, 345 (1984). After examining these features of IGRA,
we conclude it is “fairly discernible” that Congress did not intend for the Acting
General Counsel’s letter to be reviewable final agency action.
IGRA expressly identifies four categories of NIGC decisions that constitute
reviewable “final agency actions” under the APA. See 25 U.S.C. § 2714. Under
§ 2714, courts may review “[d]ecisions made by the Commission pursuant to sections
2710 [tribal gaming ordinances], 2711 [management contracts], 2712 [existing
ordinances and contracts], and 2713 [civil penalties or closures for gaming conducted
7
in violation of IGRA, implementing regulations, or an approved tribal gaming
ordinance].”
Nothing in this section provides that NIGC General Counsel letters are final
agency actions. And, as at least one court has noted, because “Congress specifically
stat[ed] in § 2714 that the [enumerated] sections represent final agency actions, the
implied corollary is that other agency actions are not final, and ergo, not reviewable.”
Cheyenne-Arapahoe Gaming Comm’n v. Nat’l Gaming Comm’n, 214 F. Supp. 2d
1155, 1171 (N.D. Okla. 2002). This reading accords with our prior decisions holding
that similar agency legal opinions do not constitute reviewable final action. See
Oklahoma v. Hobia, 775 F.3d 1204 (10th Cir. 2014); Miami Tribe of Okla. v. United
States, 198 F. App’x 686, 690 (10th Cir. 2006) (unpublished) (citing § 2714 and
holding that a DOI opinion letter did not constitute reviewable final agency action
because it was “only a part of the process that [would] eventually result in [a] final
NIGC action”). In Hobia, we concluded that a letter from the NIGC Chairwoman,
which adopted an opinion of the General Counsel that certain lands were ineligible
for gaming under IGRA, was not final agency action and thus did not moot
Oklahoma’s suit to prevent the construction of a gaming facility on those lands. 775
F.3d at 1210. In reaching that holding, we determined that the letter fell outside the
scope of § 2714, which “defin[es] what constitutes final agency action under IGRA.”
Id.2
2
Plaintiffs contend that this determination was merely dicta and not essential
to our ultimate resolution of the mootness issue. We disagree. Although the issue
8
We acknowledge that § 2714’s omission of opinion letters is not by itself
conclusive. See Hamilton Stores, Inc. v. Hodel, 925 F.2d 1272, 1277 (10th Cir.
1991) (“[T]he mere fact that some acts are made reviewable by the express language
of the relevant statute or statutes should not suffice to support an implication of
exclusion as to others.” (brackets omitted) (quoting Bowen, 476 U.S. at 674)).
However, the types of actions listed in § 2714 and IGRA’s broader statutory scheme
indicate that Congress did not intend for NIGC General Counsel letters to be final
action subject to judicial review. In contrast to the letter at issue in this case, each of
the “final agency actions” in § 2714 requires a decision by the full Commission after
an attendant administrative process. 25 C.F.R. pts. 522, 533, 573, 575, 580-585. The
actions in § 2714 further correspond to the Commission’s decisionmaking authority
under IGRA. Sections 2710 to 13 confer authority on the NIGC to take specific
actions to regulate gaming on Indian lands (e.g., approval or disapproval of
ordinances and management contracts, and enforcement action). By comparison,
§ 2719 merely identifies which lands will be eligible for gaming. It does not discuss
the Commission, let alone authorize the agency to take actions to enforce the
might have benefited from further analysis, our discussion of § 2714 provided the
key rationale for our conclusion that the case was not moot. Moreover, the fact that
the letter in Hobia “anticipated the possibility of future wrongful conduct on the part
of the Tribe” does not alone distinguish it from the letter at issue in this case. Id. at
1211. Although the Acting General Counsel’s letter does not expressly threaten the
Tribe with future enforcement action (nor would it make sense to do so, given the
letter’s conclusion that the Kansas land is eligible for gaming), it states that the
opinion “does not constitute final agency action for purposes of review in federal
district court.” Accordingly, the Tribe was on notice that the NIGC itself viewed the
letter as non-binding, which left open the possibility of future enforcement action.
9
provision. Id. Instead, the NIGC enforces § 2719 through actions taken pursuant to
§§ 2710-13. Likewise, although IGRA provides for the position of General Counsel,
25 U.S.C. § 2707(a), it does not grant the General Counsel any authority to bind the
agency, nor does it specifically empower the General Counsel to make decisions as to
the eligibility of land for gaming. Compare § 2707(a), with 25 U.S.C. § 2706
(granting specific powers to the Commission), and 25 U.S.C. § 2705(b) (granting to
the Chairman “such other powers as may be delegated by the Commission”). Finally,
neither IGRA nor its implementing regulations require the Office of General Counsel
to issue legal opinions on any topic; rather, these opinions are “a courtesy.” See
Legal Opinions, Nat’l Indian Gaming Comm’n, https://www.nigc.gov/general-
counsel/legal-opinions (last visited May 31, 2017).
IGRA’s legislative history reinforces our conclusion that the Acting General
Counsel’s letter is not reviewable final agency action under IGRA. Although a report
from the Senate Select Committee on Indian Affairs initially states that “[a]ll
decisions of the Commission are final agency decisions,” it later clarifies in the more
detailed “Section By Section Analysis,” that only “certain Commission decisions will
be final agency decisions for purposes of court review.” S. Rep. No. 100-446, at 8,
20 (1988), as reprinted in 1988 U.S.C.C.A.N. 3071, 3078, 3090 (emphasis added).
To the extent that the report gives conflicting signals about which agency actions
constitute final decisions, it consistently suggests that only “decisions of the
Commission” are subject to judicial review. See id. at 8, 20. An opinion letter from
an NIGC employee such as the Acting General Counsel plainly does not qualify.
10
Plaintiffs argue that DOI regulations promulgated in 2008 assume that agency
decisions under § 2719 are reviewable final agency actions. They point to 25 C.F.R.
§ 292.26(a), which states that the 2008 regulations “do not alter final agency
decisions made pursuant to 25 U.S.C. § 2719 before the date of enactment of these
regulations.” But when considered in context, this provision does not support
plaintiffs’ position. As the preamble to the regulations explains, during the
formulation of the rules, the DOI and the NIGC issued
a number of legal opinions to address the ambiguities left by Congress
and provide legal advice for agency decisionmakers, or in some cases,
for the interested parties facing an unresolved legal issue. . . . In some
cases, the [DOI] or the NIGC subsequently relied on the legal opinion to
take some final agency action. In those cases, section 292.26(a) makes
clear that these regulations will have no retroactive effect to alter any
final agency decisions made prior to the effective date of these
regulations.
Gaming on Trust Lands Acquired After October 17, 1988, 73 Fed. Reg. 29,354,
29,372 (May 20, 2008).
In other words, § 292.26(a) was intended to clarify that the 2008 regulations
would not apply to final agency action taken prior to the effective date of the
regulations or pursuant to an earlier legal opinion issued by the DOI or the NIGC. It
does not suggest that legal opinions are final agency actions. This distinction
between advisory legal opinions and final agency action is further highlighted in
§ 292.26(b), which provides that the “regulations shall not apply to applicable agency
actions when, before the effective date of [the] regulations, the [DOI] or the [NIGC]
issued a written opinion regarding the applicability of 25 U.S.C. § 2719.” The
11
preamble thus clarifies that this provision’s purpose is to allow the federal
government to “follow through with its prior legal opinions and take final agency
actions consistent with those opinions, even if [the 2008 DOI regulations] have
created a conflict.” 73 Fed. Reg. at 29,372. At the same time, the regulation retains
the DOI’s and the NIGC’s right to “qualify, modify, or withdraw its prior legal
opinions.” Id. These statements all demonstrate that legal opinions are not final
agency actions; rather, the NIGC may use them to make final decisions in the future.
To this point, the preamble emphasizes that § 292.26 and the other 2008 regulations
“do not alter the fact that the legal opinions are advisory in nature and thus do not
legally bind the persons vested with the authority to make final agency decisions.”
Id.
In sum, IGRA’s text, statutory structure, legislative history, and associated
regulations all establish that Congress did not intend judicial review of NIGC
General Counsel opinion letters.
B
Even assuming that IGRA does not demonstrate a clear congressional intent to
preclude judicial review of the Acting General Counsel’s letter, the letter does not
qualify as final agency action under the APA. An agency action is final if: (1) it
“mark[s] the consummation of the agency’s decisionmaking process”—i.e., “it [is]
not . . . of a merely tentative or interlocutory nature”; and (2) it is an action “by
which rights or obligations have been determined, or from which legal consequences
will flow.” Bennett, 520 U.S. at 177-78 (quotations omitted). Because we conclude
12
that the letter fails the second requirement, we need not address whether the letter
satisfies the first.
Plaintiffs contend that the letter determined the parties’ rights and obligations
and resulted in legal consequences by: (1) enabling the Tribe to expand gaming to
the Kansas land; (2) obligating the State to negotiate a class III tribal-state gaming
compact with the Tribe; and (3) prompting the Tribe to sue the State in order to
compel it to negotiate a gaming compact. But these arguments fundamentally
misapprehend IGRA. As a general matter, the Acting General Counsel’s letter does
not grant the Tribe a right to engage in gaming; IGRA itself does not even confer
such a right. Rather, tribes’ right to game on Indian lands derives from their
sovereign authority to regulate themselves and their members within Indian country,
without state interference. See California v. Cabazon Band of Mission Indians, 480
U.S. 202, 207, 214-15 (1987) (recognizing that states generally may not regulate
tribes on reservations absent congressional authorization), superseded by statute on
other grounds as stated in Michigan v. Bay Mills Indian Cmty., 134 S. Ct. 2024, 2034
(2014). IGRA expressly recognizes tribes’ sovereign right to exclusively regulate
gaming activity on their lands, subject to the statute’s limitations. See 25 U.S.C.
§ 2701(5).3
3
Plaintiffs argue that because the NIGC only has jurisdiction over gaming on
Indian lands, the Acting General Counsel’s determination triggers the NIGC’s
monitoring and enforcement responsibilities at the expense of the State’s authority
over gaming on non-Indian lands. They contend that this is a “legal consequence”
sufficient to satisfy Bennett’s second prong. But plaintiffs’ argument confuses an
Indian lands determination with a conclusion that the Kansas land is eligible for
13
Further, the Tribe’s ability to begin gaming on the Kansas land is not a legal
consequence of the Acting General Counsel’s letter. Because the Tribe already has a
non-site-specific gaming ordinance, it may start class II gaming on the property
irrespective of the letter. See § 2710(b). Although requesting legal guidance from
the NIGC Office of General Counsel may be a prudent investment practice for tribes
concerned about the possibility of civil penalties under § 2713, nothing in IGRA
requires the NIGC to issue an opinion letter, let alone make an Indian lands eligibility
determination before a tribe conducts class II gaming. See N. Cty. Cmty. Alliance,
Inc. v. Salazar, 573 F.3d 738, 747 (9th Cir. 2009); Legal Opinions, Nat’l Indian
Gaming Comm’n, https://www.nigc.gov/general-counsel/legal-opinions (last visited
May 31, 2017). Even if the NIGC were to later bring an enforcement action against
the Quapaw for gaming on ineligible lands, the Tribe could not use the non-binding
letter as a defense. As noted above, the NIGC General Counsel lacks authority to
bind the agency under IGRA. Nor will the letter inevitably lead to class III gaming
on the Kansas land. The Tribe has yet to satisfy the two preconditions necessary for
such gaming to occur: a gaming compact with the State, and approval of that
compact by the Secretary of the Interior. See § 2710(d)(3)(A).
gaming under IGRA’s last recognized reservation exception. There is no question
that the Kansas land constitutes “Indian land” because the land was taken into trust
for the Quapaw Tribe in 2012. See 25 U.S.C. § 2703 (defining “Indian lands” as “all
lands within the limits of any Indian reservation” and “any lands title to which is
either held in trust by the United States for the benefit of any Indian tribe or
individual”). The issue relevant to this case is whether the land qualifies for an
exception to IGRA’s general prohibition against gaming on trust lands acquired after
the Act’s effective date.
14
Plaintiffs’ second argument—that the opinion letter required the State to
negotiate a class III gaming compact with the Tribe—also fails. IGRA itself imposes
an obligation on the State to negotiate a gaming compact in good faith at the Tribe’s
request. Id. The only condition under the statute triggering this obligation is a
tribe’s request to enter into such negotiations. See Mashantucket Pequot Tribe v.
Connecticut, 913 F.2d 1024, 1028 (2d Cir. 1990). IGRA does not require the NIGC
to also make a preliminary determination that the lands are eligible for gaming. See
id. at 1028-29 (rejecting argument that the state’s obligation to negotiate a compact
had not arisen because the tribe had yet to adopt an ordinance authorizing gaming on
the reservation).4 Thus, because the Tribe submitted a compact proposal to the State
in 2013, Kansas was required to enter into compact negotiations in good faith,
regardless of the Acting General Counsel’s letter. The letter therefore did not
determine the parties’ rights and obligations with respect to class III gaming.
4
This conclusion is not altered by our statement in Kansas v. United States,
249 F.3d 1213 (10th Cir. 2001), that a favorable Indian lands determination by the
NIGC under § 2710 “impos[ed] a legal duty on the State under IGRA to negotiate a
Class III gaming compact at the Tribe’s request.” Id. at 1224. In contrast to this
case, which involves application of IGRA’s last recognized reservation exception, the
NIGC determination at issue in Kansas affected whether the lands at issue were
subject to IGRA at all. See id. at 1223 (noting that “if the tract [did] not qualify as
‘Indian lands,’ then IGRA does not apply”). A determination that the lands were not
“Indian lands” within the meaning of the statute would have absolved the state of any
obligations under IGRA, including the obligation to negotiate a tribal-state gaming
compact at the tribe’s request. Id. That is not the situation here: it is undisputed that
the Kansas land constitutes “Indian land,” and thus the State must abide by IGRA’s
requirements.
15
For similar reasons, we reject plaintiffs’ argument that the Tribe’s lawsuit to
compel the State to negotiate a class III gaming compact represents a legal
consequence of the Acting General Counsel’s letter.5 Although the letter may have
influenced the Tribe’s decision to bring suit, it did not legally prompt the litigation.
Rather, the State’s purported failure to enter into compact negotiations in good faith
gave rise to the Tribe’s cause of action under IGRA. See 2710(d)(7)(A)(i) (providing
for federal court jurisdiction “over any cause of action initiated by an Indian tribe
arising from the failure of a State to enter into [Tribal-State compact] negotiations . .
. or to conduct such negotiations in good faith”).
Plaintiffs’ attempt to compare this case to U.S. Army Corps of Engineers v.
Hawkes Co., Inc., 136 S. Ct. 1807 (2016), is unavailing. In Hawkes, the Supreme
Court concluded that an approved jurisdictional determination (“JD”) by the U.S.
Army Corps of Engineers, which states that a particular property contains “waters of
the United States” under the Clean Water Act, is a reviewable final agency action.
136 S. Ct. at 1813-15. In determining that the approved JD satisfied the second
Bennett prong, the Court reasoned that negative JDs—i.e., determinations that
property does not contain “waters of the United States”—“limit[] the potential
5
Relatedly, plaintiffs allege that the Tribe’s lawsuit is a first step in its efforts
to have the Secretary of the Interior issue class III gaming procedures under 25
C.F.R. pt. 291. This claim is meritless for two reasons. First, tribes can ask the
Secretary to issue these procedures without an opinion letter from Acting General
Counsel. See 25 C.F.R. § 291.3 (listing requirements for a tribe to request that the
Secretary issue class III gaming procedures). Second, we recently struck down pt.
291 as an invalid exercise of the Secretary’s authority in New Mexico v. Department
of the Interior, No. 14-2219, 2017 WL 1422365, at *17 (10th Cir. Apr. 21, 2017).
16
liability a landowner faces for discharging pollutants without a permit.” Id. at 1814.
Thus, it “follow[ed] that affirmative JDs have legal consequences as well: They
represent the denial of the safe harbor that negative JDs afford.” Id. Plaintiffs
contend that because a “negative” gaming eligibility opinion (one stating that certain
land is ineligible for gaming) would have put the Tribe on notice of the possibility of
a future enforcement action, it constitutes reviewable final agency action under
Hawkes. The logical corollary, plaintiffs reason, is that an “affirmative” gaming
eligibility opinion, such as the Acting General Counsel’s letter, is similarly
reviewable. But this argument ignores the fact that the Court’s holding in Hawkes
turned on the JD’s ability to bind the agency for five years. See id. at 1814-15. That
critical circumstance is absent from this case because the Acting General Counsel’s
letter is advisory and non-binding.
Plaintiffs’ reference to Frozen Food Express v. United States, 351 U.S. 40
(1956), is equally unpersuasive. There, the Court concluded that an order listing
which commodities the Interstate Commerce Commission (“ICC”) believed to be
exempt from certain permitting requirements under the Interstate Commerce Act
constituted a final agency action. Id. at 42. In so holding, the Court reasoned that
the order had an immediate and practical impact on regulated parties by “warn[ing]
every carrier, who d[id] not have authority from the Commission to transport those
commodities, that it d[id] so at the risk of incurring criminal penalties.” Id. at 44.
However, the difference between this case and Frozen Food Express is that there,
“the order itself was the source of the [parties’] obligation[s], modifying the
17
applicable legal landscape by interpreting the scope of the agricultural commodities
exception.” Golden & Zimmerman, LLC v. Domenech, 599 F.3d 426, 433 (4th Cir.
2010). In contrast, the Acting General Counsel’s opinion letter does not “modify the
legal landscape” or create any obligations from which legal consequences may flow.
Not only was the letter furnished by an employee of the agency rather than the full
Commission, but also the letter makes clear that the NIGC is free to reach a different
conclusion as to the Kansas land’s eligibility for gaming at any time.6 These facts
further distinguish this case from Frozen Food Express, where the order was issued
by the ICC, and “[t]he Commission itself . . . argue[d] for finality.” See Frozen Food
Express, 351 U.S. at 44-45.
III
Because the Acting General Counsel’s opinion letter does not constitute final
agency action under either IGRA or the APA, we AFFIRM the district court’s
dismissal of this case for lack of subject matter jurisdiction. We also GRANT
federal appellees’ motion to take judicial notice of the pleadings and court order filed
in Quapaw Tribe of Indians v. Kansas, No. 16-cv-2037-JWL-TJJ (D. Kan. Mar. 3,
2016).
6
The NIGC could make a determination about the Kansas land’s eligibility for
gaming if: (1) the Tribe seeks NIGC approval of a site-specific gaming ordinance for
the Kansas land under § 2710; (2) the Tribe seeks approval of a management contract
under § 2711; or (3) the Tribe opens a gaming facility on the Kansas land, in which
case the NIGC could determine that the land is ineligible for gaming and impose
fines or temporary closure orders under § 2713.
18
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418 B.R. 61 (2009)
In re John S. McCLELLAND, Debtor.
John S. McClelland, Plaintiff,
v.
Grubb & Ellis Consulting Services Company, Grubb & Ellis Valuation and Advisory Group and Grubb & Ellis New York, Inc., Defendants.
Bankruptcy No. 03-37997. Adversary No. 07-9014.
United States Bankruptcy Court, S.D. New York.
October 16, 2009.
*64 Leonard I. Spielberg, Esq., Harold, Slant, Strassfield & Spielberg, White Plains, NY.
Lance Portman, Esq., McCabe & Mack, LLP, Poughkeepsie, NY.
MEMORANDUM DECISION GRANTING DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS AND DISMISSING THE COMPLAINT
CECELIA G. MORRIS, Bankruptcy Judge.
The present adversary proceeding was brought by Plaintiff, in his capacity as an individual debtor in a case under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (hereafter, the "Bankruptcy Code" or the "Code"), to recover from Defendants millions of dollars in damages that Plaintiff allegedly suffered as a result of Defendants' alleged undervaluation of some real property in which Plaintiff once asserted an ownership interest. Defendants moved for judgment on the pleadings (the "Motion").
This case presents a question of first impression for this Court: Where a professional is retained by Order of the Court, on application of the Debtor, and that professional's work results in the disposition of a major asset of the bankruptcy case, which achieves a 100 percent plan, may the Debtor subsequently attack the acts of that professional as grossly negligent or fraudulent? The Court holds that Plaintiff failed to plead acts by Defendant that were so egregious and wanton as to constitute gross negligence; additionally, Plaintiff failed to plead any intent to defraud on the part of Defendants that was contemporaneous with any relevant representation. The Defendants' motion for judgment on the pleadings is GRANTED and the complaint is DISMISSED.
STATEMENT OF JURISDICTION
This Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(e), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Acting Chief Judge Robert J. Ward dated July 10, 1984. By Order dated August 14, 2007, this Court denied Plaintiff's motion for remand or alternatively for abstention (the "Jurisdictional Order"). In its Memorandum Decision Denying Motion to Remand or Abstain dated October 26, 2007 (the "Jurisdictional Decision"), this Court conclusively held, "Where an estate professional is retained and paid by order of the Bankruptcy Court to perform work that is vital to the bankruptcy estate and the debtor's plan of reorganization, a subsequent claim against that professional arising from the work performed on behalf of the estate is a `core proceeding' pursuant to 28 U.S.C. § 157(b)." The Jurisdictional Order has not been appealed, disturbed or reversed. This Court has jurisdiction to decide the Motion.
BACKGROUND
Plaintiff filed a voluntary petition for relief under chapter 11 under the Bankruptcy Code on December 19, 2003. On June 18, 2004, Plaintiff signed a stipulation of settlement ("the Settlement" or the "Settlement Stipulation"). In the Settlement, Plaintiff and former business partners of Plaintiff (the "Longhitanos") agreed that the Longhitanos would pay the estate one-third the value of certain real property (the "Properties"), which would resolve extensive litigation between Plaintiff and the Longhitanos, and extinguish Plaintiff's interest in the real property. The Settlement expressly provides, among other things, that Defendants would be retained to perform appraisals of certain of the Properties, and contains the following *65 language: "The Appraiser will not be subject to further direct or any cross-examination. The Appraisal shall be binding and conclusive upon [Debtor and the Longhitanos]." McClelland v. Grubb & Ellis Valuation and Advisory Group et al., No. 09-09014, Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Exh. A, p. 26, ¶ 12.[1] The Settlement also provides that "The Appraiser's engagement shall be a joint engagement for the equal and mutual benefit of the parties," and "The Appraiser shall be an independent third party, shall have no ex parte communications with the Longhitanos ... [or] the Debtor or their respective counsel." Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Exh. A, p. 25, ¶ 11. Defendants did not sign the Stipulation. The Court notes that the Settlement is referenced in ¶¶ 4 and 6 of the complaint dated November 28, 2006 (the "Complaint"). The Complaint is annexed to the Motion as Exhibit J.
By Order dated July 27, 2004, the Court approved the Stipulation of Settlement; this Order is annexed to the Motion as Exhibit B. The Court emphasizes that the Defendants are expressly named in the Settlement as the appraisers, which predates their express agreement with Plaintiff's estate and the Longhitanos, as discussed herein.[2]
By letter dated September 10, 2004 (the "Engagement Letter"), Defendants submitted an offer to appraise various properties. The Engagement Letter was addressed to counsel for Plaintiff and the Longhitanos, and was accepted and agreed to by counsel for Plaintiff and the Longhitanos. The Engagement Letter provides, among other things, "We will use the income approach, the comparable sales approach and the replacement value approach, as we deem each approach appropriate, in determining the fair market value of each property" (the "Disputed Language"). The Engagement Letter also included a provision limiting Defendants' liability: "In the event that a party entitled to do so, makes a claim against Grubb & Ellis or any of its affiliates or any of their respective officers or employees in connection with or in any way relating to this engagement of the Appraisal, the maximum damages recoverable from Grubb & Ellis or any of its parent companies or their respective officers or employees other than for fraud or intentionally wrongful acts shall be the amount of the monies actually collected by us for this assignment and under no circumstances shall any claim for consequential damages be made" Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Exh. E (emphasis added). The Court notes that the Engagement Letter is expressly referenced in ¶ 5 of the Complaint, and is annexed thereto as Exhibit A.
By Order dated September 28, 2004, the Court retained Defendants to evaluate several parcels of real estate, so that the one-third payment could be determined (the "Retention Order"). Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Exh. D. The Court notes that the Retention Order is expressly referenced in ¶ 3 of the Complaint.
According to ¶ 13 of the Complaint, Defendants' appraisal report was dated January 27, 2005 (the "Appraisal").
*66 By Order dated August 24, 2005, the Court confirmed Plaintiff's second amended plan of reorganization, which provides that general unsecured creditors would receive 100 percent of their allowed claims. In re John S. McClelland, No. 03-37997, Docket No. 266, Order Confirming Debtors Second Amended Plan of Reorganization Dated as of May 27, 2005 as Amended, Exh. A, p. 12.
In the present action, Plaintiff alleges that Defendants committed fraudulent and deceitful misrepresentation, intentional use of wrongful methodology, and gross negligence. The lawsuit was commenced on November 28, 2006, in the Ulster County Supreme Court, removed to the District Court for the Southern District of New York, then transferred to this Court as a case related to the Plaintiff's bankruptcy case pending here.
Plaintiff argues that Defendants, in their work pursuant to the Engagement Letter and the Settlement, undervalued certain of the Properties (the "Disputed Properties"), which caused him to lose money if the Defendants had given the Disputed Properties a higher value, then the one-third payout pursuant to the Settlement would have been higher, and Plaintiff would have been able to keep the money that was left after paying all his creditors in full. Specifically, Plaintiff argues that the Disputed Properties were valued as rentals (their actual use at the time), instead of as units for sale, which would have yielded a higher value, and that Defendants failed to apply the other two appraisal approaches in determining the value of the Disputed Properties.
Plaintiff agrees that the Settlement was binding upon him with regard to surrendering claims against the Longhitanos, but argues that Defendants were not a party to the Stipulation, and therefore any release set forth in the Settlement is not applicable to them. Plaintiff ignores the traditional deference that is given to chapter 11 trustees, and minimizes the fact that this transaction was the central act concerning administration of his bankruptcy case, being the substance of an informal plan of reorganization, causing his creditors to be paid in full, and resolving protracted litigation between himself and the Longhitanos.
Additionally, Plaintiff distorts the role he played in this case as an individual chapter 11 debtor. Plaintiff served as debtor in possession. He owed his creditors a fiduciary duty. He met that duty by paying them 100 percent of their claims. However, now Plaintiff wishes to sue Defendants because there was not enough money left over for him.
RULES AND LEGAL STANDARDS
Bankruptcy Code § 327 provides that the trustee, with the court's approval, may retain an appraiser among other professionals, that does not hold an adverse interest to the estate and is a disinterested party, for the purpose of assisting the trustee in carrying out the trustee's duties under the Bankruptcy Code. Bankruptcy Code § 1107 gives the debtor-in-possession all the rights, powers and duties of a trustee, with limited exceptions not relevant here.
Bankruptcy Code § 541 provides:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) ... all legal and equitable interest of the debtor in property as of the commencement of the case.
11 U.S.C. § 541 (2009).
An individual debtor and his estate are separate entities. In re Cooley, 87 B.R. 432, 437 (Bankr.S.D.Texas 1988). It *67 is immaterial that the individual debtor is an individual chapter 11 debtor acting as debtor-in-possession. Id. Generally, the confirmation of the plan vests all of the property of the estate in the debtor. Bankruptcy Code § 1141(b).
1. Plaintiff was Debtor and Debtor-in-Possession in the lead case
"[R]epresenting a debtor's bankruptcy estate in an individual chapter 11 is almost an out-of-body experience. ... It stretches the bounds of legal fiction to comprehend the difference between the bankruptcy estate of an individual (your client) and the individual himself (not your client)." Ghosts of Individual Chapter 11 Debtors: Ethical Issues in Representing Debtors in Individual Chapter 11s Under BAPCPA: Part I, C.R. "Chip" Bowles Jr., American Bankruptcy Institute Journal, December 2006-January 2007.
It is well settled that, even where the debtor is an individual, the chapter 11 debtor is an entity different from the chapter 11 debtor-in-possession, with different interests in property and different duties. See Cooley, 87 B.R. at 445 (debtor could exempt post-petition earnings from property of the estate pursuant to 11 U.S.C. § 541(a)(6)).
The debtor-in-possession bears a fiduciary duty to the estate and to creditors. See In re Harp, 166 B.R. 740, 746 (Bankr. N.D.Ala.1993) (Chapter 11 debtors had fiduciary duty to unsecured creditors, which required them to act in the capacity of a bankruptcy trustee).
2. Defendant's role was adjudicatory
The chapter 11 trustee must protect and preserve property of the estate for the purpose of maximizing a distribution to creditors, and owes a fiduciary duty to the creditors of the estate. In re Ngan Gung Restaurant, 254 B.R. 566, 571 (Bankr.S.D.N.Y.2000) (chapter 11 trustee did not breach fiduciary duty in allowing post-petition taxes to accrue); cf. In re Kazis, 257 B.R. 112 (Bankr.D.Mass.2001) (chapter 7 trustee owed a duty to debtor to maximize value where there was a chance creditors would be paid in full and debtor might receive money back). The trustee is not liable for objectively reasonable mistakes in judgment where discretion is allowed. In re Ngan Gung Restaurant, 254 B.R. at 571.
The Court considers the effect of Defendant's role in this case, which was to evaluate a major asset of the estate, which in turn concluded years of litigation between Plaintiff and the Longhitanos and the payment in full of all creditors' claims. In Antoine v. Byers & Anderson, 508 U.S. 429, 113 S.Ct. 2167, 124 L.Ed.2d 391 (1993), the United States Supreme Court examined two factors to determine whether absolute immunity applied to a court reporter: 1. the historical context; and 2. whether the judgments of non-judges are functionally comparable to those of judges in that the non-judge exercise a discretionary judgment as part of his or her function. In re Continental Coin Corp., 380 B.R. 1, 9 (Bankr.C.D.Cal.2007) (aff'd, No. 08-0093, 2009 WL 2589635, 2009 U.S. Dist. LEXIS 74392 (C.D.Cal.Aug.21, 2009) (interpreting Antoine, supra).) The court in In re Continental Coin Corp. found that where a chapter 11 trustee did not accept an offer to purchase property of the estate, the trustee was entitled to historical immunity and the sale of estate assets was an adjudicatory act. In re Continental Coin Corp., 380 B.R. at 9-11. The trustee could be sued for gross negligence; the court permitted the creditor to file a complaint for gross negligence. See also In re Gorski, 766 F.2d 723 (2d Cir.1985) (where chapter 13 trustee failed to act upon debtors' missing 33 months' plan payments, such failure was a breach of fiduciary duty to creditors).
*68 The Court considers whether the doctrine of immunity stretches to protect Defendants from harassment and second-guessing by Plaintiff. The Court is persuaded by In re Continental Coin Corp. and analogizes the Defendant's role to that of a trustee. The Defendants entered the Agreement with the Longhitanos and with Plaintiff acting in his capacity as debtor-in-possession. As discussed herein, the Engagement Letter, on which Plaintiff bases his Complaint, clearly was an agreement among Defendant, the Longhitanos, and Plaintiff as debtor-in-possession, which was approved by the Court, setting forth a task Defendant would perform for the benefit of the estate. The Defendants were approved by the Court, without objection by the United States Trustee. The Defendants' work caused the general unsecured creditors to be paid in full and concluded years of litigation between Plaintiff and the Longhitanos. The appraisals were subject to review by all parties. The Defendants' fees were approved after notice and a hearing. Every act of Defendants has been done on complete and public disclosure and approved by this Court. Therefore, Defendant performed an adjudicatory act similar to one that would be performed by a chapter 11 trustee, the sale of property of the estate for the benefit of creditors.
For purposes of this adversary proceeding, the Court will only consider the Defendants' potential liability for fraud, willful and deliberate acts that harm stakeholders of the estate, and gross negligence, as plead.
3. The Motion is one for judgment on the pleadings
The parties submit remarkably limited legal authority in support of the relief they seek. Defendants characterize the present motion as one for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c), which is made applicable to this adversary proceeding pursuant to Fed. R. Bankr.P. 7012(b). Plaintiff argues in opposition that the motion should be treated as a motion for summary judgment pursuant to Fed. R.Civ.P. 56, which is made applicable to this adversary proceeding by Fed. R. Bankr.P. 7056.
Fed.R.Civ.P. 12(c) provides, "Motion for Judgment on the Pleadings. After the pleadings are closed but early enough not to delay trial a party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). The parties agree on the standard for such a motion, which the Court incorporates from Defendants' Motion: "In deciding a Rule 12(c) motion, Courts apply the same standard as that applicable to a motion under Rule 12(b)(6), accepting the allegations contained in the complaint as true and drawing all reasonable inference in favor of the nonmoving party. Accordingly, judgment on the pleadings is appropriate if, from the pleadings, the moving party is entitled to judgment as a matter of law."[3]McClelland v. Grubb & Ellis Valuation and Advisory Group et al., No. 09-09014, Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Memorandum of Law in Support.
"[The court] should not dismiss the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief Consideration is limited to the factual allegations in plaintiff's amended complaint, which are accepted as true, to documents attached to the complaint as an *69 exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiff's possession or of which plaintiff had knowledge and relied on in bringing suit." Faconti v. Potter, 242 Fed.Appx. 775 (2d Cir.2007) (citations omitted; emphasis added).
As on a motion to dismiss, the issue is not whether the plaintiff will prevail, but whether the plaintiff may present evidence to support the claims. The court must construe the factual allegations in the complaint liberally in favor of the plaintiff. The complaint must set forth sufficient information for the court to determine whether some recognized legal theory exists to permit relief to the plaintiff. 2 Moore's Federal Practice, § 12.34 (Matthew Bender 3d ed.).
Defendant relies on the Second Circuit's decision in Sira v. Morton, 380 F.3d 57 (2d Cir.2004), for the proposition that "A complaint is deemed to include any written instrument attached to it as an exhibit, materials incorporated in it by reference, and documents that, although not incorporated by reference, are integral to the complaint." Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Memorandum of Law in Support. The Court may also consider matters of which the judge may take judicial notice. Roberts v. Babkiewicz, 582 F.3d 418, 419 (2d Cir.2009) ("Because this matter comes to us on appeal from a judgment on the pleadings, we rely on the complaint, the answer, any written documents attached to them, and any matter of which the court can take judicial notice for the factual background of the case") (emphasis added); Hirsch v. Arthur Andersen & Co., 72 F.3d 1085 (2d Cir.1995) ("General, conclusory allegations need not be credited, however, when they are belied by more specific allegations of the complaint. We may consider all papers and exhibits appended to the complaint, as well as any matters of which judicial notice may be taken") (citations omitted); Day v. Moscow, 955 F.2d 807, 812 (2d. Cir.1992) ("when all relevant facts are shown by the court's own records, of which the court takes notice, the defense [of res judicata] may be upheld on a Rule 12(b)(6) motion without requiring an answer"); 2 Moore's Federal Practice, § 12.34[2] (Matthew Bender 3d ed.).
Plaintiff references a "bankruptcy settlement," which can only be the Settlement that caused Defendants to be retained to appraise the Properties. The Court incorporates this Settlement for purposes of deciding a motion for judgment on the pleadings. The Settlement is integral to understanding the relationship of the parties and the purpose of the Engagement Letter, which, as discussed herein, was an agreement among the Plaintiff's estate, the Longhitanos, and the Defendants, with Court approval.
The Court takes judicial notice of the fact that general unsecured creditors were paid 100 percent of their claims by way of the Plaintiff's plan.
Plaintiff challenges Defendants' inclusion of all Orders and transcripts pertaining to Defendants' role and acts in this case, and argues that the inclusion of the same transforms the motion to one for summary judgment under Fed.R.Civ.P. 56. Plaintiff argues that the standard on a motion for summary judgment is that the movant may prevail only if it is shown to the satisfaction of the court that there is no genuine issue as to any material fact and that the moving party is entitle to judgment as a matter of law. Plaintiff reminds that Court that on a motion for summary judgment, the Court must accept all allegations in the complaint as true; and, since the Complaint alleges that Defendants *70 were grossly negligent, the Court must accept as true the fact that Defendants were grossly negligent.[4]
Plaintiff further posits that whether negligence is gross negligence is a question of fact, which requires a jury trial. The Court rejects this argument. As discussed herein, a plaintiff cannot avoid a dispositive motion and guarantee itself a jury trial by tacking a claim of gross negligence to the back of the complaint.
The Court finds that the present motion is one for judgment on the pleadings. Plaintiff expressly referenced the Settlement and Engagement Letter, and the Court may take judicial notice of the confirmed plan in the underlying bankruptcy case for the simple and readily ascertainable fact that the Plaintiff's plan caused his creditors to be paid 100 percent of their claims. This information coupled with the factual allegations in the Complaint is all that the Court needs in determining whether Plaintiff is entitled to present evidence regarding whether Defendants committed an act of gross negligence or fraud by using just one of the three denominated appraisal methods.
The Court declines to accept Plaintiff's invitation to debate the nuances of privity of contract, with regard to whether the provision of the Settlement governing finality of the Appraisal was binding on Defendants. All that is needed to determine the fate of the Complaint is the Settlement, the Engagement Letter, and the Complaint itself.[5]
4. Contract interpretation
Where the language of a contract is unambiguous, its interpretation is a matter of law. Discovision Assocs. v. Toshiba Corp., No. 08cv3693, 2009 WL 1373915, *4, 2009 U.S. Dist. LEXIS 41662, *12 (S.D.N.Y. May 18, 2009). The court may consider the contract in its entirety to find that a particular clause is unambiguous. Id. at *7-8, 2009 U.S. Dist. LEXIS 41662, at *22.
In Discovision Assocs., the plaintiff and the defendant entered a license agreement, which also served as a "settlement of all outstanding controversies between the parties" concerning the subject matter of the agreement. Discovision Assocs., 2009 WL 1373915 at *1, 2009 U.S. Dist. LEXIS 41662 at *2-*3. The court considered whether entities formed by defendant and a third party were "subsidiaries" within the meaning of a clause of the agreement. The court stated that the meaning of the clause at issue would be determined in light of the entire agreement. Id. at *3-4, 2009 U.S. Dist. LEXIS 41662, at *10. "A contract should be construed in accordance with the parties' purpose [and] a fair and reasonable interpretation, consistent with that purpose, must guide the courts in enforcing the agreement." Id. at *4, 2009 U.S. Dist. LEXIS 41662, at *12. "The language of a contract is ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement." Id. To determine whether a clause is ambiguous, "the court must look *71 to all corners of the document rather than view sentences or clauses in isolation." Id. at *5, 2009 U.S. Dist. LEXIS 41662, at *13. The court in Discovision Assocs. considered numerous provisions of the agreement, including one expressing an intent to avoid litigation, and concluded that the agreement was not ambiguous. Id. at *8-9, 2009 U.S. Dist. LEXIS 41662, at *26.
Here, the Plaintiff's claim centers on the Disputed Language, which states, "[Defendants] will use the income approach, the comparable sales approach and the replacement value approach, as [Defendants] deem each approach appropriate, in determining the fair market value of each property." Plaintiff argues that this language did not permit Defendants to pick a single approach "willy nilly," and that the use of the term "and" requires Defendants to have used all three approaches.
The Court reviews the four corners of the Engagement Letter, and the Settlement to illuminate the parties' intent in entering the Engagement Letter, and finds that the Disputed Language unambiguously permits the Defendants to use their discretion in valuing the property. It is clear from review of the Engagement Letter and the Settlement that Defendants were hired to perform work for the benefit of and in connection with the bankruptcy estate. The Engagement Letter was addressed to counsel for both Debtor and the Longhitanos, and it was agreed to and accepted by counsel for both Debtor and the Longhitanos. The Properties were to be valued as of July 29, 2004, which was two days after the Settlement was approved by Order of this Court. Just one-third of Defendants' fee was to be paid by Debtor; the other two-thirds were to be paid by the Longhitanos. According to the Engagement Letter, this Court was to be provided copies of the report, as well as Plaintiff and the Longhitanos. Defendants expressed their understanding that their employment was subject to approval by this Court, and that Debtor's share of Defendant's expenses could only be paid upon approval of this Court. Most significantly, Defendants were hired as independent, neutral third parties to perform a task for the bankruptcy estate. It is clear that Defendants preserved their right to use their business judgment and discretion in performing the appraisals. Plaintiff's construction of the Disputed Language forces Defendants into a relationship where Plaintiff and the Longhitanos could direct and control Defendants' business judgment; this conclusion is contrary to all the other facets of the agreements among the Plaintiff, the Longhitanos, and the Defendants, which were approved by the Court.
5. Fraudulent misrepresentation
The Court notes that Plaintiff alleges that Defendants' representation in the Appraisal that that highest and best use of the Disputed Properties was as rentals was a fraudulent and deceitful misrepresentation, "made with the intent to deceive and for inducing reliance thereon by the plaintiff, and the plaintiff was required to rely thereon by the constraints of the U.S. Bankruptcy Court." Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Exh. J, ¶ 27. Given its obligation on a motion to dismiss, the Court construes this awkward pleading as an attempt to allege a false misrepresentation.
The elements of a claim of false representations are: 1. defendant made a false or misleading statement; 2 with intent to deceive; 3. in order for the plaintiff to turn over money or property to the defendant. See Varble v. Chase (In re Chase), 372 B.R. 133, 137 (Bankr.S.D.N.Y. *72 2007). The false representation and intent to deceive must be contemporaneous when pleading fraud.
In the case at bar, Plaintiff signed the Settlement on June 18, 2004, in which Defendants were named as the appraisers; the Engagement Letter is dated September 10, 2004, about three months after the Settlement was signed; and the Appraisal that Plaintiff alleges is relevant for purposes of fraud is dated January 27, 2005, more than four months after the Engagement Letter was signed. Defendants entered their agreement with Plaintiff seven months before making the allegedly fraudulent misrepresentation in the Appraisal. Plaintiff has failed to plead a contemporaneous misrepresentation and intent to deceive.
Even if a claim for fraudulent misrepresentation could stand against Defendants, and the relevant representation for purposes of a claim for false representation was the Engagement Letter, Plaintiff has failed to plead an intent to deceive with regard to this element. The disputed language of the Engagement Letter includes the phrase, "as [Defendants] deem each approach appropriate." Defendants expressly reserved their discretion in deciding how to appraise the Properties. Defendants entered the Engagement Letter with the Plaintiff as well as the Longhitanos, and the Engagement Letter was subject to Court approval. The purpose of the Engagement Letter and reasonable expectation of the parties was that years of litigation would be resolved, and that an asset of the estate would be valued for the benefit of the creditors.
In light of the Settlement and the Engagement Letter, the Court cannot hold that Plaintiff may present evidence that Defendants fraudulently promised to apply each of three valuation approaches, to induce the Plaintiff to enter the agreement. The evidence of the pleadings disproves any allegation that Plaintiff relief on the disputed language in the Engagement Letter when he hired Defendants. In the Settlement, which Plaintiff signed nearly three months before the Engagement Letter was prepared, Plaintiff had already agreed that Defendants would act as the Appraisers. Plaintiff did not rely on the disputed language in the Engagement Letter in hiring the Defendants; he had already agreed to hire the Defendants months earlier when he signed the Settlement. Therefore, the First Cause of Action must be DISMISSED.
6. Willful and deliberate acts
The Court liberally construes the allegations of the Second Cause of Action and finds that Plaintiff attempts to allege a claim that Defendants committed willful and deliberate acts that harmed Plaintiff; this is a cause of action that may stand against a chapter 11 trustee. Plaintiff alleges that Defendants "intentionally and wrongfully" concluded that the best use of the Disputed Properties was as rental units, and failed to "correct the wrongful methodology." Docket No. 29, Motion to Dismiss Case/Motion for Judgment on the Pleadings, Exh. J, ¶¶ 31-32.
"A bankruptcy trustee is personally liable in this circuit for deliberate or negligent acts or omissions which harm the bankruptcy estate. ... [A] trustee is not liable for objectively reasonable mistakes in judgment where discretion is allowed." In re Ngan Gung Restaurant, 254 B.R. 566 (Bankr.S.D.N.Y.2000); Mosser v. Darrow, 341 U.S. 267, 71 S.Ct. 680, 95 L.Ed. 927 (1951) (trustee's employees profited from transactions with bondholders). In the case at bar, Defendants were hired on agreement of Debtor and the Longhitanos, and performed the same role as a trustee might. The Defendants expressly *73 reserved for themselves discretion to choose the appropriate appraisal approach. The "intentional and wrongful" act that Plaintiff complains of, the choice to appraise with a single approach, was an act done in Defendants' judgment. Liability will not attach for Defendants' decision to appraise the Disputed Properties as rental properties, even if such decision was in error. Therefore, the Second Cause of Action is DISMISSED.
7. Gross negligence
Having established that Defendants had an agreement with Plaintiff's estate, the next question is whether Plaintiff as an individual may recover damages for allegedly grossly negligent conduct by Defendant in connection with its relationship with the Plaintiff's bankruptcy estate, which is a distinct and separate entity from Plaintiff individually. The first issue is whether Defendant, who was approved by this Court to perform an adjudicative function with respect to Debtor's bankruptcy estate, had a duty of care to Plaintiff individually. Under the guidance of In re Continental Coin Corp. and In re Kazis, and giving Plaintiff every benefit of the doubt on this motion for judgment on the pleadings, the Court will assume that the Defendants had a duty of care to Plaintiff individually to the extent necessary to support Plaintiff's being permitted to sue Defendants for gross negligence and willful harm.
The next question is whether Defendant's decision to determine the value of the Disputed Properties according to their existing use was a breach of their duty to Plaintiff that is so egregious and without the barest modicum of care so as to warrant a finding of gross negligence. Again, the Court notes that Plaintiff's claims depend upon the construction of the Disputed Language, "We will use the income approach, the comparable sales approach and the replacement value approach, as we deem each approach appropriate, in determining the fair market value of each property." As noted above, in construing this clause, the Court may consider the four corners of the Engagement Letter and the parties' purpose in entering the agreement.
Even under the broad standard of the motion to dismiss or for judgment on the pleadings, a plaintiff must allege sufficient facts to support a claim for relief. Courts frequently grant motions to dismiss on the ground that plaintiff has not plead facts to support a claim of gross negligence, which differs in kind, not only degree, from ordinary negligence and is conduct that shows a reckless disregard for the rights of others or smacks of intentional wrongdoing. See Colnaghi, USA. v. Jewelers Protection Servs., Ltd., 81 N.Y.2d 821, 823-824, 595 N.Y.S.2d 381, 611 N.E.2d 282 (N.Y.1993) (citations omitted) (emphasis added) (alarm company's motion for summary judgment was granted; failure to wire a skylight which resulted in theft of artwork was not gross negligence). "Under New York law, recklessness is more than ordinary negligence, more than want of ordinary care. Indeed, the word implies a substantially greater degree or grosser form of negligence ... desperately heedless, as from folly, passion or perversity, impetuosity or rashly adventurous." Tevdorachvili v. Chase Manhattan Bank, 103 F.Supp.2d 632, 644 (E.D.N.Y.2000) (citations omitted; emphasis added) (claim for gross negligence was dismissed; plaintiff had only alleged breach of contract). See also Meyer v. Zubak, No. 97-1393, 2000 WL 145754, 2000 U.S. Dist. LEXIS 1216 (S.D.N.Y. Feb. 8, 2000) (where party alleged counterclaim for gross negligence and failed to allege a cognizable duty of care, counterclaim *74 was dismissed); Industrial Risk Insurers v. Port Authority of New York and New Jersey, 387 F.Supp.2d 299 (S.D.N.Y. 2005) ("New York courts are unwilling to let cases with releases of liability go to a jury on the issue of gross negligence simply because plaintiff has added a conclusory allegation of gross negligence to a cause of action;" court dismissed claim for gross negligence, where it was alleged that building trusses could not withstand heat from ignited fuel tanks).
It is clear that Plaintiff as an individual was not a party to the agreement memorialized in the Engagement Letter. Defendants were approved by the Bankruptcy Court to perform a task for the benefit of Debtor's estate as a whole, not for Plaintiff's personal gain.
Plaintiff admits in ¶¶ 12 and 13 of the Complaint that Defendants relied on a proven and ongoing use of the property rental units generating income to estimate the value for purposes of the Appraisal:
12. All of the two bedroom duplexes were, at the time of the appraisal, being managed as rentals.
13. In its appraisal report dated January 27, 2005, the defendants concluded that the existing rental use was the highest and best use.
In ¶ 15 of the Complaint, Plaintiff alleges, "The defendants did not set forth in its appraisal report any opinion as to the valuation of [the Disputed Properties] as individual saleable units."
The decision to appraise an income-producing property according to its actual use as an income-producing property does not strike this Court as a shocking, perverse, or rash act as to warrant a finding of gross negligence. The conduct of Defendants does not begin to rise to the standard of such a claim. Plaintiff admits in the Complaint that the properties were appraised according to their present use. Defendants expressly reserved the right to use their discretion in applying the appraisal approaches in the disputed language. Plaintiff fails to make any allegations in the complaint that "as we deem each approach appropriate" had a meaning other than that Defendants would apply their expertise and discretion as professional appraisers when performing the appraisals. Therefore, the Third Cause of Action must be DISMISSED.
The Court has examined the Fourth Cause of Action, which appears to be a claim for gross negligence with regard to the Appraisal in its entirety. For all of the foregoing reasons, and for the reason that there are no factual allegations to support a finding that each of the remaining Properties were improperly appraised, the Court finds that the Fourth Cause of Action is without merit and as such must be DISMISSED.
CONCLUSION
In this matter, the Defendants took on the role that a chapter 11 trustee might perform, for the work they performed in administering an asset of the estate, which contributed to the achievement of a 100 percent plan. As such, the Defendants are immune from suit, other than for claims of gross negligence and willful and deliberate harm. The act complained of, Defendants' choice to appraise a property only according to its existing use, having reserved their discretion to do so, does not rise to the level of egregious and culpable conduct to support such claims. Therefore, the Complaint is DISMISSED.
Defendants shall submit an order consistent with this opinion.
NOTES
[1] Hereafter, citations to docket entries in the present adversary proceeding shall be abbreviated to the docket number.
[2] On Page 25, ¶ 11, the Settlement provides, "The Parties hereby agree to the appointment of Grubb-Ellis, as the appraiser to perform and furnish appraisals of the properties ..."
[3] Fed.R.Civ.P. 12(b)(6) provides that a party may submit by motion the defense of failure to state a claim upon which relief may be granted.
[4] Plaintiff's assertions in the Complaint that Defendants were grossly negligent is a legal conclusion. It is facts that the Court must construe in favor of the Plaintiff on a motion for summary judgment.
[5] The answer filed in this adversary proceeding consisted of denials or lack of knowledge to admit the truth of an allegation, and a list of affirmative defenses. The Court considers Defendants' answer on this Motion, but finds that it contains scant information to assist the Court in determining whether the Complaint should be dismissed.
| {
"pile_set_name": "FreeLaw"
} |
679 F.2d 263
220 U.S.App.D.C. 86
U. S.v.Jackson
81-2211
UNITED STATES COURT OF APPEALS District of Columbia Circuit
4/30/82
1
D.C.D.C.
AFFIRMED
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NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with
Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted November 13, 2008*
Decided November 14, 2008
Before
RICHARD A. POSNER, Circuit Judge
ILANA DIAMOND ROVNER, Circuit Judge
TERENCE T. EVANS, Circuit Judge
No. 08‐1988
AARON HYCHE, Appeal from the United States District
Petitioner‐Appellant, Court for the Southern District of Illinois.
v. No. 07 CV 380 WDS
NEDRA CHANDLER, William D. Stiehl,
Respondent‐Appellee. Judge.
O R D E R
Aaron Hyche appeals from the dismissal of his petition for a writ of habeas corpus,
see 28 U.S.C. § 2254, in which he challenges the refusal of the Illinois Prisoner Review Board
to release him on parole. The district court concluded that Hyche’s petition is premature
because he did not exhaust his state remedies before turning to federal court. We conclude,
however, that Hyche does not state a claim under federal law.
*
After examining the briefs and the records, we have concluded that oral argument is
unnecessary. Thus, the appeals are submitted on the briefs and the records. See FED. R. APP.
P. 34(a)(2).
No. 08‐1988 Page 2
Hyche currently is serving indeterminate prison terms on his 1976 convictions in
Effingham County, Illinois, for murder (250 to 300 years) and attempted murder (25 to 75
years). After he was denied parole for the fourteenth time, Hyche petitioned for a writ of
habeas corpus, claiming that the review board had denied him due process. The district
court referred the petition to a magistrate judge and without objection adopted his
recommendation to dismiss the case without prejudice. The magistrate judge reasoned that
Hyche had not exhausted his state‐court remedies and thus his § 2254 petition was
premature.
In this court Hyche continues to insist that he exhausted his state remedies. But he
waived that contention by not objecting to the magistrate judge’s report and
recommendation. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 142 (1985);
United States v. Hall, 462 F.3d 684, 688 (7th Cir. 2006). More importantly, though, the
exhaustion issue is irrelevant. Illinois prisoners have no entitlement to parole, and a hope to
be released on parole in a discretionary system does not create a protected “liberty” or
“property” interest under the Fourteenth Amendment. Heidelberg v. Ill. Prisoner Review Bd.,
163 F.3d 1025, 1027 (7th Cir.1998); see Montgomery v. Anderson, 262 F.3d 641, 645 (7th Cir.
2001) (explaining that parole system making release entirely discretionary “means that the
setting of a parole‐release date does not entail ‘liberty’ or ‘property’”). Thus, Hyche’s
contention that the review board denied him due process does not state a claim under
§ 2254, see Heidelberg, 163 F.3d at 1027, and for that reason the district court should have
dismissed the petition with prejudice.
The dismissal is modified to be with prejudice, and as MODIFIED the judgement is
AFFIRMED.
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599 F.2d 34
BRUNSWICK CORPORATION, Plaintiff-Appellant,v.Harry WAXMAN and Evelyn Waxman, Harry Waxman, Benne Katz,Martin C. Barrell, as Executors of the Estate of Sydney W.Waxman, Deceased, said Harry Waxman and Sydney W. Waxman,being sued individually and as co-partners doing business asTurnpike Lanes, Pike Lanes, Inc., and Waxman ConstructionCorp., and Jack Verschleiser, as guardian ad litem ofDefendant Harry Waxman, in said representative capacityonly, Defendants-Appellees (two cases).
No. 601, Docket 78-7485.
United States Court of Appeals,Second Circuit.
Argued April 5, 1979.Decided May 21, 1979.
Frederick Newman, New York City (Blumberg, Singer, Ross, Gottesman & Gordon, Alfred K. Kestenbaum, Betsy F. Woolf, New York City, of counsel), for plaintiff-appellant.
Daniel Eisenberg, New York City (Moses & Singer, Eugene I. Farber, Theodore S. Green, New York City, of counsel), for defendants-appellees.
Before MULLIGAN, TIMBERS and VAN GRAAFEILAND, Circuit Judges.
MULLIGAN, Circuit Judge:
1
Brunswick Corporation (Brunswick) appeals from an order and judgment of the Hon. John R. Bartels, United States District Court for the Eastern District of New York, dismissing the complaint and entering judgment for the defendants after a trial without a jury. Brunswick brought this diversity action against the individual defendants seeking over a million dollars in damages. This amount represents the deficiency due under conditional sales contracts entered into between Brunswick and the Waxman Construction Corporation (Construction Corp.) whereby the latter entity purchased bowling lanes and pinsetters. The individual defendants, Harry Waxman and the late Sydney Waxman, signed the contracts as president and secretary of the Construction Corp. The theory of the plaintiff is that the corporate veil of the Construction Corp. should be pierced and the Waxmans held personally liable for the deficiency.
2
The fact findings of the trial court indicate that in August 1960, the Waxmans formed the Construction Corp. as a no-asset New York corporation to act as signatory and obligor on a series of conditional sales agreements for the purchase of bowling equipment to be operated in five new bowling alleys. The five alleys and the Brunswick equipment were operated by the Waxmans through five separate partnerships, which owned the non-Brunswick equipment and fixtures in the alleys. The Waxmans owned or leased the real property on which the bowling alleys were located, but charged the Construction Corp. no rent for the use of the premises. Nor did the Waxmans pay rent to the Construction Corp. for the use of the bowling equipment. In addition, the Waxmans owned in their individual or partnership capacities all the licenses and permits necessary to operate the alleys. Proceeds from the daily operation of the businesses were deposited in individual bowling alley accounts and later transferred into a central Waxman enterprises bank account from which funds were withdrawn to meet the necessary operating expenses of the alleys. It was from this central bank account that amounts due on the sales contracts with Brunswick were withdrawn and deposited in the Construction Corp. account. The court below found that the Construction Corp.'s sole corporate activity was the transfer of funds into and out of its bank account for the purpose of meeting the installment payments under the Brunswick contracts. The Construction Corp. held no stockholders' or directors' meetings, adopted no bylaws, and issued no stock. While it filed federal and New York State income tax returns, none of these returns showed any income, nor did any report the Brunswick equipment as corporate assets.
3
Due to a general decline in the bowling industry, the Construction Corp. was unable to meet its payment obligations under the sales contracts. Pursuant to a 1963 extension agreement, title to the Brunswick equipment was transferred from Construction Corp. to five new corporations, which were also to receive an additional $375,000 in non-Brunswick assets. However, the Waxmans never transferred the additional assets to the five corporations. In addition, these newly formed corporations were as inactive as the Construction Corp. had been. By late 1965, two of the five corporations, Bruckner Lanes, Inc. and Pike Lanes, Inc., were in default. In 1966, Brunswick repossessed its equipment held by Bruckner Lanes and sold it at a substantial deficiency. Although an extension agreement was reached with Pike Lanes in 1966, that corporation continued in substantial default and its equipment was also repossessed and sold by Brunswick at a substantial deficiency.
4
Although we are persuaded that the district judge reached the proper result here in dismissing the complaint, we cannot subscribe entirely to his views on the law of New York in the field of "piercing the corporate veil" and the disregard of the corporate fiction. New York law in this area is hardly as clear as a mountain lake in springtime. Since Professor Wormser's initial discussion of the topic in Piercing the Veil of Corporate Entity, 12 Colum.L.Rev. 496 (1912), there have been scores of articles and hundreds of cases discussing the problem, advancing and espousing various theories. See Cary, Corporations 109-49 (4th ed. 1969) (hereinafter cited as "Cary"). In particular we are dubious that, as suggested by the district court, the plaintiff need establish that the Waxmans committed a fraud on Brunswick and that there be a causal connection between the fact that the Waxmans conducted business individually and the contract losses suffered by Brunswick. See, e. g., Port Chester Electrical Construction Corp. v. Atlas, 40 N.Y.2d 652, 656-57, 389 N.Y.S.2d 327, 330-31, 357 N.E.2d 983, 986-87 (1976); Walkovszky v. Carlton, 18 N.Y.2d 414, 421, 276 N.Y.S.2d 585, 590-91, 223 N.E.2d 6, 10 (1966). We are rather inclined to agree with Professor Cary that "(n)o concept of separate corporate personality will suffice to solve an actual problem." Cary, Supra, at 110. "What the formula comes down to, once shorn of verbiage about control, instrumentality, agency and corporate entity, is that liability is imposed to reach an equitable result." Latty, Subsidiaries and Affiliated Corporations 191 (1936).
5
Eschewing conceptualism in this diversity case, where isolated rules in a variety of cases require a factual analysis of each, we believe that Judge Bartels' findings of fact which are supported by the transcript dictate the result reached.
6
The district judge who tried the case found that Brunswick had knowingly entered into the conditional sales contracts involved in this litigation with a no-asset corporation which was created for the sole purpose of taking title to the equipment which Brunswick sold. Brunswick knew or should be charged with the knowledge that the Waxmans wished to avoid personal liability and that the sole obligor on the sales contract was to be the corporate dummy created for that purpose. Further Brunswick investigated to determine whether the alleys themselves were likely to generate revenues sufficient to make the payments for the equipment purchased by the Construction Corp. Thus, Brunswick was aware or should have known that the dummy corporation was created for the limited purpose of purchase, that the property and buildings in which the equipment was to be installed were owned by the Waxmans in their individual capacities, and that the Waxmans would personally conduct the bowling alley business.
7
Under these circumstances Brunswick obtained precisely what it bargained for, and it did not bargain for or contemplate the individual liability of the Waxmans which it now seeks to enforce. To pierce the corporate veil here would not in our view accomplish justice or equity but would in fact thwart that end. We therefore refuse to disregard the corporate entity in this case. The creation of the dummy corporation under these circumstances to eliminate personal responsibility should be respected.
8
Affirmed.
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780 F.2d 786
Irving H. LEVIN and Harold A. Lipton, Plaintiffs/Appellants,v.Philip H. KNIGHT, Defendant/Appellee.
No. 84-5855.
United States Court of Appeals,Ninth Circuit.
Argued and Submitted March 8, 1985.Decided Jan. 13, 1986.
1
Marianne Goodwin, Lawrence B. Steinberg, Stuart A. Benjamin, Wyman, Bautzer, Rothman, Kuchel, & Silbert, Los Angeles, Cal., for plaintiffs/appellants.
2
Stephen A. Kroft, Frederic A. Schreyer, Karen E. Garver, Rosenfeld, Meyer & Susman, Beverly Hills, Cal., for defendant-appellee.
3
Appeal from the United States District Court for the Central District of California.
OPINION
4
Before BARNES and REINHARDT, Circuit Judges and GILLIAM,* District Judge.
GILLIAM, District Judge:
1. Background1
5
Irving H. Levin and Harold A. Lipton, plaintiffs below and former owners of the San Diego Clippers professional basketball franchise, appeal from a grant of summary judgment for defendant Philip Knight in this action for breach of contract and fraud arising from Knight's alleged agreement to purchase the Clippers.
6
The district court granted summary judgment on the contract claim against the plaintiffs on the basis that a three-page written memorandum detailing the understanding of the parties was insufficient, as a matter of law, to overcome the requirements of the statute of frauds. The court also granted summary judgment against the plaintiffs on their fraudulent misrepresentation claim, since under California law current at the time of the court's decision, the action for fraudulent misrepresentation could not be maintained upon an agreement unenforceable under the statute of frauds.
2. Standard of Review
7
Summary judgment may be rendered if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
8
We review the district court's decision de novo to determine whether there exist any genuine issues of material fact and whether the district court correctly applied the substantive law in ruling on the motion. Deukmejian v. United States Postal Service, 734 F.2d 460, 462 (9th Cir.1984).
9
The district court's grant of summary judgment will be affirmed if, viewing the evidence and the inferences therefrom in the light most favorable to the party opposing the motion, there are no genuine issues of material fact in dispute and the moving party is entitled to judgment as a matter of law. R.F.D. Publications, Inc. v. Oregonian Publishing Co., 749 F.2d 1327, 1328 (9th Cir.1984).
3. Summary Judgment
10
We hold that the district court's grant of summary judgment on the contract claim was inappropriate.
11
Under California law, the lengthy written memorandum here would be sufficient to comply with the statute of frauds if all disputed matters were resolved in plaintiffs' favor. The written memorandum indicates sufficiently the few terms deemed essential as a matter of law by California courts to satisfy the statute of frauds requirements: the subject matter, the price, and the party against whom enforcement is sought. Further, there appear to be genuine issues of fact as to whether specific allocation of various debts and liabilities were considered essential by the parties.
12
As the California Supreme Court stated in its most recent discussion of the California statute of frauds:
13
It is important to remember that "the primary purpose of the statute [of frauds] is evidentiary, to require reliable evidence of the existence and terms of the contract and to prevent enforcement through fraud or perjury of contracts never in fact made ... [The] requirement of a memorandum is read in light of the dispute which arises and the admissions of the party to be charged; there is no need for evidence on points not in dispute. (emphasis and citations omitted)
14
Seaman's Direct Buying Service v. Standard Oil, 36 Cal.3d 752, 764, 686 P.2d 1158, 1164, 206 Cal.Rptr. 354, 360 (1984).
15
This court finds the case of Seaman's persuasive, and notes that other California cases have resolved this issue in favor of plaintiffs where far fewer significant terms or conditions were set forth in the disputed writing.
16
The issues presented as to the statute of frauds governing securities transactions are overcome by the finding that there was no dispute as to the amount of stock involved. All parties understood that the agreement was for transfer of the Clippers as an entire unit, and that if a stock transaction were eventually to transpire, then all of said stock would be transferred.
17
The grant of summary judgment against the plaintiffs on the fraud claim is also reversed. Tenzer v. Superscope, Inc., 39 Cal.3d 18, 216 Cal.Rptr. 130, 702 P.2d 212 (1985) now permits an action for fraudulent misrepresentation upon an alleged oral agreement or upon an agreement otherwise unenforceable under the statute of frauds. Upon remand, the fact-finder should be instructed that it may consider the plaintiffs' tort claim, even if it does not find that the Levin and Knight memorandum constitutes a valid contract.
18
The court finds that its determination as to these issues is dispositive, and therefore finds it unnecessary to address the remaining issues presented on appeal.
19
REVERSED AND REMANDED for further proceedings.
20
BARNES, Senior Circuit Judge, concurring in part, dissenting in part:
21
I concur in that part of the majority opinion which reverses the grant of summary judgment against Levin and Lipton on their fraud claim against Knight. The reversal on this claim is necessary because of the recent California Supreme Court decision, Tenzer v. Superscope, Inc., 39 Cal.3d 18, 702 P.2d 212, 216 Cal.Rptr. 130 (1985), which had not been decided during the pendency of this action before the district court.
22
In Tenzer, the latest unanimous ruling of the Court, a plaintiff may maintain an action for fraudulent misrepresentation even where an agreement is oral or is otherwise made unenforceable by the statute of frauds. Thus, the California Supreme Court expressly overruled the line of prior California cases, followed by the district court, which "held that an action for fraud cannot be maintained where the allegedly fraudulent promise is unenforceable as a contract due to the statute of frauds." Tenzer, 39 Cal.3d at 29, 702 P.2d at 218, 216 Cal.Rptr. at 136. The Court has now adopted the view of the Restatement Second of the Law of Torts, that "a misrepresentation of one's intention is actionable even 'when the agreement is oral and made unenforceable by the statute of frauds, or when it is unprovable and so unenforceable under the parol evidence rule.' " Id. 39 Cal.3d at 29, 702 P.2d at 218-19, 216 Cal.Rptr. at 136.
23
I must, however, respectfully dissent from the majority holding that the parties entered into a valid and binding contract, and that the three-page memorandum at issue herein contains all material terms and satisfies the provisions of the California Statute of Frauds. I would affirm the district court's grant of summary judgment in favor of Appellee Knight.
24
Appellants Irving H. Levin ("Levin") and Harold A. Lipton ("Lipton"), former owners of the San Diego Clippers Basketball Club, Inc. ("Clippers"), a professional basketball franchise, entered into negotiations with Philip H. Knight ("Knight"), for the sale of the franchise. Levin and Knight met on December 3, 1980, to personally discuss and negotiate for the sale of the Clippers. Appellant Lipton was not present at this meeting. After the meeting, Knight and Levin both intialed a three-page handwritten memorandum which Levin had drafted during their discussion.1 This memorandum outlined and incorporated some of the terms of their oral discussion.
25
Thereafter, on December 13, 1980, the attorney for Levin and Lipton forwarded to Knight's attorney a letter and an attached draft of a proposed agreement between Knight, Levin and Lipton with respect to Knight's acquisition of the Clippers. This letter, drafted by Levin and Lipton's attorney, clearly supports the fact that the parties had not entered into a contract. They were merely negotiating the sale at their meeting of December 3, 1980, and the alleged contract prepared by Levin was an attempt to finalize the negotiations so that they could enter into a contract representing an agreed-upon expression of the parties' intentions. The letter stated that the draft of the proposed sales agreement was being sent for Knight's approval, and that Levin and Lipton "have not yet reviewed this document and the draft is therefore subject to their approval." In addition, although the letter stated that the draft of the proposed agreement "attempted to follow all of the deal points which were agreed to in the meeting of December 3, 1980," the letter indicated that "there is now a stock transaction," a material term which was never incorporated into Levin's December 3, 1980 handwritten memorandum. Two days after this letter and draft of the proposed agreement were sent, on December 15, 1980, Knight informed Levin by telephone of his decision not to purchase the Clippers.
26
Levin and Lipton filed this action in the district court on December 22, 1981, alleging breach of contract and fraud. Knight filed a motion for summary judgment on January 16, 1984, and the district court granted the motion and entered its findings of fact and conclusions of law on March 27, 1984.
I.
27
In applying a de novo standard of review to a grant of summary judgment, we must view the evidence in the light most favorable to the party against whom the summary judgment was granted. Blau v. Del Monte Corp., 748 F.2d 1348, 1352 (9th Cir.1984). Our task is identical to that of the trial court, and we must determine from the evidence which was presented below, whether "there is any genuine issue of fact in dispute and whether the moving party is entitled to judgment as a matter of law." Jewel Companies, Inc. v. Pay Less Drug Stores Northwest, Inc., 741 F.2d 1555, 1559 (9th Cir.1984), citing M/V American Queen v. San Diego Marine Construction Co., 708 F.2d 1483, 1497 (9th Cir.1983). Applying this standard, I must agree with the district court that (1) the memorandum betwen the parties fails to sufficiently evidence all of the essential elements of the agreement, thereby precluding the existence of a totally integrated writing, (2) parol evidence cannot be introduced to explain material terms which have been omitted from the memorandum, and (3) equitable estoppel does not bar a statute of frauds defense since appellants did not substantially change their position in reliance upon the representation of the appellee.
II.
A. Omission of Material Terms
28
Under California law, which governs this diversity case, certain types of contractual agreements must comply with the statute of frauds and be in writing in order to be valid and binding upon the parties. The purpose of requiring such agreements to be in writing in order to be enforceable, is "to prevent fraud and perjury ... by requiring ... the more reliable evidence of some writing signed by the party to be charged," Riley v. Bear Creek Planning Committee, 17 Cal.3d 500, 509, 551 P.2d 1213, 131 Cal.Rptr. 381, 388 (1976) (in bank), and "to require reliable evidence of the existence and terms of the contract and to prevent enforcement through fraud or perjury of contracts never in fact made...." Seaman's Direct Buying Service v. Standard Oil Co. of California, 36 Cal.3d 752, 764, 686 P.2d 1158, 1164, 206 Cal.Rptr. 354, 360 (1984) (in bank).
29
Since the agreement at issue in this appeal is one subject to the provisions of the statute of frauds, it must be in writing. California has created by statute, several statute of frauds provisions which apply, depending on the classification of the contract in question, and their requirements differ depending on the type of contract which they govern.2
30
Although an agreement which is required by the statute of frauds to be evidenced by a written note or memorandum need not be a formal contract drafted to be technically specific, nor must it contain every detail of an agreement, see e.g. Munoz v. Kaiser Steel Corp., 156 Cal.App.3d 965, 976, 203 Cal.Rptr. 345, 351 (1984), it must be sufficiently specific so that a court "can plainly determine from the memorandum the identity of the parties to the contract, the nature of its subject matter, and its essential terms." Kaneko v. Okuda, 195 Cal.App.2d 217, 225, 15 Cal.Rptr. 792, 800 (1961). This, then, requires the writing itself to include the essential terms, since "[t]he sufficiency of a writing to satisfy the statute of frauds can not be established by evidence which is extrinsic to the writing itself." Franklin v. Hansen, 59 Cal.2d 570, 571, 381 P.2d 386, 388, 30 Cal.Rptr. 530, 532 (1963) (in bank) (emphasis added).
31
The majority holds that "[t]he written memorandum indicates sufficiently the few terms deemed essential as a matter of law by California courts to satisfy the statute of frauds requirements: the subject matter, the price, and the party against whom enforcement is sought." (Majority opinion at p. 3). It relies upon Seaman's Direct Buying Service v. Standard Oil Co. of California, supra, to support that proposition. However, the court in Seaman's based its finding that the document in question satisfied the statute of frauds on the fact that all the "essential terms" of the contract were contained in the writing. Id., 36 Cal.3d at 763, 206 Cal.Rptr. at 359, 686 P.2d at 1163. This is distinguishable from the case before us, where the written document in question has omitted several material or "essential terms."
32
Although I agree with the majority that as a matter of law by California courts the subject matter and the price and the parties are essential to the written memorandum evidencing the contract, I cannot agree that all of these terms have been included in the memorandum, and those which appear have not been included with sufficient specificity.
33
First, not only was Lipton present at the December 3, 1980 meeting, but his name does not appear in the alleged contract. Second, although there is evidence in the record that the parties had orally discussed Knight's purchase of Levin and Lipton's stock ownership, the alleged contract of December 3, 1980, is void of any reference to any type of stock transaction. The materiality of the stock acquisition is further evidenced by the December 13, 1980 letter by Levin's attorney, which specifically states that the sale involves a stock transaction.3 Thus, Cal.Comm.Code Sec. 8319(a) is applicable, and requires a contract for the sale of securities to be in writing to be enforceable. Since the memorandum omits any reference to the stock acquisition, it fails to satisfy the statute of frauds and is therefore unenforceable.4
34
Third, even assuming arguendo, that the statute of frauds governing the sale of securities is inapplicable, the statute of frauds provisions governing the sale of the Clippers' assets must be applied, and the memorandum fails to comply. Since the sale of the lease involves the sale of an interest in real property, Cal.Civ.Code Sec. 1624(4) is applicable. This section requires a note or memorandum to be in writing and subscribed by the party to be charged. In addition, "[t]here is a settled rule of law that a note or memorandum of a contract for a sale of land must identify by name or description the parties to the transaction, a seller and a buyer." Cisco v. Van Lew, 60 Cal.App.2d 575, 579, 141 P.2d 433, 437 (1943) (emphasis added). "The requirement of certainty as to the agreement made in order that it may be specifically enforced extends not only to its subject matter and purpose, but to the parties, to the consideration and even to the time and place of performance, where these are essential." Id. (citation omitted).
35
However, the identity of the parties is not sufficiently defined in the alleged contract. Although it makes several references to "seller" and "buyer," the alleged contract of December 3, 1980 makes no reference to either "sellers " or "buyers " in the plural, and neither Levin nor Lipton, is specifically named therein. Not only does the alleged contract fail to identify the sellers, but it identifies the buyer, Knight, only once, and this reference is to "Knight, et al." Thus, the sellers are not identified and the buyer(s) is not identified with sufficient specificity to comply with the statute of frauds. Since the statute of frauds requires the material terms to be stated in the writing with sufficient certainty, see Skirball v. RKO Radio Pictures, Inc., 134 Cal.App.2d 843, 864, 286 P.2d 954 (1955), and the parties to a contract constitute a material term, see Burge v. Krug, 160 Cal.App.2d 201, 205, 325 P.2d 119, 123 (1958), the alleged contract fails to comply with the statute of frauds.
36
In addition to the parties not being identified with reasonable certainty, the lease for the real property is not described in any manner in the Levin memorandum, and "[t]o be sufficient, the required writing must be one 'which states with reasonable certainty, (a) each party to the contract * * * and (b) the land, goods or other subject-matter to which the contract relates, and (c) the terms and conditions of all the promises constituting the contract and by whom and to whom the promises are made.' " Burge v. Krug, 160 Cal.App.2d at 205, 325 P.2d at 123. "Unless the writing, considered alone, expresses the essential terms with sufficient certainty to constitute an enforceable contract, it fails to meet the demands of the statute." Id.
37
Thus, the failure to identify the parties with specificity, or to include any of the terms of the lease of real property in the writing also causes the Levin memorandum to fail under the statute of frauds.
B. Admissibility of Parol Evidence
38
Appellants argue that extrinsic evidence should be admitted to explain the meaning of terms used in the written memorandum. Based upon the record before us, it is clear that oral evidence would have to be proffered in order to explain not only material terms which have been omitted from the written memorandum, but also to show the parties' intent to contract. However, although parol evidence is admissible to explain ambiguities in the terms of a writing, see Riley v. Bear Creek Planning Committee, 17 Cal.3d at 508, 131 Cal.Rptr. at 387, 551 P.2d at 1219, "[t]he sufficiency of the writing to satisfy the statute of frauds can not be established by evidence which is extrinsic to the writing itself." Franklin v. Hansen, 59 Cal.2d at 572, 30 Cal.Rptr. at 532, 381 P.2d at 388. Where material terms are omitted from the writing, "recovery may not be predicated upon parol proof of material terms omitted from the written memorandum, even though the oral understanding is entirely consistent with, and in no way tends to vary or contradict, the written instrument." Burge v. Krug, 160 Cal.App.2d at 206, 325 P.2d at 123. Under the parol evidence rule, "the act of executing a written contract, whether required by law to be in writing or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument. Extrinsic evidence cannot be admitted to prove what the agreement was, not for any of the usual reasons for exclusion of evidence, but because as a matter of law the agreement is the writing itself." BMW of North America v. New Motor Vehicle Bd., 162 Cal.App.3d 980, 988, 209 Cal.Rptr. 50, 57 (1984) (emphasis added) (citing Tahoe Nat'l Bank v. Phillips, 4 Cal.3d 11, 22-23, 480 P.2d 320, 92 Cal.Rptr. 704). Thus, since the alleged contract omits several fundamental, material terms, parol evidence is inadmissible to explain or add those terms.
39
C. Equitable Estoppel as a Bar to the Statute of Frauds
40
Lastly, appellants argue that the oral agreement into which the parties entered is binding on the appellee based on the doctrine of equitable estoppel. In order for equitable estoppel to apply as a bar to a statute of frauds defense, it is necessary that assertion of the statute of frauds would perpetrate rather than prevent a fraud. See e.g. Lockwood v. Smigel, 18 Cal.App.3d 800, 804, 96 Cal.Rptr. 289, 291 (1971). The rule of law by which California courts still abide, regarding the application of equitable estoppel, is that estoppel will be applied to prevent fraud where "[s]uch fraud may inhere in the unconscionable injury that would result from denying enforcement of the contract after one party has been induced by the other seriously to change his position in reliance on the contract." Monarco v. LoGreco, 35 Cal.2d 621, 623-24, 220 P.2d 737, 739 (1950).
41
Levin and Lipton argue that not only did they materially change their position in reliance on the contract, but that they also suffered unconscionable injury as a result of Knight's alleged breach. If this were true, they would meet both requirements necessary for equitable estoppel to apply. However, California law as applied to the facts of this case does not support their argument.
42
After allegedly entering into an oral contract on December 3, 1980, Levin and Lipton claim that they took the Clippers off the market and cut off all negotiations with other parties. This action was in response to Knight's purported representation that he would purchase the team. Knight rejected in writing, any intent to purchase the Clippers on December 15, 1980, and as the district court correctly points out, this twelve-day period does not provide a sufficient period of time in which to justifiably change one's position in reliance on the oral promise. See Oren Realty & Development Co. v. Superior Court, 91 Cal.App.3d 229, 236-37, 154 Cal.Rptr. 97, 100 (1979) (sixteen days was an insufficient period to interfere with effective shopping for other real property, and equitable estoppel would not apply). Appellants could have immediately, upon notice from Knight of his intention not to purchase the Clippers, re-entered into negotiations with other interested parties. However, they failed to do so. Thus, I agree with the district court that as a matter of law, Levin and Lipton failed to show that they materially changed their position to their detriment during the twelve-day period between Knight's alleged agreement to purchase the Clippers and his rejection of this alleged offer to purchase the team.
43
Appellants' argument that they suffered an unconscionable injury as a result of Knight's alleged breach is equally without merit. Levin and Lipton argue that they incurred considerable legal and accounting expenses as a result of their reliance upon Knight's promise, and that as a result of his alleged breach, they were forced to sell the Clippers at an amount which was considerably less than they would have received from Knight. I would reject this argument. "Loss of bargain, and damages resulting therefrom, do not of themselves estop a [party] from relying on the Statutes of Frauds." Oren Realty, 91 Cal.App.3d at 236, 154 Cal.Rptr. at 100 (citations omitted). Merely because Levin and Lipton obtained less for the team than they would have received from Knight does not justify the assertion of equitable estoppel as a bar to a statute of frauds defense. See Caplan v. Roberts, 506 F.2d 1039, 1041 (9th Cir.1974) (per curiam). The loss of bargain of which Levin and Lipton complain is merely one of the risks of doing business.
44
With respect to the attorneys' fees and accounting costs incurred in their attempt to consummate the sale, the district court properly found these to be "nothing more than transaction costs that are a normal part of the negotiating process in major transactions such as this one." Conclusions of Law at 8 (citing Irving Tier Co. v. Griffin, 244 Cal.App.2d 852, 865, 53 Cal.Rptr. 469, 477-78 (1966)).
III.
45
In view of the foregoing, I would affirm the district court's grant of summary judgment for the appellee on the breach of contract claim. In reviewing the record before us, I am unable to find any genuine issue of material fact in dispute, since the alleged contract omits material terms required to satisfy the statute of frauds, and therefore fails as a matter of law. Since appellants have failed to show that they materially changed their position in reliance on the alleged contract, or that they suffered unconscionable injury as a result of the appellee's purported breach, equitable estoppel could not be invoked to prevent a statute of frauds defense. In addition, as a matter of law, parol evidence is inadmissible to explain those material terms which were omitted from the alleged contract upon which Levin and Lipton rely.
*
Honorable Earl B. Gilliam, United States District Judge, Southern District of California, sitting by designation
1
The majority prepared the disposition of this case as a memorandum, since we do not believe it to be appropriate for publication under Ninth Cir.R. 21(b). Our dissenting colleague has called for its publication under subsection (6) of that rule, which allows the author of a dissent or concurrence to request publication of a disposition
1
This "memorandum" is variously referred to by appellants as a handwritten "purchase contract" memorializing Knight's agreement to purchase the Clippers, and by the appellee as an "oral contract" or "alleged contract" memorialized in three pages of notes handwritten by Levin. For purposes of the discussion herein, I will refer to this memorandum as the "alleged contract."
2
The parties agree that three different statutes of frauds provisions apply here: (1) Cal.Civ.Code Sec. 1624(4) (general statute of frauds provision requiring some note or memorandum thereof, in writing and subscribed by the party to be charged in order for a contract for the leasing for a longer period than one year, or for sale of real property or some interest therein, to be valid), (2) Cal.Comm.Code Sec. 1206 (contract for sale of personal property whose value is in excess of $5000 must be in writing, indicating a defined or stated price, reasonably identifying the subject matter, and signed by the party against whom enforcement is sought), and (3) Cal.Comm.Code Sec. 2201 (contract for sale of goods for the price of $500 or more unenforceable unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought)
In addition, there is a dispute as to whether Cal.Comm.Code Sec. 8319 is applicable. Knight asserts that this statute of frauds provision, requiring a contract for the sale of securities to be in writing signed by the party against whom enforcement is sought, indicating the sale of a stated quantity of described securities at a defined or stated price, is applicable to this case. Levin and Lipton, on the other hand, challenge its applicability. Inasmuch as counsel for Levin and Lipton stated in his letter of December 13, 1980 that the purchase involved a stock transaction, this statute of frauds section is applicable.
Although California case law generally fails to distinguish between the various statute of frauds, and the majority has failed to make this distinction in its disposition in this case, the distinction between these provisions is important. I shall therefore discuss the effects of the several applicable statute of frauds as they apply to the sufficiency of the written memorandum in question.
3
The majority rejects as inapplicable, the argument that the statute of frauds covering sale of securities, requires such sale to be in writing. In dismissing this argument, they state that "[t]he issues presented as to the statute of frauds governing securities transactions are overcome by the finding that there was no dispute as to the amount of stock involved. All parties understood that the agreement was for transfer of the Clippers as an entire unit, and that if a stock transaction were eventually to transpire, then all of said stock would be transferred." (At p. 788.) While it may be true that all of the stock would be transferred, the fact that stock is sold is sufficient to bring such a transfer under the statute of frauds, requiring a writing
4
The facts of a recent United States Supreme Court case, decided after oral argument to this court in this case, can be analogized to the facts here. In Landreth Timber Co. v. Landreth, --- U.S. ----, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985), the respondents owned all of the stock in a business which they sold to the petitioner. After the acquisition was completed, the business did not meet the expectations of the petitioner, who sold the business at a loss and subsequently filed suit seeking rescission of the sale of stock and damages, alleging, in part, violation of federal securities laws. The district court granted summary judgment, finding that the transaction was a so-called "sale of business," and this Circuit affirmed. In holding that the transaction involved was a stock transaction and not a "sale of business" transaction, the Supreme Court noted that where the transaction is clear on its face, "there is no need ... to look beyond the characteristics of the instrument to determine whether the Acts apply." Landreth, 105 S.Ct. at 2303
In the case before us, Levin's attorney stated in his December 13, 1980 letter that the sale involved a stock transaction. Thus, regardless of the fact that the sale may have included, in part, the sale of assets, leases and other personal property, it is clear from its face that the sale involved the stock transaction, and this stock transaction was a material part of the contract. As such, it falls under the statute of frauds, requiring that it be evidenced in writing, and therefore should have been included in the alleged contract of December 3, 1980.
With respect to the Landreth case, I also note that although Knight raised a federal securities defense below, the district court did not reach the merits of this defense because it found the statute of frauds defense raised by Knight to be dispositive. On appeal, no federal securities issues have been raised.
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524 F.2d 1317
Annette HEYMAN, Plaintiff-Appellee,v.COMMERCE AND INDUSTRY INSURANCE COMPANY, Defendant-Appellant.
No. 92, Docket 75-7230.
United States Court of Appeals,Second Circuit.
Argued Oct. 10, 1975.Decided Oct. 24, 1975.
Lawrence P. Weisman, Bridgeport, Conn. (Cohen & Wolff, P. C., Bridgeport, Conn., on the brief), for plaintiff-appellee.
John Keogh, Jr., Norwalk, Conn. (James J. Farrell, Norwalk, Conn., on the brief), for defendant-appellant.
Before KAUFMAN, Chief Judge, and FRIENDLY and SMITH, Circuit Judges.
IRVING R. KAUFMAN, Chief Judge:
1
Although the basic principles for granting summary judgment1 are well-established, the frequent recurrence of cases in which granting it is inappropriate persuades us that these underlying tenets bear repetition. In order to elucidate the impropriety of applying summary judgment in the present case involving the interpretation of an insurance settlement agreement, a brief review of the facts is appropriate.
2
Annette Heyman, a Connecticut resident, owns a shopping center in Westfield, Massachusetts. In April, 1972, she secured a three-year fire insurance policy on this property from the defendant Commerce and Industry Insurance Company. The policy contained a "Replacement Cost Coverage Endorsement" which permitted Heyman, in the event of fire loss, to elect to receive either "replacement cost" or "actual cash value." If she chose "replacement cost" reimbursement, the insurance company's liability would be limited to the smallest of the following amounts:
3
(a) The amount of this policy applicable to the damaged or destroyed property;
4
(b) the replacement cost of the property or any part thereof identical with such property on the same premises and intended for the same occupancy and use; or
5
(c) the amount actually and necessarily expended in repairing or replacing said property or any part thereof.
6
Replacement Cost Coverage Endorsement, Par. 5 (emphasis added).
7
On September 10, 1972, a one-story auto-service station/warehouse, 14,000 square feet in size, located in the Westfield shopping center and leased to Sears, Roebuck & Co. was totally destroyed by fire. Heyman promptly submitted a claim to the insurance company alleging the replacement cost of the destroyed property to be $247,265.
8
After a period of discussions and negotiations, the parties executed a settlement agreement on August 2, 1973. Among other recitals the third introductory clause stated that the(I)nsured intends to construct a new building at the Sears, Roebuck complex in order to replace the building which was destroyed and construction of the new building has already commenced(.)
9
(Emphasis added.) The settlement agreement concluded with these provisions:
10
1. In consideration for payment by insurer to insured of $187,500, the parties for themselves, their successors and assigns, agree to remise, release, and forever discharge any and all claims which they may have against each other arising under the above-mentioned insurance policy including, but not limited to, insured's claim in connection with the above-mentioned fire loss.
11
2. Payment of the $187,500 shall be made as follows:
12
$150,000 to be paid, all cash, upon execution of this agreement and $37,500 to be paid, all cash, when insured has proceeded to the stage of construction of the new building where said building shall be water-tight in other words, upon completion of construction of the walls and roof of said building. (Emphasis added)
13
The insurance company paid, as required, $150,000 upon execution of the agreement. It has refused to pay the additional $37,500 despite notification that the new building is "watertight." The reason assigned for the insurer's unwillingness to disburse the balance is its discovery that the "replacement" building is a single-story structure containing an area of only 4,000 square feet some 10,000 square feet less than the size of the original building. The insurance company argues that its obligation is to pay the remaining $37,500 only if the destroyed building is replaced by a new edifice of comparable size and condition.
14
Because of Heyman's disagreement over this interpretation, she instituted suit in Connecticut Superior Court in August, 1974 for enforcement of the settlement agreement. The case was removed to federal district court one month later, and shortly thereafter both parties moved for summary judgment. Chief Judge Clarie granted Heyman's motion, holding that
15
A reading of the general tenor of the second contract and consideration of the circumstances under which it was executed, establishes a reasonable basis for the Court to find that the parties intended the company's fire loss obligations under the policy to be merged into this final (settlement) agreement. . . .
16
The Court is persuaded from the overall record, that these mutual release provisions were intended by the parties to determine and end their dispute. . . .
17
Although we might not have any quarrel with this conclusion had it been made after a full-scale trial, it was erroneous to render such a decision in the circumstances present here, upon a motion for summary judgment.
18
The Federal Rules of Civil Procedure provide several tools to aid in ascertaining the facts before the curtain ascends on a trial, see E. Warren, 38 Conn.B.J. 3 (1964). One such "tool" is the Rule 56 summary judgment procedure which enables the court to determine whether the "curtain" should rise at all. Fitzgerald v. Westland Marine Corp., 369 F.2d 499, 500 (2d Cir. 1966). Although for a period of time this Circuit was reluctant to approve summary judgment in any but the most extraordinary circumstances, see, e. g., Arnstein v. Porter, 154 F.2d 464, 468 (2d Cir. 1946), that trend has long since been jettisoned in favor of an approach more in keeping with the spirit of Rule 56, First Nat'l Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288-90, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); Dressler v. M. V. Sandpiper, 331 F.2d 130 (2d Cir. 1964); Beal v. Lindsay, 468 F.2d 287, 291 (2d Cir. 1972). But, the "fundamental maxim" remains that on a motion for summary judgment the court cannot try issues of fact; it can only determine whether there are issues to be tried. American Manuf. Mutual Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 279 (2d Cir. 1967); Cali v. Eastern Airlines, Inc., 442 F.2d 65, 71 (2d Cir. 1971). Moreover, when the court considers a motion for summary judgment, it must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought, United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962), with the burden on the moving party to demonstrate the absence of any material factual issue genuinely in dispute, Adickes v. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). This rule is clearly appropriate, given the nature of summary judgment. This procedural weapon is a drastic device since its prophylactic function, when exercised, cuts off a party's right to present his case to the jury. Donnelly v. Guion, 467 F.2d 290, 291 (2d Cir. 1972).
19
Heyman does not take issue with these principles but instead argues that they do not apply to her case. She correctly points out that the only disagreement in this action is over the interpretation of the "new building" language in the settlement agreement, and insists that discerning contractual intent is a question of law. But, this argument has repeatedly been rejected in our prior decisions.
20
Where contractual language is susceptible of at least two fairly reasonable interpretations, this presents a triable issue of fact, and summary judgment would be improper.
21
Aetna Casualty & Surety Co. v. Giesow, 412 F.2d 468, 471 (2d Cir. 1969); Painton & Co. v. Bourns, Inc., 442 F.2d 216, 233 (2d Cir. 1971); Lemelson v. Ideal Toy Corp., 408 F.2d 860, 863 (2d Cir. 1969); Union Insurance Society v. Wm. Gluckin & Co., 353 F.2d 946, 950-51 (2d Cir. 1965); Boro Hall Corp. v. General Motors Corp., 164 F.2d 770, 772 (2d Cir. 1947). The parties have a right to present oral testimony or other extrinsic evidence at trial to aid in interpreting a contract whose provisions are not wholly unambiguous. Asheville Mica Co. v. Commodity Credit Corp., 335 F.2d 768, 770 (2d Cir. 1964).2
22
The point that the ultimate issue, the construction of a contract, is a question of law for the court, . . . does not dictate a different result. When a contract is so ambiguous as to require resort to other evidence to ascertain its meaning and that evidence is in conflict, the grant of summary judgment is improper. . . .
23
Painton & Co., supra, at 233. Nor is summary judgment to be made more readily available where both parties seek it, each in their own behalf. American Mfrs. Mut. Ins. Co., supra, at 279; Painton, supra, at 232-33.
24
The well-settled rule is that cross-motions for summary judgment do not warrant the court in granting summary judgment unless one of the moving parties is entitled to judgment as a matter of law upon facts that are not genuinely disputed.
25
6 Moore's Federal Practice P 56.13 at 2247.
26
Application of these principles to the facts in this case clearly indicates that it was erroneous to grant summary judgment to the plaintiff. The parties are at loggerheads over the proper interpretation of their obligations under the settlement agreement and, more specifically, about the intent behind and meaning of the term "the new building" in the clause providing for payment of the $37,500 balance "when insured has proceeded to the stage of construction of the new building where said building shall be watertight. . . . " The insurance company points to the third introductory clause which recites Heyman's intention to construct a new building to "replace" the old one and notes that Black's Law Dictionary and several cases define "replace" in terms of restoring an object to its former condition. Olenick v. Government Employees' Ins. Co., 42 A.D.2d 760, 346 N.Y.S.2d 320 (1973); Congress Bar & Restaurant, Inc. v. Transamerica Insurance Co., 42 Wis.2d 56, 165 N.W.2d 409 (1969). The insurer also maintains that the settlement agreement represented a mere partial integration, pertaining only to the amount agreed upon in satisfaction of Heyman's unliquidated claim under the insurance policy provisions. Although the appellee disputes each of these contentions, we are required to resolve all ambiguities and disagreements in favor of the party against whom summary judgment is sought, see United States v. Diebold, Inc., supra, 369 U.S. at 655, 82 S.Ct. 993.
27
We therefore reverse the judgment below. Of course, our holding reflects no opinion on the merits of the case.
1
Fed.R.Civ.P. 56 provides, in relevant part:
(c) . . . (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 judgment as a matter of law. . . .
(Emphasis added.)
2
The parol evidence rule is not a bar to such testimony. The evidence does not vary or contradict the written terms of the contract, but merely aids in their interpretation. See 3 Corbin, Contracts § 579 (1960)
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United States Court of Appeals for the Federal Circuit
04-1502
EDWARD SHOWMAKER,
Plaintiff-Appellant,
v.
ADVANTA USA, INC.
(formally known as Garst Seed Company
and doing business as Garst Seed Company),
Defendant-Appellee.
Ronald E. Osman, Ronald E. Osman & Associates, Ltd., of Marion, Illinois,
argued for plaintiff-appellant.
Donald R. Frederico, McDermott Will & Emery LLP, of Boston, Massachusetts,
argued for defendant-appellee. With him on the brief were Peter L. Resnik and Scott E.
Murray.
Appealed from: United States District Court for the Southern District of Illinois
Judge David R. Herndon
United States Court of Appeals for the Federal Circuit
04-1502
EDWARD SHOWMAKER,
Plaintiff-Appellant,
v.
ADVANTA USA, INC.
(formally known as Garst Seed Company
and doing business as Garst Seed Company),
Defendant-Appellee.
___________________________
DECIDED: June 14, 2005
___________________________
Before CLEVENGER, RADER, and DYK, Circuit Judges.
RADER, Circuit Judge.
The United States District Court for the Southern District of Illinois dismissed
Edward Showmaker’s claim that Advanta USA, Inc.’s (Advanta) Soybean Purchase
Agreements (Agreement) violated the misbranding provision of the Plant Variety
Protection Act (PVPA), codified at 7 U.S.C. § 2568 (1994). Showmaker v. Advanta
USA, Inc., No. 03-CV-4096-DRH (S.D. Ill. Jan. 14, 2004). The district court determined
that the PVPA “neither creates a substantive right for farmers to save seed not
protected by the PVPA nor preempts state contract law.” Id., slip op. at 10. The district
court also determined that the contractual language in an Agreement attached to
Advanta’s seed bags did not connote PVPA protection. Id. Because the contractual
language in the Agreement did not implicate the PVPA’s misbranding provisions, this
court affirms.
I.
Mr. Showmaker is an Illinois farmer, one of many who purchased non-GMO
(genetically modified organism) Seed from Advanta. Mr. Showmaker planted Advanta’s
Garst Brand Seed D445N, Variety 57004, to produce his year 2002 soybean crop.
Advanta’s Garst Brand D445N is neither patented nor PVPA certified. Advanta has also
not filed any certification applications to date. Advanta did, however, attach an
Agreement to each of its non-GMO bags, with the following language:
The soybean seed in this bag contains genetics developed, licensed or
owned by Seller. All rights to make, produce or sell seed products derived
from this seed reside solely with Seller. Buyer acknowledges this
ownership and agrees to the following conditions:
....
Buyer will not resell or supply any of this seed to any other person or
entity. Furthermore, Buyer is strictly prohibited from saving or selling, for
seed purposes, any grain products from this seed. Buyer further agrees
not to alter, or permit the alteration of the seed . . . through either genetic
engineering, conventional breeding activities or other techniques.
Mr. Showmaker specifically refers to this portion of the Agreement in his false marking
claim under 7 U.S.C. § 2568. The Agreement does not include any reference to the
PVPA or to any PVPA certificates.
Mr. Showmaker’s attorney informed Advanta of his client’s interest in saving
D445N non-GMO Seed for future crops. In response, Advanta indicated that “[a]ny
attempt by your client to save seed of variety 57004 will breach contractual and/or
intellectual property rights.” Mr. Showmaker then filed suit on behalf of a class of
farmers from eighteen states that had also purchased non-GMO seed from Advanta,
04-1502 2
asserting various state and federal claims. The parties eventually agreed to dismiss all
claims except the false marking claim. The district court granted Advanta’s motion for
failure to state a claim upon which relief can be granted. This appeal followed.
II.
This court has jurisdiction pursuant to 28 U.S.C. § 1295(a)(1), as the appeal
arises from a final decision of a district court whose jurisdiction was based, in whole or
in part, on 28 U.S.C. § 1338(a). A motion to dismiss for failure to state a claim upon
which relief can be granted is a purely procedural question not pertaining to patent law,
to which this court applies the rule of the regional circuit. C & F Packing Co., Inc. v.
IBP, Inc., 224 F.3d 1296, 1306 (Fed. Cir. 2000). Under seventh circuit law, Rule
12(b)(6) motions are reviewed de novo. Id. citing Murphy v. Walker, 51 F.3d 714, 717
(7th Cir. 1995). “Dismissal is proper only if, after drawing all reasonable inferences in
the appellant’s favor, it is clear that the appellant can prove no set of facts consistent
with his claim that would entitle him to relief.” Univ. of W. Va. v. Van Voorhies, 278 F.3d
1288, 1295 (Fed. Cir. 2002).
Section 2568(a) of the PVPA prohibits, inter alia, “[e]ach of the following acts, if
performed in connection with the sale, offering for sale, or advertising of sexually
reproducible plant material or tubers or parts of tubers:”
(1) Use of the words “U.S. Protected Variety” or any word or number
importing that the material is a variety protected under certificate,
when it is not.
(2) Use of any wording importing that the material is a variety for which
an application for plant variety protection is pending, when it is not.
(3) Use of either the phrase “Unauthorized Propagation Prohibited” or
“Unauthorized Seed Multiplication Prohibited” or similar phrase
without reasonable basis. Any reasonable basis expires one year
after the first sale of the variety except as justified thereafter by a
pending application or a certificate still in force.
04-1502 3
Because Advanta did not use the specific language required under § 2568(a)(3),
“Unauthorized Propagation Prohibited” or “Unauthorized Seed Multiplication Prohibited,”
and because its contractual language was not a “similar phrase,” the district court
dismissed Mr. Showmaker’s complaint. The district court noted that § 2568(a)(3)
“properly understood restricts only markings that falsely indicate that a plant or seed has
PVPA protection.” Showmaker, slip op. at 10. This court affirms this holding.
Advanta did not reference the PVPA, any issued PVPA certificates, or any
pending applications for plant variety protection in its shrinkwrap license Agreements.
Thus, the district court correctly perceived no overt attempt to invoke the protections of
federal law for seeds that do not qualify for that protection. Section 2568(a)(3),
however, also prohibits the use of certain specific terms that the public may associate
with federal protections for seed products. Specifically, the phrases “Unauthorized
Propagation Prohibited” and “Unauthorized Seed Multiplication Prohibited” are terms of
art used throughout the statute to notify prospective users that the PVPA’s protections
apply. For instance, under 7 U.S.C. § 2567, certificate owners receive damages only if
“the infringer has actual notice or knowledge that propagation is prohibited or that the
variety is a protected variety.” Owners may give this notice by affixing “Unauthorized
Propagation Prohibited” or “Unauthorized Multiplication Prohibited” to the variety label.
7 U.S.C. § 2567 (2000). Likewise, § 2541 requires that acts constituting infringement
may occur only after either the certificate issues or after a distribution of a protected
plant variety with the above notice language affixed under § 2567.1 7 U.S.C. § 2541
1
See also 7 U.S.C. § 2561 (1995); 7 C.F.R. § 97.140-97.142 (1996)
(authorizing use of phrases “Unauthorized Propagation Prohibited” and “Unauthorized
04-1502 4
(2000). The PVPA re-emphasizes the importance of these terms by making the use of
seeds so marked acts of infringement. Id. § 2541(a)(5).
The legislative history confirms the importance of these precise statutory terms.
The House Report, for instance, shows the use of exact terms to give notice of statutory
protections:
Three sections of the bill deal with language used to give notice that the
variety is protected under the provisions of the Plant Variety Protection
Act. Currently the Act uses the term “Propagation Prohibited”. Taken
literally, this phrase could be interpreted to mean seed purchased for
sowing could not be planted. This is not the proper interpretation of the
Act and addition of the word “Unauthorized” is intended to correct possible
misinterpretation.
H.R. Rep. No. 96-1115, at 7 (1980), reprinted in 1980 U.S.C.C.A.N. 6954, 6959. Thus,
the phrase “Unauthorized Propagation Prohibited” provides notice of the PVPA’s
protections. Consistent with the precision accorded each statutory word, the “similar”
requirement of § 2568(a)(3) also does not permit a wide variance from “Unauthorized
Propagation Prohibited” or “Unauthorized Seed Multiplication Prohibited.” Because
Advanta’s contract language in no way conveys PVPA protection nor uses any term
confusingly similar to the terms in § 2568(a)(3), the district court correctly held there
was no legitimate claim under the PVPA. Showmaker, slip op. at 10.
Advanta contractually prohibited its buyers from “saving or selling, for seed
purposes, any grain products from its seed.” The contract further prohibited any
“alternation of the seed through genetic engineering, conventional breeding, or other
techniques.” This contract language restricts use of Advanta’s seeds. The prohibitions
in the Agreement, however, are not similar to “Unauthorized Propagation Prohibited” or
Seed Multiplication Prohibited” where the owner has applied for a PVPA certificate, the
owner contemplates filing an application, or upon issuance of a certificate).
04-1502 5
“Unauthorized Seed Multiplication Prohibited.” Unlike these terms of art, Advanta’s
contract language did not put the potential purchaser or the public on notice of a plant
variety owner’s rights. Rather, the agreement merely restricts some activities of the
buyer. Like any contract, these terms bind only the parties. Thus, Advanta does not
engage in false marking. Mr. Showmaker can prove no set of facts upon which relief
can be granted. Dismissal was therefore appropriate.
Because we have before us no claim by Showmaker for declaratory or injunctive
relief that Advanta’s contract is preempted by federal law and because Advanta asserts
no state law claims seeking enforcement of its contract, this court need not reach
Showmaker’s argument on appeal that state contract law is preempted by federal law.
III.
This court affirms the district court’s dismissal of Mr. Showmaker’s PVPA false
marking claim under 7 U.S.C. § 2568.
COSTS
Each party shall bear its own costs.
AFFIRMED
04-1502 6
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COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Huff, Judges Chafin and Russell
UNPUBLISHED
Argued by teleconference
DANIEL ELWOOD BUCHANAN, S/K/A
DANIEL ELWOOD BUCHANAN, JR.
MEMORANDUM OPINION* BY
v. Record No. 1253-14-3 JUDGE TERESA M. CHAFIN
MAY 5, 2015
COMMONWEALTH OF VIRGINIA
FROM THE CIRCUIT COURT OF THE CITY OF BRISTOL
Sage B. Johnson, Judge
David L. Harmon (David L. Harmon, P.C., on brief), for appellant.
Donald E. Jeffrey, III, Senior Assistant Attorney General (Mark R.
Herring, Attorney General, on brief), for appellee.
At the conclusion of a two-day trial held in the Circuit Court of the City of Bristol
(“circuit court”), a jury convicted Daniel Elwood Buchanan, Jr., (“Buchanan”) of second-degree
murder in violation of Code § 18.2-32 and the use of a firearm in the commission of that murder
in violation of Code § 18.2-53.1. On appeal, Buchanan contends that the circuit court erred by
failing to suppress text messages obtained from his cell phone that referenced his relationship
with the murder victim and the events that took place on the night the victim was killed. He also
challenges the sufficiency of the evidence supporting his convictions. For the reasons that
follow, we affirm Buchanan’s convictions.
I. BACKGROUND
“On appeal, ‘we review the evidence in the light most favorable to the Commonwealth,
granting to it all reasonable inferences fairly deducible therefrom.’” Archer v. Commonwealth,
*
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
26 Va. App. 1, 11, 492 S.E.2d 826, 831 (1997) (quoting Martin v. Commonwealth, 4 Va. App.
438, 443, 358 S.E.2d 415, 418 (1987)). So viewed, the evidence established that Buchanan shot
and killed Chase Robbins (“Robbins”) in the early morning hours of November 18, 2012
following a series of altercations.
A. THE ALTERCATIONS BETWEEN BUCHANAN AND ROBBINS
On Friday, November 16, 2012, Buchanan allowed Robbins and his girlfriend, Chasity
Couch (“Couch”), to stay at his apartment through the weekend. Robbins and Couch were both
homeless, and they were friends with Buchanan’s girlfriend, Gina Kennedy (“Kennedy”).
Buchanan told Robbins to leave his apartment the following day after he got into an argument
with Couch, Kennedy, and Kennedy’s two children. Robbins refused to leave, and an altercation
ensued between Robbins and Buchanan during which Buchanan physically removed Robbins
from the apartment. Couch testified that Buchanan pointed a gun at Robbins’s head during this
disagreement.
Buchanan called 911 shortly after his altercation with Robbins. When officers arrived to
investigate the incident, Robbins told them that Buchanan had held something that felt like a gun
to his head. Buchanan refused to press trespassing charges against Robbins, and Robbins agreed
to leave the area. Although Robbins did not appear intoxicated, a preliminary breath test
revealed that his breath had an alcohol concentration of 0.05 gram per 210 liters.
Buchanan called 911 three more times that evening and complained that Robbins had
returned to his apartment. He told the 911 dispatcher that he was tired of Robbins returning and
that he would shoot Robbins if he came back again and “feel good about it.”1 When Officer
Marc Edwards (“Edwards”) arrived at Buchanan’s apartment after the third 911 call, he saw
1
Recordings of each of Buchanan’s calls to 911 were played for the jury at his trial.
-2-
Robbins lying in a ditch on an adjacent property. Robbins told Edwards that he was going to
sleep in the ditch and that he would not return to Buchanan’s apartment or its premises.
Although Edwards explained to Buchanan that Robbins wanted to be arrested due to the cold
weather that night and that Robbins’s arrest would diffuse the situation by removing him from
the area, Buchanan again refused to file a trespassing complaint against Robbins.
Buchanan called 911 at 12:47 a.m. and told the dispatcher that he had shot Robbins. He
explained that Robbins had “jumped him” when he approached him and told him that he needed
to leave the area. When the police arrived, they found Robbins slumped against a small tree. He
had been shot once in the chest, and medical personnel pronounced him dead at the scene.
Buchanan was not injured. After being advised of his Miranda rights, Buchanan told the
investigating officers that Robbins had attacked him with a two-liter bottle and that he had shot
him in self-defense. The investigating officers then took Buchanan into custody and seized his
cell phone and the gun he used to shoot Robbins. Officers found an empty plastic two-liter bottle
near Robbins’s body and a piece of metal rebar in the area where Robbins had been lying that
had nylon wrapped around one end to form a handle.
When Buchanan arrived at the police station following the shooting, he explained that he
was frustrated by the “drama” of the evening and that he decided that everyone should leave his
apartment sometime after his fourth 911 call. After he told Couch and Kennedy that they were
going to have to leave his apartment that night, Buchanan approached Robbins to tell him that he
had to leave the area and that he would give him a ride to another location. Buchanan claimed
that Robbins suddenly grabbed his legs and pulled him to the ground. He said that Robbins then
got on top of him and started hitting him in the head with his fists and an object that he later
realized was a plastic two-liter soda bottle. While the officers that responded to the scene
throughout the night did not see Buchanan carrying a weapon, Buchanan explained that he
-3-
always carried a gun for protection against drug users that frequently stayed in the area and that
he reached for his gun and shot Robbins while he was on top of him hitting him with the bottle.
B. THE TEXT MESSAGES
Detective Angela Simpson (“Simpson”) returned to her desk following Buchanan’s
interview to draft paperwork incidental to Buchanan’s arrest. She still had Buchanan’s cell
phone with her, and she placed it on her desk while she was working. Buchanan’s cell phone
was made by Blackberry, a brand with which Simpson was unfamiliar, and she believed that the
cell phone was turned off at this time. She realized that the phone was still on, however, when it
started beeping, and she attempted to turn the phone off to prevent the potential “remote wiping”
of the digital data stored on the phone.2 As she was attempting to turn the phone off, Simpson
saw several incoming text messages from Serena Pickle (“Pickle”) asking if Buchanan was
alright. Simpson explained that these messages simply “popped up” on the screen, and she
testified that she did not search through the contents of the phone at this time.
Believing that the text messages referenced the events of the prior evening, Simpson
obtained a warrant to search Buchanan’s cell phone.3 Special Agent John Singleton
(“Singleton”) of the Virginia State Police, a specialist in cell phone technology and data
recovery, searched Buchanan’s cell phone and retrieved numerous text messages from the device
that referenced Buchanan’s relationship with Robbins and the events that occurred on the night
2
In the process known as “remote wiping,” a signal sent across a wireless network from a
remote source erases the digital data stored on a cell phone. See Riley v. California, 134 S. Ct.
2473, 2486 (2014). Remote wiping can be prevented by turning off the cell phone and removing
its battery or placing the cell phone in a metal enclosure that blocks incoming data from the
phone. See id. at 2487. In this case, Buchanan’s phone was stored in an empty paint can before
it was searched pursuant to a warrant.
3
In her affidavit for the warrant to search Buchanan’s phone, Simpson stated that “Daniel
Buchanan Jr. admitted to shooting Chase Robins [sic] after an altercation over trespassing.
While Buchanan was detained in the interview room a message appeared on his cell phone
containing information related to the altercation with Robins [sic].”
-4-
of November 17, 2012 and the early morning of December 18, 2012. Many of these messages
were incriminatory in nature, and in several of the messages Buchanan explicitly discussed his
desire to shoot and kill Robbins.
Prior to his trial, Buchanan filed a motion to suppress all of the text messages obtained
from his cell phone. Buchanan argued that Simpson illegally searched his phone when she
viewed the initial messages from Pickle and that she would not have had probable cause to
obtain a search warrant for the phone without viewing those messages.4 Buchanan testified that
Simpson would have had to take at least three steps to access text messages on his cell phone and
that the messages would not have “popped up” automatically as she attempted to power down
the phone. Simpson, however, maintained that she did not take any action to search the contents
of the phone and that the messages were displayed on the screen of the phone as she was turning
off its power. The circuit court denied Buchanan’s motion to suppress, concluding that Simpson
had not searched the phone. The circuit court found that Simpson had simply read the text
messages as they popped up on the screen of the phone and that she did not take any further
action to explore its contents.
C. THE TRIAL
At Buchanan’s trial, the Commonwealth called Singleton as a witness to testify about the
digital content that he recovered from Buchanan’s phone. During its examination of Singleton,
4
At the hearing on Buchanan’s motion to suppress, he also briefly argued that Simpson’s
affidavit based on the text messages she viewed did not establish probable cause to search
Buchanan’s cell phone. He did not include this argument in his written motion to suppress the
text messages that he previously filed with the circuit court or request a separate hearing on this
issue pursuant to Franks v. Delaware, 438 U.S. 154 (1978). The circuit court also did not base
its decision to deny the motion on this argument. See Riner v. Commonwealth, 268 Va. 296,
324-25, 601 S.E.2d 555, 571 (2004). Given these circumstances, we note that we would likely
decline to consider this argument on appeal even if we held that Buchanan had not waived his
arguments concerning the text messages by introducing similar evidence on his own behalf.
-5-
the Commonwealth introduced into evidence a series of text messages between Buchanan and
Pickle from November 17, 2012, that included several messages in which Buchanan discussed
his intent and desire to shoot and kill Robbins. On November 17, 2012, hours before he shot
Robbins, Buchanan sent text messages to Pickle stating: “I am probably going to have to kill a
crackhead tonight,” “I just had to beat up a violent drunk in my driveway,” “I was squeezing the
trigger. I almost shot the guy before he just dropped in the grass,” “[i]f he comes back I’m going
to beat him into a permanent coma,” “Told the cops if he comes back I’m just going to shoot
him. They told the guy I was within my rights to do so,” “I wish I had just shot the f*cker,”
“The only reason he isn’t dead is because Gina is here with her kids,” “[C]ould have and
intended to kill someone and I do not feel bad about it,” and “If he comes back and I double tap
his ass the cops said its justified.”
On cross-examination, Buchanan asked Singleton about additional text messages that he
retrieved from Buchanan’s phone. Specifically, Buchanan asked Singleton about a message that
he sent to Missy Jones (“Jones”) on November 11, 2012 that stated “She got into a fight with her
[boyfriend] and I had to explain to her [boyfriend] that if he did not calm down, that he would be
shot and killed and I would not feel bad about it.” Additional text messages established that this
message referred to Couch and Robbins. Buchanan then asked Singleton about text messages
that he sent to Pickle on November 11 and 12, 2012 that contained threats to Robbins that were
similar to those he made in the text messages he sent on November 17.
In addition to Couch and the officers that responded to the scene, the Commonwealth
also called several experts to testify at Buchanan’s trial. An expert in the field of DNA analysis
testified that Buchanan’s DNA was present on the piece of rebar found at the crime scene, and
that Robbins’s DNA was not present on the rebar. An Assistant Chief Medical Examiner for the
Commonwealth of Virginia testified about an autopsy he performed on Robbins. The examiner
-6-
confirmed that the gunshot wound to Robbins’s chest caused his death, and explained that the
fatal bullet entered his body just below the clavicle on the left side of his chest and traveled
through his body on a downward trajectory, piercing several organs before coming to rest near
his spine. The examiner opined that such a trajectory would have been unlikely if Robbins was
shot by someone underneath him, and noted that a similar trajectory is more commonly
encountered when someone standing above his or her victim shoots down at them.
Buchanan testified on his own behalf in his case-in-chief. He explained to the jury that
Robbins had attacked him, and his testimony was consistent with the statements he made to the
police while he was in their custody. Robbins also explained that the text messages that he sent
to Pickle were mere bravado. He testified that he frequently texted Pickle about “all kinds of
strange stuff that never happened” to appear as a “Billy Badass” and that Pickle responded by
telling him that he was “cool” and “awesome.” On redirect examination, Buchanan expressly
addressed the text messages that he sent to Pickle and Jones on November 11 and 12, 2012, and
emphasized that he did not act on the threats contained in those messages. In his closing
argument, Buchanan again referred to the text messages that he sent to Pickle and Jones that he
“introduced through Detective Singleton’s cross-examination.” Buchanan explained that he did
not act on the threats contained in those messages, and again explained that they were mere
bravado.
The jury convicted Buchanan of second-degree murder in violation of Code § 18.2-32
and the use of a firearm in the commission of that murder in violation of Code § 18.2-53.1. He
was sentenced to a forty-year term of incarceration for his murder conviction and a three-year
term of incarceration for his firearm conviction. Buchanan appealed both of his convictions to
this Court.
-7-
II. ANALYSIS
On appeal, Buchanan argues that the circuit court erred by failing to suppress the text
messages obtained from his cell phone. Buchanan contends that Simpson illegally searched his
cell phone when she viewed the initial messages from Pickle asking if he was alright. Buchanan
also claims that probable cause did not support the warrant for the search of his phone and that
the evidence presented by the Commonwealth was insufficient to support his convictions. After
reviewing the record of this case, we conclude that Buchanan has waived his objection to the text
messages obtained from his cell phone by introducing similar text messages on his own behalf
and attempting to explain them in a light more favorable to him. Therefore, we are not required
to address the substance of Buchanan’s arguments concerning the text messages. We also
conclude that the evidence is sufficient to support Buchanan’s convictions.
A. BUCHANAN HAS WAIVED HIS OBJECTION TO THE TEXT MESSAGES
OBTAINED FROM HIS CELL PHONE
“[W]hen a litigant ‘unsuccessfully objects to evidence that he considers improper and
then introduces on his own behalf evidence of the same character, he waives his earlier objection
to the admission of that evidence.’” Isaac v. Commonwealth, 58 Va. App. 255, 260, 708 S.E.2d
435, 437 (2011) (quoting Combs v. Norfolk & W. Ry., 256 Va. 490, 499, 507 S.E.2d 355, 360
(1998)). This principle “has stood in roughly the same form for well over a century,” and it
applies to both criminal and civil cases. See id. It applies to objections based on constitutional
grounds, as well as to those based on statutory and common law. See id.; see also Bynum v.
Commonwealth, 28 Va. App. 451, 459, 506 S.E.2d 30, 34 (1998).
“An exception to the same-evidence principle exists for evidence elicited ‘during
cross-examination of a witness or in rebuttal testimony.’” Isaac, 58 Va. App. at 261, 708 S.E.2d
at 438 (quoting Zektaw v. Commonwealth, 278 Va. 127, 143, 677 S.E.2d 49, 52-53 (2009)).
-8-
Virginia courts, however, have applied this exception in very limited circumstances, and
explained that rebuttal evidence does not encompass the entirety of a criminal defendant’s
case-in-chief. See id. “[A] litigant waives an objection to evidence when he introduces
‘evidence dealing with the same subject as part of his own case-in-chief,” id. at 260, 708 S.E.2d
at 437 (emphasis omitted) (quoting Pettus v. Gottfried, 269 Va. 69, 79, 606 S.E.2d 819, 825
(2005)), and “[t]he rebuttal exception . . . does not apply when the defendant presents in his case
in chief the same or similar evidence he previously objected to in order to explain it away or to
offer a more favorable interpretation,” id. at 262, 708 S.E.2d at 438. Furthermore, the
same-evidence principle is “‘properly and logically applicable in any case, regardless of the
order of introduction, if the party who has brought out the evidence in question, or who has
permitted it to be brought out, can be fairly held responsible for its presence in the case.’”
Pettus, 269 Va. at 79, 606 S.E.2d at 825 (quoting Whitten v. McClelland, 137 Va. 726, 741, 120
S.E. 146, 150 (1923)).
Although Buchanan moved to suppress all of the text messages obtained from his cell
phone, he referred to numerous text messages from the phone in his cross-examination of
Singleton and when he testified in his case-in-chief. Buchanan cross-examined Singleton about
the messages he sent to Pickle on November 17, 2012 that the Commonwealth introduced into
evidence. Buchanan then exceeded the scope of the Commonwealth’s direct examination of
Singleton and questioned him about additional messages sent to Jones and Pickle on November
11 and 12, 2012. These messages were substantially similar to the messages introduced into
evidence by the Commonwealth. They contained threats made by Buchanan to shoot and kill
Robbins. By exceeding the scope of the Commonwealth’s examination of Singleton, Buchanan
introduced these additional statements as evidence on his own behalf and, accordingly, the
cross-examination exception to the same-evidence principle does not apply to them. See Newton
-9-
v. Commonwealth, 29 Va. App. 433, 451, 512 S.E.2d 846, 854 (1999) (“Having solicited
evidence of the same character on cross-examination, appellant is precluded from claiming that it
was error for the Commonwealth to have introduced evidence of the same nature.”).
Moreover, in his case-in-chief, Buchanan attempted to explain away the text messages
that he sent to Pickle. He testified that the messages were mere bravado and that he did not act
on the threats that he made in the messages. On redirect examination, Buchanan expressly
referenced the messages that he sent to Jones and Pickle on November 11 and 12, 2012, and
explained that he did not act on the threats to Robbins that he made in the messages. In his
closing argument, Buchanan referred the jury to the text messages that he “introduced through
Detective Singleton’s cross-examination,” and explained that he never acted on his previous
threats to Robbins.
Given these circumstances, Buchanan has waived his objection to the text messages
obtained from his cell phone. He introduced substantially similar messages on his own behalf,
and attempted to explain the messages introduced by the Commonwealth in a light more
favorable to his defense. Accordingly, a substantive rule of law prohibits us from considering
Buchanan’s arguments concerning the text messages. See Hubbard v. Commonwealth, 243 Va.
1, 9, 413 S.E.2d 875, 879 (1992).
B. SUFFICIENT EVIDENCE SUPPORTED BUCHANAN’S CONVICTIONS
When considering the sufficiency of the evidence on appeal, we “presume the judgment
of the trial court to be correct” and reverse only if the trial court’s decision is “plainly wrong or
without evidence to support it.” Davis v. Commonwealth, 39 Va. App. 96, 99, 570 S.E.2d 875,
876-77 (2002); see also McGee v. Commonwealth, 25 Va. App. 193, 197-98, 487 S.E.2d 259,
261 (1997) (en banc). Under this standard, “a reviewing court does not ‘ask itself whether it
believes that the evidence at the trial established guilt beyond a reasonable doubt.’” Crowder v.
- 10 -
Commonwealth, 41 Va. App. 658, 662, 588 S.E.2d 384, 387 (2003) (quoting Jackson v. Virginia,
443 U.S. 307, 318-19 (1979)). It asks instead whether “‘any rational trier of fact could have
found the essential elements of the crime beyond a reasonable doubt.’” Kelly v. Commonwealth,
41 Va. App. 250, 257, 584 S.E.2d 444, 447 (2003) (en banc) (quoting Jackson, 443 U.S. at 319).
We do not “substitute our judgment for that of the trier of fact” even if our opinion were to
differ. Wactor v. Commonwealth, 38 Va. App. 375, 380, 564 S.E.2d 160, 162 (2002).
“‘In Virginia, every unlawful homicide is presumed to be murder of the second degree.’”
Tizon v. Commonwealth, 60 Va. App. 1, 10-11, 723 S.E.2d 260, 264 (2012) (quoting Pugh v.
Commonwealth, 223 Va. 663, 667, 292 S.E.2d 339, 341 (1982)). “‘Murder . . . is a homicide
committed with malice, either express or implied.’” Id. at 11, 723 S.E.2d at 264 (quoting Pugh,
223 Va. at 667, 292 S.E.2d at 341). “Malice inheres in the ‘doing of a wrongful act intentionally,
or without just cause or excuse, or as a result of ill will,’” and may be inferred from the
deliberate use of a deadly weapon. Id. at 11, 723 S.E.2d at 265 (quoting Dawkins v.
Commonwealth, 186 Va. 55, 61, 41 S.E.2d 500, 503 (1947)). Killing in self-defense, however,
may be either justifiable or excusable homicide.
“Justifiable homicide in self-defense occurs where a person,
without any fault on his part in provoking or bringing on the
difficulty, kills another under reasonable apprehension of death or
great bodily harm to himself.” Bailey v. Commonwealth, 200 Va.
92, 96, 104 S.E.2d 28, 31 (1958); Dodson v. Commonwealth, 159
Va. 976, 167 S.E. 260 (1933). “Excusable homicide in
self-defense occurs where the accused, although in some fault in
the first instance in provoking or bringing on the difficulty, when
attacked retreats as far as possible, announces his desire for peace,
and kills his adversary from a reasonably apparent necessity to
preserve his own life or save himself from great bodily harm.”
Bailey, 200 Va. at 96, 104 S.E.2d at 31.
Yarborough v. Commonwealth, 217 Va. 971, 975, 234 S.E.2d 286, 290 (1977).
- 11 -
Buchanan admitted that he shot and killed Robbins on November 18, 2012. He explained
to the jury that he shot Robbins in self-defense after Robbins attacked him. Buchanan claimed
that he shot Robbins while Robbins was on top of him hitting him in the head with a two-liter
bottle and his fists. The jury, however, rejected Buchanan’s version of the events and concluded
that he killed Robbins with malice.5 Ample evidence supported the jury’s decision.
Buchanan’s animosity towards Robbins was well-documented and clearly established.
On the night that he shot Robbins, Buchanan sent text messages to Pickle expressing his desire to
shoot and kill Robbins. He sent similar messages to Pickle and Jones nearly a week before the
killing. He also told the 911 dispatcher that answered one of his calls that he was going to shoot
Robbins and “feel good about it.” Buchanan was frustrated and angry at Robbins, and he had
physically wrestled him out of the apartment before he called the police. Couch testified that
Buchanan pointed a gun at Robbins’s head during this altercation, and Robbins told the police
that Buchanan had held something against his head that felt like a gun.
Although the police officers that responded to Buchanan’s 911 calls told him that they
would arrest Robbins if he filed a criminal trespassing complaint against him, Buchanan refused
to do so. Instead, he allowed Robbins to remain in the area and spend the night in a nearby ditch.
He then approached Robbins armed with a gun and a piece of metal rebar and told him to leave
the area.6 While Buchanan testified that Robbins attacked him, he was not injured during the
alleged assault. Edwards testified that Robbins was not belligerent during their interactions that
evening and that he did not appear to be intoxicated. Moreover, the testimony of the medical
5
“The credibility of the witnesses and the weight accorded the evidence are matters
solely for the fact finder who has the opportunity to see and hear that evidence as it is presented.”
Elliott v. Commonwealth, 277 Va. 457, 462, 675 S.E.2d 178, 181 (2009).
6
While Buchanan testified that he was not carrying the rebar when he approached
Robbins, DNA analysis established that it had been in his possession.
- 12 -
examiner that performed an autopsy on Robbins also cast doubt on Buchanan’s description of the
attack. The downward trajectory of the bullet that killed Robbins suggested that he was not shot
by someone who was pinned underneath him.
Under these circumstances, the jury reasonably concluded that Buchanan’s version of the
shooting was not credible. The jury was “at liberty to discount [Buchanan’s] self-serving
statements as little more than lying to conceal [his] guilt, and could treat such prevarications as
affirmative evidence of guilt.” Armstead v. Commonwealth, 56 Va. App. 569, 581, 695 S.E.2d
561, 567 (2010) (citation and internal quotation marks omitted). Based on Buchanan’s animosity
towards Robbins, evidenced by numerous statements in which he expressed a desire to shoot and
kill him, the jury could infer that Buchanan killed Robbins with malice. Accordingly, we
conclude that the evidence presented supported both of Buchanan’s convictions.
III. CONCLUSION
In conclusion, we find that Buchanan waived his objection to the text messages obtained
from his cell phone when he introduced text messages of a similar nature on his own behalf and
attempted to explain the text messages introduced by the Commonwealth in a light more
favorable to his defense. Additionally, we conclude that the evidence presented was sufficient to
support Buchanan’s convictions. For these reasons, we affirm Buchanan’s convictions.
Affirmed.
- 13 -
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547 F.2d 1169
Kruegerv.Gray
No. 76-1551
United States Court of Appeals, Seventh Circuit
12/9/76
1
E.D.Wis.
AFFIRMED
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Opinion on Rehearing
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 97-6614
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
JOHN OKPALA,
Defendant - Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Benson E. Legg, District Judge. (CR-91-
452-L, CA-96-2524-L)
Submitted: December 23, 1997 Decided: January 9, 1998
Before NIEMEYER, Circuit Judge, and BUTZNER and PHILLIPS, Senior
Circuit Judges.
Affirmed in part and dismissed in part by unpublished per curiam
opinion.
John Okpala, Appellant Pro Se. Steve Zimmerman, OFFICE OF THE
UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
PER CURIAM:
Appellant seeks to appeal the district court's orders denying
his motion filed under 28 U.S.C.A. § 2255 (West 1994 & Supp. 1997),
and his motions for reconsideration. The district court granted a
certificate of appealability as to one issue: "Were Mr. Okpala's
due process rights violated during his arrest in Nigeria and extra-
dition to the United States?" We have reviewed the record and the
district court's opinion and find no reversible error. According,
we affirm the issue for which the district court granted a certif-
icate of appealability and deny a certificate of appealability and
dismiss the appeal as to the remaining issues on the reasoning of
the district court. United States v. Okpala, Nos. CR-92-452-L; CA-
96-2524-L (D. Md. Feb. 27 & Apr. 11 & Apr. 24, 1997). We dispense
with oral argument because the facts and legal contentions are
adequately presented in the materials before the court and argument
would not aid the decisional process.
AFFIRMED IN PART, DISMISSED IN PART
2
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Order entered February 13, 2014
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-13-00376-CR
JOE HENRY MACK, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the County Court at Law No. 2
Collin County, Texas
Trial Court Cause No. 002-80956-2013
ORDER
On November 1, 2013, this Court adopted a finding that appellant is represented by court-
appointed counsel Robert Hultkrantz. We ordered appellant to file his brief by December 6,
2013. When appellant’s brief was not filed by January 14, 2014, the Court ordered that appellant
file his brief within fifteen days. We further warned that the brief was not filed within that time
the Court would order Robert Hultkrantz removed as appellant’s attorney and would order the
trial court to appoint new counsel to represent appellant in the appeal. To date, appellant has
neither filed his brief nor communicated with the Court regarding the appeal.
Accordingly, the Court ORDERS Robert Hultkrantz removed as appellant’s appointed
attorney of record.
We ORDER the trial court to appoint new counsel to represent appellant in this appeal
and to transmit to the order appointing counsel to this Court within FIFTEEN DAYS of the date
of this order.
We ABATE the appeal to allow the trial court to comply with this order. The appeal
shall be reinstated fifteen days from the date of this order or when the order appointing new
counsel is received.
/s/ DAVID EVANS
JUSTICE
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650 N.E.2d 1156 (1995)
Delbert SAVAGE, Appellant-Defendant,
v.
STATE of Indiana, Appellee.
No. 49A02-9309-CR-502.
Court of Appeals of Indiana, Second District.
May 19, 1995.
*1158 John P. Woods, Woods and Woods, Indianapolis, for appellant.
Pamela Carter, Atty. Gen., Dana A. Childress-Jones, Deputy Atty. Gen., Office of Atty. Gen., Indianapolis, for appellee.
*1157
OPINION
KIRSCH, Judge.
Delbert Savage (Savage) appeals his convictions for reckless homicide[1] and criminal recklessness,[2] as well as the trial court's order requiring him to pay $164,998.59 in restitution to the Indiana Family and Social Services Administration on behalf of Medicaid.
Savage presents two issues for our review, which we restate as follows: (1) whether sufficient evidence supports his convictions for reckless homicide and criminal recklessness;[3] and (2) whether the trial court's order requiring him to pay restitution in the amount of $164,998.59 was contrary to law and an abuse of its discretion in light of his earning capacity and potential.
At approximately midnight on May 10, 1992, Savage was the driver and only occupant of a pick-up truck which collided with a passenger car at the intersection of Collier Street and Werges Avenue in Marion County. The driver of the car died as a result of injuries sustained in the collision. One of the surviving passengers sustained serious injuries.
The State charged Savage with reckless homicide and criminal recklessness stemming from the collision. Savage waived his right to a jury trial, after which the trial court heard the case. No one involved in the collision testified at trial regarding the impact. However, two men testified that they observed a blue four-wheel drive Chevy pick-up disregard a stop sign at the intersection one block east of the collision and continue westbound toward the intersection of Collier and Werges. Seconds later, both men heard a loud crash, but neither saw the impact. Both raced to the scene after hearing the collision, and both testified that the truck involved in the collision was the same truck they saw seconds before they heard the crash. One of the men testified that the truck had been travelling at approximately fifty miles per hour, while the other testified that the truck was "probably travelling faster" than the speed limit. Record at 145. The speed limit on Werges is thirty miles per hour.
The State also introduced testimony from the investigating police officer, who, without objection, opined that Savage was travelling faster than thirty miles per hour at the time of the collision and that he disregarded a stop sign before entering the intersection. His investigation consisted of an examination of the accident scene, an examination of the condition of the vehicles, and discussions with another officer and witnesses. He did not perform a formal accident reconstruction, nor did he make any formal speed calculations.[4]
At the close of the State's case, Savage moved for a "dismissal and an acquittal on the evidence". Record at 221. The court denied Savage's motion, and the defendant chose not to present any evidence. The trial court convicted Savage of reckless homicide and criminal recklessness, and sentenced him to six years imprisonment for reckless homicide, and one and one-half years for criminal recklessness. The trial judge apparently merged those sentences, suspending two years of the six years ordered.
*1159 A few weeks later, the trial court conducted a restitution hearing, at which the State introduced a letter indicating that Medicaid had paid $164,998.59 for accident-related medical claims on behalf of the severely injured passenger. The passenger testified at the hearing that she was unable to work, that she had to relinquish custody of her three year-old daughter, and that she was receiving Social Security payments, all as a result of the accident. At the conclusion of the hearing, the court ordered Savage to pay $164,998.59 in restitution to the Indiana Family and Social Services Administration (IFSSA) on behalf of Medicaid. Before incarceration, Savage was a machine operator whose monthly income was $1,000, and whose monthly obligations varied from $800 to $1000.
I. SUFFICIENCY OF THE EVIDENCE
Savage argues that the evidence does not support his convictions for reckless homicide and criminal recklessness. In reviewing Savage's convictions, this court will not reweigh the evidence, nor will we judge the credibility of witnesses. Miller v. State (1994) 2d Dist.Ind. App., 634 N.E.2d 57, 62. Rather, we consider only that evidence favorable to the trial court's judgment, and if there is substantial evidence of probative value to support the conviction, we must affirm. Id. at 62-63.
Without eyewitnesses, the State's case is circumstantial. Nevertheless, reviewing the evidence favorable to the convictions, we find ample support for the judgment.
Lack of Eyewitness Testimony
Savage first argues that the judgment is not supported by sufficient evidence because the State failed to produce any eyewitnesses to the collision, and, therefore, was unable to offer any evidence about how the accident occurred. We disagree.
Savage relies upon Hardesty v. State (1967) 249 Ind. 518, 231 N.E.2d 510. In Hardesty, our Supreme Court reversed a defendant's reckless homicide conviction arising out of his operation of a motor vehicle. At trial, the State offered eyewitness testimony by a person who did not see the accident, but who observed the defendant's driving a few minutes before impact.[5] The State presented no expert testimony.[6] In reversing the conviction, our Supreme Court held that the State did not sustain the burden of proof necessary in a circumstantial evidence case because the witness "lost all visual contact of appellant's operation of appellant's vehicle prior to the collision" and because "it was a matter of minutes before [the witness] arrived at the scene of the collision[.]" Id. 231 N.E.2d at 513.
In the case before us, two of the State's witnesses saw Savage disregard a stop sign at an intersection one block east of the accident scene. However, neither of them testified that they saw Savage disregard the stop sign at the intersection where the collision occurred, and neither of them actually saw the collision. Had the State relied solely upon the testimony of these two witnesses, the guilt determination would have been suspect under the holding of Hardesty. In so stating, we do not conclude that the "reasonable hypothesis of innocence" standard alluded to in Hardesty was determinative of the result in that case.
In Hardesty, the court noted that in a circumstantial evidence case, the evidence must exclude "every other reasonable inference of innocence". 231 N.E.2d at 512. The *1160 appellate review standard which was applied, however, was the standard which continues to control to this date. As stated in Bivins v. State (1982) Ind., 433 N.E.2d 387, 391-92:
"It is well established that when this Court is confronted with a challenge to the sufficiency of the evidence, we are required to examine the evidence most favorable to the fact-finder's conclusion, together with the reasonable inferences arising therefrom. If, from that viewpoint, there is substantial evidence of probative value to support the fact-finder's conclusion defendant was guilty beyond a reasonable doubt, it will not be disturbed. [Citations omitted.] This standard of review prevails even though circumstantial evidence gives rise to conflicting inferences of both guilt and innocence. Id. Defendant's reliance on Manlove v. State, (1968) 250 Ind. 70, 232 N.E.2d 874, is misplaced; the standard enunciated therein governs the assessment of evidence at the trial court level."
However, unlike the situation in Hardesty,[7] the State in this case offered additional testimony from a trained accident investigator, who explained and interpreted the evidence that his investigation at the accident scene revealed.[8] Consequently, Savage's reliance on Hardesty is inapposite.
Investigating Officer's Testimony
Officer Dale Braun of the Marion County Sheriff's Department investigated the accident scene at Collier and Werges. At trial, he testified that, in his opinion, Savage was travelling faster than thirty miles per hour at the point of impact and that he could not have stopped at the stop sign before entering the intersection. Savage contends that Officer Braun's testimony is insufficient to support the judgment. Again, we disagree.
Savage first asserts that Officer Braun's opinion lacks the requisite scientific certainty necessary for him to render his opinion because he did not perform any formal speed calculation or accident reconstruction. Our research does not reveal any decision limiting an expert only to those opinions which can be stated with reasonable "scientific certainty." Our Supreme Court's opinion in Strong v. State (1989) Ind., 538 N.E.2d 924, 930-32, provides clear and definitive authority with regard to the requisite degree of certainty necessary to support an expert's opinion. Absolute certainty is not required. Strong, supra at 930 (citing Church v. State (1984) Ind., 471 N.E.2d 306). In Strong, our Supreme Court relied upon and endorsed Justice Hunter's plurality opinion in Noblesville Casting Div. of TRW v. Prince (1982) Ind., 438 N.E.2d 722, in which he noted as follows:
"`[N]o threshold level of certainty or conclusiveness is required in an expert's opinion as a prerequisite to its admissibility. Assuming the subject matter is one which is appropriate for expert testimony and that a proper foundation has been laid, the expert's opinion or conclusion that, in the context of the facts before the witness, a particular proposition is `possible,' `could have been,' `probable,' or `reasonably certain' all serve to assist the finder of fact in intelligently resolving the material factual questions. The degree of certainty in which an opinion or conclusion is expressed concerns the weight to be accorded the testimony, which is a matter for the jury to resolve.'" Strong, supra at 931.
In order to have probative value, it is not necessary that an admissible opinion be expressed with any degree of "certainty". The law deals in probabilities, not mere possibilities or, at the other extreme, with certainties. See Beaman v. Hedrick (1970) 146 Ind. App. 404, 255 N.E.2d 828. To be sure, the totality of the evidence in a criminal case must be sufficient to convince the trier of fact that the defendant is guilty beyond a reasonable *1161 doubt. However, the admissibility of any particular evidence is not subjected to that standard.
Rule 401 of the new Indiana Rules of Evidence makes it clear that evidence is relevant, and therefore admissible, if it has "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."
In this case, the record indicates that Officer Braun did not testify as an expert in accident reconstruction or speed calculation. Rather, he was called upon to render an opinion based upon his experience as a police officer and a seasoned accident scene investigator.[9] Regardless, Officer Braun's opinion must have been supported to a reasonable probability to avoid being based solely upon speculation or conjecture. The lack of a formal accident reconstruction or speed calculation does not render Officer Braun's opinion without probative value. While he did not perform either a formal accident reconstruction or a speed calculation, his opinion was based upon his independent investigation of the scene, the comparative positions of the vehicles in relation to the point of impact, and the type and extent of damage each vehicle sustained. Moreover, his opinion brought to bear his years of experience in observing accident scenes and damage caused by various types of impacts.
We conclude that Officer Braun's opinion was qualified to the requisite degree of probability necessary for a police officer rendering an opinion as an accident scene investigator. The weight of his opinion was a matter properly for the trial judge's consideration as the trier of fact. We will not re-examine either Officer Braun's credibility or the weight the trial judge should have afforded his opinion. Strong, supra at 931 (citing Prince, supra, 438 N.E.2d 722).
Next, it is argued that Officer Braun's opinion failed to show that Savage's driving met the statutory definition of recklessness. Savage claims that the evidence at trial merely demonstrated negligence. Under Indiana law, a person is reckless if he "engages in the conduct in plain, conscious, and unjustifiable disregard of harm that might result and the disregard involves a substantial deviation from acceptable standards of conduct." I.C. XX-XX-X-X(c) (Burns Code Ed.Repl. 1994). See also Miller, supra, 634 N.E.2d at 63. Such conduct will support a conviction for reckless homicide if it results in the death of another. I.C. XX-XX-X-X (Burns Code Ed.Repl. 1994). See also McClaskey v. State (1989) Ind., 540 N.E.2d 41; Warner v. State (1991) 3d Dist.Ind. App., 577 N.E.2d 267, 269.
Savage argues that "[a] slight deviation from the [speed] limit does not thereby create a great risk of danger and, alternatively, it is conceivable that some violations are due to inadvertence." Taylor v. State (1983) 4th Dist.Ind. App., 457 N.E.2d 594, 598. He also contends that his actions were merely negligent because he was unfamiliar with the intersection, and a person cannot be reckless with regard to a potential harm unknown to him.[10] We disagree with both contentions.
The trier of fact determines whether the defendant's conduct meets the statutory definition of recklessness. As the trier of fact, the trial judge properly could infer from Officer Braun's testimony that Savage was traveling at more than a "slight deviation from the speed limit" at the time of the collision. Officer Braun testified that he believed *1162 the truck was traveling faster than thirty miles per hour, but he simply could not state with any accuracy the truck's actual speed. The degree of deviation in speed is a matter for the trier of fact. In this case, the trial judge determined that the truck's speed was high enough to meet the statutory definition of recklessness. We will not reweigh the evidence in that regard.
Further, the record reveals that Savage presented evidence of his unfamiliarity with the area. In addition to Officer Braun's opinion testimony discussed above, we note testimony presented to the trial court indicating that two witnesses testified that Savage was travelling faster than thirty miles per hour only a short distance from the point of impact. We also note that testimony revealed Savage disregarded a stop sign at an intersection one block east of the accident scene and that the truck continued toward the intersection of Collier and Werges. Moreover, witnesses identified Savage's damaged truck at the accident scene as the same blue Chevy pick-up they had seen on Werges only seconds before.
Sufficient evidence was before the trial judge from which she, sitting as the trier of fact, could infer that Savage's conduct was not merely negligent. She properly could have inferred that he operated his truck with a plain, conscious, and unjustifiable disregard of the harm that might result, and that his actions deviated from acceptable standards for driving a motor vehicle.
The trial judge's determinations of guilt beyond a reasonable doubt are affirmed.
II. RESTITUTION
Savage next argues that the trial court's decision ordering him to pay $164,998.59 in restitution to IFSSA on behalf of Medicaid[11] is contrary to law and an abuse of discretion. Based upon his earning potential and work history, Savage contends that it is impossible for him to pay such an amount.
A trial court has the authority to order that one convicted of a felony or misdemeanor make restitution to the victim as part of his sentence pursuant to I.C. XX-XX-X-X(a),[12] or as a condition of probation pursuant to I.C. XX-XX-X-X.3(a)(5).[13]See Reinbold v. State (1990), Ind., 555 N.E.2d 463, 469. It is apparent from the record that the trial court in this case ordered restitution pursuant to an order of probation. When a trial court orders restitution as a condition of probation, I.C. XX-XX-X-X.3(a)(5) requires that the amount of restitution not exceed an amount the defendant can or will be able to pay.[14]See Miller v. State (1986) Ind., 502 N.E.2d 92, 96.
The order of restitution is a matter within the trial court's discretion. Here, the trial court ordered restitution in the amount of $164,998.59. The evidence is undisputed that Savage has never earned more than $1,000 per month and that his child support and living expenses were $800 to $1,000 per month. Assuming that Savage can pay $200 per month and that no interest accrues, it will take 68 years and 9 months for him to pay off the restitution amount.
*1163 The trial court ordered restitution as a condition of probation. IC XX-XX-X-X.3(a)(5) requires that the amount of restitution not exceed the amount that the defendant can or will be able to pay. An order of restitution that requires that the defendant pay 100% of his disposable income for a period in excess of his life expectancy is manifestly unreasonable, an abuse of discretion and contrary to law.
The judgment with respect to the conviction is affirmed. The judgment is reversed with respect to the order of restitution. The cause is remanded for further proceedings and a redetermination of the restitution, if any, which is to be required of Savage.
STATON, J., concurs.
SULLIVAN, J., concurs in part and dissents in part, with separate opinion.
SULLIVAN, Judge, concurring in part and dissenting in part.
I fully concur in Part I of the majority opinion. I must respectfully dissent, however, with respect to the rationale upon which the majority reverses the restitution order.
As noted, "[w]hen a trial court orders restitution as a condition of probation, I.C. XX-XX-X-X.3(5) requires that the amount of restitution not exceed an amount the defendant can or will be able to pay. See Miller v. State (1986) Ind., 502 N.E.2d 92, 96." This court also has determined that the trial court must hold a hearing to determine the amount of restitution the defendant can or will be able to pay in order to satisfy equal protection concerns. Sales v. State (1984) Ind. App., 464 N.E.2d 1336. Additionally, this court has determined that reliance upon a presentence report containing financial and employment information is "adequate to allow the trial court to make an informed and fair decision as to the amount of restitution to be paid... ." Mitchell v. State (1990), 4th Dist.Ind. App., 559 N.E.2d 313, 315, trans. denied.
The order of restitution is a matter within the trial court's discretion. In Mitchell, this court noted that "[i]mposition of restitution is a form of punishment and although it may cause some hardship, the trial court has discretion to determine the extent of the hardship and whether the defendant can still subsist after the payments." Id. at 315.
In this case, the trial judge properly held a restitution hearing. Moreover, the record indicates that the trial judge considered Savage's ability to pay in reaching her decision, relying both upon testimony and upon presentence materials prepared by Savage and the probation office.[15] The presentence materials provided the trial judge with, inter alia, Savage's family history, marital history, educational background, work history, health status, employment status, and financial information. Therefore, I would conclude that the ordered restitution is not manifestly unreasonable, and that the trial judge did not abuse her discretion in arriving at the amount of restitution ordered in this case.
In my view, the trial judge did, however, abuse her discretion with regard to the manner of payment. In Maxwell v. State (1983) 3d Dist.Ind. App., 455 N.E.2d 1171, a defendant appealed the trial court's order of restitution, arguing that the trial court abused its discretion in failing to order the manner of payment.[16] There, we held that the trial court abused its discretion in failing to fix the manner of performance, noting that "although the record does not indicate that the court considered Maxwell's ability to pay, we cannot say the record shows the amount imposed to be an improper choice so long as *1164 Maxwell is not required to pay any significant percentage of the total in any one payment." Id. at 1176 (emphasis in original). In Maxwell, we further indicated that "[t]he purpose of restitution is to make reparation to the victim and to give the defendant an alternative to jail. This purpose is defeated if the restitution is potentially impossible as it is where a person of [modest] means is ordered to pay [$1,234.00] with no payment breakdown." Id.
Here, the trial court ordered as follows: "IT IS ORDERED, ADJUDGED AND DECREED that the defendant, Delbert Savage, pay restitution in the amount of $164,998.59 to Indiana Family and Social Services Administration on behalf of Medicaid through the Marion County Probation Office or directly through the United States Mail." Supp.Record at 1. I would find that the manner of payment principles enunciated in Maxwell apply to this case. Given Savage's financial situation, it is clear that he cannot make a lump sum payment of $164,998.52. Accordingly, merely specifying payment either through the probation office or via U.S. Mail is insufficient to satisfy the statutory requirement that the court fix the proper manner of payment. The trial court's order does not establish any type of payment plan or payment schedule, nor does it specify whether Savage must make a lump sum payment.
The majority accurately observes that, based upon past employment and even upon current employment prospects, Savage will never be able to pay the full amount. However, I am of the view that it is inappropriate to relieve him, as a matter of law, from an equitable obligation brought about by his own misconduct. It is possible, even though not probable, that in the future Savage may improve his marketable work skills. If that event does not occur or, if his financial ability varies from time to time, periodic review of his restitution obligation may be sought. In so stating, I would note that despite the heavy financial burden placed upon Savage by the trial court, he may not be made to suffer sanctions or punishment for inability to pay. He may be sanctioned only for a willful refusal to pay what he is able to pay.
NOTES
[1] "A person who recklessly kills another human being commits reckless homicide, a Class C felony." I.C. XX-XX-X-X (Burns Code Ed.Repl. 1994).
[2] "A person who recklessly, knowingly, or intentionally performs ... An act that creates a substantial risk of bodily injury to another person ... commits criminal recklessness, a Class B misdemeanor. However, the offense is a ... Class A misdemeanor if the conduct includes the use of a vehicle[.]" I.C. XX-XX-X-X(b) (Burns Code Ed.Repl. 1994).
[3] Savage makes no argument that the two convictions run afoul of double jeopardy prohibitions against imposing two punishments for a single act of recklessness. In any event, however, it appears that the trial court merged the two offenses for purposes of sentencing.
[4] The officer testified that, given the information he had, it was impossible to perform a speed estimate. The officer's investigation did not reveal any skid marks for either vehicle.
[5] A witness named Bailey testified that he witnessed a car behind him. As it approached, Bailey ascertained that it was a red Dodge convertible. He also identified the driver as having dark hair and wearing a white shirt. Bailey then pulled over to the side of the road and the Dodge "`shot by him at a great rate of speed', 65-70 m.p.h... . ." Hardesty, 231 N.E.2d at 511. Bailey then testified that the Dodge accelerated, "fish-tailed" and moved to the center of the road. Id. He also saw the Dodge disregard a four-way stop sign before speeding out of sight. After a brief stop at a friend's house, Bailey proceeded along the same route as that previously taken by the Dodge. Later, he came upon the scene of a two-car collision. One of the cars was the decedent's station wagon, and the other was a red Dodge meeting the same description as the one which had earlier passed him.
[6] The only other additional testimony about speed or position of the vehicles before impact revealed that there was debris on both sides of the center line and that there were skid marks, apparently made by the Dodge.
[7] In Hardesty, the State relied upon the eyewitness testimony of Bailey. The State did not introduce any other evidence except for testimony that there was debris on both sides of the center line and that there were skid marks, apparently made by the appellant's car, which straddled the center line. Specifically, the court noted that, "[t]here was no evidence presented, save for the skid marks, tending to establish the speed or position of either car just previous to the impact. In addition, there was no expert testimony to interpret the skid marks or to explain what, if anything, they indicated." Hardesty, 231 N.E.2d at 512.
[8] See infra, "Investigating Officer's Testimony[.]"
[9] Officer Braun did not perform a formal accident reconstruction or speed calculation, nor did the State formally tender Officer Braun as an expert witness in speed calculation or accident reconstruction. Officer Braun testified that his opinion was based upon his "experience in seeing a lot of accidents." Record at 211.
[10] For this proposition, Savage cites Wallace v. State (1990) 1st Dist.Ind. App., 558 N.E.2d 864, 865. In Wallace, this court determined that a driver's failure to check to see if the lane to his right was clear before changing lanes was not such a deviation from acceptable standards of conduct to be labelled "reckless." This case is not similar. A driver who speeds and who disregards stop signs creates a situation in which his disregard of potential harm is a substantial deviation from acceptable standards of conduct, and is considered reckless even if the driver did not intend or even contemplate that the conduct would endanger himself or others. Accordingly, Savage's reliance upon the proposition stated in Wallace is misplaced.
[11] The value of the medical services provided is a proper subject of restitution to the provider. In such a case the provider is a "victim" within the intendment of the statute. Reinbold v. State (1990) Ind., 555 N.E.2d 463, 469.
[12] "In addition to any sentence imposed under this article for a felony or misdemeanor, the court may, as a condition of probation or without placing the person on probation, order the person to make restitution to the victim of the crime." (Burns Code Ed.Repl. 1994).
[13] "As a condition of probation, the court may require a person to do a combination of the following: ... Make restitution or reparation to the victim of the crime for damage or injury that was sustained by the victim. When restitution or reparation is a condition of probation, the court shall fix the amount, which may not exceed an amount the person can or will be able to pay, and shall fix the manner of performance." (Burns Code Ed.Repl. 1994).
[14] This court has held that restitution imposed upon a defendant with an executed sentence pursuant to I.C. XX-XX-X-X does not require the trial court to inquire into the defendant's ability to pay. Bitner v. State (1989), 2d Dist.Ind. App., 546 N.E.2d 117. Presumably, an attempt to enforce a restitution order against such a defendant would be subject to a defense, at least temporarily, of inability to pay.
[15] The restitution order itself reads as follows:
"Based upon the pre-sentence investigation and evidence presented at the sentencing hearing on this matter... ." Supp.Record at 1. The trial judge also considered the testimony of the injured passenger.
[16] The statute in effect and at issue at the time of Maxwell was I.C. 35-7-2-1(a)(5), which provided, in relevant part, as follows: "[A]s conditions of probation, the court may require that the person: ... (5) make restitution or reparation to the victim of his crime for the damage or injury that was sustained (When a restitution or reparation is a condition of the sentence, the court shall fix the amount thereof, which may not exceed an amount the person can or will be able to pay, and shall fix the manner of performance.)". 455 N.E.2d at 1175 (quoting statute). This language is identical to that now codified at I.C. XX-XX-X-X.3(a)(5).
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898 F.2d 357
Medicare&Medicaid Gu 38,438WEST VIRGINIA UNIVERSITY HOSPITALS, INC.v.Robert CASEY, Governor, Commonwealth of Pennsylvania; JohnWhite, Secretary, Department of Public Welfare; David S.Feinberg, Director, Office of Medical Assistance; theDepartment of Public Welfare, Appellants.
No. 89-5165.
United States Court of Appeals,Third Circuit.
Submitted Dec. 5, 1989.Decided March 12, 1990.
Ernest D. Preate, Jr., Atty. Gen., Jerome T. Foerster, Deputy Atty. Gen., Calvin R. Koons, Sr. Deputy Atty. Gen., John G. Knorr, III, Chief Deputy Atty. Gen., Chief, Litigation Section, Harrisburg, Pa., for appellants.
Robert T. Adams, Thomas J. Stallings, McGuire, Woods, Battle & Boothe, Richmond, Va., Julia Krebs-Markrich, McGuire, Woods, Battle & Boothe, Washington, D.C., Jack M. Stover, Mette, Evans & Woodside, Harrisburg, Pa., for appellees.
Before BECKER, STAPLETON, and ROSENN, Circuit Judges.
SUR MOTION FOR ATTORNEYS' FEES AND COSTS
ROSENN, Circuit Judge.
1
On July 6, 1986, West Virginia University Hospitals, Inc. (WVUH or the Hospital) commenced an action against the Governor of the Commonwealth of Pennsylvania and various other officials (the State) pursuant to 42 U.S.C. Sec. 1983. In the action WVUH sought injunctive and declaratory relief invalidating the out-of-state aspects of Pennsylvania's hospital reimbursement program, as well as reasonable attorneys' fees, including expert witness fees, and costs. WVUH claimed that Pennsylvania's medicaid prospective payment system as it applied to the plaintiff violated federal law. The litigation dealt with certain issues which had not been previously litigated and involved complex issues of state and federal medicaid reimbursement law and statutory and constitutional challenges to Pennsylvania's administrative system. On November 30, 1988, the district court entered an order in favor of the Hospital on all significant issues and awarded WVUH substantially the prospective relief requested, as well as attorneys' fees (including expert witness fees) and costs.
2
Subsequent to that litigation, WVUH applied to the district court for attorneys' fees and following negotiations the parties agreed on the sum of $350,000, which the court approved. The defendants filed a timely appeal with this court vigorously challenging the major aspects of the district court's decision. After oral argument and review of the briefs and record, we rendered our decision on September 5, 1989, affirming the district court's judgment that Pennsylvania's medicaid prospective system as applied to plaintiff violated federal law, but reversing the district court's declaration that Pennsylvania's administrative appeals system as it applied to WVUH violated federal law and the award of retroactive relief. We also vacated the award for expert witness fees insofar as it allowed a sum in excess of thirty dollars per day. We denied WVUH's petition for rehearing.
3
Based on our decision, we now have before us the Hospital's application as amended for attorneys' fees in the sum of $132,737.47 and $7,394.37 in disbursements in connection with the appeal to this court. The State opposes the application with numerous objections which, although they do not raise the request for fees and costs to the same level of complexity as the underlying litigation, nonetheless present the trappings of major litigation. We grant the motion in part.
I.
4
WVUH claims that it is entitled to the fees requested before this court because it prevailed on the appeal within the meaning of 42 U.S.C. Sec. 1988. It asserts that the essential question in its lawsuit and on appeal was whether Pennsylvania's medicaid prospective payment system, as it applied to WVUH, complied with federal law. It prevailed in the resolution of this issue in both the district court and on appeal in this court. WVUH acknowledges that we reversed the district court's determination declaring invalid the legality and adequacy of Pennsylvania's administrative appeals system as well as the district court's award of relief retroactive to the filing of the lawsuit. West Virginia University Hosp., Inc. v. Casey, 885 F.2d 11 (3d Cir.1989). We also vacated the district court's decision allowing expert witness fees of $104,103.00 under 42 U.S.C. Sec. 1988. The Hospital, however, contends that the administrative appeals issue "is subordinate to the central issue" concerning the legality and adequacy of the prospective payment system, and the expert witness fee issue is tangential to the substantive claim concerning the legality and adequacy of Pennsylvania's medicaid prospective system, and arose solely from the question of the total amount of attorneys' fees to be awarded. The Hospital maintains that it has protected its essential legal rights, "will obtain major and permanent changes in Pennsylvania's reimbursement practices," and has thus obtained the "primary relief" it sought. WVUH therefore concludes that it is the prevailing party for purposes of 42 U.S.C. Sec. 1988 and is entitled to all of the attorneys' fees and disbursements requested on the appeal to this court and in connection with earlier efforts to enforce compliance with the judgment of the district court.
5
The State, responding to the Hospital's application, has raised numerous objections. They may be summarized as follows:
6
(1) WVUH is not entitled to attorneys' fees in the sum requested because on appeal it lost on "three significant issues": the administrative appeals issue, the retroactivity issue, and the expert witness fees issue. Therefore, the State contends the request for fees should be reduced by seventy-five percent.
7
(2) This court may not award fees on a direct motion to this court for WVUH's efforts to enforce compliance with the district court's judgment because those services were not rendered in the court of appeals. Specifically, the State challenges fees for WVUH's unsuccessful Rule 70 motion in the district court and for WVUH's efforts to enforce compliance with the district court judgment.
8
(3) No award should be made for items that represent an unnecessary duplication of effort by multiple counsel.
9
(4) No award can be made for numerous items of alleged service when the individual entries in the plaintiffs' supporting exhibits lack necessary specificity.
10
(5) Miscellaneous items of disbursement for telephone, duplicating, and other office expenses were either unnecessary or excessively expensive.
II.
11
The major issue before us pertains to the State's request for a reduction of attorney's fees under the principles enunciated in Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), because the plaintiff, WVUH, did not prevail on all the issues raised on appeal. In Hensley, the Supreme Court held that courts must assess the claims advanced and the results achieved by the prevailing party when determining what is a "reasonable" attorney's fee under 42 U.S.C. Sec. 1988. Under Hensley, attorneys are not to be compensated for time spent on claims which are unrelated to successful claims. Id. at 435, 103 S.Ct. at 1940. However, "where a lawsuit consists of related claims, a plaintiff should not have his attorney's fees reduced simply ..." because some related claims are unsuccessful. Id. at 440, 103 S.Ct. at 1943. The court must consider whether the results obtained by the prevailing party justify an award of attorney's fees for hours spent on related but unsuccessful claims. Hensley at 435, 103 S.Ct. at 1940. When the relief obtained is excellent, the prevailing party may recover fees for "all hours reasonably expended on the litigation." Id. at 436, 103 S.Ct. at 1941. If the prevailing party does not obtain substantial but only partial relief, a full award of fees for all hours spent on related, unsuccessful claims would be excessive. Hensley at 440, 103 S.Ct. at 1943.
12
There can be no doubt that the central issue on appeal, as it was in the district court, was whether Pennsylvania's formulation for reimbursing out-of-state hospitals for their inpatient services to Pennsylvania medicaid recipients violated federal statutory and regulatory law. WVUH prevailed on this issue. The plaintiff argues that the claims in this appeal are related because they emanate from a common core of facts and are based on related legal theories. It asserts that each of the claims raised on appeal cannot be reasonably viewed as "distinct in all respects" from the central issue in the case and it is, therefore, entitled to a full compensatory award. Not surprisingly, the defendants have a different perspective of the Hospital's case. They contend that the issue on which WVUH prevailed was separate and distinct from the claims it lost on appeal. Although the State concedes that all of the issues may have been intertwined at the district court level, that was not the situation before this court. Having prevailed on only one of four issues, the State concludes that the Hospital's fee award should be reduced by seventy-five percent.
13
Regrettably, except for conclusory statements, neither of the parties provides us with any assistance in determining whether the claims are related or are separate and distinct from the principal claim on which WVUH prevailed. One useful "starting point" for separating an unrelated, unsuccessful claim from a related unsuccessful claim is to determine whether a particular unsuccessful claim shares a "common core of facts" with the successful claim or is based on a "related legal theory." Hensley, 461 U.S. at 435, 103 S.Ct. at 1940. The Court in Hensley also instructs us to interpret "related claims" broadly. Nonetheless, when the plaintiff has not prevailed on a claim "that is distinct in all respects from his successful claim," time spent on the unsuccessful claim "should be excluded in considering the amount of a reasonable fee." Hensley at 440, 103 S.Ct. at 1943. With these principles in mind, we address the claims which were advanced unsuccessfully by WVUH on appeal.
III.
A. The Administrative Appeals Issue
14
On appeal, WVUH lost on its claim concerning the legality of Pennsylvania's administrative appeals system and appropriately asserts that this claim is subordinate to the central issue, the legality and adequacy of the prospective payment system. The defendants assert that both parties considered the issue significant because it related to the district court's grant of retroactive relief. The immediate consideration before us, however, is not so much whether the claim is subordinate, but whether it is related to the successful claim for relief.
15
Whether the Pennsylvania administrative appeals issue is related to WVUH's attack on the alleged violations of Title XIX of the Federal Medicaid Act may be a close question. However, we conclude that the relationship, if any, is remote and that the issue is discrete. WVUH argues that a relationship exists between the two issues because a successful challenge to the administrative appeals system might have opened an avenue for alternative relief. We reject this argument.
16
We see the factual matrix to the legality of Pennsylvania's administrative appeals system as totally different from the successful challenge to the validity of Pennsylvania's hospital reimbursement program for medicaid services. Pennsylvania's reimbursement plan and its statutes and regulations setting up an administrative appeals system deal with different subjects. The first sets up a specific medical assistance and reimbursement program; the latter creates a state procedural structure applicable to the administrative appeals generally within the Commonwealth. The legal theory and analysis pertaining to each is different. The issues involve two different aspects of the administration of the Commonwealth's medicaid program, governed by different provisions of the Federal Medicaid Act. In essence, we are asked to construe two different statutes, each treating totally different subjects. We therefore reject the plaintiff's claim that it is entitled to a fee amount with respect to its unsuccessful administrative appeals issue. In our judgment, a 15 percent disallowance of the fee requested on the appeal, excluding services pertaining to the post-argument brief which were unrelated to the issue, is reasonable. In our computation, infra, for the attorneys' fees allowance on appeal, we will deduct 15 percent, excluding services pertaining to the post-argument brief.
17
B. The Retroactivity and Eleventh Amendment Issue
18
The district court awarded relief retroactive to the day WVUH commenced its lawsuit against the defendants. We reversed and instead ordered relief from the date of the court's initial judgment. The State's position is that this issue was of great significance to it and to WVUH, requiring significant time and effort from WVUH, and that the services the Hospital devoted to this issue should not be compensated. However, we will not dwell long on this issue because obviously the date the relief commences is directly related to WVUH's principal claim; the retroactivity claim had a direct effect on the claim for damages.
19
Given the relatedness of the retroactive claim to WVUH's successful claims, the court's "rejection" of WVUH's retroactive claim "is not a sufficient reason" for reducing its attorneys' fees. Hensley at 435, 103 S.Ct. at 1940. On the contrary, we are to assess the appropriateness of a fee award by "focus[ing] on the significance of the overall relief obtained by the plaintiff." Id. The Hospital's retroactive claim was related to the principal issue upon which it obtained substantial relief. Therefore, we exercise our discretion and award attorney's fees for all hours reasonably spent on the retroactive claim. See Hensley at 437, 103 S.Ct. at 1941. The State's contention that the plaintiff is not entitled to a fee award with respect to this issue is rejected.
C. Expert Witness Fees
20
Although the defendants stipulated that WVUH's experts were indispensable to their case, the plaintiff claimed and obtained in the district court an award of expert witness fees in the sum of $104,133.00. The State argued, on appeal, as they did in the district court, that the amount of expert witness fees allowed improperly exceeded the statutory maximum of thirty dollars per day under 28 U.S.C. Sec. 1821(b). We reluctantly concluded that the defendants were correct and vacated the district court's judgment awarding attorneys' fees insofar as it awarded WVUH expert witness fees in excess of thirty dollars per day.
21
In its application for attorneys' fees in this court, WVUH describes this issue of expert witness fees as "tangential" to its principal claim. Although WVUH concedes that this issue "is arguably unrelated to the claims presented," it asserts that it should prevail on this issue too because the issue is directly related to the overall request for reimbursement of attorneys' fees. We disagree. We believe that the matter of the sum to be awarded as expert witness fees under 42 U.S.C. Sec. 1988 is an issue separate and distinct from the primary issue on which the plaintiff prevailed and thus "unrelated" to it. Of course, the claims for expert witness fees arise out of this litigation, but this does not mean that they are per se directly related to the primary legal issue on which the plaintiff prevailed.
22
Whether expert witnesses are limited in their claim for fees to thirty dollars per day as provided by statute or may claim fees in a section 1983 suit without regard to the statutory limitations contained in 28 U.S.C. Sec. 1821(b) is a matter not related at all to the plaintiff's legal challenge to Pennsylvania's medicaid payment system. How much is to be paid an expert witness is common to any civil suit in which expert witnesses are called, and it has no special bearing on the principal issue on which the plaintiff prevailed. The plaintiff's claim for attorneys' fees for services pertaining to this issue will therefore be rejected.
23
The burden of proving entitlement to reimbursement is upon the applicant. It is difficult to ascertain the precise number of hours and services performed on this issue from the exhibits attached to plaintiff's application, notwithstanding the more than 800 bookkeeping entries set forth therein. The State would have us simply make a mathematical deduction of 25 percent of the fees claimed because WVUH lost on this one of four issues. We think this is too simplistic and unrealistic. We have taken what we regard as a more pragmatic approach. We have noted that plaintiff's counsel spent a certain amount of time and effort in researching the issue in the district court in connection with the application for attorney's fees and expert witness fees in that court. This reduced the amount of time required in researching and briefing the issue in this court. The question was not complex and although the amount of witness fees requested exceeded $100,000, the issue was the most subordinate of those presented on appeal. In our judgment, a ten percent disallowance of the fee requested on the appeal, excluding services pertaining to the post-argument brief which had nothing to do with this issue, is reasonable. In our computation infra for the attorneys' fees allowance on appeal, excluding services in connection with the post-argument brief, we will deduct ten percent.
24
D. Services to Enforce Compliance with the District Court's Judgment
25
The plaintiff has also submitted to this court a request for a fee award combining a large variety of services it represents was performed in implementing the judgment of the district court, including preparation for and meeting with Pennsylvania medicaid officials, analysis of the Pennsylvania State Plan Amendment submitted to the United States Department of Health & Human Services, preparation of a brief in opposition to the application to the district court for a stay pending appeal, preparation of a Rule 70 motion and supporting brief with the district court to enforce its judgment. Although the State does not object to the hourly rate claimed for each lawyer, it challenges the number of hours claimed and expenses incurred because those services were not involved in the appeal to this court.
26
An appellate court is not in a position to review a dispute with respect to post-judgment legal or related services performed in the district court, or with respect to the enforcement or implementation of that court's judgment unless the district court has made the requisite findings of fact. It would be highly presumptuous and far from prudential for an appellate court acting on a motion for fees relating to an appeal before it to also adjudicate disputed issues of fact on matters not involved in the appeal, and on which the district court had no opportunity to pass judgment.
27
The district court entered its memorandum opinion and order on November 30, 1988. However, final judgment was not entered until January 31, 1989. Nonetheless, commencing on November 30, 1988, with an entry of $120 charge for a telephone call relating to the district court's decision, fees and costs are requested throughout the numerous entries in plaintiff's exhibits 1 and 2 for services not relating to the appeal in this court. In fact, a considerable sum is even requested for services and expenses in connection with the request for attorneys' fees in the district court and the joint stipulation ultimately reached in connection therewith. Also, attorneys' fees are requested for conferences with the Pennsylvania Department of Welfare, and expenses related thereto. We obviously have no way of assessing whether these services and expenses were required, are reasonable, and whether they were compensated in the fee award made by the district court. For example, an item on December 12, 1988, requesting $450 in attorneys' fees for a telephone call between plaintiff's attorney, Ms. Krebs-Markrich, and other counsel appears to relate to the fee proposal in the district court.
28
Only the district court is in a position to know whether any of the services for which compensation is sought here were included in the stipulated fees allowed by it of $350,000. If an evidentiary hearing must be conducted as to the other items sought in enforcing the judgment, the district court should conduct it and make the necessary findings. We see no plausible basis for this court to adjudicate these disputed claims and we will not pass upon them. We have reviewed each of the cases cited by the plaintiff, namely Burke v. Guiney, 700 F.2d 767 (1st Cir.1983); Northcross v. Board of Educ., 611 F.2d 624 (6th Cir.1979), cert. denied, 447 U.S. 911, 100 S.Ct. 2999, 64 L.Ed.2d 862 (1980); and Prandini v. National Tea Co., 585 F.2d 47 (3d Cir.1978). None of these cases provides us with any precedent to support the award requested. Furthermore, WVUH did not prevail on its Rule 70 motion in the district court.
29
We are optimistic that in light of the ability and skill of counsel for the parties to agree upon a fair sum for attorneys' fees in the much larger claim for trial fees in the district court, they will reach an agreement with respect to attorneys' fees for the post-judgment services rendered without the need to invoke an evidentiary hearing in the district court.
30
E. Duplication of Effort by Multiple Counsel and Unnecessary Services
31
The State objects to $11,121.50 requested in fees by plaintiff on the ground that these services were duplicative and unnecessary. The plaintiff counters by asserting that given the complexity of the issues and the size of the record, it was not unreasonable to have the two principal attorneys from Virginia present at the oral argument. WVUH also notes that due to our expedition of the briefing and oral argument, counsel for WVUH had less time than usual to prepare for argument and, therefore, had divided the work on appeal. Furthermore, it asserts that local counsel were necessary because of their familiarity with practice before this court.
32
It seems that an extraordinary amount of time was consumed by appellee's counsel in the preparation of an appellate brief pertaining to a case which they had tried, researched, and briefed in the district court. Furthermore, the appellants had the laboring oar in framing the issues on appeal and preparing the appendix. Nonetheless, we are unable to say that multiple counsel were unnecessary or that the hours consumed were unreasonable. We did order expedited briefing and oral argument; the issues were complex.
33
On a prior occasion we noted the thin line that may exist between a reasonable and unreasonable expenditure of time in pursuit of a client's cause. We also reminded counsel that members of the bar are officers of the court and that they should demonstrate the same level of billing judgment and sensitivity in fee shifting situations as they do with their own private clients.
34
The courts frequently must rely not only upon the accuracy of the record keeping but upon the intellectual honesty of counsel in the allocation of hours worked and in the measurement of time. Lawyers must therefore exercise care, judgment, and ethical responsibility in the delicate task of billing time and excluding hours that are unnecessary. Such consideration may not be abandoned because fee responsibility is shifted under 42 U.S.C. Sec. 1988.
35
Hall v. Borough of Roselle, 747 F.2d 838, 841-42 (3d Cir.1984). In the absence of evidence to the contrary, we choose to believe that counsel were intellectually honest with the court and their opponents and properly allocated the hours worked and the measurement of time.
36
With respect to the presence of multiple counsel at oral argument, we think that more than two counsel was unnecessary. In addition to Mr. Adams, who argued the appeal for WVUH, perhaps one additional lawyer may have been necessary in an appeal of this complexity at oral argument to assist and to refer to the record or briefs. We will allow fees for the two principal attorneys present at oral argument, Adams and Krebs-Markrich.
37
As to the presence of local counsel at oral argument, we do not believe that the rules of practice of the Third Circuit are so unique or dissimilar from the rules of the Fourth Circuit, where principal counsel have their offices, as to also require the presence of local counsel. Furthermore, Mr. Adams and his partner appropriately familiarized themselves with the rules of this court. We will allow a reasonable amount for this purpose. However, they have charged what appears to be approximately seven hours of time aggregating $1,190.00 for familiarizing themselves with our court rules in connection with filings and oral argument. We believe that seven hours for seasoned and experienced counsel to familiarize themselves with our appellate rules are grossly excessive. We will allow $300.00. Under the circumstances, we see no reasonable basis for the additional presence of local counsel at oral argument in this court. The sum of $400.00 requested in fees for local counsel at oral argument and $277.73 for his lodging and expenses will be disallowed.
38
The State also objects to charges by Attorneys Adams, Krebs-Markrich, and Stover relating to meetings with the Pennsylvania Department of Public Welfare in Harrisburg, Pennsylvania, on the grounds that the charges are duplicative and there was no need for more than one attorney for this purpose. We do not reach this issue because we have already rejected these items because the services were not relevant to the appeal in this court.
39
At oral argument, the court requested counsel for WVUH to supplement their brief with a memorandum on the standing of the Hospital to seek relief under 42 U.S.C. Sec. 1983 for violation of the Social Security Act governing hospital reimbursement and whether the eleventh amendment barred retroactive relief from the date of filing the lawsuit. We are able to identify 138.10 hours in plaintiff's exhibit as time spent on the post-argument brief. These hours include cite checking, instant citing, reviewing, and editing. The total fee request for this time is $17,423.00. Although these charges seem high, and as many as three lawyers charged for services performed on the same day, we cannot say that these services were duplicative or unnecessary. Counsel were under time constraints to submit the brief after oral argument and it is understandable that under such circumstances more than one lawyer might be engaged at the same time in the research and drafting. Furthermore, the issues addressed were very complex, involved extensive research, and the study of numerous cases. The request for fees for the post-argument briefing will be allowed.
40
F. Miscellaneous Items of Disbursement for Telephone,
Duplicating, and Other Office Expenses
41
The State contends that the plaintiff seeks payment for courier travel to pick up and deliver documents when the United States mails should have been used. Plaintiff responds that it utilized hand delivery to give sufficient preparation time because the court ordered expedited briefs and oral argument, and to ensure compliance with mandatory deadlines. We assume that as officers of the court, counsel will not unnecessarily incur useless expense in courier services if mail services will suffice merely because costs are being shifted. Under the circumstances, we cannot say that the use of courier service in the filing of the principal briefs and appendix in this court was unreasonable. The objection to this charge will be denied. However, we do not believe that the State should bear courier charges for the filing of the post-argument brief or other documents in this court. Although there were some time constraints, the court allowed plaintiff twice as much time (one month) for its supplemental memorandum as the State and we see no need for the use of courier service for the filing of the post-argument brief or other documents when overnight federal express service would have sufficed.
42
As for telephone, duplicating, and word processing expenses, the State claims that these charges are components of the lawyers' hourly rate. Long distance telephone calls are ordinarily not office overhead and the State offers no authority or plausible argument that they should be so regarded. Photocopying, like long distance calls, is not customarily regarded as overhead and is part of the reasonable attorneys' fee allowed by the Civil Rights Attorneys' Fee Award Act. See Heiar v. Crawford County, 746 F.2d 1190, 1203 (7th Cir.1984), cert. denied, 472 U.S. 1027, 105 S.Ct. 3500, 87 L.Ed.2d 631 (1985). Similarly, we believe that they are also allowable under 42 U.S.C. Sec. 1988.
43
Unfortunately, we are unable to determine whether the photocopying and long distance calls pertain to matters in the district court or this court. In fairness to the prevailing party, we struggled to ascertain from the record, whenever possible, whether charges were related to matters before this court. The applicants, however, did not provide adequate information. Nonetheless, reasonable inferences were made in favor of the appellees even when we were not totally positive that charges were related to the appeal. However, we can make no inference from bare descriptions of "long distance" or "xeroxing," particularly when we are aware that the prevailing party was, throughout the relevant time period, engaged in other matters unrelated to the appeal in this court, e.g., negotiations with the Pennsylvania Department of Public Welfare. Therefore, virtually all of the claims for photocopying and telephone calls will be denied.
44
As for the numerous word processing charges, word processing in the modern law office is an accepted technology and considered indispensable for effective and efficient office service. For the most part, word processing has supplanted the typewriter and is considered an indispensable piece of office equipment in an efficient, up-to-date law office. Like the typewriter in its time, word processing equipment today expedites the work of the secretary and accelerates the productivity of the law office. It is a depreciable piece of equipment that serves the convenience and efficiency of the lawyer and appropriately may be regarded as part of the lawyer's overhead. Word processing services are generally regarded as an overhead component of a lawyer's fee. We need not, however, decide the question in this case "because the fee application fails to adequately document that such fees are in line with community practice as required by Blum v. Stenson, 465 U.S. 886, 897 at n. 11, 104 S.Ct. 1541, 1547 at n. 11, 79 L.Ed.2d 891 (1983)." In Re Olson, 884 F.2d 1415, 1427 (D.C.Cir.1989). We will, therefore, disallow the word processing charges claimed in connection with this appeal.
G. Items Lacking Specificity
45
The State contends that WVUH has failed to submit sufficient detail for many charges to enable the court to determine the time spent on the claims in which plaintiff did not prevail and to otherwise inform the court whether the time spent is excessive or otherwise unnecessary. The State further asserts that where the documentation is inadequate to disclose the subject matter of the activity, the hours claimed may not be compensated. Although we do not require absolute precision in a fee reimbursement petition, we do require "some fairly definite information as to the hours devoted to various general activities." Pawlak v. Greenawalt, 713 F.2d 972, 978 (3d Cir.1983), cert. denied, 464 U.S. 1042, 104 S.Ct. 707, 79 L.Ed.2d 172 (1984). On occasion we have disallowed requests for fees when the fee petition inadequately documented the hours claimed. Rode v. Dellarciprete, 892 F.2d 1177 (3d Cir.1990).
46
As already noted, the application for fees and expenses contain in excess of 800 bookkeeping entries. The objections on the ground of non-specificity concern hundreds of these entries, some as minuscule as fifteen cents for photocopying. A court expects, especially in a case where counsel reasonably anticipates that fees will be shifted to the non-prevailing party, that the court will be provided with sufficient supporting data to intelligently make an award. "To inform and assist the court in the exercise of its discretion, the burden is on the fee applicant to produce satisfactory evidence--in addition to the attorney's affidavits--," Blum v. Stenson, 465 U.S. 886, 896, n. 11, 104 S.Ct. 1541, 1547, n. 11, 79 L.Ed.2d 891 (1983), adequately supporting the nature of the charge, even assuming its reasonableness.
47
Regrettably, after wading through hundreds of entries in search of the necessary supporting information in this application, we find numerous entries have little to offer to pass judgment upon them. Moreover, many of the objections are to items which we have already rejected because they are irrelevant to the appellate proceedings in this court. We believe that the pragmatic approach to the resolution of these objections is to focus only on the items that are sufficiently identified and related to the appeal proceedings in this court. We have given the plaintiff the benefit of all reasonable inferences. Nonetheless, there still remain many items which cannot be sufficiently identified to be allowed.
H. The Fee Application
48
Plaintiff is also entitled to a reasonable fee in connection with the application for fees in this court and in defending such application. Although WVUH has not provided us with any independent supporting information, we have reasonable familiarity with the services rendered and we have carefully reviewed the application, answers, and briefs, and the hourly rate of counsel. We therefore conclude that we can determine the fees to be allowed. We have modified the sum, however, because the applicant has only been partially successful in its application. The sum of $2,250.00 will be allowed.
IV.
49
In summary, the fee application before us is logically divisible into three phases of services: first, preparation, briefing, and oral argument on the appeal; second, the submission of the post-argument briefing requested by this court; and third, the fee application to this court. WVUH is entitled as the prevailing party on the central issue on the appeal to reasonable attorneys' fees for services rendered in connection with it. The services rendered on this issue were excellent. It is also entitled to reasonable attorneys' fees and expenses on the subordinate issues related thereto, notwithstanding that it did not prevail on them. The court will not award fees or expenses for WVUH's efforts to enforce compliance with or to implement the district court's judgment, including activities in connection with its Rule 70 motion to enforce sanctions. Fees for services will not be awarded that represent any unnecessary duplication of effort by counsel or for disbursements that are unsupported by adequate information. Telephone, photocopying, and word processing expenses will be disallowed. Services pertaining to the claim for expert witness fees are disallowed as this is a separate and distinct issue unrelated to the issue on which the plaintiff prevailed. Plaintiff's claim for attorneys' fees in connection with the fee application will be allowed in the sum of $2,250.00
50
Accordingly, WVUH's application as amended for attorneys' fees will be allowed as follows:
51
1. To McGuire, Woods, Battle & Booth for the first and principal $38,809.00
phase of the appeal
Less excess time for study of Third Circuit Rules - 890.00
----------
SUBTOTAL $37,919.00
Less 15% for administrative appeals issue - 5,687.85
Less 10% for expert witness fee issue - 3,791.90
----------
ADJUSTED ALLOWANCE $28,439.25
To Mette Evans and Woodside for phase one of the appeal $ 3,924.00
Less time spent at oral argument - 400.00
----------
SUBTOTAL $ 3,524.00
Less 15% for administrative appeals issue - 528.60
----------
Less 10% for expert witness fee issue - 352.40
ADJUSTED ALLOWANCE $ 2,643.00
2. To McGuire, Woods, Battle & Booth for phase two of the appeal, $16,330.00
the post-argument briefing
To Mette Evans and Woodside for phase two 1,923.00
3. For the third phase, fee application $ 2,250.00
4. Allowance for Expenses:
To McGuire, Woods, Battle & Booth $ 164.80
To Mette Evans and Woodside 305.00
52
The foregoing award of attorneys' fees and expenses is made without prejudice to plaintiff's right to make supplemental application to the district court for reasonable fees and expenses to which it may be entitled in the post-judgment proceedings in that court.
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FILED
NOT FOR PUBLICATION AUG 18 2014
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
JAMES K. SHORT, No. 13-36101
Plaintiff - Appellant, D.C. No. 3:10-cv-00248-SLG
v.
MEMORANDUM*
UNITED STATES OF AMERICA,
Defendant - Appellee.
Appeal from the United States District Court
for the District of Alaska
Sharon L. Gleason, District Judge, Presiding
Submitted August 14, 2014**
Anchorage, Alaska
Before: FARRIS, D.W. NELSON, and NGUYEN, Circuit Judges.
James K. Short appeals the district court’s entry of judgment on his Federal
Tort Claims Act suit in favor of the United States following a bench trial. We have
jurisdiction under 28 U.S.C. § 1291, and we affirm.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
We review a district court’s findings of facts and “the results of essentially
factual inquiries applying the law to the facts” made during a bench trial for clear
error. Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002) (internal
quotation marks omitted).
The district court did not clearly err by relying on expert testimony to find
that the treatment plan prescribed by the treating medical professional met the
applicable standard of care. An expert testified that colon cancer was extremely
rare for people of Short’s age. In addition, Short did not have a family history of
colon cancer. Based on these findings of fact, the district court made a reasonable
inference that the United States did not breach a duty owed to Short when it made
the initial diagnosis of hemorrhoids based on Short’s symptoms.
The district court did not err by finding Short’s recovery barred based on a
finding that Short’s fault was greater than the United States’. Lasley v. Combined
Transp., Inc., 261 P.3d 1215, 1225 n.7 (Or. 2011) (en banc). Short did not seek
medical care for his rectal bleeding and other symptoms between December 18,
2007 and March 25, 2009, even though he had been instructed by medical
professionals to return if he experienced further symptoms. Despite numerous
meetings with medical professionals in 2008, medical records indicate that Short
never mentioned his abdominal problems. Short mentioned his abdominal
2
problems on March 25, 2009. He was then immediately referred for a colonoscopy
and a cancer diagnosis was made in April 2009. Based on this evidence, the
district court did not err in determining that Short’s recovery was barred under
Oregon law as his fault was comparatively greater than that of Keene. See Son v.
Ashland Cmty. Healthcare Servs., 244 P.3d 835, 844–45 (Or. App. 2010).
The district court did not clearly err by finding Short failed to prove an
injury where the record lacks evidence that Short’s treatment or prognosis were
affected by a delayed diagnosis. Short presented neither specific evidence nor
expert testimony that an earlier diagnosis would have resulted in an improved
prognosis or a less invasive surgery. Further, the record supports the finding that
the diagnostic procedures identified by Short would not have diagnosed his cancer
if performed by the United States on December 18, 2007. The DRE diagnostic
procedure that Short argues should have been performed was eventually performed
in March 2009. Even at that later date, the procedure did not detect the cancer.
AFFIRMED.
3
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547 S.W.2d 354 (1977)
Helen M. VANDYKE, Appellant,
v.
AUSTIN INDEPENDENT SCHOOL DISTRICT et al., Appellees.
No. 12459.
Court of Civil Appeals of Texas, Austin.
February 9, 1977.
Rehearing Denied March 9, 1977.
*355 William S. Rose, Powers & Rose, Austin, for appellant.
Charlie D. Dye, Scott R. Kidd, Brown, Maroney, Rose, Baker & Barber, Austin, for appellees.
O'QUINN, Justice.
Helen M. Vandyke brought this lawsuit in October of 1972 against the Austin Independent School District and Thomas Griswold Seale for personal injuries sustained when her automobile was struck from the rear by a school bus, owned by the school district and driven by Seale. Defendants answered with claims of contributory negligence and unavoidable accident.
Trial was to the court without a jury. The court entered judgment for defendants and found that plaintiff failed to prove by a preponderance of the evidence that Seale was negligent. The court further found that defendants failed to prove by a preponderance of the evidence that plaintiff was contributorily negligent. The court refused to make any finding on unavoidable accident.
Plaintiff perfected her appeal and brings a single point of error, under which she contends that the trial court's judgment was so contrary to the overwhelming weight and preponderance of the evidence, on the issue of failure by Seale to keep a proper lookout as to be clearly wrong and unjust.
We will overrule the point of error and affirm judgment of the trial court.
The collision forming the basis of this suit occurred about 7 o'clock on a morning in October of 1970, either on an exit from North Interstate Highway 35 in Austin, or on the frontage road immediately north of the exit. It is undisputed that the school bus collided with the rear of the automobile driven by appellant.
Several facts concerning the accident, however, are in dispute. Mrs. Vandyke testified that the accident occurred on the exit lane. Seale, driver of the bus, testified, and report of investigation indicated, that the collision occurred on the access road, north of but near, the exit lane. The bus driver testified that the Vandyke vehicle came to an abrupt stop in front of the bus immediately prior to the accident, but appellant Vandyke denied she came to a sudden stop. Mrs. Vandyke testified that lights of her vehicle were turned on at the time of the collision, but Seale testified that lights on the Vandyke automobile were not turned on at the time the vehicles collided.
Appellant's argument rests on the premise that the nature, place, and time of the accident, together with attending conditions of visibility, indicate so clearly improper lookout on the part of the bus driver as to be almost conclusive. This contention forms the crux of appellant's position that the judgment was clearly wrong and unjust because contrary to the overwhelming weight and preponderance of the evidence.
When the error claimed is that the judgment is against the weight and preponderance of the evidence, this Court must consider all the evidence and will examine, weigh, and consider the entire record. In re King's Estate, 150 Tex. 662, 244 S.W.2d 660 (1951); Lundstrom v. Lundstrom, 516 S.W.2d 705 (Tex.Civ.App. Corpus Christi 1974, no writ); Texas General Indemnity Co. v. Mannhalter, 290 S.W.2d 360 (Tex.Civ. App. Galveston 1956, no writ).
The trial court found that "Plaintiff [appellant] did not show by a preponderance of the evidence any negligence on the part of the defendant . . . which proximately caused the collision in question." The trial court, as the trier of facts, was the sole judge of the credibility of the *356 witnesses, and could believe or disbelieve any witness, in part or entirely. Redman v. Bennett, 401 S.W.2d 891 (Tex.Civ.App. Tyler 1966, no writ); Gardner v. Bailey, 376 S.W.2d 85 (Tex.Civ.App. El Paso 1964, writ ref. n. r. e.); Farr v. Bell, 460 S.W.2d 431 (Tex.Civ.App. Dallas 1970, writ ref. n. r. e.). The trial court's findings in a nonjury case have the same presumption of conclusiveness and weight on appeal as the verdict of a jury. Redman v. Bennett, supra, and cases cited 401 S.W.2d 895.
In reviewing a record where a point of error pertains to evidence regarding lookout in a collision case, this Court is required to balance substantial evidence that supports the finding against substantial evidence that is against the finding, and then determine whether the great weight and preponderance of the evidence favors or is against the finding. Gonzalez v. Layton, 429 S.W.2d 215, 216 (Tex.Civ.App. Corpus Christi 1968, no writ); Gulf, Colorado & Santa Fe Railway Company v. Deen, 158 Tex. 466, 312 S.W.2d 933 (1958); 159 Tex. 238, 317 S.W.2d 913 (1958); Couch v. Hale, 404 S.W.2d 920, 926 (Tex.Civ.App. Corpus Christi 1966, no writ). In reviewing the entire record, the findings below must be so contrary to the overwhelming weight and preponderance of the evidence as to be clearly wrong and manifestly unjust. West v. Carpenter, 366 S.W.2d 826, 828 (Tex.Civ. App. Amarillo 1963, writ ref. n. r. e.).
When a motor vehicle overtakes and strikes the rear of a vehicle in front of the overtaking vehicle going in the same direction, a question of fact as to existence of negligence on the part of the overtaking driver is presented. "The collision itself is some evidence of negligence on the part of the driver who strikes a preceding car from the rear." Renshaw v. Countess, 289 S.W.2d 621, 624 (Tex.Civ.App. Fort Worth 1956, no writ); Miller v. Wagoner, 356 S.W.2d 363, 364 (Tex.Civ.App. Austin 1962, no writ); Broussard v. Quebedeaux, 428 S.W.2d 115, 117 (Tex.Civ.App. Beaumont 1968, no writ); Hardberger v. O'Dell, 544 S.W.2d 522 (Tex.Civ.App. Austin 1976, no writ). In both Renshaw v. Countess and Miller v. Wagoner the collision occurred at an intersection, a fact situation different from the case on appeal, and in Broussard v. Quebedeaux the collision appears to have occurred at an intersection, with the principal question concerning the sudden stop of the driver in front, after a traffic control change and both cars had started up.
History of the proposition that a collision itself is some evidence of negligence may be traced to decision in Rankin v. Nash-Texas Co., 73 S.W.2d 680, 684 (Tex.Civ.App. Dallas 1934), rev'd in part, aff'd in part 129 Tex. 396, 105 S.W.2d 195 (Tex.Com.App.1937, opinion adopted). The Court of Civil Appeals said, "The collision, under ordinary circumstances, furnishes some evidence of negligent acts or omissions on the part of the driver of the trailing vehicle, which ordinarily calls upon the driver of the rear vehicle to explain and usually presents a question of fact for the determination of a jury." 73 S.W.2d 684. The court concluded, ". . . however, [is] that the evidence. . . does not present an ordinary circumstance of the front car stopping as to raise a presumptive issue of negligence of the operator of the rear vehicle. . ." because in that case the driver of the front car stopped when confronted with "the sudden and abrupt appearance of another [a third] automobile backing in" the front driver's pathway, causing "the attendant happening, involving the" trailing automobile.
The Commission of Appeals simply stated, "The occurrence of an accident, or a collision, is not of itself evidence of negligence." 105 S.W.2d 199. But case law subsequent to Renshaw appears to support the position that an accident itself, involving a rear-end collision occurring as one vehicle is following another in the same direction, is some evidence of negligence. Boddy v. Canteau, 441 S.W.2d 906, 912 (Tex. Civ.App. San Antonio 1969, writ ref. n. r. e.), citing both Miller v. Wagoner, supra, and Renshaw v. Countess, supra, and quoting from Renshaw; Manning v. Block, 322 S.W.2d 651 (Tex.Civ.App. Beaumont 1959, writ ref. n. r. e.), also following and citing *357 Renshaw. The Court of Civil Appeals, in Boddy v. Canteau, observed that "the occurrence of an accident or collision is not in itself evidence of negligence." In reliance on decision of the Commission of Appeals in Rankin v. Nash-Texas Co., but in reliance on the rule of Renshaw that court stated, "Both negligence and proximate cause may be inferred from the circumstances" in a rear-end collision 441 S.W.2d 911.
The mere occurrence, however, of a rear-end collision will not present evidence of negligence as a matter of law, and specific acts of negligence on the part of the driver of the trailing vehicle must be proved and that the act proved was a proximate cause of the collision. O'Neill v. Craig, 493 S.W.2d 898, 901 (Tex.Civ.App. Corpus Christi 1973, writ ref. n. r. e.; cert. denied, 415 U.S. 919, 94 S.Ct. 1418, 39 L.Ed.2d 474); Chapin v. Hunt, 521 S.W.2d 123, 125 (Tex. Civ.App. Beaumont 1975, writ dism'd).
In this case appellant, as plaintiff below, had the burden of proving that the bus driver failed to keep a proper lookout. Daggett v. McReynolds, 459 S.W.2d 475, 477 (Tex.Civ.App. Houston (14th) 1970, no writ). Acts of negligence must be proved and must be established as a proximate cause of the collision before the party in the lead vehicle may recover. O'Neill v. Craig, supra. Proof of negligence and proximate cause need not be by direct and positive testimony only, but may be based on inference from the circumstances of the collision. Barkley v. Dudley, 495 S.W.2d 280, 282 (Tex.Civ.App. Houston (1st) 1973, writ ref. n. r. e.). Whether it is possible to establish negligence as a matter of law, or simply to raise it as an issue, depends on the facts and circumstances of the particular case. Pacific Finance Corporation v. Rucker, 392 S.W.2d 554, 558 (Tex.Civ.App. Houston 1965, no writ); Sherwin-Williams Paint Company v. Card, 449 S.W.2d 317, 320 (Tex. Civ.App. San Antonio 1970, no writ).
In this case a fact question, as to the existence of negligence, was presented by proof that the school bus collided with the preceding automobile driven by appellant. Negligent lookout by the bus driver was an issue to be determined by the judge as trier of the facts. The trial court determined the credibility of the witnesses and assessed the weight to be given to the conflicting testimony. On appeal this Court is not authorized to substitute its judgment for that of the trial court, even though, based on the facts proved at trial, the appellate court might have reached a different conclusion. Vega v. Royal Crown Bottling Company, 526 S.W.2d 729, 736 (Tex.Civ.App. Corpus Christi 1975, no writ).
We have concluded, after examination of the entire record, that the finding of the trial court was not contrary to an overwhelming preponderance of the evidence, and that the appellant's point of error should be overruled.
Judgment of the trial court is affirmed.
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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
SHAWNA L. HUBBARD, No. 78682-2-I
Respondent, DIVISION ONE
v. UNPUBLISHED OPINION
MARCUS T. ROSS,
Appellant. FILED: November 18, 2019
CHUN, J. — Marcus Ross appeals an order modifying child support for his
children with Shawna Hubbard. Because the trial court did not credit Ross for
health insurance premiums paid for the children, we reverse in part and remand
for further proceedings. In all other respects, we affirm.
I. BACKGROUND1
In 2009, Ross and Hubbard dissolved their marriage and entered into an
agreed child support order for their two children. In 2014, when the children were
ages 9 and 11, the court modified the child support order and set Ross’s transfer
payment to Hubbard at $600.50 per month.2
In December 2017, Hubbard petitioned to increase Ross’s child support
obligation, claiming that the children were entitled to more support under the
1 We detail additional facts, where necessary, in our discussion of Ross’s claims.
2 The record does not include either the 2009 order or the 2014 modification pleadings.
No. 78682-2-1/2
statutory guidelines3 and that the parties’ income had changed. Ross did not
disagree that a modification was warranted but disputed the amount of Hubbard’s
income. Ross also requested reimbursement for past day care expenses.
Following a May 2018 trial by affidavit, a superior court commissioner
imputed Hubbard’s net monthly income at $2,605, modified Ross’s transfer
payment to $967 per month, and ordered Ross to maintain health insurance for
the children. The commissioner also rejected Ross’s claim for reimbursement.
Ross moved for revision of the commissioner’s order. A superior court
judge adopted the commissioner’s rulings and denied the motion. Ross appeals
from the order denying revision.4
II. DISCUSSION
Ross challenges the order modifying his child support obligation on
several grounds.
A. Standard of Review
Once the superior court rules on a motion for revision, any further appeal
is from the superior court’s decision, not the commissioner’s ruling. State v.
Ramer, 151 Wn.2d 106, 113, 86 P.3d 132 (2004). We review an order modifying
child support for an abuse of discretion. In re Marriage of Griffin, 114 Wn.2d 772,
776, 791 P.2d 519 (1990). A superior “court does not abuse its discretion where
~ At the time, the economic tables calculated child support amounts for children aged 12-
18 higher than for children 0-11. Former RCW26.19.020 (2016). The children were ages 12 and
15 at the time of the petition.
~ Though the parties represent themselves on appeal, we hold them to the same
standards as attorneys. In re Marriage of Wherley, 34 Wn. App. 344, 349, 661 P.2d 155 (1983)
(self-represented litigants and attorneys are both “subject to the same procedural and substantive
laws.”)
2
No. 78682-2-1/3
the record shows that it considered all the relevant factors and the child support
award is not unreasonable under the circumstances.” State ex rel. J.V.G. v. Van
Guilder, 137 VVn. App. 417,423, 154 P.3d 243 (2007). We will not disturb
findings of fact supported by substantial evidence even if there is conflicting
evidence. In re Marriage of Lutz, 74 Wn. App. 356, 370, 873 P.2d 566 (1994).
B. Health Insurance Credit
Ross first argues that the court erred by failing to give him a credit for
health insurance premiums he paid for the children. “We agree.
“In reaching a net child support transfer payment, a parent who pays for
health insurance is allowed a credit against [their] basic support obligation equal
to the cost of the insurance.” In re Marriage of Scanlon, 109 Wn. App. 167, 175,
34 P.3d 877 (2001) (citing Ch. 26.19 RCW, App., Health Care Expenses). Here,
there is evidence that Ross paid such premiums for the children. However, the
court entered a child support worksheet that neither reflects the amount of
premium Ross paid nor credits him for that amount.5 Therefore, remand is
necessary to enable the court to correct the child support worksheet to reflect
Ross’s payments for health insurance premiums.
~ Hubbard argues that “Ross agreed to and signed the documents to reflect that he would
not receive a credit for insurance premiums paid.” Ross disputes this. Hubbard’s argument does
not contain citation to the record or authority. We will not consider an inadequately briefed
argument. Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549 (1992);
RAP 10.3(a)(6). Nor are we aware of anything in the record to support this argument.
3
No. 78682-2-114
C. Hubbard’s Income
Ross next argues that the modification was improper because the court
failed to consider numerous large bank deposits and other substantial assets in
calculating Hubbard’s income. We disagree.
“All income and resources of each parent’s household shall be disclosed
and considered by the court when the court determines the~child support
obligations of each parent.” RCW 26.19.071(1). A parent’s income and
deductions must be verified by tax returns for the prior two years and current
paystubs, and “[o]ther sufficient verification” is required to verify “income and
deductions which do not appear on tax returns or paystubs.” RCW 26.19.071(2).
Attached to her modification petition, Hubbard filed two years of federal
income tax returns, paystubs, and bank statements. The bank statements
showed a year’s worth of relatively large deposits—ranging from $4,852 to
$13,328—into Hubbard’s savings account and checking account. Ross argued
this was evidence of Hubbard concealing income. In response, Hubbard
attributed the large deposits to a “tax refund of a little over” $8,000, a cash
advance from her work retirement plan, refunds from her cancelled wedding, and
two $1,500 ‘transfers from external savings accounts.”
During the proceedings, the court expressly considered Hubbard’s bank
deposits but could not determine if it was income. Instead, the court used
Hubbard’s income tax returns and child support worksheets to impute her
income. Accordingly, the court correctly avoided speculating at Hubbard’s
4
No. 78682-2-1/5
income.6 Stateexrel. Stoutv. Stout, 89 Wn. App. 118, 125, 948 P.2d 851 (1997)
(“A court exercises its discretion in an untenable and manifestly unreasonable
way when it essentially guesses at an income amount.”) (citing In re Marriage of
Bucklin, 70 Wn.App. 837, 841, 855 P.2d 1197) (1993)).
The court’s determination of Hubbard’s income was well within the
disputed evidence provided by the parties and is supported by substantial
evidence. The court did not abuse its discretion.
Ross’s contention that the court erred by failing to consider Hubbard’s
other assets (e.g., interest in a business, boat, cabin, recreational vehicle) is
similarly unavailing. The record indicates otherwise. The court considered
evidence showing that, in October 2017, Hubbard no longer had a partnership
interest in the business she created with a former fiancé. The court determined
that Ross failed to meet “the burden of proof as it relates to the alleged assets:
the boat, the RV camper, the vehicles, the trailer, the cabin.” Because he was
unable to provide the evidence required to prove his claim, Ross has failed to
show that the court exercised its discretion “in an untenable or manifestly
unreasonable way.” Griffin, 114 Wn.2d at 779.
D. Reimbursement of Day Care Expenses
Ross also claims that the trial court erred by denying him reimbursement
for child care expenses that he had paid but Hubbard had not incurred. He
6 Though the record contains evidence that Hubbard disclosed only one of multiple
savings accounts below, the court was within its discretion to impute her income. ~
RCW 26.19.071(6); In re Marriage of Sievers, 78 Wn. App. 287, 305-06, 897 P.2d 388 (1995)
(when a party fails to provide credible evidence of income, the trial court may determine income
by any rational means based upon evidence in the record).
5
No. 78682-2-116
argues reimbursement is warranted by RCW 26.19.080(3)~ and a provision in the
parties’ 2014 child support order.8 We disagree.
In rejecting Ross’s reimbursement claim, the court explained how neither
party complied with the 2014 order, and how the evidence that they did provide
was not sufficient enough to rule in favor of either party:
One of the big problems is what the order required of the
parents originally that they didn’t do. They never followed the order.
And now here I am all these years later being asked to go back and
figure it out, and I can’t. And I don’t have enough information from
either of you to say there was an overpayment, or there is a credit
that is owed, or that one party should get reimbursed by the other.
But the bottom line is I’m not giving you—either one of you
anything for daycare, [sic] zip, because you didn’t follow the process
that was created when this order was entered, for good or for bad.
The person asserting a claim for reimbursement under RCW 26.19.080(3)
bears the burden of proving the facts needed to support it. See In re Marriage of
Mattson, 95 Wn. App. 592, 601-02, 976 P.2d 157 (1999). Because Ross failed to
support his claim with sufficient evidence, the court did not abuse its discretion in
denying his reimbursement request. Griffin, 114 Wn.2d at 779.
‘ In pertinent part, RCW 26.19.080(3) provides:
Day care and special child rearing expenses . . shall be shared by the
.
parents in the same proportion as the basic child support obligation. If an
obligor pays court or administratively ordered day care or special child
rearing expenses that are not actually incurred, the oblige must reimburse
the obligor for the overpayment if the overpayment amounts to at least
twenty percent of the obligor’s annual day care or special child rearing
expenses.
8 Paragraph 3.15 (Payment for Expenses not Included in the Transfer Payment) of the
parties’ 2014 child support order provides as follows:
The mother shall provide verification from the day care provider of
amounts paid for daycare to the father on a monthly basis. Twice a year
the parties will adjust for any over or under payment. The first
adjustment will be June ~ and the second adjustment will be
December 3Qth
For purposes of this child support order, day care means only day care
that is work or school related.
6
No. 78682-2-1/7
E. Deviation for Significant Residential Time
Finally, Ross claims the court erred by failing to give him a deviation9 from
the standard child support obligation based on the amount of his residential time
with the children. This claim lacks merit.
The superior court has discretion to deviate from the basic child support
obligation based on a variety of factors, one of which is the amount of residential
time the children spend with the parents. RCW 26.19.075. The superior court
“has discretion to decide the extent of any deviation.” In re Marriage of Trichak,
72 Wn. App. 21, 23, 863 P.2d 585 (1993). Here, the trial court granted Ross the
relief he sought. It calculated Ross’s transfer payment at $967 per month, which
is a $200 deviation downward from the standard calculation of $1,167 per month
due to Ross “spending significant time” with the children. And Ross fails to
present any authority or evidence to suggest that a $200 downward deviation
was unreasonable or untenable. The court did not abuse its discretion.
We affirm in part, reverse in part, and remand for further proceedings
consistent with this opinion.
WE CONCUR:
~ A deviation is “a child support amount that differs from the standard calculation.”
RCW 26.19.011(4).
7
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237 B.R. 12 (1997)
In re MINPECO, USA, INC., Debtor.
Petitioning Creditors Of Minpeco USA., Inc., Plaintiffs,
v.
Swiss Bank Corporation, Defendant.
Bankruptcy No. 95-B-21373(ASH). Adversary No. 96-5322A.
United States Bankruptcy Court, S.D. New York.
December 19, 1997.
*13 *14 *15 Lisa M. Sheppard, DelBello, Donellan, Weingarten & Tartaglia, LLP, White Plains, NY, Bruce C. Fuchs, Klett, Lieber, Rooney & Schorling, Pittsburgh, PA, for Plaintiffs.
Philip N. Schaeffer, White & Case, New York City, for Defendant.
DECISION GRANTING MOTION FOR SUMMARY JUDGMENT
ADLAI S. HARDIN, Jr., Bankruptcy Judge.
Plaintiffs, three creditors ("Petitioning Creditors") of debtor Minpeco, USA, Inc. ("Minpeco"), filed an involuntary Chapter 7 petition against Minpeco on July 24, 1995. In October 1995 Minpeco consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. On November 15, 1996 this Court granted Petitioning Creditors' motion for leave to commence this adversary proceeding on behalf of Minpeco. The complaint was dated and filed December 4, 1996. After completion of discovery, defendant Swiss Bank Corporation ("Swiss Bank") moved for summary judgment.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b) (Complaint ¶ 3).
Local Bankruptcy Rule 7056-1
Local Bankruptcy Rule 7056-1 provides as follows:
On any motion for summary judgment pursuant to Bankruptcy Rule 7056, there shall be annexed to the notice of motion a separate, short, and concise statement of the material facts as to which the moving party contends there is no genuine issue to be tried. Failure to submit the statement shall constitute grounds for denial of the motion. Papers opposing a motion for summary judgment shall include a separate, short, and concise statement of the material facts as to which it is contended that there is a genuine issue to be tried. All material facts set forth in the statement required to be served by the moving party shall be deemed admitted unless controverted by the statement required to be served by the opposing party.
One of the most critical and, at times, difficult determinations to be made on a motion for summary judgment is whether there exist any genuine issues of material fact requiring a trial. Local Rule 7056-1 is designed to facilitate that determination. The Rule requires the moving party to present a "short, and concise" statement of the facts on which the movant relies in seeking judgment. What is contemplated obviously is not a compendium of evidence in narrative form, but rather a concise distillation of those crucial facts which are truly determinative of the outcome of the case. In response, the opposing party is required by the Rule to show which of plaintiff's claimed undisputed facts are the subject of genuine dispute. To accomplish this objective, the Rule obviously contemplates that the opposing party will respond with particularity to each of plaintiff's claimed undisputed facts, demonstrating as to each fact why there is a genuine dispute if such is the claim. Of course, the opposing party is certainly free to present its own statement of facts, but it must respond with particularity to the *16 movant's statement if it wants to controvert the movant's facts.
Swiss Bank's Statement Under Rule 7056-1 ("Defendant's Statement" or parenthetically "Def.Stat.") certainly is not "short," consisting of 113 numbered paragraphs on 24 pages. But Defendant's Statement does set forth in simple, declarative sentences the matrix of facts which Swiss Bank contends are incapable of genuine dispute and entitle Swiss Bank to judgment as a matter of law. Petitioning Creditors have made no attempt to comply with their obligation under Rule 7056-1 to submit a "short, and concise statement of the material facts as to which it is contended that there is a genuine dispute to be tried." No where do Petitioning Creditors address the factual recitations in Defendant's Statement or attempt to demonstrate on a paragraph-by-paragraph basis that there is any genuine dispute as to the facts which are set forth in Defendant's Statement. Instead, Petitioning Creditors have submitted a document entitled "Petitioning Creditors' Statement of Disputed Facts Pursuant to Bankruptcy Rule 7056-1" ("Plaintiffs' Statement" or parenthetically "Pltf.Stat.") comprising 125 paragraphs on 48 pages. Many of the factual assertions in Plaintiffs' Statement are either duplicative of Defendant's Statement or otherwise not in dispute. The numbered paragraphs in Plaintiffs' Statement, many of which are lengthy, argumentative and conclusory, do not make any reference to any of the numbered paragraphs in Defendant's Statement, nor do they correspond numerically or purport to reply to the numbered paragraphs in Defendant's Statement.
As a consequence, it is impossible to determine whether Petitioning Creditors contend that there is a genuine dispute requiring trial as to any of the facts set forth in Defendant's Statement. It is the obligation of Petitioning Creditors under Rule 7056-1 to set forth with particularity the facts relied upon by Swiss Bank which Petitioning Creditors contend are genuinely disputed. It is neither required nor appropriate for the Court to attempt to deduce from Petitioning Creditors' 48-page recitation which statements of fact, if any, in Swiss Bank's 24-page recitation are the subject of genuine dispute requiring a trial.
The consequence of Petitioning Creditors' failure to controvert with particularity any of the facts in Defendant's Statement is set forth in Rule 7056-1. The Rule states in the last sentence:
All material facts set forth in the statement required to be served by the moving party shall be deemed admitted unless controverted by the statement required to be served by the opposing party. (emphasis supplied)
Accordingly, the facts in Defendant's Statement shall be "deemed admitted," and the Court will proceed on the assumption that there is no triable issue of fact with regard to the facts set forth in Defendant's Statement, since Petitioning Creditors have provided no evidentiary basis to conclude otherwise. The Court will address certain purported disputed factual issues raised in Petitioning Creditors' Memorandum at the end of this decision.
The Facts[1]
Minpeco is a New York corporation with headquarters in White Plains, New York. Until June 1995 Minpeco was engaged in the business of buying metallurgical products from Latin American producers and marketing them to customers in Latin America, North America, Europe and Asia. Primarily a merchant of physical metal commodities, Minpeco also operated in the cash, forward, futures and options markets in order to hedge the price risk inherent in physical transactions (Pltf.Stat.¶ 1). Minpeco had been owned by the Peruvian Government until 1992, when it was "privatized" and Minpeco's ownership was transferred to the control *17 of a Brazilian entity named Companhia Mercantile Industrial Inga ("Inga"). Minpeco's stock was held by Ralbir S.A. ("Ralbir"), a Uruguayan holding company which is owned by Inga. Prior to 1995 Minpeco's sales approached $300-$400 million annually.
Defendant is a banking company organized under the laws of Switzerland with a branch in New York City.
Petitioning Creditors are Cyprus Copper Marketing Corporation ("Cypress"), which is located in Larchmont, New York and engaged in the business of marketing copper and molybdenum. Electrofinance, Ltd. ("Electrofinance"), an investment company located in Georgetown, Grand Cayman, Cayman Islands, B.V.I., and Industria Venezolana de Cables Electricos, C.A. ("Cable"), a Venezuelan manufacturer of copper and cable owned by Electrofinance.
Minpeco was a long-standing customer of Swiss Bank. Until the critical events in this dispute commencing June 20, 1995, Minpeco appeared to Swiss Bank to be in sound financial and operating condition. Prior to June 1995, to Swiss Bank's knowledge, Minpeco had never defaulted on any of its financial obligations and had shown good profitability and growth for a company of its size.
Much of the metals stock that Minpeco sold was bought on credit obtained by Minpeco from six banks. As of June 1995, Minpeco's lenders were Swiss Bank, Banque Paribas. Bank Francaise du Commerce Exterieur, Bank Brussels Lambert, ING Bank and Banco Credito del Peru. Minpeco's lenders generally provided Minpeco with individualized short-term trade finance loans in connection with the purchase of metals for specific sales to Minpeco's customers.
Most of Minpeco's trades were run on a "back-to-back" basis, in that Minpeco bought and sold metals contemporaneously and held little inventory. In many of its trades. Minpeco had to pay the seller before it received payment from the buyer, and payment from the buyer might take several days or weeks. Minpeco customarily obtained loans from its several lending banks, including Swiss Bank, to finance its commodity purchases, and the lenders would take an assignment of the account receivable owing to Minpeco from its buyer as collateral for repayment of the inventory purchase loan.
The credit relationship between Minpeco and Swiss Bank was governed by a Credit Agreement dated as of April 5, 1995 (the "Credit Agreement") and a General Security Agreement (With Floating Lien) dated April 5, 1995 (the "Security Agreement"), as well a security agreement (general collateral) dated April 15, 1992. During 1994 and 1995. Minpeco's credit facility with Swiss Bank generally ran as follows. An employee of Minpeco would contact Swiss Bank and present a potential trade transaction for financing. If the transaction did not fit Swiss Bank's loan profile or was otherwise not palatable, Swiss Bank would so advise Minpeco, and Minpeco would seek to finance the transaction with another of its banks. Swiss Bank declined to finance a number of transactions for Minpeco prior to June 1995. If Swiss Bank agreed to finance the transaction, pursuant to the Credit Agreement and the Security Agreement for each loan Minpeco would execute a promissory note and, as security for repayment of that note, would grant Swiss Bank an assignment of the proceeds of the account receivable, so that the proceeds of the account receivable were to have been used to repay the underlying note.
As of June 20, 1995, substantially all of Minpeco's outstanding loans from Swiss Bank involved financing against letters of credit. For collection risk purposes, Swiss Bank only financed transactions involving letters of credit drawn on banks approved by Swiss Bank. With an assignment of the letter of credit proceeds in place. Swiss Bank effectively shifted the financial risk in the transaction from Minpeco to the *18 bank issuing the letter of credit. Since the issuing banks and Swiss Bank had ongoing relationships, the repayment risk on Minpeco's notes was considered to be relatively low.
Receivables financing is obviously different from a working capital loan facility in which the borrower's financial strength is critical. If a trade finance facility is working properly, the borrower's balance sheet is nearly irrelevant as long as the borrower administers its trades efficiently and honestly. Swiss Bank held a security interest in all of Minpeco's assets as well as a guarantee by Inga of Minpeco's obligations to Swiss Bank. But until June 1995 Swiss Bank did not rely on either its general security interest in Minpeco's assets or in the Inga guarantee as the primary source of repayment of its transaction loans, Rather, Swiss Bank looked to the assignment of the accounts receivable and letters of credit for each of the transaction loans which it made to Minpeco.
In March 1995 an offshore subsidiary of Inga defaulted on a $10 million "pre-export"[2] loan from Banque Paribas in which Swiss Bank held a 25% participation. In April 1995 the amount outstanding to Swiss Bank under the Banque Paribas Loan was approximately $1.46 million. After Inga's default under the Banque Paribas Loan in March 1995, Swiss Bank continued to make letter of credit loans to Minpeco.
Between May 23 and June 21, 1995, Minpeco's indebtedness to Swiss Bank was reduced from approximately $14 million to $7,668,000 (Pltf.Stat. ¶ 46), as Minpeco's inventory transactions financed by Swiss Bank closed and the loans came due and were repaid. As of June 23, 1995 Minpeco had eight promissory notes outstanding to Swiss Bank (the "Outstanding Notes"). The Outstanding Notes, which were due on various days in July 1995, aggregated approximately $5.9 million. The Outstanding Loans had been secured by assignments of accounts receivable and letters of credit. As amplified below, unbeknownst to Swiss Bank Minpeco had collected the accounts receivable and discharged the letters of credit for all eight Outstanding Loans and used the proceeds in its business, rather than to repay the Loans. The Outstanding Loans remain unpaid.
A turning point in the affairs of Minpeco occurred on June 20, 1995, when Inga filed for concordata in Brazil. A concordata, which bears some resemblance to a Chapter 11 reorganization in the United States, imposes a one- to two-year moratorium on all of the debtor's recognized debts.
On June 21, 1995, the day Swiss Bank learned of the Inga concordata, Minpeco presented to Swiss Bank five transactions for requested financing. One of the June 21 requests was a rollover of approximately $1.5 million in post-export loans which were due on that day. Two other June 21 requests for financing involved transactions (one for $520,000 and one for $507,000) that were essentially post-export readvances of pre-export loans that had been paid off by Minpeco earlier that week. With respect to each of these three requests for financing. Minpeco certified (falsely, as it was later revealed) to Swiss Bank that the letters of credit underlying the transactions were still open and pledged to Swiss Bank. Although concerned that these requests evidenced cash flow problems for Minpeco, Swiss Bank approved these three loan requests for approximately $2.5 million. The $2.5 million remains unpaid.
*19 The other two June 21 requests were for separate pre-export financings of $315,000 and $340,000 in connection with zinc purchases backed by letters of credit. Swiss Bank declined to finance these transactions because the letters of credit were drawn on Costa Rican and Asian banks unknown to Swiss Bank and neither transaction had an assignment of proceeds in place. Swiss Bank informed Minpeco by telephone on the afternoon of June 21 that it would not finance the two pre-export loan transactions and confirmed this by telex on June 22. No one at Minpeco made any protest in response to Swiss Bank's decision not to finance these two transactions.
On Friday, June 23, a Minpeco official called Swiss Bank to state that Minpeco was "out of cash" and that it needed a working capital loan of $3-4 million to meet its current trade obligations. Swiss Bank, which had not theretofore provided working capital financing, responded that it would provide such a loan, if at all, only after reviewing Minpeco's books of account. Minpeco did not make its books available to Swiss Bank, but suggested a meeting with Swiss Bank the next day, Saturday, June 24.
At 3:20 p.m. on June 23, Swiss Bank's officer Lukas Fischer, concerned by the possible impact on Minpeco of Inga's concordata and by the news of Minpeco's own cash crisis, and having no access to Minpeco's books, issued an internal memorandum concerning the cash account which Minpeco maintained with Swiss Bank. The memorandum stated: "PLEASE BLOCK ALL DEBITS TO THIS ACCOUNT. PLEASE CONTACT THE ACCOUNT OFFICER FOR DEBIT AUTHORIZATION." Swiss Bank informed Minpeco that it was prevented from withdrawing funds from the account without [Swiss Bank] authorization. (Pltf.Stat. ¶ 71) However, Petitioning Creditors have not shown or even alleged that there was any money in the account as of 3:20 p.m. on June 23, or that Minpeco requested authorization to withdraw any money from the account, and Swiss Bank has asserted in one of its memoranda that Minpeco had withdrawn all cash in the account before Swiss Bank issued the June 23 "blocking" memorandum. In any event, it is not controverted that until June 28, 1995. Swiss Bank did not turn down any request for transfers of funds out of the [Minpeco] account. (Def.Stat. ¶ 54)
Representatives of Swiss Bank met with management representatives of Minpeco, Inga, and Minpeco, respectively, on Saturday, Sunday and Monday, June 24, 25 and 26, 1995. As of the June 24 meeting and into June 25, Swiss Bank was still under the impression that the letters of credit securing the eight Outstanding Notes aggregating $5.9 million were still open. In fact, however, all but $130,000 of Swiss Bank's collateral underlying the Outstanding Notes had been received and spent by Minpeco prior to June 23. On June 25 Swiss Bank learned that over the months prior to June 23 Minpeco had been using Swiss Bank's collateral to meet its own ongoing operating expenses, leaving repayment of Minpeco's notes to Swiss Bank to be made out of Minpeco's cash on an ad hoc basis. Minpeco did not inform Swiss Bank that it was repaying its loans out of Minpeco's own cash on an ad hoc basis, rather than out of the letters of credit and accounts receivable which were security for each note, for fear that Swiss Bank would cease financing. As a consequence, by June 23 there were no accounts receivable or letters of credit standing as security for the eight Outstanding Notes. The same problem applied to the $2.5 million in rollover loans extended by Swiss Bank to Minpeco on June 21. Minpeco had represented to Swiss Bank on that date that the letters of credit securing the rollover loans remained in place. In fact, however, those letters of credit had already been paid to Minpeco which had used the funds in the operation of its business.
Thus, as of June 23 there were virtually no accounts receivable or letters of credit *20 securing Minpeco's outstanding indebtedness to Swiss Bank, and there remained only two possible sources of repayment of that indebtedness, Minpeco's net worth and the Inga guarantee. Inga's filing for concordata on June 20 undermined both. Minpeco's 1994 audited financials reflected a shareholder equity of approximately $7 million. By June 1995 approximately $5.95 million of Minpeco's equity was in the form of obligations owing to Minpeco from Ralbir and Inga. At the June 24 meeting representatives of Minpeco informed Swiss Bank that, because of Inga's concordata, Minpeco's shareholder equity was only $1.5 million and falling rapidly. As of that date, substantially all of Minpeco's unpledged assets were extremely illiquid. At no time during or after the meetings that occurred during the weekend of June 24-26, 1995, did anyone associated with Minpeco provide assurances or express a hope that Minpeco could ever come up with cash to pay the Outstanding Notes at maturity.
During this critical period, in addition to its grave financial problems Minpeco also experienced a management crisis. On June 21, 1995 an Inga representative informed Swiss Bank that Inga was "disappointed" with Minpeco's current management and that it was going to "clean house" in White Plains. At the meeting on Sunday, June 25, between representatives of Inga and Swiss Bank, the Inga representatives informed Swiss Bank that Inga had fired Otto Gold. Minpeco's President and minority shareholder, on June 23.[3] At the June 25 meeting, Inga's representatives placed all of the blame for Minpeco's financial crisis on Minpeco's management and stated that all Minpeco's current management would be fired unless they could learn to toe the Inga line and work for the company and not themselves. The cross-accusations of responsibility for Minpeco's financial problems by the Inga management and by the Minpeco management during the June 24 and 25 meetings and phone calls are detailed in Defendant's Statement ¶¶ 78-90.
At a meeting on Monday, June 26, 1995 between representatives of Swiss Bank and the remaining Minpeco management, the Minpeco management offered a plan for saving Minpeco. The plan called for Minpeco's banks to foreclose on Minpeco's shares, which had been pledged by Ralbir, take control of Minpeco forthwith and replace the Inga management and Board of Minpeco with a new Board of Directors and reinstate former management. The banks would provide $34 million in trade financing ($3 million above Minpeco's highest historical credit ceiling) and a $3 million unsecured line of credit for use at management's discretion. The Minpeco management was willing to put up $200,000 in equity, subsequently increased to $500,000 provided that Minpeco's banks would give them $300,000 in personal non-recourse loans at prime rate.[4] This plan was not acceptable to Swiss Bank. After the June 26 meeting, no new viable offers to restructure Minpeco were made by either Inga's or Minpeco's representatives.
At no time during this period was Swiss Bank permitted to audit Minpeco's books.
The situation as of June 28, 1995 was as follows. Minpeco had no cash to meet its current obligations. The Inga management had no experience in running a metals trading company such as Minpeco. Minpeco had ceased all trading, and Minpeco's brokers in London had closed out Minpeco's hedge positions, further diminishing Minpeco's net worth.
*21 On June 28, 1995 Swiss Bank prepared and delivered to Minpeco a notice of default under the Credit and Security Agreements. Thereafter, Swiss Bank set off against the proceeds of various receivables credited to Minpeco's account at Swiss Bank and, in addition, notified Minpeco's account debtors to remit payment directly to Swiss Bank.
The Complaint
In their complaint in this adversary proceeding, the Petitioning Creditors assert the following causes of action.
Count I Breach of the Duty of Good Faith and Fair Dealing
This cause of action is predicated on the judicially-created implied covenant of good faith and fair dealing. The claim is based upon "Swiss Bank's actions in terminating Minpeco's lines of credit and closing its trading account without reasonable notice, in appropriating funds in the account, and in disrupting Minpeco's relationships with its customers" (Complaint ¶ 51).
Count II Breach of Contract
The conduct giving rise to this cause of action consisted of "Swiss Bank's above-described actions in terminating Minpeco's lines of credit and closing its trading account without just cause and related conduct" (id. at ¶ 59).
Count III Fraud
The Petitioning Creditors' fraud claim, based upon alleged material misrepresentations of fact, is articulated as follows:
"Immediately following the Inga Pre-Export Loan default, Swiss Bank made the following material misrepresentations to Minpeco: that the default would not adversely affect Minpeco or the credit relationship between Swiss Bank and Minpeco: that Swiss Bank viewed the Minpeco financing as `stand-alone,' and that Swiss would continue its long-standing relationship with Minpeco." (Id. at ¶ 62).
Count IV Negligent Misrepresentation
Petitioning Creditors allege that based upon their course of dealing and long-standing relationship, Minpeco reposed trust and confidence in Swiss Bank, and Swiss Bank had a duty to disclose complete and truthful information to Minpeco and not mislead Minpeco. It is alleged that:
"Swiss Bank breached that duty by making numerous, material and false representations to Minpeco, and by failing to disclose critical facts to Minpeco, including without limitation, its intention to manipulate Minpeco and take drastic action against Minpeco in connection with the Inga Pre-Export Loan default." (Id. at ¶ 70).
Count V Equitable Subordination (11 U.S.C. § 510(c))
This claim is alleged against Swiss Bank based upon "its above-described actions" (id. at ¶ 74).
Count VI Interference with Contractual Relations
This cause of action is based upon Swiss Bank's "above-described actions, including without limitation, its direction to Minpeco's customers to remit to Swiss Bank funds owing to Minpeco" (id. at ¶ 79).
Count VII Turnover of Property
This cause of action seeks to recover from Swiss Bank "at least $1,329,731.60" which Swiss Bank appropriated from Minpeco's account with Swiss Bank during the period June 28 through July 6, 1995 (id. at ¶ 83) and other monies which many have been remined to Swiss Bank directly by Minpeco's customers (id. at ¶ 84).
Count VIII Constructive Trust
This count is based upon unjust enrichment as a result of [Swiss Bank's] above-described inequitable conduct (id. at ¶ 88).
Count IX Conversion
This cause of action seeks recovery of "the appropriated funds which were *22 wrongfully appropriated by Swiss Bank" (id. at ¶ 90).
Discussion
Summary Judgment
Federal Rule of Civil Procedure 56(c), made applicable to the bankruptcy proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure, provides that summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Gallo v. Prudential Residential Servs., 22 F.3d 1219, 1223 (2d Cir.1994). Summary judgment is favored to dispose of meritless claims. See Celotex, 477 U.S. at 322, 106 S.Ct. 2548. On a summary judgment motion, the moving party has the burden of demonstrating the absence of any genuine issue of material fact, and all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. See United States v. Certain Funds on Deposit in Scudder Tax Free Inv. Account No. 2505103, 998 F.2d 129, 131 (2d Cir.1993); Thomson McKinnon Sec. Inc. v. Leasure (In re Thomson McKinnon Sec. Inc.), 132 B.R. 9, 11 (Bankr.S.D.N.Y.1991); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Once the movant has made its showing, the burden of production shifts to the non-movant who must "go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file," establish that there is a specific and genuine issue of material fact warranting a trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The non-movant cannot cast some metaphysical doubt on the moving party's assertions. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.1991), cert. denied, 502 U.S. 849, 112 S.Ct. 152, 116 L.Ed.2d 117 (1991) (a summary judgment motion will not be defeated on the basis of conjecture or surmise). The non-movant must present specific significant probative evidence supporting its case sufficient "to require a . . . judge to resolve the parties differing versions of the truth at trial." Moratzka v. Visa U.S.A. (In re Calstar, Inc.), 159 B.R. 247, 251 (Bankr.D.Minn.) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). There is no genuine issue for trial if the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. See Matsushita, 475 U.S. at 587, 106 S.Ct. 1348. Further, the existence of disputed issues of fact will not result in denial of a motion for summary judgment unless the disputed issues are material to the determination of the legal claims and defenses. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505 ("Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment"); Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1066 (2d Cir.1995). The moving party may obtain summary judgment by showing that little or no evidence may be found in support of the non-moving party's case. See Gallo, 22 F.3d at 1223-24.
The Counts of the Complaint
Counts I and II Breach of Contract and the Implied Covenant
The threshold task in any action for breach of contract is to identify the contract claimed to have been breached and examine its provisions, specifically, the provisions claimed to have been breached.
Petitioning Creditors have not alleged the existence of any oral contract between Minpeco and Swiss Bank. The record discloses only three written contracts between Minpeco and Swiss Bank, the Credit Agreement and the Security Agreement, *23 both executed in April 1995, and the security agreement (general collateral) dated April 15, 1992. Swiss Bank mentions the 1992 security agreement (general collateral) only for identification purposes in paragraph 13 of Defendant's Statement, and Petitioning Creditors make no reference to this agreement at all.
Having identified the universe of contracts between the parties, the question is what provisions of the Credit Agreement or the Security Agreement are alleged to have been breached by Swiss Bank? The answer is, "none." The Credit Agreement is mentioned only once in the Complaint, in paragraph 26 where it is simply alleged that the parties entered into the Agreement. The Credit Agreement is mentioned once in Petitioning Creditors' Surreply Memorandum, at page 22, but without any reference to breach of contract. The Credit Agreement is mentioned six times in Plaintiffs' Statement, at ¶¶ 35, 36, 38, 41, 42 and 97. The Security Agreement is mentioned in Plaintiffs' Statement once, at paragraph 97. None of these references asserts any claim that Swiss Bank breached either the Credit Agreement or the Security Agreement; indeed, none of the references contains any substantive discussion of either Agreement. Perhaps most significant in this regard is Petitioning Creditors' main memorandum in opposition to the motion for summary judgment ("Petitioning Creditors' Memorandum" or "Memorandum", abbreviated "P.C.Memo."). Point VII of Petitioning Creditors' Memorandum, pages 40-57, entitled "SWISS BANK BREACHED ITS CONTRACT AND THE DUTY OF GOOD FAITH AND FAIR DEALING," does not contain a single reference to either the Credit Agreement or the Security Agreement. There is no reference to the Security Agreement anywhere in the Memorandum. This Court could find only two references to the Credit Agreement in the Memorandum, at pages 26 and 35. There is no suggestion at either page that Swiss Bank breached the Credit Agreement. To the contrary, at page 26 Petitioning Creditors appear to be attempting to disavow the Credit Agreement ("there is no evidence that those terms were even adhered to as part of the parties' long-established prior course of dealing. . . . Swiss Bank cannot rely upon any terms of the credit agreement which vary from the parties' course of dealing before and after the execution of the Credit Agreement"), and at page 35 Petitioning Creditors argue that "there is a clear factual issue as to whether" Minpeco violated the Credit Agreement.
The foregoing analysis is significant indeed, it is determinative of Count II of the complaint. Petitioning Creditors have not alleged the existence of an oral contract, and they have not alleged any breach of any provision of any of the written contracts between Minpeco and Swiss Bank. Simply stated, there is no claim of any breach of any contract. In the absence of any claim, let alone evidence, of a breach of contract by Swiss Bank, the motion for summary judgment dismissing Count II of the complaint must be granted.
The specific conduct of Swiss Bank referred to in the complaint and in Petitioning Creditors' opposing papers cannot support a breach of contract claim because Petitioning Creditors have not alleged that any of that conduct breached any provision of the Credit Agreement or the Security Agreement. Nevertheless, in order to complete the analysis of Plaintiffs' breach of contract claims under Count II, the Court will examine briefly each act of Swiss Bank alleged under the breach of contract rubric.
Preliminarily, it is important to identify what appears to be Petitioning Creditors' central contractual theory. The constantly repeated theme which runs throughout Petitioning Creditors' papers in opposition to this motion is the "long-established prior course of dealing . . . course of dealing before and after the execution of the Credit Agreement" (Memorandum p. 26), *24 Minpeco's "fifteen-year relationship with Swiss Bank," (id. p. 26), the "lengthy, continuous and uninterrupted course of dealing" between Minpeco and Swiss Bank (id. p. 44), coupled with countless references to Minpeco's "line of credit" with Swiss Bank (see, e.g., Memorandum p. 25 "the Swiss Bank credit facility clearly operated as a line of credit," p. 28 "advances under the line of credit" and failing to provide Minpeco with advance notice before terminating "Minpeco's credit lines," p. 46 "terminating Minpeco's credit lines" and "termination of Minpeco's credit lines," p. 47 "available on its credit lines" and "terminated the credit lines" (twice), p. 53 "Swiss Bank terminated the credit lines"). But constant repetition of conclusory references to the parties' long-standing relationship and to Minpeco's alleged "credit lines" do not allege, let alone substantiate the existence of, a contract with identifiable contractual duties on the part of Swiss Bank.
There is no question that there was a long-standing relationship and that there was a credit relationship evidenced by specific loan transactions each with its own documentation, and the Credit Agreement and Security Agreement. But there was no other contract.
Specifically, there was no contract for a "line of credit." The penumbral references to "Minpeco's credit lines" obviously do not suffice as a basis for asserting that Swiss Bank had any sort of contract obligation to lend money to Minpeco, and indeed Petitioning Creditors do not make any such assertion. The nature of Minpeco's borrowing facilities with its six lenders during 1994 and 1995 is described in Defendant's Statement at paragraphs 8, 9, 10, 11, 13, 16, 17, 18, 19, 20 and 21. These paragraphs, which are not controverted by Petitioning Creditors, demonstrate that the long-standing practice of the parties was for Swiss Bank to make separately-documented loans to finance specific purchases of inventory against contracts for resale secured by assignments of the resulting accounts receivable and, in 1995 at least, by letters of credit. This practice is precisely what is documented in the Credit Agreement and the Security Agreement. The Credit Agreement provides in paragraph 1 that Swiss Bank "may from time to time in its sole discretion make advances . . . to [Minpeco] financing [Minpeco's] shipment pursuant to various contracts of sale . . . of raw materials to various buyers . . ." (emphasis supplied). There is not the slightest evidence in the record before this Court that Swiss Bank had any agreement with or obligation to Minpeco with respect to a general line of credit for working capital purposes or any other purpose, as Petitioning Creditors' oft-repeated mantra of "Minpeco's line of credit" would appear to suggest. There is no evidence the Swiss Bank ever made working capital loans to Minpeco. The long-standing credit relationship between Swiss Bank and Minpeco, described in the uncontroverted paragraphs of Defendant's Statement referred to above and reflected in the express provisions of the Credit Agreement quoted above, was exemplified in the eight Outstanding Loans remaining unpaid at the beginning of the week of June 19, 1995. Petitioning Creditors, perhaps unwittingly, concede all of the foregoing sentence in paragraph 42 of Plaintiffs' Statement, which states: "After the execution of the Credit Agreement, Minpeco continued to do business with Swiss Bank just as it had done under the parties' prior course of dealing."
With this background, the Court will examine each element of Swiss Bank's conduct complained of by Petitioning Creditors.
The claim that Swiss Bank "terminated Minpeco's credit line." As just noted, there is no factual basis to suggest that Swiss Bank had any contractual obligation to extend Minpeco a "line of credit"; under the Credit Agreement, Swiss Bank had the right to determine in its "sole discretion" whether to finance Minpeco's purchase of inventory, transaction by transaction. *25 Whether Swiss Bank "terminated" the Credit Agreement on June 21 or June 28 is immaterial to the motion for summary judgment, because Swiss Bank had no obligation to make any loans under the Credit Agreement and, in any event, it had the right to declare Minpeco in default on June 21.
The Claim that Swiss Bank "blocked" or "froze" Minpeco's bank account. Lukas Fischer's June 23 memorandum did not preclude withdrawal of funds, but merely required Swiss Bank's approval. Petitioning Creditors have not demonstrated that this constituted a breach of any contract. But if it did, there has been no showing that the breach had any practical adverse consequence for Minpeco. In fact, $108,000 was withdrawn from Minpeco's Swiss Bank account for the plainly improper purpose of discharging Inga's obligation to pay for the purchase of Minpeco's stock owned by Messrs. Gold and Meder ($54,000 was paid to each on June 23). Swiss Bank's assertion that "until June 28, 1995 Swiss Bank did not turn down any request for transfers of funds out of [Minpeco's] account" (Def.Stat.¶ 54) is uncontroverted. At the time they filed their opposition to the motion for summary judgment. Petitioning Creditors had had access to all information pertinent to Minpeco's finances including its account at Swiss Bank, but Petitioning Creditors have provided the Court with no information or evidence as to the amount of funds in the account and have made no assertion or even suggestion that Minpeco made any request to transfer funds out of the account between June 23 and June 28. Swiss Bank by counsel asserts that there were no funds in the account after the $108,000 was withdrawn on June 23. In short. Petitioning Creditors' constantly-repeated conclusory complaints regarding Swiss Bank's "freezing" of the account and the dire consequences of the "freeze" are without factual or evidentiary substance in the record before the Court.
Swiss Bank's "related conduct." Count II of the complaint at ¶ 59 identifies the conduct giving rise to the cause of action as "Swiss Bank's above-described actions in terminating Minpeco's line of credit and closing its trading account without just cause and related conduct." The "above-described . . . related conduct," presumably refers to the allegation in Count I ¶ 51 concerning Swiss Bank's actions "in appropriating funds in the account, and in obstructing Minpeco's relationships with its customers." Petitioning Creditors' Memorandum (see particularly point VII at pages 40-56) and Surreply Memorandum will be searched in vain for any explication of how or why Swiss Bank's actions in setting off funds in Minpeco's account and contacting Minpeco's customers with respect to accounts receivable subject to Swiss Bank's security interest constituted a breach of contract. No grounds appear to this Court for a finding or conclusion that these actions constituted breach of any contractual duty owed by Swiss Bank to Minpeco.
Count I the implied covenant of good faith and fair dealing
Petitioning Creditors acknowledge that their "claims are principally based upon Swiss Bank's knowing breach of its duty of good faith and fair dealing, as demonstrated by its announced decision to discontinue new lending and to freeze Minpeco's account without prior notice based solely on the Inga Concordata" (P.C.Memo. 10).
There is no question that the concept of an implied covenant of good faith and fair dealing is deeply embedded in New York case law and the New York Uniform Commercial Code. The authorities are cited and discussed in the parties' memoranda of law and need not be repeated here. Suffice it here to make a few basic observations. The implied covenant does not spring from a mere course of dealing: it is implied from an actual contract between the parties. Filner v. Shapiro, 633 F.2d 139, 143 (2d Cir.1980) (under New York law every contractual *26 obligation contains an implied covenant of good faith and fair dealing); Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., 30 N.Y.2d 34, 45, 281 N.E.2d 142, 144, 330 N.Y.S.2d 329, 333 (under New York law, the implied covenant of good faith and fair dealing inheres in every contract), cert. denied, 409 U.S. 875, 93 S.Ct. 125, 34 L.Ed.2d 128 (1972); Gordon v. Nationwide Mut. Ins. Co., 30 N.Y.2d 427, 437, 285 N.E.2d 849, 854, 334 N.Y.S.2d 601, 608 (1972) (quoting Kirke La Shelle Co. v. Armstrong Co., 263 N.Y. 79, 87, 188 N.E. 163. 167 (1933)), cert. denied, 410 U.S. 931, 93 S.Ct. 1374, 35 L.Ed.2d 593 (1973). A corollary of this basic postulate is that the contract as written governs the relationship of the parties and, stated differently, courts are not at liberty to impose obligations under the guise of the implied covenant which are inconsistent with the terms of the contract from which the covenant is to be implied. See Fasolino Foods Co. v. Banca Nazionale del Lavoro, 961 F.2d 1052, 1056 (2d Cir.1992); Nat'l Westminster Bank, U.S.A. v. Ross, 130 B.R. 656, 679 (S.D.N.Y.1991) ("covenant of good faith . . . cannot frustrate the operation of an express term of an agreement bargained for at arms length"), aff'd, 962 F.2d 1 (2d Cir.1992); In re Bennett, 154 B.R. 140, 154 (Bankr.N.D.N.Y.1992); Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 537 N.Y.S.2d 787, 534 N.E.2d 824 (1988); Murphy v. American Home Products Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983). A party which acts in accordance with rights expressly provided in a contract cannot be held liable for breaching an implied covenant of good faith. "[T]he implied covenant of good faith and fair dealing does not provide a court carte blanche to rewrite the parties' agreement. Thus, a court cannot imply a covenant inconsistent with the terms expressly set forth in the contract. . . . In addition, `[t]he mere exercise of one's contractual rights, without more, cannot constitute . . . a breach [of the implied covenant of good faith and fair dealing]'." Hartford Fire Insurance v. Federated Dep't Stores, 723 F.Supp. 976, 991 (S.D.N.Y.1989) (quoting Broad v. Rockwell Int'l Corp., 642 F.2d 929 (5th Cir.1981) (applying New York law), cert. denied, 454 U.S. 965, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981)).
As in the case of Count II respecting breach of contract, Petitioners' particularized claims of breach of the implied covenant do not withstand analysis.
The thrust of Petitioning Creditors' claim under Count I is that Swiss Bank's refusal on June 21 to finance the two inventory purchase transactions of $315,000 and $340,000 was a breach of good faith because it was made "without prior notice." In the context of the Credit Agreement and the practicalities of the parties' business relationship. Petitioning Creditors' claim is little short of ridiculous. How would Swiss Bank give prior notice that it would decline to finance these two transactions before the transactions were presented to it? Assuming, as argued by Petitioning Creditors, that Swiss Bank had made a decision not to finance any more Minpeco transactions because Inga had filed for concordata on June 20 (an assumption which conflicts with the fact that Swiss Bank agreed to finance three of the five transactions presented by Minpeco on June 21), how could Minpeco have given notice of that decision prior to June 21? Moreover, Petitioning Creditors' claim under Count 1 conflicts with the express provisions of the Credit Agreement and the Security Agreement. The Credit Agreement provides in paragraph 1 that Swiss Bank may decide "in its sole discretion" whether to advance loans to finance particular inventory purchase transactions presented by Minpeco. Under paragraph 10 of the Credit Agreement and paragraph 9 of the Security Agreement, prior notice, presentment, demand and protest "are hereby expressly waived" by Minpeco. Under the well-established case law in New York, this Court cannot make a finding or conclusion, with or without a trial, *27 that Swiss Bank breached a purported covenant which contradicts the express terms of the only contract from which the covenant can be implied.
Petitioning Creditors rely heavily on the Sixth Circuit decision in K.M.C. Co., Inc. v. Irving Trust Company, 757 F.2d 752, 758-760 (6th Cir.1985) which held, on the facts in that case, that "at such time as Irving might wish to curtail financing KMC, as was its right under the agreement, this obligation to act in good faith would require a period of notice to KMC to allow it a reasonable opportunity to seek alternate financing, absent valid business reasons precluding Irving from doing so" (757 F.2d at 759), citing Wells v. Alexandre, 130 N.Y. 642, 29 N.E. 142, 143 (1891) ("[I]f a notice was requisite to its proper execution, a covenant to give such notice will be inferred, for any other construction would make the contract unreasonable, and place one of the parties entirely at the mercy of the other"). Even if K.M.C. were factually relevant here, this Court would be guided by the District Court in National Westminster Bank v. Ross, supra, 130 B.R. at 680, which stated: "[T]his court declines to follow K.M.C. to the extent that the obligation of good faith performance enunciated there would imply an obligation of good faith upon the Bank inconsistent with the express terms of its contractual relationship." As noted above, an implied obligation to give advance notice conflicts with the express provisions of paragraphs 10 and 9 of the Credit Agreement and Security Agreement, respectively, and, in any event, is meaningless in the context of the type of transaction-by-transaction financing involved here, where Swiss Bank obviously could not give advance notice of its decision whether to finance a particular transaction "in its sole discretion" until the transaction was presented to it.
But the K.M.C. case is inapposite because the rule there enunciated pertained to completely different facts. In K.M.C. the Bank and the Borrower were operating under a traditional "line of credit" agreement under which the Bank obligated itself to provide working capital financing on the Borrower's request up to a $3.5 million limit. The Credit Agreement provided that all receipts by the Borrower were required to be placed in a blocked account which was exclusively within the Bank's control. The Borrower had no other source of financing. Thus, "the literal interpretation of the financing agreement urged upon us by Irving . . . would leave KMC's continued existence entirely at the whim or mercy of Irving, absent an obligation of good faith performance." 757 F.2d at 759. The facts here are quire different. Under the Credit Agreement, and the parties' long-standing practice. Swiss Bank made loans "at its sole discretion" for specific purchases of inventory on a transaction-by-transaction basis: Swiss Bank did not provide and had no obligation to provide working capital financing on an open line of credit. In addition to Swiss Bank, Minpeco had credit relationships with five other banks. Minpeco had "demonstrated an ability to obtain replacement financing. . . . Minpeco had recently obtained additional credit lines from ING Curacao . . . and Banque Lambert Brussels" (Pltf.Stat. ¶ 79). There is no claim that Minpeco could not or did not have other accounts with other banks. The Minpeco account at Swiss Bank was not "blocked" until June 23, and the block had no adverse impact on Minpeco because funds could be withdrawn with Mr. Fischer's authorization and Minpeco was not denied the right to withdraw funds until June 28. In short, the factual circumstances on which the K.M.C. holding was predicated are not present in this case.
The case law makes clear that the duty to give advance notice of termination of financing arises only where the lender has made a contractual commitment to provide financing at a specific time in a specific amount, or ongoing financing such as an line of credit for working capital purposes, and only in circumstances where the borrower justifiably relies on the lender *28 and has no practical alternative, as in the K.M.C. case. But the courts have rejected any duty to give advance notice in cases where the lender had made no contractual commitment to provide specific or ongoing financing. See Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 318 (2d Cir.1993); Fasolino Foods Co., supra, 961 F.2d at 1057 ("[bank] never represented that credit of a certain amount would be provided, and [debtor] had no reasonable expectation of continued, much less expanded, credit"). Swiss Bank had neither provided nor contracted to provide working capital financing to Minpeco.
Little further need be said with respect to Petitioning Creditors' claims of "breach of good faith" with respect to Swiss Bank's other actions during the period June 21-June 28, 1995. As to the purported "freeze" on Minpeco's bank account, whether Mr. Fischer's decision was a "good faith" reaction to the spiraling adverse events in Minpeco's financial condition, or a "bad faith" attempt to "punish" Minpeco for Inga's March Banque Paribas Loan default and Inga's June 20 concordata, as Petitioning Creditors argue (implausibly[5]), is irrelevant. Petitioning Creditors have not alleged that Minpeco had any money in the account or that Swiss Bank refused any request by Minpeco to make payment from its account prior to June 28. As to Swiss Bank's actions in setting off Minpeco's account and in notifying Minpeco's accounts receivable of Swiss Bank's rights as secured creditor under the Security Agreement, Petitioning Creditors do not argue that Swiss Bank did not have the right to take these actions under the Security Agreement. That being the case, any argument that these actions violated a purported implied covenant at variance with the parties' written agreement must be rejected as a matter of law.
Petitioning Creditors' final argument under Count 1 is that Swiss Bank did not act in good faith in formally declaring a default on June 28 based only upon the Inga filing for concordata and that Swiss Bank is "now estopped from making its ex post facto explanations" of other events of default (P.C.Memo. 53 et seq.). Once again, however, the contention that Swiss Bank should be held liable for declaring a default on June 28 is untenable as a matter of law and ridiculous in the context of the facts. As to the law, Petitioning Creditors cannot and do not dispute that the Inga concordata constituted an event of default under the express provisions of the Security Agreement. The Court is barred as a matter of law under the authorities cited and discussed above from holding Swiss Bank liable under a theory of breach of an implied covenant for doing what the Security Agreement expressly authorized it to do. The uncontroverted facts utterly refute any suggestion that Swiss Bank did not have a good faith basis to declare Minpeco in default by June 28, if not much sooner. By June 28 Swiss Bank had learned (i) that Minpeco's certification that the three loan transactions approved by Swiss Bank on June 21 were backed by letters of credit was false, (ii) that the accounts receivable and letters of credit assigned to Swiss Bank to secure the eight Outstanding Loans had been diverted by Minpeco and used to pay its ongoing costs of operation, leaving Swiss Bank with no source of repayment other than Minpeco's net worth and Inga's guarantee, (iii) that Inga's guarantee was worth little or nothing by reason of Inga's concordata, (iv) that approximately $5.95 million of Minpeco's equity was represented by obligations of dubious or all value owing to Minpeco *29 from its parent corporations, Ralbir and Inga, (v) that Minpeco's equity was only $1.5 million and falling rapidly, and (vi) on June 23, that Minpeco was "out of cash" and needed a working capital loan of $3-4 million to meet its current trade obligations. During the same period Swiss Bank learned that Minpeco's management was in a state of crisis and conflict between the Inga Board of Directors and the Minpeco management team. Minpeco had declined to permit Swiss Bank to examine its books. The Inga concordata constituted an event of default under the Security Agreement and there can be no dispute that there were multiple additional events of default under paragraph 10 of the Credit Agreement and paragraph 9 of the Security Agreement (see Swiss Bank's Memorandum footnote 13 at page 31). All of these facts, drawn from Defendant's Statement, are uncontroverted. There is no question that these events were "material" to Minpeco by Petitioning Creditors' own account, Minpeco was "out of cash" by June 23 and substantially out of business by June 28.
Counts III and IV Fraud and Negligent Misrepresentation
As noted above, Petitioning Creditors' fraud and misrepresentation claims arise out of Inga's March 1995 default under the Banque Paribas loan, in which Swiss Bank had an unpaid participation to the extent of $1.46 million. The fraud claim is based upon the following purported "misrepresentations," as alleged in paragraph 62 of the complaint:
"that [Inga's Banque Paribas Loan] default would not adversely affect Minpeco or the credit relationship between Swiss Bank and Minpeco".
"that Swiss Bank viewed the Minpeco financing as `stand-alone credit'", and
"that Swiss Bank would continue its long-standing relationship with Minpeco."
On their face, these statements appear to be expressions of intent as to future conduct, rather than representations of existing fact, and as such they could not give rise to a fraud claim under elementary principles of law. As expressions of intent, or future undertakings, these statements could not possibly be construed as a binding contractual obligation to continue to provide financing irrespective of future events, and Petitioning Creditors do not so contend. In point of fact, Swiss Bank honored each of these assurances. Inga's default under the Banque Paribas Loan did not affect the credit relationship between Swiss Bank and Minpeco, Swiss Bank did treat the Minpeco relationship as a "stand-alone credit" and Swiss Bank did continue its long-standing relationship with Minpeco. Indeed, Swiss Bank granted three of Minpeco's five transaction financing requests on June 21, the day after there was a material adverse change in the parties' credit relationship as a consequence of Inga's filing for concordata.
Petitioning creditors attempt to overcome the fatal legal defect in their fraud claim by asserting that "Swiss Bank knew such representations were false when made, as Swiss Bank was simultaneously scheming to pressure Minpeco in an attempt to compel payment from Inga" (P.C.Memo. 58). Of course, the fact (if it was a fact) that Swiss Bank was "scheming" to "pressure" Minpeco with respect to Inga's default under the Banque Paribas Loan does not render false Swiss Bank's stated intention to continue its long-standing relationship with Minpeco, as demonstrated by the fact that Swiss Bank did continue its long-standing relationship with Minpeco until the unforeseen events commencing on June 20 materially changed the parties' circumstances. Moreover, there was nothing nefarious, secret or otherwise wrongful in Swiss Bank putting "pressure" on Minpeco with respect to Inga's Banque Paribas Loan default and, in any event, the "pressure" apparently had no consequence. Since it is not claimed that Minpeco spent a dollar of its *30 funds or took any other action to alleviate the Banque Paribas Loan default of its parent.
Petitioning Creditors' reliance contentions are a pastiche of conclusory assertions without any substance in fact. Thus, it is asserted (P.C.Memo. 58):
Minpeco clearly relied upon Swiss Bank's assurances, and until Swiss Bank terminated Minpeco's credit lines, Minpeco had no reason to seek replacement financing on an expedited basis. . . . Swiss Bank's misrepresentations critically wounded Minpeco, because once Swiss Bank terminated Minpeco's credit lines and froze Minpeco's account, Minpeco is left without operating capital and could not operate its business.
As already made abundantly clear, this Court views these contentions as deplorable distortions of the record in this case. The uncontroverted facts are (i) that Swiss Bank did not terminate Minpeco's credit lines because Minpeco did not have any credit lines with Swiss Bank, (ii) that Swiss Bank did not "freeze" Minpeco's account and it did not deny a single request to disburse funds from the account before June 28, and (iii) that Minpeco not only did not refrain from seeking financing from other banks but "had demonstrated an ability to obtain replacement financing . . . [and] had recently obtained additional credit lines from [two banks]" (Pltf.Stat.¶ 79). The fact that Minpeco was without operating capital and could not operate its business (P.C.Memo. 58) was in no way attributable to any conduct of Swiss Bank, which had not provided and had no obligation to provide Minpeco with working capital loans. In short, the fraud/misrepresentation claims are rhetoric, with no foundation in fact.
Counts III and IV are defective as a matter of law and unsupported by even the minimal factual showing required by Supreme Court and Second Circuit decisions. Summary judgment must be granted dismissing Counts III and IV.
Counts V, VI, VII, VIII and IX
Little need be said beyond the foregoing analyses with respect to the remaining Counts in the Complaint, which do not purport to allege new facts or independent causes of action but seek remedies for previously-alleged purported wrongdoing. Thus, Count V. which seeks equitable subordination under 11 U.S.C. § 510(c), is based upon Swiss Bank's "above-described actions" (Complaint at ¶ 74). See In re W.T. Grant Co., 4 B.R. 53, 74-75 (Bankr. S.D.N.Y.1980) ("With respect to a non-insider creditor's conduct, the standard of misconduct that would have to be demonstrated to justify equitable subordination is very substantial. . . . In order to equitably subordinate the claims of non-insiders, . . . [i]t must be established that the holder of the claim to be subordinated committed fraud, overreaching or spoliation to the detriment of others. A mere statement that the creditor is guilty of `inequitable conduct' will not suffice"). Count VI, Interference with Contractual Relations, is based upon Swiss Bank's "above-described actions, including without limitation, its direction to Minpeco's customers to remit to Swiss Bank funds owing to Minpeco" (id. at ¶ 79). Petitioning Creditors have made no attempt to demonstrate, either generally or with particularity, that Swiss Bank did not have the contractual right to direct Minpeco's customers to remit accounts receivable to Swiss Bank. Under New York law, a creditor with a security interest in all the debtor's assets including accounts receivable has the right to collect accounts receivable over which it has a lien. See, e.g., Ultramar Energy, Ltd. v. Chase Manhattan Bank, N.A., 179 A.D.2d 592, 593, 579 N.Y.S.2d 353, 354 (1st Dep't 1992). Counts VII and IX for turnover of property and conversion relate to Swiss Bank's setoff of Minpeco's account, as well as its collection of accounts receivables. Petitioning Creditors have made no showing, factual or legal, that Swiss Bank's setoff was unlawful, other than the naked, conclusory reference to "Swiss Bank's wrongful exercise of dominion and control over *31 Minpeco's account and accounts receivable" (P.C.Memo. 70). The Security Agreement (¶ 5) expressly provided for Swiss Bank's right of setoff, confirmed by both common law and statute. See, Fenton v. Ives, 222 A.D.2d 776, 634 N.Y.S.2d 833 (3d Dep't 1995); Chemical Bank v. Ettinger, 196 A.D.2d 711, 602 N.Y.S.2d 332 (1st Dep't 1993); 9 N.Y.Jur.2d, Banks and Financial Institutions, § 304 at 542 (bank may setoff mutual debts with depositor provided there is no express agreement to the contrary); N.Y. Banking L. § 9-g(2). The constructive trust claim in Count VII is not a claim but a remedy and cannot afford an independent basis for holding Swiss Bank liable. See, e.g., Scholes v. African Enterprise, Inc., 838 F.Supp. 349, 357 (N.D.Ill.1993) ("imposition of a constructive trust is a remedy and not a cause of action"); Pucci v. Litwin, 828 F.Supp. 1285, 1300 (N.D.Ill.1993) (same); One-O-One Enterprises, Inc. v. Caruso, 668 F.Supp. 693, 696 n. 1 (D.D.C.1987) (same), aff'd, 848 F.2d 1283 (D.C.Cir.1988).
Accordingly, summary judgment dismissing Counts V, VI, VII, VIII and IX must be granted.
Disputed Issues of Fact
Petitioning Creditors argue that all factual inferences must be drawn in favor of the party opposing a motion for summary judgment and that, viewing the evidence in the light most favorable to Petitioning Creditors, there are genuine issues of material fact requiring a trial (P.C.Memo. 17 et seq.). They argue, inter alia, that "Swiss Bank's state of knowledge regarding Minpeco's financial condition should be assessed as of June 21-22, 1995, when it took the critical action of discontinuing new lending, freezing Minpeco's operational account and notifying Minpeco's management thereof" (id. at 20) and that "there are factual issues regarding the individual requests for financing denied on June 21" (id. at 27). But none of Petitioning Creditors' suggested inferences, no matter how implausible, gives rise to an issue of material fact requiring a trial in this case. Even if one were to assume, arguendo, that on June 21 the responsible Swiss Bank officials told Minpeco that Swiss Bank would no longer finance any further inventory transactions and that they did so out of meanness, vindictiveness or other "bad faith" motivations, and not for "good faith" commercial reasons, such subjective determinations by a trier of fact could not change the uncontrovertible, objective facts or impose legal obligations on Swiss Bank where none exist. However stupid, vindictive or malevolent the Swiss Bank officials may have been, on a subjective level, the objective facts are: (i) Inga filed for concordata on June 20; (ii) the Inga concordata constituted an event of default under the Credit Agreement and the Security Agreement; (iii) under paragraph 1 of the Credit Agreement Swiss Bank had the right "in its sole discretion" to refuse to finance any further inventory transactions for Minpeco. Given these objective and uncontroverted facts, no court can impose liability on Swiss Bank based upon findings by a judge or a jury as to the subjective, internal motivations, thought processes or emotional state of Swiss Bank officials. Stated another way, conduct on the part of a bank or other commercial entity which is objectively lawful and within the bank's contractual rights cannot give rise to obligations or liability on the part of the bank merely by reason of stupidity, vindictiveness or bad attitude on the part of the bank's officer(s). The uncontroverted, objective fact is that by the week of June 20 Minpeco was "out of cash" and needed a $3-4 million working capital loan to meet its current obligations. Nothing that Swiss Bank did or failed to do contributed in any way to Minpeco's financial crisis, and Swiss Bank had no contractual or implied contractual obligation to provide such a loan.
Based upon the objective, incontrovertible facts, as a matter of law Swiss Bank cannot be held liable for refusing to loan *32 funds to Minpeco or for setting-off funds, because it had no obligation to loan funds and it had contract and common law rights to setoff. The alleged reaction of other banks, or brokers in London, or customers of Minpeco, to Swiss Bank's refusal to lend more money to Minpeco or its setoff of Minpeco funds is irrelevant. Swiss Bank's conduct was lawful, and third parties' reactions cannot make it unlawful.
To summarize, the few issues of fact which Petitioning Creditors have suggested in their Memorandum, even if deemed "genuine" issues within the meaning of the case law, are not "material" to the determination of the motion for summary judgment. Assuming resolution of those issues and drawing all reasonable inferences in favor of Petitioning Creditors, Swiss Bank nevertheless is entitled to summary judgment dismissing the complaint.
Conclusion
Swiss Bank's motion for summary judgment is granted in its entirety and the complaint is dismissed with prejudice. Counsel for the parties are directed to agree upon the form of an order, to be prepared by counsel for Swiss Bank, without prejudice to Petitioning Creditors' right to appeal.
NOTES
[1] Unless otherwise indicated, "The Facts" are drawn from Defendant's Statement.
[2] A "pre-export" loan is a loan against goods which have not yet been shipped. A "post-export" loan is a loan against goods which have been shipped and have a valid bill of lading. Generally, pre-export loans contain more risk to the lender than post-export loans, as payment of the ultimate receivable is dependent upon the borrower's ability to lade the goods and because, until a bill of lading is issued, the lender has no specific interest in the inventory.
[3] On June 23 Inga had repurchased Mr. Gold's Minpeco shares by wiring $54,000 from Minpeco's account at Swiss Bank to Mr. Gold. The same day, June 23, Inga also purchased the Minpeco shares of Carlos Meder, Minpeco's Vice President, for $54,000, also taken from Minpeco's funds at Swiss Bank.
[4] Minpeco management had taken $400,000 in bonuses and $350,000 for Minpeco stock from Minpeco cash assets in April 1995.
[5] Swiss Bank's exposure under the Banque Paribas Loan was $1.46 million: its exposure under the eight Minpeco Outstanding Loans was $5.9 million. It is counterintuitive to suppose that even the most obtuse banker would act vindictively or otherwise in "bad faith" in such a manner as to knowingly and intentionally undermine the financial well-being of its much larger credit risk in order to force payment of a much smaller collateral obligation.
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43 F.3d 1479
NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.Thomas K. JACKSON, Plaintiff-Appellant,v.Samuel A. LEWIS, et al., Defendant-Appellee.
No. 93-15845.
United States Court of Appeals, Ninth Circuit.
Submitted Dec. 12, 1994.*Decided Dec. 15, 1994.
Before: BOOCHEVER, NORRIS and HALL, Circuit Judges.
ORDER
1
Thomas K. Jackson, an Arizona state prisoner, appeals pro se the district court's summary judgment for defendant prison officials in his 42 U.S.C. Sec. 1983 action. We have jurisdiction under 28 U.S.C. Sec. 1291.
2
The case is remanded to the district court for consideration of the effect of the Religious Freedom Restoration Act of 1993, Pub.L.No. 103-41, 107 Stat. 1488 (1993), on appellant's claims. The district court is specifically directed to determine whether the government's conduct in this case substantially burdened appellant's exercise of religion within the meaning of the Act.
3
This panel shall retain jurisdiction of this case.
4
VACATED AND REMANDED.
*
This panel unanimously agrees that this case is appropriate for submission without oral argument. Fed.R.App.P. 34(a); 9th Cir.R. 34-4
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UNITED STATES COURT OF APPEALS
Filed 7/29/96
FOR THE TENTH CIRCUIT
MARY LOU SMITH,
Plaintiff-Appellant,
v. No. 95-6329
(D.C. No. CIV-94-133-T)
SHIRLEY S. CHATER, Commissioner (W.D. Okla.)
of Social Security, *
Defendant-Appellee.
ORDER AND JUDGMENT **
Before TACHA, ALDISERT, *** and BALDOCK, Circuit Judges.
*
Effective March 31, 1995, the functions of the Secretary of Health and
Human Services in social security cases were transferred to the Commissioner of
Social Security. P.L. No. 103-296. Pursuant to Fed. R. App. P. 43(c), Shirley S.
Chater, Commissioner of Social Security, is substituted for Donna E. Shalala,
Secretary of Health and Human Services, as the defendant in this action.
Although we have substituted the Commissioner for the Secretary in the caption,
in the text we continue to refer to the Secretary because she was the appropriate
party at the time of the underlying decision.
**
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
***
Honorable Ruggero J. Aldisert, Senior Circuit Judge, United States Court
of Appeals for the Third Circuit, sitting by designation.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. The case is
therefore ordered submitted without oral argument.
Claimant Mary Lou Smith appeals from the district court’s order affirming
the decision of the Secretary of Health & Human Services to deny her disability
and supplemental income benefits under the Social Security Act. Claimant
applied for benefits in July of 1991, alleging disability as a result of impairments
in her legs, hips and feet. Her requests for benefits were denied administratively
and upon reconsideration.
A hearing before an administrative law judge (ALJ) was held in October of
1992, at which claimant proceeded pro se. The ALJ issued a decision concluding
that claimant was not disabled. Agency regulations establish a five-step
sequential analysis to evaluate disability claims. See Williams v. Bowen, 844
F.2d 748, 750-52 (10th Cir 1988)(describing five steps in detail). Here, the ALJ
reached step four, determining that claimant could return to her past relevant
work. Alternatively, the ALJ concluded claimant could perform other jobs
existing in significant numbers in the national economy.
The Appeals Council denied review, and claimant filed suit in federal
district court. That court, based on a magistrate judge’s report and
-2-
recommendation, affirmed the agency’s denial of benefits. Our jurisdiction over
this appeal arises from 28 U.S.C. § 1291. Our review of the agency’s decision is
limited to determining whether the decision is supported by substantial evidence
in the record as a whole and whether the correct legal standards were applied.
Castellano v. Secretary of Health & Human Servs., 26 F.3d 1027, 1028 (10th Cir.
1994).
On appeal, claimant contends that 1) the ALJ failed to develop the record
under the heightened standard applicable to pro se claimants, 2) the ALJ failed to
develop testimony by the vocational expert (VE), and 3) her waiver of counsel at
the hearing was ineffective. Although these issues were raised before the district
court, many of the arguments claimant raises on appeal in support of these
contentions were not presented below. Accordingly, we decline to consider those
arguments. 1 See Crow v. Shalala, 40 F.3d 323, 324 (10th Cir. 1994); see also
Toledo v. Nobel-Sysco, Inc., 892 F.2d 1481, 1494 n.7 (10th Cir. 1989)(theories
1
Claimant contends, for the first time on appeal, that 1) the medical record
was not fully developed as to the twelve months prior to claimant’s application, 2)
the ALJ failed to consider Dr. Miller’s report dated August of 1990, 3) the ALJ’s
credibility determination was not supported or explained, 4) the VE improperly
classified both claimant’s past relevant work and the other jobs listed that
claimant could perform, 5) the ALJ improperly allowed the VE to make the step
four determination, and 6) the ALJ improperly proceeded to an alternative step
five analysis. We also note that this last issue is urged despite directly contrary
authority from this circuit, see Murrell v. Shalala, 43 F.3d 1388, 1389 (10th Cir.
1994) and therefore, is frivolous.
-3-
not presented to the district court will not be considered on appeal), cert. denied,
495 U.S. 948 (1990).
After consideration of the arguments presented to the district court and
after careful review of the record on appeal, together with the parties’ briefs, we
conclude that the district court correctly decided this case. Therefore, for
substantially the reasons set forth in the district court’s opinion dated August 22,
1995, and the magistrate judge’s report and recommendation dated November 30,
1994, the judgment of the United States District Court for the Western District of
Oklahoma is AFFIRMED.
Entered for the Court
Ruggero J. Aldisert
Circuit Judge
-4-
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862 F.Supp. 1469 (1994)
Doretha F. SMAW, Plaintiff,
v.
COMMONWEALTH OF VIRGINIA DEPARTMENT OF STATE POLICE, Defendant.
Action No. 2:94CV311.
United States District Court, E.D. Virginia, Norfolk Division.
September 8, 1994.
*1470 Harold Barnes, Barnes, Faulcon, McKenna & Kithcart, Suffolk, VA, for plaintiff.
Neil Anthony Gordon McPhie, Guy Winston Horsley, Jr., Office of the Atty. Gen., and James Stuart Gilmore, III, Atty. Gen. of Virginia, Richmond, VA, for defendant.
OPINION AND ORDER
MILLER, United States Magistrate Judge.
Former Virginia State Trooper Doretha Smaw has filed two federal claims against the Commonwealth of Virginia, Department of State Police (VSP). Both of Smaw's claims are based on employment discrimination, and both relate to her dismissal due to her obesity. The Virginia State Police have moved for summary judgment. The core issues in deciding this motion are whether, by reason of her obesity, Smaw is "handicapped" under the Rehabilitation Act or has a "disability" under the Americans with Disabilities Act, and, alternatively, whether the VSP regarded her as either handicapped or disabled.
This matter comes before the Court on Defendant's Motion for Summary Judgment, filed on July 25, 1994. Smaw filed a response and brief in opposition on August 4, 1994, and a supplemental response on August 26, 1994. Both parties have consented to have all proceedings in this case conducted before a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c) and Fed. R.Civ.P. 73. The undersigned heard oral arguments on this matter on Tuesday, August 23, 1994. After a review of the memoranda submitted by the parties, and the applicable *1471 statutory and case law, the Court GRANTS the summary judgment motion of Defendant Commonwealth of Virginia, Department of State Police.
I. FACTUAL AND PROCEDURAL BACKGROUND
Doretha Smaw was first employed as a Virginia State Trooper in 1982. Compl. ¶ 2. At the time of her hiring, she weighed 219 pounds. Blankenship Aff. ¶ 7. Although Smaw's weight exceeded the maximum weight allowable under the personnel guidelines of the VSP, she was accepted as a trooper with the understanding that she would reach the appropriate weight during her employment. Id.
During her nine-year tenure as a trooper, Smaw received numerous written warnings from her supervisors about the fact that her weight remained in excess of the maximum weight limitation. Compl. ¶ 15-66. In August of 1988, Smaw was examined by a VSP doctor, who found that no medical reason prevented her from reaching the prescribed weight. Def.Mem.Supp.Summ.J. ¶ 3b. The doctor suggested several ways for Smaw to attain the desired weight, and recommended that she lose three pounds per month until she reached a satisfactory weight. Id.
Pursuant to that program, Smaw was weighed monthly. Smaw was consistently unable to meet the three-pound-per-month program, and, in 1991, she was terminated from employment as a trooper. Id. at ¶ 3c. Smaw was permitted to retain employment with the VSP as a dispatcher, a position she currently holds. Id.
Smaw has filed two claims against the VSP, one under the Rehabilitation Act of 1973, and the second under the Americans with Disabilities Act of 1990.
II. STANDARD FOR SUMMARY JUDGMENT
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment should be granted only 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). For the evidence to present a "genuine" issue of material fact, it must be "such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Facts are deemed material if they might affect the outcome of the case. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In other words, the moving party's submission must foreclose the possibility of the existence of facts from which it would be open to a jury to make inferences favorable to the non-movant. Id.
In deciding a summary judgment motion, the court must view the record as a whole and in the light most favorable to the nonmoving party. Terry's Floor Fashions, Inc. v. Burlington Indus., Inc., 763 F.2d 604, 610 (4th Cir.1985). Either party may submit as evidence "pleadings, depositions, answers to interrogatories, and admissions on file, together with ... affidavits" to support or rebut a summary judgment motion. Fed. R.Civ.P. 56(c). Supporting and opposing affidavits must be based on personal knowledge and must set forth facts that would be admissible in evidence. Id. at 56(e). Furthermore, the party moving for summary judgment need not supply "affidavits or other similar materials negating the opponent's claim." Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. When a motion for summary judgment is made and supported with affidavits as it is in this case, however, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(e).
Rule 56 mandates a grant of summary judgment against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. The party who bears the burden of proving a particular element of a claim must "designate `specific facts showing there is a genuine issue for trial'" with respect to that element. Id. at 324, 106 S.Ct. *1472 at 2553 (quoting Fed.R.Civ.P. 56(e)). Considering these controlling principles, the Court turns to the merits of the motion.
III. ANALYSIS
A. The Rehabilitation Act of 1973
Smaw's first claim is founded on the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., federal legislation designed to deter discrimination on the basis of disability by all federally funded private or public entities.
The Rehabilitation Act defines the term "handicapped" in two ways. First, there is the more commonplace definition: A person having a physical or mental impairment which substantially limits one or more of such person's major life activities. § 706(7)(B)(i). Second, and also germane to this case, the Act considers an individual to be handicapped if that person is regarded by the employer as having such an impairment. § 706(7)(B)(iii). The regulations define "one who is regarded as impaired" as having:
a physical or mental impairment that does not substantially limit major life activities, but is treated by a covered entity as constituting such limitation; has a physical or mental impairment that substantially limits major life activities only as a result of the attitudes of others towards such impairments; or has none of the impairments ... but is treated by a covered entity as having as substantially limiting impairment. 29 C.F.R. § 1630.2(1).
Thus, the Rehabilitation Act covers not only people who are in fact disabled, but those who are discriminated against because their employers view them as disabled. The latter variety are commonly referred to as "perceived disability" cases. Smaw has chosen to proceed on both an actual disability and a perceived disability theory.
As a general rule, in handicap discrimination cases brought under federal law, the claimant bears the burden of proving each element of her claim. See Joyner v. Dumpson, 712 F.2d 770, 774 (2d Cir.1983). It is axiomatic that in order to invoke the Rehabilitation Act in either an actual or a perceived disability case, the plaintiff must establish that she is a handicapped person within the purview of the statute. In order to qualify as handicapped under the statutory definition, Smaw must show that she was discriminated against because she had, or was regarded by her employer as having, (1) a physical or mental impairment; (2) that limits a major life activity; and (3) the limitation is substantial.
1. Physical or Mental Impairment
The regulations governing the Rehabilitation Act define "physical or mental impairment" as including any physiological disorder or condition significantly affecting a major bodily system. 45 C.F.R. § 84.3(j)(2)(i)(A). The regulations are open-ended, encompassing disorders and conditions "whose precise nature is not at present known." Id. at App. A, Subpart A(3). There are no cases dealing with the specific issue of whether obesity qualifies as a "physical or mental impairment." Judging from the variety of other situations that have been designated as handicaps by the courts see, e.g., Severino v. North Fort Myers Fire Control Dist., 935 F.2d 1179, 1182 (11th Cir.1991) (AIDS); Teahan v. Metro-North Commuter R.R. Co., 951 F.2d 511, 517 (2d Cir.1991) (drug abuse); Gilbert v. Frank, 949 F.2d 637, 641 (2d Cir.1991) (kidney disease); Reynolds v. Brock, 815 F.2d 571, 573 (9th Cir.1987) (epilepsy); Gallagher v. Catto, 778 F.Supp. 570, 577 (D.D.C.1991) (alcoholism) aff'd 988 F.2d 1280 (D.D.Cir.1993) and from the recent decision of the First Circuit Court of Appeals implying that medically dysfunctional metabolism leading to morbid obesity could be a physical impairment, Cook v. Rhode Island Dept. of Mental Health, Retardation, and Hospitals, 10 F.3d 17 (1st Cir. 1993), one must conclude that the definition of "physical impairment" is far-reaching. Nonetheless, as the Fourth Circuit Court of Appeals has recognized, "[t]he question of who is a handicapped person under the Act is best suited to a `case-by-case determination' ... The definitional task cannot be accomplished merely through abstract lists and categories of impairments." Forrisi v. Bowen, 794 F.2d 931, 933 (4th Cir.1986), quoting E.E. Black, Ltd. v. Marshall, 497 F.Supp. 1088, 1100 (D.Hawaii 1980). Thus it remains *1473 unclear whether simple obesity falls within the broad sweep of the definition of physical impairment.
2. Major Life Activity
The regulations implementing the Rehabilitation Act define "major life activities" to include such functions as caring for oneself, performing manual tasks, seeing, hearing, and working. 29 C.F.R. § 1613.702(c). Because working is included on the illustrative list, there is no question as to whether it qualifies as a major life activity. A claim of interference with a chosen occupation forms the crux of this dispute, and thus this prong of the definition appears to be satisfied by Smaw's claim. However, as the next section of this opinion illustrates, that the regulations define major life activity to include working does not necessarily mean working at the job of one's choice.
3. Substantial Limitation
The term "substantially limits" is not defined in the regulations. Some guidance in interpreting this phrase can perhaps be found in the regulations implementing the ADA. Those regulations include the statement that "[t]he inability to perform a single, particular job does not constitute a substantial limitation in the major life activity of working." 29 C.F.R. § 1630.2(j)(3)(i). Cases defining "substantially limits" as it appears in the Rehabilitation Act make it clear that the ADA regulation represents an accurate definition of the phrase.
Case law in this area provides some significant guidance as to the meaning of "substantially limits." In a case involving a repairman who was afraid of heights, the Fourth Circuit insisted that "an employer does not necessarily regard an employee as handicapped simply by finding the employee to be incapable of satisfying the singular demands of a particular job." Forrisi, 794 F.2d at 934 (citing de la Torres v. Bolger, 610 F.Supp. 593, 597 (N.D.Tex.1985); Tudyman v. United Airlines, 608 F.Supp. 739 (C.D.Cal.1984); E.E. Black, Ltd. v. Marshall, 497 F.Supp. 1088 (D.Hawaii 1980)). The Sixth Circuit stands in accord, stating that "an impairment that interfered with an individual's ability to do a particular job, but did not significantly decrease that individual's ability to obtain satisfactory employment otherwise, was not substantially limiting within the meaning of the statute." Jasany v. United States Postal Service, 755 F.2d 1244, 1248 (6th Cir.1985) (cited with approval by Welsh v. Tulsa, 977 F.2d 1415, 1418 (10th Cir.1992)).
Most significantly, the First Circuit recently decided a perceived disability case dealing directly with the factual scenario of obesity. Cook, 10 F.3d at 17. While this decision upheld a verdict for the obese plaintiff, the court's analysis makes clear that the employer must regard the individual's disability as the type that would defeat many or all kinds of employment.
[D]enying an applicant even a single job that requires no unique physical skills, due solely to the perception that the applicant suffers from a physical limitation that would keep her from qualifying for a broad spectrum of jobs, can constitute treating an applicant as if her condition substantially limited a major life activity, viz., working. Id. at 25.
The court in Cook thus takes a narrow view of the type of discrimination necessary to violate the statute, noting that the employer must view the individual as unqualified for more than just the single job denied; the gist of the definition requires that the employer see the individual as unqualified for an array of occupations.
In rejecting the employer's appeal, the First Circuit also distinguished other cases involving failure to qualify for a job possessing unique qualifications, noting that
there is a significant legal distinction between rejection based on a job-specific perception that the applicant is unable to excel at a narrow trade and a rejection based on a more generalized perception that the applicant is impaired in such a way as would bar her from a large class of jobs. Id. at 26.
In the former type of case, courts have uniformly held that the employer's actions did not violate the law. See, e.g., Daley v. Koch, 892 F.2d 212, 214-16 (2d Cir.1989) (sustaining rejection as a police officer because of *1474 personality traits of poor judgment and responsibility); Welsh, 977 F.2d at 1417-18 (upholding termination as a fire fighter due to minor sensory loss in one hand); Tudyman, 608 F.Supp. at 746 (sustaining termination as airline steward due to bodybuilder's bulk).
The courts have differentiated between an employer's rejection of an employee or potential employee due to a perception that the individual is unable to perform the duties of that job, and denial because the employer believes the individual is inherently incapable of working at any of a number of jobs; the latter may qualify as handicapped under the statute, while the former cannot.
Therefore, under the actual disability component of the Rehabilitation Act, even if a plaintiff is able to demonstrate that obesity qualifies as a "mental or physical disability," and that working qualifies as a "major life activity," she must also show that her disability "substantially limits" her ability to work. As the regulations imply, and as the cases make exceedingly clear, disqualification from one particular job does not meet the substantiality requirement of the law. Even in the one case where a plaintiff successfully asserted obesity discrimination as the basis for her claim, the court took great pains to demarcate its holding, expressly excluding situations where an employer takes action against an employee because of job-specific concerns.
Under the "regarded as" prong of the Rehabilitation Act, a plaintiff can make out a cognizable perceived disability claim by demonstrating that she was treated by her employer as if she had an impairment that substantially limits a major life activity. Case law on the perceived disability component of the Rehabilitation Act, while scant, demonstrates that disqualification from one particular job also does not meet the substantiality requirement.
B. The Americans with Disabilities Act of 1990
The Americans With Disabilities Act, 42 U.S.C. 12101 et seq., extends protection against discrimination against disability into the private sector. By design, the ADA standards mirror those of the Rehabilitation Act in this case.[1] Indeed, the Rehabilitation Act regulations' definition of "handicapped" and the ADA and the ADA regulations' definition of "disability" are substantially identical.[2] The three requirements set forth in the previous sections, physical impairment, major life activity, and substantial limitation, are repeated verbatim in the ADA. § 12102(2).
In one significant decision involving the ADA, the court followed the trend established by prior courts' interpretations of the Rehabilitation Act. The case involved an overweight flight attendant, and the court granted summary judgment on the perceived disability claim, stating that
working as a flight attendant is just one particular job with defendant [Airline], and thus does not qualify as a substantial limitation of a major life activity under the ADA. In fact, the record indicates that plaintiff failed to pursue opportunities for ground positions offered by defendant. Horton v. Delta Air Lines, 1993 WL 356894, 1993 US Dist. LEXIS 12865 (N.D.Cal.1993).
The emergence of the ADA does not create a new avenue for claims in the area of disability discrimination; rather, the ADA incorporates the existing language and standards of the Rehabilitation Act in this area.
In addition, specific regulations for the ADA indicate that generally obesity does not qualify as a disability. The Interpretive Guidance created by the Equal Employment *1475 Opportunity Commission on Title I of the ADA states that "except in rare circumstances, obesity is not considered a disabling impairment." 29 C.F.R. § 1630 App. The case law and the regulations both point unrelentingly to the conclusion that a claim based on obesity is not likely to succeed under the ADA.
C. Ms. Smaw's Claims
In order to prevail on either of her claims, Smaw must show that either her obesity "substantially limits" her ability to hold any job, or that the Virginia State Police regard this as being the case. Smaw has offered no evidence that she is substantially limited by her obesity. Her present position as a dispatcher would seem to negate any argument that she is disqualified from her profession by her weight. Her claim of actual disability or handicap must therefore fail.
Similarly, Smaw has not shown that the VSP regard her as incapable of performing duties in her chosen occupation. Unlike the victorious plaintiff in Cook, Smaw has not demonstrated that VSP perceives her as unable to perform duties in the field of law enforcement. Although Smaw has argued for a narrower view of her profession, contending that her employer views her as unable to perform in active law enforcement jobs, this Court finds that the proper scope of Smaw's occupation is the field of law enforcement as a whole. Therefore, because Smaw is presently employed in her field, and because her employer has given no indication that it views her as unable to work as a law enforcement officer, she is not substantially limited as required by both the Rehabilitation Act and the ADA.
The decision in Forrisi expressly delineates the Fourth Circuit's position on the "substantially limits" prong of the definition of handicapped, and Smaw's allegations undoubtedly place her beyond the situations protected by the Rehabilitation Act. Because the relevant provisions of the ADA merely repeat the language of the Rehabilitation Act, Smaw's claims will fall short under either the ADA or the Rehabilitation Act.
The specific grounds given by the VSP for Smaw's reclassification, that being a trooper requires the physical skills of being able to protect oneself from assault, and to pursue, confront, and capture offenders, appear to be founded in job-specific concerns. Given that the VSP have merely reclassified Smaw from a trooper to a dispatcher based on reasons rationally related to her ability to perform her duties, she will not be able to make this required showing that the VSP perceived her disability as foreclosing a broad range of employment opportunities.
There are no factual issues in dispute; all the parties agree that Smaw was demoted because of her weight, and thus the typical questions of motive in employment discrimination cases cannot save this case from summary judgment. The decision on Smaw's claims turns on the narrow question of the legal definition of terms within the statute, and the cases are uniform in their treatment. Smaw simply does not qualify for protection under either the Rehabilitation Act or the ADA. Even assuming that Smaw's obesity is a physical impairment, it is not the type of impairment which substantially limits her ability to pursue employment, and there is no indication that her employer perceived it as such. Therefore, Smaw cannot meet a required element of an employment discrimination claim under either the Rehabilitation Act or the ADA; she cannot prove that she is "handicapped" or "disabled" as required by the Rehabilitation Act and the ADA, respectively.
IV. CONCLUSION
For the foregoing reasons, the Court concludes that the movant's request for summary judgment must be honored. Therefore, the Court GRANTS Defendant's Motion for Summary Judgment and ORDERS the Clerk to enter judgment in favor of the Defendant.
NOTES
[1] Despite minor differences in language, the ADA covers the same individuals that are covered under the Rehabilitation Act, but expands the scope of employers covered. The Senate and House Committees explicitly recognized that "[t]he ADA incorporates many of the standards of discrimination set out in regulations implementing section 504 of the Rehabilitation Act." H.R.Rep. No. 485, 101st Cong., 2d Sess., pt. 2 at 66 (1990); S.Rep. No. 116, 101st Cong., 1st Sess. 2 (1989), U.S.Code Cong. & Admin.News 1990, 267, 304, 348-49.
[2] Congress selected the term "disability" for the ADA rather than "handicap" as used in the Rehabilitation Act, not because of any difference in meaning, but because the former term is less stigmatizing to disabled persons. S.Rep. No. 116, supra note 1.
| {
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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 09a0022p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
-
DENNIS PENNINGTON and SHARON
-
PENNINGTON, Co-Administrators of the
Estate of Stacey Pennington, -
Plaintiffs-Appellants, -
No. 07-6187
,
>
-
-
v.
-
-
STATE FARM MUTUAL AUTOMOBILE
-
Defendants-Appellees. -
INSURANCE COMPANY et al.,
-
N
Appeal from the United States District Court
for the Eastern District of Kentucky at Lexington.
No. 06-00239—Joseph M. Hood, District Judge.
Argued: July 29, 2008
Decided and Filed: January 21, 2009
*
Before: BATCHELDER and GILMAN, Circuit Judges; ZOUHARY, District Judge.
_________________
COUNSEL
ARGUED: Neil E. Duncliffe, DUNCLIFFE LAW OFFICE, Georgetown, Kentucky,
for Appellants. Michael Harris Baker, BAKER, KRIZ, JENKINS & PREWITT,
Lexington, Kentucky, for Appellees. ON BRIEF: Neil E. Duncliffe, DUNCLIFFE
LAW OFFICE, Georgetown, Kentucky, for Appellants. Michael Harris Baker, BAKER,
KRIZ, JENKINS & PREWITT, Lexington, Kentucky, for Appellees.
*
The Honorable Jack Zouhary, United States District Judge for the Northern District of Ohio,
sitting by designation.
1
No. 07-6187 Pennington et al. v. State Farm Mut. Page 2
Auto. Ins. Co. et al.
_________________
OPINION
_________________
RONALD LEE GILMAN, Circuit Judge. Stacey Pennington, the 17-year-old
daughter of Dennis and Sharon Pennington, was killed in an automobile accident in July
2004. The Penningtons had four drivers in their family, all of whom were insured by
State Farm Mutual Automobile Insurance Company. In addition to insuring their
vehicles, the Penningtons purchased underinsured motorist (UIM) coverage with limits
of $100,000 per person/$300,000 per accident (100/300 UIM coverage). UIM coverage
provides funds to an insured if the liability insurance held by the person responsible for
the accident is insufficient to compensate the insured for injuries incurred. At issue on
appeal is whether, under Kentucky law, an insurance company may charge a greater
UIM premium based on the number of drivers on a policy without being liable for
multiple UIM coverage units (i.e., “stacking”).
The district court determined that the Penningtons purchased only one unit of
100/300 UIM coverage for four drivers and were not entitled to stacking. This appeal
followed. A few weeks prior to oral argument, the Penningtons filed a motion asking
us to certify the legal question at issue to the Kentucky Supreme Court. For the reasons
set forth below, we DENY the motion to certify and AFFIRM the judgment of the
district court.
I. BACKGROUND
The following summary of the facts is drawn primarily from the district court
opinion. See Pennington v. State Farm Mut. Auto. Ins. Co., 2007 WL 2029501, at *1
(E.D. Ky. July 11, 2007). On July 10, 2004, Stacey Pennington was killed in an
automobile accident when Sidney Walker, who was driving his motorcycle while
intoxicated, disregarded a traffic signal and collided with her 1995 Ford Mustang.
Walker was insured by Progressive Insurance Company, which settled the wrongful-
death claim against him for its $50,000 bodily injury limit. Dennis and Sharon
No. 07-6187 Pennington et al. v. State Farm Mut. Page 3
Auto. Ins. Co. et al.
Pennington then asserted a claim on behalf of Stacey’s estate for UIM payments under
their State Farm policy.
In November 2004, the Penningtons and State Farm agreed to a Release and
Reservation of Rights to Other Claims. In exchange for $100,000, representing the
payment for one unit of UIM coverage, the Penningtons agreed to release State Farm
from all claims arising out of Stacey’s death with the exception of “any and all other
actual or potential claims against State Farm for payment of additional underinsured
motorist coverages under its automobile policies.” The Penningtons subsequently filed
this action in the Scott County, Kentucky, Circuit Court. They sought to recover two
additional units of UIM coverage, full personal injury protection coverage, and damages
for unfair claims practices/bad faith. State Farm removed the case to federal district
court on the basis of diversity of citizenship.
According to the record, the Penningtons’ State Farm policy covered five
automobiles and one motorcycle at the time of the accident. The Penningtons purchased
UIM coverage on only one of the vehicles—a 1999 Oldsmobile van—but the policy
covered the four drivers in the Pennington household at all times (i.e., the coverage was
personal to the drivers, not limited to the particular vehicle). According to the policy’s
declarations page, the Penningtons paid $90.72 for UIM coverage limits of $100,000 per
person/$300,000 per accident (“100/300”). At the time the Penningtons purchased the
policy, the one-driver premium for one unit of 100/300 UIM coverage was $33.60, the
two-driver rate was $60.48, and the three-plus driver rate was $90.72. Jay Hieb, Vice
President in Actuary with State Farm, testified by deposition that State Farm’s premium
was structured to charge more for the increased risk borne by the company as a result of
providing personal coverage to additional drivers. Although the Penningtons received
UIM coverage for four drivers, their premium was not simply a multiplier of coverage
(e.g., multiplying the base premium rate by the number of drivers). Rather, if a
multiplier of coverage had been used, the family would have been charged four times the
base premium for the four drivers in the household. The Penningtons’ UIM premium
was instead determined based on a rating factor of only 2.7. State Farm arrived at the
No. 07-6187 Pennington et al. v. State Farm Mut. Page 4
Auto. Ins. Co. et al.
2.7 multiplier after an actuary calculated the added risk associated with adding additional
drivers to a single UIM policy. The final price for UIM coverage paid by the
Penningtons was calculated by multiplying the one-driver rate of $33.60 by 2.7, the risk
multiplier that State Farm had determined was appropriate for households with three or
more drivers ($33.60 x 2.7 = $90.72).
Apparently viewing the material facts as undisputed, both parties moved for
summary judgment. State Farm’s motion was granted by the district court. The court
first noted that the “issue of whether an insurance company can charge greater UIM
premiums based on the number of insured [drivers] on a policy without being exposed
to stacking [] is a matter of first impression,” and then held that stacking was
inappropriate because the Penningtons had purchased only one unit of UIM coverage for
four drivers and had received added coverage for the additional cost. Pennington, 2007
WL 2029501, at *2-3. This is the only issue that the Penningtons raise on appeal. In
July 2008, after briefing was completed, the Penningtons filed a motion asking us to
certify to the Kentucky Supreme Court the question of whether, under Kentucky law, an
insurance company is subject to the stacking of UIM coverage if it charges a greater
UIM premium based on the number of insured drivers in a household.
II. ANALYSIS
A. Certification to the Kentucky Supreme Court
“The decision whether or not to utilize a certification procedure lies within the
sound discretion of the district court.” Transam. Ins. Co. v. Duro Bag Mfg. Co., 50 F.3d
370, 372 (6th Cir. 1995) (citing Lehman Bros. v Schein, 416 U.S. 386, 391 (1974)).
Certification “is most appropriate when the question is new and state law is unsettled.”
Id. (citing Lehnam Bros., 416 at 390-91). As the Tenth Circuit has noted, however, the
federal courts generally “will not trouble our sister state courts every time an arguably
unsettled question of state law comes across our desks. When we see a reasonably clear
and principled course, we will seek to follow it ourselves.” Pino v. United States, 507
F.3d 1233, 1236 (10th Cir. 2007).
No. 07-6187 Pennington et al. v. State Farm Mut. Page 5
Auto. Ins. Co. et al.
We first note that the Penningtons failed to request certification of the legal
question at issue when the case was before the district court. Likewise, on appeal, the
Penningtons failed to request certification until well after the parties had completed
briefing. Both this court and district court have therefore expended considerable time
and resources addressing the question currently before us. And although the legal
question here is one of first impression under Kentucky law, we believe that the relevant
caselaw addressing UIM premiums and stacking provides sufficient guidance to allow
us to make a clear and principled decision. Because we see no reason to trouble the
Kentucky Supreme Court under such circumstances, we deny the Penningtons’ motion
to certify and will address the merits of the case.
B. Standard of review
We review de novo the district court’s grant of summary judgment. Int’l Union
v. Cummins, Inc., 434 F.3d 478, 483 (6th Cir. 2006). Summary judgment is proper
where no genuine issue of material fact exists and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(c). In considering a motion for
summary judgment, the district court must construe the evidence and draw all reasonable
inferences in favor of the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986). The central issue is “whether the evidence
presents a sufficient disagreement to require submission to a jury or whether it is so
one-sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 251-52 (1986).
Because this case is before us based on diversity of citizenship, we must apply
the substantive law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
(1938). The parties agree that the insurance contract at issue here is governed by
Kentucky law. In applying Kentucky law, we “follow the decisions of the state’s highest
court when that court has addressed the relevant issue.” Talley v. State Farm Fire & Cas.
Co., 223 F.3d 323, 326 (6th Cir. 2000). If the issue has not been directly addressed, we
must “anticipate how the relevant state’s highest court would rule in the case and are
No. 07-6187 Pennington et al. v. State Farm Mut. Page 6
Auto. Ins. Co. et al.
bound by controlling decisions of that court.” In re Dow Corning Corp., 419 F.3d 543,
549 (6th Cir. 2005). “Intermediate state appellate courts’ decisions are also viewed as
persuasive unless it is shown that the state’s highest court would decide the issue
differently.” Id.
C. Kentucky insurance law
When interpreting insurance contracts, the Kentucky Supreme Court has held that
courts are to look at the “reasonable expectations” of the insured. Marcum v. Rice, 987
S.W.2d 789, 791 (Ky. 1999) (citation omitted). “The reasonable expectations of an
insured are generally determined on the basis of an objective analysis of separate policy
items and the premiums charged for each.” Id. When an insured “has bought and paid
for an item of insurance coverage, he may reasonably expect it to be provided.” Id.
In the 1990s, the Kentucky Supreme Court decided a number of cases addressing
UIM coverage and explained the circumstances in which an insured will be deemed to
have purchased multiple units of UIM coverage that may be stacked. The Court first
made clear in Hamilton v. Allstate Insurance Co., 789 S.W.2d 751, 753 (Ky. 1990), that
UIM coverage is different from typical liability insurance because UIM coverage is
“personal to the insured.” This means that UIM coverage follows an insured person as
opposed to any particular vehicle (i.e., the policy covers each insured as a driver, a
passenger, a pedestrian, or a bystander, whether inside or outside a vehicle).
In the related case of Chaffin v. Kentucky Farm Bureau Insurance Co., 789
S.W.2d 754, 756 (Ky. 1990), the Kentucky Supreme Court held that UIM premiums may
sometimes give rise to separate units of UIM coverage that may be “stacked” by the
insured. The Court reasoned that if an insurance company charges “separate premiums”
for multiple items of the “same” personal insurance, then an insured is generally entitled
to stack the policy and collect money for each unit of UIM coverage purchased. Id. In
other words, “the personal nature” of UIM coverage creates a “reasonable expectation
that payment of separate premiums results in separate coverages.” Allstate Ins. Co. v.
Dicke, 862 S.W.2d 327, 328 (Ky. 1993). If an insured has paid additional money
No. 07-6187 Pennington et al. v. State Farm Mut. Page 7
Auto. Ins. Co. et al.
without receiving additional coverage, stacking is necessary to prevent insurance
companies from depriving an insured of benefits that he or she has paid for. Id.
In Estate of Swartz v. Metropolitan Property & Casualty Co., 949 S.W.2d 72, 75
(Ky. Ct. App. 1997), the Kentucky Court of Appeals explained that when deciding
whether UIM coverage should be stacked, courts should undertake “an objective analysis
of separate policy items and the premiums charged for each.” The court noted that “the
deciding factor is not what the individual insured knew, read, or expected, but what he
or she actually paid for UIM coverage and the manner in which the insurance company
calculated and billed the premium.” Id. It also explained that “the payment of separate
premiums for multiple items of the same ‘personal’ insurance coverage [is what] gives
rise to the concept of stacking.” Id. at 76.
The UIM premium paid by the insureds on their multi-vehicle policy in Swartz
was almost twice that charged on a single-vehicle policy covering the same people. Id.
at 77. Swartz concluded that charging an additional premium for adding a vehicle to a
UIM policy gives rise to an additional unit of UIM coverage that is subject to stacking.
Id. at 76-77. Because UIM coverage is personal, and the Swartzes were covered
regardless of which vehicle they were driving, the couple had paid an additional
premium without receiving any additional coverage. Id. at 77. On that basis, the court
determined that the Swartzes’ policy was subject to stacking. Id. at 77-78.
The Swartz court went on to note that stacking would apply to per-vehicle UIM
policies even if the insurance company ostensibly charged a single premium for all the
vehicles covered. Id. at 77. Swartz therefore suggests that the determinative issue in
stacking cases is whether the insured paid multiple premiums for the same amount of
coverage, regardless of how the payment is characterized.
The Swartz opinion also makes clear that “an insurance company could, through
the calculation and adoption of an actuarially appropriate premium [i.e., based on its
estimate of risk], charge an insured a single UIM fee regardless of the number of
vehicles covered under the policy, entitling that insured to only one unit of UIM
No. 07-6187 Pennington et al. v. State Farm Mut. Page 8
Auto. Ins. Co. et al.
protection.” Id. (original emphasis omitted, new emphasis added). But the insurer there
(Metropolitan) did not base its premium on an actuarial calculation of risk. Instead, it
simply multiplied its base (single-vehicle) premium rate by the number of insured
vehicles. Swartz therefore stands for the proposition that this “simple multiplication”
approach necessitates stacking.
The state appellate court’s conclusion in Swartz that insurance companies may
account for risk when setting UIM premium rates was affirmed by the Kentucky
Supreme Court in Marcum, 987 S.W.2d at 790-91. There, the Court had before it an
insurance policy that charged a per-person premium of $14 for UIM coverage. Id. at
791. The price of $14 was “based upon the average number of vehicles (between two
and three) owned by all . . . policyholders in Kentucky.” Id. Later, the company
adjusted its premium structure on the basis of “an actuarial projection of future losses
that was based upon data from [the insurance company’s] loss experience for the
previous three years.” Id.
Although the insurance company in Marcum did not charge its insureds multiple
premiums for UIM coverage on different vehicles, it did allow them to purchase UIM
coverage for any one individual in an amount up to $1 million. Id. The Court found that
because the UIM premium was based on an assessment of the risk of loss incurred by
the insurance company and did not “vary according to the number of vehicles covered
by the policy,” stacking was inappropriate. Id.
D. The Penningtons’ UIM coverage
Against this background, the district court in the present case determined that the
Penningtons’ per-driver UIM premium did not give rise to stacking. The court first
found that “[t]he insurance company obviously charged ‘separate’ premiums in the guise
of one lump sum because it multiplied the premium based on the number of insured.”
Pennington, 2007 WL 2029501, at *3. Nonetheless, the court determined that stacking
was inappropriate in light of State Farm’s per-driver pricing structure. The court noted
that “[p]remiums calculated based on the number of insured differ from premiums
No. 07-6187 Pennington et al. v. State Farm Mut. Page 9
Auto. Ins. Co. et al.
calculated based on the number of vehicles because UIM coverage is personal to the
insured.” Id. In other words, the court reasoned that stacking is appropriate only where
an insured has paid additional money without receiving additional coverage. It therefore
determined that stacking was inappropriate in the present case because the Penningtons
received additional coverage for each driver in their household in exchange for the
higher premium.
As the Penningtons point out, however, the district court erred in describing how
the UIM coverage was allocated in a single accident. In its opinion, the district wrote
that
a $300,000 per accident coverage limit is meaningless if an individual is
insured up to only $100,000 per person. See infra n.1. Therefore, the
Penningtons (and other similarly-situated insureds) effectively received
greater per accident coverage in return for the increased premiums. If the
Penningtons were entitled to three separate units of 100/300 UIM
coverage, they would receive a windfall. To wit, if the entire family was
involved in one accident and was entitled to three separate units of
coverage, they would be entitled to recover up to $900,000, nine times
more than one individual with one unit of coverage could receive under
the $100,000 per person limitation. This would be a windfall because the
Pennington’s premium was only 2.7 times greater than what the
individual would have paid.
Pennington, 2007 WL 2029501, at *3 (emphasis added). In an earlier footnote,
referenced in the text above, the court stated that “the $300,000 per accident limit is
meaningless unless there are at least three drivers on the policy, since the coverage limits
are $100,000 per person.” Id. at *1 n.1.
Both sides agree that the district court was mistaken in its observation that the
$300,000 per accident limit is meaningless unless there are three insured drivers on the
policy. That observation was inaccurate because uninsured motorist coverage can
extend to individual insureds who are not covered as drivers. See, e.g., Midwestern
Indem. Co. v. Craig, 665 N.E.2d 712, 714 (Ohio Ct. App. 1995) (describing an uninsured
motorist policy that, by its terms, extended to “a person living in your household, related
to you by blood.” (emphasis in original)). So if, for example, an insured parent and his
No. 07-6187 Pennington et al. v. State Farm Mut. Page 10
Auto. Ins. Co. et al.
or her three nondriving minor children were all injured in one accident, the parent’s UIM
policy might define the children as “insureds” and cover all four people in the accident.
See id. In that situation, the $300,000 cap would be meaningful because the four injured
individuals could cumulatively collect no more than that amount from the UIM insurer.
The error in the district court’s understanding of how the per-accident limits applied to
the Penningtons, however, does not diminish the correctness of its ultimate
determination that the Penningtons received additional UIM coverage for their higher
premium.
To determine whether the Penningtons’ UIM policy is one that is subject to
stacking, as in Swartz, or one that is not subject to stacking, such as in Marcum, it is
necessary to understand the distinction between the two pricing methods that underlie
the determination of the premiums. And, to do that, one needs to first understand how
State Farm formerly priced its policies per vehicle (as in Swartz) and currently prices its
policies based on risk (as in Marcum). As explained in the deposition of Jay Hieb, Vice
President in Actuary with State Farm, the price for covering each vehicle under a per-
vehicle UIM policy was first determined based on the number of drivers in a household.
While a single driver paid $33.60 for one unit of UIM coverage for one vehicle, a
household of three or more drivers paid $90.72 for that one unit of coverage. To add an
additional vehicle to a UIM policy, the insurance company would then multiply the per-
vehicle rate by a set predetermined factor. That resulting additional charge was added
to the price of the insureds’ UIM coverage on a per-vehicle basis. This pricing structure
gave rise to stacking because the additional premiums that the insurance companies
charged on a per-vehicle basis provided no additional UIM coverage to the insured.
No Kentucky court that has addressed stacking under a per-vehicle policy,
however, has ever suggested that anything is wrong with an insurance company’s per-
vehicle pricing practice of charging a higher premium to households with multiple
drivers when setting the original rate for covering one vehicle (i.e. charging a family
with three or more drivers $90.72 for UIM coverage versus $33.60 for a single driver).
No. 07-6187 Pennington et al. v. State Farm Mut. Page 11
Auto. Ins. Co. et al.
What gave rise to stacking under the per-vehicle pricing structure was the practice of
effectively double-charging the insured for covering both drivers and vehicles.
Under the per-driver policy at issue here, however, the $90.72 paid by the
Penningtons as a higher premium extended UIM coverage to additional drivers. The
Penningtons therefore got what they paid for: namely, one unit of UIM coverage for four
drivers. Per-driver policies are therefore distinguishable from per-vehicle policies and
stacking is inappropriate.
Further evidence that the UIM policy in question does not expose the insurance
company to stacking can be found in State Farm’s pricing structure. As explained
earlier, the record demonstrates that State Farm’s premium was structured to charge
more for the increased risk borne by the company as a result of providing personal
coverage to additional drivers. Although the Penningtons received UIM coverage for
four drivers, their premium was not simply a multiplier of coverage (e.g., multiplying
the base premium rate by the number of drivers). Rather, if a multiplier of coverage had
been used, the family would have been charged four times the base premium for the four
drivers in the household. Instead, the Penningtons’ UIM premium was determined based
on a rating factor of only 2.7. State Farm arrived at the 2.7 multiplier after an actuary
calculated the increased risk associated with adding more drivers to a single UIM policy.
The practice of setting premiums based on an assessment of risk was expressly
approved by the Kentucky Supreme Court in Marcum v. Rice, 987 S.W.2d 789 (Ky.
1999). There the Court held that an insurance company may permissibly alter its
premium structure based on “an actuarial projection” of the company’s risk and potential
loss. Id. at 791. The Marcum decision made clear that insurance companies could use
risk-rating factors without being exposed to stacking because such factors are not a
multiplier of units of coverage, but rather allow insurance companies to calculate and
price the additional risk incurred by extending coverage to additional insureds. Id. In
the present case, the 2.7 multiplier used by State Farm to account for the additional risk
No. 07-6187 Pennington et al. v. State Farm Mut. Page 12
Auto. Ins. Co. et al.
presented by insuring a three-plus driver household for UIM coverage is akin to the kind
of rating factors explicitly approved of in Marcum.
The Penningtons make much of the Court’s statement in Marcum that the
premium in that case stayed the “same regardless of the number of vehicles or insureds
on a particular policy.” Id. (emphasis added). They argue that Marcum clearly
establishes that per-driver UIM policies require stacking. But as the Penningtons
conceded in their motion to certify the legal question in this case to the Kentucky
Supreme Court, the issue of whether UIM units of coverage may be stacked based on the
increased risk of additional drivers is a question of first impression under Kentucky law.
Marcum addressed only the question of whether stacking was appropriate under a per-
vehicle premium; any reference to a per-driver premium was nothing more than dicta.
The argument that the question before this court is foreclosed by Marcum therefore has
no merit.
Furthermore, the Marcum decision provides tacit approval of price increases for
UIM coverage based on the number of drivers. There, the insurance company charged
a single premium of $14 for one unit of UIM coverage on a per-person basis. Id. at 790.
The Court took no issue with the fact that the price for a unit of UIM coverage changed
based on the number of individuals added to the policy. Rather, it approved the pricing
structure on the basis that it “did not vary according to the number of vehicles covered
by the policy.” Id. at 791. Insurance companies are therefore permitted to account for
additional risk incurred by providing UIM coverage to additional drivers.
In the present case, by attesting to the fact that it had determined the price of the
UIM premium based on actuarial calculations of risk, State Farm established that it was
entitled to extra compensation for the risk it incurred by covering additional drivers on
the Penningtons’ UIM policy. The policy thereby satisfied Kentucky law, as declared
in Swartz and Marcum, and was not subject to stacking. These circumstances obviate
the merit of the Penningtons’ stacking argument.
No. 07-6187 Pennington et al. v. State Farm Mut. Page 13
Auto. Ins. Co. et al.
III. CONCLUSION
For all of the reasons set forth above, we DENY the Penningtons’ motion to
certify the question of law in this case to the Kentucky Supreme Court and AFFIRM the
judgment of the district court.
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BLD-292 NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 13-1795
___________
CRAYTON EVERTON REYNOLDS,
Appellant
v.
DEPARTMENT OF HOMELAND SECURITY CITIZENSHIP AND IMMIGRATION
SERVICES
____________________________________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No. 3:13-cv-00036)
District Judge: Honorable Kim R. Gibson
____________________________________
Submitted for Possible Dismissal Pursuant to 28 U.S.C. § 1915(e)(2)(B)
or Summary Action Pursuant to Third Circuit LAR 27.4 and I.O.P. 10.6
June 20, 2013
Before: SCIRICA, HARDIMAN and GREENAWAY, JR., Circuit Judges
(Opinion filed: July 3, 2013)
_________
OPINION
_________
PER CURIAM
Crayton Everton Reynolds, a citizen of Jamaica, is a federal prisoner at the
Moshannon Valley Correctional Center in Philipsburg, Pennsylvania.1 In 2013,
Reynolds filed a “Petition for U.S. Citizenship” pursuant to 8 U.S.C. § 1447(b), claiming
that the United States Citizenship and Immigration Services (USCIS) had failed to act on
his naturalization application (which was allegedly filed in 2006). He requested that the
District Court grant him United States citizenship, or, in the alternative, order USCIS to
process his application and/or grant him citizenship. The District Court denied his
requests and dismissed the petition.
Reynolds appeals. We have jurisdiction under 28 U.S.C. § 1291 and conduct
plenary review of decisions based on subject-matter jurisdiction and other questions of
law. See Nuveen Mun. Trust v. Withumsmith Brown, P.C., 692 F.3d 283, 293 (3d Cir.
2012) (citation omitted); see also Nicini v. Morra, 212 F.3d 798, 805 (3d Cir. 2000) (en
banc) (“We may affirm the District Court on any grounds supported by the record.”).
We agree with the District Court that it lacked subject-matter jurisdiction under 8
U.S.C. § 1447(b). By its plain language, the statute provides jurisdiction for the District
Court to consider citizenship matters “[i]f there is a failure to make a determination under
section 1446 of this title before the end of the 120-day period after the date on which the
examination is conducted.” 8 U.S.C. § 1447(b). In other words, § 1447(b) contains no
1
Reynolds pleaded guilty to drug-related crimes and received a five-year sentence. See
United States v. Reynolds, E.D. Pa. Crim. No. 2:09-cr-00823.
2
basis for action if the applicant has not yet been “examined” in connection with his
citizenship application. And the statute’s language “suggests that the examination is a
distinct, single event[:] the date on which the interview occurs.” Walji v. Gonzales, 500
F.3d 432, 436 (5th Cir. 2007); see also Duran-Pichardo v. Att’y Gen., 695 F.3d 282, 286
(3d Cir. 2012); Etape v. Chertoff, 497 F.3d 379, 386 (4th Cir. 2007) (“The 120-day
period under § 1447(b) does not even begin to run until after the initial naturalization
examination . . . .”); United States v. Hovsepian, 359 F.3d 1144, 1151 (9th Cir. 2004) (en
banc). Without the presence of an eligibility examination, the District Court lacks
jurisdiction under the statute. See Ajlani v. Chertoff, 545 F.3d 229, 237 (2d Cir. 2008),
distinguished on other grounds by Gonzalez v. Sec’y of Dep’t of Homeland Sec., 678
F.3d 254, 259 n.7 (3d Cir. 2012).
While Reynolds’s petition is somewhat vague, he strongly implied that he never
received an interview. See, e.g., Pet. 3–4 (explaining that his interview was cancelled in
2007 and that attempts to reschedule were for naught). Reynolds provided no contrary
information about an interview below. Nor has he done so on appeal, despite being
afforded time to do so (and despite being informed of this defect in his petition by the
District Court). Accordingly, we conclude that the District Court correctly dismissed the
application under § 1447(b) for lack of jurisdiction.
Alternatively, Reynolds’s petition can be read to invoke the District Court’s
mandamus authority (under 28 U.S.C.S. § 1361) or the provisions of the Administrative
Procedure Act (5 U.S.C. § 706(1)). See, e.g., Ali v. Frazier, 575 F. Supp. 2d 1084, 1090
3
(D. Minn. 2008). The District Court appears to have held that Reynolds’s status as a
prisoner defeated any nondiscretionary duty that might have been owed to him by the
USCIS. We need not reach that question, however, because Reynolds is currently in
removal proceedings, and “a district court cannot order the Attorney General to naturalize
an alien who is subject to pendent removal proceedings.” Gonzalez, 678 F.3d at 259; see
also 8 U.S.C. § 1429. The District Court could not order or hasten, whether via the
Administrative Procedure Act or mandamus, relief that the USCIS is statutorily barred
from granting.2
As this appeal presents no substantial question, we will summarily affirm the
judgment of the District Court.3 See Murray v. Bledsoe, 650 F.3d 246, 248 (3d Cir.
2011) (per curiam); see also 3d Cir. L.A.R. 27.4; 3d Cir. I.O.P. 10.6.
2
Removal proceedings may have formally commenced after the Magistrate Judge issued
his Report and Recommendation, but before the District Court adopted it. Thus, by the
time it issued its order, the District Court could not have granted relief.
3
Our decision is without prejudice to Reynolds’s ability to pursue a defensive claim of
citizenship in his removal proceedings or an affirmative application subject to the
statutory requirements and limitations. See Rios-Valenzuela v. Dep’t of Homeland Sec.,
506 F.3d 393, 396–97 & n.4 (5th Cir. 2007) (describing the different ways a person can
assert a claim of citizenship).
4
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Third District Court of Appeal
State of Florida
Opinion filed July 2, 2014.
Not final until disposition of timely filed motion for rehearing.
________________
No. 3D13-3175
Lower Tribunal No. 12-26826
________________
Nieve and Marisol Linares,
Appellants,
vs.
Universal Property and Casualty Insurance Company,
Appellee.
An Appeal from the Circuit Court for Miami-Dade County, Marc
Schumacher, Judge.
Diverse Legal Solutions, a Law Firm, and S. Antonio Jimenez, for
appellants.
Loughren and Doyle, P.A., and Richard B. Doyle, Jr., for appellee.
Before WELLS, LAGOA, and LOGUE, JJ.
LOGUE, J.
Nieve and Marisol Linares, the homeowners, appeal a final summary
judgment entered in favor of Universal Property and Casualty Insurance Company.
The trial court determined the homeowners’ breach of contract action was barred
by the five-year statute of limitations period. We reverse.
On October 24, 2005, the homeowners’ property sustained damage as a
result of Hurricane Wilma. The homeowners reported the damage to the insurance
company approximately two months later. On February 21, 2006, the insurance
company sent a letter to the homeowners stating that the damages fell below the
insurance policy’s deductible. Although the letter also stated that the insurance
company had concluded its investigation, the letter did not clearly or conclusively
deny the claim. Instead, the letter provided, “[i]f you discover any additional
damages or information regarding this matter, please forward it to our office for
consideration.”
Some three years later, in December 2009, the homeowners provided the
insurance company with the report of a private adjuster estimating the damages to
exceed the policy deductible by a factor of ten. The homeowners also demanded
that the insurance company participate in the appraisal process as provided for in
the policy. In response, the insurance company requested that the homeowners
participate in examinations under oath and provide sworn proof of loss. The
homeowners complied with the requests. On August 24, 2010, the insurance
2
company sent a letter to the homeowners denying the claim in plain and
unambiguous language: “the original assessment of damages relating to Hurricane
Wilma, when the claim was filed in 2005, was adequate and accurate, and the
recently presented claim must be denied.”
The homeowners brought suit on July 9, 2012, alleging one count of breach
of contract. The insurance company moved for summary judgment on the basis of
the statute of limitations. The trial court granted the motion. This appeal followed.
The applicable statute of limitations provides that an action for breach of a
property insurance contract must be filed within five years of the cause of action
accruing. See § 95.11(2)(b), Florida Statutes (2010). “A cause of action accrues
when the last element constituting the cause of action occurs.” § 95.031(1), Fla.
Stat. (2010). This generally occurs, in insurance contract actions, at the time the
insurance policy is breached. State Farm Mut. Auto. Ins. Co. v. Lee, 678 So. 2d
818, 821 (Fla. 1996).1
The insurance company argued, and the trial court agreed, the statute of
limitations began to run when the insurance company sent the February 2006 letter
stating that the claim was below the deductible. We disagree.
1 In 2011, the Legislature shortened the limitations period for property insurance
claims by specifying that such actions begin to run from the date of loss. §
95.11(2)(e), Fla. Stat. (2011). That amendment to section 95.11(2) does not apply
retroactively to this case. Rizo v. State Farm Fla. Ins. Co., 133 So. 3d 1114 n.1
(Fla. 3d DCA 2014) (citing Fla. Ins. Guar. Ass’n, Inc. v. Devon Neighborhood
Ass’n, Inc., 67 So. 3d 187 (Fla. 2011)).
3
The court in Oriole Gardens Condominiums, III v. Independence Casualty &
Surety Company, No. 11-60294-CIV, 2012 WL 718803 (S.D. Fla. March 6, 2012),
addressed a case with remarkably similar facts. The insured submitted a claim for
property damage sustained during Hurricane Wilma. Id. at *1. The insurer
responded with a letter, similar to the February 2006 letter in the present case,
stating the damages fell below the insurance policy’s deductible and inviting the
submission of additional information. Id.
Three years later, the insured submitted a sworn proof of loss for damages
exceeding the policy deductible. Id. The insurer requested that the insured
participate in examinations under oath and submit further document in support of
the claim. Id. The insured complied with the requests and demanded that the
insurer participate in the appraisal process as provided for in the policy. Id. The
insurer eventually sent a letter clearly denying the claim and stating it was standing
by its initial determination that the amount of loss fell below the policy’s
deductible. Id. at *2. Over five years after the insured received the initial letter
stating the damages fell below the policy’s deductible, but less than five years after
the second letter denying the claim, the insured brought a one-count complaint for
breach of contract against the insurer. Id.
The court held the cause of action was not barred by Florida’s five-year
statute of limitations period. Id. at *12. First, the initial letter informing the insured
4
that its claim fell below the policy’s deductible contained no language clearly
denying the claim. Id. at *11. Second, the insurer’s correspondence and actions
regarding the insured’s claim indicated that the claim was open and ongoing. Id.
We find this reasoning to be persuasive and applicable to the present case.
Reversed and remanded for proceedings consistent with this opinion.
5
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543 F.Supp. 256 (1982)
AUTOMOTIVE, PETROLEUM AND ALLIED INDUSTRIES EMPLOYEES UNION, LOCAL 618, etc., Plaintiffs,
v.
TOWN & COUNTRY FORD, INC., A Corporation, Defendant.
No. 81-1248C(2).
United States District Court, E. D. Missouri, E. D.
June 22, 1982.
Clyde E. Craig, Wiley, Craig, Armbruster, Wilburn & Mills, St. Louis, Mo., for plaintiffs.
John O. Harris, Michael E. Kaemmerer, Harris, Dowell, Fisher, McCarthy & Kaemmerer, Chesterfield, Mo., for defendant.
MEMORANDUM
NANGLE, District Judge.
Plaintiff Teamsters Local 618 brought this cause of action pursuant to 29 U.S.C. §§ 152 and 185. Plaintiff instituted this suit to compel the defendant Town & Country Ford, Inc. to submit the discharge grievance of former employee C. L. Craft to the grievance procedure provided in the Collective Bargaining Agreement negotiated by the parties. Plaintiff alleges that it is entitled both to a permanent injunction requiring the defendant to abide by the Collective Bargaining Agreement and to damages in the amount of the wages and fringe benefits that Craft has lost since the date of his discharge.
This case was tried to the Court sitting without a jury. The Court having considered the pleadings, the testimony of the witnesses, the documents in evidence and the stipulation of the parties, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law, as required by Rule 52 of the Federal Rules of Civil Procedure.
FINDINGS OF FACT
1. Plaintiff, Automotive Petroleum and Allied Industries Employees Union, Local 618, affiliated with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America is a voluntary unincorporated labor organization representing employees in an industry affecting commerce within the meaning of Sections 2(5), (6) and (7) of the National Labor Relations Act, as amended, 29 U.S.C. §§ 152(5), (6) and (7), and Section 301 of the Labor Management Relations Act of 1947, as amended, 29 U.S.C. § 185.
2. Defendant Town & Country Ford, Inc., is a corporation organized under the *257 law for the purpose of engaging in the business of retail sales, services, and repairs of automotive equipment with its office and principal place of business in Clayton, Missouri. The defendant is an employer engaged in a business affecting commerce within the meaning of Sections 2(2), (6) and (7) of the National Labor Relations Act, as amended, 29 U.S.C. §§ 152(2), (6) and (7), and Section 301 of the Labor Management Relations Act of 1947, as amended, 29 U.S.C. § 185.
3. At all material times, the Union was the sole and exclusive collective bargaining representative of the employees of the defendant Town & Country Ford, Inc. in an appropriate collective bargaining unit of which employee C. L. Craft was a member.
4. The Employer and the Union have negotiated and executed a valid Collective Bargaining Agreement for the period commencing on the 1st day of August, 1981 and terminating on the 31st day of July, 1984.
5. The Collective Bargaining Agreement negotiated by the Employer and the Union provides for a grievance procedure by which union members may make complaints concerning the discharge or the layoff of employees. Article III, Section 3 of the Collective Bargaining Agreement provides:
Complaints regarding the layoff or discharge of members of the Union will be handled promptly in accordance with the grievance procedure herein provided. Such complaints must be filed in writing with the Company within five (5) working days from the date of notice of such layoff or discharge. Failure to present such grievance within such period shall constitute a bar to further action. The management must review and render a decision on the case within five (5) working days after receipt of the same. In the event the employee is reinstated as the result of grievance procedure, he shall be reinstated according to the findings of the committee.
Article VI, Section 3, which sets out the grievance procedure, further provides that "[c]omplaints regarding layoff or discharge will be handled promptly in accordance with the grievance procedure and must be filed in writing with the Union, copy to the employer, within five (5) working days from notice of such layoff or discharge."
6. The Union's normal procedure under the Collective Bargaining Agreement was to mail a copy of any grievance to the Employer concerned.
7. Pursuant to this procedure the plaintiff by its agents or representatives sent by certified mail a grievance concerning C. L. Craft dated July 27, 1981 to Town & Country Ford, Inc.
8. Subsequently, to the July 27th grievance, on August 12, 1981, defendant Town & Country Ford, Inc. discharged C. L. Craft. The plaintiff failed by its agents or representatives to timely serve the defendant with a copy of the grievance concerning the discharge of C. L. Craft by certified mail or any type of mail. In fact, the defendant has never been served with a written copy of the discharge grievance of C. L. Craft.
9. Due to the plaintiff's failure to serve the defendant with a timely written copy of the discharge grievance of C. L. Craft, Elmer Jung as representative of Town & Country Ford, Inc. would not hear the August 13, 1981 "grievance" of C. L. Craft at the September 18, 1981 grievance meeting at the Automobile Dealer's Association facility.
10. The two grievances of C. L. Craft dated July 27, 1981 and August 13, 1981 are the only two written grievances that have been brought by members of the Teamsters Local 618 against Town & Country Ford, Inc. pursuant to their Collective Bargaining Agreement.
CONCLUSIONS OF LAW
This Court has jurisdiction of this case pursuant to Section 301 of the Labor Management Relations Act of 1947, as amended, 29 U.S.C. § 185. This statutory provision provides a court with the power to resolve disputes concerning the "violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce." The plaintiff claims that it is entitled to an order *258 compelling the defendant to submit the discharge grievance of C. L. Craft to the grievance procedure provided in the Collective Bargaining Agreement executed by the plaintiff Teamsters Local 618 and the defendant Town & Country Ford, Inc. Therefore, the question of law presented by this case is whether it is a violation of this Collective Bargaining Agreement to refuse to hear a grievance which was never filed in writing with the employer, in the manner specified by Articles III and VI of the Agreement.
Section 301 of the Labor Management Relations Act of 1947, as amended, 29 U.S.C. § 185 provides district courts with the jurisdiction to hear "[s]uits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce..." The Supreme Court has interpreted this language as representative of Congress' intent to assign to the court "the duty of determining whether the reluctant party has breached his promise to arbitrate. For arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrier & Gulf Navigation Company, 363 U.S. 574, 582, 80 S.Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960). Therefore, the judicial determination required by 29 U.S.C. § 185 is confined to the question whether the reluctant party was bound to arbitrate, as well as what issues it must arbitrate as determined by the contract executed by the parties. Atkinson v. Sinclair Refining Company, 370 U.S. 238, 241, 82 S.Ct. 1318, 1320, 8 L.Ed.2d 462 (1962). The reasoning or policy behind these decisions is based upon the assumption that the duty to arbitrate has contractual origins, and therefore a court may not compel a party to submit to arbitration before a judicial determination that the collective bargaining agreement creates the duty to arbitrate the particular dispute or grievance in question. John Wiley & Sons v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1963). It naturally follows that the parties to a collective bargaining agreement may exclude specific issues from arbitration by the appropriate contractual language. Local 189, United Rubber, Cork, Linoleum and Plastic Workers of America v. Interco, Inc., 415 F.2d 1208, 1211 (8th Cir. 1969).
In an attempt to determine whether the parties to a collective bargaining contract have excluded certain issues from the arbitration procedure courts have attempted to distinguish between substantial and procedural arbitrability. The former concept is concerned with the question of whether the parties have contractually agreed to submit the issue to arbitration. It is generally held that this issue must be decided by the courts because a party may not be compelled to arbitrate an issue unless there was contractual consent. International Union, United Auto Aerospace and Agricultural Implement Workers of America v. Folding Carrier Corporation, a Division of Unarco Industries, Inc., 422 F.2d 47, 49. In contrast, the concept of procedural arbitrability encompasses the question of whether a grievance procedure applies to a particular dispute and whether the parties have followed or excused the particular procedure.
As a general rule, the arbitrator is called upon to decide questions of procedural arbitrability. Id. Despite the use of these concepts by the courts, the Supreme Court has recognized that labor disputes cannot always be broken down into their substantive or procedural aspects; "questions concerning the procedural prerequisites to arbitration do not arise in a vacuum." John Wiley & Sons v. Livingston, 376 U.S. at 558, 84 S.Ct. at 918. Therefore, these concepts cannot be applied in an absolutist fashion, nor do the concepts necessarily provide a workable analysis. The essential inquiry when determining the arbitrability of an issue should be the intent of the parties to the contract.
Applying these principles to the present dispute, the first step in the analysis is to interpret the collective bargaining contract and ascertain the intent of the parties. In Article III, Section 3 of the agreement, the parties explicitly provide that complaints concerning layoff or discharge of members of the Union "be filed in writing with the Company within five (5) *259 working days from the date of notice of such layoff or discharge. Failure to present such grievance within such period shall constitute a bar to further action." It is the opinion of this Court that it is obvious from this provision of the contract that the parties did not intend to commit every dispute to grievance and arbitration procedures. The existence of this language negates the conclusion that the parties regarded the requirement of filing a grievance with the company as a mere procedural formality to be dispensed with unilaterally. See Philadelphia Printing Pressmen's Union v. International Paper Co., 648 F.2d 900 (3rd Cir. 1981). Therefore, requiring the defendant to submit the Craft discharge grievance to the grievance procedures provided in the agreement would be in contravention of the plain language of the agreement and the intent of the parties to the contract. Therefore, plaintiff's request for an order requiring the defendant to submit the discharge grievance to the grievance procedures described in the Collective Bargaining Agreement will be denied.
Accordingly, judgment will be entered for the defendant.
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COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER
Appellate case name: Catherine Murrah Molloy v. Kevin Alan Fletcher
Appellate case number: 01-19-00840-CV
Trial court case number: 2018-67151
Trial court: 257th District Court of Harris County
Appellee, Kevin Alan Fletcher, has filed a motion to dismiss Michael Jacobs as an
appellant. Appellee contends that appellant listed Jacobs as an appellant in her docketing
statement. Appellant did not respond to this motion.
Appellant’s docketing statement does not list Jacobs as an appellant but shows that
appellant Catherine Murrah Molloy served a copy of her docketing statement on Jacobs. Jacobs
did not file a notice of appeal, and therefore, he is not an appellant in this Court. See TEX. R. APP.
P. 26.1(a) (appeal is perfected by filing notice of appeal). A docketing statement is for
administrative purposes only. See TEX. R. APP. P. 32.4. Even if the filing of a docketing statement
by a person could constitute a bona fide attempt to appeal, Jacobs did not file a docketing
statement.
Because we determine that Jacobs is not an appellant and did not make a bona fide attempt
to appeal from the judgment, we dismiss this motion as moot.
It is so ORDERED.
Judge’s signature: ___Justice Peter Kelly_______________________
Acting individually Acting for the Court
Date: ___April 28, 2020_____
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NOT RECOMMENDED FOR PUBLICATION
File Name: 20a0036n.06
No. 19-3579
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
EDY ESTUARDO AROCHE-JUAREZ, )
FILED
Jan 22, 2020
)
DEBORAH S. HUNT, Clerk
Petitioner, )
)
v. ) ON PETITION FOR REVIEW
) FROM THE UNITED STATES
WILLIAM P. BARR, Attorney General, ) BOARD OF IMMIGRATION
) APPEALS
Respondent. )
)
Before: ROGERS, KETHLEDGE and LARSEN, Circuit Judges.
KETHLEDGE, Circuit Judge. In 2014, the Department of Homeland Security initiated
removal proceedings against petitioner Edy Estuardo Aroche-Juarez, a Guatemalan citizen who
was unlawfully present in the United States. During those proceedings, Aroche-Juarez admitted
that he was not authorized to be in the country, but he argued that he was eligible for relief under
8 U.S.C. § 1229b(b)(1). That provision grants the Attorney General discretion to cancel an alien’s
removal if, among other things, the removal would cause an “exceptional and extremely unusual
hardship” to the alien’s family members who were lawfully present in the United States.
An immigration judge determined that Aroche-Juarez’s removal would not cause that level
of extreme hardship to his two children, who are U.S. citizens. The IJ therefore denied relief. See
8 U.S.C. § 1229b(b)(1)(D). Aroche-Juarez appealed to the Board of Immigration Appeals, which
affirmed. This petition followed.
No. 19-3579, Aroche-Juarez v. Barr
Aroche-Juarez argues that the Board violated his right to due process because, he says, it
failed to “take as a whole” the effect that his removal would have on his children. When an alien
appeals the government’s refusal to cancel his removal, however, our jurisdiction is limited to
questions of law, which include constitutional claims. See Ettienne v. Holder, 659 F.3d 513, 517–
18 (6th Cir. 2011); see also 8 U.S.C. § 1252(a)(2)(D). Here, the IJ and the Board did specifically
consider each of the relevant factors and Aroche-Juarez’s evidence in support of them. The
substance of Aroche-Juarez’s argument, in fact, is that the IJ and the Board gave “little weight” to
certain hardship factors that he thinks are sufficient to warrant relief. Aroche-Juarez Br. at 57. He
therefore asks us to “second-guess[] the agency’s weighing of factors”—which is precisely the
sort of review that we lack jurisdiction to undertake. Ettienne, 659 F.3d at 518–19. That
conclusion remains the same even though Aroche-Juarez “styled [his] appeal” as a question of law.
Id. at 519.
The petition is dismissed for lack of jurisdiction.
-2-
| {
"pile_set_name": "FreeLaw"
} |
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/02/2018 09:12 AM CDT
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BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
Brick Development, appellant, v. CNBT II LLC
and The Cattle National Bank &
Trust Co., appellees.
___ N.W.2d ___
Filed October 12, 2018. No. S-17-865.
1. Summary Judgment. Summary judgment is proper when the pleadings
and evidence admitted at the hearing disclose no genuine issue regard
ing any material fact or the ultimate inferences that may be drawn from
those facts and that the moving party is entitled to judgment as a matter
of law.
2. Summary Judgment: Appeal and Error. In reviewing a summary
judgment, an appellate court views the evidence in the light most
favorable to the party against whom the judgment is granted and gives
such party the benefit of all reasonable inferences deducible from
the evidence.
3. Contracts: Real Estate: Leases. Neb. Rev. Stat. § 36-105 (Reissue
2016) requires a signature by the party to be charged by the writing.
4. Landlord and Tenant: Assignments. A lessee, during his occupancy
of the demised premises, holds both by privity of estate and of contract.
Assignment of the lease by the lessee divests him of this privity of estate
and transfers it to his assignee, who thereafter holds in privity of estate
with the lessor.
5. Landlord and Tenant: Assignments: Breach of Contract. Privity
of contract is not transmitted to the purchaser of the leasehold by an
assignment of the lease alone; for the express covenants of the lessee
contained in the lease will remain, during the continuance of the terms,
obligatory upon the lessee. These obligations extend to breaches of cov-
enant which have occurred after the assignment, and the lessee is not
relieved therefrom by the mere acceptance of rent by the lessor from the
person to whom such assignment has been made.
6. Landlord and Tenant: Leases. A landlord is not necessarily entitled
to enforce all of the terms of a lease merely because there is privity of
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estate; rather, such privity only gives the landlord the right to enforce
covenants that run with the land.
7. Contracts: Real Estate: Words and Phrases. Generally, the three
essential requirements for a covenant of any type to run with land are
(1) the grantor and the grantee intend that the covenant run with the
land, as determined from the instruments of record; (2) the covenant
must “touch and concern” the land with which it runs; and (3) the party
claiming the benefit of the covenant and the party who bears the burden
of the covenant must be in privity of estate.
8. Contracts: Real Estate: Landlord and Tenant: Liability. The cov-
enant to pay rent runs with the land, and a party in privity of estate with
the landlord is directly liable to him for the installments accruing while
that relation exists.
9. Contracts: Real Estate: Liability. Liability for covenants which run
with the land cease with cessation of possession.
10. Real Estate: Leases. An express assumption of a real property lease
requires specific affirmation by the assignee to bind itself to the lease
obligations.
11. Estoppel. The doctrine of equitable estoppel is applied to transactions in
which it is found that it would be unconscionable to permit a person to
maintain a position inconsistent with one in which he or she has acqui-
esced or of which he or she has accepted any benefit.
12. Contracts: Fraud: Estoppel. Only where a party to a written contract
within the statute of frauds induces another to waive some provision
upon which he is entitled to insist and thereby change his position to his
disadvantage because of that party’s inducement will the inducing party
be estopped to claim that such oral modification is invalid because not
in writing.
13. Contracts: Fraud. Sophisticated business entities are charged with
knowledge of the statute of frauds and cannot reasonably rely on oral
statements or conduct.
Appeal from the District Court for Lancaster County: Robert
R. Otte, Judge. Affirmed.
Randall L. Goyette and Phoebe L. Gydesen, of Baylor,
Evnen, Curtiss, Grimit & Witt, L.L.P, for appellant.
John M. Guthery, Haleigh B. Carlson, and Derek A.
Aldridge, of Perry, Guthery, Haase & Gessford, P.C., L.L.O.,
for appellees.
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Cite as 301 Neb. 279
Heavican, C.J., Miller-Lerman, Cassel, Funke, Papik, and
Freudenberg, JJ.
Cassel, J.
INTRODUCTION
An owner of one property seeks to bind a purchaser of
another property to the terms of a 50-year lease agreement
entered into between different parties. Because there is no priv-
ity of contract and the purchaser did not expressly assume the
lease, the statute of frauds bars the owner’s claim for breach
of contract. We further conclude that equitable estoppel does
not prevent the purchaser from raising the statute of frauds as
a defense and that there is no genuine issue of material fact.
We affirm.
BACKGROUND
Parking Lot Lease
In 1978, D. William Smith and Joyce Smith owned a park-
ing lot located on N Street in Lincoln, Nebraska. Two Twenty
Enterprises, L.L.C. (TTE), owned an office building located
on 17th Street west of the parking lot. The Smiths, as lessors,
entered into a lease agreement with TTE, as lessee, to lease the
parking lot to TTE (parking lot lease). The original term of the
lease was for 50 years.
One section of the parking lot lease allowed the lessee to
encumber the leasehold interest by mortgage or other proper
instrument. The lease provided in part:
The execution of any such mortgage or other instrument,
or the foreclosure thereof, or any sale thereunder, . . .
shall not be held as a violation of the terms or conditions
hereof, or as an assumption by the holder of such indebt-
edness of the obligations hereof. No such encumbrance,
foreclosure, conveyance, or exercise of right shall relieve
LESSEE of its liability hereunder.
The parking lot lease contained several other sections per-
tinent to this appeal. One section authorized assignment of
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the lease. A different section set forth a right of first refusal
in the event that either the lessor or the lessee decided to sell
its property or the lessee wished to transfer its interest in the
leasehold. And under a rent escalation clause, the rent was to
be adjusted in the 11th year and every 5th year thereafter.
Lease With DAS
On May 24, 2004, TTE entered into a lease with the
Nebraska Department of Administrative Services (DAS) on
behalf of a tenant. TTE agreed to lease space at the office
building and to provide parking stalls in the parking lot for
use by the tenant’s clients. The lease was set to end on August
30, 2015.
Purchase and Assignment
In 2006, Raasch Enterprises, Inc. (Raasch), purchased the
office building from TTE. The purchase was financed by a
loan from The Cattle National Bank & Trust Co. (the Bank),
and Raasch executed a deed of trust to secure the loan. The
deed of trust, signed only by Raasch, stated that Raasch
“irrevocably assigns, grants and conveys” to the Bank “all
the right, title and interest” in existing or future leases “for
the use and occupancy of the Property.” The deed of trust
identified the “Property” as the office building. The deed of
trust did not contain any language concerning the parking lot
parking property; nor did it identify the parking lot lease as
an encumbrance.
On the same day, TTE assigned the parking lot lease to
Raasch. Raasch accepted the assignment and assumed the
liabilities and duties to perform the terms and conditions of
the parking lot lease. The Smiths gave their written consent to
the assignment.
Default and Sale of
Office Building
After Raasch failed to timely pay indebtedness secured by
the deed of trust, the Bank issued a notice of default. As a
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result of Raasch’s default, a trustee’s sale was arranged. The
published notice of trustee’s sale stated that the property “will
be sold subject to any and all . . . leases, subleases, assign-
ments, amendments, and other rights and interests, if any,
which are specifically announced by the Trustee at the sale.”
According to the sale announcement, the real estate would be
subject to the parking lot lease, the 2006 assignment of lease,
and the lease between TTE and DAS.
CNBT II LLC (CNBT), whose sole member is the Bank,
purchased the office building at the trustee’s sale. In February
2012, the Bank filed a trustee’s deed conveying the office
building to CNBT. In conformity with the sale announcement,
the deed stated that the property transfer was “subject to” the
parking lot lease along with the 2006 assignment of the lease
and the lease between TTE and DAS. The deed further stated
that the transfer was subject to those leases “provided that the
Grantee is not assuming any liabilities, and shall not be liable,
for any act or omission of the landlord or any other party
under, without limitation, any of the Leases.” The president of
the Bank signed the deed. CNBT used the parking lot and paid
rent to the Smiths.
Brick Becomes Lessor
In December 2012, the Smiths conveyed to Brick
Development (Brick), via a quitclaim deed, the parking lot.
Brick is the successor in interest to the Smiths as lessor under
the parking lot lease.
Proposed Sale of Office Building
In 2013, CNBT received an offer to purchase the office
building. It gave notice to Brick of the offer “[p]ursuant to”
the right of first refusal interest contained in the parking lot
lease. The notice stated, “Per the lease you have 30-days
from the date of this notice to notify us of your intent to pur-
chase the Property on the same terms and conditions as the
Buyer . . . .”
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Brick notified CNBT of a concern. Brick stated that it had
“not been able to find any language in the Real Estate Purchase
Agreement which refers to the Buyer’s assumption of the exist-
ing lease on the parking lot . . . which language [Brick] would
have expected to see as a Buyer’s Condition of Closing.”
CNBT’s president responded: “I believe the terms of the previ-
ous lease on the parking lot carry over to . . . the new owner. If
you would like us to get a written agreement to this affect [sic]
as a condition of closing we can do this.”
Brick later sent a letter to CNBT along with a proposed
assignment of lease between CNBT and the buyer. The pro-
posed assignment had been signed by Brick, as lessor, giv-
ing its consent, and Brick requested that CNBT sign it. The
letter further stated, “In the event the proposed sale does not
close, then we will of course continue to look to CNBT . . .
as successor-in-interest from Raasch . . . to fulfill the obli-
gations of the [parking lot lease].” Ultimately, the sale did
not occur.
Other Communications Between
Brick and CNBT
In January 2014, Brick sent a letter to the Bank and CNBT
“to both reconcile unpaid previously scheduled monthly rental
increases and inform [them] of the new monthly lease pay-
ment for the five year period of September of 2013 through
September of 2018 for the parking lot.” The letter pointed out
that under the parking lot lease, the monthly lease payment was
scheduled to increase every 5 years beginning in 1988, but that
the increase to begin in September 2008 had not been imple-
mented. Brick also sent an email to counsel for CNBT and
the Bank. It stated, in part, “[W]e’d like to get something on
record that your client has assumed, or has accepted an assign-
ment of, the [parking lot lease].”
In February 2014, Brick filed with the register of deeds a
notice of lease and right of first refusal. The document con-
tained Brick’s signature only. The purpose of the notice was to
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confirm that the parking lot lease “is currently in full force and
effect, and has not been modified other than by conveyance of
the interest of the original Lessor to the current owners of the
Property, and from the original Lessee . . . to CNBT . . . , the
current Lessee and owner of [the office building].”
On August 7, 2015, CNBT sent Brick a notice of termination
and cancellation of the parking lot lease effective September
10. There is no dispute that CNBT paid rent to Brick through
September 10.
Pleadings
Brick sued CNBT and the Bank. Brick alleged that as of
February 2012, CNBT assumed the parking lot lease as les-
see. According to Brick, CNBT had paid rent and taxes, had
maintained the property, and had complied with the right of
first refusal terms of the lease. Brick claimed that CNBT’s
actions were “tantamount to and act as an assumption of the
[lease].” Brick also alleged that CNBT was equitably estopped
from asserting that it was not contractually bound as the les-
see because CNBT acquiesced to or accepted a benefit under
the lease.
CNBT responded that it did not receive an assignment or
transfer of interest by Raasch and that it did not assume the
parking lot lease. CNBT and the Bank both alleged that the
conveyance stated CNBT was not assuming any liabilities
under the lease. They also both alleged that Brick’s claims
were barred by the statute of frauds, including Neb. Rev. Stat.
§§ 36-105 and 36-202 (Reissue 2016). CNBT claimed that
its use of the parking lot property was on a month-to-month
basis from the time that it became the owner of the office
building.
CNBT, the Bank, and Brick each moved for summary
judgment.
District Court’s Decision
In resolving the motions for summary judgment, the district
court first considered whether the trustee’s deed to CNBT
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satisfied the statute of frauds. It noted that neither Brick nor
CNBT was a party to the trustee’s deed and that it was signed
by the Bank only. The court determined that “the documents do
not show CNBT’s assumption of the obligations of the [park-
ing lot lease].”
Next, the court addressed whether CNBT was estopped from
asserting the statute of frauds defense. The court found no
evidence that CNBT induced Brick to believe that CNBT had
assumed future obligations of the parking lot lease. It found
that Brick qualified as a sophisticated business entity and that
sophisticated business entities are charged with knowledge of
the statute of frauds. The court determined that any reliance
by Brick that CNBT had assumed the obligations under the
lease was unreasonable. The court concluded that CNBT’s lia-
bility ceased with its cessation of possession and that thus, it
was not liable for its obligations as a tenant beyond September
10, 2015. The court sustained CNBT’s and the Bank’s motions
for summary judgment.
Brick appealed, and we moved the case to our docket.1
ASSIGNMENTS OF ERROR
Brick assigns two errors. First, Brick alleges that the court
erred in denying its motion for summary judgment for several
reasons. Second, Brick claims that the court erred in granting
CNBT’s and the Bank’s motions for summary judgment.
STANDARD OF REVIEW
[1,2] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue
regarding any material fact or the ultimate inferences that
may be drawn from those facts and that the moving party is
entitled to judgment as a matter of law.2 In reviewing a sum-
mary judgment, an appellate court views the evidence in the
1
See Neb. Rev. Stat. § 24-1106 (Supp. 2017).
2
Jordan v. LSF8 Master Participation Trust, 300 Neb. 523, 915 N.W.2d 399
(2018).
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light most favorable to the party against whom the judgment
is granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.3
ANALYSIS
Statute of Frauds
Brick argues that the district court erred by concluding that
CNBT and the Bank did not assume the parking lot lease and
that the statute of frauds precluded the lease’s enforcement.
Under Nebraska’s statute of frauds, “Every contract for the
leasing for a longer period than one year . . . shall be void
unless the contract or some note or memorandum thereof be
in writing and signed by the party by whom the lease . . . is to
be made.”4
In this case, a relationship complying with the statute of
frauds developed a new wrinkle: The 50-year parking lot lease
between the Smiths and TTE complied with the statute of
frauds. So, too, did TTE’s assignment of the lease to Raasch.
And at the time of the assignment, TTE also conveyed the
office building to Raasch. Thus, for approximately 6 years,
Raasch owned the office building and, as assignee of the park-
ing lot lease, was entitled to use the nearby parking lot. The
statute of frauds problem crept in with Raasch’s executing the
deed of trust to secure the loan from the Bank and the subse-
quent trustee’s sale of the property.
[3] Section 36-105 requires a signature by the party to be
charged by the writing.5 Brick seeks to have CNBT bound by
the parking lot lease. But as Brick forthrightly conceded at
oral argument, there is no direct writing between Brick and
CNBT that is also signed by CNBT. And neither the deed of
trust nor the trustee’s deed is signed by CNBT.
3
Id.
4
§ 36-105.
5
See Walters v. Sporer, 298 Neb. 536, 905 N.W.2d 70 (2017).
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Brick directs us to the trustee’s deed, which stated that the
property was “subject to” the parking lot lease. However, the
deed of trust contains no reference to the parking lot property
or to the parking lot lease. A deed of trust is a mortgage.6 In
the context of mortgages, we have stated that a mortgage fore-
closure sale transfers to the purchaser every right and interest
of all parties to the foreclosure suit in the mortgaged property.7
It follows then that a trustee’s sale transfers to the purchaser
every right and interest of the parties to the property described
in the deed of trust. And because the deed of trust concerned
the office building only and not the parking lot, we reject
Brick’s contention that the parking lot lease fell within the
deed of trust’s clause where Raasch assigned to the Bank “all
the right, title and interest in . . . existing or future leases . . .
for the use and occupancy of the Property.”
We briefly digress to distinguish Walters v. Sporer.8 In that
case, the original grantor sought to enforce a right of first
refusal contained in a warranty deed. We stated that the right
of first refusal was within Neb. Rev. Stat. § 36-103 (Reissue
2016) of the statute of frauds, which required a signature by
the party to be charged by the writing. But we determined
that acceptance of the deed satisfied the statute of frauds. We
reasoned that “[t]o hold otherwise would be a misapplication
of the statute of frauds by inequitably allowing the [original
grantees] to retain the benefit of the deed while escaping
a clear statement of intent on its face.” 9 But in the instant
case, there is no such clear statement of intent. The deed of
trust did not specifically mention the parking lot lease. Thus,
there is no inequity in not binding the grantee to the terms of
the lease.
6
Fiske v. Mayhew, 90 Neb. 196, 133 N.W. 195 (1911).
7
See Clements v. Doak, 140 Neb. 265, 299 N.W. 505 (1941).
8
Walters v. Sporer, supra note 5.
9
Id. at 558, 905 N.W.2d at 86.
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In an attempt to circumvent the statute of frauds, Brick
focuses on CNBT’s actions. For over 3 years, CNBT made
monthly rent payments for use of the parking lot, including
rental increases called for in the parking lot lease. CNBT also
reaped the benefits of the 2004 lease that TTE entered into
with DAS and that expired on August 30, 2015. And CNBT
complied with the right of first refusal language contained in
the parking lot lease. Brick points to language in cases from
other jurisdictions stating that possession plus paying rent
gives rise to a presumption of an assignment sufficient to sat-
isfy the statute of frauds.10 But those jurisdictions also make
clear that an assignee will be liable for covenants that run with
the land only while in privity of estate.11
[4,5] A lease of real property implicates principles of both
privity of contract and privity of estate. A lessee, during his
occupancy of the demised premises, holds both by privity
of estate and of contract. Assignment of the lease by the les-
see divests him of this privity of estate and transfers it to his
assignee, who thereafter holds in privity of estate with the
lessor.12 Privity of contract, however, is not transmitted to
the purchaser of the leasehold by an assignment of the lease
alone; for the express covenants of the lessee contained in the
lease will remain, during the continuance of the terms, obliga-
tory upon the lessee. These obligations extend to breaches of
covenant which have occurred after the assignment, and the
lessee is not relieved therefrom by the mere acceptance of rent
by the lessor from the person to whom such assignment has
been made.13
10
See, Gateway I Group v. Park Ave. Physicians, 62 A.D.3d 141, 877 N.Y.S.2d
95 (2009); 8182 Maryland Associates v. Sheehan, 14 S.W.3d 576 (Mo.
2000); Abbott v. Bob’s U-Drive et al, 222 Or. 147, 352 P.2d 598 (1960).
11
See, Beltrone Marital Trust v. Lavelle and Finn, 22 A.D.3d 936, 803
N.Y.S.2d 211 (2005); 8182 Maryland Associates v. Sheehan, supra note
10; Abbott v. Bob’s U-Drive et al, supra note 10.
12
Mayer v. Dwiggins, 114 Neb. 184, 206 N.W. 744 (1925).
13
Id.
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[6-9] If privity of estate is present, a party is typically
liable only for covenants that run with the land. A landlord is
not necessarily entitled to enforce all of the terms of a lease
merely because there is privity of estate; rather, such privity
only gives the landlord the right to enforce covenants that run
with the land.14 Generally, the three essential requirements for
a covenant of any type to run with land are (1) the grantor and
the grantee intend that the covenant run with the land, as deter-
mined from the instruments of record; (2) the covenant must
“‘touch and concern’” the land with which it runs; and (3) the
party claiming the benefit of the covenant and the party who
bears the burden of the covenant must be in privity of estate.15
The covenant to pay rent runs with the land, and a party in
privity of estate with the landlord is directly liable to him for
the installments accruing while that relation exists.16 Liability
for covenants which run with the land cease with cessation
of possession.17
[10] Privity of contract does not run with the land. Privity
of contract is not transmitted to the purchaser of a leasehold.18
Thus, unless a new tenant assumes the lease, the tenant will
not be bound under privity of contract.19 An express assump-
tion of a real property lease requires specific affirmation by
the assignee to bind itself to the lease obligations.20 CNBT
has not specifically stated, orally or in writing, that it agreed
14
See Excel Willowbrook v. JP Morgan Chase Bank, 758 F.3d 592 (5th Cir.
2014).
15
Regency Homes Assn. v. Egermayer, 243 Neb. 286, 296, 498 N.W.2d 783,
789 (1993).
16
Hogg v. Reynolds, 61 Neb. 758, 86 N.W. 758 (1901).
17
See Kelly v. Tri-Cities Broadcasting, Inc., 147 Cal. App. 3d 666, 195 Cal.
Rptr. 303 (1983).
18
See Mayer v. Dwiggins, supra note 12.
19
See Kelly v. Tri-Cities Broadcasting, Inc., supra note 17.
20
Landlord v. Farmers & Merchants, 14 Cal. App. 5th 992, 222 Cal. Rptr. 3d
435 (2017).
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to be bound by the parking lot lease. Because CNBT did not
expressly assume the lease, it is not bound by the obligations
contained therein, other than covenants which run with the land
during CNBT’s occupancy. We conclude that paying rent while
in possession is not an exception to the requirement under the
statute of frauds that an assumption of a lease for a period
greater than 1 year must be in writing.
Equitable Estoppel
[11] Brick assigns that the district court erred in deter-
mining that equitable estoppel did not apply. It contends
that CNBT should be estopped from relying on the statute
of frauds as a defense. The doctrine of equitable estoppel
is applied to transactions in which it is found that it would
be unconscionable to permit a person to maintain a position
inconsistent with one in which he or she has acquiesced or of
which he or she has accepted any benefit.21 Brick contends
that CNBT both acquiesced to and received benefits as a les-
see under the parking lot lease agreement and should not now
be allowed to disclaim it.
[12,13] Equitable estoppel does not apply under the circum-
stances. Only where a party to a written contract within the
statute of frauds induces another to waive some provision upon
which he is entitled to insist and thereby change his position
to his disadvantage because of that party’s inducement will the
inducing party be estopped to claim that such oral modification
is invalid because not in writing.22 There is no evidence that
CNBT induced Brick to believe that CNBT assumed the long-
term obligations of the lease or that Brick changed its position
to its disadvantage in reliance upon such a belief. Further,
the district court found that Brick qualified as a sophisticated
21
Becher v. Becher, 299 Neb. 206, 908 N.W.2d 12 (2018).
22
Fast Ball Sports v. Metropolitan Entertainment, 21 Neb. App. 1, 835
N.W.2d 782 (2013). See Farmland Service Coop, Inc. v. Klein, 196 Neb.
538, 244 N.W.2d 86 (1976).
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business entity, and Brick does not challenge this finding on
appeal. Sophisticated business entities are charged with knowl-
edge of the statute of frauds and cannot reasonably rely on oral
statements or conduct.23 Because Brick was a sophisticated
business entity, CNBT is not estopped from raising the statute
of frauds as a defense.
No Genuine Issue
Finally, Brick argues that an issue of fact remained regard-
ing whether CNBT and the Bank intended to assume the
assignment of the parking lot lease by continuing to rent the
parking lot and complying with all provisions of the lease
agreement. But there is no genuine issue of material fact that
CNBT never signed anything expressly assuming the obliga-
tions of the parking lot lease. Because the statute of frauds bars
Brick’s claims, CNBT’s conduct and intent are irrelevant.
CONCLUSION
Because there is no privity of contract and CNBT did not
expressly assume the lease, Brick’s breach of contract claim is
barred by the statute of frauds. We further conclude that CNBT
is not estopped from raising the statute of frauds as a defense.
And because there was no genuine issue of material fact, the
district court did not err in granting summary judgment in
favor of CNBT. We affirm.
A ffirmed.
Stacy, J., not participating.
23
See 168th and Dodge, LP v. Rave Reviews Cinemas, LLC, 501 F.3d 945
(8th Cir. 2007).
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306 F.3d 1240
HUNTINGTON HOSPITAL, Long Island College Hospital, Nassau County Medical Center, New York Methodist Hospital, Northern Westchester Hospital Center, Phelps Memorial Hospital Center, St. Vincent's Hospital, Sound Shore Medical Center, f/k/a New Rochelle Hospital, Southampton Hospital, Staten Island Hospital, f/k/a Richmond Memorial Hospital, Plaintiffs-Appellants,v.Tommy THOMPSON, in his official capacity as Secretary of the United States Department of Health and Human Services, and Empire Blue Cross and Blue Shield, Defendants-Appellees.
Docket No. 01-6097 (L).
Docket No. 01-6095(CON).
United States Court of Appeals, Second Circuit.
Argued: February 20, 2002.
Decided: October 09, 2002.
1
Roy W. Breitenbach (Garfunkel Wild & Travis, Great Neck, NY) for Plaintiffs-Appellants.
2
Paul Kaufman, Assistant United States Attorney, (Alan Vinegrad, United States Attorney for the Eastern District of New York; Deborah B. Zwany and Kathleen A. Mahoney, Assistant United States Attorneys, of counsel) for Defendants-Appellees.
3
Before VAN GRAAFEILAND and KATZMANN, Circuit Judges, and KORMAN, District Judge.*
4
KORMAN, District Judge.
5
This appeal involves the application of an established principle of administrative law to an exceedingly complex legislative and administrative scheme for Medicare reimbursement of hospitals. Because the principle is easier to explain than the scheme, and because it will be helpful in following our explanation of the scheme, we begin first with a simple statement of the manner in which the principle applies in this case.
6
The law is clear that an administrative agency that promulgates inconsistent regulations interpreting an act of Congress "must supply a reasoned analysis." Motor Vehicle Mfrs. Ass'n of the U.S., Inc. v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29, 57, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (quoting Greater Boston Television Corp. v. F.C.C., 444 F.2d 841, 852 (D.C.Cir. 1970)). The Secretary of Health and Human Services ignored this rule here. More than that, this is not simply a case in which an administrative agency changed a regulation that it had previously adopted. Instead, it involves two separate regulations construing the same act of Congress in a totally inconsistent manner. Such administrative rulemaking cannot stand. As Judge Sentelle aptly observed: "The treatment of cases A and B, where the two cases are functionally indistinguishable, must be consistent. That is the very meaning of the arbitrary and capricious standard." Independent Petroleum Ass'n of America v. Babbitt, 92 F.3d 1248, 1260 (D.C.Cir.1996).
Background
7
Medicare, the federally funded health insurance program for the elderly and disabled, is governed by Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 to 1395ggg. See 42 U.S.C. §§ 1395c, 1395d, 1395j, 1395k (2000). This case concerns reimbursement under Part A of the Medicare program, which provides elderly and disabled persons with "basic protection against the costs of hospital, related post-hospital, home health services, and hospice care." 42 U.S.C. § 1395c.
8
Plaintiffs are New York hospitals that accepted assignment of payments from Medicare beneficiaries for in-patient hospital services. Because they were participants in a Medicare demonstration project, for which New York State received approval, they were exempted from Medicare reimbursement rules from January 1, 1983 until December 31, 1985. During this period, Congress made two significant changes in Medicare reimbursement rules, which up until then provided reimbursement through a retrospective reasonable cost system. Under that prevailing reasonable cost system, hospitals reported the total costs for which they sought reimbursement at the end of each year. They were entitled to be reimbursed for those costs that the Secretary determined were reasonable and necessary. 42 U.S.C. § 1395 f(b)(1)(1988). Congress concluded that this scheme did not provide hospitals with sufficient incentive to be efficient. See generally Rye Psychiatric Hosp. Ctr., Inc. v. Shalala, 52 F.3d 1163, 1166 (2d Cir.1995).
9
The first of the two changes relevant here was enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 and is commonly referred to as the TEFRA reimbursement scheme. Under this scheme, a base year would be selected from which the cost of providing hospital services would be calculated. Each subsequent year, the base would be adjusted by multiplying the figure for the base year by legislatively determined percentages that are intended to reflect primarily cost increases attributable to inflation. Rye Psychiatric, 52 F.3d at 1166 & n. 3.
10
In 1983, only one year later, Congress replaced the TEFRA scheme with a Prospective Payment System ("PPS"). The PPS marked a major departure in Medicare reimbursement policy. It established a number of Diagnostically Related Groups ("DRGs"), which describe particular classes of patients and treatments, and the amount Medicare will pay for each. DRG cost schedules are generated from anticipated national and regional average costs for the treatment of particular illnesses. 42 U.S.C. § 1395ww(d)(2)(D) (2000). This system differs substantially from TEFRA. It focuses on national and regional averages for the cost of treating particular illnesses and is not based on the cost to any particular hospital of treating particular DRG-classified illnesses. See Rye Psychiatric, 52 F.3d at 1167. "When a hospital's actual operating costs exceed its federally prescribed limit for the given DRG, the hospital must absorb the difference. Conversely, if a hospital's costs are lower than the federal rates, the hospital retains the difference." Sacred Heart Med. Ctr. v. Sullivan, 958 F.2d 537, 541 (3d Cir.1992).
11
TEFRA remained applicable only to those hospitals and units that were specifically exempted from PPS; it was also applicable to the formula Congress established for the four-year transitional period from TEFRA to PPS. The formula for reimbursement during the transition provided for a portion of the reimbursement to be calculated by using the TEFRA base year and a portion to be calculated by using the PPS scheme. The TEFRA portion decreased proportionally each year until it was phased out completely. See 42 U.S.C. § 1395ww(d)(1)(A)(i)-(ii)(2000).
12
The two categories of cases to which TEFRA continued to apply required the calculation of a base year that was subject to the inflation adjusted multiplier. The significance of an accurate determination of the base year was succinctly summarized by Judge Kaplan as follows:
13
The initial step in fixing a TEFRA hospital's entitlement to reimbursement, generally speaking, is to determine its total "allowable costs" for a base year. 42 C.F.R. § 413.40(b)(1) (1993); Tucson Medical Center [v. Sullivan], 947 F.2d [971] at 975 [(D.C.Cir.1991)]. Reimbursements in subsequent years, however, do not depend on total or allowable costs incurred in those subsequent years. Rather, a maximum permissible reimbursement, or "target amount," for each subsequent period is established by multiplying the figure for the base year by a legislatively determined percentage. 42 U.S.C. § 1395ww(b)(3) (1988); 42 C.F.R. § 413.40 (1993). If a hospital expends more than its target amount, or ceiling, it is reimbursed only up to the amount of the ceiling. If its costs are less than its ceiling, it is given a bonus payment of half the difference between its costs and the ceiling. 42 U.S.C. § 1395ww(b)(1)(A) (1988); 42 C.F.R. § 413.40 (1993); see generally Connecticut Hospital Association v. Weicker, 46 F.3d 211, 214-15 (2d Cir.1995) ... How fully a TEFRA hospital is reimbursed from year to year thus depends on (1) how representative its base period is of its actual total costs in the relevant year, and (2) how closely the Congressionally fixed percentage increase mirrors any increase in the hospital's costs. If a hospital's actual total costs equal its costs in the base period plus the statutory increase, it will be fully reimbursed. If a TEFRA hospital's actual total costs in any given year differ from the costs in the base period plus the statutory increase, however, its reimbursement may either fall short of or exceed its actual total costs.
14
Rye Psychiatric, 52 F.3d at 1166 (footnote omitted).
15
The determination of the base year for the TEFRA reimbursement scheme for New York hospitals is at the heart of the dispute here. The parties agree that Congress expressly provided that the same base year used when it adopted the TEFRA scheme, 42 U.S.C. § 1395ww(b)(3)(A), was also to be used to calculate the TEFRA base year component of the reasonable cost calculation for the PPS transition period, 42 U.S.C. § 1395ww(d)(1)(A). The Secretary, however, did not comply with this directive. Instead, the Secretary promulgated two regulations that differed in their definitions of the base year. Specifically, the applicable TEFRA statute, 42 U.S.C. § 1395ww(b)(3)(A)(i), specifies that the base year is the twelve-month cost reporting period preceding that for which the TEFRA scheme is in effect. Since TEFRA took effect in 1983, the base year could reasonably be construed as 1982, as it was for most hospitals in the United States. On the other hand, it would not have been altogether unreasonable to conclude that the first year TEFRA took effect as to the New York hospitals was 1986, because the Medicare reimbursement rules were not applicable to them until 1986. The base year would then have been 1985.
16
In 1986, the regulation defining the TEFRA base year, 42 C.F.R. § 405.463(b)(1) (1982) (renumbered as 42 C.F.R. § 413.40(b)(1), 51 Fed.Reg. 34790, 34790 (September 30, 1986)), was construed in part and amended in part to permit the latter result for those hospitals that were exempt from the PPS scheme. In explaining this action, the Secretary first described the existing regulation and then discussed the changes in interpretation and language that were being made:
17
Section 405.463(b)(1) provides that each hospital's initial rate-of-increase ceiling will be based on allowable inpatient operating costs per case incurred —
18
- In the 12-month cost reporting period immediately preceding the first cost reporting period subject to the [inflation-adjusted] ceiling; or
19
- For short reporting periods (fewer than 12 months), the first 12-month period ending after October 1, 1982.
20
Concern was expressed as to the determination of the base period for hospitals excluded from the prospective payment system in States in which a demonstration project (section 402 of the Social Security Amendments of 1967 or section 222 of the Social Security Amendments of 1972) was terminating. We are revising § 405.463(b)(1), as we had proposed in the NPRM (51 F[ed]. R[eg]. 19990) [(January 3, 1986)], to provide that each hospital's initial base period subject to the rate-of-increase ceiling is —
21
- The 12-month cost reporting period immediately preceding the first cost reporting period subject to the [inflation adjusted] ceiling (for example, the base period would be the cost reporting period beginning on or after January 1, 1985 and before January 1, 1986 for a hospital paid under a demonstration project which terminates December 31, 1985); or
22
- Where the immediately preceding reporting period is a short cost reporting period (that is, less than 12 months), the base period will be the 12-month cost reporting period beginning on or after the date the hospital's exemption from the [inflation-adjusted] ceiling ends (for example, the base period would be the 12-month period beginning on or after January 1, 1986 for a hospital paid under a demonstration project which terminates December 31, 1985, if that hospital's cost reporting period beginning on or after January 1, 1985 and before January 1, 1986 is a short period).
23
51 Fed.Reg. 31454, 31468 (Sept. 3, 1986). The regulation, which was subsequently amended to address issues that are not material here, 53 Fed.Reg. 38476, 38518 (Sept. 30, 1988), presently reads as follows:
24
Each hospital's target amount is based on its allowable net inpatient operating costs per case from the cost reporting period of at least 12 months immediately preceding the first cost reporting period subject to the rate-of-increase ceiling established under this section. If the immediately preceding cost reporting period is a short reporting period (fewer than 12 months), the first period of at least 12 months subsequent to that short period is the base period.
25
42 C.F.R. § 413.40(b)(1) (2001).
26
The Secretary did not at that time or subsequently make a comparable adjustment in the regulations in the second area where TEFRA remained applicable. This was the calculation of the reimbursement during the four-year transitional phase to a full PPS system that commenced on October 1, 1983. Because part of the reimbursement during the transition period was based on the TEFRA scheme, the selection of a base year had to be made for these purposes as well. The relevant regulation defines the base year for the transition period as "the hospital's Medicare Part A allowable inpatient operating costs... for the 12-month or longer cost reporting period ending on or after September 30, 1982 and before September 30, 1983." 42 C.F.R. § 412.71(a)(2001) (originally numbered 42 C.F.R. § 405.474(b)(1)(i) (1983), adopted 48 Fed. Reg. 39752, 39824 (Sept. 1, 1983)). Because hospitals often use dates for their fiscal years that do not correspond to the federal fiscal year, which is October 1 to September 30 of the following year, the regulation provided flexibility to begin the new reimbursement method at the start of each hospital's individual fiscal year rather than in the middle of a cost year. No additional flexibility, however, was shown in the selection of the base year for those New York hospitals that were transitioning into the PPS system. By using a 1982 base year rather than a 1985 base year in calculating the TEFRA part of the transitional reimbursement formula, the Secretary denied the New York hospitals the benefit of the increased actual and allowable costs that they had incurred in 1985. The beneficial relief withheld here was precisely the relief granted in 1986 to those hospitals who were exempted from the PPS system and continued to be reimbursed under the TEFRA system.
27
The adversely affected New York hospitals unsuccessfully challenged the 1982 base year for the PPS transitional period in the administrative proceedings to determine their reimbursement for services rendered from 1986 through 1988. The procedural history is described in the opinion of the district court judge who upheld the validity of 42 C.F.R. 412.71(a). Huntington Hosp. v. Shalala, 130 F.Supp.2d 376, 379 (E.D.N.Y.2001).
Discussion
28
The parties are in agreement as to the material aspects of the reimbursement schemes. The Secretary concedes that Congress mandated the application of the TEFRA base year when it prescribed the method for calculating the TEFRA portion of the PPS blended transitional reimbursement scheme. Brief of the Secretary at 12-13; 42 U.S.C. § 1395ww(d)(1)(A)(i). The only issue is whether the regulation promulgated to define the TEFRA base year for the PPS transitional period can be sustained as reasonable when it is wholly inconsistent with the definition of the TEFRA base year for hospitals exempted from the PPS payment scheme.
29
In addressing this issue, the district court held that, "[a]lthough less deference should be accorded to administrative interpretations that lack consistency, an agency is not locked into the first interpretation it embraces." Huntington Hosp., 130 F.Supp.2d at 384 (citing Sacred Heart, 958 F.2d at 544). This principle is correct as far as it goes. Nevertheless, it is subject to a significant caveat that the Secretary ignores in defending the inconsistent interpretations. While an agency is not locked into the first interpretation of a statute it embraces, it cannot simply adopt inconsistent positions without presenting "some reasoned analysis." Motor Vehicle Mfrs. Ass'n, 463 U.S. at 57, 103 S.Ct. 2856 (quoting Greater Boston Television, 444 F.2d at 852); see also Rust v. Sullivan, 500 U.S. 173, 187, 111 S.Ct. 1759, 114 L.Ed.2d 233 (1991); Texas Office of Public Utility Counsel v. F.C.C., 265 F.3d 313, 322 (5th Cir.2001), cert. denied sub nom. National Ass'n of State Utility Consumer Advocates v. F.C.C., ___ U.S. ___, 122 S.Ct. 1537, 152 L.Ed.2d 464 (2002); Skubel v. Fuoroli, 113 F.3d 330, 336 (2d Cir.1997) (holding that "[a]dministrative agencies must articulate a logical basis for their decisions.")(internal citations and quotation marks omitted). The Secretary offered no explanation for the inconsistent interpretation of the same statute reflected in two separate regulations.
30
Sacred Heart, on which the district court relied, does not require that such unexplained rulemaking be sustained as reasonable. While the Court of Appeals did hold that "an agency is not locked into the first interpretation [of a statute] it espouses," it adhered to the caveat that "the agency must offer a reasoned justification for the change in its interpretation of a statute or a modification of its policy." Sacred Heart, 958 F.2d at 544 (internal quotation omitted). In Sacred Heart, the Secretary of Health and Human Services argued that, although the statute may have previously been interpreted improperly, "its current construction is in full accord with the language of the PPS and the legislative intent that motivated its enactment." Id. at 545. The Third Circuit concluded correctly that "this surely constitutes a reasoned justification for the Secretary's departure from its prior interpretation." Id. (internal quotation omitted). This holding does not provide any support for the Secretary here.
31
While the Secretary argues that the PPS regulation is consistent with the language of the PPS, which incorporates the TEFRA base year, the Secretary cannot argue that this regulation is a correction of an earlier erroneous construction. In purely chronological terms, the Secretary's first interpretation of the base year was one which did not take into account the special problem faced by hospitals participating in a Medicare demonstration project. The regulation applicable to hospitals that were exempted from the PPS scheme and the regulation applicable to those hospitals phasing into the PPS system may have been worded differently, but they both utilized 1982 as the base year. See 42 C.F.R. § 405.474(b)(1)(i) (1983); 42 C.F.R. § 405.463(b)(1) (1983). In 1986, the Secretary changed the interpretation of the statute to adopt a base year that was sensitive to the needs of those New York hospitals that continued to be subject to the TEFRA reimbursement scheme. The Secretary, however, did not make a comparable change in the regulation fixing the TEFRA base year for those hospitals transitioning into the PPS system. This is not a case of locking an administrative agency into "the first interpretation it embraces." Rather it is a case in which an administrative agency has engaged in flatly inconsistent rulemaking without any explanation.
32
Moreover, while the selection of 1982 as the TEFRA base year for the transitional period reimbursement calculation may be consistent with the literal language of the statute, it is inconsistent with the expressed intent of Congress that the TEFRA base year for the PPS transition year period be the same as that used for calculating the base year for hospitals covered by TEFRA. We have held that an interpretation is reasonable if it "reflects a plausible construction of the plain language of the statute and does not otherwise conflict with Congress' expressed intent." Perry v. Dowling, 95 F.3d 231, 236 (2d Cir.1996) (internal citations and quotations omitted) (emphasis added). The challenged regulation thus fails for the additional reason that it "conflict[s] with Congress' expressed intent" that the base year used for calculating the TEFRA portion of reimbursement during the transition period from TEFRA to PPS be the same base year as that used for calculating reimbursement for hospitals still subject to TEFRA.
Conclusion
33
The judgment of the district court is reversed with directions to enter a judgment remanding the challenged payment determinations to the Secretary. The Secretary is directed to recalculate the challenged payment determinations using the same base year that the Secretary used to calculate reimbursement for hospitals that were exempted from the PPS scheme and that continue to be reimbursed under the TEFRA scheme.
Notes:
*
The Honorable Edward R. Korman, Chief Judge of the United States District Court for the Eastern District of New York, sitting by designation
34
VAN GRAAFEILAND, Senior Circuit Judge, dissenting:
35
While I am as sympathetic to the welfare of the plaintiff hospitals as are my colleagues, I am unwilling to stretch, as they do, to grant relief. Accordingly, I dissent.
36
Judge Spatt's analysis of the issues, reported at 130 F.Supp.2d. 376, is thorough, straightforward and correct, and I would be willing to adopt it as my own. The majority spend much of their opinion addressing the Secretary's actions, but very little of it discussing the merits of the district court's opinion. Indeed, they only criticize Judge Spatt for failing to require "some reasoned analysis" by the Secretary for her asserted lack of consistency.
37
In focusing so myopically on the Secretary's tangential fluctuations, my colleagues overlook the simple fact that 42 C.F.R. § 412.71(a) defines the "base year" in accordance with the plain meaning of 42 U.S.C. § 1395ww(b)(3)(a). As the district court stressed, the statute, which was passed in 1982, specifies "the first such reporting period for which this subsection is in effect," i.e., in the words of the regulation at issue, "the 12 month or longer cost reporting period ending on or after September 30, 1982 and before September 30, 1983." 412.71(a) is an obviously correct interpretation of section (b)(3)(a) in action, and there is no need for a more "reasoned analysis" to uphold it. That the Secretary may have later erroneously interpreted (b)(3)(a) in an inconsistent manner is irrelevant. That questionable subsequent regulation is not at issue.
38
The majority, in the end, presumptuously direct the Secretary to adopt their interpretation of the statute. Their dictate, with all due respect, seems to me the most arbitrary and capricious part of this case.
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